<PAGE>
As filed with the Securities and Exchange Commission on May 30, 1995
Registration No. 33-13352
==========================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________
POST-EFFECTIVE AMENDMENT NO. 7
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT
TRUSTS REGISTERED ON FORM N-8B-2
___________________
A. Exact Name of Trust:
NATIONAL MUNICIPAL TRUST,*
Discount Series 38
B. Name of depositor:
PRUDENTIAL SECURITIES INCORPORATED
C. Complete address of depositor's principal executive office:
One Seaport Plaza
199 Water Street
New York, New York 10292
D. Name and complete address of agent for service:
Copy to:
LEE B. SPENCER, JR., ESQ. KENNETH W. ORCE, ESQ.
PRUDENTIAL SECURITIES INCORPORATED CAHILL GORDON & REINDEL
One Seaport Plaza 80 Pine Street
199 Water Street New York, New York 10005
New York, New York 10292
It is proposed that this filing will become effective (check appropriate box.)
___
/ / immediately upon filing on (date) pursuant to paragraph (b);
___
/X / on May 31, 1995 pursuant to paragraph (b);
___
/__/ 60 days after filing pursuant to paragraph (a);
___
/__/ on (date) pursuant to paragraph (a) of Rule 485.
____________________
* Formerly, NATIONAL MUNICIPAL TRUST, SPECIAL TRUSTS, DISCOUNT
SERIES THIRTY-EIGHT.
<PAGE>
CUSIPS: 637015462R;637015470R;637015488R MAIL CODE A
Prospectus--PART A
NOTE: PART A of this Prospectus may not be distributed unless accompanied by
Part B.
- --------------------------------------------------------------------------------
NATIONAL MUNICIPAL TRUST
Discount Series 38
NMT
- --------------------------------------------------------------------------------
Offering: The initial public offering of Units in the Trust has been completed.
The Units offered hereby are issued and outstanding Units which have been
acquired by the Sponsor either by purchase from the Trustee of Units tendered
for redemption or in the secondary market.
The objective of the Trust is to provide interest income which in the opinion of
counsel is, under existing law, excludable from gross income for Federal income
tax purposes (except in certain instances depending on the Unit Holder), through
investment in a fixed portfolio of long-term debt obligations, selling at prices
which resulted in the portfolio as a whole being purchased at a deep discount.
There is, of course, no guarantee that the Trust's objective will be achieved.
The value of the Units of the Trust will fluctuate with the value of the
portfolio of underlying Securities. The Securities in the Trust are not insured
by The Prudential Insurance Company of America.
The Public Offering Price of the Units is based on the aggregate bid price of
the underlying bonds in the Trust's portfolio, divided by the number of
outstanding Units, plus a sales charge as set forth herein in ``Volume
Discount.'' Units are offered at the Public Offering Price plus accrued
interest. (See Part B--``Public Offering of Units.'')
Minimum Purchase: 1 Unit
- --------------------------------------------------------------------------------
Sponsor:
Prudential Securities (LOGO)
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
Please read and retain Prospectus dated
this Prospectus for future reference May 31, 1995
<PAGE>
NATIONAL MUNICIPAL TRUST
Discount Series 38
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Page
Summary................................................................................. Part A A-i
Summary of Essential Information........................................................ A-iv
Independent Auditors' Report............................................................ A-1
Statement of Financial Condition........................................................ A-2
Schedule of Portfolio Securities........................................................ A-8
The Trust............................................................................... Part B 1
Portfolio Summary................................................................. 2
Insurance on the Securities in the Portfolio of an Insured Trust--General......... 9
Insurance on the Securities in the Portfolio of an Insured Trust--Insured to 12
Maturity...........................................................................
Insurance on the Securities in the Portfolio of an Insured Trust--Insurers........ 13
Objectives and Securities Selection............................................... 15
The Units......................................................................... 16
Estimated Annual Income Per Unit.................................................. 16
Tax Status.............................................................................. 17
Insured Prudential Unit Trusts--Date of Deposits after April 2, 1986 and National
Municipal Trusts................................................................ 20
Public Offering of Units................................................................ 20
Public Offering Price............................................................. 20
Public Distribution............................................................... 21
Secondary Market.................................................................. 21
Profit of Sponsor................................................................. 22
Volume Discount................................................................... 22
Employee Discount................................................................. 23
Exchange Option......................................................................... 23
Tax Consequences.................................................................. 24
Reinvestment Program.................................................................... 24
Expenses and Charges.................................................................... 24
Fees.............................................................................. 24
Other Charges..................................................................... 25
Rights of Unit Holders.................................................................. 25
Certificates...................................................................... 25
Distribution of Interest and Principal............................................ 26
Reports and Records............................................................... 27
Redemption........................................................................ 28
Sponsor................................................................................. 29
Limitations on Liability.......................................................... 29
Responsibility.................................................................... 29
Resignation....................................................................... 30
Trustee................................................................................. 30
Limitations on Liability.......................................................... 30
Responsibility.................................................................... 31
Resignation....................................................................... 31
Evaluator............................................................................... 31
Limitations on Liability.......................................................... 31
Responsibility.................................................................... 31
Resignation....................................................................... 31
Amendment and Termination of the Indenture.............................................. 31
Amendment......................................................................... 31
Termination....................................................................... 32
Legal Opinions.......................................................................... 32
Auditors................................................................................ 32
Bond Ratings............................................................................ 33
</TABLE>
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
This Prospectus contains information concerning the Trust and the Sponsor, but
does not contain all of the information set forth in the registration statements
and exhibits relating thereto, which the Trust has filed with the Securities and
Exchange Commission, Washington, D.C., under the Securities Act of 1933 and the
Investment Company Act of 1940, and to which reference is hereby made.
- --------------------------------------------------------------------------------
No person is authorized to give any information or to make any representations
with respect to this investment company not contained herein; and any
information or representations not contained herein must not be relied upon as
having been authorized. This Prospectus does not constitute an offer to sell, or
a solicitation of an offer to buy, securities in any state to any person to whom
it is not lawful to make such offer in such state.
- --------------------------------------------------------------------------------
SUMMARY
NATIONAL MUNICIPAL TRUST, Discount Series 38 (the ``Trust'') is composed of
interest-bearing municipal bonds and contracts and funds for the purchase
thereof (the ``Securities''). Interest on these bonds, in the opinion of bond
counsel to the issuing governmental authorities is, under existing law,
excludable from gross income for Federal income tax purposes (except in certain
instances depending on the Unit Holder). The Securities in the Trust were, as of
the Date of Deposit, rated in the category of A or better by Standard & Poor's
Corporation or Moody's Investors Service. (See Part B--``Bond Ratings.'')
MONTHLY DISTRIBUTIONS of principal, premium, if any, and interest received
by the Trust will be made on or shortly after the twenty-fifth day of each month
to Unit Holders of record as of the immediately preceding Record Date. Unit
Holders have the option of receiving distributions on a quarterly or semiannual
basis. (See Part B--``Rights of Unit Holders--Distribution of Interest and
Principal''). Alternatively, Unit Holders may elect to have their distributions
reinvested in the Reinvestment Program of the Sponsor, as, if and when such
program is available to Unit Holders. (See Part B--``Reinvestment Program.'')
THE SPONSOR, although not obligated to do so, presently intends to maintain
a secondary market for the Units in the Trust based on the aggregate bid side
evaluation of the underlying Securities, as more fully described under Part
B--``Public Offering of Units--Secondary Market.'' If such a market is not
maintained, a Unit Holder may be able to dispose of his Units only through
redemption at prices based on the aggregate bid side evaluation of the
underlying Securities. (See Part B--``Rights of Unit
Holders--Redemption--Computation of Redemption Price per Unit.'')
On October 21, 1993, Prudential Securities Incorporated entered into an
omnibus settlement with the Securities and Exchange Commission (``SEC''), state
securities regulators (with the exception of the Texas Securities Commissioner
who joined the settlement on January 18, 1994) and the National Association of
Securities Dealers, Inc. (``NASD'') to resolve allegations that from 1980
through 1990 Prudential Securities Incorporated sold certain limited partnership
interests in violation of securities laws to persons for whom such securities
were not suitable and misrepresented the safety, potential returns and liquidity
of these investments. Without admitting or denying the allegations asserted
against it, Prudential Securities Incorporated consented to the entry of an SEC
Administrative Order which stated that the conduct of Prudential Securities
Incorporated violated the federal securities laws, directed Prudential
Securities Incorporated to cease and desist from violating the federal
securities laws, pay civil penalties, and adopt certain remedial measures to
address the violations.
Pursuant to the terms of the SEC settlement, Prudential Securities
Incorporated agreed to the imposition of a $10,000,000 civil penalty,
established a settlement fund in the amount of $330,000,000 and procedures to
resolve legitimate claims for compensatory damages by purchasers of the
partnership interests. Prudential Securities Incorporated has agreed to provide
additional funds, if necessary, for the purpose of the settlement fund. The
settlement with the state securities regulators included an agreement to pay a
penalty of $500,000 per jurisdiction. Prudential Securities Incorporated
consented to a censure and to the payment of a $5,000,000 fine in settling the
NASD action.
In October 1994, a criminal complaint was filed with the United States
Magistrate for the Southern District of New York alleging that Prudential
Securities Incorporated committed fraud in connection with the sale of certain
limited partnership interests in violation of federal securities laws. An
agreement was simultaneously filed to defer prosecution of these charges for a
period of three years from the signing of the agreement, provided that
Prudential Securities Incorporated complies with the terms of the agreement. If,
upon completion of the three year period, Prudential
A-i
<PAGE>
<PAGE>
Securities Incorporated has complied with the terms of the agreement, no
prosecution will be instituted by the United States for the offenses charged in
the complaint. If on the other hand, during the course of the three year period,
Prudential Securities Incorporated violates the terms of the agreement, the U.S.
Attorney can then elect to pursue these charges. Under the terms of the
agreement, Prudential Securities Incorporated agreed, among other things, to pay
an additional $330,000,000 into the fund established by the SEC to pay
restitution to investors who purchased certain Prudential Securities
Incorporated limited partnership interests.
SPECIAL CONSIDERATIONS. An investment in Units of the Trust should be made
with an understanding of the risks which an investment in fixed rate long-term
debt obligations may entail, including the risk that the value of the Units will
decline with increases in interest rates. The ratings of the Securities set
forth in Part A--``Schedule of Portfolio Securities'' may have declined due to,
among other factors, a decline in creditworthiness of the issuer of said
Securities.
Note: ``Tax Status'' in Part B is amended so that the third paragraph is
deleted and replaced with the following two paragraphs:
If the proceeds received by the Trust upon the sale or redemption of an
underlying Security exceed a Unit Holder's adjusted tax cost allocable to
the Security disposed of, that Unit Holder will realize a taxable gain to
the extent of such excess. Conversely, if the proceeds received by the Trust
upon the sale or redemption of an underlying Security are less than a Unit
Holder's adjusted tax cost allocable to the Security disposed of, that Unit
Holder will realize a loss for tax purposes to the extent of such
difference.
Any gain recognized on a sale or exchange of a Unit Holder's pro rata
interest in a Security, and not constituting a realization of accrued
``market discount,'' and any loss will be a capital gain or loss, except in
the case of a dealer or financial institution. Gain realized on the
disposition of the interest of a Unit Holder in a market discount Security
is treated as ordinary income to the extent the gain does not exceed the
accrued market discount. A Unit Holder has an interest in a market discount
Security in a case in which (i) the Unit Holder purchased a Unit after April
30, 1993, and (ii) the tax cost for the Unit Holder's pro rata interest in
the Security is less than the stated redemption price thereof at maturity
(or the issue price plus original issue discount accrued up to the
acquisition date, in the case of an original issue discount Security). If
the market discount is less than .25% of the stated redemption price of the
Security at maturity, the market discount shall be considered to be zero.
Any capital gain or loss arising from the disposition of a Unit Holder's pro
rata interest in a Security will be a long-term capital gain or loss if the
Unit Holder has held his or her Units and the Trust has held the Security
for more than one year. Under the Code, net capital gain (i.e., the excess
of net long-term capital gain over net short-term capital loss) of
individuals, estates and trusts is subject to a maximum nominal tax rate of
28%. Such net capital gain may, however, result in a disallowance of
itemized deductions and/or affect a personal exemption phase-out.
In addition, the sixth paragraph of ``Tax Status'' in Part B is amended to
delete such paragraph and replace it with the following two paragraphs:
Persons in receipt of Social Security benefits should be aware that a
portion of such Social Security benefits may be includible in gross income.
For a taxpayer whose modified adjusted gross income plus one-half of his or
her Social Security benefits does not exceed $34,000 ($44,000 for married
taxpayers filing a joint return), the includible amount is the lesser of (i)
one-half of the Social Security benefits or (ii) one-half of the amount by
which the sum of ``modified adjusted gross income'' plus one-half of the
Social Security benefits exceeds $25,000 in the case of unmarried taxpayers
and $32,000 in the case of married taxpayers filing a joint return. All
other taxpayers receiving Social Security benefits are required to include
up to 85% of their Social Security benefits in income.
Modified adjusted gross income is adjusted gross income determined
without regard to certain otherwise allowable deductions and exclusions from
gross income, plus tax exempt interest on municipal obligations including
interest on the Securities. To the extent that Social Security benefits are
includible in gross income they will be treated as any other item of gross
income and therefore may be taxable.
Note: ``Public Offering of Units--Volume Discount'' in Part B is replaced
with the following:
VOLUME DISCOUNT
The sales charge per Unit will be computed by multiplying the Evaluator's
determination of the bid side evaluation of each Security by a sales charge
determined in accordance with the table set forth below based upon the number of
years remaining to the maturity of each such Security, totalling all such
calculations, and dividing this total by the number of
A-ii
<PAGE>
<PAGE>
Units then outstanding. In calculating the date of maturity, a Security will be
considered to mature on its stated maturity date unless: (a) the Security has
been called for redemption or funds or securities have been placed in escrow to
redeem it on an earlier call date, in which case the call date will be deemed
the date on which such Security matures, or (b) the Security is subject to a
mandatory tender, in which case the mandatory tender date will be deemed the
date on which such Security matures.
<TABLE>
<CAPTION>
(As Percent of Bid (As Percent of Public
Time to Maturity Side Evaluation) Offering Price)
<S> <C> <C>
- ------------------------- ------------------ ---------------------
Less than six months..... 0% 0%
Six months to 1 year..... 0.756% 0.75%
Over 1 year to 2 years... 1.523% 1.50%
Over 2 years to 4 years.. 2.564% 2.50%
Over 4 years to 8 years.. 3.627% 3.50%
Over 8 years to 15
years.................... 4.712% 4.50%
Over 15 years............ 5.820% 5.50%
</TABLE>
The sales charge per Unit will be reduced pursuant to the following
graduated scale for sales to any person of at least 100 Units.
<TABLE>
<CAPTION>
Number of Units % of Sales Charge
<S> <C>
- ------------------------- ------------------
Less than 100 Units...... 100%
100-249 Units............ 90%
250-499 Units............ 80%
500-749 Units............ 75%
750-999 Units............ 70%
1,000 Units or More...... 65%
</TABLE>
The respective reduced sales charges as shown on each of the above charts
will apply to all purchases of Units in any fourteen day period by the same
person in the amounts stated herein, and for this purpose, purchases of Units of
a Trust will be aggregated with concurrent purchases of Units of any other trust
that may be offered by the Sponsor.
Units held in the name of the purchaser's spouse, in the name of a
purchaser's child under the age of 21 or in the name of an entity controlled by
the purchaser are deemed for the purposes hereof to be acquired by the
purchaser. The reduced sales charges are also applicable to a trustee or other
fiduciary purchasing Units for a single trust estate or single fiduciary
account.
Note: ``Rights of Unit Holders--Distribution of Interest and Principal'' in
Part B is amended so that the third sentence of the fifth paragraph of such
section reads, ``Record dates for monthly distributions will be the tenth day of
each month, record dates for quarterly distributions will be the tenth day of
January, April, July and October, and record dates for semi-annual distributions
will be the tenth day of January and July.'' The first sentence of the seventh
paragraph of such section is amended to read as follows, ``As of the tenth day
of each month, the Trustee will deduct from the Interest Account and, to the
extent funds are not sufficient therein, from the Principal Account, amounts
necessary to pay the expenses of the Trust. (See ``Expenses and Charges''.)''
``Auditors'' in Part B is amended so that ``Deloitte & Touche'' is replaced
with ``Deloitte & Touche LLP''.
``Evaluator'' in Part B is amended so that ``Kenny Information Systems,
Inc.'' is replaced with ``J.J. Kenny Co., Inc.''.
A-iii
<PAGE>
<PAGE>
SUMMARY OF ESSENTIAL INFORMATION
NATIONAL MUNICIPAL TRUST
DISCOUNT SERIES 38
As of April 17, 1995
<TABLE>
<S> <C> <C>
NUMBER OF UNITS.............................................................. 13,709
FACE AMOUNT OF SECURITIES.................................................... $10,140,000.00
FRACTIONAL UNDIVIDED INTEREST IN THE TRUST PER UNIT.......................... 1/13,709th
Public Offering Price(2)
Aggregate bid side evaluation of Securities in the Trust................... $ 7,152,799.93
--------------
Divided by 13,709 Units.................................................... $ 521.76
Plus sales charge of 2.988% of Public Offering Price (3.080% of net amount
invested in Securities)................................................. $ 16.07
--------------
Public Offering Price per Unit(1).......................................... $ 537.83
--------------
--------------
REDEMPTION PRICE AND SPONSOR'S REPURCHASE PRICE PER UNIT (based on bid side
evaluation of underlying Securities, $16.07 less than Public Offering Price
per Unit)(2)............................................................... $ 521.76
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
Monthly Quarterly Semi-Annual
Option Option Option
------- --------- -----------
<S> <C> <C> <C>
CALCULATION OF ESTIMATED NET ANNUAL INCOME PER UNIT
Annual Interest Income per Unit......................................... $43.07 $ 43.07 $ 43.07
Less: Estimated Annual Expense per Unit(4).............................. $(1.27) $ (1.00) $ (.81)
------- --------- -----------
Estimated Net Annual Income per Unit...................................... $41.80 $ 42.07 $ 42.26
------- --------- -----------
------- --------- -----------
Daily Rate of Estimated Income Accrual per Unit........................... $.1161 $ .1169 $ .1174
Estimated Current Return Based on Public Offering Price(3)(5)............. 7.77 % 7.82% 7.86%
Estimated Long-Term Return(5)............................................. 6.53 % 6.58% 6.61%
INTEREST DISTRIBUTION
Estimated Net Annual Income per Unit.................................... $41.80 $ 42.07 $ 42.26
Divided by 12 (Monthly Option).......................................... $ 3.48
Divided by 4 (Quarterly Option)................................................... $ 10.51
Divided by 2 (Semi-Annual Option).............................................................. $ 21.13
Sponsor's Annual Portfolio Supervision Fee: Maximum $0.25 per $1,000 face amount of
underlying Securities.
Evaluation Time................................ 3:30 P.M., New York time
</TABLE>
- ------------
(1) This Public Offering Price is computed as of April 17, 1995 and may vary
from the Public Offering Price on the date of this Prospectus or any subsequent
date.
(2) Exclusive of accrued interest which to April 24, 1995, the expected date
of settlement for the purchase of Units on April 17, 1995, was $10.19, $10.20
and $20.95 relating to the monthly, quarterly, and semi-annual options,
respectively.
(3) The estimated current return is increased for transactions entitled to a
reduced sales charge.
(4) Includes Trustee's fee, Sponsor' Portfolio supervision fee, estimated
expenses and Evaluator's fees.
(5) The Estimated Current Return is calculated by dividing the Estimated Net
Annual Income per Unit by the Public Offering Price per Unit. The Estimated Net
Annual Income per Unit will vary with changes in fees and expenses of the
Trustee and the Evaluator and with the principal prepayment, redemption,
maturity, exchange or sale of Securities while the Public Offering Price will
vary with changes in the offering price of the underlying Securities; therefore,
there is no assurance that the present Estimated Current Return indicated above
will be realized in the future. The Estimated Long-Term Return is calculated on
a pre-tax basis using a formula which takes into consideration, and factors in
the relative weightings of, the market values, yields (which takes into account
the amortization of premiums and the accretion of discounts) and estimated
retirements of all of the Securities in the Trust and takes into account the
expenses and sales charge associated with each Unit. Since the market values and
estimated retirements of the Securities and the expenses of the Trust will
change, there is no assurance that the present Estimated Long-Term Return as
indicated above will be realized in the future. The after-tax Estimated
Long-Term Return will be lower to the extent of any taxation on the disposition
of Securities. The Estimated Current Return and Estimated Long-Term Return are
expected to differ because the calculation of the Estimated Long-Term Return
reflects the estimated date and amount of principal returned while the Estimated
Current Return calculations include only Net Annual Interest Income and Public
Offering Price as of the above indicated calculation date of the Summary of
Essential Information.
A-iv
<PAGE>
<PAGE>
NATIONAL MUNICIPAL TRUST
DISCOUNT SERIES 38
<TABLE>
<S> <C>
Record Dates..................................... The tenth day of each month, the tenth day of January,
April, July and October and the tenth day of January and
July for the monthly, quarterly and semi-annual
payment options, respectively.
Distribution Dates............................... On or shortly after the twenty-fifth day of each month
to holders of record as of the immediately preceding
Record Date.
Minimum Principal Distribution................... No distribution need be made from the Principal Account
if the balance therein is less than $1.00 per Unit.
*Date of Deposit................................. December 15, 1987
Mandatory Termination Date....................... December 31, 2036
Minimum Value of Trust........................... Trust Agreement may be terminated if the value of the
Trust is less than $2,000,000 and must be terminated if
the value of the Trust is less than $1,000,000.
Trustee's Annual Fee............................. $0.95, $0.62 and $0.42 per $1,000 face amount of
Securities, respectively, under the monthly, quarterly
and semi-annual distribution plans.
Evaluator's Fee.................................. Maximum of $14.
</TABLE>
<TABLE>
<S> <C>
Percentage of Unit Holders required to consent in
order to terminate the Trust................... 100%
*** Number of Issues........................... 9
Number of Issuers.......................... 9
Number of States........................... 8
Number of Issues rated less than A......... 1
Number of Original Issue Discount
Securities................................. 1
Percentage of principal amount of
Securities in the Trust that are Original
Issue Discount Securities.................. 34.9%
Percentage of principal amount of
Securities in the Trust that are Zero
Coupon bonds............................... 34.9%
** Percentage of Securities in the Trust that
are Original Issue Discount Securities
based on bid price......................... 2.2%
** Percentage of Securities in the Trust that
are Zero Coupon bonds based on bid price... 2.2%
** Percentage of Housing Facilities
Securities................................. 2.2%
** Percentage of Health and Hospital
Facilities Securities...................... 20.8%
** Percentage of Power and Electric Facilities
Securities................................. 21.6%
** Percentage of Pollution Facilities
Securities................................. 0%
** Percentage of Airport Facilities
Securities................................. 14.4%
** Percentage of Transportation Facilities
Securities................................. 14.4%
** Percentage of Miscellaneous Securities..... 26.6%
</TABLE>
- ------------
* The Date of Deposit is the date on which the Indenture was signed and the
deposit of Securities with the Trustee was made.
** Percentage indicated is the percentage of the aggregate bid price of
Securities in the Trust on April 17, 1995.
*** All of the issues are payable from the income of specific projects or
authorities and are not supported by the issuer's power to levy taxes.
A-v
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Based on Bid Side Valuation:
Face amount of bonds at a Discount from
Par........................................ 34.9%
Face amount of bonds at Par................ 0%
Face amount of bonds at a Premium over
Par........................................ 65.1%
** Portfolio Rating: Standard & Poor's: AAA: 38.2%; A: 32.8%;
Moody's: A: 0%; Baa: 14.4%;
Non-rated: 14.6%.
</TABLE>
- ------------
** Percentage indicated is the percentage of the aggregate bid price of
Securities in the Trust on April 17, 1995.
A-vi
<PAGE>
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
THE UNIT HOLDERS, SPONSOR AND TRUSTEE
NATIONAL MUNICIPAL TRUST
DISCOUNT SERIES 38
We have audited the statement of financial condition and schedule of
portfolio securities of the National Municipal Trust Discount Series 38 as
of January 31, 1995, and the related statements of operations and changes in
net assets for each of the three years in the period then ended. These
financial statements are the responsibility of the Trustee (see Footnote
(a)(1)). Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as
of January 31, 1995 as shown in the statement of financial condition and
schedule of portfolio securities by correspondence with United States Trust
Company of New York, the Trustee. An audit also includes assessing the
accounting principles used and the significant estimates made by the
Trustee, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the National Municipal
Trust Discount Series 38 as of January 31, 1995, and the results of its
operations and the changes in its net assets for each of the three years in
the period then ended in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
May 8, 1995
New York, New York
</AUDIT-REPORT>
A-1
<PAGE>
STATEMENT OF FINANCIAL CONDITION
NATIONAL MUNICIPAL TRUST
DISCOUNT SERIES 38
January 31, 1995
<TABLE>
TRUST PROPERTY
<S> <C>
Investments in municipal bonds at market value (amortized cost
$6,998,231) (Note (a) and Schedule of Portfolio Securities
Notes (4) and (5)) $7,182,556
Accrued interest receivable 143,787
Cash 738,510
Total 8,064,853
LIABILITIES AND NET ASSETS
Less Liabilities:
Payable for Units redeemed 49,332
Accrued Trust fees and expenses 23,186
Total liabilities 72,518
Net Assets:
Balance applicable to 13,791 Units of fractional
undivided interest outstanding (Note (c)):
Capital, plus net unrealized market
appreciation of $184,325 $7,182,556
Undistributed principal and net investment
income (Note (b)) 809,779
Net assets $7,992,335
See notes to financial statements
</TABLE>
A-2
<PAGE>
<TABLE>
STATEMENTS OF OPERATIONS
NATIONAL MUNICIPAL TRUST
DISCOUNT SERIES 38
<CAPTION>
For the years ended January 31,
1995 1994 1993
<S> <C> <C> <C>
Investment income - interest $746,303 $920,317 $930,318
Less Expenses:
Trust fees and expenses 16,018 29,359 29,032
Total expenses 16,018 29,359 29,032
Investment income - net 730,285 890,958 901,286
Net loss on investments:
Realized loss on securities sold or redeemed (202,997) (87,420) (4,036)
Net unrealized market depreciation (328,802) (118,562) (72,671)
Net loss on investments (531,799) (205,982) (76,707)
Net increase in net assets resulting from
operations $198,486 $684,976 $824,579
See notes to financial statements
</TABLE>
A-3
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
NATIONAL MUNICIPAL TRUST
DISCOUNT SERIES 38
<CAPTION>
For the years ended January 31,
1995 1994 1993
<S> <C> <C> <C>
Operations:
Investment income - net $ 730,285 $ 890,958 $ 901,286
Realized loss on securities sold or
redeemed (202,997) (87,420) (4,036)
Net unrealized market depreciation (328,802) (118,562) (72,671)
Net increase in net assets
resulting from operations 198,486 684,976 824,579
Less Distributions to Unit Holders:
Principal (927,797) (1,568,024) (80,088)
Investment income - net (748,281) (862,158) (871,474)
Total distributions (1,676,078) (2,430,182) (951,562)
Less Capital Share Transactions:
Redemption of 89 Units (50,870) - -
Accrued interest on redemption (1,013) - -
Total capital share transactions (51,883) - -
Net decrease in net assets (1,529,475) (1,745,206) (126,983)
Net assets:
Beginning of year 9,521,810 11,267,016 11,393,999
End of year (including undistributed
principal and net investment income
of $809,779, $174,535 and $185,481,
respectively) $7,992,335 $ 9,521,810 $11,267,016
See notes to financial statements
</TABLE>
A-4
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NATIONAL MUNICIPAL TRUST
DISCOUNT SERIES 38
January 31, 1995
(a) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Trust is registered under the Investment Company Act of 1940 as a
Unit Investment Trust. The following is a summary of the significant
accounting policies of the Trust:
(1) Basis of Presentation
The Trustee has custody of and responsibility for all accounting
and financial books, records, financial statements and related
data of the Trust and is responsible for establishing and
maintaining a system of internal controls directly related to, and
designed to provide reasonable assurance as to the integrity and
reliability of, financial reporting of the Trust. The Trustee is
also responsible for all estimates and accruals reflected in the
Trust's financial statements. The Evaluator determines the price
for each underlying Security included in the Trust's Schedule of
Portfolio Securities on the basis set forth in Part B of this
Prospectus, "Public Offering of Units - Public Offering Price".
Under the Securities Act of 1933 ("the Act"), as amended, the
Sponsor is deemed to be an issuer of the Trust Units. As such,
the Sponsor has the responsibility of an issuer under the Act with
respect to financial statements of each Trust included in the
Registration Statement under the Act and amendments thereto.
(2) Investments
Investments are stated at market value as determined by the
Evaluator based on the bid side evaluations on the last day of
trading during the period, except that value on the date of
deposit (December 15, 1987) represents the cost of investments to
the Trust based on the offering side evaluations as of the date of
deposit.
(3) Income Taxes
The Trust is not an association taxable as a corporation for
Federal income tax purposes; accordingly, no provision is required
for such taxes.
(4) Expenses
The Trust pays an annual Trustee's fee, estimated expenses,
Evaluator's fees, and an annual Sponsor's portfolio supervision
fee, and may incur additional charges as explained under "Expenses
and Charges" in Part B of this Prospectus.
(b) DISTRIBUTIONS
Interest received by the Trust is distributed to the Unit Holders on or
shortly after the twenty-fifth day of the month, either monthly,
quarterly (January, April, July and October) or semiannually (January
and July), at the Unit Holders' election, after deducting applicable
expenses. Receipts other than interest are distributed as explained in
"Rights of Unit Holders - Distribution of Interest and Principal" in
Part B of this Prospectus.
A-5
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NATIONAL MUNICIPAL TRUST
DISCOUNT SERIES 38
January 31, 1995
(c) ORIGINAL COST TO INVESTORS
The original cost to investors represents the aggregate initial public
offering price as of the date of deposit (December 15, 1987) exclusive
of accrued interest.
<TABLE>
A reconciliation of the original cost of Units to investors to the net
amount applicable to investors as of January 31, 1995 follows:
<S> <C>
Original cost to investors $11,045,341
Less: Gross underwriting commissions (sales charge) (552,267)
Net cost to investors 10,493,074
Cost of securities sold or redeemed (3,682,148)
Net unrealized market appreciation 184,325
Accumulated interest accretion 187,305
Net amount applicable to investors $ 7,182,556
</TABLE>
(d) OTHER INFORMATION
<TABLE>
Selected data for a Unit of the Trust:
<CAPTION>
Net Assets as of January 31, 1995 represented by:
Monthly Quarterly Semiannual
distribution distribution distribution
plan plan plan
<S> <C> <C> <C>
Net Asset Value $579.53 $579.54 $579.55
Units outstanding 10,688 1,391 1,712
Distributions of net investment income and principal per Unit:
<CAPTION>
For the years ended January 31,
1995 1994 1993
<S> <C> <C> <C>
Net investment income:
Monthly Distribution Plan $53.80 $ 60.78 $62.57
Quarterly Distribution Plan $54.07 $ 66.62 $63.25
Semiannual Distribution Plan $54.33 $ 66.93 $63.57
Principal $66.86 $112.97 $ 5.77
</TABLE>
A-6
<PAGE>
<TABLE>
SCHEDULE OF PORTFOLIO SECURITIES
NATIONAL MUNICIPAL TRUST
DISCOUNT SERIES 38
January 31, 1995
<CAPTION>
Port- Optional
folio Rating Face Coupon Maturity Sinking Fund Refunding Market
No. Title of Securities <F1> Amount Rate Date Redemptions<F3> Redemptions<F2> Value<F4><F5>
<C> <S> <C> <C> <C> <C> <C> <C> <C>
1. City and County of Denver,
Colorado, Airport System
Revenue Bonds, Series 1985. Baa<F6> $ 1,010,000 8.875% 08/01/15 08/01/12@100 02/28/[email protected] $1,027,725
2. City of San Antonio, Texas,
Electric and Gas Systems
Revenue Improvement Bonds,
Series 1985. <F7> AAA 500,000 9.000 02/01/14 02/01/10@100 02/01/[email protected] 525,650
3. City of Colorado Springs,
Colorado, Hospital Revenue
Bonds, Series 1987. A- 400,000 8.750 12/15/07 12/15/01@100 12/15/97@102 440,676
4. Michigan State Hospital
Finance Authority, Hospital
Revenue Refunding Bonds, (St.
John Hospital), Series 1985.
<F7> <F8> 1,000,000 9.125 12/01/02 12/01/01@100 12/01/95@102 1,050,290
5. Housing Opportunities Commis-
sion of Montgomery County
(Montgomery County, Mary-
land), Multi-Family Housing
Revenue Bonds, Series 1984. AAA 3,540,000 0.000 07/01/26 07/01/[email protected] NONE 154,486
6. North Carolina Municipal
Power Agency Number 1, Cataw-
ba Electric Revenue Bonds,
Series 1985. <F7> AAA 1,000,000 9.625 01/01/19 07/01/14@100 01/01/96@103 1,068,300
7. Palm Beach County (Florida)
Solid Waste Authority Revenue
Bonds, Series 1984. A 930,000 8.750 07/01/10 07/01/05@100 07/01/97@103 1,019,141
8. Indiana Bond Bank, Special
Program Bonds, Series 1987. A 800,000 8.700 02/01/13 02/01/08@100 02/01/97@102 859,208
9. Metropolitan Atlanta Rapid
Transit Authority (Georgia),
Sales Tax Revenue Bonds,
Series 1985. <F7> Aaa<F6> 1,000,000 8.625 07/01/10 07/01/07@100 07/01/95@102 1,037,080
$10,180,000 $7,182,556
See notes to schedule of portfolio securities
</TABLE>
A-7
<PAGE>
NOTES TO SCHEDULE OF PORTFOLIO SECURITIES
NATIONAL MUNICIPAL TRUST
DISCOUNT SERIES 38
January 31, 1995
<F1> All ratings are provided by Standard & Poor's Corporation, unless
otherwise indicated. A brief description of applicable Security
ratings is given under "Bond Ratings" in Part B of this
Prospectus.
<F2> There is shown under this heading the date on which each issue of
Securities is redeemable by the operation of optional call
provisions and the redemption price for that date; unless
otherwise indicated, each issue continues to be redeemable at
declining prices thereafter but not below par. Securities listed
as non-callable, as well as Securities listed as callable, may
also be redeemable at par under certain circumstances from special
redemption payments.
<F3> There is shown under this heading the date on which an issue of
Securities is subject to scheduled sinking fund redemption and the
redemption price on that date.
<F4> The market value of the Securities as of January 31, 1995 was
determined by the Evaluator on the basis of bid side evaluations
for the Securities at such date.
<F5> At January 31, 1995, the net unrealized market appreciation of all
Securities was comprised of the following:
Gross unrealized market appreciation $212,761
Gross unrealized market depreciation (28,436)
Net unrealized market appreciation $184,325
The amortized cost of the Securities for Federal income tax
purposes was $6,998,231 at January 31, 1995.
<F6> Moody's Investors Service, Inc. rating.
<F7> The Issuers of Portfolio Nos. 2, 4, 6 and 9 have indicated that
they will refund these Securities on their respective optional
redemption dates.
<F8> This Security, although unrated, has, in the opinion of the
Sponsor, credit characteristics comparable to investment grade
Securities.
A-8
<PAGE>
<PAGE>
PROSPECTUS--PART B: MAIL CODE A
Note that Part B of this Prospectus may not be distributed unless accompanied by
Part A.
NATIONAL MUNICIPAL TRUST AND PRUDENTIAL UNIT TRUSTS
THE TRUST
Each National Municipal Trust is one of a series of similar but separate
unit investment trusts created under one of the following names: National
Municipal Trust (hereinafter referred to as the National Municipal Trust,
National Series); National Municipal Trust, Insured Series; National Municipal
Trust, Discount Series; National Municipal Trust, Multistate Series; National
Municipal Trust, Intermediate Series and National Municipal Trust, Selected
Credit Trust Series. Each of the Prudential Unit Trusts is one of a series of
similar but separate unit investment trusts created under one of the following
names: Prudential Unit Trusts, Insured Tax-Exempt Series; Prudential Unit
Trusts, Insured Tax-Exempt Selected Term Series; Prudential Unit Trusts, Insured
Multistate Tax-Exempt Series; Prudential Unit Trusts, Tax-Exempt Series;
Prudential Unit Trusts, Multistate Tax-Exempt Series and Prudential Unit Trusts,
Tax-Exempt Selected Term Series. The Securities in the Tax-Exempt Series,
Multistate Tax-Exempt Series and Tax-Exempt Selected Term Series are not
insured. Collectively, each National Municipal Trust and each of the Prudential
Unit Trusts are referred to as ``National Municipal Trust'' or ``Prudential Unit
Trusts'', respectively (individually each National Municipal Trust and each of
the Prudential Unit Trusts may be referred to as the ``Trust'' or the ``Insured
Trust'' or the ``State Trust'' in the case of each trust comprising a Multistate
Series or the ``Trusts'' or the ``Insured Trusts'' or the ``State Trusts'' as
the context requires).
Each Trust is designated by a different series number and was created
under the laws of the State of New York pursuant to a Trust Indenture and
Agreement and, for certain trusts, a related Reference Trust Agreement
(collectively, the ``Indenture'')* dated the Date of Deposit among Prudential
Securities Incorporated (the ``Sponsor''), United States Trust Company of New
York (the ``Trustee'') and Kenny Information Systems, Inc. (the ``Evaluator'').
On the Date of Deposit, certain securities were deposited, Deposited Units, if
any, and contracts and funds for the purchase of such securities (collectively,
the ``Securities''). The Trustee then immediately delivered to the Sponsor
certificates of beneficial interest (the ``Certificates'') representing the
units (the ``Units'') comprising the entire ownership of each Trust which Units
the Sponsor offered and is offering for sale to the public. The holders of Units
(the ``Unit Holders'' or ``Unit Holder'', as the context requires) will have the
right to have their Units redeemed at a price based on the aggregate bid side
evaluation of the Securities (the ``Redemption Price'') if they cannot be sold
in the secondary market which the Sponsor, although not obligated to do so,
proposes to maintain. The Sponsor, Prudential Securities Incorporated, is a
wholly-owned, indirect subsidiary of The Prudential Insurance Company of
America. Each Trust has a mandatory termination date set forth under Part
A--``Summary of Essential Information'', but may be terminated substantially
prior thereto upon the occurrence of certain events, including a reduction in
the value of the Trust below the dollar amount set forth under Part A--``Summary
of Essential Information''.
The initial public offering of Units in each Trust has been completed. The
Units offered hereby are issued and outstanding Units which have been acquired
by the Sponsor either by purchase from the Trustee of Units tendered for
redemption or in the secondary market.
The objectives of each Trust are the providing of interest income which,
in the opinion of counsel is, under existing law excludable from gross income
for Federal income tax purposes (except in certain instances depending on the
Unit Holder) through investment in a fixed portfolio of Securities (the
``Portfolio'') consisting primarily of long-term (intermediate term in the case
of National Municipal Trust, National Series, and certain Prudential Unit Trusts
or selected term in the case of the Prudential Unit Trusts Insured Tax-Exempt
Selected Term Series and the Tax-Exempt Selected Term Series) state, municipal
and public authority (``Issuers'') debt obligations, and (except for National
Municipal Trust Selected Credit Trust Series) the conservation of capital. In
addition, in the opinion of counsel, interest income of each State Trust is
exempt from state and any local income taxes to individual Unit Holders resident
in the State for which such State Trust is named. As of the Date of Deposit, the
Securities in the Portfolio of each Trust were rated BBB or better (A or better
or in the case of certain Trusts) (or in the case of a certain National
Municipal Trust, B or better) by Standard & Poor's Corporation or Moody's
Investors Service or had comparable credit characteristics in the opinion of the
Prudential Investment Corporation, the Sponsor's affiliate. There is, of course,
no guarantee that a
- ------------------
*Reference is hereby made to said Indenture and any statements contained herein
are qualified in their entirety by the provisions of said Indenture.
1
<PAGE>
<PAGE>
Trust's objectives will be achieved. Subsequent to the Date of Deposit, a
Security in a Trust may cease to be rated or the rating assigned may be reduced
below the minimum requirements of such Trust for the acquisition of Securities.
(See ``Schedule of Portfolio Securities'' in Part A for the ratings of the
Securities on a recent date). Although such events may be considered by the
Sponsor in determining whether to direct the Trustee to dispose of a Security
(see ``Sponsor-Responsibility'', herein), such events do not automatically
require the elimination of such Security from the Portfolio. An investment in a
Trust should be made with an understanding of the risks which an investment in
fixed rate long-term or intermediate or selected term debt obligations may
entail, including the risk that the value of the Units will decline with
increases in interest rates. The life of each of the selected term Securities in
the Prudential Unit Trusts Insured Tax-Exempt Selected Term or the Tax-Exempt
Selected Term Series will not be less than 3 years and not more than 15 years.
On a recent date, a Unit of a Trust represented the fractional undivided
interest in the Securities and net income of such Trust set forth under Part
A--``Summary of Essential Information'' in the ratio of 1 Unit for each
approximately $1,000 face amount of Securities initially deposited in such Trust
except as otherwise indicated in Part A. If any Units are redeemed by the
Trustee, the face amount of Securities in a Trust will be reduced by an amount
allocable to redeemed Units and the fractional undivided interest in such Trust
represented by each unredeemed Unit will be increased. Units will remain
outstanding until redeemed upon tender to the Trustee by any Unit Holder (which
may include the Sponsor) or until the termination of a Trust pursuant to the
Indenture.
On a recent date, certain of the Securities in the Portfolio of a Trust
were valued at prices in excess of prices at which such Securities may be
redeemed in the future. (See Part A--``Schedule of Portfolio Securities'' for
information relating to the particular series described therein.) To the extent
that a Security is redeemed (or sold) at a price which is less than the
valuation of such Security on the date a Unit Holder acquired his Units, the
proceeds distributable to such Unit Holder in respect of such redemption (or
sale) will be less than that portion of the purchase price for such Units which
was attributable to such Security (representing a loss of capital to such Unit
Holder). Such proceeds, however, may be more or less than the valuation of such
Security at the time of such redemption (or sale). Similarly, on a recent date,
certain of the Securities in a Trust may be valued at a price in excess of their
face value at maturity (i.e., such Securities were valued at a premium above
par). (See Part A--``Schedule of Portfolio Securities'' for information relating
to the particular series described therein.) The proceeds distributable to a
Unit Holder upon the maturity of a Security which was valued at a premium on the
date he acquired his Units will be less than that portion of the purchase price
for such Units which was attributable to such Security (representing a loss of
capital to such Unit Holder).
The Portfolio of a Trust may consist of Securities, the current market
value of some of which were below face value on the date of this Prospectus. A
likely reason for the market value of such Securities being less than face value
at maturity is that the interest coupons of such Securities are at lower rates
than the current market interest rate for comparably rated debt securities, even
though at the time of the issuance of such Securities the interest coupons
thereon represented then prevailing interest rates on comparably rated debt
securities then newly issued. The current yields (coupon interest income as a
percentage of market price, ignoring any original issue discount) of such
Securities are lower than the current yields (computed on the same basis) of
comparably rated debt securities of similar type newly issued at currently
prevailing interest rates. Securities selling at market discounts tend to
increase in market value as they approach maturity when the principal amount is
payable. Investors should be aware that any gain attributable to market discount
will be taxable but need not be realized until maturity, redemption or sale of
the Securities or Units. (See ``Tax Status''.) The current yield of such
discounted securities carrying the same coupon interest rate and which are
otherwise comparable tends to be higher for securities with longer periods of
maturity than it is for those with shorter periods to maturity because the
market value of such securities with a longer period to maturity tends to be
less than the market value of such a bond with a shorter period to maturity. If
currently prevailing interest rates for newly issued and otherwise comparable
securities increase, the market discount of previously issued bonds will become
deeper and if such currently prevailing interest rates for newly issued
comparable securities decline, the market discount of previously issued
securities will be reduced, other things being equal. Market discount
attributable to interest rate changes does not indicate a lack of market
confidence in the issue.
Portfolio Summary
The Securities in the Portfolio of a Trust consist of Securities issued by
or on behalf of states, counties, municipalities or other political subdivisions
of the United States or issued by or on behalf of the Commonwealth of Puerto
Rico or possessions of the United States, or municipalities or other political
subdivisions thereof. The interest on such Securities is, with certain
exceptions, or upon their delivery will be, in each instance, in the opinion of
bond counsel to the Issuer of such Securities or by ruling of the Internal
Revenue Service, exempt from Federal income taxes
2
<PAGE>
<PAGE>
under existing law (but may be subject to state and local taxation). In the case
of State Trusts, the Securities are obligations of the specified state or
counties, municipalities, authorities or political subdivisions thereof or of
the Commonwealth of Puerto Rico or possessions of the United States, interest on
which will, in the opinion of bond counsel to the issuing governmental
authorities, be exempt under existing law from Federal and the specified state
and local income taxes to the extent indicated. (See ``Tax Status''.) Capital
gains, if any, will be subject to Federal income tax and, generally, to state
and/or local income taxes.
The Portfolio of a Trust may contain Securities that are general
obligations of governmental entities and/or bonds that are guaranteed by
governmental entities. (See Part A--``Portfolio Summary'' for information
relating to the particular series described therein.) General obligation bonds
are general obligations of a state or local government secured by the power of
such Issuer to levy taxes, and are backed by the pledge of such governmental
entity. The ability of the Issuer of a general obligation bond to meet its
obligation depends largely upon its economic condition. Many Issuers rely upon
ad valorem real property taxes as a source of revenue. Proposals in the form of
state legislative or voter initiatives to limit ad valorem real property taxes
have been introduced in various states. It is not presently possible to predict
the impact of these or future proposals, if adopted, on states, local
governments or school districts or on their abilities to make future payments on
their outstanding debt obligations. The remaining issues are payable from the
income of specific projects or authorities and are not supported by the Issuer's
power to levy taxes. In the portfolios for most of the Trusts, this latter group
of issues contains Securities that are also supported by the moral obligations
of governmental entities. In the event of a deficiency in the debt service
reserve funds of moral obligation Securities, the governmental entity having the
moral commitment may (but is not legally obligated to) satisfy such deficiency.
However, in the event of a deficiency in the debt service reserve funds of
Securities not backed by such moral obligations, no such moral commitment of a
governmental entity exists.
The Portfolio of a Trust may contain zero coupon bond(s) (including bonds
known as multiplier bonds, money multiplier bonds, capital appreciation bonds,
capital accumulator bonds, compound interest bonds and discount maturity payment
bonds) or one or more other Securities which were issued with an ``original
issue discount''. ``Original issue discount'' bonds are acquired at prices which
represent a discount from face amount, principally because such bonds bear
interest at rates which are lower than currently-prevailing market rates. (See
Part A--``Portfolio Summary'' for information relating to the particular series
described therein.) A discounted bond held to maturity will have a larger
portion of its total return in the form of capital gain and less in the form of
tax-exempt income than a comparable bond bearing interest at current market
rates. Zero coupon bonds do not provide for the payment of any current interest
and provide for payment at maturity at face value unless sooner sold or
redeemed. Zero coupon bonds may be subject to more price volatility than
conventional bonds i.e. the market value of zero coupon bonds is subject to
greater fluctuation in response to changes in interest rates than is the market
value of bonds which pay interest currently. Zero coupon bonds generally are
subject to redemption at compound accreted value based on par value at maturity.
Because the Issuer is not obligated to make current interest payments, zero
coupon bonds may be less likely to be redeemed than coupon bonds issued at a
similar interest rate. While some types of zero coupon bonds, such as
multipliers and capital appreciation bonds, define par as the initial offering
price rather than the maturity value, they share the basic zero coupon bond
features of (1) not paying interest on a semi-annual basis and (2) providing for
the reinvestment of the bond's semi-annual earnings at the bond's stated yield
to maturity. While zero coupon bonds are frequently marketed on the basis that
their fixed rate of return minimizes reinvestment risk, this benefit can be
negated in large part by weak call protection, i.e. a bond's provision for
redemption at only a modest premium over the accreted value of the bond. In
addition, in the event the redemption of Securities or a decline in the value of
the Securities causes the portfolio to be valued at less than the optional
termination value, the Trust may terminate at a time when a substantial portion
of the Securities in the portfolio are zero coupon bonds. The sale of such zero
coupon bonds at such time may result in a loss to Unit Holders.
The Portfolio of a Trust may contain Securities of housing authorities
payable from revenues derived by state housing finance agencies or municipal
housing authorities from repayments on mortgage and home improvement loans made
by such agencies. (See Part A--``Portfolio Summary'' for information relating to
the particular series described therein.) Since housing authority obligations,
which are not general obligations of a particular state, are generally supported
to a large extent by Federal housing subsidy programs, the failure of a housing
authority to meet the qualifications required for coverage under the Federal
programs, or any legal or administrative determination that the coverage of such
Federal programs is not available to a housing authority, could result in a
decrease or elimination of subsidies available for payment of principal and
interest on such housing authority's obligations. Weaknesses in Federal housing
subsidy programs and their administration may result in a decrease of subsidies
available for payment of principal and interest on housing authority bonds.
Repayment of housing loans and home improvement loans in a timely manner is
dependent on factors affecting the housing market generally and upon the
underwriting and management
3
<PAGE>
<PAGE>
ability of the individual agencies (i.e., the initial soundness of the loan and
the effective use of available remedies should there be a default in loan
payments). Economic developments, including failure or inability to increase
rentals, fluctuations in interest rates and increasing construction and
operating costs may also have an adverse impact on revenues of housing
authorities. In the case of some housing authorities, inability to obtain
additional financing could also reduce revenues available to pay existing
obligations.
The Portfolio of a Trust may contain Securities which are subject to the
requirements of Section l03A of the Internal Revenue Code of 1954, as amended
(the ``1954 Code''), or Section 143 of the Internal Revenue Code of 1986 (the
``1986 Code'' or the ``Code''). (See Part A--``Portfolio Summary'' for
information relating to the particular series described therein.) Sections 103A
and 143 provide that obligations issued to provide single family housing will be
exempt from Federal income taxation if all of the proceeds of the issue
(exclusive of issuance costs and a reasonably required reserve) are used to make
or acquire loans which meet requirements including certain requirements which
must be satisfied after issuance. If proceeds of the issue are not used to
acquire such loans, the Issuer may be required to redeem all or a portion of
such issue from such uncommitted proceeds to maintain the issue's tax exemption.
Bond counsel to each such Issuer has issued an opinion that the interest on such
Securities was exempt from Federal income tax at the time the Securities were
issued. The failure of the Issuers of such Securities to meet certain ongoing
compliance requirements imposed by Sections 103A and 143 could render the
interest on such Securities subject to Federal income taxation, possibly from
the date of their issuance. If interest on such Securities in a Trust is deemed
to be subject to Federal income taxation, the loss of tax-exempt status can be
expected to adversely affect the market value of such Securities. In this event
and under the terms of the Indenture the Sponsor may direct the sale of such
Securities. The sale of such Securities in such circumstances is likely to
result in a loss to the Trust.
The Portfolio of a Trust may include certain housing authority obligations
whose tax exemption depends upon qualification under Section 103(b)(4)(A) of the
1954 Code, or Section 142 of the 1986 Code, and appropriate Treasury
Regulations. Both Code Sections require that specified minimum percentages of
the units in each rental housing project financed by tax-exempt debt are to be
continuously occupied by low or moderate income tenants for specified periods.
Department of the Treasury Regulations issued under Section 103(b)(4)(A) of the
1954 Code provide that in order to prevent possible retroactive Federal income
taxation of interest on such Securities certain conditions must be met. The
regulations provide, however, that such retroactive taxation will not occur if
the Issuer corrects any non-compliance occurring after the issuance of the
Securities within a reasonable period after such non-compliance is first
discovered or should have been discovered by the Issuer. Similar regulations are
expected to be issued under 1986 Code Section 142. If the interest on any of the
Securities in a Trust that are housing securities should ultimately be deemed to
be taxable, the Sponsor may instruct the Trustee to sell such Securities and,
since they would be sold as taxable securities, it is expected that such
Securities would have to be sold at a substantial discount from current market
price of a comparable tax-exempt security.
The Portfolio of a Trust may contain Securities which contain provisions
which require the Issuer to redeem such obligations at par from unused proceeds
of the issue within a stated period which typically does not exceed three years
from the date of issuance of such Securities. (See Part A--``Portfolio Summary''
for information relating to the particular series described therein.) In periods
in which interest rates decline there may be increased redemptions of housing
securities pursuant to such redemption provisions. Such an increase in
redemptions may occur because conventional mortgage loans may have become
available at interest rates equal to or less than the interest rates charged on
the mortgage loans previously made available from the proceeds of such housing
securities. Therefore, some Issuers of such housing securities may have
experienced insufficient demand to complete mortgage loan originations for all
of the money made available from such securities. In addition, mortgage loans
made with the proceeds of housing securities, in general, do not carry
prepayment penalties and therefore certain mortgage loans may be prepaid earlier
than their maturity dates. If the Issuers of such housing securities are unable
to or choose not to reloan these monies, they will generally redeem housing
securities in an amount approximately equal to such prepayments. The Sponsor is
unable to predict at this time whether such redemptions will be made at a high
rate. The disposition of such Securities may result in a loss to a Trust.
All single-family housing mortgage-backed securities and certain
multi-family housing mortgage-backed securities are prepaid over the life of the
underlying mortgage or mortgage pool, and therefore, the average life of
mortgage-backed Securities cannot necessarily be determined, but will ordinarily
be less than their maturities. In addition, in the case of single-family housing
Securities and certain other mortgage-backed Securities, if proceeds from the
sale of the Securities are not allocated within a stated period (which may be
within a year of the date of issue), or if mortgage loans made from the Security
proceeds are prepaid, upon receipt of mortgage prepayments the Security issues
may be called at par. Prepayments are more likely to occur as interest rates
decline. Some of the Securities in the Portfolio were
4
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such housing obligations deposited in the Trust at a price higher than their par
value. To the extent that these obligations were valued at a premium at the time
a Unit Holder purchased Units, any prepayment at par would result in a loss of
capital to the Unit Holder and, in any event, reduce the amount of income that
would otherwise have been paid to the Unit Holder. When prevailing interest
rates rise, the value of a housing security may decrease as do other debt
securities, but when prevailing interest rates decline, the value of the
mortgage-backed securities is not likely to rise on a comparable basis with
other debt securities because of the prepayment features.
The Portfolio of a Trust may contain Securities in the hospital facilities
category payable from revenues derived from hospitals and health care facilities
which, generally, were constructed or are being constructed from the proceeds of
such Securities. (See Part A--``Portfolio Summary'' for information relating to
the particular series described therein.) The continuing availability of
sufficient revenues is dependent upon several factors affecting all such
facilities generally, including, among other factors the ability of the
facilities to provide the services required by patients, changes in Medicare and
Medicaid reimbursement regulations, the success of efforts by the states and the
Federal government to limit the cost of health care, changes in contracts
between health care institutions and public or private insurers, the timely
completion of the construction of projects and achieving and maintaining
projected rates of utilization. Additionally, a major portion of hospital
revenues typically is derived from Federal or state programs such as Medicare
and Medicaid and from Blue Cross and other insurers. The future solvency of the
Medicare trust fund is periodically subject to question. Changes in the
compensation and reimbursement formulas of these governmental programs or in the
rates of insurers may reduce revenues available for the payment of principal of,
or interest on, hospital revenue bonds. Governmental legislation or regulations
and other factors, such as the inability to obtain sufficient malpractice
insurance, may also adversely impact upon the revenues or costs of hospitals and
may also adversely affect the ratings of hospital revenue bonds held in a Trust.
Future actions by the Federal government with respect to Medicare and by the
Federal and State governments, with respect to Medicaid, reducing the total
amount of funds available for either or both of these programs or changing the
reimbursement regulations, or their interpretations, could adversely affect the
amount of reimbursement available to hospital facilities. A number of additional
legislative proposals concerning health care are typically under review by the
United States Congress at any given time. These proposals span a wide range of
topics, including cost control, national health insurance, incentives for
competition in the provision of health care services, tax incentives and
penalties related to health care insurance premiums and promotion of prepaid
health care plans. The Sponsor is unable to predict the effect of these
proposals, if enacted, on any of the Securities in the Portfolio of a Trust.
The Portfolio of a Trust may contain Securities in the power and electric
facilities category payable from revenues derived from power facilities, which
generally include revenues from the sale of electricity generated and
distributed by power agencies using hydro-electric, nuclear, fossil or other
power sources. (See Part A--``Portfolio Summary'' for information relating to
the particular series described therein.) The ability of the Issuers of such
bonds to make payments of principal of, or interest on, such obligations is
dependent, among other things, upon the continuing ability of such Issuers to
derive sufficient revenues from their operations to meet debt service
requirements. General problems of the power and electric utility industry
include difficulty in financing large construction programs during an
inflationary period, restrictions on operations and increased cost and delays
attributable to environmental considerations, uncertain technical and cost
factors relating to the construction and operation of nuclear power generating
facilities, the difficulty of the capital markets in absorbing utility debt and
equity securities, the availability of fuel for electric generation at
reasonable prices, the steady rise in fuel costs and the costs associated with
conversion to alternate fuel sources such as coal. Some of the Issuers of
Securities in the Portfolio may own or operate nuclear facilities for electric
generation. Additional considerations in the case of such Issuers include the
problems associated with the use and disposal of radioactive materials and
wastes, and other problems associated with construction, licensing, regulation
and operation of such facilities. In addition, Federal, state or municipal
governmental authorities may from time to time impose additional regulations or
take other governmental action which might cause delays in the licensing,
construction or operation of nuclear power plants, or the suspension of
operation of such plants which have been or are being financed by proceeds of
certain of the Securities held in the Portfolio of a Trust. Such delays,
suspensions or other action may affect the payment of interest on, or the
repayment of the principal amount of, such Securities. On November 15, 1990 the
President signed into law the Clean Air Act Amendments of 1990 which provide for
attainment and maintenance of health protective national ambient air quality
standards. The goal of the law is to cut acid rain pollutants by half, sharply
reduce urban smog and eliminate most of the toxic chemical emissions from
industrial plants by the turn of the century. As enacted, the law affects nearly
all electric power facilities that burn oil or coal. Greenhouse effect bills and
hazardous waste bills may further increase the cost of utility service. The
Sponsor is unable
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to predict the ultimate form that any new regulations or other governmental
action may take, when legislation may be enacted, or the resulting impact on the
Securities in the Portfolio of a Trust.
The Portfolio of a Trust may contain Securities which are in the
industrial revenue facilities category. (See Part A--``Portfolio Summary'' for
information relating to the particular series described therein.) Industrial
Revenue Bonds (``IRBs'') are tax-exempt securities issued by states,
municipalities or public authorities to finance the cost of acquiring,
constructing or improving various projects, including pollution control,
environmental improvement, industrial or special airport facilities. IRBs are
payable from the income of specific facilities or from payments made by private
corporations to the state authorities issuing such bonds. Interest on the IRBs
is generally exempt, with certain exceptions, from Federal income tax pursuant
to Section 103 of the 1954 Code, provided the Issuer and corporate obligor
thereof continue to meet certain conditions. In the opinion of bond counsel to
the Issuers, the interest on the IRBs constituting the Securities is exempt
(except in certain instances depending on the Unit Holders) from all Federal
income tax under existing law but may be subject to state or local taxation.
(See ``Tax Status.'')
The Portfolio of a Trust may contain Securities which are in the water and
sewer facilities category. (See Part A--``Portfolio Summary'' for information
relating to the particular series described therein.) Bonds in the water and
sewer facilities category include securities issued to finance public water and
sewer projects for water management and supply and sewer control and securities
issued by public Issuers on behalf of private corporations for such projects.
These bonds are payable from the income of specific facilities or from payments
made by such private corporations to the state authorities issuing such bonds.
The income of such facilities is generated from the payment of 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,
the difficulty of obtaining or discovering new supplies of fresh water, the
effect of conservation programs and the impact of ``no growth'' zoning
ordinances.
The Portfolio of a Trust may contain Securities which are in the revenue
obligations of universities and schools category. (See Part A--``Portfolio
Summary'' for information relating to the particular series described therein.)
The ability of universities and schools to meet their obligations is dependent
upon various factors, including the revenues, costs and enrollment levels of the
institutions. In addition, their ability may be affected by declines in
enrollment and tuition revenue, the availability of Federal, state and alumni
financial support, the method and validity, under state constitutions, of
present systems of financing public education, fluctuations in interest rates
and construction costs, increased maintenance and energy costs, failure or
inability to raise tuition or room charges and adverse results of endowment fund
investments. Studies undertaken by public and private groups differ with respect
to statistics and projections for past secondary enrollment of educational
institutions in the 1990s.
The Portfolio of a Trust may contain Securities in the pollution control
facilities category. (See Part A-- ``Portfolio Summary'' for information
relating to the particular series described therein.) Bonds in the pollution
control facilities category include securities issued to finance public water,
sewage or solid waste treatment facilities and securities issued by a public
Issuer on behalf of a private corporation to provide facilities for the
treatment of air, water and solid waste pollution. These Securities are payable
from the income of specific facilities, state authorities or from payments made
by such private corporations.
The Portfolio of the Trust may contain Securities which are in the
redevelopment facilities category. (See Part A--``Portfolio Summary'' for
information relating to the particular series described therein.) The purpose of
redevelopment is to revitalize deteriorated and/or underdeveloped areas within a
community. As new construction progresses, property values normally increase
significantly and the ultimate result is a proportionate increase in ad valorem
property tax revenues. However, if, due to various economic factors, the
assessed valuation is reduced, such reduction may result in insufficient tax
revenues, which could in turn impair the ability of the Issuer to make payments
of principal and/or interest on the bonds when due. A reduction in property tax
rates or delinquencies in the payment of property taxes could have a similar
adverse effect.
The Portfolio of a Trust may contain Securities in the resource recovery
category. (See Part A--``Portfolio Summary'' for information relating to the
particular series described therein.) The issuers of such Securities are
municipalities or agencies or authorities thereof that have allocated the
proceeds of the issue towards the construction and operation of a resource
recovery facility operated by a corporate operator. Payments on the bonds are
dependent upon the creditworthiness of the corporate operator of the particular
project. The operation of such facilities typically depends upon the delivery
thereto of specified quantities of solid waste from which refuse-derived fuel
can be extracted and in turn converted into electricity or steam by the
facility. The operation of the facility may be limited or totally
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curtailed from operating because of failure to comply with governmental
regulations concerning the environment, failure to obtain necessary
environmental permits, zoning permits and other municipal ordinances or
inability to maintain or renew such permits because of an inability to comply
with changes in government environmental regulations. If the resource recovery
facility is unable to operate or cannot operate at full capacity, the corporate
operator of such facility will be unable to generate revenues necessary to cover
payments on the resource recovery bonds. Furthermore, the corporate operator's
revenue is typically derived from the sale of the power generated by the
facility to a power agency or company under a power purchase agreement. The
continued flow and level of payments made by the corporate operator might
therefore depend upon the financial condition of the purchaser under such a
power agreement and the operator's continued ability to generate the minimum
amount of power required to be delivered thereunder. Such a purchaser may be
subject to the various general problems and risks associated with the power
industry and the regulatory environment in which it operates. A decline in price
of the extracted materials or the electricity or steam created by the facility
may also result in insufficient revenues generated by the corporate operator as
will an increase in its operating costs. Finally there may be technological
risks that become apparent in the long run that are not presently apparent
because of the relatively short history of these facilities which risks may
involve the successful construction or operation of such facilities.
The Portfolio of a Trust may contain Securities which are in the special
tax bond category. (See Part A-- ``Portfolio Summary'' for information relating
to the particular series described therein.) Special tax bonds are payable from
and secured by the revenues derived by a municipality from a particular tax.
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, the ability of the issuers of special tax bonds to pay interest
and/or principal on special tax bonds may be adversely affected by the inability
to collect all or part of the special tax due to various factors including: a
general decline in the local economy or population, inability or failure to pay
the special tax, failure to develop property backing certain special tax bonds
for reasons including prohibitions or restraints on development such as failure
to receive regulatory agency approval for development and fluctuations in the
real estate market, a decline in the value of projects backing certain tax
bonds, natural disasters or environmental hazards.
The Portfolio of a Trust may contain Securities which are in the tax
allocation bond category. (See Part A-- ``Portfolio Summary'' for information
relating to the particular series described therein.) These Securities are
typically secured by incremental tax revenues collected on property within the
areas where redevelopment projects, financed by bond proceeds are located
(``project areas''). Such payments are expected to be made from projected
increases in tax revenues derived from higher assessed values of property
resulting from development in the particular project area and not from an
increase in tax rates. Special risk considerations include: reduction of, or a
less than anticipated increase in, taxable values of property in the project
area, caused either by economic factors beyond the Issuer's control (such as a
relocation out of the project area by one or more major property owners) or by
destruction of property due to natural or other disasters; successful appeals by
property owners of assessed valuations; substantial delinquencies in the payment
of property taxes; or imposition of any constitutional or legislative property
tax rate decrease.
The Portfolio of a Trust may contain Securities in the certificates of
participation category. (See Part A-- ``Portfolio Summary'' for information
relating to the particular series described therein.) Each certificate
represents an undivided and proportionate interest in lease or installment
purchase payments to be made by governmental entities (which are the
participants) to a third party for the use and possession or acquisition of a
particular project or equipment. Each payment is divided into an interest
portion and a principal portion, the interest portion of which constitutes
tax-exempt interest in the opinion of special counsel retained in connection
with the issue. The third party assigns its rights to the payments to a trustee
for the benefit of the certificate holders. The amounts paid to the trustee by
the participants are used to make the payments of principal and interest due
with respect to the certificates. The obligation of a participant to make the
payments does not constitute an obligation for which the participant is
obligated to levy or pledge any form of taxation.
The Portfolio of a Trust may contain obligations of Issuers located in the
Commonwealth of Puerto Rico. (See Part A--``Portfolio Summary''.) The ability of
the Issuers of such bonds to meet their obligations may be affected by the
economic and social problems facing Puerto Rico. Unemployment in Puerto Rico
remains high by United States standards. The island's per capita personal income
has been lower than in any state of the United States. Transfer payments from
the United States Government under various social welfare programs (such as food
stamps, social security and veterans' benefits) contribute significantly to
personal income.
The economy of Puerto Rico is closely integrated with that of the mainland
United States and is largely dependent for its development upon U.S. policies
and programs that could be eliminated by the U.S. Congress. Aid for Puerto
Rico's economy has traditionally depended heavily on federal programs which may
not always be available. An
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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. During
fiscal 1991, approximately 87% of Puerto Rico's exports were to the United
States mainland, which was also the source of 68% of Puerto Rico's imports.
Growth in the Puerto Rico economy in fiscal 1992 and fiscal 1993 will depend on
several factors including the state of the U.S. economy.
The Puerto Rican economy consists principally of manufacturing
(pharmaceuticals, scientific instruments, computers, microprocessors, medical
products, textiles and petrochemicals), agriculture (largely sugar), tourism and
the service sector (including finance, insurance, and real estate). Since Puerto
Rico is an island and is heavily dependent upon imports and exports, maritime
and air transportation are of basic importance to its economy. The manufacturing
and service sectors generate the largest portion of gross product. Most of the
island's manufacturing output is shipped to the mainland United States, which is
also the chief source of semi-finished manufactured articles on which further
manufacturing operations are performed in Puerto Rico. The finance, insurance
and real estate components of this sector have recently experienced the most
growth. The level of tourism is affected by various factors, including the
strength of the U.S. dollar. During periods when the dollar is strong, tourism
in foreign countries becomes relatively more attractive.
The government sector of the Commonwealth plays an important role in the
economy of the island. Since World War II the economic importance of agriculture
for Puerto Rico, particularly in the dominance of sugar production, has
declined. Nevertheless, the Commonwealth-controlled sugar monopoly remains an
important economic factor and is largely dependent upon Federal maintenance of
sugar prices, the discontinuation of which could severely affect Puerto Rican
sugar production.
The Puerto Rican economy is affected by a number of Commonwealth and
Federal investment incentive programs. For example, Section 936 of the Internal
Revenue Code generally provides deferral of Federal income taxes for U.S.
companies operating on the island until profits are repatriated. No assessment
can be made as to whether or not Section 936 and other incentive programs will
be continued. It is expected that the elimination of Section 936, if it
occurred, would have a strongly negative impact on Puerto Rico's economy.
There have for many years been two major viewpoints in Puerto Rico with
respect to the island's relationship to the United States, one essentially
favoring the existing commonwealth status (but with modifications providing for
greater local autonomy), and the other favoring statehood. A third viewpoint
favors independence from the United States. The Sponsor cannot predict what
effect, if any, a change in the relationship between Puerto Rico and the United
States would have on the issuer's ability to meet their obligations.
Each Trust consists of the Securities listed under Part A--``Schedule of
Portfolio Securities'' herein, as long as such Securities may continue to be
held from time to time in the Trust (including certain securities deposited in
the Trust in exchange or substitution for any Securities pursuant to the
Indenture) together with accrued and undistributed interest thereon and
undistributed and uninvested cash realized from the disposition of Securities.
BECAUSE CERTAIN OF THE SECURITIES FROM TIME TO TIME MAY BE REDEEMED OR WILL
MATURE IN ACCORDANCE WITH THEIR TERMS OR MAY BE SOLD UNDER CERTAIN CIRCUMSTANCES
DESCRIBED HEREIN, NO ASSURANCE CAN BE GIVEN THAT A TRUST WILL RETAIN FOR ANY
LENGTH OF TIME ITS PRESENT SIZE AND COMPOSITION. THE TRUSTEE HAS NOT
PARTICIPATED IN THE SELECTION OF SECURITIES FOR THE TRUSTS, AND NEITHER THE
SPONSOR NOR THE TRUSTEE WILL BE LIABLE IN ANY WAY FOR ANY DEFAULT, FAILURE OR
DEFECT IN ANY SECURITIES.
To the best knowledge of the Sponsor, there is no material litigation
pending in respect of any Securities which might reasonably be expected to have
a material adverse effect upon a Trust. At any time litigation may be initiated
on a variety of grounds with respect to Securities in a Trust. Such litigation
may affect the validity of such Securities or the tax-free nature of the
interest thereon. Although the outcome of litigation of such nature cannot be
predicted, opinions of bond counsel are delivered with respect to each Security
on the date of issuance to the effect that such Security has been validly issued
and that the interest thereon is exempt from Federal income tax under then
existing law. If legal proceedings are instituted seeking, among other things,
to restrain or enjoin the payment of any of the Securities or attacking their
validity or the authorization or existence of the Issuer, the Sponsor may, in
accordance with the Indenture, direct the Trustee to sell such Securities and
distribute the proceeds of such sale to Unit Holders. In addition, other factors
may arise from time to time which potentially may impair the ability of Issuers
to meet
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obligations undertaken with respect to Securities (e.g., state legislative
proposals or voter initiatives to limit ad valorem real property taxes).
Under the Federal Bankruptcy Code, political subdivisions, public agencies
or other instrumentalities of any state (including municipalities) which are
insolvent or unable to meet their debts as they mature and which meet certain
other conditions may file a petition in Federal bankruptcy court. Generally, the
filing of such a petition operates as a stay of any proceeding to enforce a
claim against the debtor. The Federal Bankruptcy Code also requires the debtor
to file a plan for the adjustment of its debts which may modify or alter the
rights of creditors. Under such a plan the Federal bankruptcy court may permit
the debtor to issue certificates of indebtedness which have priority over
existing creditors and which could be secured. Any plan of adjustment confirmed
by the court must be approved by the requisite majorities of creditors of
different classes. If confirmed by the bankruptcy court, the plan would be
binding upon all creditors affected by it. The Sponsor is unable to predict the
effect these bankruptcy provisions may have on a Trust.
Most of the Securities are subject to redemption prior to their stated
maturity dates pursuant to optional refunding redemption and/or sinking fund
provisions. In general, optional refunding redemption provisions are more likely
to be exercised when the evaluation of a Security is at a premium over par than
when it is at a discount from par. Generally, the evaluation of Securities will
be at a premium over par when market interest rates fall below the coupon rate
on such Securities. In addition, certain Securities may be redeemed in whole or
in part other than by operation of the stated redemption or sinking fund
provisions under certain unusual or extraordinary circumstances specified in the
instruments setting forth the terms and provisions of such Securities. The
redemption of a Security at par may result in a loss to a Trust. See Part
A--``Schedule of Portfolio Securities'' for those Securities in the Portfolio of
a Trust which as of the date of such schedule had a bid side evaluation in
excess of par. Certain Securities in the Portfolio may be subject to sinking
fund provisions during the life of a Trust. Such provisions are designed to
redeem a significant portion of an issue of Securities gradually over the life
of such issue. Particular bonds of an issue of Securities to be redeemed are
generally chosen by lot. The ``Schedule of Portfolio Securities'' herein
contains a listing of the optional refunding and sinking fund redemption
provisions, if any, with respect to each of the Securities.
DUE TO FLUCTUATIONS IN THE MARKET PRICE OF THE SECURITIES IN THE PORTFOLIO
AND THE FACT THAT THE PUBLIC OFFERING PRICE INCLUDES A SALES CHARGE, AMONG OTHER
FACTORS, THE AMOUNT REALIZED BY A UNIT HOLDER UPON THE REDEMPTION OR SALE OF
UNITS MAY BE LESS THAN THE PRICE PAID FOR SUCH UNITS BY THE UNIT HOLDER. (SEE
``RIGHTS OF UNIT HOLDERS--REDEMPTION--COMPUTATION OF REDEMPTION PRICE PER
UNIT'', HEREIN.)
Unit Holders of a Trust not designated as Insured should omit the
following and continue with ``Objectives and Securities Selection.'' All of the
Securities in any Series not designated as Insured are not insured and the
following section ``Insurance on the Securities in the Portfolio of an Insured
Trust'' is inapplicable to such Series.
Insurance on the Securities in the Portfolio of an Insured Trust--General
Each Insured National Municipal Trust is covered by one of the following
two types of insurance (see Part A-- ``Summary'' for a description of the type
of insurance applicable to the particular series therein; see ``The Trust--
Insurance on the Securities in the Portfolio of an Insured Trust--Insurers'' for
a description of the insurers): (1) the Sponsor obtained insurance to maturity
of the Securities from Financial Guaranty for certain of the Securities in the
Portfolio; the balance of the Securities in the Portfolio are insured to
maturity by insurance obtained by the Issuer from one among a group of insurers
including Financial Guaranty (see ``The Trust--Insurance on the Securities in
the Portfolio of an Insured Trust--Insured to Maturity''), or (2) each Security
is insured to maturity by insurance obtained by the Issuer from one among a
group of insurers including Financial Guaranty. (See ``The Trust--Insurance on
the Securities in the Portfolio of an Insured Trust--Insured to Maturity.'')
Each Insured Prudential Unit Trust is covered by one of the following four
types of insurance (see Part A-- ``Summary'' for a description of the type of
insurance applicable to the particular series therein; see ``The Trust--
Insurance on the Securities in the Portfolio of an Insured Trust--Insurers'' for
a description of the insurers): (1) The Sponsor obtained insurance to maturity
of the Securities from Financial Guaranty for certain of the Securities in the
Portfolio; the balance of the Securities in the Portfolio are insured to
maturity by insurance obtained by the Issuer from one among a group of insurers
including Financial Guaranty (See ``The Trust--Insurance on the Securities in
the Portfolio of one Insured Trust--Insured to Maturity'') or, (2) the Insured
Trust obtained Portfolio Insurance from Financial Guaranty for all of the
Securities in the Portfolio of an Insured Trust (see ``The Trust--Insurance on
the Securities in the Portfolio of an Insured Trust--Portfolio Insurance''), or
(3) the Insured Trust obtained Portfolio
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Insurance from Financial Guaranty on certain Securities in the Portfolio; the
balance of the Securities in the Portfolio are insured to maturity by insurance
obtained by the Issuer from one among a group of insurers including Financial
Guaranty (see ``The Trust--Insurance on the Securities in the Portfolio on an
Insured Trust--Portfolio Insurance-- Insured to Maturity'') or (4) each Security
is insured to maturity by insurance obtained by the Issuer from one among a
group of insurers including Financial Guaranty. (See ``The Trust--Insurance on
the Securities in the Portfolio or for Insured Trust--Insured to Maturity.'').
Certain Securities in an Insured Trust may be insured both by insurance
obtained from Financial Guaranty or other insurers by the Issuer of such
Securities as well as under the Portfolio Insurance policy obtained by the
Insured Trust. (See ``The Trust--Insurance on the Securities in the Portfolio of
an Insured Trust--Portfolio Insurance--Insured to Maturity.'') Insurance
obtained by an Insured Trust is effective only while the Securities thus insured
are held in an Insured Trust.
Insurance on the Securities in the Portfolio of an Insured Trust--Portfolio
Insurance
In an effort to protect Unit Holders against delay in payment of interest
and against principal loss, insurance (``Portfolio Insurance'') has been
obtained by an Insured Trust from Financial Guaranty Insurance Company
(``Financial Guaranty''), a New York stock insurance company, guaranteeing the
scheduled payment of interest and principal with respect to certain of the
Securities deposited in and delivered to an Insured Trust. The Portfolio
Insurance policy obtained by an Insured Trust is noncancellable and will
continue in force so long as an Insured Trust is in existence and the securities
described in the policy continue to be held by each such Insured Trust (see Part
A--``Schedule of Portfolio Securities''). The Deposited Units in an Insured
Trust were rated AAA by Standard & Poor's Corporation on their respective dates
of deposit as a result of the Portfolio Insurance obtained from Financial
Guaranty by such previous series. As a result of this Portfolio Insurance the
Units of an Insured Trust were rated AAA by Standard & Poor's Corporation as of
the Date of Deposit. (See ``Bond Ratings''.)
Insurance is not a substitute for the basic credit of an Issuer, but
supplements the existing credit and provides additional security therefor. If an
issue is accepted for insurance, a noncancellable policy for the scheduled
payment of interest and principal on the Securities is issued by the Insurance
Company. A single premium is paid by the Issuer for Securities insured by the
Issuer and a monthly premium is paid by an Insured Trust for the Portfolio
Insurance obtained by it, except for Securities covered by insurance obtained by
the Issuer from Financial Guaranty, in which case no premiums for insurance are
paid by an Insured Trust. Upon the sale of a Security from an Insured Trust, the
Trustee, pursuant to an irrevocable commitment of Financial Guaranty, has the
right to obtain permanent insurance (i.e. insurance to maturity of the
Securities regardless of the identity of the holder thereof) (``Permanent
Insurance'') with respect to such Security upon the payment of a single
predetermined insurance premium from the proceeds of the sale of such Security.
An Insured Trust will obtain and pay a premium for the Permanent Insurance upon
the sale of a Security if the Sponsor determines that such sale will result in a
net realization greater than would the sale of such Security without the
purchase of such Permanent Insurance. Accordingly, any Security (other than a
Deposited Unit) in an Insured Trust is eligible to be sold on an insured basis.
Any Security in a Trust represented by a Deposited Unit is eligible to be sold
on an insured basis. The premium for Permanent Insurance with respect to each
Security is determined based upon the insurability of each Security as of the
Date of Deposit and will not be increased or decreased thereafter. Standard &
Poor's Corporation and Moody's Investors Service have rated the claims-paying
ability of Financial Guaranty ``AAA'' and ``Aaa'', respectively.
Neither the Public Offering Price nor any evaluation of Units for purposes
of repurchases or redemptions reflects any element of value for the Portfolio
Insurance obtained and the Permanent Insurance obtainable by an Insured Trust
unless a Security is in default in payment of principal or interest or in
significant risk of such default. The value of the Permanent Insurance will be
equal to the difference between (i) the market value of defaulted Securities
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 such defaulted Securities not covered by Permanent
Insurance. In addition, the Evaluator will consider the ability of Financial
Guaranty to meet its commitments under an Insured Trust's insurance policy,
including the commitments to issue Permanent Insurance. The value of any
insurance obtained by the Issuer of a Security is reflected and included in the
market value of such Security.
Nonpayment of premiums on the policy obtained by an Insured Trust will not
result in the cancellation of the insurance but will permit Financial Guaranty
to take action against an Insured Trust to recover premium payments due it.
Premium rates for each issue of Securities protected by the Portfolio Insurance
obtained by an Insured Trust are fixed for the life of an Insured Trust. The
premium for any insurance policy or policies obtained by an Issuer of
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Securities has been paid in advance by such Issuer and any such policy or
policies are noncancellable and will continue in force so long as the Securities
so insured are outstanding.
Under the provisions of the aforementioned insurance, Financial Guaranty
unconditionally and irrevocably agrees to pay to Citibank, N.A., or its
successor, as its agent (the ``Fiscal Agent''), that portion of the principal of
and interest on the Securities which shall become due for payment but shall be
unpaid by reason of nonpayment by the Issuer of the Securities and which has not
been paid by insurance of the Security obtained by the Issuer. The term ``due
for payment'' means, when referring to the principal of a Security, its stated
maturity date or the date on which it shall have been called for mandatory
sinking fund redemption and does not refer to any earlier date on which payment
is due by reason of call for redemption (other than by mandatory sinking fund
redemption), acceleration or other advancement of maturity. When used in
reference to interest on a Security, the term ``due for payment'' means the
stated date for payment of interest. When, however, the interest on a Security
shall have been determined (as provided in the underlying documentation relating
to such Security) to be subject to Federal income taxation, the term ``due for
payment'' also means, (i) when referring to the principal of such Security, the
date on which such Security has been called for mandatory redemption as a result
of such determination of taxability, and (ii) when referring to interest on such
Security, the accrued interest at the rate provided in such documentation to the
date on which such Security has been called for such mandatory redemption,
together with any applicable redemption premium.
Financial Guaranty will make such payments to the Fiscal Agent on the date
such principal or interest becomes due for payment or on the business day next
following the day on which Financial Guaranty shall have received notice of
nonpayment, whichever is later. The Fiscal Agent will disburse to the Trustee
the face amount of principal and interest which is then due for payment but is
unpaid by reason of nonpayment by the Issuer but only upon receipt by the Fiscal
Agent of (i) evidence of the Trustee's right to receive payment of the principal
or interest due for payment and (ii) evidence, including any appropriate
instruments of assignment, that all of the rights to payment of such principal
or interest due for payment shall thereupon vest in Financial Guaranty. Upon
such disbursement, Financial Guaranty shall become the owner of the Security,
appurtenant coupon or right to payment of principal or interest on such Security
and shall succeed to all of the Trustee's rights thereunder, including the right
to payment thereof.
In determining whether to insure bonds, Financial Guaranty has applied its
own standards which are not necessarily the same as the criteria used in regard
to the selection of bonds by the Sponsor. Financial Guaranty's determination to
issue insurance with respect to a bond is made prior to or on the date of
deposit of a bond in an Insured Trust. The Portfolio Insurance obtained by an
Insured Trust covers Securities deposited in an Insured Trust and physically
delivered to the Trustee or a custodian for an Insured Trust in the case of
bearer bonds or registered in the name of the Trustee or its nominee or
delivered along with an assignment in the case of registered bonds, or
registered in the name of the Trustee or its nominee in the case of Securities
held in book-entry form.
Insurance obtained by an Insured Trust or by the Security Issuer does not
guarantee the market value of the Securities or the value of the Units. The
Portfolio Insurance obtained by an Insured Trust is effective only as to
Securities owned by and held in such Insured Trust. In the event of a sale of
any such Security by the Trustee, the insurance terminates as to such Security
on the date of sale but the Trustee may exercise the right to obtain Permanent
Insurance with respect to the Security upon the payment of an insurance premium
from the proceeds of the sale of such Security. Except as indicated below,
Portfolio Insurance obtained by an Insured Trust has no effect on the price or
redemption value of Units. The Evaluator will attribute a value to the insurance
obtained by an Insured Trust (including the right to obtain Permanent Insurance)
for the purpose of computing the price or redemption value of Units only if the
Securities covered by such insurance are in default in payment of principal or
interest or, in the Sponsor's opinion, in significant risk of such default. (See
``Public Offering of Units--Public Offering Price''.) Insurance obtained by the
Issuer of a Security is effective so long as such Security is outstanding.
Therefore, any such insurance may be considered to represent an element of
market value in regard to the Securities thus insured, but the exact effect, if
any, of such insurance on such market value cannot be predicted.
The contract of insurance relating to an Insured Trust and the
negotiations in respect thereof represent the only relationship between
Financial Guaranty and the Trust. Otherwise neither Financial Guaranty nor its
parent, FGIC Corporation, or any affiliate thereof has any significant
relationship, direct or indirect, with a Trust or the Sponsor, except that the
Sponsor has in the past and may from time to time in the future, in the normal
course of its business, participate as sole underwriter or as manager or as a
member of underwriting syndicates in the distribution of new issues of municipal
bonds in which the investors or the affiliates of FGIC Corporation have or will
be participants or for which a policy of insurance guaranteeing the scheduled
payment of interest and principal has been obtained from
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Financial Guaranty. Neither an Insured Trust nor the Units nor the Portfolio is
insured directly or indirectly by FGIC Corporation.
Because of the Portfolio Insurance applicable to the Securities in an
Insured Trust insuring the scheduled payment of principal and interest and on
the basis of the financial condition and the method of operation of the insurer
(Financial Guaranty), Standard & Poor's Corporation has assigned a ``AAA''
investment rating to an Insured Trust. This is the highest rating assigned to
securities by Standard & Poor's Corporation. (See ``Bond Ratings''.) The
obtaining of this rating by an Insured Trust should not be construed as an
approval of the offering of the Units by Standard & Poor's Corporation or as a
guarantee of the market value of an Insured Trust or the Units. Standard &
Poor's Corporation has indicated that this rating is not a recommendation to
buy, hold or sell Units nor does it take into account the extent to which
expenses of an Insured Trust or sales by an Insured Trust of Securities for less
than the purchase price paid by an Insured Trust will reduce payment to Unit
Holders of the interest and principal required to be paid on the insured
Securities. There is no guarantee that the ``AAA'' investment rating with
respect to the Units will be maintained.
The purpose of the Portfolio Insurance obtained by an Insured Trust is to
obtain a higher yield on the Securities in the Portfolio than would be available
if all the Securities in such Portfolio were uninsured and had the Standard &
Poor's Corporation ``Aaa'' and/or Moody's Investors Service ``Aaa'' and/or Fitch
Investors Service, Inc. AAA rating(s) and, at the same time to have the
protection of Portfolio Insurance with respect to scheduled payment of interest
and principal on the Securities. There is, of course, no certainty that such
purpose will be realized.
Insurance on the Securities in the Portfolio of an Insured Trust--Insured to
Maturity
Certain of the Securities in an Insured Trust are insured to maturity as
to the scheduled payment of interest and principal either at the cost of the
Issuer at the time of issuance or by other entities (for Securities insured
prior to the Date of Deposit by AMBAC, Cap. Gty., Connie Lee, IIC, MBIA, MBIAC,
BIG+ or Financial Guaranty) (the ``Insurers'' or each individually an
``Insurer'') or at the cost of the Sponsor, effective on the Date of Deposit
(for Securities which were not insured at the time of issuance). The premium for
any insurance policy or policies obtained by an Issuer of securities has been
paid in advance by such Issuer and the insurance policies are non-cancellable
and will continue in force so long as Securities are outstanding and the
insurers remain in business. The respective insurance policies guarantee the
scheduled payment of principal and interest on but do not guarantee the market
value of the Securities covered by each policy or the value of the Units. In the
event the Issuer of an insured Security defaults in payment of interest or
principal, the insurance company insuring the Security will be required to pay
to the Trustee any interest or principal payments due. Only Securities covered
by a bond insurance policy may be deposited in an Insured Trust. Payment under
each of the insurance policies is to be made in respect of principal of and
interest on Securities covered thereby which becomes due for payment but is
unpaid. Each such policy provides for payment of the defaulted principal or
interest due to a trustee or paying agent. In turn, such trustee or paying agent
will make payment to the bondholder (in this case, the Trustee) upon
presentation of satisfactory evidence of such bondholder's right to receive such
payment.
Because the Securities are insured as to the scheduled payment of
principal and interest and on the basis of the creditworthiness and
claims-paying ability of certain insurers, Standard & Poor's Corporation,
Moody's Investors Service or Fitch Investors Service, Inc. have assigned to
those Securities in a Trust insured by such insurers, with the exception of IIC,
an investment rating of ``AAA'', ``Aaa'' or ``AAA'', respectively. (See
``Insurance on the Securities in the Portfolio of an Insured Trust--Insurers.'')
This is the highest rating assigned to securities by Standard & Poor's
Corporation, Moody's Investors Service or Fitch Investors Service, Inc. On July
13, 1990, Standard & Poor's Corporation lowered the ratings of IIC's
claims-paying ability to A+; consequently, the Bonds insured by IIC are rated A+
(see ``Bond Ratings''). The obtaining of a rating by a Trust should not be
construed as an approval of the offering of the Units by Standard & Poor's
Corporation, Moody's Investors Service or Fitch Investors Service, Inc. or as a
guarantee of the market value of the Trust or the Units.
Under the provisions of their insurance policies, the Insurers
unconditionally and irrevocably agree to pay their respective paying agent(s),
if any, that portion of the principal of and interest on the insured Securities
which shall become due for payment but shall be unpaid by reason of nonpayment
by the Issuer of the Securities. The term ``due for payment'' means, when
referring to the principal of a Security, its stated maturity date or the date
on which it shall have been called for mandatory sinking fund redemption and
does not refer to any earlier date on which payment is due
- ------------------
+Securities originally insured by BIG have been reinsured by MBIAC pursuant to
reinsurance agreements.
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by reason of call for redemption (other than by mandatory sinking fund
redemption), acceleration or other advancement of maturity and means, when
referring to interest on a Security, the stated date for payment of interest;
provided, however, that when the interest on a Security shall have been
determined, as provided in the documentation relating thereto, to be subject to
Federal income taxation, ``due for payment'' means, when referring to the
principal of such Security (after September 6, 1989 for a National Municipal
Trust), the date on which such Security has been called for mandatory redemption
as a result of such determination of taxability (prior to September 6, 1989 the
National Municipal Trust insurance policies generally did not provide for
redemption as a result of a taxability determination), and when referring to
interest on such Security, the accrued interest at the rate provided in such
documentation to the date on which such Security has been called for such
mandatory redemption, together with any applicable redemption premium.
The Insurers will make such payments to their respective paying agents on
the date such principal or interest becomes due for payment or on the business
day next following the day on which the Insurers shall have received notice of
nonpayment, whichever is later. The Paying Agent will disburse to the Trustee
the face amount of principal and interest which is then due for payment but is
unpaid by reason of nonpayment by the Issuer but only upon receipt by the Paying
Agent, of (i) evidence of the Trustee's right to receive payment of the
principal or interest due for payment and (ii) evidence, including any
appropriate instruments of assignment, that all of the rights to payment of such
principal or interest due for payment shall thereupon vest in the respective
Insurer. Upon such disbursement, the Insurer shall succeed to all of the rights
of the Trustee in the bond, appurtenant coupon or right to payment of prinicpal
or interest on such Security, as the case may be, including the right to payment
thereof.
In general, the insurance policies are noncancellable and will remain in
force as long as the Securities insured by such policy remain outstanding.
Insurance does not guarantee the market value of the Securities or the value of
the Units. However, any such insurance may be considered to represent an element
of market value in regard to the Securities thus insured, but the exact effect,
if any, of this insurance on such market value cannot be predicted. The
insurance also does not guarantee the premium paid for a Security that is called
for redemption prior to maturity.
In determining to insure Securities, each Insurer has applied its own
standards which correspond generally to the standards it has established for
determining the insurability of new issues of municipal bonds and which are not
necessarily the criteria used in regard to the selection of Securities by the
Sponsor. To the extent the Insurer's standards are more restrictive than those
of the Sponsor, a Trust's investment criteria have been limited with respect to
the Securities insured to the more restrictive standards. The cost of the
insurance has been paid either by the Issuers at the time of issuance or by
other entities or by the Sponsor on the Date of Deposit.
Insurance on the Securities in the Portfolio of an Insured Trust--Insurers
AMBAC Indemnity Corporation
AMBAC Indemnity Corporation (``AMBAC Indemnity'') is a Wisconsin-domiciled
stock insurance company, regulated by the Insurance Department of Wisconsin.
Such regulation, however, is no guarantee that AMBAC Indemnity will be able to
perform on its contracts of insurance in the event a claim should be made
thereunder at some time in the future. AMBAC Indemnity is licensed to do
business in 50 states, the District of Columbia and the Commonwealth of Puerto
Rico, with admitted assets (unaudited) of approximately $1,490,000,000 and
statutory capital (unaudited) of approximately $839,000,000 as of June 30, 1992.
Statutory capital consists of statutory contingency reserve and AMBAC
Indemnity's policyholders' surplus. AMBAC Indemnity is a wholly-owned subsidiary
of AMBAC, Inc., a 100% publicly-held Company. Moody's Investors Service, Inc.
and Standard & Poor's Corporation have both assigned a triple-A claims-paying
ability rating to AMBAC Indemnity.
Connie Lee Insurance Co.
Connie Lee Insurance Co. (``Connie Lee''), a Wisconsin stock insurance
company, is owned by the College Construction Loan Insurance Association, an
insurance holding company authorized and established by Congress as a private
corporation under the laws of the District of Columbia. The legislation
establishing the company stipulated that it provide a mix of direct insurance
and reinsurance business to issuers incurring debt obligations for an
``educational facilities purpose.'' The enabling legislation calls for Connie
Lee to provide credit enhancement services to colleges, universities, teaching
hospitals, and other educational institutions. As of September 30, 1992,
policyholders' surplus (unaudited) was $101,704,000, stockholders' equity
(unaudited) was $133,515,000 and total assets (unaudited) were $180,800,000.
Standard & Poor's Corporation has rated the claims-paying ability of Connie Lee
``AAA''.
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Capital Guaranty Insurance Company
Capital Guaranty Insurance Company (``Cap. Gty.''), a Maryland-domiciled
insurance company, which was incorporated in Maryland on June 25, 1986, and
commenced its operations in November 1986 is a wholly-owned subsidiary of
Capital Guaranty Corporation. Capital Guaranty Corportion is owned by
Constellation Investments Inc. (an affiliate of Baltimore Gas & Electric
Company), Fleet Financial Group Inc., Safeco Corp., Sibag Finance Corp. (and
affiliate of Siemens A.G.) and United States Fidelity and Guaranty Company
(``USF&G'') and management. Cap. Gty. a monoline financial guaranty insurer
insures general obligation, tax supported and revenue bonds structured as
tax-exempt and taxable securities as well as selectively insures taxable
corporate/asset backed securities. Cap. Gty.'s insured portfolio currently
includes over $13 billion in total principal and interest insured. As of
September 30, 1992, the total policyholders' surplus of Cap. Gty. was
$128,424,292 (unaudited), and the total admitted assets were $219,899,728
(unaudited) as reported to the Insurance Department of the State of Maryland.
Standard & Poor's Corporation has rated the claims-paying ability of Cap. Gty.
``AAA.''
Financial Security Assurance
Financial Security Assurance (``FSA'') is a monoline insurance company
incorporated on March 16, 1984 under the laws of the State of New York. FSA is
approximately 91.6% owned by US WEST, Inc. and 8.4% owned by Tokio Marine and
Fire Insurance Co., Ltd. (``Tokio Marine''). US WEST, Inc. operates businesses
involved in communications, data solutions, marketing services and capital
assets, including the provision of telephone services in 14 states in the
western and mid-western United States. Tokio Marine is a major Japanese property
and casualty insurance company. No shareholder of FSA is obligated to pay any
debt of FSA or any claim under any insurance policy issued by FSA or to make any
additional contribution to the capital of FSA. FSA and its two wholly-owned
subsidiaries are licensed to engage in financial guaranty insurance business in
48 states, the District of Columbia and Puerto Rico.
FSA and its subsidiaries are engaged exclusively in the business of
writing financial guaranty insurance, principally in respect of securities
offered in domestic and foreign markets. FSA and its subsidiaries principally
insure asset-backed, collateralized and municipal securities.
Pursuant to an intercompany agreement, liabilities on financial guaranty
insurance written by FSA or either of its subsidiaries are reinsured among such
companies on an agreed-upon percentage substantially proportional to their
respective capital, surplus and reserves, subject to applicable statutory risk
limitations. In addition, FSA reinsures a portion of its liabilities under
certain of its financial guaranty insurance policies with other reinsurers under
various quota share treaties and on a transaction-by-transaction basis.
As of June 30, 1992, the Unearned premium reserve of FSA was $208,438,000
(unaudited) and its total shareholder's equity was $590,544,000 (unaudited).
FSA's claims-paying ability is rated ``Aaa'' by Moody's Investors Service, Inc.
and ``AAA'' by Standard & Poor's Corporation.
Industrial Indemnity Company
Industrial Indemnity Company (``IIC'') is a wholly-owned subsidiary of
Crum and Forster, Inc. Crum and Foster, Inc. also wholly owns four other
insurance company subsidiaries. The insurance written by IIC and said four
subsidiaries is pooled pursuant to a Reinsurance Participation Agreement among
such five companies. The total assets and policyholders' surplus of such five
companies on a combined statutory basis as of June 30, 1992 was $9,534,089,276
and $1,545,631,405, respectively. Standard & Poor's Corporation has rated the
claims-paying ability of IIC ``A+.''
MBIA
The insurance companies comprising MBIA and their respective percentage
liabilities are as follows: The Aetna Casualty and Surety Company, thirty-three
percent (33%); The Fireman's Fund Insurance Company, thirty percent (30%); The
Travelers Indemnity Company, fifteen percent (15%); Cigna Property and Casualty
Company, twelve percent (12%); and The Continental Insurance Company, ten
percent (10%). All policies are individual obligations of the participating
insurance companies and their obligations thereunder cannot be increased beyond
their percentage commitment, therefore, each company will not be obligated to
pay any unpaid obligation of any other member of MBIA. Each insurance company's
participation is backed by all of its assets. However, each insurance company is
a multiline insurer involved in several lines of insurance other than municipal
bond insurance, and the assets of each insurance company also secure all of its
other insurance policy and surety bond obligations. The total New York statutory
assets of the participating insurance companies as of December 1991 was
$34,804,892,000. Standard & Poor's Corporation rates all new issues insured by
MBIA ``AAA'' and Moody's Investors Service rates all bond issues insured by MBIA
``Aaa''.
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MBIAC
MBIAC is the principal operating subsidiary of MBIA, Inc. MBIA, Inc. is
not obligated to pay the debts of or claims against MBIAC. MBIAC is a limited
liability corporation rather than a several liability association. MBIAC is
domiciled in the State of New York and licenced to do business in all 50 states,
the District of Columbia and the Commonwealth of Puerto Rico.
As of June 30, 1992, MBIAC had admitted assets (unaudited) of $2.3
billion, total liabilities (unaudited) of $1.6 billion, and total capital and
surplus (unaudited) of $746 million, in accordance with statutory accounting
practices prescribed or permitted by insurance regulatory authorities. Standard
& Poor's Corporation rates all new issues insured by MBIAC and Moody's Investors
Service rates all bond issues insured by MBIAC ``AAA'' and ``Aaa'',
respectively.
FINANCIAL GUARANTY
Financial Guaranty is a wholly-owned subsidiary of FGIC Corporation, a
Delaware holding company. Financial Guaranty, domiciled in the State of New York
and located at 175 Water Street, New York, New York 10038, commenced its
business of providing insurance and financial guaranties for a variety of
investment instruments in January, 1984. FGIC Corporation is a wholly-owned
subsidiary of General Electric Capital Corporation. FGIC Corporation and General
Electric Capital Corporation are not obligated to pay the debts of or the claims
against Financial Guaranty.
Financial Guaranty, in addition to providing insurance for the payment of
interest on and principal of municipal bonds and notes held in unit investment
trust portfolios, provides insurance for all or portions of new issues of
municipal bonds and notes and municipal bonds and notes held by mutual funds.
Financial Guaranty expects to provide other forms of financial guaranties in the
future. It is also authorized to write fire, property damage liability,
workmen's compensation and employer's liability and fidelity and surety
insurance. As of September 30, 1992, the total capital and surplus of Financial
Guaranty was approximately $601,985,000. Although the Sponsor has not undertaken
an independent investigation of Financial Guaranty, the Sponsor is not aware
that the information herein is inaccurate or incomplete. Fitch Investors Service
Inc., Standard & Poor's Corporation and Moody's Investors Service have rated the
claims-paying ability of Financial Guaranty ``AAA'', ``AAA'' and ``Aaa,''
respectively.
Financial Guaranty is currently authorized to provide insurance in 49
states and the District of Columbia, files reports with state insurance
regulatory agencies and is subject to audit and review by such authorities.
Financial Guaranty is also subject to regulation by the State of New York
Insurance Department. Such regulation, however, is no guarantee that Financial
Guaranty will be able to perform on its commitments or contracts of insurance in
the event claims should be made thereunder at some time in the future.
The information contained above relating to the above referenced insurers
has been furnished by publicly available sources including the respective
insurers. The financial information contained herein is unaudited but appears in
reports or other materials filed with state insurance regulatory authorities and
is subject to audit and review by such authorities. No representation is made
herein as to the accuracy or adequacy of such information or as to the absence
of material adverse changes in such information subsequent to the date thereof,
but the Sponsor is not aware that the information herein is inaccurate or
incomplete.
Because the Securities in an Insured Trust are insured by the Insurance
Companies as to the scheduled payment of principal and interest and on the basis
of the financial condition and the method of operation of the Insurance
Companies, Standard & Poor's Corporation has assigned a ``AAA'' investment
rating to Units of certain Insured Trusts. This is the highest rating assigned
to securities by Standard & Poor's Corporation. (See ``Bond Ratings''.) The
obtaining of this rating by an Insured Trust should not be construed as an
approval of the offering of the Units by Standard & Poor's Corporation or as a
guarantee of the market value of an Insured Trust or the Units. Standard &
Poor's Corporation has indicated that this rating is not a recommendation to
buy, hold or sell Units nor does it take into account the extent to which
expenses of an Insured Trust or sales by an Insured Trust of Securities for less
than the purchase price paid by an Insured Trust will reduce payment to Unit
Holders of the interest and principal required to be paid on the insured
Securities. There is no guarantee that the ``AAA'' investment rating with
respect to the Securities or Units will be maintained.
Objectives and Securities Selection
The objectives of each Trust are the providing of interest income which,
in the opinion of counsel is, under existing law, excludable from gross income
for Federal income tax purposes (except in certain instances depending on the
Unit Holder) through investment in a fixed portfolio consisting primarily of
long-term (intermediate term or selected term in
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the case of certain Trusts) state, municipal and public authority debt
obligations, and (with a certain exception discussed above) the conservation of
capital. In addition, in the opinion of counsel, interest income of each State
Trust is exempt, to the extent indicated, from state and any local income taxes
in the state for which such State Trust is named. There is, of course, no
guarantee that a Trust's objectives will be achieved.
In selecting Securities for a Trust, the following factors, among others,
were considered (a) ratings as of the Date of Deposit of A or better by Standard
& Poor's Corporation, Moody's Investors Service or Fitch Investors Service, Inc.
except for certain Trusts rated BBB or better (or in the case of a certain
National Municipal Trust B or better) by Standard & Poor's Corporation, Moody's
Investors Service or Fitch Investors Service, Inc. or comparable credit
characteristics in the opinion of the Prudential Investment Corporation, the
Sponsor's affiliate, (b) maturities or mandatory payment dates consistent with
the life of a Series, (c) price (and market discount in the case of Securities
in any Discount Series) of the Securities relative to other securities of
comparable quality and maturity, (d) the availability, rating of the claims
paying ability of an insurer, and cost of insurance of the scheduled payment of
principal and interest, when due, on the Securities in an Insured Series, (e)
diversification of the Securities as to purpose and location of Issuer (purpose
only in the case of State Trusts) and (f) all the Securities are obligations of
the states, counties, territories or municipalities of the United States and
authorities or political subdivisions thereof, so that the interest on them will
in the opinion of bond counsel to the issuing government authorities, be exempt
from Federal income tax under existing Federal law.
The Sponsor and/or an affiliate thereof intend to continuously monitor
developments affecting the Securities in each Trust in order to determine
whether the Trustee should be directed to dispose of any such Securities (See
``Sponsor--Responsibility'').
A Trust may contain Securities which were acquired through the Sponsor's
participation as sole underwriter or manager or as a member of the underwriting
syndicate for such Securities. (See Part A--``Portfolio Summary,'' herein.) An
underwriter typically purchases securities, such as the Securities in any Trust,
from the Issuer on a negotiated or competitive bid basis in order to market such
securities to investors at a profit.
The yields on Securities of the type deposited in each Trust are dependent
on a variety of factors, including interest rates, general conditions of the
municipal bond market, size of a particular offering, the maturity of the
obligation and rating of the issue. The ratings represent the opinions of the
rating organizations as to the quality of the securities which they undertake to
rate. It should be emphasized, however, that ratings are general and are not
absolute standards of quality. Consequently, securities with the same maturity,
coupon and rating may have different yields, while securities of the same
maturity and coupon with different ratings may have the same yield.
The Units
On a recent date each Unit in a Trust represented a fractional undivided
interest in the principal and net income of such Trust as is set forth in Part
A--``Summary of Essential Information.'' If any Units are redeemed after such
date by the Trustee, the face amount of Securities in such Trust will be reduced
by an amount allocable to redeemed Units and the fractional undivided interest
in such Trust represented by each unredeemed Unit will be increased although the
relative interest in the Trust represented by each such Unit will remain
unchanged. Units will remain outstanding until redeemed upon tender to the
Trustee by any Unit Holder, which may include the Sponsor, or until the
termination of the Trust. (See ``Amendment and Termination of the
Indenture--Termination.'')
Estimated Annual Income Per Unit
On a recent date, the Estimated Net Annual Income per Unit of a Trust was
the amount set forth above under Part A--``Summary of Essential Information.''
This figure is computed by dividing the estimated annual income per Unit (i.e.,
less estimated annual fees and expenses of the Sponsor, the Trustee, counsel and
the Evaluator), ignoring any original issue discount, by the number of Units
outstanding. Thereafter, the estimated net annual income per Unit for a Trust
will change whenever Securities mature, are redeemed or are sold, or as the
expenses of a Trust change. The fees
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of the Trustee, the Sponsor, counsel and the Evaluator are subject to change
without the consent of Unit Holders. (See ``Expenses and Charges,'' herein.)
Interest on the Securities, less estimated expenses of a Trust, is
expected to accrue at the daily rate shown under Part A--``Summary of Essential
Information,'' herein. This rate will change as Securities mature, are redeemed
or are sold, or as the expenses of a Trust change.
The Public Offering Price will vary due to fluctuations in the bid side
evaluations of the Securities and the net annual income per Unit may change as
Securities mature, are redeemed or are sold or as the expenses of a Trust
change.
TAX STATUS
In the opinion of bond counsel to the issuing governmental authorities,
interest income on the Securities comprising the Portfolio of each Trust is
(except in certain instances depending upon the Unit Holder, as described below)
exempt from Federal income tax under the provisions of the Internal Revenue Code
as in effect at the date of issuance and, in the case of each state series, the
specified state and local income tax with respect to individuals resident in
such state and locality. In the case of Securities issued at a time when the
1954 Code was in effect, redesignation of the Code as the Internal Revenue Code
of 1986 (the ``Code'' or the ``1986 Code'') has not adversely affected the
exemption from Federal income tax of interest income on such Securities. Gain
(exclusive of any earned original issue discount) realized on sale or redemption
of the Securities or on sale of a Unit is, however, includable in gross income
for Federal income tax purposes and for state and local income tax purposes
generally. (It should be noted in this connection that such gain does not
include any amounts received in respect of accrued interest.) Such gain may be
capital gain or ordinary income and if capital gain may be long or short-term
depending upon the facts and circumstances. Securities selling at market
discount tend to increase in market value as they approach maturity when the
principal amount is payable, thus increasing the potential for taxable gain on
their maturity, redemption or sale.
In the opinion of Messrs. Cahill Gordon & Reindel, special counsel for the
Sponsor, under existing law:
None of the Trusts is an association taxable as a corporation
for Federal income tax purposes, and interest on an underlying
Security which is exempt from Federal income tax under the Code when
received by a Trust will retain its status as tax exempt interest for
Federal income tax purposes to the Unit Holders.
Each Unit Holder will be considered the owner of a pro rata
portion of a Trust's assets under Sections 671-678 of the Code. Each
Unit Holder will be considered to have received his pro rata share of
interest derived from a Trust's assets when it is received by the
Trust and each Unit Holder will have a taxable event when an
underlying Security is disposed of (whether by sale, exchange,
redemption, or payment at maturity) or when the Unit Holder redeems or
sells his Units. The total tax cost of each Unit to a Unit Holder is
allocated among each of the underlying Securities (in accordance with
the proportion of a Trust's assets comprised by each Security) in
order to determine his per Unit tax cost for each Security, and the
tax cost reduction requirements of the Code relating to amortization
of bond premium will apply separately to the per Unit tax cost of each
Security. Therefore, under some circumstances a Unit Holder may
realize taxable gains when his Units are sold or redeemed for an
amount equal to or less than his original cost.
If proceeds received by a Trust upon the sale or redemption of an
underlying Security exceed a Unit Holder's adjusted tax cost allocable to the
Security disposed of, that Unit Holder will realize a taxable gain to the extent
of such excess. Conversely, if the proceeds received by a Trust upon the sale or
redemption of an underlying Security are less than a Unit Holder's adjusted tax
cost allocable to the Security disposed of, that Unit Holder will realize a loss
for tax purposes to the extent of such difference. Under the Code net capital
gain (i.e., the excess of net long-term capital gain over net short-term capital
loss) of individuals, estates and trusts is subject to a maximum nominal tax
rate of 28%. Such capital gain, may, however result in a disallowance of
itemized deductions and/or affect a personal exemption phase-out.
In the case of certain of the underlying Securities comprising the
Portfolio of a Trust, the opinions of bond counsel indicate that although
interest on such underlying Securities is generally exempt from Federal income
tax, such underlying Securities are ``industrial development bonds'' under the
1954 Code or ``private activity bonds'' under the 1986 Code as those terms are
defined in the relevant Code provisions, and interest on such underlying
Securities will not be exempt from Federal income tax for any period during
which such underlying Securities are held by a ``substantial user'' of the
facilities financed by the proceeds of such underlying Securities (or a
``related person'' to such a ``substantial user''). In the opinion of Messrs.
Cahill Gordon & Reindel, interest attributable to such underlying Securities
(although not subject to Federal income tax to the Trust), if received by a
Trust for the account of a Unit
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Holder who is such a ``substantial user'' or ``related person,'' will be taxable
(i.e., not tax exempt) to the same extent as if such underlying securities were
held by the Unit Holder directly as owner. No investigation as to the users or
of the facilities financed by the underlying Securities has been made by the
Sponsor or its counsel. Investors should consult their tax counsel for advice
with respect to the effect of these provisions on their particular tax
situations.
Furthermore, exemption of interest on a security from regular federal
income tax requires that the issuer of the security (or other user of the
security proceeds) meet certain ongoing compliance requirements. Failure to meet
these requirements could result in loss of the exemption and such loss of
exemption could apply retroactively from the date of issuance. A security may
provide that if a loss of exemption is determined to have occurred, the security
is immediately due and payable; and, in the case of a secured security, that the
security can be reached if the security is not then paid. If such a loss of
exemption were to occur and the security did not contain such an acceleration
clause, or if the acceleration did not in fact result in payment of the
security, the affected security would likely be sold as a taxable security. Sale
of a security as a taxable security would likely result in a realization of
proceeds less than the cost of the security.
Persons in receipt of Social Security benefits should be aware that the
amount of Social Security benefits includible in gross income for a taxable year
is the lesser of (i) one-half of the Social Security benefits or (ii) one-half
of the amount by which the sum of ``modified adjusted gross income'' plus
one-half of the Social Security benefits exceeds a ``base amount''. The base
amount is (a) $25,000 for an unmarried taxpayer, (b) $32,000 for married
taxpayers filing a joint return, and (c) zero for married taxpayers not living
apart who file separate returns. Modified adjusted gross income is adjusted
gross income determined without regard to certain otherwise allowable deductions
and exclusions from gross income, plus tax exempt interest on municipal
obligations including interest on the Securities. To the extent that Social
Security benefits are includible in gross income they will be treated as any
other item of gross income, and therefore may be taxable.
THE EXEMPTION OF INTEREST ON MUNICIPAL OBLIGATIONS FOR FEDERAL INCOME TAX
PURPOSES DOES NOT NECESSARILY RESULT IN EXEMPTION UNDER ANY OTHER FEDERAL TAX
LAW OR UNDER THE INCOME OR OTHER TAX LAWS OF ANY STATE OR CITY. THE LAWS OF THE
SEVERAL STATES VARY WITH RESPECT TO THE TAXATION OF SUCH OBLIGATIONS. (See
``Rights of Unit Holders--Reports and Records.'')
The Portfolio of a Trust may contain zero coupon bond(s) or one or more
other Securities which were originally issued at a discount (``original issue
discount''). In general, original issue discount can be defined as the
difference between the price at which a Security was issued and its stated
redemption price at maturity. In the case of a Security issued before September
4, 1982, original issue discount is deemed to accrue (be ``earned'') as
tax-exempt interest ratably over the period from the date of issuance of the
Security to the date of maturity and is apportioned among the original holder of
the obligation and subsequent purchasers in accordance with a ratio the
numerator of which is the number of calendar days the obligation was owned by
the holder and the denominator of which is the total number of calendar days
from the date of issuance of the obligation to its date of maturity. Gain or
loss upon the disposition of an original issue discount Security in a Portfolio
is measured by the difference between the amount realized upon disposition of
and the amount paid for such obligation. A holder is entitled, however, to
exclude from gross income that portion of such gain attributable to accrued
interest and the ``earned'' portion of original issue discount.
In the case of a Security issued after September 3, 1982, original issue
discount is deemed to accrue on a constant interest method which corresponds, in
general, to the economic accrual of interest (adjusted to eliminate
proportionately on an elapsed-time basis any excess of the amount paid for the
Security over the sum of the issue price and the accrued original issue discount
on the acquisition date). The Unit Holder's tax basis in the Security is
increased by the amount of original issue discount that is deemed to accrue and
is included in gross income by the Unit Holder while a Unit Holder holds his
Units and the Trust holds the Security. The difference between the amount
realized on a disposition of the Security (ex currently accrued interest) and
the adjusted tax basis of the Security will give rise to taxable gain or
deductible loss upon a disposition of the Security by a Trust (or a sale or
redemption of Units by a Unit Holder).
The Code provides, generally, that adjustments to taxable income to
produce alternative minimum taxable income for corporations will include 75% of
the amount by which adjusted current earnings (which would include tax-exempt
interest) of the taxpayer exceeds the alternative minimum taxable income of the
taxpayer before any amount is added to alternative minimum taxable income
because of this preference.
The Code also imposes an additional 12/100% ($12.00 per $10,000)
environmental tax on the alternative minimum taxable income (determined without
regard to any alternative tax net operating loss deduction) of a
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corporation in excess of $2,000,000 for each taxable year beginning before
January 1, 1996. The environmental tax is an excise tax and is deductible for
United States Federal income tax purposes (but not for purposes of the
environmental tax itself). Although the environmental tax is based on
alternative minimum taxable income, the environmental tax must be paid in
addition to any Federal income taxes payable by the corporation.
From time to time proposals have been introduced before Congress the
purpose of which is to restrict or eliminate the Federal income tax exemption
for interest on securities similar to the Securities in a Trust or to require
treatment of such interest as a ``tax preference'' for alternative minimum tax
purposes, and it can be expected that similar proposals may be introduced in the
future. A Trust and the Sponsor cannot predict what legislation, if any, in
respect of the tax status of interest on Securities may be proposed by the
Executive Branch or by members of Congress, nor can they predict which
proposals, if any, might be enacted or whether any legislation if enacted would
apply to the Securities in a Trust.
In addition, investors should be aware that no deduction is allowed for
Federal income tax purposes for interest on indebtedness incurred or continued
to purchase or carry Units in a Trust. Under rules used by the Internal Revenue
Service for determining when borrowed funds are considered used for the purpose
of purchasing or carrying particular assets, the purchase of Units may be
considered to have been made with borrowed funds even though the borrowed funds
are not directly traceable to the purchase of the Units. Under the Code gain
realized on sale or redemption of certain bonds attributable to market discount
will be treated as interest income rather than capital gain. This provision does
not apply to bonds yielding tax-exempt income.
New York Trust
In the opinion of Messrs. Cahill Gordon & Reindel, special New
York counsel on New York tax matters, under existing law:
Under the income tax laws of the State and City of New York, the
income of each Trust will be treated as the income of its Unit
Holders.
Interest on the underlying debt obligations which is exempt from
tax under the laws of the State and City of New York when received by
the New York Trust will retain its status as tax-exempt interest to
its Unit Holders. (Interest on the underlying obligations in the New
York Trust is, however, not excludable from income in determining the
amount of the income-based (i) New York State franchise taxes on
business and financial corporations or (ii) the New York City general
corporation tax and the New York City financial corporation tax.) The
minimum income taxes imposed by New York State and New York City on
individuals, estates and trusts exclude from their taxable bases the
Federal tax preference item with respect to tax-exempt interest.
Non-residents of New York City will not be subject to the City
personal income tax on gains derived with respect to their Units.
Non-residents of the State will not be subject to New York State
personal income tax on such gains unless the Units are employed in a
business, trade or occupation carried on in New York State. A New York
State or City resident should determine his basis and holding period
for his Units in the same manner for New York State and City personal
income tax purposes as for Federal income tax purposes.
Insured Prudential Unit Trusts--Date of Deposit on or prior to May 22, 1985
Messrs. Cahill Gordon & Reindel, relying upon the opinion of Brown & Wood,
mentioned below as to proceeds received under a Financial Guaranty Policy, and
on the assumptions mentioned below regarding proceeds received under policies of
other insurers, are also of the opinion that (i) proceeds received pursuant to
the terms of such insurance policies which represent matured interest on a
defaulted obligation will be excludable from gross income under the personal
income tax laws of the State and City of New York, if and to the same extent
such interest would have been so excludable if paid by the Issuer of such
defaulted obligation and (ii) assuming that each of the other insurance policies
has been validly issued, is of standard form with respect to subrogation and
does not relieve the Issuer of the Security of its obligations thereunder,
proceeds received under such insurance policies representing matured
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interest on a defaulted obligation will likewise be excludable from Federal
gross income if, and to the same extent, such interest would have been so
excludable if paid by the Issuer of such defaulted obligation.
Insured Prudential Unit Trusts--Date of Deposit on or prior to April 2, 1986
Messrs. Cahill Gordon & Reindel, relying upon the opinion of Brown & Wood
mentioned below as to proceeds received under a Financial Guaranty Policy, are
also of the opinion that proceeds received pursuant to the terms of such
insurance policy which represents matured interest on a defaulted obligation
will be excludable from gross income under the personal income tax laws of the
State and City of New York, if, and to the same extent, such interest would have
been so excludable if paid by the Issuer of such defaulted obligation.
In the case of Securities insured as of the Date of Deposit by
Financial Guaranty, in the opinion of Brown & Wood, as a special tax
counsel for Financial Guaranty:
``[A]ny proceeds received pursuant to the terms of the
[i]nsurance [p]olic[y] [issued by Financial Guaranty in respect of the
Securities in the Trust] which represent maturing interest on
defaulted obligations will be excludable from Federal gross income if,
and to the same extent, such interest would have been so excludable if
paid by the Issuer of such defaulted obligations.''
Insured Prudential Unit Trusts--Date of Deposit after April 2, 1986 and National
Municipal Trusts
Furthermore, assuming that the applicable insurance policy has been
validly issued, is of standard form with respect to subrogation and does not
relieve the Issuer of the Security of its obligations thereunder, Messrs. Cahill
Gordon & Reindel are of the opinion that proceeds received under the insurance
policy representing matured interest on a defaulted obligation will be
excludable from Federal gross income and from New York State gross income under
the personal income tax laws of the State and City of New York if, and to the
same extent, such interest would have been so excludable if paid by the Issuer
of such defaulted obligation.
Opinions relating to the validity of the underlying Securities and the
exemption of interest thereon from Federal income tax are rendered by bond
counsel to the issuing governmental authorities. It is the view of the
Prudential Investment Corporation, the Sponsor's affiliate, that interest on the
Securities will not be a tax preference item unless otherwise indicated on the
``Schedule of Portfolio Securities'' as Securities the interest on which is in
the opinion of bond counsel, treated as a tax preference item for alternative
minimum tax purposes. See ``Schedule of Portfolio Securities''. Neither the
Sponsor nor its counsel have made any review of proceedings relating to the
issuance of underlying Securities or the bases for bond counsel's opinions or
the view of the Prudential Investment Corporation, the Sponsor's affiliate. The
Sponsor and its Counsel are, however, aware of nothing which would indicate to
the contrary.
Investors should consult their own tax advisors with respect to the
applicability of the foregoing general comments to their own particular
situations and as respects state and local tax consequences of an investment in
Units.
PUBLIC OFFERING OF UNITS
Public Offering Price
The Public Offering Price of Units is computed by adding to the aggregate
bid price of the Securities in a Trust, any money in the Principal Account other
than money required to redeem tendered Units, dividing such sum by the number of
Units outstanding, and then adding a sales charge as set forth in the tables
below under Volume Discount. A proportionate share of accrued and undistributed
interest on the Securities to the settlement date for Units purchased is also
added to the Public Offering Price.
The Public Offering Price on a date subsequent to the date listed on the
``Summary of Essential Information'' in Part A may vary from the Public Offering
Price set forth on the ``Summary of Essential Information'' in accordance with
fluctuations in the evaluation of the underlying Securities in the Trust.
The aggregate bid prices of the Securities in a Trust, as is appropriate,
shall be determined for a Trust by the Evaluator in the following manner: (a) on
the basis of current bid prices for the Securities as obtained from investment
dealers or brokers (including the Sponsor) who customarily deal in securities
comparable to those held in the Trust, (b) if there is no market for such
securities, and bid prices are not available, prices for comparable securities,
(c) by determining the value of the Securities on the bid side of the market by
appraisal, or (d) by any combination of the above. Unless a Security is in
default in payment of principal or interest or in significant risk of such
default, the Evaluator will not attribute any value to the Portfolio Insurance
obtained by a Prudential Unit Trusts Insured Trust or to an Insured Trust's
right to secure Permanent Insurance with respect to such Security in the event
of a sale of such
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Security. The value of insurance obtained for a security by the Issuer of a
Security or by the Sponsor on the Date of Deposit is reflected and included in
the market value of such Security. Evaluations for purposes of secondary market
transactions by the Sponsor and redemptions by the Trustee will be made each
business day as of the Evaluation Time, effective for all redemptions made
subsequent to the last preceding determination.
The Evaluator will consider in its evaluation of Securities which are in
default in payment of principal or interest or, in the Sponsor's opinion, in
significant risk of such default (the ``Defaulted Security'') and which are
covered by Portfolio Insurance obtained by an Insured Trust and which may be
covered by Permanent Insurance upon a sale of a Defaulted Security, the value of
the insurance guaranteeing interest and principal payments. The value of the
insurance will be equal to the difference between (i) the market value of
Defaulted Securities 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 such Defaulted Securities not covered by
Permanent Insurance. In addition, the Evaluator will consider the ability of
Financial Guaranty to meet its commitments under an Insured Trust's insurance
policy, including the commitments to issue Permanent Insurance.
Public Distribution
Unsold Units or Units acquired by the Sponsor in the secondary market
referred to below may be offered to the public by this Prospectus at the then
current Public Offering Price, plus accrued interest.
The Sponsor intends to qualify Units for sale in states selected by the
Sponsor, to be sold by the Sponsor and through dealers who are members of the
National Association of Securities Dealers, Inc. In the State of Virginia, Units
of a State Trust will not be offered for sale. Sales to dealers will initially
be made at prices which include a concession per Unit as stated below, but
subject to change from time to time at the discretion of the Sponsor.
The dealer concession per Unit, which is subject to change, at the
discretion of the Sponsor, is currently 73% of the sales charge per Unit.
Sales will be made only with respect to whole Units, and the Sponsor
reserves the right to reject, in whole or in part, any order for the purchase of
Units.
In addition, sales of Units may be made pursant to distribution
arrangements with certain banks which are acting as agents for their customers.
These banks are making Units of the Trust available to their customers on an
agency basis. A portion of the sales charge paid by these customers is retained
by or remitted to the banks in amounts comparable to the aforementioned dealers'
conscessions. The Glass-Steagall Act prohibits banks from underwriting certain
securities, including Units of the Trust; however, this Act does permit certain
agency transactions, and banking regulators have not indicated that these
particular agency transactions are impermissible under this Act. In Texas, any
bank making Units available must be registered as a broker-dealer in that State.
Secondary Market
While not obligated to do so, it is the Sponsor's present intention to
maintain a secondary market for Units of each Trust and to continuously offer to
repurchase Units from Unit Holders at the applicable Sponsor's Repurchase Price.
(See Part A--``Summary of Essential Information,'' herein.) The Sponsor's
Repurchase Price is computed by adding to the aggregate of the bid prices of the
Securities in a Trust, any money in the Principal Account other than money
required to redeem tendered Units, plus accrued interest, deducting therefrom
expenses of the Trustee, Evaluator, Sponsor and counsel, and taxes, if any, and
then dividing the resulting sum by the number of Units outstanding, as of the
date of such computation. Any Units repurchased by the Sponsor at the Sponsor's
Repurchase Price may be reoffered to the public by the Sponsor at the then
current Public Offering Price, plus accrued interest. Any profit or loss
resulting from the resale of such Units will belong to the Sponsor.
If the supply of Units exceeds demand (or for any other business reason),
the Sponsor may, at any time, occasionally, from time to time, or permanently,
discontinue the repurchase of Units. In such event, Unit Holders (including the
Sponsor) may redeem their Units through the Trustee at the Redemption Price
which is based upon the aggregate bid price of the Securities. (See ``Rights of
Unit Holders--Redemption--Computation of Redemption Price
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Per Unit.'') In no event will the price offered by the Sponsor for the
repurchase of Units be less than the current Redemption Price for those Units.
(See ``Rights of Unit Holders--Redemption,'' herein.)
Profit of Sponsor
The Sponsor receives a sales charge as set forth in the tables below. On
the sale of Units to dealers, the Sponsor will retain the difference between the
dealer concession and the sales charge. (See ``Public Distribution,'' herein).
The Sponsor may realize profits (or sustain losses) due to daily
fluctuations in the prices of the Securities in a Trust and thus in the Public
Offering Price of Units received by the Sponsor. Cash, if any, received by the
Sponsor from the Unit Holders prior to the settlement date for purchase of Units
may be used in the Sponsor's business to the extent permitted by applicable
regulations and may be of benefit to the Sponsor.
The Sponsor may also realize profits (or sustain losses) while maintaining
a secondary market in the Units, in the amount of any difference between the
prices at which the Sponsor buys Units (based on the bid side evaluation of the
Securities in a Trust) and the prices at which the Sponsor resells such Units or
the prices at which the Sponsor redeems such Units (also based on the bid side
evaluation of the Securities in a Trust), as the case may be.
Volume Discount
Although under no obligation to do so, the Sponsor intends to permit
volume purchasers of Units to purchase Units at a reduced sales charge. The
Sponsor may at any time change the amount by which the sales charge is reduced,
or discontinue the discount altogether.
The sales charge per Unit will be reduced for sales to any person of at
least 100 Units of the indicated trust pursuant to the following graduated
scales:
<TABLE>
<CAPTION>
Sales Charge
- ----------------------------------------------------------------------------------------------------------------------------------
Prudential Unit Trusts Composed Prudential Unit Trusts Composed
of Long Term Securities of Selected Term Securities
-------------------------------------- --------------------------------------
Percent of Public Percent of Net Percent of Public Percent of Net
Number of Units Offering Price Amount Invested Number of Units Offering Price Amount Invested
----------------- ---------------- ----------------- ----------------
<S> <C> <C> <S> <C> <C>
Less than 100 Units.... 5.50 % 5.820 % Less than 100 Units.... 3.50 % 3.627 %
100-249 Units.......... 5.00 % 5.263 % 100-249 Units.......... 3.00 % 3.092 %
250-499 Units.......... 4.25 % 4.439 % 250-499 Units.......... 2.25 % 2.302 %
500-749 Units.......... 3.75 % 3.896 % 500-749 Units.......... 1.50 % 1.523 %
750-999 Units.......... 3.00 % 3.092 % 750-999 Units.......... 1.00 % 1.010 %
1,000 Units or more.... 2.25 % 2.302 % 1,000 Units or more.... 0.75 % 0.756 %
<CAPTION>
National Municipal Trust National
Series, Multistate Series, Insured
Series (except for the Insured
Series) (10-15 Year Average
Maturity Program) and the National Municipal Trust
Selected Credit Trust Series Intermediate Term Trusts
-------------------------------------- --------------------------------------
Percent of Public Percent of Net Percent of Public Percent of Net
Number of Units Offering Price Amount Invested Number of Units Offering Price Amount Invested
----------------- ---------------- ----------------- ----------------
<S> <C> <C> <S> <C> <C>
Less than 100 Units.... 5.50 % 5.820 % Less than 100 Units.... 4.50 % 4.712 %
100-249 Units.......... 5.00 % 5.263 % 100-249 Units.......... 4.00 % 4.167 %
250-499 Units.......... 4.50 % 4.712 % 250-499 Units.......... 3.50 % 3.627 %
500-749 Units.......... 4.25 % 4.439 % 500-749 Units.......... 3.00 % 3.093 %
750-999 Units.......... 4.00 % 4.167 % 750-999 Units.......... 2.50 % 2.564 %
1,000 Units or more.... 3.75 % 3.896 % 1,000 Units or more.... 2.00 % 2.041 %
<CAPTION>
National Municipal Trust
National Municipal Trust Insured Series (10-15 Year
Discount Series Average Maturity Program)
-------------------------------------- --------------------------------------
Percent of Public Percent of Net Percent of Public Percent of Net
Number of Units Offering Price Amount Invested Number of Units Offering Price Amount Invested
----------------- ---------------- ----------------- ----------------
<S> <C> <C> <S> <C> <C>
Less than 100 Units.... 6.00 % 6.383 % Less than 100 Units.... 4.90 % 5.152 %
100-249 Units.......... 5.50 % 5.820 % 100-249 Units.......... 4.50 % 4.712 %
250-499 Units.......... 5.25 % 5.541 % 250-499 Units.......... 4.25 % 4.439 %
500-999 Units.......... 5.00 % 5.263 % 500-999 Units.......... 4.00 % 4.167 %
1,000 Units or more.... 4.50 % 4.712 % 1,000 Units or more.... 3.25 % 3.359 %
</TABLE>
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The respective reduced sales charges as shown on each of the above charts
will apply to all purchases of Units in any fourteen day period by the same
person in the amounts stated herein, and for this purpose, purchases of Units of
a Trust will be aggregated with concurrent purchases of Units of any other trust
that may be offered by the Sponsor.
Units held in the name of the purchaser's spouse, in the name of a
purchaser's child under the age of 21 or in the name of an entity controlled by
the purchaser are deemed for the purposes hereof to be acquired by the
purchaser. The reduced sales charges are also applicable to a trustee or other
fiduciary purchasing Units for a single trust estate or single fiduciary
account.
Employee Discount
The Sponsor intends to permit employees of Prudential Securities
Incorporated and its subsidiaries and affiliates to purchase Units of a Trust at
a price equal to the bid side evaluation of the Securities in a Trust divided by
the number of Units outstanding plus a reduced sales charge of $5.00 per Unit,
subject to a limit of 5% of the Units of a Trust at the discretion of the
Sponsor.
EXCHANGE OPTION
Unit Holders may elect to exchange any or all of their Units of this
series of the National Municipal Trust or Prudential Unit Trusts for units of
one or more of any other series in the Prudential Securities Incorporated family
of unit investment trusts or certain additional trusts that may from time to
time be made available for such exchange by the Sponsor (collectively referred
to as the ``Exchange Trusts''). Such units may be acquired at prices based on
reduced sales charges per unit. The purpose of such reduced sales charges is to
permit the Sponsor to pass on to the Unit Holder who wishes to exchange Units
the cost savings resulting from such exchange of Units. The cost savings result
from reductions in time and expense related to advice, financial planning and
operational expense required for the Exchange Option. Exchange Trusts may have
different investment objectives; a Unit Holder should read the prospectus for
the applicable Exchange Trust carefully to determine the investment objective
prior to the exercise of this option.
This option will be available provided the Sponsor maintains a secondary
market in both the Units of this series and units of the applicable Exchange
Trust and provided that units of the applicable Exchange Trust are available for
sale and are lawfully qualified for sale in the jurisdiction in which the Unit
Holder resides. While it is the Sponsor's intention to maintain a secondary
market for the units of all such trusts, there is no obligation on its part to
do so. Therefore, there is no assurance that a market for units will in fact
exist on any given date on which a Unit Holder wishes to sell or exchange his
units; thus there is no assurance that the Exchange Option will be available to
any Unit Holder. The Sponsor reserves the right to modify, suspend or terminate
this option at any time without further notice to Unit Holders. In the event the
Exchange Option is not available to a Unit Holder at the time he wishes to
exercise it, the Unit Holder will be immediately notified and no action will be
taken with respect to his units without further instruction from the Unit
Holder.
Exchanges will be effected in whole units only. If the proceeds from the
Units being surrendered are less than the cost of a whole number of units being
acquired, the exchanging Unit Holder will be permitted to add cash in an amount
to round up to the next highest number of whole units. When units held for less
than five months are exchanged for units with a higher regular sales charge, the
sales charge will be the greater of (a) the reduced sales charge or (b) the
difference between the sales charge paid in acquiring the units being exchanged
and the regular sales charge for the quantity of units being acquired,
determined as of the date of the exchange.
To exercise the Exchange Option, a Unit Holder should notify the Sponsor
of his desire to use the proceeds from the sale of his Units to purchase units
of one or more of the Exchange Trusts. If units of the applicable outstanding
series of the Exchange Trust are at that time available for sale, the Unit
Holder may select the series or group of series for which he desires his Units
to be exchanged. The Unit Holder will be provided with a current prospectus or
prospectuses relating to each series in which he indicates interest.
The exchange transaction will operate in a manner essentially identical to
any secondary market transaction, i.e., Units will be repurchased at a price
equal to the aggregate bid side evaluation per Unit of the Securities in the
Portfolio plus accrued interest. Units of the Exchange Trust will be sold to the
Unit Holder at a price equal to the Public Offering Price per unit of the
securities in that portfolio plus accrued interest and the applicable sales
charge of $15 per Unit. Excess proceeds not used to acquire whole units will be
paid to the exchanging Unit Holder.
Owners of units of any registered unit investment trust, other than
Prudential Securities Incorporated sponsored trusts, which was initially offered
at a minimum applicable sales charge of 3.0% of the public offering price
exclusive of any applicable sales charge discounts may elect to apply the cash
proceeds of sale or redemption of those units directly
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to acquire available units of any Exchange Trust at the reduced sales charge of
$20 per Unit, subject to the terms and conditions applicable to the Exchange
Option. To exercise this option, the owner should notify his retail broker. He
will be given a prospectus of each series in which he indicates interest of
which units are available. The Sponsor reserves the right to modify, suspend or
terminate the option at any time without further notice, including the right to
increase the reduced sales charge applicable to this option (but not in excess
of $5 more per unit than the corresponding fee then charged for a unit of an
Exchange Trust which is being exchanged).
For example, assume that a Unit Holder, who has three units of a Trust
with a 4.75% sales charge and a current price of $1,100 per unit, sells his
units and exchanges the proceeds for units of a series of an Exchange Trust with
a current price of $950 per unit and an ordinary sales charge of 4.75%. The
proceeds from the Unit Holder's units will aggregate $3,300. Since only whole
units of an Exchange Trust may be purchased under the Exchange Option, the
Holder would be able to acquire four units in the Exchange Trust for a total
cost of $3,860 ($3,800 for units and $60 for the $15 per unit sales charge) by
adding an extra $560 in cash. Were the Unit Holder to acquire the same number of
units at the same time in the regular secondary market maintained by the
Sponsor, the price would be $3,989.50 [$3,800 for the units and $189.50 for the
4.75% sales charge (4.987% of the net amount invested)].
Tax Consequences
An exchange of Units pursuant to the Exchange Option will generally
constitute a ``taxable event'' under the Code, i.e. a Unit Holder will recognize
a gain or loss at the time of the exchange. However, an exchange of Units of a
series of the National Municipal Trust or Prudential Unit Trusts for units of
any other series of Exchange Trusts which are grantor trusts for U.S. federal
income tax purposes will not constitute a taxable event to the extent that the
underlying Securities in each trust do not differ materially either in kind or
in extent. Unit Holders are urged to consult their own tax advisors as to the
tax consequences to them of exchanging Units in particular cases.
REINVESTMENT PROGRAM
Distributions of interest and principal, if any, are made to Unit Holders
monthly for Prudential Unit Trusts and monthly, quarterly or semiannually for a
National Municipal Trust. The Unit Holder will have the option of either
receiving his income check from the Trustee or reinvesting the distribution in
an open-end diversified management investment company offered by the Sponsor
whose investment objective is to attain for investors the highest level of
current income that is exempt from federal income taxes, consistent with
liquidity and the preservation of capital. Participation in any such fund is
conditioned on such funds' lawful qualification for sale in the jurisdiction in
which the Unit Holder resides. There can be no assurance, however, that such
qualification will be obtained. Upon enrollment in the reinvestment program, the
Trustee will direct interest distributions and principal distributions, if any,
to the designated fund. The Reinvestment Program does not involve insured
securities. The appropriate prospectus will be sent to the Unit Holder. A Unit
Holder's election to participate in this reinvestment program will apply to all
Units of a Trust owned by such Unit Holder. The Unit Holder should read the
prospectus for a reinvestment program carefully before deciding to participate.
EXPENSES AND CHARGES
Fees
The Portfolio supervision fee (the ``Supervision Fee''), which is earned
for Portfolio supervisory services, is based upon the aggregate face amount of
Securities in a Trust at the beginning of each calendar year.
The Supervision Fee, which is not to exceed the amount (set forth in Part
A--``Summary of Essential Information'') per $1,000 face amount of Securities in
a Trust, may exceed the actual costs of providing Portfolio supervisory services
for such Trust, but at no time will the total amount the Sponsor receives for
Portfolio supervisory services rendered to all series of the National Municipal
Trust or Prudential Unit Trusts in any calendar year exceed the aggregate cost
to it and/or an affiliate thereof of supplying such services in such year. For a
description of the Portfolio supervisory services to be provided by the Sponsor
and/or an affiliate thereof, see ``Sponsor--Responsibility.'' The Supervision
Fee will be paid to the Sponsor by a Trust. The Prudential Insurance Company of
America, the indirect parent of the Sponsor, or a division or subsidiary
thereof, has agreed to advise the Sponsor regarding the Sponsor's Portfolio
supervisory services and will be compensated by the Sponsor for such advisory
services.
The cost of the Portfolio Insurance obtained by an Insured Trust is an
annual amount set forth in Part A-- ``Summary of Essential Information'' and is
payable so long as such Insured Trust retains the Securities thus insured.
Premiums for the Portfolio Insurance are payable monthly in advance by the
Trustee on behalf of an Insured Trust. As Securities in the Portfolio are
redeemed by their respective Issuers or are sold by the Trustee, the amount of
premium
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will be reduced to reflect elimination of those Securities no longer owned by
and held in an Insured Trust. Securities for which insurance has been obtained
by the Issuer from Financial Guaranty are also covered by the Portfolio
Insurance but no premium is charged for the insurance obtained by an Insured
Trust on such Securities. Securities for which insurance has been obtained by an
Issuer from insurance companies other than Financial Guaranty are also covered
by an Insured Trust's Portfolio Insurance but the premiums for insurance
obtained by an Insured Trust on such Securities reflect the existence of the
insurance obtained by the issuer from such other insurance companies. The
premiums payable for Permanent Insurance with respect to a Security will be paid
solely from the proceeds of the sale of such Security in the event the Trustee
exercises the right to obtain Permanent Insurance on the Security.
For its service as Trustee under the Indenture, the Trustee receives an
annual fee in the amount set forth under Part A--``Summary of Essential
Information.''
For each evaluation of the Securities in a Trust, the Evaluator will
receive a fee in the amount set forth under Part A--``Summary of Essential
Information.''
The Supervision Fee accrues quarterly but is paid annually, and the
Trustee's fees and the Evaluator's fees are payable monthly on or before each
Distribution Date from the Interest Account, to the extent funds are available,
and thereafter from the Principal Account. Any of such fees may be increased
without approval of the Unit Holders in proportion to increases under the
classification ``All Services Less Rent'' in the Consumer Price Index published
by the United States Department of Labor. The Trustee also receives benefits to
the extent that it holds funds on deposit in various non-interest bearing
accounts created under the Indenture.
Other Charges
The following additional charges are or may be incurred by a Trust as more
fully described in the Indenture (a) fees of the Trustee for extraordinary
services, (b) expenses of the Trustee (including legal and auditing expenses)
and of counsel designated by the Sponsor, (c) all taxes and various governmental
charges, (d) expenses and costs of any action taken by the Trustee to protect a
Trust and the rights and interests of the Unit Holders, (e) indemnification of
the Trustee for any losses, liabilities or expenses incurred by it in the
administration of a Trust without gross negligence, bad faith, willful
misfeasance or willful misconduct on its part or reckless disregard of its
obligations and duties, (f) indemnification of the Sponsor for any losses,
liabilities and expenses incurred in acting as Sponsor or Depositor under the
Indenture without gross negligence, bad faith, willful misfeasance or willful
misconduct or reckless disregard of its obligations and duties, (g) expenditures
incurred in contacting Unit Holders upon termination of a Trust and (h) to the
extent then lawful, expenses (including legal, auditing and printing expenses)
of maintaining registration or qualification of the Units and/or a Trust under
Federal or state securities laws so long as the Sponsor is maintaining a market
for the Units.
The fees and expenses set forth herein for a Trust are payable out of such
Trust and when so paid by or owing to the Trustee are secured by a lien on such
Trust. If the balances in the Interest and Principal Accounts are insufficient
to provide for amounts payable by a Trust, the Trustee has the power to sell
Securities to pay such amounts. To the extent Securities are sold, the size of
such Trust will be reduced and the proportions of the types of Securities will
change. Such sales might be required at a time when Securities would not
otherwise be sold and might result in lower prices than might otherwise be
realized. Moreover, due to the minimum principal amount in which Securities may
be required to be sold, the proceeds of such sales may exceed the amount
necessary for the payment of such fees and expenses.
RIGHTS OF UNIT HOLDERS
Certificates
Ownership of Units is evidenced by registered certificates executed by the
Trustee and the Sponsor. Certificates are transferable by presentation and
surrender to the Trustee properly endorsed or accompanied by a written
instrument or instruments of transfer.
Certificates may be issued in denominations of one Unit or any multiple
thereof. A Unit Holder may be required to pay $2.00 per certificate reissued or
transferred, and will be required to pay any governmental charge that may be
imposed in connection with each such transfer or interchange. For new
certificates issued to replace destroyed, stolen or
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lost certificates, the Unit Holder must furnish indemnity satisfactory to the
Trustee and must pay such expenses as the Trustee may incur. Mutilated
Certificates should be surrendered to the Trustee for replacement.
Distribution of Interest and Principal
Interest and principal received by a Trust will be distributed on each
Distribution Date on a pro rata basis to Unit Holders of record as of the
preceding Record Date. All distributions will be net of applicable expenses and
funds required for the redemption of Units and, if applicable, reimbursements to
the Trustee for interest payments advanced to Unit Holders on previous
Distribution Dates. (See Part A--``Summary of Essential Information,'' and
``Expenses and Charges'' and ``Rights of Unit Holders--Redemption'' herein.)
The Trustee will credit to the Interest Account all interest received by a
Trust, including that part of the proceeds of any disposition of Securities
which represents accrued interest. Other receipts will be credited to the
Principal Account. The pro rata share of the Interest Account and the pro rata
share of cash in the Principal Account represented by each Unit will be computed
by the Trustee as of each Record Date. (See ``Summary of Essential Information''
in Part A.) Proceeds received from the disposition of any of the Securities
subsequent to a Record Date and prior to the next succeeding Distribution Date
will be held in the Principal Account and will not be distributed until the
following Distribution Date. The distribution to Unit Holders as of each Record
Date will be made on the following Distribution Date or shortly thereafter and
shall consist of an amount including such Unit Holders' pro rata share of the
estimated annual income to be credited to the Interest Account after deducting
estimated expenses (the ``Interest Distribution'') plus such Unit Holders' pro
rata share of the cash balance in the Principal Account computed as of the close
of business on the preceding Record Date. Persons who purchase Units between a
Record Date and a Distribution Date will receive their first distribution on the
second Distribution Date following their purchase of Units. No distribution need
be made from the Principal Account if the balance therein is less than an amount
sufficient to distribute $1.00 per Unit. The Interest Distribution per Unit
initially set forth under ``Summary of Essential Information'' in Part A will
change as the income and expenses of the Trust change, as Securities are
exchanged, redeemed, paid down or sold.
Normally, interest on the Securities in the Portfolio is paid on a
semi-annual basis. Because interest is not received by a Trust at a constant
rate throughout the year, any Interest Distribution may be more or less than the
amount credited to the Interest Account as of the Record Date. In order to
eliminate fluctations in interest distributions resulting from such variances,
the Trustee is required by the Indenture to advance such amounts as may be
necessary to provide interest distributions of approximately equal amounts. The
Trustee will be reimbursed, without interest, for any such advances from funds
available from the Interest Account on the next ensuing Record Date or Record
Dates, as the case may be. If all or a portion of the Securities for which
advances have been made subsequently fail to pay interest when due, the Trustee
may recoup advances made by it in anticipation of receipt of interest payments
on such Securities by reducing the amount otherwise distributable per Unit with
respect to one or more Interest Distributions. If Units are redeemed subsequent
to such advances by the Trustee, but prior to receipt by the Trustee of actual
notice of such failure to pay interest, the amount of which was so advanced by
the Trustee, each remaining Unit Holder will be subject to a greater pro rata
reduction in his Interest Distribution than would have occurred absent such
redemptions. Funds which are available for future distributions, payments of
expenses and redemptions are in accounts which are non-interest bearing to Unit
Holders and are available for use by United States Trust Company of New York,
pursuant to normal banking procedures.
In addition, because of the varying interest payment dates of the
Securities comprising a Trust's Portfolio, accrued interest at any point in time
will be greater than the amount of interest actually received by a Trust and
distributed to Unit Holders. Therefore, there will always remain an item of
accrued interest that is added to the value of the Units. If a Unit Holder sells
all or a portion of his Units a portion of his sale proceeds will be allocable
to his proportionate share of the accrued interest. Similarly, if a Unit Holder
redeems all or a portion of his Units, the Redemption Price per Unit which he is
entitled to receive from the Trustee will include accrued interest. (See
``Rights of Unit Holders-- Redemption--Computation of Redemption Price per
Unit.'')
Purchasers of Units who desire to receive National Municipal Trust
distributions on a semiannual or quarterly basis may elect to do so at the time
of purchase if such option is available. Those indicating no choice will be
deemed to have chosen the monthly distribution plan. Record dates for monthly
distributions will be the twentieth day of the preceding month, record dates for
quarterly distributions will be the twentieth day of March, June, September and
December, and record dates for semiannual distributions will be the twentieth
day of June and December.
The plan of distribution selected by a Unit Holder will remain in effect
until changed. Unit Holders purchasing Units in the secondary market will
initially receive distributions in accordance with the election of the prior
owner. If more than one payment option is available, the Trustee will furnish
each Unit Holder a card in November of each year,
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to be returned to the Trustee by December 20 of such year if the Unit Holder
desires to change his plan of distribution. Unit Holders desiring to change the
plan of distribution in which they are participating may so indicate on the card
and return same, together with their Certificate to the Trustee. If the card and
Certificate are returned to the Trustee, the change will become effective on
December 21 of such year for the ensuing twelve months. If the card and
Certificate are not returned to the Trustee, the Unit Holder will be deemed to
have elected to continue with the same plan for the following twelve months.
As of the first or twentieth day of each month for Prudential Unit Trusts
and each National Municipal Trust, respectively, the Trustee will deduct from
the Interest Account and, to the extent funds are not sufficient therein, from
the Principal Account, amounts necessary to pay the expenses of Trust. (See
``Expenses and Charges.'') The Trustee may also withdraw from said accounts such
amounts, if any, as it deems necessary to establish a reserve for any
governmental charges payable out of a Trust. Amounts so withdrawn shall not be
considered a part of a Trust's assets for purposes of determining the amount of
distributions until such time as the Trustee shall return all or any part of
such amounts to the appropriate account. In addition, the Trustee may withdraw
from the Interest Account and the Principal Account such amounts as may be
necessary to cover redemption of Units by the Trustee. (See ``Rights of Unit
Holders--Redemption.'') The Trustee is also entitled to withdraw from the
Interest Account, and, to the extent funds are not sufficient therein, from the
Principal Account, on one or more Record Dates as may be appropriate, amounts
sufficient to recoup advances which it has made in anticipation of the receipt
by the Trust of interest in respect of Securities which subsequently fail to pay
interest when due.
Reports and Records
The Trustee shall furnish Unit Holders in connection with each
distribution a statement of the amount of interest, if any, and the amount of
other receipts, if any, which are being distributed, expressed in each case as a
dollar amount per Unit. In the event that the Issuer of any of the Securities
fails to make payment when due of any interest or principal and such failure
results in a change in the amount which would otherwise be distributed as a
distribution, the Trustee will, with the first such distribution following such
failure, set forth in an accompanying statement, the Issuer and the Securities,
the amount of the reduction in the distribution per Unit resulting from such
failure, the percentage of the aggregate face amount of Securities which such
security represents and, to the extent then determined, information regarding
any disposition or legal action with respect to such Security. Within a
reasonable time after the end of each calendar year, the Trustee will furnish to
each person who at any time during the calendar year was a Unit Holder of
record, a statement (1) as to the Interest Account: interest received (including
amounts representing interest received upon any disposition of Securities), and,
if the Issuers of the Securities are located in different states or possessions
or in the Commonwealth of Puerto Rico, the percentage of such interest by such
states or other jurisdictions, deductions for payment of applicable taxes and
for fees and expenses of a Trust, redemptions of Units, and the balance
remaining after such distributions and deductions, expressed both as a total
dollar amount and as a dollar amount representing the pro rata share of each
Unit outstanding on the last business day of such calendar year; (2) as to the
Principal Account: the dates of disposition of any Securities and the net
proceeds received therefrom (excluding any portion representing interest and any
premium paid to obtain Permanent Insurance), deductions for payments of
applicable taxes and for fees and expenses of a Trust and redemptions of Units,
and the balance remaining after such distributions and deductions, expressed
both as a total dollar amount and as a dollar amount representing the pro rata
share of each Unit outstanding on the last business day of such calendar year;
(3) a list of the Securities held and the number of Units outstanding on the
last business day of such calendar year; (4) the Redemption Price per Unit based
upon the last computation thereof made during such calendar year; and (5)
amounts actually distributed during such calendar year from the Interest Account
and from the Principal Account, separately stated, expressed both as total
dollar amounts and as dollar amounts representing the pro rata share of each
Unit outstanding on the last business day of such calendar year.
The accounts of the Trust shall be audited not less frequently than
annually by independent certified public accountants designated by the Sponsor,
and the report of such accountants will be furnished by the Trustee to Unit
Holders upon request.
The Trustee shall keep available for inspection by Unit Holders at all
reasonable times during usual business hours, books of record and account of its
transactions as Trustee including records of the names and addresses of Unit
Holders, certificates issued or held, a current list of Securities in the
portfolio and a copy of the Indenture.
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Redemption
Tender of Units
Units may be tendered to the Trustee for redemption at its corporate trust
office at 770 Broadway, New York, New York 10003, upon payment of any relevant
tax. At the present time there are no specific taxes related to the redemption
of the Units. No redemption fee will be charged by the Sponsor or the Trustee.
Units redeemed by the Trustee will be cancelled.
Certificates for Units to be redeemed must be properly endorsed or
accompanied by a written instrument of transfer, although redemptions without
the necessity of certificate presentation will be effected for record Unit
Holders for whom Certificates have not been issued. Unit Holders must sign
exactly as their name appears on the face of the Certificate with the signature
guaranteed by an officer of a national bank or trust company or by a member firm
of either the New York, Midwest or Pacific Stock Exchanges. In certain instances
the Trustee may require additional documents such as, but not limited to, trust
instruments, certificates of death, appointments as executor or administrator or
certificates of corporate authority.
Within seven calendar days following such tender, or if the seventh
calendar day is not a business day, on the first business day prior thereto, the
Unit Holder will be entitled to receive in cash an amount for each Unit tendered
equal to the Redemption Price per Unit computed as of the Evaluation Time set
forth in the ``Summary of Essential Information'' in Part A on the date of
tender. (See ``Redemption--Computation of Redemption Price per Unit.'') The
``date of tender'' is deemed to be the date on which Units are received by the
Trustee, except that as regards Units received after the Evaluation Time, the
date of tender is the first day after such date on which the New York Stock
Exchange is open for trading, and such Units will be deemed to have been
tendered to the Trustee on such day for redemption at the Redemption Price
computed on that day. For information relating to the purchase by the Sponsor of
Units tendered to the Trustee for redemption, see ``Redemption--Purchase by the
Sponsor of Units Tendered for Redemption.''
Accrued interest paid on redemption shall be withdrawn from the Interest
Account, or, if the balance therein is insufficient, from the Principal Account.
All other amounts paid on redemption shall be withdrawn from the Principal
Account. The Trustee is empowered to sell Securities in order to make funds
available for redemption. Such sales, if required, could result in a sale of
Securities by the Trustee at a loss. To the extent Securities are sold, the size
and diversity of a Trust will be reduced.
The Trustee reserves the right to suspend the right of redemption and to
postpone the date of payment of the Redemption Price per Unit for any period
during which the New York Stock Exchange is closed, other than weekend and
holiday closings, or trading on that Exchange is restricted or during which (as
determined by the Securities and Exchange Commission by rule or regulation) an
emergency exists as a result of which disposal or evaluation of the underlying
Securities is not reasonably practicable, or for such other periods as the
Securities and Exchange Commission has by order permitted. The Trustee is not
liable to any person or in any way for any loss or damage that may result from
any such suspension or postponement.
Computation of Redemption Price per Unit
The Redemption Price per Unit of a Trust is determined by the Trustee on
the basis of the bid prices of the Securities in a Trust (or contracts for
Securities to be acquired by a Trust) as of the Evaluation Time on the date any
such determination is made. The Redemption Price per Unit is each Unit's pro
rata share, determined by the Trustee, of: (1) the aggregate value of the
Securities in a Trust (or contracts for securities to be acquired by a Trust) on
the bid side of the market (determined by the Evaluator as set forth below), (2)
cash on hand in a Trust, and accrued and unpaid interest on the Securities as of
the date of computation, less (a) amounts representing taxes or governmental
charges payable out of a Trust, (b) the accrued expenses of a Trust, and (c)
cash held for distribution to Unit Holders of record as of a date prior to the
evaluation. Accrued interest payable in respect of the Units from the date of
tender to, but not including, the fifth business day thereafter also comprises a
part of the Redemption Price per Unit. The Evaluator may determine the value of
the Securities in a Trust (1) on the basis of current bid prices for the
Securities, (2) if bid prices are not available for any Securities, on the basis
of current bid prices for comparable securities, (3) by appraisal, or (4) by any
combination of the above. In determining the Redemption Price per Unit no value
will be attributed to the Portfolio Insurance obtained by an Insured Trust on a
Security or to an Insured Trust's right to obtain Permanent Insurance on such
Security in the event of its sale of such Security, unless such Security is in
default in payment of principal or interest or in significant risk of such
default. Securities insured under a policy obtained by the Issuer thereof or by
the Sponsor on the Date of Deposit are entitled to the benefits of such
insurance at all times and
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such benefits are reflected and included in the market value of such Securities.
(See ``The Trust--Insurance on the Securities in the Portfolio of an Insured
Trust--Portfolio Insurance--Insured to Maturity.'')
Purchase by the Sponsor of Units Tendered for Redemption
The difference between the bid and offering prices of the Bonds may be
expected to average 1 1/2% of the principal amount. In the case of actively
traded bonds, the difference may be as little as 1/2 of 1%, and in the case of
inactively traded bonds such difference usually will not exceed 3%. The price at
which Units may be redeemed could be less than the price paid by the Unit
Holder.
The Indenture requires that the Trustee notify the Sponsor of any tender
of Units for redemption. So long as the Sponsor is maintaining a bid in the
secondary market, the Sponsor, prior to the close of business on the second
succeeding business day, will purchase any Units tendered to the Trustee for
redemption at the price so bid by making payment therefor to the Unit Holder in
an amount not less than the Redemption Price not later than the day on which the
Units would otherwise have been redeemed by the Trustee. (See ``Public Offering
of Units--Secondary Market.'') Units held by the Sponsor may be tendered to the
Trustee for redemption as any other Units.
The price of any Units resold by the Sponsor will be the Public Offering
Price determined in the manner provided in this Prospectus. (See ``Public
Offering of Units--Public Offering Price.'') Any profit resulting from the
resale of such Units will belong to the Sponsor which likewise will bear any
loss resulting from a lower resale or redemption price subsequent to its
acquisition of such Units. (See ``Public Offering of Units--Profit of
Sponsor.'')
SPONSOR
Prudential Securities Incorporated is a Delaware corporation and is
engaged in the underwriting, securities and commodities brokerage business and
is a member of the New York Stock Exchange, Inc., other major securities
exchanges and commodity exchanges and the National Association of Securities
Dealers, Inc. Prudential Securities Incorporated, a wholly-owned subsidiary of
Prudential Securities Group Inc. and an indirect wholly-owned subsidiary of The
Prudential Insurance Company of America, is engaged in the investment advisory
business. Prudential Securities Incorporated has acted as principal underwriter
and managing underwriter of other investment companies. In addition to
participating as a member of various selling groups or as an agent of other
investment companies, Prudential Securities Incorporated executes orders on
behalf of investment companies for the purchase and sale of securities of such
companies and sells securities to such companies in its capacity as a broker or
dealer in securities.
Prudential Securities Incorporated is distributor for Prudential
Government Securities Trust (Intermediate Term Series) and for Class B shares of
Global Utility Fund, Nicholas-Applegate Fund, Inc. (Growth Equity Fund),
Prudential California Municipal Fund (California Series), Prudential Equity
Fund, Prudential Equity Income Fund, Prudential FlexiFund, Prudential Global
Fund, Prudential Global Genesis Fund, Prudential Global Natural Resources Fund,
Prudential GNMA Fund, Prudential Government Plus Fund, Prudential Growth
Opportunity Fund, Prudential High Yield Fund, Prudential IncomeVertibleR Plus
Fund, Prudential Multi-Sector Fund, Prudential Municipal Bond Fund, Prudential
Municipal Series Fund, Prudential National Municipals Fund, Prudential Research
Fund, Prudential Short-Term Global Income Fund, Prudential Strategic Income
Fund, Prudential Total Return Fund, Prudential U.S. Government Fund, and
Prudential Utility Fund.
Limitations on Liability
The Sponsor is liable for the performance of its obligations arising from
its responsibilities under the Indenture, but will be under no liability to Unit
Holders for taking any action or refraining from any action in good faith or for
errors in judgment or liable or responsible in any way for depreciation or loss
incurred by reason of the sale of any Securities, except in case of its own
willful misfeasance, bad faith, gross negligence or reckless disregard for its
obligations and duties. (See ``Sponsor--Responsibility.'')
Responsibility
Although the Sponsor and Trustee do not presently intend to dispose of
insured Securities in the event of default, nevertheless, the Indenture permits
the Sponsor to direct the Trustee to dispose of any Security in a Trust upon the
happening of certain events, including without limitation, the following:
1. Default in the payment of principal or interest on any Security when
due and payable,
2. Institution of legal proceedings seeking to restrain or enjoin the
payment of any Security or attacking their validity,
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3. A breach of covenant or warranty which could adversely affect the
payment of debt service on the Security,
4. Default in the payment of principal or interest on any other
outstanding obligations of the same Issuer of any Security,
5. In the case of a Security that is a revenue bond, a fall in revenues,
based upon official reports, substantially below the estimated revenues
calculated to be necessary to pay principal and interest,
6. A decline in market price to such an extent, or such other market or
credit factor, as in the opinion of the Sponsor would make retention of a
Security detrimental to a Trust and to the interests of the Unit Holders,
7. Refunding or refinancing of the Security, as set forth in the
Indenture, or
8. The loss of Federal income tax exemption with respect to interest on
the Security, and, in case of an Insured Trust, a determination by the Sponsor
that any insurance that may be applicable to the Security cannot be relied upon
to maintain the interests of such Insured Trust to at least as great an extent
as such disposition.
The Sponsor and/or an affiliate thereof intend to continuously monitor
developments affecting the Securities in each Trust in order to determine
whether the Trustee should be directed to dispose of any such Securities.
It is the responsibility of the Sponsor to instruct the Trustee to reject
any offer made by an Issuer of any of the Securities to issue new obligations in
exchange and substitution for any Security pursuant to a refunding or
refinancing plan, except that the Sponsor may instruct the Trustee to accept
such an offer or to take any other action with respect thereto as the Sponsor
may deem proper if the Issuer is in default with respect to such Security or in
the judgment of the Sponsor the Issuer will probably default in respect to such
Security in the foreseeable future.
Any obligations so received in exchange or substitution will be held by
the Trustee subject to the terms and conditions of the Indenture to the same
extent as Securities originally deposited thereunder. Within five days after the
deposit of obligations in exchange or substitution for any of the underlying
Securities, the Trustee is required to give notice thereof to each Unit Holder,
identifying the Securities eliminated and the Securities substituted therefor.
Except as stated in this and the preceding paragraph, the acquisition by the
Trust of any securities other than the Securities initially deposited is
prohibited.
Resignation
If at any time the Sponsor shall resign under the Indenture or shall fail
to perform or be incapable of performing its duties thereunder or shall become
bankrupt or if its affairs are taken over by public authorities, the Indenture
directs the Trustee to either (1) appoint a successor Sponsor or Sponsors at
rates of compensation deemed reasonable by the Trustee not exceeding amounts
prescribed by the Securities and Exchange Commission, or (2) terminate the
Trust. The Trustee will promptly notify Unit Holders of any such action.
TRUSTEE
The Trustee is United States Trust Company of New York, with its principal
place of business at 114 West 47th Street, New York, New York 10036 and a
corporate trust office at 770 Broadway, New York, New York 10003. United States
Trust Company of New York has, since its establishment in 1853, engaged
primarily in the management of trust and agency accounts for individuals and
corporations. The Trustee is a member of the New York Clearing House Association
and is subject to supervision and examination by the Superintendent of Banks of
the State of New York, the Federal Deposit Insurance Corporation and the Board
of Governors of the Federal Reserve System. In connection with the storage and
handling of certain Securities deposited in a Trust, the Trustee may use the
services of the Depository Trust Company. These services may include safekeeping
of the Securities and coupon-clipping, computer book-entry transfer and
institutional delivery services. The Depository Trust Company is a limited
purpose trust company organized under the Banking Law of the State of New York,
a member of the Federal Reserve System and a clearing agency registered under
the Securities Exchange Act of 1934.
Limitations on Liability
The Trustee shall not be liable or responsible in any way for depreciation
or loss incurred by reason of the disposition of any moneys, Securities or
Certificates or in respect of any evaluation or for any action taken in good
faith reliance on prima facie properly executed documents except in cases of
willful misfeasance, bad faith, gross negligence or reckless disregard for its
obligations and duties. In addition, the Indenture provides that the Trustee
shall not be personally liable for any taxes or other governmental charges
imposed upon or in respect of a Trust which the Trustee may be required to pay
under current or future laws of the United States or any other authority having
jurisdiction.
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Responsibility
For information relating to the responsibilities of the Trustee under the
Indenture, reference is made to the material set forth under ``Rights of Unit
Holders'' and ``Sponsor--Resignation.''
Resignation
By executing an instrument in writing and filing the same with the
Sponsor, the Trustee and any successor may resign. In such an event the Sponsor
is obligated to appoint a successor trustee as soon as possible. If, among other
reasons, the Trustee becomes incapable of acting or becomes bankrupt or its
affairs are taken over by public authorities, the Sponsor may remove the Trustee
and appoint a successor as provided in the Indenture. Such resignation or
removal shall become effective upon the acceptance of appointment by the
successor trustee. If upon resignation of a trustee no successor has been
appointed and has accepted the appointment within thirty days after
notification, the retiring trustee may apply to a court of competent
jurisdiction for the appointment of a successor. The resignation or removal of a
trustee becomes effective only when the successor trustee accepts its
appointment as such or when a court of competent jurisdiction appoints a
successor trustee.
EVALUATOR
The Evaluator is Kenny S&P Evaluation Services, a division of Kenny
Information Systems, Inc., with main offices located at 65 Broadway, New York,
New York 10006.
Limitations on Liability
The Trustee, Sponsor and Unit Holders may rely on any evaluation furnished
by the Evaluator and shall have no responsibility for the accuracy thereof.
Determinations by the Evaluator under the Indenture shall be made in good faith
upon the basis of the best information available to it, provided, however, that
the Evaluator shall be under no liability to the Trustee, the Sponsor, or Unit
Holders for errors in judgment. But this provision shall not protect the
Evaluator in cases of willful misfeasance, bad faith, gross negligence or
reckless disregard of its obligations and duties.
Responsibility
The Indenture requires the Evaluator to evaluate the Securities in a Trust
on the basis of their bid prices on the last business day of June and December
in each year, on the day on which any Unit is tendered for redemption and on any
other day such evaluation is desired by the Trustee or is requested by the
Sponsor. For information relating to the responsibility of the Evaluator to
evaluate the Securities on the basis of their bid prices, see ``Public Offering
of Units-- Public Offering Price.''
Resignation
The Evaluator may resign or may be removed by the Sponsor, and in such
event, the Sponsor is to use its best efforts to appoint a satisfactory
successor. Such resignation or removal shall become effective upon the
acceptance of appointment by a successor evaluator. If upon resignation of the
Evaluator no successor has accepted appointment within thirty days after notice
of resignation, the Evaluator may apply to a court of competent jurisdiction for
the appointment of a successor.
AMENDMENT AND TERMINATION OF THE INDENTURE
Amendment
The Sponsor and the Trustee have the power to amend the Indenture without
the consent of any of the Unit Holders when such an amendment is (1) to cure any
ambiguity or to correct or supplement any provision of the Indenture which may
be defective or inconsistent with any other provision contained therein, or (2)
to make such other provisions as shall not adversely affect the interests of the
Unit Holders; provided, that the Indenture may also be amended by the Sponsor
and the Trustee (or the performance of any of the provisions of the Indenture
may be waived) with the consent of Unit Holders owning 51% of the Units of a
Trust at the time outstanding for the purposes of adding any provisions to or
changing in any manner or eliminating any of the provisions of the Indenture or
of modifying in any manner the rights of Unit Holders. In no event, however,
shall the Indenture be amended to increase the number of Units issuable
thereunder, to permit the deposit or acquisition of securities or other property
either in addition to or in substitution for any of the Securities initially
deposited in a Trust, except for the substitution of certain refunding
securities for such Securities, or to provide the Trustee with the power to
engage in business or investment activities not
31
<PAGE>
<PAGE>
specifically authorized in the Indenture as originally adopted or so as to
adversely affect the characterization of a Trust as a grantor trust for federal
income tax purposes. In the event of any amendment, the Trustee is obligated to
notify promptly all Unit Holders of the substance of such amendment.
Termination
A National Municipal Trust may be terminated at any time by the consent of
the holders of the percentage of the Units as specified in Part A--``Summary of
Essential Information'' and certain National Municipal Trusts may be terminated
at the Trustee's discretion when the value of a trust is within the dollar
amounts specified in Part A-- ``Summary of Essential Information.'' Certain
National Municipal Trusts must be terminated by the Trustee if the value of such
a trust is less than the dollar amount specified in Part A--``Summary of
Essential Information'' and certain other National Municipal Trusts must be
terminated at the direction of the Sponsor if the value of such a trust is less
than the dollar amount specified in Part A--``Summary of Essential
Information.'' In the case of the Prudential Unit Trusts, a Trust may be
terminated at any time by the consent of the holders of 51% of the Units or by
the Trustee upon the direction of the Sponsor when the value of the Trust as
shown on the last business day of June or December in any year is less than 40%
of the principal amount of the Securities initially deposited therein. However,
in no event may a Trust continue beyond the Mandatory Termination Date set forth
under ``Summary of Essential Information in Part A.'' In the event of
termination, written notice thereof will be sent by the Trustee to all Unit
Holders. Within a reasonable period after termination, the Trustee will sell any
Securities remaining in a Trust, and, after paying all expenses and charges
incurred by a Trust, will distribute to each Unit Holder, upon surrender for
cancellation of his Certificate for Units, his pro rata share of the balances
remaining in the Interest and Principal Accounts. The sale of Securities in a
Trust upon termination may result in a lower amount than might otherwise be
realized if such sale were not required at such time. For this reason, among
others, the amount realized by a Unit Holder upon termination may be less than
the principal amount of Securities represented by the Units held by such Unit
Holder.
LEGAL OPINIONS
Certain legal matters in connection with the Units offered hereby have
been passed upon by Messrs. Cahill Gordon & Reindel, a partnership including a
professional corporation, 80 Pine Street, New York, New York 10005, as special
counsel for the Sponsor. Brown & Wood, One World Trade Center, New York, New
York 10048, has acted as special tax counsel to Financial Guaranty with respect
to the Federal income tax status of payments under Financial Guaranty policies
to certain Insured Prudential Unit Trusts.
AUDITORS
The financial statements of the Trusts included in this Prospectus have
been examined by Deloitte & Touche, certified public accountants, as stated in
their report appearing herein, and are included in reliance upon such report
given upon the authority of that firm as experts in accounting and auditing.
32
<PAGE>
<PAGE>
BOND RATINGS+
All ratings except those identified otherwise are by Standard & Poor's
Corporation.
Standard & Poor's Corporation
A Standard & Poor's corporate or municipal bond rating is a current
assessment of the creditworthiness of an obligor with respect to a specific debt
obligation. This assessment of creditworthiness may take into consideration
obligors such as guarantors, insurers, or lessees.
The bond rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished to Standard &
Poor's by the Issuer or obtained by Standard & Poor's from other sources it
considers reliable. The ratings may be changed, suspended or withdrawn as a
result of changes in, or unavailability of, such information or based on other
circumstances.
The ratings are based, in varying degrees, on the following
considerations:
I. Likelihood of default--capacity and willingness of the obligor as to
the timely payments of interest and repayment of principal in accordance
with the terms of the obligation;
II. Nature of and provisions of the obligation; and
III. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization or other arrangement under the laws
of bankruptcy and other laws affecting creditors' rights.
AAA--This is the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA--Bonds rated AA have a very strong capacity to pay interest and
repay principal, and in the majority of instances they differ from AAA
issues only in small degrees.
A--Bonds rated A have a strong capacity to pay interest and repay
principal, although they are somewhat more susceptible to the adverse
affects of changes in circumstances and economic conditions than bonds in
higher rated categories.
BBB--Bonds rated BBB are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit 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 bonds in this category than for bonds in
the higher rated categories.
BB, B, CCC, CC, C--Bonds which are rated BB, B, CCC, CC and C are
regarded, as having predominantly speculative characteristics with respect
to capacity to pay interest and repay principal. BB indicates the least
degree of speculation and C the highest. While such bonds will likely have
some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
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 Standard &
Poor's 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.
Plus (+) or Minus (-): The ratings from ``AA'' to ``CCC'' may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
Provisional Ratings: The letter ``p'' following a rating indicates
the rating is provisional. A provisional rating assumes the successful
completion of the project being financed by the bonds being rated and
indicates that payment of debt service requirements is largely or entirely
dependent upon the successful and timely completion of the project. This
rating, however, while addressing credit quality subsequent to completion
of the project,
- ------------------
+As described by the rating agencies.
33
<PAGE>
<PAGE>
makes no comment on the likelihood of, or the risk of default upon failure
of, such completion. Accordingly, the investor should exercise his own
judgment with respect to such likelihood and risk.
Bond Investment Quality Standards: Under present commercial bank
regulations issued by the Comptroller of the Currency, bonds rated in the
top four categories (AAA, AA, A, BBB, commonly known as ``investment
grade'' ratings) are generally regarded as eligible for bank investment. In
addition, the laws of various states governing legal investments impose
certain rating or other standards for obligations eligible for investment
by savings banks, trust companies, insurance companies and fiduciaries
generally.
In some circumstances the continuance of a security rating is
contingent upon Standard & Poor's receipt of executed copy of an escrow
agreement or the closing documentation confirming investments and cash
flows and/or the security rating is conditional upon the issuance of
insurance by the respective insurance company.
Moody's Investors Service
A brief description of the applicable Moody's Investors Service's rating
symbols and their meanings is as follows:
Aaa--Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as ``gilt edge''. Interest payments are protected by a large or
by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of
such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. Aa bonds are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered adequate,
but elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa--Bonds which are rated Baa are considered as medium grade
obligations; i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
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 a
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
Caa--Bonds which are rated Caa are 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 rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Note: Those municipal bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols Aa1, A1, Baa1, Ba1 and B1.
Conditional ratings, indicated by ``Con'' are given to bonds for which the
security depends upon the completion of some act or the fulfillment of some
condition. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operating experience, (c)
rentals which begin when facilities are completed, or (d)
34
<PAGE>
<PAGE>
payments to which some other limiting condition attaches. A parenthetical rating
denotes probable credit stature upon completion of construction or elimination
of basis of condition.
Fitch Investors Service, Inc.
A Brief description of the applicable Fitch Investors Service, Inc. rating
symbols and their meanings is as follows:
AAA--Bonds which are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to
pay interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA--Bonds which are considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay
principal is very strong although not quite as strong as bonds rated AAA.
A--Bonds which are considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal
is considered to be strong, but may be more vulnerable to adverse changes
in economic conditions and circumstances than bonds with higher ratings.
BBB--Bonds which are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and
repay principal is considered to be adequate. Adverse changes in ceconomic
conditions and circumstances, however, are more likely to have adverse
impact on these bonds, and therefore impair timely payment. The likelihood
that these bonds will fall below investment grade is higher than for bonds
with higher ratings.
BB--Bonds are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified
which could assist the obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this
class are currently meeting debt service requirements, the probability of
continued timely payment of principal and interest reflects the obligor's
limited margin of safety and the need for reasonable business and economic
activity throughout the life of the issue.
CCC--Bonds have certain identifiable characteristics which, if not
remedied, may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.
CC--Bonds are minimally protected. Default in payment of interest
and/or principal seems probable over time.
C--Bonds are in imminent default in payment of interest or
principal.
DDD, DD, and D--Bonds are in default on interest and/or principal
payments. Such bonds are extremely speculative and should be valued on the
basis of their ultimate recovery value in liquidation or reorganization of
the obligor. `DDD' represents the highest potential for recovery on these
bonds, and `D' represents the lowest potential for recovery.
Plus (+) Minus (-)--Plus and minus signs are used with a rating
symbol to indicate the relative position of a credit within the rating
category. Plus and minus signs, however, are not used in the `AAA', `DDD',
`DD' or `D' categories.
Conditional--A conditional rating is promised on the successful
completion of a project of the occurrence of a specific event.
Suspended--A rating is suspended when Fitch deems the amount of
information available from the issuer to be inadequate for rating purposes.
Withdrawn--A rating will be withdrawn when an issue matures or is
called or refinanced, and, at Fitch's discretion, when an issuer fails to
furnish proper and timely information.
FitchAlert--Ratings are placed on FitchAlert to notify investors of
an occurrence that is likely to result in a rating change and the likely
direction of such change. These are designated as ``Positive'', indicating
a potential upgrade, ``Negative'', for potential downgrade, or
``Evolving'', where ratings may be raised or lowered. FitchAlert is
relatively short-term, and should be resolved within 12 months.
35
<PAGE>
<PAGE>
Credit Trend--Credit trend indicators show whether credit fundamentals
are improving, stable, declining, or uncertain, as follows:
Improving up arrow
Stable left/right arrow
Declining down arrow
Uncertain up/down arrow
Credit trend indicators are not predictions that any rating change will
occur, and have a longer term time frame than issues placed on FitchAlert.
- ------------------
NR--Not rated (credit characteristics comparable to A or better on the
Date of Deposit except for certain trusts rated less than A or better on the
Date of Deposit), indicates, among other things, that no rating has been
requested, that there is insufficient information on which to base a rating or
that a particular type of obligation is not rated as a matter of rating agency
policy. Subsequent to the Date of Deposit the credit characteristics of the
Issuers of the Securities may have changed. Currently, certain of the Securities
in the Portfolio of a Trust may be unrated and have credit characteristics
comparable to securities rated below the minimum requirements of such Trust for
acquisition of a Security. See Part A--``Schedule of Portfolio Securities''
herein to ascertain the ratings on the Securities, if any, on the date of the
Schedule of Portfolio Securities.
36
<PAGE>
<PAGE>
This Post-Effective Amendment to the Registration Statement on Form
S-6 comprises the following papers and documents:
The facing sheet on Form S-6.
The Prospectus.
Signatures.
Consent of independent public accountants and consent of evaluator;
all other consents were previously filed.
The following Exhibits:
****EX-3.(i) - Restated Certificate of Incorporation of Prudential
Securities Incorporated dated March 29, 1993.
****EX-3.(ii) - Revised By-Laws of Prudential Securities Incorporated as
amended through March 5, 1993.
+EX-4 - Trust Indenture and Agreement dated December 15, 1987.
*EX-23 - Consent of Kenny S & P Evaluation Services, a division of
J.J. Kenny Co., Inc. (as evaluator).
***EX-24 - Powers of Attorney executed by a majority of the Board of
Directors of Prudential Securities Incorporated.
*Ex-27.1 - Financial Data Schedule.
Ex-99 - Information as to Officers and Directors of Prudential
Securities Incorporated is incorporated by reference to
Schedules A and D of Form BD filed by Prudential
Securities Incorporated pursuant to Rules l5b1-1 and
l5b3-1 under the Securities Exchange Act of
1934 (1934 Act File No. 8-16267).
**EX-99.2 - Affiliations of Sponsor with other investment companies.
**EX-99.3 - Broker's Blanket Policies, Standard Form No. 39 in the
aggregate amount of $62,500,000.
++EX-99.4 - Investment Advisory Agreement.
II-1
<PAGE>
_________________________
* Filed herewith.
** Incorporated by reference to exhibit of same designation filed with the
Securities and Exchange Commission as an exhibit to the Registration
Statement under the Securities Act of 1933 of Prudential Unit Trusts,
Insured Tax-Exempt Series 1, Registration No. 2-89263.
*** Incorporated by reference to exhibit of same designation filed with the
Securities and Exchange Commission as an exhibit to the Registration
Statement under the Securities Act of 1933 of National Municipal Trust,
Series 172, Registration No. 33-54681.
**** Incorporated by reference to exhibit of same designation filed with the
Securities and Exchange Commission as an exhibit to the Registration
Statement under the Securities Act of 1933 of Government Securities Equity
Trust Series 5, Registration No. 33-57992.
+ Incorporated by reference to exhibit of same designation filed with the
Securities and Exchange Commission as an exhibit to the Registration
Statement under the Securities Act of 1933 of National Municipal Trust,
Discount Series 38, Registration No. 33-13352.
++ Incorporated by reference to exhibit of same designation filed with the
Securities and Exchange Commission as an exhibit to the Registration
Statement under the Securities Act of 1933 of National Municipal Trust,
Insured Series 43, Registration No. 33-29314.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant, National Municipal Trust, Discount Series 38 certifies that it meets
all of the requirements for effectiveness of this Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this Registration Statement or amendment thereto to be signed on its behalf
by the undersigned thereunto duly authorized, in the City of New York, and
State of New York on the 29th day of May, 1995.
NATIONAL MUNICIPAL TRUST,
Discount Series 38
(Registrant)
By PRUDENTIAL SECURITIES INCORPORATED
(Depositor)
By the following persons,* who
constitute a majority of the
Board of Directors of Prudential
Securities Incorporated
Alan D. Hogan
George A. Murray
Leland B. Paton
Vincent T. Pica
Richard A. Redeker
Hardwick Simmons
Lee B. Spencer, Jr.
By __/s/ Kenneth Swankie
(Kenneth Swankie,
Senior Vice President,
Manager--Unit Investment
Trust Department, as
authorized signatory for
Prudential Securities
Incorporated and Attorney-
in-Fact for the persons
listed above)
_____________________
* Pursuant to Powers of Attorney previously filed.
II-3
<PAGE>
CONSENT OF COUNSEL
The consent of counsel to the use of its name in the Prospectus
included in this Registration Statement is contained in Post-Effective Amendment
No. 2 to the Registration Statement.
II-4
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated May 8, 1995, accompanying the
financial statements of the National Municipal Trust Discount Series 38
included herein and to the reference to our Firm as experts under the
heading "Auditors" in the prospectus which is a part of this registration
statement.
DELOITTE & TOUCHE LLP
May 26, 1995
New York, New York
II-5
<PAGE>
Exhibit 23
Letterhead of Kenny S & P Evaluation Services
(a division of J.J. Kenny Co., Inc.)
May 30, 1995
Prudential Securities Incorporated
1 New York Plaza
New York, NY 10292
Re: National Municipal Trust
Post-Effective Amendment No. 7
Discount Series 38
Gentlemen:
We have examined the post-effective Amendment to the Registration
Statement File No. 33-13352 for the above-captioned trust. We hereby acknowledge
that Kenny S & P Evaluation Services, a division of J.J. Kenny Co., Inc. is
currently acting as the evaluator for the trust. We hereby consent to the use in
the Amendment of the reference to Kenny S & P Evaluation Services, a division of
J.J. Kenny Co., Inc. as evaluator.
In addition, we hereby confirm that the ratings indicated in the
above-referenced Amendment to the Registration Statement for the respective
bonds comprising the trust portfolio are the ratings currently indicated in our
KENNYBASE database.
You are hereby authorized to file a copy of this letter with the
Securities and Exchange Commission.
Sincerely,
Frank A. Ciccotto
Frank A. Ciccotto
Vice President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS FOR NATIONAL MUNICIPAL TRUST
DISCOUNT SERIES 38 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATMENTS
</LEGEND>
<RESTATED>
<CIK> 0000812429
<NAME> NATIONAL MUNICIPAL TRUST
DISCOUNT SERIES 38
<SERIES>
<NAME> NATIONAL MUNICIPAL TRUST
DISCOUNT SERIES
<NUMBER> 1
<MULTIPLIER> 1
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Jan-31-1995
<PERIOD-START> Feb-1-1994
<PERIOD-END> Jan-31-1995
<INVESTMENTS-AT-COST> 6,998,231
<INVESTMENTS-AT-VALUE> 7,182,556
<RECEIVABLES> 143,787
<ASSETS-OTHER> 738,510
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 8,064,853
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 72,518
<TOTAL-LIABILITIES> 72,518
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,670,979
<SHARES-COMMON-STOCK> 13,791
<SHARES-COMMON-PRIOR> 13,880
<ACCUMULATED-NII-CURRENT> 137,031
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 184,325
<NET-ASSETS> 7,992,335
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 727,858
<OTHER-INCOME> 18,445
<EXPENSES-NET> 16,018
<NET-INVESTMENT-INCOME> 730,285
<REALIZED-GAINS-CURRENT> (202,997)
<APPREC-INCREASE-CURRENT> (328,802)
<NET-CHANGE-FROM-OPS> 198,486
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 748,281
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 927,797
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 89
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (1,529,475)
<ACCUMULATED-NII-PRIOR> 174,485
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
