File No. 33-34395
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST EFFECTIVE AMENDMENT NO. 8
TO
FORM S-6
For Registration Under the Securities Act of 1933 of Securities of
Unit Investment Trusts Registered on Form N-8B-2.
A. Exact name of Trust:
THE MUNICIPAL BOND TRUST, SERIES 227
B. Name of Depositor:
PAINEWEBBER INCORPORATED
C. Complete address of Depositor's principal executive office:
PAINEWEBBER INCORPORATED
1285 Avenue of the Americas
New York, New York 10019
D. Name and complete address of agents for service:
PAINEWEBBER INCORPORATED
Attention: Mr. Robert E. Holley
1200 Harbor Blvd.
Weehawken, New Jersey 07087
[x] It is proposed that this filing will become effective 60 days after
filing pursuant to paragraph (a)(1) of Rule 485.
E. Total and amount of securities being registered:
An indefinite number of units of Beneficial Interest pursuant to Rule
24f-2 under the Investment Company Act of 1940.
F. Proposed maximum offering price to the public of the securities being
registered:
Indefinite pursuant to Rule 24f-2
G. Amount of filing fee: In accordance with Rule 24f-2, a fee in the amount
of $0 was paid on March 20, 1998 in connection with the filing of the
Rule 24f-2 Notice
for the Trust's most recent fiscal year.
H. Approximate date of proposed sale to public:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THE
REGISTRATION STATEMENT.
[ ] Check box if it is proposed that this filing will become effective on
[date], at [time] pursuant to paragraph (b) of Rule 485.
THE MUNICIPAL BOND TRUST, SERIES 227
Cross Reference Sheet
Pursuant to Rule 404(c) of Regulation C
under the Securities Act of 1933
(Form N-8B-2 Items required by Instruction 1
as to Prospectus on Form S-6)
Form N-8B-2 Form S-6
Item Number Heading in Prospectus
I. Organization and General Information
1. (a)Name of Trust ) Front Cover
(b)Title of securities issued )
2. Name and address of ) Back Cover
Depositor
3. Name and address of ) Back Cover
Trustee
4. Name and address of ) Back Cover
Principal
Underwriter )
5. Organization of Trust ) Nature of Trust
6. Execution and ) Nature of Trust
termination of
Trust Agreement ) Termination of the Trust
7. Changes of name ) *
8. Fiscal Year ) *
9. Litigation ) *
II. General Description of the Trust and Securities of the Trust
10. General Information ) The Trust Portfolio
regarding
Trust's Securities and ) Rights of Certificate-
Rights
of Holders ) holders
(a) Type of Securities ) Nature of Trust
(Registered or Bearer) )
(b) Type of Securities ) Nature of Trust
(Registered or Bearer) )
* Not applicable, answer negative or not required.
(c) Rights of Holders as to ) Rights of Certificate-
Withdrawal or ) holders
Redemption
) Redemption of Units by
) the Trustee
) The Municipal Bond Trust
) Reinvestment Program
(d) Rights of Holders as to ) Secondary Market for
conversion, transfer, etc. ) Units Exchange Option
(e) Rights of Trust issues )
periodic payment plan ) *
certificates )
(f) Voting rights as to ) Rights of Certificate-
Securi-
ties, under the Indenture ) holders
(g) Notice to Holders as to )
change in )
(1)Assets of Trust ) Amendment of the
Indenture
(2)Terms and Conditions ) Supervision of Trust
of Trust's Securities ) Investments
(3)Provisions of Trust ) Amendment of the
Indenture
(4)Identity of Depositor ) Administration of the and
Trustee
) Trust
(h) Consent of Security )
Holders
required to change )
(1)Composition of assets ) Amendment of the
Indenture
of Trust )
(2)Terms and conditions ) Amendment of the
Indenture
of Trust's Securities )
(3)Provisions of Indenture ) Amendment of the
Indenture
(4)Identity of Depositor ) Administration of the Trust
and Trustee )
(i) Other provisions ) The Trust-Part B
11. Type of Securities ) Front Cover-The Trust-
Comprising Units Portfolio
12. Type of securities ) *
comprising
periodic payment )
certificates
13. (a)Load, fees, expenses, etc. ) Public Offering Price of
) Units; Expenses of the
) Trust
* Not applicable, answer negative or not required.
(b)Certain information ) *
regarding periodic payment ) *
certificates )
(c)Certain percentages ) *
(d)Certain other fees, etc. ) Expenses of the Trust
payable by holders )
(e)Certain profits receivable ) Public Offering Price of
by depositor, principal ) Units
underwriters, trustee or ) Public Offering of Units
affiliated persons )
(f)Ratio of annual charges to ) *
income )
14. Issuance of Trust's ) Nature of the Trust
securities
) Public Offering of Units
15. Receipt and handling of ) *
payments from )
purchasers
16. Acquisition and ) Acquisition of Securities
disposition of
underlying securities ) for the Trust; Supervision
) of Trust Investments.
17. Withdrawal or ) Redemption of Units
redemption
) by Trustee
18. (a)Receipt and disposition of ) Distributions of Certifi-
income ) cateholders
(b)Reinvestment of distritions ) *
(c)Reserves or special fund ) Distributions to Certifi-
) cateholders
(d)Schedule of distribution ) *
19. Records, accounts and ) Statements to Certificate-
report
) holders; Administration
) of the Trust
20. Certain miscellaneous ) Administration of the Trust
pro-
visions of Trust )
agreement
21. Loans to security ) *
holders
22. Limitations on liability ) Limitation of Liabilities
23. Bonding arrangements ) Included in Form N-8B-2
24. Other material ) *
provisions of
trust agreement )
* Not applicable, answer negative or not required.
III. Organization Personnel and
Affiliated Persons of Depositor
25. Organization of ) Sponsor
Depositor
26. Fees received by ) Public Offering Price of
Depositor
) Units Expenses of the Trust
27. Business of Depositor ) Sponsor
28. Certain information as to ) Sponsor
officials and affiliated )
persons of Depositor )
29. Voting securities of ) *
Depositor
30. Persons controlling ) Sponsor
Depositor
31. Payments by Depositor ) *
for
certain other services )
rendered to Trust )
32. Payments by Depositor ) *
for
certain other services )
rendered to Trust )
33. Remuneration of ) *
employees of
Depositor for certain )
services
rendered to Trust )
34. Remuneration of other ) *
persons
for certian services )
rendered
to Trust )
IV. Distribution and Redemption of Securities
35. Distribution of Trust's ) Public Offering of Units
securities by states )
36. Suspension of sales of ) *
Trust's
securities )
37. Revocation of authority ) *
to
distribute )
38. (a)Method of distribution ) Public Offering of Units
(b)Underwriting agreements )
(c)Selling agreements )
* Not applicable, answer negative or not required.
39. (a)Organization of principal ) Sponsor
underwriter )
(b)N.A.S.D. membership of ) Sponsor
principal underwriter )
40. Certain fees received by ) Public Offering Price of
principal underwriter ) Units
41. (a)Business of principal ) Sponsor
underwriter )
(b)Branch officers of ) *
principal underwriter )
(c)Salesman of principal ) *
underwriter )
42. Ownership of Trust's ) *
securities
by certain persons )
43. Certain brokerage ) *
commissions
received by principal )
underwriter )
44. (a)Method of valuation ) Public Offering Price of
) Units
(b)Schedule as to offering ) *
price )
(c)Variation in Offering ) Public Offering Price of
price to certain persons ) Units
45. Suspension of ) *
redemption rights
46. (a)Redemption valuation ) Redemption of Units by
) Trustee
(b)Schedule as to redemption ) *
price )
V. Information concerning the Trustee or Custodian
47. Maintenance of position ) Secondary Market for Units
in
underlying securities ) Redemption of Units by
) Trustee
) Evaluation of the Trust
48. Organization and ) Administration of the Trust
regulation of
Trustee ) Trustee
49. Fees and expenses of ) Expenses of the Trust
Trustee
50. Trustee's lien ) Expenses of the Trust
* Not applicable, answer negative or not required.
VI. Information concerning Insurance of Holders of Securities
51. (a)Name and address of ) *
Insurance Company )
(b)Type of policies ) *
(c)Type of risks insured and ) *
excluded )
(d)Coverage of policies ) *
(e)Beneficiaries of policies ) *
(f)Terms and manner of ) *
cancellation )
(g)Method of determining ) *
premiums )
(h)Amount of aggregate ) *
premiums paid )
(i)Who receives any part of ) *
premiums )
(j)Other material provisions ) *
of the Trust relating to )
insurance )
VII. Policy of Registrant
52. (a)Method of selecting and ) Acquisition of Securities
eliminating securities ) for the Trust
from the Trust )
(b)Elimination of securities ) *
from the Trust )
(c)Policy of Trust regarding ) Supervision of Trust
substitution and ) Investments
elimination of securities )
(d)Description of any funda- ) Acquisition of Securities
mental policy of the Trust ) for the Trust
) Supervision of Trust
) Investments
53. (a)Taxable status of the ) Tax status of the Trust
Trust )
(b)Qualification of the Trust ) Tax status of the Trust
as a mutual investment )
company )
* Not applicable, answer negative or not required.
VIII. Financial and Statistical Information
54. Information regarding ) *
the
Trust's past ten fiscal )
years
55. Certain information ) *
regarding
periodic payment plan )
certificates )
56. Certain information ) *
regarding
periodic payment plan )
certificates )
57. Certain information ) *
regarding
periodic payment plan )
certificates )
58. Certain information ) *
regarding
periodic payment plan )
certi-
ficates )
59. Financial statements ) Statement of Financial
(Instruction 1(c) to ) Condition
Form S-6)
* Not applicable, answer negative or not required.
THE MUNICIPAL BOND TRUST
SERIES 227
(A Unit Investment Trust)
5,338 Units
Portfolio of Municipal Bonds
Designed for Federally Tax-Exempt Income
Monthly Distribution of Income
This Prospectus consists of two parts: Part A and
Part B. Parts A and B should both be attached for
this Prospectus to be complete.
The Securities and Exchange Commission has not
approved or disapproved these Securities or
passed upon the adequacy of this prospectus. Any
representation to the contrary is a criminal
offense.
SPONSOR:
PAINEWEBBER INCORPORATED
PROSPECTUS PART A DATED OCTOBER 27, 1998
No person is authorized to give any information
or make any representations about this Trust not
contained in this Prospectus, and you should not
rely on any other information. Read and keep both
parts of this prospectus for future reference.
Table of Contents
Part A Page
Brief Description of the Trust's
Investment Portfolio..... A - 3
Brief Summary of Risks.....................A - 4
Tax Status of the Trust....................A - 6
Additional Tax Considerations..............A - 6
Co-Trustees................................A - 8
Essential Information Regarding the Trust..A - 9
Interest Distribution Information..........A - 9
Financial Summary..........................A - 10
Report of Independent Auditors.............A - 11
Statement of Financial Condition...........A - 12
Statement of Changes in Net Assets.........A - 13
Schedule of Investments....................A - 14
Part B
Nature of the Trust........................B - 1
Creation of the Trust......................B - 1
Discussion of Significant Risks............B - 1
Acquisition of Securities for the Trust....B - 7
Public Offering Price of Units.............B - 7
Public Offering of Units...................B - 8
Secondary Market for Units.................B - 8
Estimated Current Return and
Estimated Long Term Return. B - 9
Estimated Net Annual Interest
Income Per Unit........... B - 9
Distributions to Unitholders...............B - 9
Exchange Option............................B - 10
Conversion Option..........................B - 11
Expenses of the Trust......................B - 11
Description of Certificates................B - 12
Statements to Unitholder...................B - 12
Redemption of Units by Trustee.............B - 13
Evaluation of the Trust....................B - 13
Comparison of Public Offering
Price and Redemption Value B - 14
Supervision of Trust Investments...........B - 14
Administration of the Trust................B - 14
Limitation of Liabilities..................B - 15
Amendment of the Indenture.................B - 15
Rights of Unitholders......................B - 15
Termination of Trust.......................B - 15
Sponsor....................................B - 16
Legal Opinion..............................B - 16
Independent Auditors.......................B - 16
Bond Ratings...............................B - 17
MUNICIPAL BOND TRUST, SERIES 227 - PART A
Brief Description of the Trust's Investment
Portfolio
1.The Trust's Objective.
The Trust seeks interest income that is
exempt from regular federal income taxes by
investing in a fixed portfolio consisting
of municipal revenue bonds.
2.Brief Description of Municipal Revenue
Bonds.
Municipal revenue bonds are bonds issued by
states, municipalities and public
authorities to finance the cost of buying,
building or improving various projects
intended to generate revenue, such as
airports, health care facilities, housing
and municipal electric, water and sewer
utilities. Generally, payments on these
bonds depend solely on the revenues
generated by the projects, excise taxes or
state appropriations, and are not backed by
the governments' taxing power.
3.The Trust's Portfolio.
The Trust plans to hold to maturity federally
tax-exempt municipal bonds with an aggregate face
amount of $5,050,000. The Trust is a unit
investment trust which means that, unlike a
mutual fund, the Trust's portfolio is not managed
and bonds are not sold because of market
changes.
The Trust Portfolio consists of 14 issues of
municipal bonds issued by issuers located in 8
states of the United States and the District of
Columbia. The Trust is considered "concentrated"
in bonds issued by Texas issuers, because
approximately 29% of the Trust portfolio consists
of Texas bonds, which makes the Trust's portfolio
less geographically diversified.
On July 31, 1998, the aggregate market value of
the Trust Portfolio, based on the bid side of the
market, was $5,361,576.
The Portfolio consists of municipal bonds of the
following types:
Approximate
Portfolio
Percentage
Refunded Bonds 41%
Housing 21%
Electrical and Power 19%
Escrowed to Maturity 11%
Pollution Control 8%
On the first day the Trust was created (the
"Initial Date of Deposit"), all of the bonds were
rated a minimum of A by Standard & Poor's
Corporation or by Moody's Investors Services,
Inc. The ratings may have changed since the
first day of the Trust, and may continue to
change. On July 31, 1998, the bonds were rated A
or better by S&P or by Moody's, or, in the
opinion of PaineWebber, had credit quality
similar to that of the other bonds, as follows:
Approximate
Portfolio
Percentage
AAA (S&P) 22%
Aaa (Moody's) 11%
AA (S&P) 8%
Aa (Moody's) 11%
A (S&P) 47%
NR (Not Rated) 1%
Most of the bonds can be called in the next
several years at a premium declining over time to
par value; some bonds may be called earlier at
par for extraordinary reasons.
Brief Summary of Risks
You can lose money by investing in the
Trust. This can happen for various
reasons. For example:
Rising interest rates, an issuer's worsening
financial condition or a drop in bond ratings can
reduce the price of your Units.
Adverse developments in the bond issuer's
industry may affect the value of your Units.
Assuming no changes in interest rates, when you
sell your Units, they will generally be worth
less than your cost because your cost included a
sales charge.
The Trust will receive early returns of principal
if bonds are called or sold before they mature.
If this happens your income will decline and you
may not be able to reinvest the money you receive
at as high a yield or as long a maturity.
Is this Trust Appropriate for You?
Yes, if you want federally tax-free income.
You will benefit from a professionally
selected portfolio whose risk is reduced by
investing in bonds of several different
issuers.
No, if you want a speculative investment
that changes to take advantage of market
movements, if you do not want a tax-
advantaged investment or if you cannot
tolerate any risk.
Investment Risks
Investing always involves risk. The risks
described below are the most significant risks
you may experience while you hold Units of the
Trust.
1.Interest Rate Risk
Interest rate risk is the risk that your
investment will decline in value if
interest rates rise. Generally, bonds with
longer maturities will change in value more
than bonds with shorter maturities. Bonds
in the Trust are more likely to be called
when interest rates decline. This would
result in early returns of principal to you
and may result in early termination of the
Trust. Of course, we cannot predict how
interest rates may change.
2.Call Risk
Many bonds can be prepaid or "called" by
the issuer before their stated maturity.
For example, an issuer might call its bonds
if it no longer needs the money for the
original purpose or, during periods of
falling interest rates, if the issuer's
bonds have a coupon higher than current
market rates. If the bonds are called,
your income will decline and you may not be
able to reinvest the money you receive at
as high a yield or as long a maturity. An
early call at par of a premium bond will
reduce your return.
3.Reduced Diversification Risk
If many investors sell their units, the
Trust will have to sell bonds. This could
reduce the diversification of your
investment and increase your share of Trust
expenses.
4.Concentration Risk
When a certain type of bond makes up 25% or
more of the portfolio, the Trust is said to
be "concentrated" in that bond type, which
makes the Trust less diversified.
Here is what you should know about the
Trust's concentration in refunding bonds:
a refunded bond is generally not secured by a
pledge of revenues from a municipality but by an
escrow fund consisting of obligations of the U.S.
government;
the Trust receives principal and interest on
refunded bonds from the escrow agents for the
escrow funds for the refunded bonds; and
some bonds thought to be escrowed to maturity may
be called for redemption prior to maturity.
Changes to the portfolio from bond
redemptions, maturities and sales may
affect the Trust's concentration over time.
5.Liquidity Risk
The bonds will generally trade in the over-
the-counter market. We cannot assure you
that a liquid trading market will exist,
especially since current law may restrict
the Trust from selling bonds to the
Sponsor. The value of the bonds, and of
your investment, may be reduced if trading
in bonds is limited or absent.
6.Bond Quality Risk
A reduction in a bond's rating may decrease
its value and, indirectly, the value of
your investment in the Trust.
7.Legislation Risks
Future tax legislation could affect the
value of the Trust's portfolio by:
limiting real property taxes,
reducing tax rates,
imposing a flat or other form of tax, or
exempting investment income from tax.
8.Year 2000 Problem Risk
Many computer systems were designed in such
a way that they may be unable to
distinguish between the year 2000 and the
year 1900 (commonly known as the "Year 2000
Problem"). As with all investment and
financial companies, the Year 2000 Problem
may have an adverse impact upon the Trust.
Tax Status of the Trust
At the time of issuance of the Securities,
opinions regarding the validity of such
Securities and the exemption from federal
income tax of interest on such Securities
were rendered by bond counsel to the
respective issuers. Neither the Sponsor,
the Trustee, nor counsel to either has made
any review of the proceedings relating to
the issuance of the Securities or the basis
for such opinions. In the case of certain
Securities in the Trust, the opinions of
bond counsel indicate that interest on such
obligations received by a "substantial
user" of the facilities being financed with
the proceeds of such obligations, or
"related person," for periods such
obligations are held by such "substantial
user" or "related person," will not be
exempt from federal income tax. Interest
income attributable to such Securities
received by a Unitholder who is a
"substantial user" or "related person" may
be taxable to such Unitholder.
In the opinion of Carter, Ledyard &
Milburn, counsel to the Sponsor, under
existing law:
(i) The Trust is not an association
taxable as a corporation for U.S. federal
income tax purposes but will be governed by
the provisions of Subchapter J (relating to
Trusts) of Chapter 1, Internal Revenue Code
of 1986 (the "Code"). Each Unitholder will
be considered as owning a pro rata share of
each asset of the respective Trust in the
proportion that the number of Units of such
Trust held by him bears to the total number
of outstanding Units of such Trust. Under
Subpart E, Subchapter J of Chapter I of the
Code, income of the Trust will be treated
as income of each Unitholder of the Trust
in the proportion described. Accordingly,
to the extent that the income of the Trust
consists of interest and original issue
discount excludable from gross income under
Section 103 of the Code, such income will
be excludable from federal gross income of
the Unitholder, except in the case of a
Unitholder who is a substantial user (or a
person related to such user) of a facility
financed through issuance of any industrial
development bonds or certain private
activity bonds held by the Trust. All
taxpayers are nevertheless required to
disclose to the Internal Revenue Service
the amount of tax-exempt interest earned
during the year. In the case of certain
corporations, interest on all of the
Securities is included in computing the
alternative minimum taxable income pursuant
to Section 56(c) of the Code.
(ii) If the Trustee disposes of a Security
(whether by sale, payment at maturity,
redemption or otherwise), gain or loss is
recognized to the Unitholder. A Unitholder
will also be considered to have disposed of
all or a portion of his pro rata portion of
each Security when he sells or redeems some
or all of his Units. Such gain or loss is
measured by comparing the Unitholder's
share of such proceeds (or, in the case of
a sale or redemption of Units, the portion
of the proceeds allocable to a Security)
with the Unitholder's adjusted basis for
such Security.
(iii) Under the income tax laws of the
State and City of New York, the Trust is
not an association taxable as a corporation
and income received by the Trust will be
treated as the income of the Unitholders in
the same manner as for federal income tax
purposes, but will not be tax-exempt except
to the extent that such income is earned on
bonds in the Trust that are otherwise tax-
exempt for New York purposes.
Additional Tax Considerations
1. Tax basis. A Unitholder's initial
basis in his Units will be equal to the
cost of his Units, including any up-front
or deferred sales charge and the
organizational expenses borne by the
Unitholder. Such basis must be apportioned
among each of the Securities and other
assets of the Trust, as of the date the
Units were acquired, ratably according to
their values as of such date (or the
nearest valuation date). A Unitholder's tax
basis for his Units and for his fractional
interest in each Trust asset must be
reduced by the amount of his aliquot share
of accrued interest received by the Trust,
if any, after the date of purchase of his
Units, to the extent that such accrued
interest was included in the cost of his
Units; must also be reduced by the annual
amortization of bond premium, if any, on
Securities held by the Trust; and is
increased by the Unitholder's share of
accrued original issue discount (and market
discount, if the Unitholder elects to
include market discount in income as it
accrues) with respect to each Security held
by the Trust which, at the time the
Security was issued, had original issue
discount (or which was purchased with
market discount).
2. Bond premium. If a Security is
purchased for a premium over its redemption
price, the amount of the premium is
included in the tax basis of the Security.
Such premium is amortized over the
remaining term of the Security, and the tax
basis of the Security is reduced each tax
year by the amount of the premium amortized
in that tax year. As a result, under
certain circumstances Unitholders may
realize a taxable gain upon disposition of
Units even though such Units are sold or
redeemed for an amount equal to or less
than their original cost.
3. Original issue discount. In the case
of any Security held by the Trust where the
"stated redemption price at maturity"
exceeds the "issue price," such excess
(subject to a de minimis rule) constitutes
original issue discount. In the case of
any Security held by the Trust the interest
on which is excludable from gross income
under Section 103 of the Code, any original
issue discount which accrues with respect
thereto will be treated as interest which
is excludable from gross income under
Section 103 of the Code. With respect to
any purchaser of Securities subsequent to
their original issuance, Section 1272(a)(7)
of the Code provides for a reduction, under
certain circumstances, in the accrued
"daily portion" of such original issue
discount.
4. Market discount. The Code subjects
tax-exempt bonds to the market discount
rules of the Code effective for bonds
purchased after April 30, 1993. In
general, market discount is the amount (if
any) by which the stated redemption price
at maturity exceeds an investor's purchase
price (except to the extent that such
difference, if any, is attributable to
original issue discount not yet accrued)
subject to a statutory de minimis rule.
Market discount can arise based on the
price the Trust pays for Securities or the
price a Unitholder pays for his Units.
Under the Code, accretion of market
discount is taxable as ordinary income;
under prior law, the accretion had been
treated as capital gain. Market discount
that accretes while the Trust holds a
Security would be recognized as ordinary
income by the Unitholders when principal
payments are received on the Security, upon
sale or at redemption (including early
redemption), or upon the sale or redemption
of his or her Units, unless a Unitholder
elects to include market discount in
taxable income as it accrues.
5. Corporate alternative minimum tax.
Because the Trust does not include any
"specified private activity bonds" within
the meaning of Section 57(a)(5) of the Code
issued on or after August 8, 1986, none of
the Trust's interest income shall be
treated as an item of tax preference when
computing the alternative minimum tax. In
the case of corporations, the alternative
minimum tax depends upon the corporation's
alternative minimum taxable income
("AMTI"), which is the corporation's
taxable income with certain adjustments.
Pursuant to Sections 56(c) and (g) of the
Code, one of the adjustment items used in
computing AMTI of a corporation (other than
an S Corporation, Regulated Investment
Company, Real Estate Investment Trust or
REMIC) is an amount equal to 75% of the
excess of such corporation's "adjusted
current earnings" over an amount equal to
its AMTI (before such adjustment item and
the alternative tax net operating loss
deduction). "Adjusted current earnings"
includes all tax-exempt interest, including
interest on all Securities in the Trust,
and tax-exempt original issue discount.
Effective for taxable years beginning after
December 31, 1997, the alternative minimum
tax will not apply to corporations having
annual gross receipts, generally, not in
excess of $5 million.
6. Disallowance of related items. Under
Section 265 of the Code, interest on
indebtedness incurred or continued to
purchase or carry Units is not deductible
for federal income tax purposes. Under
rules used by the Internal Revenue Service
for determining when borrowed funds are
considered used for the purpose of
purchasing or carrying particular assets,
the purchase of Units may be considered to
have been made with borrowed funds even
though the borrowed funds are not directly
traceable to the purchase of Units. Also,
under Section 265, a Unitholder will
generally not be entitled to a deduction
for his pro rata share of fees and expenses
of the Trust, or for the amortization of
bond premium, because they are incurred in
connection with the production of tax-
exempt income.
7. Taxability of Social Security
benefits. Code Section 86 provides that a
portion of social security benefits are
includible in taxable income for taxpayers
whose "modified adjusted gross income",
combined with 50% of their social security
benefits, exceeds a base amount. The base
amount is $25,000 for an individual,
$32,000 for a married couple filing a joint
return, and zero for married persons filing
separate returns. Under Code Section 86,
interest on tax-exempt bonds is to be added
to adjusted gross income for purposes of
determining whether an individual's income
exceeds the base amount.
The foregoing discussion relates only to
U.S. federal and certain aspects of New
York State and City income taxes.
Depending on their state of residence,
Unitholders may be subject to state and
local taxation and should consult their own
tax advisers in this regard. The preceding
discussion also omits certain rules
applicable to certain financial
institutions, insurance companies, foreign
corporations, S corporations and other
entities subject to special rules under the
Internal Revenue Code.
Co-Trustees
The Co-Trustees are The First National Bank
of Chicago, a national banking association
with its corporate trust office at One
First National Plaza, Suite 0126, Chicago,
Illinois 60670-0126 (which is subject to
supervision by the Comptroller of the
Currency, the Federal Deposit Insurance
Corporation and the Board of Governors of
the Federal Reserve System) and Investors
Bank & Trust Company, a Massachusetts trust
company with its office at Hancock Towers,
P.O. Box 9130, Boston, Massachusetts 02117-
9130, telephone no. 1-800-356-2754 (which
is subject to supervision by the
Massachusetts Commissioner of Banks, the
Federal Deposit Insurance Corporation and
the Federal Reserve System).
ESSENTIAL INFORMATION REGARDING THE TRUST
AS OF JULY 31, 1998
Redemption Value per Unit
$1,004.72 *~
Excess of Public Offering Price per Unit Over
Redemption Value per Unit
$19.97
Sponsor's Repurchase Price per Unit
$1,004.72 *~
Excess of Public Offering Price per Unit Over
Sponsor's Repurchase Price per Unit
$19.97
Minimum Principal Distribution
No distribution need be made from Principal
Account if balance of Account is less than $8,000.
Evaluation Time
4 P.M. New York Time
Mandatory Termination Date * *
January 1, 2040
Discretionary Termination
Indenture may be terminated if value of Trust is
less than $1,600,000.
Initial Date of Deposit and of Trust Indenture
and Agreement
August 22, 1990
Principal Amount of Bonds in Trust
$5,050,000
Number of Units Outstanding
5,338
Minimum Purchase
1 Unit
Fractional Undivided Interest in Trust Represented
by each Unit
1/5,338th
Public Offering Price
Aggregate Bid Price of Bonds in Trust $5,363,218 *~
Divided by 5,338 Units $1,004.72 *~
Plus Sales Charge of
1.95% of Public Offering Price 19.97
Public Offering Price per Unit $1,024.69 *~
<TABLE>
INTEREST DISTRIBUTION INFORMATION
<CAPTION>
Monthly
<S> <C>
Gross annual interest income per unit $68.19
Less estimated annual fees and expenses per unit ** * * 2.53
Less Sponsor's annual fee per unit * * * * .17
Estimated net annual interest income per unit $65.49
Estimated interest distribution per unit $5.45
Daily rate at which estimated net interest accrues per unit $.1816
Estimated current return * * * 6.39%
Record dates 1st of
each month
Interest distribution dates 15th of
each month
Trustee's annual fee per $1,000 principal amount of bonds * * * * $1.09
Evaluator's daily fee per bond * * * * $.40
__________________
* Plus accrued interest.
* * The actual termination of the
Trust may be considerably earlier (see
"Termination of the Trust"
in Part B).
* * * The estimated current return is
increased for transactions entitled to a
reduced sales charge
(see "Public Offering Price of
Units" in Part B).
* * * * See "Expenses of the Trust" in
Part B.
~ Includes undistributed principal
funds.
</TABLE>
<TABLE>
FINANCIAL SUMMARY
The following sets forth a summary of
distributions and redemption values per unit
for The Municipal Bond Trust, Series 227.
<CAPTION>
DISTRIBUTIONS
PERIOD ENDING PER UNIT
<S> <C> <C>
MONTHLY July 31, 1996 $69.51
July 31, 1997 69.21
July 31, 1998 67.50
PRINCIPAL July 31, 1996 2.84
July 31, 1997 3.31
July 31, 1998 30.62
As of December 31, 1996, 1997 and July 31,
1998, the redemption values per unit were
$1,048.00, $1,023.24, and $1,004.72 plus
accrued interest to the respective dates.
</TABLE>
<TABLE>
REPORT OF INDEPENDENT AUDITORS
<C> <S>
THE UNITHOLDERS, SPONSOR AND CO-TRUSTEES
THE MUNICIPAL BOND TRUST, SERIES 227:
We have audited the accompanying statement of
financial condition, including the schedule of
investments, of The Municipal Bond Trust, Series
227 as of July 31, 1998 and the related
statements of operations and changes in net
assets for each of the three years in the period
then ended. These financial statements are the
responsibility of the Co-Trustees. Our
responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with
generally accepted auditing standards. Those
standards require that we plan and perform the
audit to obtain reasonable assurance about
whether the financial statements are free of
material misstatement. An audit includes
examining, on a test basis, evidence supporting
the amounts and disclosures in the financial
statements. Our procedures included confirmation
of the securities owned as of July 31, 1998, as
shown in the statement of financial condition and
schedule of investments, by correspondence with
the Co-Trustees. An audit also includes assessing
the accounting principles used and significant
estimates made by the Co-Trustees, as well as
evaluating the overall financial statement
presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements
referred to above present fairly, in all material
respects, the financial position of The Municipal
Bond Trust, Series 227 at July 31, 1998 and the
results of its operations and changes in its net
assets for each of the three years in the period
then ended, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
New York, New York
October 21, 1998
</TABLE>
<TABLE>
THE MUNICIPAL BOND TRUST
SERIES 227
STATEMENT OF FINANCIAL CONDITION
July 31, 1998
<CAPTION>
ASSETS
<S> <C> <C>
Investment in municipal bonds - at market value (Cost $4,815,816)
(note 4 to schedule of investments) $5,361,576
Accrued interest receivable 91,305
Bond sold/called receivable 112,537
Total Assets $5,565,418
LIABILITIES AND NET ASSETS
Trustee advance payable $87,374
Distribution payable (note E) 29,786
Accrued expenses payable 4,265
Total Liabilities 121,425
Net assets (5,338 units of fractional undivided interest outstanding):
Cost to investors (note B) $5,055,975
Less gross underwriting commissions (note C) (240,159)
4,815,816
Net unrealized market appreciation (note D) 545,760
Net amount applicable to unitholders 5,361,576
Undistributed investment income-net 80,775
Undistributed proceeds from bonds sold or redeemed 1,642
Net Assets 5,443,993
Total Liabilities and Net Assets $5,565,418
Net Asset Value Per Unit $1,019.86
STATEMENT OF OPERATIONS
<CAPTION>
Year Ended July 31,
1998 1997 1996
<S> <C> <C> <C>
Investment Income - Interest $418,207 $473,530 $513,182
Less expenses:
Trustee's fees, Evaluator's fees and expenses 15,390 16,421 16,966
Total expenses 15,390 16,421 16,966
Investment Income-net 402,817 457,109 496,216
Realized and unrealized gain (loss) on investments-net:
Net realized gain on securities transactions 24,113 41,398 65,608
Net change in unrealized market depreciation (117,698) (12,299) (135,341)
Net gain (loss) on investments (93,585) 29,099 (69,733)
Net increase in net assets resulting from operations $309,232 $486,208 $426,483
See accompanying notes to financial statements.
</TABLE>
<TABLE>
THE MUNICIPAL BOND TRUST
SERIES 227
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
Year Ended July 31,
1998 1997 1996
<S> <C> <C> <C>
Operations:
Investment income-net $402,817 $457,109 $496,216
Net realized gain on securities transactions 24,113 41,398 65,608
Net change in unrealized market depreciation (117,698) (12,299) (135,341)
Net increase in net assets resulting from operations 309,232 486,208 426,483
Less: Distributions to Unitholders
Investment Income 399,868 455,428 493,707
Principal 185,570 21,827 20,948
Total Distributions 585,438 477,255 514,655
Less: Units Redeemed by Unitholders (Note F)
Value of units at date of redemption 948,269 474,267 694,954
Accrued interest at date of redemption 16,796 8,130 11,760
Total Redemptions 965,065 482,397 706,714
Decrease in net assets (1,241,271) (473,444) (794,886)
Net Assets:
Beginning of period 6,685,264 7,158,708 7,953,594
End of period $5,443,993 $6,685,264 $7,158,708
See accompanying notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
July 31, 1998
(A) The financial statements of the Trust are
prepared on the accrual basis of accounting.
Bond
transactions are accounted for on the date
the bonds are purchased or sold.
(B) Cost to the investors represents the initial
public offering price as of the initial date of
deposit computed
on the basis set forth under "Public Offering
Price Of Units" included in Part B, adjusted for
bonds
called or sold since the initial date of
deposit.
(C) The aggregate sales charge was computed in
accordance with the sales charge rates effective
through
July 31, 1998. Commencing on August 17, 1998,
the sales charge rates applicable to the bonds
held in
the portfolio have been reduced as set forth
in the Prospectus Supplement dated August 17,
1998.
(D) At July 31, 1998, the gross unrealized market
appreciation was $545,760 and the gross
unrealized
market depreciation was $0. The net unrealized
market appreciation was $545,760.
(E) Distributions of the net investment income to
Unitholders are declared and paid monthly. See
the
Financial Summary included in Part A.
(F) The following units were redeemed with
proceeds of bonds sold as follows:
<CAPTION>
Year Ended July 31,
1998 1997 1996
<S> <C> <C> <C>
Number of units redeemed 930 454 654
Redemption amount $965,065 $482,397 $706,714
</TABLE>
<TABLE>
THE MUNICIPAL BOND TRUST, SERIES 227
Schedule of Investments as of July 31, 1998
<CAPTION>
Coupon Redemption
Aggregate Rate / Features(3)
Lot Principal Maturity C-Callable Market
No. Amount Description Rating(1) Date(5) S.F.-Sinking Fund Value(4)
<C> <C> <S> <C> <C> <C> <C>
1. $490,000 ALASKA HOUSING FINANCE CORPORA-
TION COLLATERALIZED HOME MORT-
GAGE BONDS 1989 SERIES B-1 AAA 7.65% C.12/01/01@102 $522,698
06/01/2024 S.F. 06/01/2010
2. 405,000 DISTRICT OF COLUMBIA REVENUE
BONDS (ASSOCIATION OF AMERICAN
MEDICAL COLLEGES ISSUE)SERIES
1990 (REFUNDED) AA- 7 1/2% C.02/15/00@102 434,099
02/15/2000 S.F. NONE
3. 190,000 CITY OF CHICAGO, ILLINOIS WASTE-
WATER TRANSMISSION REVENUE
BONDS SERIES 1989 (REFUNDED) A- 7.20% C.11/15/99@102 201,822
11/15/1999 S.F. NONE
4. 570,000 MASSACHUSETTS HOUSING FINANCE
AGENCY SINGLE FAMILY HOUSING
REVENUE BONDS, SERIES 14 Aa(2) 7.70% C.06/01/00@10 597,252
12/01/2014 S.F. 06/01/2006
5. 600,000 MASSACHUSETTS WATER RESOURCES
AUTHORITY GENERAL REVENUE
BONDS 1990 SERIES A (REFUNDED) AAA 7 1/2% C.04/01/00@102 646,242
04/01/2000 S.F. NONE
6. 285,000 CITY OF MARQUETTE HOSPITAL FINAN-
CE AUTHORITY HOSPITAL REVENUE
REFUNDING BONDS(MARQUETTE
GENERAL HOSPITAL, MARQUETTE,
MICHIGAN) 1989 SERIES C(REFUNDED) A+ 7 1/2% C.04/01/99@102 297,745
04/01/1999 S.F. NONE
7. 60,000 CERTIFICATES OF PARTICIPATION
(HINDS COUNTY WELFARE DEPART-
MENT AND COURTHOUSE PARKING
PROJECT)EVIDENCING PROPOR-
TIONATE INTERESTS IN A LEASE,
INCLUDING THE RIGHT TO RECEIVE
BASE RENTAL PAYMENTS THERE-
UNDER, TO BE MADE BY THE COUNTY
OF HINDS, MISSISSIPPI(REFUNDED) NR 7 3/4% C.03/01/99@102 62,588
03/01/1999 S.F. NONE
8. 250,000 NORTHEASTERN PENNSYLVANIA HOS-
PITAL AUTHORITY HOSPITAL REVENUE
BONDS SERIES A OF 1990 (NESBITT
MEMORIAL HOSPITAL)(REFUNDED) A- 7 1/2% C.07/01/00@102 270,757
07/01/2000 S.F. NONE
9. 250,000 NORTHEASTERN PENNSYLVANIA HOS-
PITAL AUTHORITY HOSPITAL REVENUE
BONDS SERIES C OF 1990 (NESBITT
MEMORIAL HOSPITAL)(REFUNDED) A- 7 1/2% C.07/01/00@102 270,757
07/01/2000 S.F. NONE
10. 500,000 BELL COUNTY HEALTH FACILITIES DE-
VELOPMENT CORPORATION (TEXAS)
REVENUE BONDS, SERIES 1989 (LUTH-
ERAN GENERAL HEALTH CARE SYSTEM
PARKSIDE LODGE OF TEXAS,INC.
PROJECT) Aaa(2) 6 1/2% (6) 575,690
07/01/2019 S.F. 07/01/2016
(Continued)
</TABLE>
<TABLE>
THE MUNICIPAL BOND TRUST, SERIES 227
Schedule of Investments as of July 31, 1998
<CAPTION>
Coupon Redemption
Aggregate Rate / Features(3)
Lot Principal Maturity C-Callable Market
No. Amount Description Rating(1) Date(5) S.F.-Sinking Fund Value(4)
<C> <C> <S> <C> <C> <C> <C>
11. $535,000 BRAZOS RIVER AUTHORITY (TEXAS)
COLLATERALIZED REVENUE REFUND-
ING BONDS (HOUSTON LIGHTING AND
POWER COMPANY PROJECT)SERIES
1988D A- 7 3/4% C.10/01/98@102 $548,616
10/01/2015 S.F. NONE
12. 400,000 RED RIVER AUTHORITY OF TEXAS
POLLUTION CONTROL REVENUE RE-
FUNDING BONDS HOECHST CELANESE
CORPORATION PROJECT)SERIES 1987
(CONVERTED TO FIXED RATE) A+ 7 1/2% C.08/01/00@103 434,664
08/01/2012 S.F. NONE
13. 15,000 TOMBALL HOSPITAL AUTHORITY TOM-
BALL REGIONAL HOSPITAL)HOSPITAL
REVENUE REFUNDING SERIES 1989C
(TEXAS) (IRREVOCABLE LETTER OF
CREDIT PROVIDED BY BANQUE
PARIBUS)(REFUNDED) Aaa(2) 7 3/8% C.07/01/99@102 15,791
07/01/1999 S.F. NONE
14. 500,000 INTERMOUNTAIN POWER AGENCY (A
POLITICAL SUBDIVISION OF THE STATE
OF UTAH) SPECIAL OBLIGATION
BONDS, SECOND CROSSOVER SERIES A+ 5.00% C.08/31/98@100 482,855
07/01/2018 S.F. NONE
$5,050,000 $5,361,576
(1) All ratings are by Standard & Poor's
Corporation unless otherwise indicated. A brief
description of applicable rating symbols is given
under "Bond Ratings" included in Part B. For
concentration of credit risk, see "Securities in
the Trust Portfolio" in Part A.
(2) Moody's Investors Service, Inc.'s rating. A
brief description of applicable rating symbols is
given under "Bond Ratings" included in Part B.
(3) C.-Indicates the first year in which an
issue of bonds is redeemable in whole, or in part,
by the operation of the optional call provisions,
and the redemption price for that year; unless
otherwise indicated, each issue continues to be
redeemable at declining prices thereafter but not
below par. S.F.-Indicates the next date on which
an issue of bonds is subject to scheduled sinking
fund redemption and the redemption price for that
date; unless otherwise indicated, such issue of
bonds is subject to scheduled sinking fund
redemption at par.
Bonds listed as non-callable, as well as those
listed as callable, may also be redeemable at par,
under certain circumstances, from special
redemption payments.
(4) The Market Value is determined by the
Evaluator on the bid side of the market, on a basis
identical to that set forth under "Public Offering
Price of Units" included in Part B.
(5) The Maturity Date noted for all Refunded
Bonds is the date on which such Bonds have been
irrevocably called for redemption by the issuers
thereof.
(6) Escrowed to Maturity.
</TABLE>
MUNICIPAL BOND TRUST
PROSPECTUS PART B
PART B OF THIS PROSPECTUS MAY NOT BE DISTRIBUTED
UNLESS ACCOMPANIED BY PART A.
Part B contains a description of the important
features of the Municipal Bond Trust and also
includes a more detailed discussion of the
investment risks that a Unitholder might face
while holding Trust Units.
NATURE OF THE TRUST
Each series of The Municipal Bond Trust is a
separate but similar unit investment trust,
formed for the purpose of obtaining federally
tax-exempt interest income consistent with the
preservation of capital and diversification of
risk through investment in a fixed portfolio
comprised of "investment grade" (as of the
Initial Date of Deposit ) interest-bearing Bonds.
State Trusts were formed for the additional
purpose of obtaining interest income exempt from
state income taxes for purchasers who qualify as
residents of the state for which each such Trust
is named. The Sponsor and the Trustee do not have
control over the course of payment of the
principal of and interest on the Securities,
therefore they cannot guarantee that the
objectives of the Trust will be achieved. The
interest on the Bonds, in the opinion of counsel
to the issuers of such Bonds, is, or upon their
issuance and delivery will be, exempt from
present Federal income taxes. Capital gains, if
any, will be subject to taxation.
The portfolio of the Trust consists of
interest-bearing Securities, issued by or on
behalf of states, counties and municipalities
within the United States, and authorities,
agencies and other such political subdivisions.
CREATION OF THE TRUST
The Trust was created under the laws of the
State of New York pursuant to a Trust Indenture
and Agreement* (the "Indenture"), dated as of the
Initial Date of Deposit, among PaineWebber
Incorporated, as Sponsor, the Trustee identified
in Part A of this prospectus and Kenny
Information Systems, Inc., a division of J.J.
Kenny Co., Inc. as Evaluator.
On the Initial Date of Deposit, the Sponsor
deposited with the Trustee the Securities or
confirmations of contracts for the purchase of
the Securities at prices determined by the
Evaluator on the basis of current offering prices
of the Securities. Confirmations of contracts for
the purchase of the Bonds were delivered to the
Trustee together with an irrevocable letter of
credit drawn on a commercial bank in an amount
sufficient for their purchase. Following the
deposit, the Trustee delivered to the Sponsor
registered Certificates for Units evidencing the
entire ownership of the Trust. Each Unit
represents a fractional undivided interest in the
Trust in an amount equal to one divided by the
total number of Units outstanding. On the Initial
Date of Deposit there was one Unit for each
$1,000 face amount of Securities deposited in the
Trust.
DISCUSSION OF SIGNIFICANT RISKS
An investment in Units of the Trust should be
made with an understanding of the risks which an
investment in fixed rate long-term debt
obligations may entail, including the risk that
the value of the Trust portfolio and hence of the
Units will decline with increases in interest
rates: See "Brief Summary of Risks" in Part A.
As set forth under "Brief Description of the
Trust's Investment Portfolio" and "Schedule of
Investments" in Part A, the Trust may contain or
be concentrated in one or more of the categories
of Securities referred to below. The types of
issuers and percentages of any concentrations for
this Trust are set forth in Part A. These
categories are described in Part B because an
investment in Units of the Trust should be made
with an understanding of the risks which these
investments may entail.
General Obligation Bonds
General obligation debt of an issuer that is
a political subdivision or instrumentality of a
state is typically secured by the full faith and
credit of the issuer, encompassing its ability to
levy an unlimited ad valorem tax on real property
or other revenue streams, such as sales or income
taxes. The fiscal condition of an issuer may be
affected by socioeconomic factors beyond the
issuer's control (such as relocation by a major
employer) or other unanticipated events,
including: natural disasters, declines in the
state's industrial base or an inability to
attract new industries, imposition of tax rate
decreases or appropriations limitations by
legislation or initiative; increased expenditures
mandated by Federal or state law or by judicial
decree; reduction of unrestricted federal or
state aid and of revenue-sharing programs due to
subsequent legislative changes in appropriations
or aid formulas; or disallowances by the Federal
or state governments for categorical grants. The
fiscal condition of an issuer that is a political
subdivision or instrumentality of a state (such
as a county, city, school district or other
entity providing public services) is related to
the size and diversification of its tax and
revenue base and to such other factors as: the
effect of inflation on the general operating
budget and of other costs, including salaries and
fringe benefits, energy and solid waste disposal;
changes in
____________
*Reference is hereby made to the Trust
Indenture and Agreement and any statements
contained herein are qualified in their entirety
by the provisions of said Trust Indenture and
Agreement.
state law and statutory interpretations affecting
traditional home rule powers (which vary from
state to state); levels of unrestricted state aid
or revenue-sharing programs and state categorical
grants subject to annual appropriation by a state
legislature; increased expenditures mandated by
state law or judicial decree; and disallowances
for expenses
incurred under Federal or state categorical grant
programs. The local economy may be or become
concentrated (i) in a single industry, which may
be affected by natural or other disasters or by
fluctuations in commodity prices, or (ii) in a
particular company, the operations of which may
be impaired due to labor disputes, relocation,
bankruptcy or corporate take-over. Such economic
factors may, in turn, affect local tax
collections and service demands. The ability of
an issuer to levy additional taxes may be subject
to state constitutional provisions, assent of the
state legislature or voter approval in a local
referendum, or constrained by economic or
political considerations. Recent changes in
Federal welfare policy may have substantial
negative impact on certain states and localities
within such states, which may in turn make their
ability to maintain balanced budgets more
difficult in future years.
Revenue Bonds
Revenue Bonds are securities issued by
states, municipalities, public authorities and
other similar entities to finance the cost of
constructing, acquiring or improving various
projects. Unlike general obligation bonds,
municipal revenue bonds are not backed by their
issuer's taxing power or full faith and credit
and payment on municipal revenue bonds is
generally dependent solely upon revenues
generated by the project or in some cases,
specific state appropriations or excise taxes.
Examples of municipal revenue bonds are: housing
facility securities, airport facilities, power
and electronic facilities, and others listed
below in bold typeface. A brief discussion of
some of the risks associated with such revenue
bonds follows.
Housing Facility Securities
These Securities are typically secured by
mortgage revenues derived by state housing
finance agencies, municipal housing authorities
or certain non-profit organizations from
repayments on mortgage and home improvement loans
made by such entities. Special considerations
affecting housing securities include: the
condition of the local housing market,
competition from conventional mortgage lenders,
fluctuations in interest rates, increasing
construction costs and the ability of the
Issuers, lenders, servicers and borrowers to
maintain program compliance under applicable
statutory provisions. Federal tax legislation
adopted during the 1980s imposed progressively
more restrictive requirements for post-issuance
compliance necessary to maintain the tax
exemption on both single family and multi-family
housing securities. To maintain the security's
tax exemption, the issuer may be required
pursuant to the legal documents governing the
Security to redeem all or a portion of such
obligations at par; the Sponsor is unable to
predict whether such redemptions will occur, or
what effect, if any, such redemptions would have
on any such Securities in the Trust.
Additional considerations with regard to
single-family housing securities include: the
underwriting and management ability of the
issuers, lenders and servicers (i.e., the initial
soundness of the loan and the effective use of
available remedies should there be a default in
loan payments); the financial condition and
credit rating of the private mortgage insurer
underwriting the insurance on the underlying
mortgage or pool of mortgages; and special risks
attendant to lending to mortgagors, most of whom
are first time home buyers of low or moderate
means. During periods of declining interest
rates, there may be increased redemptions of
single family housing securities from unexpended
proceeds due to insufficient demand, because
conventional mortgage loans may become available
at interest rates equal to or less than the
interest rates charged on the mortgage loans made
available from bond proceeds. In addition,
certain mortgage loans may be prepaid earlier
than their maturity dates, because mortgage loans
made with bond proceeds usually do not carry
prepayment penalties. Additional considerations
with regard to multi-family housing securities
include: increasing operating costs; the ability
or failure to increase rental charges; and the
financial condition of housing authority Issuers
and their ability to meet certain requirements
under the Section 8 program of the United States
Housing Act of 1937, as amended. Multi-family
housing securities may also be subject to full or
partial redemption at par from the proceeds of
the sale, assignment or disposition of a
defaulted mortgage loan or acceleration of
principal payments thereunder; a condemnation or
insurance award; or a result of the reduction of
a required reserve fund.
Airport Facilities
Bonds in the airport facilities category are
payable from and secured by revenues derived from
the gross airport operating income. The major
portion of gross airport operating income is
generally derived from fees received from
signatory airlines pursuant to use agreements
which consist of annual payments for airport use,
occupancy of certain terminal space, facilities,
service fees, concessions and leases. Airport
operating income may be affected by local
economic conditions, air traffic patterns, noise
abatement restrictions or the ability of the
airlines to meet their obligations under the use
agreements. The air transport industry is
experiencing significant variations in earnings
and traffic due to deregulation, recent
consolidations through mergers and acquisitions,
increased competition, excess industry capacity,
fluctuations in fuel and other costs, traffic
constraints and other factors. In particular,
facilities with use agreements involving airlines
experiencing financial difficulty may experience
a reduction in revenue due to the possible
inability of these airlines to meet their use
agreement obligations. The Sponsor is now unable
to predict what effect, if any, air transport
industry conditions will have on the airport
Bonds in the Trust.
Hospital and Health Care Facility Securities
Bonds in the hospital and health care
facilities category are payable from revenues
derived from hospital, mental health, nursing
home and other health care facilities which,
generally, were constructed or are being
constructed with bond proceeds. Payment of such
bonds derives generally from revenues of health
care providers. The continuing availability of
sufficient revenues is dependent upon several
factors affecting all such facilities generally,
including, among other factors: utilization
rates; the cost and availability of malpractice
insurance and the outcome of malpractice
litigation; curtailment of operations due to
shortages in qualified medical staff or labor
disputes; the need for cost reduction as HMOs
increase market competition changes in Federal,
state and private reimbursement regulations and
health care delivery programs. The extent of the
AIDS epidemic is undetermined, and the Sponsor
cannot predict its full impact on the health care
system or particular issuers. Utilization rates
for a particular facility may be determined by
cost containment programs implemented by third
party governmental providers or private insurers;
long-term advances in health care delivery
reducing demand for in-patient services;
technological developments which may be
effectively rationed by the scarcity of equipment
or specialists; governmental approval and the
ability to finance equipment acquisitions;
increased competition due to elimination of
certain certificate of need requirements in some
states; and physicians' and public perceptions as
to standards of care. Requirements for Federal or
state licenses, certifications and contract
eligibility and for accreditation are subject to
change, and may require participating facilities
to effect costly modifications in operations.
Medicare payments have been, and may continue to
be, reduced under legislation adopting deficit
reduction measures. Additionally, certain states
have recently implemented prospective payment
systems for their Medicaid programs, and have
adopted other changes, including enrollment
restrictions. The Sponsor cannot predict the
effect, if any, of further reductions in Medicare
and Medicaid payments on the revenues of Issuers
of health care Securities in the Trust. Many
hospitals, including certain issuers (or the
conduit obligors) of Securities in the Trust,
have been experiencing significant financial
difficulties in recent years. Generally, a number
of additional legislative proposals concerning
health care may be introduced in Congress at any
time. Recently, these proposals have covered a
wide range of topics, including cost controls,
national health insurance, incentives for
competition in the provision of health care
services, tax incentives and penalties related to
health care insurance premiums, and promotion of
prepaid health care plans. The Sponsor is unable
to predict the effect of any of these proposals,
if enacted, on any of the Bonds in the Trust
portfolio. The Internal Revenue Service (the
"IRS") has been engaged in a program of extensive
audits of certain large tax-exempt hospitals and
health care providers. Although such audits have
not yet been completed there have been reports
that the tax-exempt status of certain of these
organizations may be revoked and/or that certain
monetary penalties may be owed to the IRS.
Power and Electric Facility Securities
These Securities are typically secured by
revenues derived from power generating
facilities, which generally include revenues from
the sale of electricity generated and distributed
by power agencies using hydroelectric, nuclear,
fossil fuel or other power sources. Certain
aspects of the operation of such facilities,
particularly with regard to generation and
transmission at the wholesale level, are subject
to federal regulation and more extensive
regulation (affecting retail rate structures) is
provided by state public service commissions.
Special considerations include: restrictions on
operations and increased costs and delays
attributable to environmental statues and
regulations; the difficulties of the utilities in
financing or refinancing large construction
programs and of the capital markets in absorbing
utility debt and equity securities; fluctuations
in fuel supplies and costs, and costs associated
with conversion to alternate fuel sources;
uncertainties with regard to demand projections
due to changing economic conditions,
implementation of energy conservation measures
and competitive cogeneration projects; and other
technical and cost factors. Recent scientific
breakthroughs in fusion energy and
superconductive materials may cause current
technologies for the generation and transmission
of electricity to become obsolete during the life
of the Securities in the Portfolio. Issuers
relying upon hydroelectric generation may
encounter contests when applying for periodic
renewal of licenses to operate dams. Issuers
relying upon coal as a fuel source may be subject
to significant costs and operating restrictions
to comply with emission standards which may be
adopted to alleviate the problems associated with
acid rain. Issuers relying upon fossil fuel
sources and located in air quality regions
designated as nonattainment areas may become
subject to pollution control measures (which
could include abandonment of construction
projects in progress, plant shutdowns or
relocation of facilities). In addition, such
Securities are sometimes secured by payments to
be made to state and local joint action power
agencies pursuant to "take or pay" agreements.
Such agreements have been held unenforceable by
state courts in Idaho, Vermont and Washington,
which may cause an examination of the legal
structure of certain projects in other states and
could possibly lead to litigation challenging the
enforceability of such agreements.
Some of the issuers of Securities in the
Trust may own, operate or participate on a
contractual basis with nuclear generating
facilities, which may experience additional
problems including: the frequency and duration of
plant shutdowns and associated costs due to
maintenance or safety considerations; the
problems and associated costs related to the use
and disposal of radioactive materials and wastes
in compliance with Federal and local law; the
implementation of emergency evacuation plans for
areas surrounding nuclear facilities; and other
issues associated with construction, licensing,
regulation, operation and eventual
decommissioning of such facilities. These
Securities may be subject to industry-wide
fluctuations in market value as a consequence of
market perception of certain highly publicized
events, as in the Washington Public Power Supply
System's defaults on its Project 4 and 5 revenue
bonds and the 1988 bankruptcy filing by the
Public Service Corporation of New Hampshire.
Federal, state or municipal governmental
authorities, or voters by initiative, may from
time to time impose additional regulations or
take such other governmental action which might
cause delays in the licensing, construction or
operation of nuclear power plants, or the
suspension or cessation of operations of
facilities which have been or are being financed
by proceeds of certain Securities in the Trust.
Additionally, the recent movement to
introduce competition in the investor-owned
electric utility industry is likely to affect, at
least indirectly, municipal utility systems by
driving them to maintain low rates. In an effort
to keep their rates low, municipal utilities may
experience difficulties in raising rates to
completely recover their investment in generating
plants.
Industrial Development/Pollution Control
Securities
These Securities were generally issued prior
to the enactment of 1986 Code restrictions, and
are typically secured by payments made under a
loan agreement entered into between the issuer
and the obligor. In some cases, the Securities
were additionally secured by guarantees provided
by corporate guarantors or by a stand-by letter
of credit issued by a bank. Special
considerations include: the financial condition
of the corporate obligor (or guarantor),
especially as it may be affected by subsequent
corporate restructuring or changes in corporate
control; often such bonds do not have protections
which would limit or prevent the corporate
obligor from entering into borrowings or capital
restructurings that could reduce their ability to
meet their payment obligations.
Public Facilities Securities
These Securities are typically secured by
revenues derived from either (i) payments
appropriated by governmental entities for the use
of equipment or facilities, such as
administrative or correctional buildings, or (ii)
user charges or other revenues derived from such
operations as parking facilities, convention
centers or sports arenas. In the first instance,
the pledged revenues may be subject to annual
appropriation by legislative body. In the latter
case, the collection of revenues may be dependent
upon the reliability of feasibility forecasts and
assumptions concerning utilization rates.
Resource Recovery/Solid Waste Securities
These Securities are typically secured by
revenues derived from the sale of electricity or
steam generated as a by-product of the process of
incinerating solid waste, and from contractual
tipping fees, user charges and ancillary
recycling earnings. Special considerations
include: the supply of solid waste at levels
sufficient for the facility to operate at design
capacity; the frequency and duration of plant
shutdowns for maintenance; the treatment and
disposal of fly ash which contains toxic
substances, especially dioxin; compliance with
air pollution control standards; unanticipated
problems associated with the use of developing
technologies; and the continuation of federal
policies facilitating congeneration and
certification of any particular qualifying
facility. Governmental service contract payments
may be subject to annual appropriation by a
legislative body. Older facilities may require
retrofitting to accommodate new technological
developments or to comply with environmental
standards. A recent decision of the United States
Supreme Court limiting a municipality's ability
to require the use of its facilities may have an
adverse affect on the credit quality of certain
securities.
Water and Sewer Facility Securities
Bonds described as "water and sewer"
facilities Bonds are typically secured by a
pledge of the net revenues derived from
connection fees and user charges imposed by the
enterprise. Such Bonds are subject to the risks
typically associated with construction projects.
Among the factors which may affect net revenues
are the destruction of facilities due to natural
or other disasters; relocation out of the service
area by a major customer or customers due to
economic factors beyond the issuer's control; or
costs incurred due to prior periods of deferred
maintenance or compliance with Federal or state
environmental standards. Water system revenues
may be additionally affected by the terms of
supply allocations and service agreements with
major wholesale customers and the imposition of
mandatory conservation measures in response to
drought. Sewer system revenues may be
additionally affected by costs to comply with
effluent and other standards pursuant to the
Federal and state laws.
Student Loan Securities
Student loan revenue securities are issued
either by non profit corporations organized for
the purpose of acquiring student loans originated
under the Higher Education Act ("the Act") or
public agencies or instrumentalities of a state
created to provide loans for educational
purposes. Proceeds of securities issued by such
entities generally are used to make or acquire
student loans which are either (1) guaranteed by
guaranty agencies and reinsured by the U.S.
Secretary of Education, (2) are insured directly
by the federal government or (3) not guaranteed
at all (e.g. alternative or supplemental student
loans). Bonds issued by such entities are
generally secured by and dependent upon such
state guarantee programs, Federal insurance and
reimbursement programs, the proceeds from payment
of principal and interest on the underlying
student loans and federal interest subsidy and/or
special allowance payments. Failure by the
servicers of student loans on the guaranty
agencies guaranteeing such loans to properly
service and enforce the loans may cause the
reimbursements to decline or be withheld under
the Act, if applicable.
Both the Act and the regulations promulgated
thereunder have been the subject of extensive
amendments in recent years, and the Sponsor can
give no assurance that further amendment will not
materially change the provisions or the effect
thereof. The availability of various Federal
payments in connection with the Federal student
loan program is subject to Federal budgetary
appropriation. In recent years, legislation has
been enacted which has provided, for the recovery
of certain advances previously made by the
Federal government to state guaranty agencies in
order to achieve deficit reduction. No
representation is made as to the effect, if any,
or future Congressional appropriation or
legislation upon expenditures by the Department
of Education or upon the financial condition of
any guaranty agency.
Student loan securities often allow the
issuer to enter into swap agreements with certain
counterparties; in such cases payment on such
bonds is also subject to the risk that the
counterparty is not able to meet its swap
obligation.
Lease Payment Bonds
Lease Payment bonds are generally issued by
governmental financing authorities with no direct
taxing power for the construction of buildings or
the purchase of equipment to be used by a state
or local government. Such bonds may be
principally secured by governmental lease
payments which in turn are subject to the budget
appropriations of the participating governmental
entity. A governmental entity that enters into a
lease agreement cannot obligate future
governments to make lease payments but generally
will covenant to take such action as is necessary
to include all lease payments due under an
agreement in its annual budgets and to make the
appropriations therefor. The failure of a
governmental entity to meet its obligations under
a lease could result in an insufficient amount of
funds to cover payment of the Bonds secured by
such lease payments. Such bonds may also be
subject to the risk that rental obligations may
terminate in the event of destruction or damage
of the equipment or buildings.
Tax Allocation Bonds
Bonds described as "tax allocation"
securities are payable from and secured by
increased tax revenues collected on property
within the areas where redevelopment projects,
financed by bond proceeds, are located ("project
areas"). Payments on these bonds are expected to
be made from projected increases in tax revenues
derived from higher assessed value of property
resulting from development in the particular
project area and not from an increase in the tax
rates. Among the factors which could result in a
reduction of the allocated tax revenues which
secure a tax allocation Bond are: (i) reduction
of, or a less than anticipated increase in,
taxable values of property in the project area,
caused either by economic factors beyond the
issuer's control (such as a relocation out of the
project area by one or more major property
owners) or by destruction of property due to
natural or other disasters; (ii) successful
appeals by property owners of assessed
valuations; (iii) substantial delinquencies in
the payment of property taxes; or (iv) imposition
of any constitutional or legislative property tax
rate decrease. Such reduction of tax revenues
could have an adverse effect on an issuer's
ability to make timely payments of principal and
of interest on the Bonds.
Refunded Bonds (including Escrowed to Maturity
Bonds)
Refunded bonds (including bonds escrowed to a
call date or maturity date) are bonds that
originally had been issued generally as revenue
bonds but have been refunded for reasons which
may include changing the issuer's debt service
requirements and removing restrictive bond
covenants. Typically, a refunded bond is no
longer secured by a pledge of revenues received
by an issuer but rather by an escrow fund
consisting of U.S. Government Obligations. In
such cases the issuer establishes an escrow fund
which is irrevocable and which cannot be depleted
by the issuer so long as debt service on the
refunded bonds is required to be paid. Each
escrow fund is funded with U.S. Government
Obligations which are designed to make payments
on the refunded bonds and which cannot be
affected by a default of the issuer. An escrow
agent pays principal, redemption premium, if any,
and interest on the refunded bond from the
principal of and interest on the U.S. Government
Obligations in the escrow fund. The Trust, as
holder of the refunded bonds, is entitled to
receive such payment of principal, redemption
premium, if any, and interest on the refunded
bonds as it is paid by the escrow agents out of
the respective refunded bond escrow funds.
Investors should note that there have, however,
been a few bonds thought to be escrowed to
maturity that were, in fact, called for
redemption prior to maturity.
Crossover Refunding Bonds
Certain Bonds in the Trust may be cross-over
refunding Bonds. Prior to a specified date, (the
"Crossover Date"), such bonds are payable solely
from an escrow fund invested in specified
securities. After the Crossover Date the Bonds
are payable from a designated source of revenues.
Such bonds are categorized in Part A as payable
from such source of revenues.
Bonds Backed by Letters of Credit or Insurance
The Trust may contain securities that are
secured by letters of credit issued by commercial
or savings banks which may be drawn upon (i) if
an issuer fails to make payments of principal of,
premium, if any, or interest on a Bond backed by
such a letter of credit or (ii) in the event
interest on a Bond is deemed to be taxable and
full payment of principal and any premium due is
not made by the issuer. The letters of credit are
irrevocable obligations of the issuing banks.
Banks are subject to extensive governmental
regulations. The profitability of the banking
industry is largely dependent upon the
availability and cost of capital funds for the
purpose of financing lending operations under
prevailing money market conditions. Also, general
economic conditions play an important part in the
operations of the banking industry and exposure
to credit losses arising from possible financial
difficulties of borrowers or other issuers having
letters of credit might affect a bank's ability
to meet its obligations under a letter of credit.
Certain of the Bonds in the Trust may have
been insured to maturity by the insurance company
listed on the "Schedule of Investments" in Part
A. In an Insured Series, in addition to
purchasing Bonds insured at the time of their
issuance, the Sponsor may have purchased bonds
which, prior to the Initial Date of Deposit, were
not so insured at the time of issuance. The
Sponsor has obtained an insurance policy or
policies (except as otherwise set forth in Part
A) for such bonds which were not originally
insured. The policies obtained by the Sponsor
provide either for insurance as long as the Bonds
so insured remain outstanding ("Insurance to
Maturity") or which continue in force only so
long as the Bonds so insured remain in the
Insured Trust ("Portfolio Insurance"). Portfolio
Insurance, if any, has been obtained from
Financial Guaranty. Any Insured Trust which has
obtained Portfolio Insurance has additionally
obtained an irrevocable commitment (the
"Irrevocable Commitment") of Financial Guaranty
to provide insurance to maturity ("Permanent
Insurance") upon the sale of any Bond covered by
the Portfolio Insurance from such Trust and upon
payment of a premium (the "Permanent Insurance
Premium") under certain conditions. The value of
the Bonds covered by the Portfolio Insurance and,
therefore, the Units may decline in the event of
declining credit quality. However, because of the
Irrevocable Commitment to provide Permanent
Insurance, whenever the value of a Bond which is
below investment grade and which is covered by
the Portfolio Insurance and insured to its
maturity (less the Permanent Insurance Premium)
exceeds the value of that Bond without such
insurance, the value of that Bond will be higher,
insured to maturity value (See "Evaluation of the
Trust"). The insurance policies are non-
cancellable and will remain in force as long as
the Bonds insured by such policies remain
outstanding. Premiums for Insurance to Maturity
has been paid either at the time of issuance by
the Issuer, by third-party purchasers or by the
Sponsor on the Initial Date of Deposit (See
"Summary of Portfolio-Insurance Premiums").
Premiums for Portfolio Insurance are an expense
of an Insured Trust. (See "Expenses of the
Trust"). Insurance does not guarantee the market
value of the Bonds or the value of the Units.
Although the insurance represents an element of
market value with respect to the Bonds covered by
Insurance to Maturity, the exact effect, if any,
of this insurance on the market value cannot be
predicted. No value is attributed to Portfolio
Insurance unless the Bond so insured is rated
below investment grade.
Payment under all of these insurance policies
will be made in respect of principal of and
interest on Bonds which shall be due for payment
under the provisions of each policy, but shall be
unpaid. All such policies provide for payment of
the principal or interest due to a trustee or
paying agent on the date such payment is due. In
turn, such trustee or paying agent will make
payment to the bondholder (in this case, the
Trustee) upon presentation of satisfactory
evidence of such Bondholder's right to receive
such payment. Policies issued by Industrial
Indemnity Insurance Company prior to December 17,
1984 permit the Company, at its option, to
accelerate payments under the insurance policies.
Most insurance policies, however, do not provide
for accelerated payments of principal or interest
nor do they cover redemptions resulting from
events of taxability.
The following summary information relating to
the listed insurance companies has been obtained
from publicly available information. Certain
insurance companies have been restructured and
have been absorbed or merged into others; in such
cases the names of the original insurance company
appear in parentheses next to the name of the
acquiring or surviving insurance company.
Financial Information
As of December 31, 1997
(in millions of dollars)
Name (Including Names of
Policyholders' Date Admitted
Predecessor Companies) Established Assets Surplus
AMBAC Assurance Corporation (AMBAC) 1970 $2,879 $1,007
Capital Markets Assurance
Corporation (CAPMAC) 1987 329 191
Financial Guaranty Insurance
Company (FGIC} 1984 2,314 1,033
Financial Security Assurance Inc.(FSA)1984 1,397 494
(including Capital Guaranty
Insurance Company and United States
Fidelity and Guaranty Company)
MBIA Insurance Corporation (MBIA) 1986 5,256 1,760
(including Bond Investors Guaranty
Insurance Company)
__________
*On February 17, 1998, MBIA Inc., the holding
company of MBIA Insurance Corp., acquired CAPMAC
Holdings, Inc., the holding company of CAPMAC.
The policies issued by CAPMAC will continue to
remain outstanding and will also be backed by the
full financial resources of MBIA Insurance Corp.
Insurance companies are subject to extensive
regulation and supervision where they do business
by state insurance commissioners who regulate the
standards of solvency which must be maintained,
the nature of limitations on investments, reports
of financial condition, and requirements
regarding reserves for unearned premiums, losses
and other matters. A significant portion of the
assets of insurance companies are required by law
to be held in reserve against potential claims on
policies and is not available to general
creditors. Although the federal government does
not regulate the business of insurance, federal
initiatives including pension regulation,
controls on medical care costs, minimum standards
for no-fault automobile insurance, national
health insurance, tax law changes affecting life
insurance companies and repeal of the antitrust
exemption for the insurance business can
significantly impact the insurance business.
Ratings on the Bonds in the Insured Series and on
Units of the Insured Series
On the Initial Date of Deposit Standard &
Poor's Corporation rated each of the Bonds in the
Portfolio and the Units of each Insured Trust
"AAA" because the insurers have issued insurance
policies to insure each of the Bonds. The Units
of each Insured Trust (with the exception of
Units of those Insured Trusts identified in Part
A) continue to be rated "AAA". See Part A for the
current ratings on the Bonds and Units. (See also
"Bond Ratings", herein). The Bond and Unit
ratings should not be construed as an approval of
the offering of the Units by Standard & Poor's
Corporation or as a guarantee of the market value
of the Trust or of the Units. Standard & Poor's
has been compensated by the Sponsor for its
services in rating Units of the Trust.
Insurance Premiums
The cost of the Insurance to Maturity has
been paid either by the issuers at the time of
issuance, by third-party purchasers or by the
Sponsor. Portfolio Insurance premiums are a Trust
expense.
Risk Factors Pertaining to a Single State Trust
Investment in a Trust which holds securities
issued only by obligors in a single state, such
as California, may involve additional risks to
that of an investment in a Trust with a portfolio
of securities from several states, due to the
decreased diversification of political,
financial, economic and market risks. A brief
description of the factors which may affect the
financial condition of the applicable state,
together with a discussion of certain tax
considerations relating to such state, appear in
Part A.
Legislation
From time to time, proposals are introduced
in Congress to, among other things, reduce
federal income tax rates, impose a flat tax,
exempt investment income from tax or abolish the
federal income tax and replace it with another
form of tax. Enactment of any such legislation
could adversely affect the value of the Units.
The Sponsor, however, cannot predict what
legislation, if any, in respect of tax rates may
be proposed, nor can it predict which proposals,
if any, might be enacted. Also, certain
proposals, in the form of state legislative
proposals or voter initiatives, seeking to limit
real property taxes have been introduced in
various states, and an amendment to the
Constitution of the State of California,
providing for strict limitations on real property
taxes, has had a significant impact on the taxing
powers of local governments and on the financial
condition of school districts and local
governments in California. In addition, other
factors may arise from time to time which
potentially may impair the ability of issuers to
make payments due on the Bonds. Under the Federal
Bankruptcy Code, for example, municipal bond
issuers, as well as any underlying corporate
obligors or guarantors, may proceed to
restructure or otherwise alter the terms of their
obligations.
From time to time, Congress considers
proposals to prospectively and retroactively tax
the interest on state and local obligations, such
as the Bonds. The Supreme Court clarified in
South Carolina v. Baker (decided on April 20,
1988) that the U.S. Constitution does not
prohibit Congress from passing a
nondiscriminatory tax on interest on state and
local obligations. This type of legislation, if
enacted into law, could require investors to pay
income tax on interest from the Bonds and could
adversely affect an investment in Units.
Payment of the Bonds and Life of the Trust
The size and composition of the Portfolio
will change over time. Most of the Bonds are
subject to redemption prior to their stated
maturity dates pursuant to optional refunding or
sinking fund redemption provisions or otherwise.
In general, optional refunding redemption
provisions are more likely to be exercised when
the value of a Bond is at a premium over par than
when it is at a discount from par. Some Bonds may
be subject to sinking fund and extraordinary
redemption provisions which may commence early in
the life of the Trust. Additionally, the size and
composition of the Trust will be affected by the
level of redemptions of Units that may occur from
time to time. Principally, this will depend upon
the number of investors seeking to sell or redeem
their Units and whether or not the Sponsor is
able to sell the Units acquired by it in the
secondary market. As a result, Units offered in
the secondary market may not represent the same
face amount of Bonds as on the initial date of
deposit. Factors that the Sponsor will consider
in determining whether or not to sell Units
acquired in the secondary market include the
diversity of the Portfolio, the size of the Trust
relative to its original size, the ratio of Trust
expenses to income, the Trust's current and long-
term returns, the degree to which Units may be
selling at a premium over par and the cost of
maintaining a current prospectus for the Trust.
These factors may also lead the Sponsors to seek
to terminate the Trust earlier than its mandatory
termination date.
Ratings
Each of the Bonds in the Trust was, as of the
Initial Date of Deposit, rated "A" or higher by
either Standard & Poor's Corporation or Moody's
Investors Service, Inc. (see "Schedule of
Investments") or were Bonds which the Sponsor
reasonably believed would have obtained such
minimum rating soon thereafter. Ratings indicated
on the Schedule of Investments are Standard &
Poor's Corporation ratings unless no rating was
given to a Bond by such rating service or the
rating category assigned by Moody's Investors
Service, Inc. was higher, in which case the
Moody's Investors Service, Inc. rating was
indicated. Certain Bonds may, in addition to
their rating, be designated either "p" by
Standard & Poor's Corporation or "Con" by Moody's
Investors Service, Inc. Such designations do not
affect the rating assigned by the respective
rating services to such Bonds but provide certain
additional information (see "Bond Ratings" in
Part B and "Schedule of Investments" in Part A).
ACQUISITION OF SECURITIES FOR THE TRUST
In selecting Bonds for deposit in the Trust
many factors were considered, and based upon the
experience and judgment of the Sponsor, the
following requirements, among others, were deemed
to be of primary importance:
1. Minimum Standard & Poor's Corporation's
rating of "A-" or minimum Moody's Investors
Service, Inc.'s rating of "A" ("investment grade"
municipal bonds) or Bonds which the Sponsor
reasonably believes will obtain such minimum
ratings in the near future;
2. Reasonable value relative to other issues
of similar quality and maturity;
3. Diversification as to the purpose of each
issue and the location of each issuer; and
4. Income to the Unitholders of the Trust.
Cash, if any, received from Unitholders prior
to the settlement date for the purchase of Units
or prior to the payment for Bonds upon their
delivery may be used in the Sponsor's business
subject to the limitations of 17 C.F.R. Section
240. 15c3-3 under the Securities and Exchange Act
of 1934 and may be of benefit to the Sponsor.
The Trustee has not participated in the
selection of Securities for the Trust, and
neither the Sponsor nor the Trustee will be
liable in any way for any default, failure or
defect in any Securities.
To the best knowledge of the Sponsor, there
was no litigation pending as of the Initial Date
of Deposit in respect of any Securities which
might reasonably be expected to have a material
adverse effect upon the Trust. At any time after
the Initial Date of Deposit, litigation may have
been initiated on a variety of grounds with
respect to Securities in the Trust. Such
litigation may affect the validity of such
Securities or the tax-exempt status of the
interest thereon. While the outcome of litigation
of such nature cannot be predicted, opinions of
the bond counsel are delivered with respect to
each Security on the date of issuance to the
effect that such Security has been validly issued
and that the interest thereon is exempt from
Federal income tax. If legal proceedings are
instituted after the Initial Date of Deposit
seeking, among other things, to restrain or
enjoin the payment of any of the Bonds or
attacking their validity or the authorization or
existence of the issuer, the Sponsor may, in
accordance with the Indenture, direct the Trustee
to sell such Bonds and distribute the proceeds of
such sale to Unitholders. In addition, other
factors may arise from time to time which
potentially may impair the ability of issuers to
meet obligations undertaken with respect to
Bonds.
PUBLIC OFFERING PRICE OF UNITS
The Public Offering Price per Unit during the
secondary market will be computed by dividing the
aggregate of the bid prices of the Bonds in the
Trust plus any money in the Principal Account
other than money required to redeem the tendered
Units, by the number of Units outstanding, and
then adding the appropriate sales charge. In the
primary offering period, the Public Offering
Price was determined on the basis of the offering
prices of bonds plus a sales charge ranging from
3.5% to 5.5% of the Public Offering Price.
The sales charge is determined in accordance
with the table set forth below based upon the
number of years remaining to the maturity of each
Bond. There is no sales charge with respect to
cash held in the Interest or Principal Accounts.
For purposes of this calculation, Bonds will be
deemed to mature on their stated maturity dates
unless: (a) the Bonds have been called for
redemption or funds or securities have been
placed in escrow to redeem them on an earlier
call date ("Refunded Bonds"), in which case such
call date shall be deemed to be the date upon
which they mature; or (b) such Bonds are subject
to a "mandatory put", in which case such
mandatory put date shall be deemed to be the date
upon which they mature.
The effect of this method of sales charge
calculation will be that different sales charge
rates will be applied to the various Bonds in a
Trust portfolio based upon the maturities of such
Bonds, in accordance with the following schedule:
Maximum
Percent of
Remaining Public Percent of
Years to Offering Net Amount
Maturity Price Invested
Less than 6 Months 0% 0%
Six Months to Less than 1 Year 0.50 .503
1 Year to Less than 4 Years 1.50 1.523
4 Years to Less than 8 Years 2.50 2.564
8 Years to Less than 15 Years 2.75 2.828
15 Years or More 2.90 2.987
For example, the sales charge on a Trust
consisting entirely of Bonds maturing in 8 to 15
years would be 2.75% (2.828% of the net amount
invested) and that on a Trust consisting entirely
of Bonds maturing in four to eight years would be
2.50% (2.564% of the net amount invested). The
actual sales charge included in the Public
Offering Price of any particular Trust will
depend on the maturities of the Bonds in the
portfolio of such Trust.
Due to the realization of economies of scale
in sales effort and sales related expenses with
respect to the purchase of Units by employees of
the Sponsor, the Sponsor intends to permit
employees of the Sponsor and certain of their
relatives to purchase Units of the Trust at a
price equal to the bid-side evaluation of the
Securities in the Trust divided by the number of
Units outstanding. The Sponsor does not intend to
impose a sales charge on such employee sales.
A proportionate share of accrued interest and
undistributed interest on the Units to the
Unitholder's settlement date (the Unitholder's
settlement date is the date so specified in the
confirmation of sale of the Units to a
Unitholder, normally five business days after
purchase) is added to the Public Offering Price.
Such proportionate share will be an asset of the
Unitholder and will be received in subsequent
distributions and upon the sale of his Units.
Aggregate bid prices of the Securities will
be determined for the Trust by the Evaluator on
the basis of: (1) the current bid prices for the
Securities; (2) the current bid prices for
comparable bonds, if bid prices are not available
for any of the Securities; (3) determining the
value of the Securities on the bid side of the
market by appraisal; or (4) any combination of
the above. Such evaluations and computations will
be made each business day as of the Evaluation
Time, effective for all sales or redemptions made
subsequent to the last preceding determination.
In addition to the sales charges, on the
Initial Date of Deposit, the Sponsor realized a
profit or loss resulting from the difference
between the purchase price paid by the Sponsor to
buy the Securities and the cost of the Securities
to the Trust as determined by the Evaluator. The
Sponsor may realize additional profit or loss as
a result of the possible change in the daily
evaluation of the Bonds in the Trust. All
proceeds received from purchasers of Units of the
Trust will be retained by the Sponsor.
PUBLIC OFFERING OF UNITS
The Sponsor intends to qualify Units for sale
in all of the states of the United States, except
that for state trusts, the Sponsor intends to
qualify Units for sale only to residents of that
state. Sales may be made to dealers who are
members of the National Association of Securities
Dealers, Inc. at prices which include a
concession of 75% of the applicable sales charge
subject to change from time to time. The
difference between the dealer concession and the
sales charge will be retained by the Sponsor. The
Sponsor reserves the right to reject, in whole or
in part, any order for the purchase of Units.
Initial Offering of Units. During the initial
public offering period, Units were offered to the
public by the Sponsor at the Public Offering
Price calculated on each business day, plus
accrued interest.
Secondary Offering of Units. Upon the
termination of the initial public offering
period, unsold Units or Units acquired by the
Sponsor in the secondary market referred to below
may be offered to the public by the Sponsor by
this Prospectus at the then current Public
Offering Price, calculated daily, plus accrued
interest.
SECONDARY MARKET FOR UNITS
While not obligated to do so, it is the
Sponsor's present intention to maintain, at its
expense, a secondary market for Units of this
Series and to offer to repurchase Units from
Unitholders at the "Sponsor's Repurchase Price".
The Sponsor's Repurchase Price is computed by
dividing the value of the Trust by the number of
Units outstanding (see "Evaluation of the
Trust"). There is no sales charge incurred when a
Unitholder sells Units back to the Sponsor. Any
Units repurchased by the Sponsor at the Sponsor's
Repurchase Price may be reoffered to the public
by the Sponsor at the then current Public
Offering Price, plus accrued interest. Any profit
or loss resulting from the resale of such Units
will belong to the Sponsor.
If the supply of Units exceeds demand, or for
some other business reason, the Sponsor may,
without prior notice, at any time or occasionally
from time to time discontinue the repurchase of
Units of this Series at the Sponsor's Repurchase
Price. In such event, although under no
obligation to do so, the Sponsor may, as a
service to Unitholders, offer to repurchase Units
at the "Redemption Value". If the Sponsor
repurchases Units in the secondary market at the
"Redemption Value", it may reoffer these Units in
the secondary market at the "Public Offering
Price". In no event will the price offered by the
Sponsor for the repurchase of Units be less than
the current Redemption Value for those Units. See
"Redemption of Units by Trustee" and "Comparison
of Public Offering Price and Redemption Value".
ESTIMATED CURRENT RETURN AND ESTIMATED LONG TERM
RETURN
The Sponsor may from time to time give
investors Estimated Current Return and Estimated
Long Term Return information, each of which give
investors different information about the return.
Estimated Current Return on a Unit represents
annual cash receipts from coupon-bearing debt
obligations in the Trust (after estimated annual
expenses) divided by the Public Offering Price
(including the sales charge).
Unlike Estimated Current Return, Estimated
Long Term Return is a measure of the estimated
return to the investor earned over the estimated
life of the Trust. Estimated Long Term Return is
calculated using a formula which (1) takes into
consideration, and determines and factors in the
relative weightings of, the market values, yields
(which takes into account the amortization of
premiums and the accretion of discounts) and
estimated retirements of all of the Securities in
the Trust and (2) takes into account the expenses
and maximum sales charge associated with each
Unit. The Estimated Long Term Return calculation
does not take into account certain delays in
distributions of income and the timing of other
receipts and distributions on Units and may,
depending on maturities, over or understate the
impact of sales charges. Both of these factors
may result in a lower figure.
Both Estimated Current Return and Estimated
Long Term Return are subject to fluctuation with
changes in Trust composition, changes in market
value of the underlying Securities and changes in
fees and expenses, including sales charges. The
size of any difference between Estimated Current
Return and Estimated Long Term Return can also be
expected to fluctuate at least as frequently. In
addition, both return figures may not be directly
comparable to yield figures used to measure other
investments, and, since the return figures are
based on certain assumptions and variables, the
actual returns received by a Unitholder may be
higher or lower.
ESTIMATED NET ANNUAL INTEREST INCOME PER UNIT
The estimated Net Annual Interest Income per
Unit of the Trust is computed by dividing the
total gross annual interest income to the Trust
by the number of Units outstanding and then
subtracting the per Unit estimated annual fees
and expenses of the Trustee, the Sponsor and the
Evaluator (see "Essential Information" in Part
A). The estimated Net Annual Interest Income per
Unit will be higher for Unitholders who do not
elect the monthly plan (where alternate plans of
distribution are available). This is the result
of the differing expenses and fees of the Trustee
in administering the distributions of interest.
See "Essential Information" in Part A and
"Distributions to Unitholders".
The estimated Net Annual Interest Income per
Unit will change whenever Securities mature, are
called for redemption, or are sold. In addition,
any change in the Trustee's, the Sponsor's (where
applicable) or Evaluator's fees or expenses will
result in a change in the estimated Net Annual
Interest Income per Unit (see "Expenses of the
Trust").
DISTRIBUTIONS TO UNITHOLDERS
The Trustee will collect the interest on the
Securities as it becomes payable and credit such
interest to a separate Interest Account created
by the Indenture. All moneys received by the
Trustee from sources other than interest will be
credited to a separate Principal Account. All
funds collected or received will be held by the
Trustee in trust without interest to Unitholders
as part of the Trust or the Reserve Account
referred to below until required to be disbursed
in accordance with the provisions of the
Indenture. Such funds will be segregated by
separate recordation on the Trust ledger of the
Trustee so long as such practice preserves a
valid preference under applicable law, or, if
such preference is not preserved the Trustee
shall handle such funds in such other manner as
shall constitute the segregation and holding
thereof in trust within the meaning of the
Investment Company Act of 1940, as the same may
be from time to time amended. To the extent
permitted by the Indenture and applicable banking
regulations, such funds are available for use by
the Trustee pursuant to normal banking
procedures.
The Trustee is authorized by the Indenture to
withdraw from the Principal and/or Interest
Accounts such amounts as it deems necessary to
establish a reserve for any taxes or other
governmental charges that may be payable out of
the Trust, which amounts will be deposited in a
separate Reserve Account. If the Trustee
determines that the amount in the Reserve Account
is greater than the amount necessary for payment
of any taxes or other governmental charges, it
will promptly deposit the excess in the Account
from which it was withdrawn.
The settlement date for the purchase of Units
must occur on or prior to the Record Date in
order for a purchaser to receive a distribution
on the next Distribution Date. If the settlement
date for the purchase of Units occurs after the
Record Date, distribution will not occur until
the second following Distribution Date.
Interest Account
After deduction of the fees and expenses of
the Trustee, the Sponsor (where applicable and as
indicated under "Essential Information") and the
Evaluator, the Trustee will distribute on each
Distribution Date or shortly thereafter, to
Unitholders of record on the preceding Record
Date, an amount approximately equal to either
one-twelfth, one-quarter or one-half of such
Unitholder's pro rata share (depending on the
distribution plans available and selected) of the
estimated annual amount to be deposited in the
Interest Account, computed as of the preceding
Record Date. However, all Unitholders of record
on the initial Record Date will receive the
initial interest distribution on the initial
Interest Distribution Date. The Trustee's fees
and expenses will be higher for monthly interest
distributions than for quarterly or semi-annual
interest distributions, where available.
Therefore, the amount distributed per Unit to
Unitholders electing the monthly plan will be
correspondingly lower than under the quarterly or
semi-annual plan. All interest distributions
following the initial interest distribution will
be in approximately the amounts shown under
"Essential Information", depending on the plan of
distribution selected. See "Essential
Information--Plan of Distribution" in Part A for
details on electing available distribution plans.
Because the Securities in the Trust pay
interest at varying semi-annual intervals and
Units pay interest at constant monthly, quarterly
or semi-annual intervals, the interest accrued on
Units of the Trust will be greater than the
amount available for distribution from the
Interest Account. The Trustee will distribute on
each Distribution Date an amount which will be
less than the interest accrued to each Unitholder
on the preceding Record Date. Pursuant to the
Indenture, in order to accommodate regular
interest distributions, the Trust will contain
undistributed cash balances. The difference
between the amount accrued to each Unitholder on
a Record Date and the amount distributed on the
following Distribution Date is an asset of the
Unitholder and will be included as part of
accrued interest which will be received in
subsequent interest distributions, upon the sale
of his Units or, in part, upon the sale,
redemption, or maturity of Securities in the
Trust.
The Trustee is authorized by the Indenture to
advance such amounts as may be necessary to
provide interest distributions of approximately
equal amounts in accordance with the distribution
plan selected. The Trustee will be reimbursed,
without interest, for any such advances in the
manner provided in the Indenture.
Principal Account
The Trustee will distribute an amount equal
to such Unitholder's pro rata share of the cash
balance, if any, in the Principal Account on the
principal Distribution Date specified under
"Distribution" under "Essential Information". The
pro rata share is computed as of the preceding
Record Date. Except for moneys used to redeem
tendered Units, proceeds received upon the
disposition of any Securities subsequent to a
Record Date and prior to the following principal
Distribution Date will be held in the Principal
Account and will not be distributed until the
next succeeding principal Distribution Date.
However, in the event of an early redemption of
bonds, sale of bonds upon the occurrence of
events set forth under "Supervision of Trust
Investments", or maturity of bonds, there may
occur a special principal distribution. Any
special principal distribution will be made
within 60 days of such event to Unitholders of
record on the Record Date selected therefor by
the Trustee as provided in the Indenture. No
distribution need be made from the Principal
Account if the cash balance therein is less than
one-tenth of one per cent of the total principal
amount of the Securities on the Initial Date of
Deposit.
Certain of the Bonds in the Trust are subject
to sinking fund or special redemption by their
issuers, as set forth under "Redemption Features"
on the "Schedule of Investments in Part A". The
redemption price of Bonds in the Trust called by
an issuer pursuant to sinking fund or special
redemption is normally equal to the principal
amount of such Bonds, while the redemption price
for Bonds called at the option of the issuer may
include a redemption premium. In most cases Bonds
are selected from among Bonds of like series and
maturity either by lot or by such method as the
bond trustee may adopt. A capital gain or loss
may occur depending upon the price at which a
Bond which is called was acquired by the Trust
and the amount received by the Trust upon
redemption (see "Tax Status of the Trust"). In
general, optional redemption provisions are more
likely to be exercised by an issuer when the
offering side valuation is greater than par than
when the offering side valuation is less than
par. If future interest rates decline, an issuer
of Bonds might find it advantageous to exercise
its option to call Bonds prior to maturity even
though, in most cases, the issuer must pay a
premium.
Reinvestment Program
Distributions are made to Unitholders
monthly. The Unitholder has the option of
receiving the monthly interest and/or principal
distribution or reinvesting at net asset value in
the PaineWebber Tax-Exempt Income Fund (the
"Fund"), an open-end investment company
registered under the Investment Company Act. The
Fund's investment objective is to provide high
current income exempt from Federal income tax,
consistent with the preservation of capital and
liquidity within the Fund's quality standards.
Except under unusual market conditions, the Fund
will invest at least 80% of its assets in
municipal obligations with varying maturities,
the interest from which, in the opinion of bond
counsel to their respective issuers, is exempt
from both Federal income tax and the Federal
alternative minimum tax. There can be no
assurance that the Fund will achieve its
objective. For more information about the Fund,
including a prospectus, Unitholders should
contact their PaineWebber Investment Executive or
call the Fund's shareholder service number at 1-
800-544-9300.
To participate in the Reinvestment Program,
Unitholders must hold Units in their own name,
must fill out an application establishing an
account and notify the Trustee of the account
number at least 10 days before the Record Date.
Elections may be revoked upon similar notice.
EXCHANGE OPTION
Unitholders may elect to exchange any or all
of their Units of this series for units of one or
more of any series of PaineWebber Municipal Bond
Fund Series (the "PaineWebber Series"); The
Municipal Bond Trust, (the "National Series");
The Municipal Bond Trust, Multi-State Program
(the "Multi-State Series); The Municipal Bond
Trust, California Series (the "California
Series"); The Municipal Bond Trust, Insured
Series (the "Insured Series"); The Corporate Bond
Trust, (the "Corporate Series"); The PaineWebber
Pathfinders Trust, (the "Pathfinders Series"),
The PaineWebber Federal Government Trust, (the
"Government Series") or the PaineWebber Equity
Trust, (the "Equity Series") (collectively
referred to as the "Exchange Trusts"), at a
Public Offering Price for the units of the
Exchange Trusts to be acquired based on a reduced
sales charge of $15 per unit. Unitholders of this
Trust are not eligible for the Exchange Option
into (1) any Exchange Trust designated as a
rollover series for the 30 day period prior to
termination of such Trust or (2) any Exchange
Trust subject to a deferred sales charge. The
purpose of such reduced sales charge is to permit
the Sponsor to pass on to the Unitholder who
wishes to exchange Units the cost savings
resulting from such exchange of Units. The cost
savings result from reductions in time and
expense related to advice, financial planning and
operational expense required for the Exchange
Option. Each Exchange Trust has different
investment objectives, therefore a Unitholder
should read the prospectus for the applicable
Exchange Trust carefully prior to exercising this
option. Exchange Trusts having as their objective
the receipt of tax-exempt interest income would
not be suitable for tax-deferred investment plans
such as Individual Retirement Accounts. A
Unitholder who purchased Units of a series and
paid a per unit sales charge that was less than
the per Unit sales charge of the series of
Exchange Trusts for which such Unitholder desires
to exchange into, will be allowed to exercise the
Exchange Option at the Unit Offering Price plus
the reduced sales charge, provided the Unitholder
has held the Units for at least five months. Any
such Unitholder who has not held the Units to be
exchanged for the five-month period will be
required to exchange them at the Unit Offering
Price plus a sales charge based on the greater of
the reduced sales charge, or an amount which,
together with the initial sales charge paid in
connection with the acquisition of the Units
being exchanged, equals the sales charge of the
series of the Exchange Trust for which such
Unitholder desires to exchange into, determined
as of the date of the exchange.
The Sponsor will permit exchanges at the
reduced sales charge provided there is a
secondary market maintained by the Sponsor in
both the Units of this series and units of the
applicable Exchange Trust and there are units of
the applicable Exchange Trust available for sale.
While the Sponsor has indicated that it intends
to maintain a market for the units of the
respective Trusts, there is no obligation on its
part to maintain such a market. Therefore, there
is no assurance that a market for units will in
fact exist on any given date at which a
Unitholder wishes to sell his Units of this
series and thus there is no assurance that the
Exchange Option will be available to a
Unitholder. Exchanges will be effected in whole
units only. Any excess proceeds from Unitholders'
units being surrendered will be returned.
Unitholders will be permitted to advance new
money in order to complete an exchange.
An exchange of units pursuant to the Exchange
Option will normally constitute a "taxable event"
under the Code, i.e., a Unitholder will recognize
a tax gain or loss. Unitholders are advised to
consult their own tax advisors as to the tax
consequences of exchanging units in their
particular case.
The Sponsor reserves the right to modify,
suspend or terminate this plan at any time
without further notice to Unitholders. In the
event the Exchange Option is not available to a
Unitholder at the time he wishes to exercise it,
the Unitholder will be immediately notified and
no action will be taken with respect to his Units
without further instruction from the Unitholder.
To exercise the Exchange Option, a Unitholder
should notify the Sponsor of his desire to
exercise the Exchange Option and to use the
proceeds from the sale of his Units of this
series to purchase units of one or more of the
Exchange Trusts. If units of the applicable
outstanding series of the Exchange Trust are at
that time available for sale, and if such units
may lawfully be sold in the state in which the
Unitholder is resident, the Unitholder may select
the series or group of series for which he
desires his investment to be exchanged. The
Unitholder will be provided with a current
prospectus or prospectuses relating to each
series in which he indicates interest.
The exchange transaction will operate in a
manner essentially identical to any secondary
market transaction, i.e., Units will be
repurchased at a price based on the aggregate bid
price per Unit of the securities in the portfolio
of the Trust. Units of the Exchange Trust,
however, will be sold to the Unitholder at a
reduced sales charge. Units sold under the
Exchange Option will be sold at the bid prices
per unit of the underlying securities in the
particular portfolio involved plus a fixed charge
of $15 per unit. Exchange transactions will be
effected only in whole units; thus, any proceeds
not used to acquire whole units will be paid to
the selling Unitholder.
For example, assume that a Unitholder, who
has three units of a trust with a current price
of $1,030 per unit based on the bid prices of the
underlying securities, desires to sell his units
and seeks to exchange the proceeds for units of a
series of an Exchange Trust with a current price
of $890 per unit based on the bid prices of the
underlying securities. In this example, which
does not contemplate rounding up to the next
highest number of units, the proceeds from the
Unitholder's units will aggregate $3,090. Since
only whole units of an Exchange Trust may be
purchased under the Exchange Option, the
Unitholder would be able to acquire three units
in the Exchange Trust for a total cost of $2,715
($2,670 for the units and $45 for the sales
charge). The remaining $375 would be returned to
the Unitholder in cash.
CONVERSION OPTION
Owners of units of any registered unit
investment trust sponsored by others which was
initially offered at a maximum applicable sales
charge of at least 3.0% ( a `Conversion Trust')
may elect to apply the cash proceeds of the sale
or redemption of those units directly to acquire
available units of any Exchange Trust at a
reduced sales charge of $15 per Unit, per 100
Units in the case of Exchange Trusts having a
Unit price of approximately $10, or per 1,000
Units in the case of Exchange Trusts having a
Unit price of approximately $1, subject to the
terms and conditions applicable to the Exchange
Option (except that no secondary market is
required for Conversion Trust units). To exercise
this option, the owner should notify his retail
broker. He will be given a prospectus for each
series in which he indicates interest and for
which units are available. The dealer must sell
or redeem the units of the Conversion Trust. Any
dealer other than PaineWebber must certify that
the purchase of units of the Exchange Trust is
being made pursuant to and is eligible for the
Conversion Option. The dealer will be entitled to
two-thirds of the applicable reduced sales
charge. The Sponsor reserves the right to modify,
suspend or terminate the Conversion Option at any
time without further notice, including the right
to increase the reduced sales charge applicable
to this option (but not in excess of $5 more per
Unit, per 100 Units or per 1,000 Units, as
applicable than the corresponding fee then being
charged for the Exchange Option). For a
description of the tax consequences of a
conversion reference is made to the Exchange
Option section herein.
EXPENSES OF THE TRUST
The cost of the preparation and printing of
the Certificates, the Indenture and this
Prospectus, the initial fees of the Trustee and
the Trustee's counsel, the Evaluator's fees
during the initial offering period, advertising
expenses and expenses incurred in establishing
the Trust, including legal and auditing fees, are
paid by the Sponsor and not by the Trust. The
Sponsor will receive no fee from the Trust for
its services as Sponsor.
The Sponsor's fee, deducted only in trusts
where the Initial Date of Deposit is on or after
November 30, 1982, which is earned for portfolio
supervisory services, is based upon the aggregate
face amount of Bonds in the Trust at the
beginning of each annual period. The Sponsor's
fee, which is not to exceed the amount set forth
under "Essential Information" in Part A, may
exceed the actual costs of providing portfolio
supervisory services for this Trust, but at no
time will the total amount the Sponsor receives
for portfolio supervisory services rendered to
all series of the Municipal Bond Trust in any
calendar year exceed the aggregate cost to it of
supplying such services in such year.
For services performed under the Indenture,
the Trustee will be paid by the Trust at the rate
per $1,000 of principal amount of Securities in
the Trust set forth under "Essential Information"
in Part A. Such compensation will be computed
monthly, quarterly or semi-annually (depending on
available plans of distribution) on the basis of
the greatest principal amount of the Securities
in the Trust at any time during the preceding
monthly or semi-annual period.
In no event will the Trustee be paid less
than $2,000 in any one year. The Evaluator's fee
for each daily evaluation is set forth under
"Essential Information" in Part A. The fees of
the Evaluator will be payable by the Trust. See
"Essential Information" in Part A for the
estimated annual fees and expenses per Unit under
the various optional interest distribution plans.
The Sponsor's fee is payable annually,
Trustee's fees are payable monthly, quarterly and
semi-annually (depending on available plans of
distribution) and the Evaluator's fees are
payable monthly on or before each Distribution
Date from the Interest Account, to the extent
funds are available, then from the Principal
Account. Any of such fees may be increased
without approval of the Unitholders by an amount
not exceeding a proportionate increase in the
category entitled "All Services Less Rent" in the
Consumer Price Index published by the United
States Department of Labor.
In addition to the above, the following
charges are or may be incurred by the Trust and
paid from the Interest Account, or, to the extent
funds are not available in such Account, from the
Principal Account: (1) fees for the Trustee for
extraordinary services; (2) expenses of the
Trustee (including legal and auditing expenses)
and of counsel; (3) various governmental charges;
(4) expenses and costs of any action taken by the
Trustee to protect the Trust and the rights and
interests of the Unitholders; (5) indemnification
of the Trustee for any loss, liabilities or
expenses incurred by it in the administration of
the Trust without negligence, bad faith or
willful misconduct on its part; and (6) expenses
incurred in contacting Unitholders upon
termination of the Trust. The fees and expenses
set forth above are payable out of the Trust and
when unpaid will be secured by a lien on the
Trust.
The accounts of certain Trusts may be audited
not less than annually by independent public
accountants selected by the Sponsor. The expenses
of the audit shall be an expense of the Trust. So
long as the Sponsor maintains a secondary market,
Sponsor will bear any audit expense which exceeds
50 cents per Unit. Unitholders covered by the
audit (if any) during the year may receive a copy
of the audited financials upon request.
DESCRIPTION OF CERTIFICATES
Ownership of Units is evidenced by registered
Certificates, executed by the Trustee and the
Sponsor, issued in denominations of one Unit or
any integral multiple thereof. A Unitholder may
transfer its Certificate by presenting it to the
Trustee at its corporate trust office. Such
Certificate must be properly endorsed or
accompanied by a written instrument or
instruments of transfer executed by the
Unitholder or its duly authorized attorney. A
Unitholder may be required to pay $2.00 per
Certificate transferred to cover the Trustee's
costs in implementing such transfer and to pay
any tax or other governmental charge that may be
imposed in connection with any such transfer. The
Trustee is required to execute and deliver a new
Certificate in exchange and substitution for any
Certificate mutilated, destroyed, stolen or lost,
if and when the Unitholder furnishes the Trustee
with proper identification and satisfactory
indemnity, and pays such expenses as the Trustee
may reasonably incur. Any mutilated Certificate
must be presented to the Trustee before any
substitute Certificate will be issued.
STATEMENTS TO UNITHOLDERS
With each distribution from the Interest and
Principal Accounts, the Trustee will furnish each
Unitholder with a statement setting forth the
amount being distributed from each Account
expressed as a dollar amount per Unit.
Promptly after the end of each calendar year,
the Trustee will furnish to each person who at
any time during the calendar year was a
registered Unitholder a statement setting forth:
1. As to the Interest Account:
(a) the amount of interest received on the
Securities and the percentage of such amount by
states and territories in which the issuers of
the Bonds are located;
(b) the amount paid from the Interest Account
representing accrued interest for any
Certificates redeemed;
(c) the deductions from the Interest Account
for fees and expenses of the Trustee, the Sponsor
and the Evaluator or for other various fees,
charges or expenses relating to the Trust;
(d) the deductions from the Interest Account
for payment into the Reserve Account; and
(e) the net amount remaining after such
payments and deductions expressed as a total
dollar amount outstanding on the last business
day of such calendar year.
2. As to the Principal Account:
(a) the dates of the redemption, sale or
maturity of any of the Securities and the net
proceeds received therefrom, excluding any
portion credited to the Interest Account;
(b) the amount paid from the Principal
Account representing the principal of any
Certificates redeemed;
(c) the deductions from the Principal Account
for fees and expenses of the Trustee, the Sponsor
and the Evaluator or for other various fees,
charges or expenses relating to the Trust;
(d) the deductions from the Principal Account
for payment into the Reserve Account; and
(e) the net amount remaining after such
payments and deductions expressed as a total
dollar amount outstanding on the last business
day of such calendar year.
3. The following information:
(a) a list of the Securities as of the last
business day of such calendar year;
(b) the number of Units outstanding on the
last business day of such calendar year;
(c) the Unit Value based on the last
evaluation of the Trust made on the last business
day during such calendar year; and
(d) the amounts actually distributed during
such calendar year from the Interest and
Principal Accounts, separately stated, expressed
both as total dollar amounts and as dollar
amounts per Unit outstanding on the Record Dates
for such distributions.
REDEMPTION OF UNITS BY TRUSTEE
A Unitholder who wishes to dispose of its
Units should inquire through its broker as to the
current market price for such Units prior to
making a tender for redemption to the Trustee in
order to determine if there is a market for Units
in excess of the then current Redemption Value or
Sponsor's Repurchase Price. After the initial
offering period the Redemption Value will be the
same as the Sponsor's Repurchase Price.
During the period in which the Sponsor
maintains a secondary market for Units at the
Sponsor's Repurchase Price, the Sponsor has
agreed to repurchase any Unit presented for
tender to the Trustee for redemption no later
than the close of business on the second business
day following such presentation.
The Trustee is irrevocably authorized in its
discretion, in lieu of redeeming Units presented
for tender at the redemption value, to sell such
Units in the over-the-counter market for the
account of a tendering Unitholder at prices which
will return to the Unitholder amounts in cash,
net after brokerage commissions, transfer taxes
and other charges, equal to or in excess of the
Redemption Value for such Units. In the event of
any such sale the Trustee will pay the net
proceeds thereof to the Unitholder on the day he
would otherwise be entitled to receive payment of
the Redemption Value.
One or more Units represented by a
Certificate may be redeemed at the Redemption
Value upon tender of such Certificate to the
Trustee at its corporate trust office, properly
endorsed or accompanied by a written instrument
of transfer in form satisfactory to the Trustee,
and executed by the Unitholder or its authorized
attorney. A Unitholder may tender its Units for
redemption at any time after the settlement date
for purchase, whether or not it has received a
definitive Certificate. The Redemption Value per
Unit is calculated by dividing the current bid
prices for the Securities in the Trust (see
"Evaluation of the Trust") plus any money in the
Principal Account other than money required to
redeem tendered Units, by the number of Units
outstanding, plus a proportionate share of
accrued interest and undistributed interest
income on the Securities determined to the day of
tender. There is no sales charge incurred when a
Unitholder tenders his Units to the Trustee for
redemption. Subject to the payment of any
applicable tax or governmental charges, the
Redemption Value of Units redeemed by the Trustee
will be paid on the seventh calendar day
following the day of tender. If such day of
payment is not a business day, the Redemption
Value will be paid on the first business day
prior thereto.
The Trustee may, in its discretion, and will
when so directed by the Sponsor, suspend the
right of redemption, or postpone the date of
payment of the Redemption Value, for more than
seven calendar days following the day of tender
for any period during which the New York Stock
Exchange, Inc. is closed other than for weekend
and holiday closings; or for any period during
which the Securities and Exchange Commission
determines that trading on the New York Stock
Exchange, Inc. is restricted or for any period
during which an emergency exists as a result of
which disposal or evaluation of the Securities is
not reasonably practicable; or for such other
period as the Securities and Exchange Commission
may by order permit for the protection of
Unitholders. The Trustee is not liable to any
person or in any way for any loss or damages
which may result from any such suspension or
postponement.
Any amounts paid on redemption representing
interest will be withdrawn from the Interest
Account to the extent that funds are available
for such purpose. All other amounts paid on
redemption will be withdrawn from the Principal
Account. The Trustee is empowered to sell
Securities out of the Trust as selected by the
Sponsor in order to make funds available for the
redemption of Certificates, and, to the extent
Securities are sold for such purpose, the size
and diversity of the Trust will be reduced. Such
sales may be required at a time when Securities
would not otherwise be sold and may result in
lower prices than might otherwise be realized. In
addition, because of the minimum principal amount
in which Securities may be required to be sold,
the proceeds of such sales may exceed the amount
necessary for payment of Units redeemed. Such
excess proceeds will be distributed pro rata to
all remaining Unitholders of record.
EVALUATION OF THE TRUST
The Evaluator is Kenny Information Systems, a
division of J.J. Kenny Co., Inc., 65 Broadway,
New York, New York 10006.
The value of the Trust is computed as of the
Evaluation Time shown under "Essential
Information" in Part A (1) on each June 30 and
December 31 (or the last business day prior
thereto), (2) on each business day as long as the
Sponsor is maintaining a bid in the secondary
market, (3) on the day on which any Unit is
tendered for redemption and (4) on any other day
desired by the Sponsor or the Trustee, by adding:
1. The aggregate value of Securities in the
Trust, as determined by the Evaluator:
(a) on the basis of current bid prices for
the Securities,
(b) on the basis of current bid prices for
comparable bonds, if bid prices are not available
for any of the Securities,
(c) by determining the value of the
Securities on the bid side of the market by
appraisal, or
(d) by any combination of the above;
2. Money on hand in the Trust, other than
money deposited to purchase Securities or money
credited to the Principal Account which is
required to redeem tendered Units; and
3. Accrued but unpaid interest on the
Securities at the close of business on the date
of such Evaluation.
The Trustee will deduct from the resulting
figure: amounts representing any applicable taxes
or governmental charges payable by the Trust for
the purpose of making an addition to the Reserve
Account; amounts representing estimated accrued
expenses of the Trust; amounts representing
unpaid fees of the Trustee, the Sponsor and the
Evaluator; and cash held for distribution to
Unitholders of record as of the business day
prior to the Evaluation being made on the days or
dates set forth above.
For the purpose of the redemption of Units,
the value per Unit is computed by the Trustee by
dividing the result of the above computation by
the total number of Units outstanding on the date
of such Evaluation.
COMPARISON OF PUBLIC OFFERING PRICE AND
REDEMPTION VALUE
While the Public Offering Price of Units
during the initial offering period is determined
on the basis of the current offering prices of
the Securities, the Public Offering Price of
Units in the secondary market and the Redemption
Value is determined on the basis of the current
bid prices of such Securities. On the date of the
"Essential Information" page, the Public Offering
Price per Unit (which figure includes the sales
charge) exceeded the Redemption Value by the
amount shown under "Essential Information" in
Part A. The difference between the bid and
offering prices of the Securities is expected to
average 1-1/2% to 2% of principal amount. This
difference may vary between 3% or more of
principal amount for inactively traded Securities
and as little as 1/2 of 1% for actively traded
Securities. For this reason and others, including
the fact that the Public Offering Price includes
the sales charge, the amount realized by a
Unitholder upon redemption of Units may be less
than the price paid by the Unitholder for such
Units.
SUPERVISION OF TRUST INVESTMENTS
The acquisition by the Trust of any
securities other than the Securities initially
deposited is prohibited by the Indenture. The
Sponsor may direct the Trustee to sell or
liquidate any of the Securities upon the
happening of any of the following events (except
for the limited right to replace securities in
the case of a fail):
1. Default by an issuer in the payment of
principal of or interest on such Securities, or
any other outstanding obligations of such issuer,
when due and payable,
2. Institution of legal proceedings seeking
to restrain or enjoin the payment of any of the
Securities or attacking their validity,
3. A breach of a covenant or warranty which
could adversely affect the payment of debt
service on the Securities, 4. In the case of
revenue bonds, if the revenues, based upon
official reports, fall substantially below the
estimated revenues calculated to be necessary to
pay principal of and interest on the Bonds,
5. A decline in market price, or such other
market or credit factor, as in the opinion of the
Sponsor would make retention of any of the
Securities detrimental to the Unitholders, or
6. In the event that any of the Bonds are the
subject of an advance refunding.
In addition, if a default in the payment of
principal of or interest on any of the Securities
occurs and the Sponsor fails to instruct the
Trustee to sell or hold such Securities within
thirty days after notification by the Trustee to
the Sponsor of such default, the Indenture
provides that the Trustee will sell the defaulted
Securities promptly. The Trustee will not be
liable or responsible in any way for depreciation
or loss incurred by reason of any sale made by it
either pursuant to a direction of the Sponsor or
by reason of a failure of the Sponsor to give any
such direction.
The Sponsor is required to instruct the
Trustee to reject any offer made by an issuer of
any of the Bonds to issue new obligations in
exchange and substitution for any of the Bonds
pursuant to a refunding or refinancing plan;
however, the Sponsor may instruct the Trustee to
accept or reject such an offer or to take any
other action with respect thereto as the Sponsor
deems proper if the issuer is in default with
respect to the Securities or the issuer will, in
the written opinion of the Sponsor, probably
default with respect to the Bonds in the
reasonably foreseeable future.
Any obligations received by the Trust in the
event of such an exchange or substitution will be
held by the Trustee and will be subject to the
terms and conditions of the Indenture to the same
extent as the Securities originally deposited.
Within five days after any exchange and deposit,
notice of such will be mailed by the Trustee to
each registered Unitholder, which identifies the
Securities eliminated and the Securities
substituted.
ADMINISTRATION OF THE TRUST
Records and Accounts: Pursuant to the
Indenture, the Trustee is required to keep proper
books of record and account of all transactions
relating to the Trust at its office. Such records
will include the name and address of every
Unitholder, a list of the Certificate numbers and
the number of Units of each Certificate issued to
Unitholders. The Trustee is also required to keep
a certified copy or duplicate original of the
Indenture and a current list of Securities held
in the Trust on file at its office which will be
open to inspection by any Unitholder during usual
business hours.
The Trustee is required to make annual or
other reports as may from time to time be
required under any applicable state or Federal
statute, rule or regulation.
Successor Trustee: Under the Indenture, the
Trustee may resign and be discharged of the Trust
created by the Indenture by executing a notice of
resignation in writing and filing it with the
Sponsor. The resigning Trustee must also mail a
copy of the notice of resignation to all
Unitholders then of record, not less than sixty
days before the effective resignation date
specified in such notice. Such resignation will
become effective only upon the appointment of and
the acceptance of the Trust by a successor
Trustee. The Sponsor, upon receiving notice of
such resignation, is obligated to appoint a
successor Trustee promptly.
If within thirty days after notice of
resignation has been received by the Sponsor, no
successor Trustee has been appointed or, if
appointed, has not accepted the appointment, the
resigning Trustee may apply to a court of
competent jurisdiction for the appointment of a
successor. In case the Trustee becomes incapable
of acting as such or is adjudged a bankrupt or is
taken over by any public authority, the Sponsor
may discharge the Trustee and appoint a successor
Trustee as provided in the Indenture. Notice of
such discharge and appointment shall be mailed to
each Unitholder by the Sponsor.
Upon a successor Trustee's execution of a
written acceptance of an appointment as Trustee
for the Trust, such successor Trustee will become
vested with all the rights, powers, duties and
obligations of the original Trustee.
A successor Trustee is required to be a
corporation organized and doing business under
the laws of the United States or of the State of
New York; to be authorized under such laws to
exercise corporate trust powers; to have at all
times an aggregate capital, surplus and undivided
profit of not less than $5,000,000; and to have
its principal office in New York City.
Successor Sponsor: If at any time the Sponsor
shall fail to undertake or perform or become
incapable of undertaking or performing any of the
duties which by the terms of the Indenture are
required of it to be undertaken or performed, or
if the Sponsor resigns, the Trustee may either
appoint a successor Sponsor or Sponsors as will
be satisfactory to the Trustee or it may
terminate the Indenture and liquidate the Trust.
Any successor Sponsor may be compensated at rates
deemed by the Trustee to be reasonable.
The dissolution of the Sponsor or its ceasing
to exist as a legal entity from, or for, any
cause whatsoever will not cause the termination
of the Indenture or the Trust unless the Trustee
deems termination to be in the best interests of
Unitholders.
Successor Evaluator: The Evaluator may resign
or may be removed by the Sponsor or the Trustee,
and the Sponsor and the Trustee are to use their
best efforts to appoint a satisfactory successor.
Such resignation or removal will become effective
upon the acceptance of appointment by a successor
Evaluator. If upon resignation of the Evaluator
no successor has accepted appointment within
thirty days after notice of resignation, the
Evaluator may apply to a court of competent
jurisdiction for the appointment of a successor
Evaluator. Notice of such resignation or removal
and appointment will be mailed by the Trustee to
each Unitholder.
LIMITATION OF LIABILITIES
The Sponsor: The Indenture provides that the
Sponsor will not be liable to the Trustee, the
Trust or the Unitholders for taking any action or
for refraining from taking any action made in
good faith or for errors in judgment, but will be
liable only for its own willful misfeasance, bad
faith, gross negligence or willful disregard of
its duties. The Sponsor will not be liable or
responsible in any way for depreciation or loss
incurred by reason of the sale of any Securities
in the Trust.
The Trustee: The Indenture provides that the
Trustee will not be liable for any action taken
in good faith in reliance on properly executed
documents or for the disposition of moneys,
Securities or Certificates, except by reason of
its own gross negligence, bad faith or willful
misconduct, nor will the Trustee be liable or
responsible in any way for depreciation or loss
incurred by reason of the sale by the Trustee of
any Securities in the Trust. In the event of the
failure of the Sponsor to act, the Trustee may
act and will not be liable for any such action
taken by it in good faith. The Trustee will not
be personally liable for any taxes or other
governmental charges imposed upon or in respect
of the Securities or upon the interest thereon or
upon it as Trustee or upon or in respect of the
Trust which the Trustee may be required to pay
under any present or future law of the United
States of America or of any other taxing
authority having jurisdiction. In addition, the
Indenture contains other customary provisions
limiting the liability of the Trustee. The
Trustee will be indemnified and held harmless
against any loss or liability accruing to it
without negligence, bad faith or willful
misconduct on its part, arising out of or in
connection with its acceptance or administration
of the Trust, including the costs and expenses
(including counsel fees) of defending itself
against any claim of liability.
The Evaluator: The Trustee, Sponsor, and
Unitholders may rely on any evaluation furnished
by the Evaluator and will have no responsibility
for the accuracy thereof. The Indenture provides
that the determinations made by the Evaluator
will be made in good faith upon the basis of the
best information available to it; provided,
however, that the Evaluator will be under no
liability to the Trustee, Sponsor or Unitholders
for errors in judgment, but will be liable only
for its gross negligence, lack of good faith or
willful misconduct.
AMENDMENT OF THE INDENTURE
The Indenture may be amended by the Trustee
and the Sponsor without the consent of any of the
Unitholders to cure any ambiguity or to correct
or supplement any provision thereof which may be
defective or inconsistent or to make such other
provisions as will not adversely affect the
interest of the Unitholders; provided, however,
that after the deposit of the Securities the
Indenture may not be amended to increase the
number of Units issued thereunder or to permit
the deposit or acquisition of securities either
in addition to or in substitution for any of the
Securities initially deposited in the Trust,
except for the substitution of certain refunding
securities for the Securities. The Trustee will
promptly notify Unitholders of the substance of
any such amendment.
RIGHTS OF UNITHOLDERS
A Unitholder may at any time tender his
Certificate to the Trustee for redemption.
The death or incapacity of any Unitholder
will not operate to terminate the Trust nor
entitle his legal representatives or heirs to
claim an accounting or to take any action or
proceeding in any court for a partition or
winding up of the Trust.
No Unitholder will have the right to vote
concerning the Trust, except with respect to
termination, or in any manner control the
operation and management of the Trust, nor shall
any Unitholder ever be liable to any other person
by reason of any action taken by the Sponsor or
the Trustee.
TERMINATION OF THE TRUST
The Indenture provides that the Trust will
terminate upon the maturity, redemption, sale or
other disposition of the last of the Securities
held in the Trust. If the value of the Trust as
shown by any evaluation is less than twenty per
cent (20%) of the par value of the Securities
originally deposited in the Trust, the Trustee
may in its discretion, and will when so directed
by the Sponsor, terminate the Trust. The Trust
may also be terminated at any time by the written
consent of 100% of the Unitholders or by the
Trustee upon the resignation or removal of the
Sponsor if the Trustee determines termination to
be in the best interest of the Unitholders. In no
event will the Trust continue beyond the
Mandatory Termination Date.
Upon termination, the Trustee will sell the
Securities then held in the Trust and credit the
moneys derived from such sale to the Principal
Account and the Interest Account. The Trustee
will then, after deduction of any fees and
expenses of the Trust and payment into the
Reserve Account of any amount required for taxes
or other governmental charges that may be payable
by the Trust, distribute to each Unitholder, upon
surrender for cancellation of his Certificate
after due notice of such termination, such
Unitholder's pro rata share in the Interest and
Principal Accounts. The sale of Securities in the
Trust upon termination may result in a lower
amount than might otherwise be realized if such
sale were not required at such time. For this
reason, among others, the amount realized by a
Unitholder upon termination may be less than the
principal amount of Securities represented by the
Units held by such Unitholder.
SPONSOR
The Sponsor, PaineWebber Incorporated, is a
corporation organized under the laws of the State
of Delaware. The Sponsor is a member firm of the
New York Stock Exchange, Inc. as well as other
major securities and commodities exchanges and is
a member of the National Association of
Securities Dealers, Inc. The Sponsor is engaged
in a security and commodity brokerage business as
well as underwriting and distributing new issues.
The Sponsor also acts as a dealer in unlisted
securities and municipal bonds and, in addition
to participating as a member
of various selling groups or as an agent of other
investment companies, executes orders on behalf
of investment companies for the purchase and sale
of securities of such companies and sells
securities to such companies in its capacity as a
broker or dealer in securities.
LEGAL OPINION
The legality of the Units offered hereby has
been passed upon by Carter, Ledyard & Milburn, 2
Wall Street, New York, New York, as counsel for
the Sponsor.
INDEPENDENT AUDITORS
The financial statements, including the
schedule of investments, of the Trust included in
Part A of this Prospectus have been audited by
Ernst & Young LLP, independent auditors, for the
period indicated in their report appearing
herein. The financial statements audited by Ernst
& Young LLP have been included in reliance on
their report given on their authority as experts
in accounting and auditing.
BOND RATINGS*
Standard & Poor's Corporation
AAA-Debt rated AAA has the highest rating
assigned by Standard & Poor's. Capacity to pay
interest and repay principal is extremely strong.
AA-Debt rated AA has a very strong capacity
to pay interest and repay principal and differs
from the highest rated issues only in small
degree.
A-Debt rated A has a strong capacity to pay
interest and repay principal although it is
somewhat more susceptible to the adverse effects
of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB-Debt rated BBB is regarded as having an
adequate capacity to pay interest and repay
principal. Whereas it normally exhibits adequate
protection parameters, adverse economic
conditions or changing circumstances are more
likely to lead to a weakened capacity to pay
interest and repay principal for debt in this
category than in higher rated categories.
BB, B, CCC, CC-Debt rated BB, B, CCC, and CC
is regarded, on balance, as predominately
speculative with respect to capacity to pay
interest and repay principal in accordance with
the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest
degree of speculation. While such debt will
likely have some quality and protective
characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse
conditions.
The ratings from AA to CCC may be modified by
the addition of a plus or minus sign to show
relative standing within the major rating
categories.
A provisional rating, indicated by "p"
following a rating, assumes the successful
completion of the project being financed by the
issuance of the debt being rated and indicates
that payment of debt service requirements is
largely or entirely dependent upon the successful
and timely completion of the project. This
rating, however, while addressing credit quality
subsequent to completion of the project, makes no
comment on the likelihood of, or the risk of
default upon failure of, such completion.
NR-Securities which, while not rated by
Standard & Poor's or Moody's, have been
determined by the trusts sponsor to be of
investment grade quality.
Moody's Investors Service, Inc.
Aaa-Bonds which are rated Aaa are judged to
be the best quality. They carry the smallest
degree of investment risk and are generally
referred to as "gilt edge". Interest payments are
protected by a large or by an exceptionally
stable margin and principal is secure. While the
various protective elements are likely to change,
such changes as can be visualized are most
unlikely to impair the fundamentally strong
position of such issues.
Aa-Bonds which are rated Aa are judged to be
of high quality by all standards. Together with
the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower
than the best bonds because margins of protection
may not be as large as in Aaa securities or
fluctuation of protective elements may be of
greater amplitude or there may be other elements
present which make the long-term risks appear
somewhat larger than in Aaa securities.
A-Bonds which are rated A possess many
favorable investment attributes and are to be
considered as upper medium grade obligations.
Factors giving security to principal and interest
are considered adequate, but elements may be
present which suggest a susceptibility to
impairment sometime in the future.
Baa-Bonds which are rated Baa are considered
as medium grade obligations; i.e., they are
neither highly protected nor poorly secured.
Interest payments and principal security appear
adequate for the present but certain protective
elements may be lacking or may be
characteristically unreliable over any great
length of time. Such bonds lack outstanding
investment characteristics and in fact have
speculative characteristics as well.
Ba-Bonds which are rated Ba are judged to
have speculative elements; their future cannot be
considered as well assured. Often the protection
of interest and principal payments may be very
moderate and thereby not well safeguarded during
both good and bad times over the future.
Uncertainty of position characterizes bonds in
this class.
B-Bonds which are rated B generally lack the
characteristics of a desirable investment.
Assurance of interest and principal payments or
of maintenance of other terms of the contract
over any long period of time may be small.
Caa-Bonds which are rated Caa are in poor
standing. Such issues may be in default or there
may be present elements of danger with respect to
principal or interest.
Ca-Bonds which are rated Ca represent
obligations which are speculative in a high
degree. Such issues are often in default or have
other marked shortcomings.
C-Bonds which are rated C are the lowest
rated class of bonds and issues so rated can be
regarded as having extremely poor prospects of
ever attaining any real investment standing.
Rating symbols may include numerical
modifiers 1, 2 or 3. The numerical modifier 1
indicates that the security ranks at the high
end, 2 in the mid-range, and 3 nearer the low end
of the generic category. These modifiers of
rating symbols Aa, A and Baa are to give
investors a more precise indication of relative
debt quality in each of the historically defined
categories.
Conditional ratings, indicated by "Con" are
given to bonds for which the security depends
upon the completion of some act or the
fulfillment of some condition. These are bonds
secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned
in operating experience, (c) rentals which begin
when facilities are completed, or (d) payments to
which some other limiting condition attaches. A
parenthetical rating denotes probable credit
stature upon completion of construction or
elimination of basis of such condition.
_______________
*As described by the rating agencies.
CONTENTS OF REGISTRATION STATEMENT
This registration statement comprises the following
documents:
The facing sheet.
The Prospectus.
The signatures.
The following exhibits:
EX-99.C1 Opinion of Counsel as to legality of securities
being registered
EX-99.C2 Consent of Kenny Information Systems
EX-27 Financial Data Schedule
EX-99.C3 Consent of Independent Auditors
FINANCIAL STATEMENTS
1. Statement of Condition of the Trust as shown in
the current Prospectus for this series.
2. Financial Statements of the Depositor.
PaineWebber Incorporated - Financial Statements
incorporated by reference to Form 10-k and
Form 10-Q (File No. 1-7367) respectively.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant, The Municipal Bond Trust, Series 227 certifies that it meets
all of the requirements for effectiveness of this Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this registration statement to be signed on its
behalf by the undersigned thereunto duly authorized, and its seal to
be hereunto affixed and attested, all in the City of New York, and the
State of New York on the 27th day of October, 1998.
THE MUNICIPAL BOND TRUST, SERIES 227
(Registrant)
By: PaineWebber Incorporated
(Depositor)
/s/ ROBERT E. HOLLEY
Robert E. Holley
Senior Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed on behalf of PaineWebber
Incorporated, the Depositor, by the following persons in the
following capacities and in the City of New York, and State of New
York, on this 27th day of October, 1998.
PAINEWEBBER INCORPORATED
Name Office
Donald B. Marron Chairman, Chief Executive Officer
and Director of PaineWebber Incorporated*
Regina A. Dolan Executive Vice President,
Chief Financial Officer and
Director of PaineWebber Incorporated*
Joseph J. Grano, Jr. President and
Director of PaineWebber Incorporated*
Steve P. Baum Executive Vice President and
Director of PaineWebber Incorporated*
Robert H. Silver Executive Vice President and
Director of PaineWebber Incorporated*
Mark B. Sutton Executive Vice President and
Director of PaineWebber Incorporated*
Margo N. Alexander Executive Vice President and
Director of PaineWebber Incorporated*
Terry L. Atkinson Managing Director and
Director of PaineWebber Incorporated*
Brian M. Barefoot Executive Vice President and
Director of PaineWebber Incorporated*
Michael Culp Managing Director and
Director of PaineWebber Incorporated*
Edward M. Kerschner Managing Director and
Director of PaineWebber Incorporated*
James P. MacGilvray Executive Vice President and
Director of PaineWebber Incorporated*
By:/s/ ROBERT E. HOLLEY
Attorney-in-fact*
* Executed copies of the powers of attorney have been previously
filed with the Securities and Exchange Commission with the Post
Effective Amendment to the Registration Statement File No. 2-61279.
October 27, 1998
PaineWebber Incorporated
1200 Harbor Blvd.
Weehawken, New Jersey 07087
Ladies and Gentlemen:
We have served as counsel for PaineWebber Incorporated as
sponsor and depositor (the "Depositor") of The Municipal Bond
Trust, Series 227 (hereinafter referred to as the "Trust").
It is proposed that Post-Effective Amendment No. 8 to the
Trust's registration statement ("Post-Effective Amendment No. 8")
will be filed with the Securities and Exchange Commission and
dated as of the date hereof in connection with the continued
issuance by the Trust of an indefinite number of units of
fractional undivided interest in the Trust (hereinafter referred
to as the "Units") pursuant to Rule 24f-2 promulgated under the
provisions of the Investment Company Act of 1940, as amended.
In this regard, we have examined executed originals or copies of the
following:
(a) The Restated Certificate of Incorporation, as amended, and the
By-Laws of the Depositor, as amended;
(b) Resolutions of the Board of Directors of the Depositor adopted on
December 3, 1971 relating to the Trust and the sale of the Units;
(c) Resolutions of the Executive Committee of the Depositor adopted
on September 24, 1984;
(d) Powers of Attorney referred to in the Amendment;
(e) Post-Effective Amendment No. 8 to the Registration Statement on
Form S-6 (File No. 33-34395) to be filed with the Securities and
Exchange Commission (the "Commission") in accordance with
the Securities Act of 1933, as amended, and the rules and
regulations of the Commission promulgated thereunder
(collectively, the "1933 Act") proposed to be filed on or about the
date hereof (the "Amendment");
(f) The Notification of Registration of the Trust filed with the
Commission under the Investment Company Act of 1940, as
amended (collectively, the "1940 Act") on Form N-8A, as
amended;
(g) The registration of the Trust filed with the Commission under the
1940 Act on Form N-8B-2 (File No. 811-2599), as amended;
(h) The prospectus included in the Amendment (the "Prospectus");
(i) The Standard Terms and Conditions of the Trust dated as of
August 1, 1990, as amended, among the Depositor, Investors
Bank & Trust Company and the First National Bank of Chicago
(the "Co-Trustees"), as successor Co-Trustee, and Standard &
Poor's Corporation and Kenny Information Systems, a division of
J.J. Kenny Co., Inc. (the "Evaluator") (the "Standard Terms");
(j) The Trust Indenture dated as of the Initial Date of Deposit, among
the Depositor, the Co-Trustees and the Evaluator (the "Trust
Indenture" and, collectively with the Standard Terms, the
"Indenture and Agreement");
(k) The form of certificate of ownership for units (the "Certificate") to
be issued under the Indenture and Agreement; and
(l) Such other pertinent records and documents as we have deemed
necessary.
With your permission, in such examination, we have assumed
the following: (a) the authenticity of original documents and the
genuineness of all signatures; (b) the conformity to the originals of
all documents submitted to us as copies; (c) the truth, accuracy,
and completeness of the information, representations, and warranties
contained in the records, documents, instruments and certificates we
have reviewed; (d) except as specifically covered in the opinions set
forth below, the due authorization, execution, and delivery on behalf
of the respective parties thereto of documents referred to herein and
the legal, valid, and binding effect thereof on such parties; and (e)
the absence of any evidence extrinsic to the provisions of the written
agreement(s) between the parties that the parties intended a
meaning contrary to that expressed by those provisions. However,
we have not examined the securities deposited pursuant to the
Indenture and Agreement (the "Securities") nor the contracts for the
Securities.
We express no opinion as to matters of law in jurisdictions other
than the State of New York (except "Blue Sky" laws) and the federal laws
of the United States, except to the extent necessary to render the
opinion as to the Depositor in paragraph (i) below with respect to
Delaware law. As you know we are not licensed to practice law in the
State of Delaware, and our opinion in paragraph (i) and (iii) as to
Delaware law is based solely on review of the official statutes of the
State of Delaware.
Based upon such examination, and having regard for legal
considerations which we deem relevant, we are of the opinion that:
(i) The Depositor is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Delaware with full
corporate power to conduct its business as described in the
Prospectus;
(ii) The Depositor is duly qualified as a foreign corporation and is in
good standing as such within the State of New York;
(iii)The terms and provisions of the Units conform in all material
respects to the description thereof contained in the Prospectus;
(iv) The consummation of the transactions contemplated under the
Indenture and Agreement and the fulfillment of the terms thereof
will not be in violation of the Depositor's Restated Certificate of
Incorporation, as amended, or By-Laws, as amended and will not
conflict with any applicable laws or regulations applicable to the
Depositor in effect on the date hereof; and
(v) The Certificates to be issued by the Trust, when duly executed by
the Depositor and the Trustee in accordance with the Indenture
and Agreement, upon delivery against payment therefor as
described in the Prospectus will constitute fractional undivided
interests in the Trust enforceable against the Trust in accordance
with their terms, will be entitled to the benefits of the Indenture
and Agreement and will be fully paid and non-assessable.
Our opinion that any document is valid, binding, or enforceable in
accordance with its terms is qualified as to:
(a) limitations imposed by bankruptcy, insolvency, reorganization,
arrangement, fraudulent conveyance, moratorium, or other laws
relating to or affecting the enforcement of creditors' rights
generally;
(b) rights to indemnification and contribution which may be limited by
applicable law or equitable principles; and
(c) general principles of equity, regardless of whether such
enforceability is considered in a proceeding in equity or at law.
We hereby represent that the Amendment contains no disclosure
which would render it ineligible to become effective immediately
upon filing pursuant to paragraph (b) of Rule 485 of the
Commission.
We hereby consent to the filing of this opinion as an exhibit to
the Amendment and to the use of our name wherever it appears in
the Amendment and the Prospectus.
Very truly yours,
/s/ CARTER, LEDYARD & MILBURN
KENNY INFORMATION SYSTEMS
(A Division of J.J. Kenny Co., Inc.)
October 27, 1998
PaineWebber Incorporated
Unit Trust Department
1200 Harbor Blvd.
Weehawken, New Jersey 07087
RE: THE MUNICIPAL BOND TRUST, SERIES 227
Gentlemen:
We have examined the post-effective Amendment to the Registration
Statement File No. 33-34395 for the above-captioned trust. We
hereby acknowledge that Kenny Information Systems, a division of
J.J. Kenny Co., Inc. is currently acting as the evaluator for the trust.
We hereby consent to the use in the Amendment of the reference to
Kenny Information Systems, a division of J.J. Kenny Co. Inc., as
evaluator.
In addition, we hereby confirm that the ratings indicated in the
above-referenced Amendment to the Registration Statement for the
respective bonds comprising the trust portfolio are the ratings
currently indicated in our KENNYBASE database.
You are hereby authorized to file a copy of this letter with the
Securities and Exchange Commission.
Sincerely,
/s/ JOHN R. FITZGERALD
John R. Fitzgerald
Senior Vice President
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<NAME> THE MUNICIPAL BOND TRUST
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</TABLE>
INDEPENDENT AUDITORS' CONSENT
We consent to the reference to our firm under the caption
"Independent Auditors" and to the use of our report dated
October 21, 1998, in the Registration Statement and related
Prospectus of The Municipal Bond Trust, Series 227.
/s/ ERNST & YOUNG LLP
New York, New York
October 27, 1998
