<PAGE>
Insured California Series 51
File No. 33-42797
Delaware Portfolio Series 9
File No. 33-40708
Investment Company Act No. 811-3676
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 2
TO FORMS S-6
For Registration Under the Securities Act of 1933 of Securities
of Unit Investment Trusts Registered on Form N-8B-2
A. Exact name of Trust:
DEAN WITTER SELECT MUNICIPAL TRUST<F30>
INSURED CALIFORNIA SERIES 51
DELAWARE PORTFOLIO SERIES 9
B. Name of Depositor:
DEAN WITTER REYNOLDS INC.
C. Complete address of Depositor's principal executive
office:
DEAN WITTER REYNOLDS INC.
Two World Trade Center
New York, New York 10048
D. Name and complete address of agents for service:
Mr. Michael D. Browne
Dean Witter Reynolds Inc.
Unit Trust Department
Two World Trade Center, 59th Floor
New York, New York 10048
Copy to:
Kenneth W. Orce, Esq.
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
_________________________
<F30> Formerly the Sears Municipal Trust.
<PAGE>
Check box if it is proposed that this filing should
/x/ become effective immediately upon filing pursuant to
paragraph (b) of Rule 485.
Pursuant to Rule 429(b) under the Securities Act of
1933, the Registration Statement and prospectus
contained herein relates to Registration Statements
Nos.:
33-42797
33-40708
<PAGE>
Cross Reference Sheet
Pursuant to Rule 404(c) of Regulation C
under the Securities Act of 1933
(Form N-8B-2 Items required by Instruction 1
as to Prospectus on Form S-6)
Form N-8B-2 Form S-6
Item Number Heading in Prospectus
I. Organization and General Information
1. a) Name of Trust Front Cover
b) Title of securities issued
2. Name and address of Depositor Table of Contents
3. Name and address of Trustee Table of Contents
4. Name and address of principal Table of Contents
Underwriter
5. Organization of Trust Introduction
6. Execution and termination of Introduction; Amendment
Indenture and Termination of the
Indenture
7. Changes of name <F31>
8. Fiscal Year Included in Form N-8B-2
9. Litigation <F31>
II. General Description of the Trust
and Securities of the Trust
10. General Information regarding
Trust's Securities and Rights
of Holders
a) Type of Securities Rights of Unit Holders
(Registered or Bearer)
b) Type of Securities Administration of the
____________________
<F31> Not applicable, answer negative or not required.
<PAGE>
Form N-8B-2 Form S-6
Item Number Heading in Prospectus
(Cumulative or Trust-Distribution
Distributive)
c) Rights of Holders as to Redemption; Public
Withdrawal or Redemption Offering of Units-
Secondary Market
d) Rights of Holders as to Public Offering of Units-
conversion, transfer, etc. Secondary Market;
Exchange Option;
Redemption; Rights of
Unit Holders-Certificates
e) Lapses or defaults with <F31>
respect to periodic payment
plan certificates
f) Voting rights as to Rights of Unit Holder-
Securities under the Certain Limitations
Indenture
g) Notice to Holders as to Amendment and Termina-
change in: tion of the Indenture
1) Assets of Trust Administration of the
Trust-Reports to Unit
Holders; The
Trust-Summary Description
of the Portfolios
2) Terms and Conditions Amendment and Termination
of Trust's Securities of the Indenture
3) Provisions of Trust Amendment and Termination
of the Indenture
4) Identity of Depositor Sponsor; Trustee
and Trustee
h) Security Holders consent
required to change:
1) Composition of assets Amendment and Termination
of Trust of the Indenture
2) Terms and conditions Amendment and Termination
____________________
<F31> Not applicable, answer negative or not required.
<PAGE>
Form N-8B-2 Form S-6
Item Number Heading in Prospectus
of Trust's Securities of the Indenture
3) Provisions of Indenture Amendment and Termination
of the Indenture
4) Identity of Depositor <F31>
and Trustee
(i) Other Provisions Cover of Prospectus; tax
status
11. Type of securities comprising The Trust-Summary
units Description of the
Portfolios; Objectives
and Securities Selection;
The Trust-Special
Considerations
12. Type of securities comprising <F31>
periodic payment certificates
13. a) Load, fees, expenses, etc. Summary of Essential
Information; Public
Offering of Units-Public
Offering Price;-Profit of
Sponsor;-Volume Discount;
Expenses and Charges
b) Certain information <F31>
regarding periodic payment
certificates
c) Certain percentages Summary of Essential
Information; Public
Offering of Units-Public
Offering Price;
-Profit of Sponsor;
-Volume Discount
d) Price differentials Public Offering of Units
- Public Offering Price
e) Certain other fees, etc. Rights of Unit Holders -
payable by holders Certificates
f) Certain profits receivable Redemption -- Purchase by
____________________
<F31> Not applicable, answer negative or not required.
<PAGE>
Form N-8B-2 Form S-6
Item Number Heading in Prospectus
by depositor, principal the Sponsors of Units
underwriters, trustee or Tendered for Redemption
affiliated persons
g) Ratio of annual charges <F31>
to income
14. Issuance of trust's securities Introduction; Rights of
Unit Holders -
Certificates
15. Receipt and handling of Public Offering of Units-
payments from purchasers Profit of Sponsor
16. Acquisition and disposition Introduction; Amendment
of underlying securities and Termination of the
Indenture; Objectives and
Securities Selection; The
Trust-Summary Description
of the Portfolio;
Sponsor-Responsibility
17. Withdrawal or redemption Redemption; Public Offer-
by Security Holders ing of Units-Secondary
Market;
18. a) Receipt and disposition Administration of the
of income Trust; Reinvestment
Programs
b) Reinvestment of Reinvestment Programs
distributions
c) Reserves or special fund Administration of the
Trust-Distribution
d) Schedule of distribution <F31>
19. Records, accounts and report Administration of the
Trust-Records and
Accounts;-Reports to Unit
Holders
20. Certain miscellaneous Amendment and Termination
provisions of the Indenture of the Indenture; Sponsor
- Limitation on Liability
____________________
<F31> Not applicable, answer negative or not required.
<PAGE>
Form N-8B-2 Form S-6
Item Number Heading in Prospectus
- Resignation; Trustee -
- Limitation on Liability
- Resignation
21. Loans to security holders <F31>
22. Limitations on liability Sponsor, Trustee;
Evaluator - Limitation on
Liability
23. Bonding arrangements Included on Form N-8B-2
24. Other material provisions of <F31>
the Indenture
III. Organization Personnel and
Affiliated Persons of Depositor
25. Organization of Depositor Sponsor
26. Fees received by Depositor Expenses and Charges -
fees; Public Offering of
Units-Profit of Sponsor
27. Business of Depositor Sponsor and Included in
Form N-8B-2
28. Certain information as to Included in Form N-8B-2
officials and affiliated
persons of Depositor
29. Voting securities of Depositor Included in Form N-8B-2
30. Persons controlling Depositor <F31>
31. Payments by Depositor for <F31>
certain other services
32. Payments by Depositor for <F31>
certain other services
rendered to trust
33. Remuneration of employees of <F31>
Depositor for certain services
rendered to trust
____________________
<F31> Not applicable, answer negative or not required.
<PAGE>
Form N-8B-2 Form S-6
Item Number Heading in Prospectus
34. Remuneration of other <F31>
persons for certain services
rendered to trust
IV. Distribution and Redemption of Securities
35. Distribution of trust's Public Offering of Units-
securities by states Public Distribution
36. Suspension of sales of <F31>
trust's securities
37. Revocation of authority to <F31>
distribute
38. a) Method of distribution Public Offering of Units
b) Underwriting agreements
c) Selling agreements
39. a) Organization of principal Sponsor
underwriter
b) N.A.S.D. membership of
principal underwriter
40. Certain fees received by Public Offering of Units-
principal underwriter Profit of Sponsor
41. a) Business of principal Sponsor
underwriter
b) Branch officers of principal <F31>
underwriter
c) Salesman of principal <F31>
underwriter
42. Ownership of trust's securities <F31>
by certain persons
43. Certain brokerage commissions <F31>
received by principal underwriter
44. a) Method of valuation Public Offering of Units
b) Schedule as to offering <F31>
price
____________________
<F31> Not applicable, answer negative or not required.
<PAGE>
Form N-8B-2 Form S-6
Item Number Heading in Prospectus
c) Variation in offering Public Offering of Units-
price to certain persons -Volume Discount;
Exchange option
45. Suspension of redemption rights <F31>
46. a) Redemption valuation Public Offering of Units-
Secondary Market;
Redemption
b) Schedule as to redemption <F31>
price
47. Maintenance of position in See items 10(d), 44 and
underlying securities 46
V. Information concerning the Trustee or Custodian
48. Organization and regulation Trustee
of Trustee
49. Fees and expenses of Trustee Expenses and Charges
50. Trustee's lien Expenses and Charges
VI. Information concerning Insurance
of Holders of Securities
51. a) Name and address of <F31>
Insurance Company
b) Type of policies <F31>
c) Type of risks insured and <F31>
excluded
d) Coverage of policies <F31>
e) Beneficiaries of policies <F31>
f) Terms and manner of <F31>
cancellation
g) Method of determining <F31>
premiums
____________________
<F31> Not applicable, answer negative or not required.
<PAGE>
Form N-8B-2 Form S-6
Item Number Heading in Prospectus
h) Amount of aggregate <F31>
premiums paid
i) Who receives any part of <F31>
premiums
j) Other material provisions <F31>
of the Trust relating to
insurance
VII. Policy of Registrant
52. a) Method of selecting and Introduction; Objectives
eliminating securities and Securities Selection;
from the Trust The Trust - Summary
Description of the
Portfolio; Sponsor -
Responsibility
b) Elimination of securities <F31>
from the Trust
c) Policy of Trust regarding Introduction; Objectives
substitution and and Securities Selection;
elimination of securities Sponsor - Responsibility
d) Description of any <F31>
fundamental policy of the
Trust
53. Taxable status of the Cover of Prospectus; Tax
Trust Status
VIII. Financial and Statistical Information
54. Information regarding the <F31>
Trust's past ten fiscal years
55. Certain information regarding <F31>
periodic payment plan
certificates
56. Certain information regarding <F31>
periodic payment plan
certificates
____________________
<F31> Not applicable, answer negative or not required.
<PAGE>
Form N-8B-2 Form S-6
Item Number Heading in Prospectus
57. Certain information regarding <F31>
periodic payment plan
certificates
58. Certain information regarding <F31>
periodic payment plan
certificates
59. Financial statements Statement of Financial
(Instruction 1(c) to Form S-6) Condition
____________________
<F31> Not applicable, answer negative or not required.
<PAGE>
This Prospectus consists of two parts. Part A contains a
Summary of Essential Information and descriptive material
relating to the Trusts, and the portfolio and financial
statements of each Trust. Part B contains a general
description of the Trusts. Part A may not be distributed
unless accompanied by Part B.
_______________________________________________________________
The Initial Public Offering of Units in the Trusts has been
completed. The Units offered hereby are issued and outstanding
Units which have been acquired by the Sponsor either by
purchase from the Trustee of Units tendered for redemption or
in the Secondary Market.
_______________________________________________________________
LOGO
DEAN WITTER SELECT
MUNICIPAL TRUST
INSURED CALIFORNIA SERIES 51
Standard & Poor's Corporation Rating: AAA
DELAWARE PORTFOLIO SERIES 9
(Unit Investment Trusts)
_______________________________________________________________
These Trusts were formed for the purpose of providing interest
income which in the opinion of bond counsel is, under existing
law, excludable from gross income for Federal income tax
purposes (except in certain instances depending on the Unit
Holders) and, in the case of a state trust, is exempt from
state income taxes to individual Unit Holders resident in the
state for which the Trust is named, through investment in a
fixed portfolio consisting primarily of investment grade long-
term state, municipal and public authority debt obligations.
The value of the Units of each Trust will fluctuate with the
value of the portfolio of underlying Securities. The Units of
the Insured California Trust only are rated AAA by Standard &
Poor's Corporation because all of the Securities have been
irrevocably insured by insurance provided by the respective
Issuers thereof or obtained by third parties. Minimum
Purchase: 1 Unit.
_______________________________________________________________
Sponsor: LOGO DEAN WITTER REYNOLDS INC.
_______________________________________________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
_______________________________________________________________
Read and retain both parts of this Prospectus for future
reference.
Units of the Trusts are not deposits or obligations of, or
guaranteed or endorsed by, any bank, and the Units are not
federally insured by the Federal Deposit Insurance Corporation,
Federal Reserve Board, or any other agency.
Prospectus Part A dated January 27, 1994
<PAGE>
THIS PROSPECTUS DOES NOT CONTAIN ALL OF THE INFORMATION WITH
RESPECT TO THE INVESTMENT COMPANY SET FORTH IN ITS REGISTRATION
STATEMENT AND EXHIBITS RELATING THERETO WHICH HAVE BEEN FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION, WASHINGTON, D.C.,
UNDER THE SECURITIES ACT OF 1933 AND THE INVESTMENT COMPANY ACT
OF 1940, AND TO WHICH REFERENCE IS HEREBY MADE.
THE USE OF THE TERM "INSURED" IN THE NAME OF THIS TRUST DOES
NOT MEAN THAT THE TRUST UNITS ARE INSURED BY ANY GOVERNMENTAL
OR PRIVATE ORGANIZATION. THE TRUST UNITS ARE NOT INSURED.
DEAN WITTER SELECT MUNICIPAL TRUST
INSURED CALIFORNIA SERIES 51
DELAWARE PORTFOLIO SERIES 9
TABLE OF CONTENTS
PART A Page
Table of Contents........................................... A-1
Summary of Essential Information............................ A-3
The Insured California Trust........................ A-10
The Delaware Uninsured Trust........................ A-24
Independent Auditor's Report................................ F-1
PART B
Introduction................................................ 1
The Trust................................................... 2
Special Considerations.............................. 2
Summary Description of the Portfolios............... 3
Insurance on the Securities in an Insured Trust............. 21
Objectives and Securities Selection......................... 25
The Units................................................... 26
Tax Status.................................................. 27
Public Offering of Units.................................... 32
Public Offering Price............................... 32
Public Distribution................................. 33
Secondary Market.................................... 34
Profit of Sponsor................................... 35
Volume Discount..................................... 35
Exchange Option............................................. 36
Reinvestment Programs....................................... 37
Redemption.................................................. 38
Tender of Units..................................... 38
Computation of Redemption Price per Unit............ 39
Purchase by the Sponsor of Units
Tendered for Redemption........................... 39
Rights of Unit Holders...................................... 39
Certificates........................................ 39
Certain Limitations................................. 40
A-1
<PAGE>
Page
Expenses and Charges........................................ 40
Initial Expenses.................................... 40
Fees................................................ 40
Other Charges....................................... 41
Administration of the Trust................................. 41
Records and Accounts................................ 41
Distribution........................................ 42
Distribution of Interest and Principal.............. 42
Reports to Unit Holders............................. 44
Sponsor..................................................... 45
Trustee..................................................... 47
Evaluator................................................... 48
Amendment and Termination of the Indenture.................. 49
Legal Opinions.............................................. 49
Auditors.................................................... 50
Bond Ratings................................................ 50
Federal Tax Free vs. Taxable Income......................... 54
Sponsor:
Dean Witter Reynolds Inc.
Two World Trade Center
New York, New York 10048
Evaluator:
Kenny S&P Evaluation Services
A division of Kenny Information Systems, Inc.
65 Broadway
New York, New York 10006
Trustee:
United States Trust Company of New York
114 West 47th Street
New York, New York 10036
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS WITH RESPECT TO THIS INVESTMENT COMPANY NOT
CONTAINED IN THIS PROSPECTUS; AND ANY INFORMATION OR
REPRESENTATION NOT CONTAINED HEREIN MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, SECURITIES
IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE
SUCH OFFER IN SUCH STATE.
A-2
<PAGE>
<TABLE>
<CAPTION>
SUMMARY OF ESSENTIAL INFORMATION
DEAN WITTER SELECT MUNICIPAL TRUST
INSURED CALIFORNIA SERIES 51
As of October 31, 1993
<S> <C> <S> <C>
FACE AMOUNT OF SECURITIES $ 2,940,000.00 DAILY RATE AT WHICH ESTIMATED NET
INTEREST ACCRUES PER UNIT .0172%
NUMBER OF UNITS 2,939
ESTIMATED CURRENT RETURN (based on
FRACTIONAL UNDIVIDED INTEREST IN THE Public Offering Price)<F2> 5.374%
TRUST REPRESENTED BY EACH UNIT 1/2,939th
ESTIMATED LONG TERM RETURN (based on
Public Offering Price)<F2> 4.200%
PUBLIC OFFERING PRICE MONTHLY INTEREST DISTRIBUTIONS
Aggregate bid side evaluation Estimated net annual interest rate
of Securities in the Trust $ 3,230,821.00 per Unit times $1,000 $ 61.97
Divided by 12 $ 5.16
Divided by 2,939 Units $ 1,099.29
Plus sales charge of 4.667% of RECORD DATE: The first day of each month
Public Offering Price (4.895%
of net amount invested in DISTRIBUTION DATE: The fifteenth
Securities) 53.81 day of each month
Public Offering Price per Unit 1,153.10 MINIMUM PRINCIPAL DISTRIBUTION: No
distribution need be made from the
Plus accrued interest 1.20<F1> Principal Account if balance therein
is less than $1 per Unit outstanding
Total $ 1,154.30
SPONSOR'S REPURCHASE PRICE AND TRUSTEE'S ANNUAL FEE AND EXPENSES (includ-
REDEMPTION PRICE PER UNIT (based ing estimated expenses and Evaluator's
on bid side evaluation of under- $ 1,099.29 fee) $2.37 per $1,000 face amount
lying Securities, $53.81 less 1.20<F1> of underlying Securities $ 2.37
than Public Offering Price per
Unit) plus accrued interest $ 1,100.49 SPONSOR'S ANNUAL PORTFOLIO SUPERVISION FEE:
Maximum of $.25 per $1,000 face amount of
underlying Securities .25
TOTAL ESTIMATED ANNUAL EXPENSES PER UNIT $ 2.62
CALCULATION OF ESTIMATED NET EVALUATOR'S FEE FOR EACH EVALUATION: Minimum of
ANNUAL INTEREST RATE PER UNIT $8.00 plus $.25 for each issue of underlying
(based on face amount of $1,000 Securities in excess of 50 issues (treating
per Unit) separate maturities as separate issues)
Annual interest rate per Unit 6.459% EVALUATION TIME: 4:00 P.M. New York Time
Less estimated annual expenses per MANDATORY TERMINATION DATE: January 1, 2041
Unit ($2.62) expressed as a
percentage .262% DISCRETIONARY LIQUIDATION AMOUNT: The In-
denture may be terminated by the Sponsor if
Estimated net annual interest rate the value of the Trust at any time is less
per Unit 6.197% than $1,200,000.
<FN>
<F1> Figure shown represents interest accrued (net of expenses) on the underlying Securities to the
expected date of settlement (normally five business days after purchase) for units purchased on October 29,
1993, the last trading date during the period.
<F2> The estimated current return and estimated long term return are increased for transactions entitled
to a reduced sales charge. (See "The Units -- Estimated Annual Income and Current Return" and "Public
Offering of Units -- Volume Discount" in Part B of this Prospectus.)
A-3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUMMARY OF ESSENTIAL INFORMATION
DEAN WITTER SELECT MUNICIPAL TRUST
DELAWARE PORTFOLIO SERIES 9
As of October 31, 1993
<S> <C> <S> <C>
FACE AMOUNT OF SECURITIES $ 2,850,000.00 DAILY RATE AT WHICH ESTIMATED NET
INTEREST ACCRUES PER UNIT .0174%
NUMBER OF UNITS 2,851
ESTIMATED CURRENT RETURN (based on
FRACTIONAL UNDIVIDED INTEREST IN THE Public Offering Price)<F2> 5.440%
TRUST REPRESENTED BY EACH UNIT 1/2,851th
ESTIMATED LONG TERM RETURN (based on
Public Offering Price)<F2> 4.329%
PUBLIC OFFERING PRICE MONTHLY INTEREST DISTRIBUTIONS
Aggregate bid side evaluation Estimated net annual interest rate
of Securities in the Trust $ 3,134,966.00 per Unit times $1,000 $ 62.78
Divided by 12 $ 5.23
Divided by 2,851 Units $ 1,099.60
Plus sales charge of 4.723% of RECORD DATE: The first day of each month
Public Offering Price (4.957%
of net amount invested in DISTRIBUTION DATE: The fifteenth
Securities) 54.51 day of each month
Public Offering Price per Unit 1,154.11 MINIMUM PRINCIPAL DISTRIBUTION: No
distribution need be made from the
Plus accrued interest 1.22<F1> Principal Account if balance therein
is less than $1 per Unit outstanding
Total $ 1,155.33
SPONSOR'S REPURCHASE PRICE AND TRUSTEE'S ANNUAL FEE AND EXPENSES (includ-
REDEMPTION PRICE PER UNIT (based ing estimated expenses and Evaluator's
on bid side evaluation of under- $ 1,099.60 fee) $2.37 per $1,000 face amount
lying Securities, $54.51 less 1.22<F1> of underlying Securities $ 2.37
than Public Offering Price per
Unit) plus accrued interest $ 1,100.82 SPONSOR'S ANNUAL PORTFOLIO SUPERVISION FEE:
Maximum of $.25 per $1,000 face amount of
underlying Securities .25
TOTAL ESTIMATED ANNUAL EXPENSES PER UNIT $ 2.62
EVALUATOR'S FEE FOR EACH EVALUATION: Minimum of
CALCULATION OF ESTIMATED NET $8.00 plus $.25 for each issue of underlying
ANNUAL INTEREST RATE PER UNIT Securities in excess of 50 issues (treating
(based on face amount of $1,000 separate maturities as separate issues)
per Unit)
EVALUATION TIME: 4:00 P.M. New York Time
Annual interest rate per Unit 6.540%
MANDATORY TERMINATION DATE: January 1, 2041
Less estimated annual expenses per
Unit ($2.62) expressed as a
percentage .262% DISCRETIONARY LIQUIDATION AMOUNT: The In-
denture may be terminated by the Sponsor if
Estimated net annual interest rate the value of the Trust at any time is less
per Unit 6.278% than $1,200,000.
<FN>
<F1> Figure shown represents interest accrued (net of expenses) on the underlying Securities to the
expected date of settlement (normally five business days after purchase) for units purchased on October 29,
1993, the last trading date during the period.
<F2> The estimated current return and estimated long term return are increased for transactions entitled
to a reduced sales charge. (See "The Units -- Estimated Annual Income and Current Return" and "Public
Offering of Units -- Volume Discount" in Part B of this Prospectus.)
A-4
</TABLE>
<PAGE>
SUMMARY OF ESSENTIAL INFORMATION
(Continued)
THE TRUSTS -- The Dean Witter Select Municipal Trust,
Insured California Series 51 (the "Insured California Trust")
and Delaware Portfolio Series 9 (the "Delaware Uninsured
Trust") are two separate unit investment trusts (collectively,
the "Trusts" or the "State Trusts") created on November 6, 1991
(the "Date of Deposit"), under the laws of the State of New
York, pursuant to an Indenture, as defined in Part B. Each of
the Trusts is composed of "investment grade" interest-bearing
municipal bonds (the "Securities"). (For a description of the
meaning of "investment grade" securities, see: "Bond Ratings",
in Part B.) The objectives of the Trusts are: (1) the receipt
of income which, under existing law, is excludable from gross
income for Federal income tax purposes (except in certain
instances depending on the Unit Holders) and, in the case of a
state trust, is exempt from state income taxation to individual
Unit Holders resident in the state for which the Trust is
named; and (2) the conservation of capital. The payment of
interest and the preservation of principal of each of the
Trusts is dependent on the continuing ability of the respective
Issuers of the Securities or the bond insurers thereof to meet
their obligations to pay principal and interest. Therefore,
there is no guarantee that the objectives of the Trusts will be
achieved. All of the Securities in each of the Portfolios are
obligations of states or of the counties, municipalities or
public authorities thereof. Interest on the Securities, in the
opinion of bond counsel or special tax counsel to the Issuers
thereof, under existing law, is excludable from gross income
for Federal income tax purposes (except in certain instances
depending on the Unit Holders) and, in the case of a state
trust, is exempt from state income taxes when owned by
individual Unit Holders resident in the state for which the
Trust is named. (For a discussion of certain tax aspects of
the Trusts, see: "Tax Status", in Part B. For discussion of
certain state tax aspects of a particular Trust, see: "Special
Considerations Regarding California Securities -- California
Tax Status" and "Special Considerations Regarding Delaware
Securities -- Delaware Tax Status", herein.)
OFFERS TO SELL OR THE SOLICITATION OF ORDERS TO BUY
MAY ONLY BE MADE IN THOSE JURISDICTIONS IN WHICH THE SECURITIES
OF EACH TRUST HAVE BEEN REGISTERED. INVESTORS SHOULD CONTACT
ACCOUNT EXECUTIVES OF THE SPONSOR TO DETERMINE WHETHER THE
SECURITIES OF A PARTICULAR TRUST HAVE BEEN REGISTERED FOR SALE
IN THE STATE IN WHICH THEY RESIDE.
A-5
<PAGE>
INSURANCE -- A policy of insurance guaranteeing the
scheduled payment of principal and interest ("Bond Insurance")
has been obtained from the bond insurers indicated on the
respective "Schedule of Portfolio Securities", herein, and paid
for by the Issuers of the Securities, or by third parties, for
all the Securities in the Insured California Trust. The
policies of Bond Insurance are non-cancellable and cover
default in the payment of principal and interest on the
Securities so insured so long as such Securities remain
outstanding, whether they are held in the Insured California
Trust or not. Bond Insurance on all Securities in the Insured
California Trust relates only to the Securities in such Insured
California Trust and not to the Units offered hereby. No
representation is made herein as to any bond insurer's ability
to meet its obligations under a policy of Bond Insurance
relating to a Security in the Insured California Trust.
However, as a result of such Bond Insurance, the Securities, as
well as the Units of the Insured California Trust only, are
rated "AAA" by Standard & Poor's Corporation. There can be no
assurance that such "AAA" ratings will be retained. (See:
"Insurance on the Securities in an Insured Trust", in Part B.)
MONTHLY DISTRIBUTIONS -- Monthly distributions of
principal, premium, if any, and interest received by each Trust
will be made on or shortly after the fifteenth day of each
month to Unit Holders of record on the first day of such month.
Alternatively, Unit Holders may elect to have their monthly
distributions reinvested in either of the Reinvestment Programs
of the Sponsor, neither of which are insured. (See:
"Reinvestment Programs", in Part B.)
PUBLIC OFFERING PRICE -- The Public Offering Price
per Unit of each Trust is calculated daily, and is equal to the
aggregate bid side evaluation of the underlying Securities,
divided by the number of Units outstanding, plus a sales charge
which may be calculated by reference to "Sales Charge/Volume
Discount", below, plus the per Unit balance in the Interest and
Principal Accounts. Units are offered at the Public Offering
Price, plus accrued interest. (See: "Public Offering of
Units", in Part B.)
ESTIMATED CURRENT RETURN -- The Estimated Current
Return shows the return based on the Public Offering Price and
is computed by multiplying the estimated net annual interest
rate per Unit (which shows the return based on a $1,000 face
amount) by $1,000 and dividing the result by the Public
Offering Price (not including accrued interest). The net
annual interest rate per Unit will vary with changes in the
fees and expenses of the Trustee, the Sponsor and the Evaluator
A-6
<PAGE>
and with the exchange, redemption, sale or maturity of the
underlying Securities. In addition, the Public Offering Price
will also vary with fluctuations in the bid side evaluation of
the underlying Securities. Therefore, it can be expected that
the Estimated Current Return will fluctuate in the future.
(See: "The Units -- Estimated Annual Income and Current
Return", in Part B.)
MARKET FOR UNITS -- The Sponsor, though not obligated
to do so, intends to maintain a market for the Units based on
the aggregate bid side evaluation of the underlying Securities,
as more fully described in Part B -- "Public Offering of
Units -- Secondary Market". If such market is not maintained,
a Unit Holder will be able to dispose of its Units through
redemption at prices based on the aggregate bid side evaluation
of the underlying Securities. (See: "Redemption", in Part B.)
Market conditions may cause such prices to be greater or less
than the amount paid for Units.
SPECIAL CONSIDERATIONS -- An investment in Units of
the Trusts should be made with an understanding of the risks
which an investment in fixed rate long term debt obligations
may entail, including the risk that the value of the Units will
decline with increases in interest rates. The Insured
California Trust is considered to be concentrated in
Prerefunded/Escrowed to Maturity Securities (43.39% of the
aggregate market value of the Insured California Trust
Portfolio). The Delaware Uninsured Trust is considered to be
concentrated in Electric and Power Securities and
Prerefunded/Escrowed to Maturity Securities (30.93% and 53.60%,
respectively, of the aggregate market value of the Delaware
Uninsured Trust Portfolio). (See: "The Trust -- Special
Considerations" and "The Trust -- Summary Description of the
Portfolios", in Part B. See also: "The Insured California
Trust" or "The Delaware Uninsured Trust", herein, for a
discussion of additional risks attendant upon purchase of Units
of such Trust.)
OTHER INFORMATION -- The Securities in the Portfolio
of each Trust were chosen in part on the basis of their
respective maturity dates. A long term Trust contains
obligations maturing in 15 years or more from the Date of
Deposit. The maturity date of the Insured California Trust and
the Delaware Uninsured Trust is January 1, 2041. The latest
maturity of a Security in the Insured California Trust is
September 2023; and the average life to maturity of the
Portfolio of Securities therein is 15.60 years. The latest
maturity of a Security in the Delaware Uninsured Trust is
June 2021; and the average life to maturity of the Portfolio of
A-7
<PAGE>
Securities therein is 14.30 years. The actual maturity dates
of each of the Securities contained in each Trust are shown on
the respective "Schedule of Portfolio Securities", herein.
The Trustee shall receive annually 72 cents per
$1,000 principal amount of Securities in each Trust for its
services as Trustee. See: "Expenses and Charges", in Part B,
for a description of other fees and charges which may be
incurred by a Trust.
SALES CHARGE/VOLUME DISCOUNT -- The Public Offering
Price per Unit will be computed by dividing the aggregate of
the bid prices of the Securities in a Trust by the number of
Units outstanding and then adding the appropriate sales charge
described below.
The sales charge will reflect different rates
depending upon the maturities of the various underlying
Securities. The sales charge per Unit in the secondary market
(the "Effective Sales Charge") will be computed by multiplying
the Evaluator's determination of the bid side evaluation of
each Security by a sales charge determined in accordance with
the table set forth below based upon the number of years
remaining to the maturity of each such Security, totalling all
such calculations, and dividing this total by the number of
Units then outstanding. In calculating the date of maturity, a
Security will be considered to mature on its stated maturity
date unless: (a) the Security has been called for redemption
or funds or securities have been placed in escrow to redeem it
on an earlier call date, in which case the call date will be
deemed the date on which such Security matures; or (b) the
Security is subject to a mandatory tender, in which case the
mandatory tender date will be deemed the date on which such
Security matures.
(as % of bid (as % of Public
Time to Maturity side evaluation) Offering Price)
Less than six months................ 0% 0%
six months to 1 year................ 0.756% 0.75%
over 1 year to 2 years.............. 1.523% 1.50%
over 2 years to 4 years............. 2.564% 2.50%
over 4 years to 8 years............. 3.627% 3.50%
over 8 years to 15 years............ 4.712% 4.50%
over 15 years....................... 5.820% 5.50%
The Effective Sales Charge per Unit for a sale in the
secondary market, as determined above, will be reduced on a
graduated scale for sales to any single purchaser on a single
A-8
<PAGE>
day of the specified number of Units of a Trust set forth
below.
Dealer Concession
% of Effective as % of Effective
Number of Units Sales Charge Sales Charge
1-99............................ 100% 65%
100-249......................... 95% 62%
250-499......................... 85% 55%
500-999......................... 70% 45%
1,000 or more................... 55% 35%
To qualify for the reduced sales charge and
concession applicable to quantity purchases, the selling dealer
must confirm that the sale is to a single purchaser, as
described in "Volume Discount" in Part B of the Prospectus.
Units purchased at an Effective Sales Charge (before
volume purchase discount) of less than 3.00% of the Public
Offering Price (3.093% of the bid side evaluation of the
Securities) will not be eligible for exchange at a reduced
sales charge described under the Exchange Option.
Dealers purchasing certain dollar amounts of Units
during the life of the Trusts may be entitled to additional
concessions. The Sponsor reserves the right, at any time and
from time to time, to change the level of dealer concessions.
For further information regarding the volume
discount, see: "Public Offering of Units -- Volume Discount",
in Part B.
A-9
<PAGE>
THE INSURED CALIFORNIA TRUST
The Portfolio of the Insured California Trust
consists of ten issues of Securities, all of which were issued
by Issuers located in California. None of the issues of
Securities is a general obligation of an Issuer. All ten
issues of Securities, while not backed by the taxing power of
the Issuer, are payable from revenues or receipts derived from
specific projects or other available sources. The Insured
California Trust contains the following categories of
Securities:
Percentage of Aggregate
Market Value of Trust Portfolio
Category of Security (as of January 17, 1994)
General Revenue Lease Payment .......... 17.24%
Health Care and Hospital ............... 14.05%
Higher Education ....................... 1.74%
Sales Tax .............................. 9.60%
Tax Allocation ......................... 13.97%
Prerefunded/Escrowed to Maturity........ 43.39%
Original Issue Discount ................ 84.49%
See: "The Trust -- Summary Description of the
Portfolios", in Part B, for a summary of the investment risks
associated with the type of Securities contained in the Insured
California Trust. See: "Tax Status", in Part B, for a
discussion of certain tax considerations with regard to
Original Issue Discount.
Of the Original Issue Discount bonds in the Insured
California Trust, approximately 4.36% of the aggregate
principal amount of the Securities in the Insured California
Trust (or 1.34% of the market value of all Securities in the
Insured California Trust on January 17, 1994) are zero coupon
bonds (including bonds known as multiplier bonds, money
multiplier bonds, capital accumulator bonds, compound interest
bonds and discount maturity payment bonds).
The Securities in the Insured California Trust are
insured to maturity by the insurance obtained by the Issuers or
by third parties from the following insurance companies:
A-10
<PAGE>
AMBAC: 56.77%; CGIC 14.97%; FGIC: 3.54%; and MBIA and
MBIAC: 24.71%.<F32>
On January 17, 1994, based on the bid side of the
market, the aggregate market value of the Securities in the
Insured California Trust was $3,147,860.72.
On January 17, 1994, all of the Securities in the
Insured California Trust were rated "AAA" by Standard & Poor's
Corporation because of the Bond Insurance policies issued in
respect of such Securities. (See: "Bond Ratings", in Part B,
and the respective "Schedule of Portfolio Securities", herein.)
A Security in the Portfolio may subsequently cease to be rated
or the rating assigned may be reduced below the minimum
requirements of the Insured California Trust for the
acquisition of Securities. While such events may be considered
by the Sponsor in determining whether to direct the Trustee to
dispose of such Security (see: "Sponsor -- Responsibility", in
Part B), such events do not automatically require the
elimination of such Security from the Portfolio.
SPECIAL CONSIDERATIONS REGARDING CALIFORNIA SECURITIES
California's economy is the largest among the 50
states and one of the largest in the world. The State's
July 1, 1992 population of 31 million represented over 12.0% of
the total United States population. Total employment is about
14 million, the majority of which was in the service, trade and
manufacturing sectors.
Since the start of the 1990-91 fiscal year, the State
has faced the worst economic, fiscal and budget conditions
since the 1930s. Construction, manufacturing (especially
aerospace), exports and financial services, among others, have
all been severely affected. Job losses have been the worst of
any post-war recession. Employment levels are expected to
stabilize by late 1993. However, pre-recession job levels are
not expected to be reached for several more years.
Unemployment reached 10% in November 1992 and is expected to
remain above 9% through 1993 and 1994. According to the
Department of Finance, recovery from the recession in
California is not expected in meaningful terms until late 1993
or 1994, notwithstanding signs of recovery elsewhere in the
nation.
_________________________
<F32> Percentages computed on the basis of the aggregate bid side
evaluation of the Securities in the Insured California Trust on
January 17, 1994.
A-11
<PAGE>
After three years of recession, California's economy
seems to be stabilizing, however, economic signals remain
mixed. On the plus side, nonfarm employment in April was
essentially unchanged from the December level. The
unemployment rate seems to be moving down, although the large
April drop, from 9.4% to 8.6%, probably exaggerates the
improvement. Personal income growth is improving gradually,
from gains of 2% or less in 1991 to slightly over 3% at the
beginning of 1993, and taxable sales are stabilizing after a
lengthy decline.
There are still ample signs of weakness.
Manufacturing employment continues to decline, with deep losses
in aerospace, reflecting defense cuts and weak commercial
markets. Despite strong output and sales gains, electronics
firms continue to cut payrolls. All manufacturing industries,
with the exception of apparel and textiles, are posting
employment losses. Housing, usually an engine of recovery,
remains in a slump. Permit volume has averaged a 95,000 unit
annual rate in recent months, actually somewhat below 1992's
98,000 total. Nonresidential construction continues to hit new
recession lows, reflecting oversupplied commercial office,
retail and hotel markets. Employment continues to decline in
normally stable industries such as banking, the utilities and
most segments of wholesale and retail trade. Food, department
and apparel stores are shedding jobs, and government employment
is down 30,000 jobs over the past year.
The Department of Finance, in its May 1993 Revision
of the Governor's 1993-94 Budget, states that it expects this
essentially flat pattern of economic activity to persist
throughout 1993, with employment by year end only marginally
higher than in April. Gains in service industries, mainly
health care, temporary agencies (in business services), motion
picture production and amusements are expected to continue.
There should be modest increases in wholesale and retail trade.
The finance and transportation and utilities groups will be
stable to down slightly. Assuming a modest pickup in
home-building, construction employment will also be flat this
year. Against these, manufacturing and government will
continue to lose jobs. The largest losses in percentage terms
will be in aerospace manufacturing and the Federal Department
of Defense, reflecting cuts in the military budget. Budget
constraints will also affect State and local government.
The recession has seriously affected State tax
revenues, which basically mirror economic conditions. It has
also caused increased expenditures for health and welfare
programs. The State has also been facing a structural
A-12
<PAGE>
imbalance in its budget with the largest programs supported by
the General Fund - K-14 education (kindergarten through
community college), health, welfare and corrections - growing
at rates significantly higher than the growth rates for the
principal revenue sources of the General Fund. As a result,
the State has experienced recurring budget deficits; the State
Controller reports that expenditures exceeded revenues for four
of the last five completed fiscal years. Revenues declined in
1990-91 over 1989-90, the first time since the 1930s. By June
30, 1993, according to the Department of Finance, the State's
Reserve for Economic Uncertainties had a deficit, on a budget
basis, of approximately $2.75 billion. A further consequence
of the large budget imbalances over the last three fiscal years
has been that the State depleted its available cash resources
and has had to use a series of external borrowings to meet its
cash needs.
1992-93 Budget
By the time the 1992-93 Governor's Budget was
presented in January 1992, it was evident the recession was
much deeper than earlier anticipated. To balance the proposed
budget, program reductions totalling $4.365 billion and revenue
and transfer increases of $872 million were proposed for the
1991-92 and 1992-93 fiscal years. By the time of the
Governor's May Revision, issued on May 20, 1992, the
Administration estimated that the 1992-93 Budget needed to
address a gap of about $7.9 billion, much of which was needed
to repay the accumulated budget deficits of the previous two
years.
The severity of the budget actions needed led to a
long delay in adopting the budget. With the failure to adopt a
budget by July 1, 1992, which would have allowed the State to
carry out its normal annual cash flow borrowing, the Controller
was forced to issue registered warrants to pay a variety of
obligations representing prior years' or continuing
appropriations, and mandates from court orders. Available
funds were used to make constitutionally-mandated payments,
such as debt service on bonds and revenue anticipations
warrants. Between July 1 and September 4, 1992, the Controller
issued a total of approximately $3.8 billion of registered
warrants. After that date, all remaining outstanding
registered warrants (about $2.9 billion) were called for
redemption from proceeds of the issuance of 1992 Interim Notes
after the budget was adopted.
The 1992-93 Budget Act, signed by the Governor on
September 2, 1992, provided for expenditures of $57.4 billion
A-13
<PAGE>
and consisted of General Fund expenditures of $40.8 billion and
Special Fund and Bond Fund expenditures of $16.6 billion. The
Department of Finance estimated in September 1992 that there
would be a balance in the Special Fund for Economic
Uncertainties of $28 million on June 30, 1993.
The $7.9 billion budget gap was closed through a
combination of increased revenues and transfers and expenditure
cuts such as:
1. General Fund savings in health and welfare
programs totalling $1.6 billion.
2. General Fund reductions of $1.9 billion for K-12
schools and community colleges.
3. General Fund savings of $1.3 billion by revising
the State aid program to local governments originally enacted
after Proposition 13.
4. Program cuts for higher education totalling $415
million.
5. A total of $1.6 billion of transfers and
accelerated collections of State revenues.
6. Approximately $1.0 billion from various
additional program reductions.
Shortly after the 1992-93 Budget Act was enacted, it
became evident the economic conditions in the State were not
beginning to improve in the second half of 1992, as assumed by
the Department of Finance's May 1992 economic estimates. This
was exacerbated by enactment of an initiative measure in
November 1992 repealing a sales tax for certain candy, snack
foods and bottled water, reducing revenues by about $300
million for a full fiscal year ($200 million in 1992-93). The
Governor's Budget proposal for 1993-94, released on January 8,
1993 (the "January Governor's Budget"), confirmed the earlier
forecasts about the State's economy and the 1992-93 Budget Act.
The January Governor's Budget projected that the economy would
not start meaningful recovery from the recession until late
1993 or 1994. With the economy continuing in recession
throughout the 1992-93 fiscal year, revenues were projected
about $2.5 billion lower than anticipated when the 1992-93
Budget Act was signed, leading to a projected $2.1 billion
budget deficit at June 30, 1993 (compared to the Budget Act
projection of a $28 million balance). That deficit amount was
projected if, by March 1993, the Legislature adopted several
A-14
<PAGE>
actions proposed by the Governor to save about $475 million in
the 1992-93 fiscal year. The Legislature did not adopt any of
the Governor's proposals.
On May 20, 1993, the Department of Finance released
its May Revision to the January Governor's Budget (the "May
Revision"), updating revenue and expenditure projections and
proposals for the 1992-93 and 1993-94 fiscal years. The May
Revision projected that the General Fund will end the fiscal
year on June 30, 1993 with an accumulated budget deficit of
about $2.8 billion, and a negative fund balance of about $2.2
billion (the difference being certain reserves for encumbrances
and school funding costs). The Governor projected revenues for
1992-93 of $41.0 billion, $1.0 billion less than in the 1991-92
fiscal year. On the expenditure side, the continued recession
increased health and welfare costs above the original Budget
Act projections. Also, property tax receipts at the local
level were less than projected, so that the State will not get
the full $1.3 billion benefit from the property tax shift
enacted in the 1992-93 Budget Act. Overall, the May Revision
projected total General Fund expenditures of $41.1 billion for
the 1992-93 fiscal year, about $300 million higher than the
Budget Act and $2.2 billion less than fiscal year 1991-92.
The January Governor's Budget had projected that,
because of severely reduced revenues, the State would face a
cash flow shortfall in May 1993, necessitating additional
external borrowing. The State met this cash flow need by
issuing $3.0 billion of revenue anticipation notes on April 26,
1993, which matured on June 24, 1993. The State also issued
the 1993 Revenue Participation Warrants in the principal amount
of $2.0 billion to meet cash flow requirements for the end of
the 1992-93 fiscal year and the start of the 1993-94 fiscal
year.
1993-94 Budget
The 1993-94 fiscal year represents the third
consecutive year the Governor and the Legislature were faced
with a very difficult budget environment, requiring revenue
actions and expenditure cuts totalling multiple billions of
dollars to produce a balanced budget.
The Governor's Budget introduced on January 8, 1993
proposed General Fund expenditures of $37.33 billion, with
projected revenues of $39.87 billion. It also proposed Special
Fund expenditures of $12.35 billion and Special Fund Revenues
of $12.10 billion. To balance the budget in the face of
declining revenues, the Governor proposed a series of revenue
A-15
<PAGE>
shifts from local government, reliance on increased federal
aid, and reductions in State spending.
The May Revision of the Governor's Budget, released
on May 20, 1993, indicated that the revenue projections of the
January Budget Proposal were tracking well, with the full year
1992-93 about $80 million higher than the January projection.
Personal income tax revenue was higher than projected, sales
tax was close to target, and bank and corporation taxes were
lagging behind projections. The May Revision projected the
State would have about $2.7 billion accumulated deficit by June
30, 1993. The Governor proposed to repay this deficit over an
18-month period. He also agreed to retain the 0.5% sales tax
scheduled to expire June 30 for a six-month period, dedicated
to local public safety purposes, with a November election to
determine a permanent extension. Unlike previous years, the
Governor's Budget and May Revision did not calculate a "gap" to
be closed, but rather set forth revenue and expenditure
forecasts and proposals designed to produce a balanced budget.
The 1993-94 Budget Act, signed by the Governor on
June 30, 1993, is predicated on revenue and transfer estimates
of $40.6 billion, about $700 million higher than the January
Governor's Budget, but still about $400 million below 1992-93
(and the second consecutive year of actual decline). The
principal reasons for this decline are the continued weak
economy and the expiration (or repeal) of three fiscal steps
taken in 1991 -- a half cent temporary sales tax (which
generates about $1.5 billion annually), a deferral of operating
loss carry forwards ($440 million), and repeal by initiative of
a sales tax on candy and snack foods ($300 million). The
Governor also proposes a number of fiscal steps (tax credits
and the like) to stimulate job growth, which could result in
short-term revenue costs. The 1993-94 Budget Act assumes
Special Fund revenues of $11.8 billion, an increase of 5.0%
over 1992-93.
The 1993-94 Budget Act includes General Fund
expenditures of $38.5 billion (a 6.5% reduction from projected
1992-93 expenditures of $41.2 billion), in order to keep a
balanced budget within the available revenues. The Budget also
includes Special Fund expenditures of $12.1 billion, a 4.2%
increase. The Budget Act reflects the following major
adjustments:
1. Changes in local government financing to shift
about $2.6 billion in property taxes from cities, counties,
special districts and redevelopment agencies to school and
community college districts.
A-16
<PAGE>
2. The Budget keeps K-12 Proposition 98 funding on
a cash basis at the same per-pupil level as 1992-93 by
providing schools a loan payable from future years' Proposition
98 funds.
3. Receipt in 1993-94 of about $550 million in aid
from the federal government to offset health and welfare costs
associated with foreign immigrants living in the State, which
would reduce a like amount of General Fund expenditures.
4. Reductions of $0.3 billion in health and welfare
programs.
5. Reductions of $400 million in support for higher
education.
6. A two year suspension of the renters' tax credit
($390 million expenditure reduction in 1993-94).
7. Various miscellaneous cuts (totalling
approximately $150 million) in State government services in
many agencies, up to 15%.
8. Miscellaneous one-time items, including deferral
of payment to the Public Employees Retirement Fund and a change
in accounting for debt service from accrual to cash basis,
saving $107 million.
A key feature of the 1993-94 Budget Act is a plan to
retire the projected $2.8 billion accumulated deficit over an
18-month period by the use of external borrowing. The Budget
Act estimates that about $1.6 billion of the deficit
elimination loan would be repaid by December 23, 1993 from the
proceeds of the $2.0 billion Revenue Anticipation Warrants
issued on June 23, 1993.
The 1993-94 Budget Act continues to predict that
population growth in the 1990s will keep upward pressure on
major State programs, such as K-14 education, health, welfare
and corrections, outstripping projected revenue growth in an
economy only very slowly emerging from a deep recession. The
Governor's health, welfare and local government reductions
continue his efforts to keep expenditures in line with
resources in the long term. The Budget Act also proposes
significant restructuring of State government, with elimination
and consolidation of several agencies and numerous smaller
boards, and change to a "performance budgeting" concept which
would be more efficient and cost-effective (with a pilot
project to be implemented in 1994-95). The Governor also
A-17
<PAGE>
proposes initiatives in the field of information technology to
increase governmental productivity.
On June 2, 1993, the Commission on State Finance
("COSF") issued its Quarterly General Fund Forecast, which
assessed the Governor's May Revision. The COSF report
projected stagnant economic conditions through 1994, and agreed
generally with the Governor's economic projections, although
the COSF showed slightly lower growth than the Governor in some
California economic factors. The COSF projects lower revenues
and higher expenditures in 1993-94 than the May Revision, and
notes that the May Revision continues the use of off-book loans
to schools and has no built-in protection against downside
risk.
The COSF projects about $700 million lower revenues
in 1993-94 than the May Revision, principally because COSF
believes most of the increase in personal income taxes seen
late in 1992-93 came from a one-time income shift, rather than
reflecting a permanent base of greater tax revenues. COSF also
shows other major taxes (and local property taxes) a little
weaker than the May Revision, with a resulting increase in
expenditures to make up the property tax shortfall for school
financing. Altogether, COSF projects in its "primary forecast"
that the fund balance at June 30, 1994 would be over $800
million more negative than the May Revision forecast, and the
negative difference would grow to $1.9 billion by June 30,
1995.
The COSF report includes two alternative forecasts
based on either continued recession, or stronger recovery. The
pessimistic forecast is $3.8 billion worse at June 30, 1995
than the Primary Forecast, and the optimistic forecast is about
$3.8 billion better. The COSF also expressed concern that the
proposed $2.6 billion shift of property taxes could materially
impact local governments' fiscal stability.
THE FOREGOING DISCUSSION OF THE 1993-94 FISCAL YEAR
BUDGET IS BASED IN LARGE PART ON STATEMENTS MADE IN A RECENT
"PRELIMINARY OFFICIAL STATEMENT" DISTRIBUTED BY THE STATE OF
CALIFORNIA. IN THAT DOCUMENT, THE STATE INDICATED THAT ITS
DISCUSSION OF THE 1993-94 FISCAL YEAR BUDGET IS BASED ON
ESTIMATES AND PROJECTIONS OF REVENUES AND EXPENDITURES FOR THE
CURRENT FISCAL YEAR AND MUST NOT BE CONSTRUED AS STATEMENTS OF
FACT. THE STATE NOTED FURTHER THAT THE ESTIMATES AND
PROJECTIONS ARE BASED UPON VARIOUS ASSUMPTIONS WHICH MAY BE
AFFECTED BY NUMEROUS FACTORS, INCLUDING FUTURE ECONOMIC
CONDITIONS IN THE STATE AND THE NATION, AND THAT THERE CAN BE
NO ASSURANCE THAT THE ESTIMATES WILL BE ACHIEVED.
A-18
<PAGE>
State Appropriations Limit
The State is subject to an annual appropriations
limit imposed by Article XIIIB of the State Constitution (the
"Appropriations Limit"), and is prohibited from spending
"appropriations subject to limitation" in excess of the
Appropriations Limit. Article XIIIB, originally adopted in
1979, was modified substantially by Propositions 98 and 111 in
1988 and 1990, respectively. "Appropriations subject to
limitation" are authorizations to spend "proceeds of taxes,"
which consist of tax revenues and certain other funds,
including proceeds from regulatory licenses, user charges or
other fees to the extent that such proceeds exceed the
reasonable cost of providing the regulation, product or
service. The Appropriations Limit is based on the limit for
the prior year, adjusted annually for certain changes, and is
tested over consecutive two-year periods. Any excess of the
aggregate proceeds of taxes received over such two-year period
above the combined Appropriations Limit for those two years is
divided equally between transfers to K-14 districts and refunds
to taxpayers.
Exempted from the Appropriations Limit are debt
service costs of certain bonds, court or federally mandated
costs, and, pursuant to Proposition 111, qualified capital
outlay projects and appropriations or revenues derived from any
increase in gasoline taxes and motor vehicle weight fees above
January 1, 1990 levels. Some recent initiatives were
structured to create new tax revenues dedicated to specific
uses and expressly exempted from the Article XIIIB limits. The
Appropriations Limit may also be exceeded in cases of emergency
arising from civil disturbance or natural disaster declared by
the Governor and approved by two-thirds of the Legislature. If
not so declared and approved, the Appropriations Limit for the
next three years must be reduced by the amount of the excess.
Article XIIIB, as amended by Proposition 98 on
November 8, 1988, also establishes a minimum level of state
funding for school and community college districts and requires
that excess revenues up to a certain limit be transferred to
schools and community college districts instead of returned to
the taxpayers. Determination of the minimum level of funding
is based on several tests set forth in Proposition 98. During
fiscal year 1991-92 revenues were smaller than expected, thus
reducing the payment owed to schools in 1991-92 under alternate
"test" provisions. In response to the changing revenue
situation, and to fully fund the Proposition 98 guarantee in
the 1991-92 and 1992-93 fiscal years without exceeding it, the
Legislature enacted legislation to reduce 1991-92
A-19
<PAGE>
appropriations. The amount budgeted to schools but which
exceeded the reduced appropriation was treated as a
non-Proposition 98 short-term loan in 1991-92. As part of the
1992-93 Budget, $1.1 billion of the amount budgeted to K-14
schools was designated to "repay" the prior year loan, thereby
reducing cash outlays in 1992-93 by that amount.
Because of the complexities of Article XIIIB, the
ambiguities and possible inconsistencies in its terms, the
applicability of its exceptions and exemptions and the
impossibility of predicting future appropriations, the Sponsor
cannot predict the impact of this or related legislation on the
Bonds in the Insured California Trust Portfolio. Other
Constitutional amendments affecting state and local taxes and
appropriations have been proposed from time to time. If any
such initiatives are adopted, the State could be pressured to
provide additional financial assistance to local governments or
appropriate revenues as mandated by such initiatives.
Propositions such as Proposition 98 and others that may be
adopted in the future, may place increasing pressure on the
State's budget over future years, potentially reducing
resources available for other State programs, especially to the
extent the Article XIIIB spending limit would restrain the
State's ability to fund such other programs by raising taxes.
State Indebtedness
As of June 30, 1993, the State had over $17.64
billion aggregate amount of its general obligation bonds
outstanding. General obligation bond authorizations in the
aggregate amount of approximately $7.24 billion remained
unissued as of June 30, 1993. The State also builds and
acquires capital facilities through the use of lease purchase
borrowing. As of June 30, 1992, the State had approximately
$2.88 billion of outstanding Lease-Purchase Debt.
In addition to the general obligation bonds, State
agencies and authorities had approximately $21.87 billion
aggregate principal amount of revenue bonds and notes
outstanding as of March 31, 1993. Revenue bonds represent both
obligations payable from State revenue-producing enterprises
and projects, which are not payable from the General Fund, and
conduit obligations payable only from revenues paid by private
users of facilities financed by such revenue bonds. Such
enterprises and projects include transportation projects,
various public works and exposition projects, educational
facilities (including the California State University and
University of California systems), housing, health facilities
and pollution control facilities.
A-20
<PAGE>
The January 1994 Los Angeles earthquake may
negatively impact the ability of certain issuers to make
scheduled interest and principal payments, for example, if the
specific project for which bonds were issued is damaged or if
revenues backing certain bonds decline. In addition, the
impact on tourism and business spending resulting from
earthquake damage and any delay in its repair could negatively
impact the ability of certain issuers to make timely debt
payments. Further, as with the October 1989 Loma Prieta
earthquake that stuck San Francisco, lawsuits may be filed
against State agencies. Both Moody's Investors Service, Inc.
("Moody's") and Standard & Poor's Corporation have said that it
is too soon to offer official assessments of the damage and its
effect on bondholders. However, Moody's has also stated that
because the pledge to make debt service payments for general
obligation bonds and essential purpose revenue bonds is
absolute and unconditional, it does not expect any rating
adjustment over the short-term for such bonds. The Sponsor is
unable to predict the effects of this earthquake or any other
future natural disaster on the bonds in the Portfolio of the
Insured California Trust.
Litigation
The State is a party to numerous legal proceedings,
many of which normally occur in governmental operations. In
addition, the State is involved in certain other legal
proceedings that, if decided against the State, might require
the State to make significant future expenditures or impair
future revenue sources. Examples of such cases include
challenges to the State's method of taxation of certain
businesses, challenges to certain vehicle license fees, and
challenges to the State's use of Public Employee Retirement
System funds to offset future State and local pension
contributions. Other cases which could significantly impact
revenue or expenditures involve reimbursement to school
districts for voluntary school desegregation and state mandated
costs, challenges to Medi-Cal eligibility, recovery for flood
damages, and liability for toxic waste cleanup. Because of the
prospective nature of these proceedings, it is not presently
possible to predict the outcome of such litigation or estimate
the potential impact on the ability of the State to pay debt
service on its obligations.
Ratings
As a result of the deterioration in the State's
budget and cash situation in fiscal year 1991-92, and the delay
in adopting the 1992-93 budget which resulted in issuance of
A-21
<PAGE>
registered warrants, rating agencies reduced the State's credit
rating. Between November 1991 and September 30, 1992, the
rating on the State's general obligation bonds was reduced by
Standard & Poor's Corporation from "AAA" to "A+", by Moody's
Investors Service, Inc. from "Aaa" to "Aa", and by Fitch
Investors Service, Inc. from "AAA" to "AA". There can be no
assurance that such ratings will continue for any given period
of time or that they will not in the future be further revised
or withdrawn.
The Sponsor believes the information summarized above
describes some of the more significant aspects relating to the
Insured California Trust. The sources of such information are
Preliminary Official Statements and Official Statements
relating to the State's General Obligation Bonds and the
State's Revenue Anticipation Notes, or obligations of other
issuers located in the State of California, or other publicly
available documents. While the Sponsor has not independently
verified this information, it has no reason to believe that
such information is not correct in all material respects.
California Tax Status
The opinion of Adams, Duque & Hazeltine, special
California counsel on tax matters, given under existing law,
includes the following:
The Insured California Trust is not an association
taxable as a corporation under the income tax laws of the
State of California;
The income, deductions and credits against tax of the
Insured California Trust will be treated as the income,
deductions and credits against tax of the holders of Units
in the Insured California Trust under the income tax laws
of the State of California;
Interest on the bonds held by the Insured California
Trust to the extent that such interest is exempt from
taxation under California law will not lose its character
as tax-exempt income merely because that income is passed
through to the holders of Units; however, a corporation
subject to the California franchise tax is required to
include that interest income in its gross income for
purposes of determining its franchise tax liability;
Each holder of a Unit in the Insured California Trust
will have a taxable event when the Insured California
Trust disposes of a bond (whether by sale, exchange,
A-22
<PAGE>
redemption, or payment at maturity) or when the Unit
holder redeems or sells his Units. The total tax cost of
each Unit to a holder of a Unit in the Insured California
Trust is allocated among each of the bond issues held in
the Insured California Trust (in accordance with the
proportion of the Insured California Trust comprised by
each bond issue) in order to determine the holder's per
Unit tax cost for each bond issue, and the tax cost
reduction requirements relating to amortization of bond
premium will apply separately to the per Unit tax cost of
each bond issue. Therefore, under some circumstances, a
holder of a Unit may realize taxable gain when the Insured
California Trust disposes of a bond or the holder's Units
are sold or redeemed for an amount equal to or less than
his original cost of the bond or Unit;
Each holder of a Unit in the Insured California Trust
is deemed to be the owner of a pro rata portion of the
Insured California Trust under the personal property tax
laws of the State of California;
Each Unit holder's pro rata ownership of the bonds
held by the Insured California Trust, as well as the
interest income therefrom, is exempt from California
personal property taxes; and
Amounts paid in lieu of interest on defaulted bonds
held by the Trustee under policies of insurance issued
with respect to such bonds will be excludable from gross
income for California income tax purposes if, and to the
same extent as, those amounts would have been so
excludable if paid as interest by the respective issuer.
A-23
<PAGE>
THE DELAWARE UNINSURED TRUST
The Portfolio of the Delaware Uninsured Trust
consists of nine issues of Securities, all of which were issued
by Issuers located in Delaware. None of the issues of
Securities is a general obligation of an Issuer. All nine
issues of Securities, while not backed by the taxing power of
the Issuer, are payable from revenues or receipts derived from
specific projects or other available sources. The Delaware
Uninsured Trust contains the following categories of
Securities:
Percentage of Aggregate
Market Value of Trust Portfolio
Category of Security (as of January 17, 1994)
Electric and Power ..................... 30.93%
Health Care and Hospital ............... 14.45%
Housing ................................ 1.02%
Prerefunded/Escrowed to
Maturity ............................. 53.60%
Original Issue Discount ................ 22.58%
See: "The Trust -- Summary Description of the
Portfolios", in Part B, for a summary of the investment risks
associated with the type of Securities contained in the
Delaware Uninsured Trust. See: "Tax Status", in Part B, for a
discussion of certain tax considerations with regard to
Original Issue Discount.
Of the Original Issue Discount bonds in the Delaware
Uninsured Trust, approximately 4.39% of the aggregate principal
amount of the Securities in the Delaware Uninsured Trust (or
1.02% of the market value of all Securities in the Delaware
Uninsured Trust on January 17, 1994) are zero coupon bonds
(including bonds known as multiplier bonds, money multiplier
bonds, capital accumulator bonds, compound interest bonds and
discount maturity payment bonds).
On January 17, 1994, based on the bid side of the
market, the aggregate market value of Securities in the
Delaware Uninsured Trust was $3,157,074.37.
On January 17, 1994, Standard & Poor's Corporation
rated seven of the Securities in the Delaware Uninsured Trust
as follows: 72.76%-AAA and 1.02%-AA; and Moody's Investors
Service rated one of the Securities as follows: 12.44%-A.
13.78% of the Securities are not rated; however, in the opinion
A-24
<PAGE>
of the Sponsor, these Securities have credit characteristics
comparable to investment grade securities. (See: "Bond
Ratings", in Part B, and the respective "Schedule of Portfolio
Securities", herein.) A Security in the Portfolio may
subsequently cease to be rated or the rating assigned may be
reduced below the minimum requirements of the Delaware
Uninsured Trust for the acquisition of Securities. While such
events may be considered by the Sponsor in determining whether
to direct the Trustee to dispose of the Security (see:
"Sponsor -- Responsibility", in Part B), such events do not
automatically require the elimination of such Security from the
Portfolio.
SPECIAL CONSIDERATIONS REGARDING DELAWARE SECURITIES
The Sponsor believes the information summarized below
describes some of the more significant developments relating to
the general economic conditions of the State of Delaware and in
particular to the State government itself. This information
may be relevant to the Securities (i) of or supported by the
State of Delaware; or (ii) of municipalities or other political
subdivisions or instrumentalities of the State of Delaware that
rely, in whole or in part, on ad valorem real property taxes
and other general or special funds of such municipalities or
political subdivisions. The sources of such information
include publicly available documents, including the Official
Statements of the State. The Sponsor has not independently
verified any of the information contained in such Official
Statements and other publicly available documents, and is not
aware of any facts that would render such information
inaccurate.
Economic Base
The growth experienced in most sectors of Delaware's
economy for the last twelve years has been considerably greater
than the average growth rates in the other forty-nine states.
Population grew by 16% in Delaware, compared with the national
growth of 13% and 4% in the other states in the region
(Maryland, New Jersey, New York, Pennsylvania). Delaware's
1992 population exceeded the 1991 head count by 1.3%, compared
with 1.2% for the entire U.S. and 0.5% for the mideast region.
Similarly, Delaware's employment growth from 1980 through 1992
of 30% exceeded the 18% and 5% growth rates of the nation and
the region, respectively.
During the same period, unemployment rates declined
from a level higher than the national average, to one below
that of the U.S. as a whole. The average unemployment rate for
A-25
<PAGE>
Delaware in 1992 was 5.5%, compared with the national rate of
7.4% and the regional average of 7.8%. Delaware's November
1993 unemployment rate was 6.1%, comparing favorably with the
national rate of 6.4%, and the average of the other states in
the mideast region of 7.0%. For the first eleven months of
1993, Delaware's unemployment rate has averaged 5.0%, compared
to 5.4% for the same period of 1992.
Personal income in the State advanced 143% from 1980
through 1992, compared with 125% for the nation and 126% in the
region. The 1992 poverty rate in the State was 8.4%, the
lowest of all of the states and in sharp contrast to the
national rate which increased to 14.5%.
These relative indicators of above average economic
performance resulted in part from financial decisions made by
the State in the late 1970s and early 1980s. They include
1) reducing the top marginal personal income tax rate from
19.8% to 7.7%, 2) broadening the employment base to reduce the
influence of the manufacturing sector on Delaware's economy
(from 27% of all jobs in 1980 to 20% in 1992), 3) deregulating
business - especially banking through the Financial Center
Development Act of 1981, and 4) following fiscally conservative
spending and taxing policies. In 1993, further deregulatory
legislation passed which increased competitive options for
telecommunications providers and expanded the powers of limited
partnerships in Delaware.
The State did feel the impact of the national
recession. Employment peaked in June 1990, reached its low
point in January 1992, and has since recovered by 20,000 jobs
to a level of 351,700 positions in November 1993. That
improved November employment level remains 4,200 workers shy of
the 1990 peak. Compared with one year earlier, Delaware's
employment increased by 700 (0.2%), the nation's employment
grew by 1.8% and the other states in the region saw a
continuing decline, of 0.1%.
Delaware's manufacturing employment will be
negatively impacted by the announced closure of the General
Motors auto assembly plant. In December 1992, GM disclosed
plans to close the Delaware based facility at the end of Model
Year 1996. The current employment is 3,000, with average wages
of $17 per hour. The State is actively pursuing other
manufacturing activity for the GM location. Chrysler, the
owner of the only other auto assembly plant in the State,
recently refit and expanded its facility to produce the Dodge
Intrepid model. Chrysler's employment has increased by nearly
1,000 workers in the past few months. In June 1993, Delaware's
A-26
<PAGE>
third largest source of manufacturing jobs, ICI Americas, split
into two companies, ICI Americas and Zeneca. ICI Americas will
continue to produce paints, films, polyurethanes and industrial
chemicals, and Zeneca will produce pharmaceuticals,
agricultural products and specialty chemicals.
The State's per capita personal income of $22,201 in
1992 was 10% higher than the national average, ranking Delaware
8th in the U.S. Total personal income for 1992 increased by
3.9% compared to 5.1% nationally and 4.8% for the same
indicator in the region. Much of the slower growth in Delaware
has been attributed to a down-sizing and restructuring in the
chemical industry. The total personal income comparisons for
the State appear to be improving, as the second quarter of 1993
figures for Delaware indicate a 4.7% growth over the same
period in 1992, compared with a 5.0% increase in the region and
a 5.5% increase for the entire U.S.
Since 1980 there has been a 48% growth in net new
business firms established in Delaware, compared with 22% in
the U.S. and 18% in the region. The business failure numbers
also paint Delaware as an attractive place to own a successful
company. In 1992, 0.9% of Delaware businesses ceased to
operate, compared with 1.1% for both the region and the nation.
Franchise tax revenue derived from companies
incorporated in Delaware represents the second largest source
of State revenue (the largest contributor is the personal
income tax). There were nearly 34,000 new incorporations in
Delaware in 1992, bringing the number of domestic corporations
using the State as their legal home to 215,000. In 1992, new
incorporations in Delaware grew by 12%, compared with 5%
nationally. For the first ten months of 1993, new
incorporations increased by 31,900, a 14% growth rate over the
same period last year.
Although the State is the legal home of only 5% of
the corporations, among those are 45% of the companies listed
on the New York Stock Exchange. Delaware was also the
corporate home of 54% of the companies listed in the "Fortune
1000" in 1992.
The value of Delaware's construction contracts (as
measured by McGraw-Hill) decreased 7% in 1992 compared with
1991. For the entire nation the value of construction
contracts advanced by 9% and the region's increased by 2%.
Delaware's decline in the value of construction contracts is
almost entirely due to the large number of contracts that were
let the prior year for the construction of the North-South
A-27
<PAGE>
Route 1, from I-95 in the northern part of the State, to beyond
Dover, in central Delaware. Very few new road contracts have
been awarded in the past 18 months.
Through October 1993, the year-to-date value of
construction contracts is down 15% in Delaware, with the
greatest decline again being in the non-building categories.
The comparable figure for the U.S. is an increase of
approximately 7%.
Delaware's single-family private housing
authorizations increased by 13% in 1992, compared with 1991.
U.S. single-family private housing authorizations were 23%
higher, and those in the region increased by 23%. Delaware's
housing authorizations in 1992 were 80% higher than they were
in 1980, compared with increases of 45% and 65%, respectively,
for the nation and the region. In the first ten months of
1993, the State's housing authorizations advanced 5%, compared
with the same period one year earlier, and in line with the
nearly 3% and 7% increases for the region and the nation.
Newly leased office space in the greater Wilmington
market fell by 28% in 1992 compared with the prior year. The
vacancy rate for Wilmington's Class "A" buildings was 21%
compared with the national average of 20% in mid-1993. During
the last year, the quoted rental price for this downtown office
space has stabilized at approximately $19 per square foot.
Class "B" vacancy rates were higher at 30%, and quoted rates
have increased slightly to $15 per square foot.
The financial services industry continued to expand
in Delaware in 1992, employing 33,200 workers. In November
1993, workers in financial services held 900 more jobs than one
year earlier, in spite of the ongoing bank consolidations.
National employment has grown by approximately the same rate
during the last year, and the region has lost 0.2% of their
finance-related jobs. Delaware banks had the highest return on
assets in the nation and were rated third nationally by total
equity capital and income in 1992. Banking institutions number
forty-two this year, including half of the ten largest credit
card operations in the country.
The Port of Wilmington handled 4.3 million tons of
waterborne cargo in fiscal 1993, a decline of nearly 12%
compared to the prior year, and generated gross revenue of
$14.7 million. Wilmington's port exports more American-made
cars, and imports more bananas than any other port in the U.S.
A-28
<PAGE>
State Finances
Fiscal 1993. The State of Delaware ended fiscal 1993
with a cumulative cash balance of $210 million, 17% of General
Fund spending. The National Association of State Budget
Officers reported that the national average balance was 1.3%.
The State's Budgetary Reserve Account (see "Fiscal Controls",
below) remained fully funded at the 5% level and held balances
of $68 million. An additional $36 million was set aside for
continuing and encumbered appropriations to be spent in fiscal
1994, resulting in an unencumbered cash balance of $106
million.
Although nominal revenue grew by 3.8%, after
adjusting for earlier, phased-in tax law changes, adjusted
revenue growth was 3.5%. Operating expenditures grew by 2.7%
for the year (after adjusting for certain transfer of
expenditures to the Transportation Trust Fund) to $1,260
million. State capital spending supported by the General Fund
totalled $89 million.
Delaware finances transportation projects primarily
through the Transportation Trust Fund, created in 1987 and
funded by dedicated revenue sources including the motor fuel
tax, Turnpike tolls and concessions, motor vehicle document and
registration fees, miscellaneous transportation related revenue
(titling fees, operator license fees, etc.), and investment
earnings on Trust Fund balances.
Transportation Trust Fund revenue, debt sales and $55
million from the federal government funded $207 million of
capital projects and $138 million of debt service and operating
expenses for transportation projects in fiscal 1993.
Fiscal 1994. The Delaware Economic and Financial
Advisory Council ("DEFAC"), composed of 32 private and
public-sector members appointed by the Governor, provides
revenue and expenditure forecasts for the General Assembly and
the Governor a minimum of six times each year.
Based on the June 1993 DEFAC revenue forecast, the
General Assembly passed and the Governor signed an operating
budget anticipating expenditures of $1,384 million for the
fiscal year that began July 1, 1993. The fiscal 1994 budget
increases expenditures by 10% when compared with the 1993
expenditures, with the growth scheduled primarily for mandated,
caseload and inflation adjustments in social service programs.
The December 1993 forecast contained $123 million more revenue
available for fiscal 1994 than had been projected in June 1992.
A-29
<PAGE>
The current estimate for the fiscal 1994 cumulative cash
balance is $222 million.
Capital spending for fiscal 1994 is expected to total
$330 million. The State anticipates spending $230 million
through the Transportation Trust Fund (including $60 million
from the federal government) with the remaining capital
projects for non-transportation needs, especially public and
higher education construction projects. Transportation
operating expenses and debt service are projected at $146
million for fiscal 1994, a 6% increase over the previous year.
Governor Carper proposed and the General Assembly
passed increases in motor vehicle gasoline and diesel taxes,
vehicle document fees, and tolls on Interstate 95 to replace
some of the anticipated bond-financed capital spending. These
"user fees" for transportation purposes are expected to provide
$178 million of capital for transportation projects through
1999, and became effective in September 1993.
Fiscal 1995. The December 1993 DEFAC forecast called
for General Fund revenue of $1,419 million for fiscal 1995, a
growth of 3.0% over the fiscal 1994 estimate. A budget for
fiscal 1995 will be recommended by the Governor in January
1994, studied and amended during the spring, and voted upon
before the General Assembly's session ends on June 30, 1994.
Fiscal Controls. A constitutional limit requires a
three-fifths vote of each house of the General Assembly to pass
or increase any tax or license fee. Appropriation of more than
98% of estimated General Fund revenue plus unencumbered General
Fund balances from the previous year also requires a three-
fifths vote of both houses.
Excess unencumbered General Fund revenue at the end
of a fiscal year must be placed in a Budget Reserve Account,
until that Account accumulates to 5% of estimated General Fund
revenue, according to the State Constitution. That Account
provides a cushion against unanticipated revenue shortfalls and
funds for tax reductions.
Until 1991 the authorization of additional General
Fund debt was restricted to 75% of the principal retirement of
general obligation debt in the prior fiscal year plus any
deauthorized debt in the same year. This debt limitation
supported the reduction of per capita General Obligation debt
from $911 in fiscal 1980 to $806 in fiscal 1993 ($707 million
is supported by the General Fund, and the remaining $99 million
by the Transportation Trust Fund).
A-30
<PAGE>
Legislation effective in July 1991 replaced the above
described debt limitation. The revised limitations are three:
a) annual debt authorizations cannot exceed 5% of estimated
General Fund revenue, b) debt service payments of all tax
supported debt (including the Transportation Authority,
certificates of participation and long-term leases) will be
limited to 15% of General Fund plus Transportation Trust Fund
revenue, and c) general obligation debt service payments will
be limited to the projected cumulative cash balance for the
same fiscal year.
Delaware Tax Status
On the date of the Prospectus, in the opinion of
Potter Anderson & Corroon, Wilmington, Delaware, Special
Delaware counsel on tax matters, with respect to the Delaware
Uninsured Trust:
1. So long as, for federal income tax purposes, the
Delaware Uninsured Trust is treated as a grantor trust and its
income is treated as the income of the Unit Holders so that the
Delaware Uninsured Trust is not recognized as a taxable entity,
the Delaware Uninsured Trust will not be subject to Delaware
income taxation and, for Delaware income tax purposes, the
income of the Delaware Uninsured Trust will be treated as
income of the Unit Holders.
2. The following discussion addresses the Delaware
taxation of the various potential Delaware Unit Holders.
a. The State of Delaware (sometimes the
"State") imposes an income tax upon the taxable income of
resident individuals, trust and estates. For purposes of this
tax, the taxable income of a resident individual, trust or
estate is defined as the resident individual, trust or estate's
adjusted gross income for federal income tax purposes subject
to certain specified modifications. No such modification
requires the addition of interest on obligations of the State
and its political subdivisions or authorities thereof.
Accordingly, so long as interest income received by the
Delaware Uninsured Trust from obligations of the State and its
political subdivisions or authorities thereof is excluded from
adjusted gross income for federal income tax purposes, all such
interest income will be excluded from taxable income for the
purposes of Delaware income taxes on a resident individual,
trust or estate. Such interest income may also be excluded
from taxable income of a Delaware resident, trust or estate
under the enabling legislation pursuant to which the obligation
was issued. Conversely, to the extent that any gain (or loss)
A-31
<PAGE>
from the sale of obligations held by the Delaware Uninsured
Trust (whether as a result of the sale of such obligations by
the Delaware Uninsured Trust or as the result of the sale of a
Unit by a Unit Holder) is includable in (or deductible in) the
calculation of a resident individual, trust or estate's
adjusted gross income for federal income tax purposes, any such
gain (or loss) will be includable in (or deductible in) the
calculation of taxable income for the purposes of Delaware
income taxes on a resident individual, trust or estate.
b. The State of Delaware imposes an income tax
upon the taxable income of corporations which transact or
conduct business within the State. For purposes of this tax,
the taxable income of a corporation is defined as its "entire
net income" allocable to business activities carried on or
property located within the State and its "entire net income"
is defined as its federal taxable income subject to certain
specified modifications. No such modification requires the
addition of interest on obligations of the State or its
political subdivisions or authorities thereof. Accordingly, so
long as interest income received by the Delaware Uninsured
Trust from obligations of the State and its political
subdivisions or authorities thereof is excluded from taxable
income of a corporation for federal income tax purposes, all
such interest income will be excluded from taxable income for
the purposes of Delaware corporate income taxes. Such interest
income may also be excluded from taxable income of a
corporation under the enabling legislation pursuant to which
the obligation was issued. In addition, in determining a
corporation's entire net income, one of the modifications from
federal taxable income is the elimination of gains or losses
from the sale or other disposition of securities issued by the
State or political subdivisions thereof. Thus, any gain or
loss from the sale of such obligations held by the Delaware
Uninsured Trust (whether as the result of the sale of such
obligations by the Delaware Uninsured Trust or as the result of
the sale of a Unit by a Unit Holder) is not includable in the
calculation of taxable income for the purposes of Delaware
corporate income taxes.
c. The State of Delaware requires every
corporation which transacts or conducts business within the
State and which is an S corporation for federal income tax
purposes that has any shareholders who are non-residents of the
State to pay on behalf of each such non-resident shareholder a
tax in an amount equal to the highest rate of Delaware personal
income tax multiplied by such non-resident shareholder's
distributive share of the income of such corporation from
Delaware sources entering into his federal taxable income
A-32
<PAGE>
subject to certain specified modifications. No such
modification requires the addition of interest on obligations
of the State or its political subdivisions or authorities
thereof. Accordingly, so long as interest income received by
the Delaware Uninsured Trust from obligations of the State and
its political subdivisions or authorities thereof is excluded
from adjusted gross income for federal income tax purposes, all
such interest income will be excluded from taxable income for
the purposes of the Delaware income taxes that an S corporation
must pay on behalf of a non-resident shareholder. Such
interest income may also be excluded from taxable income of a
non-resident shareholder of an S corporation under the enabling
legislation pursuant to which the obligation was issued.
Conversely, to the extent that any gain (or loss) from the sale
of obligations held by the Delaware Uninsured Trust (whether as
a result of the sale of such obligations by the Delaware
Uninsured Trust or as the result of the sale of a Unit by a
Unit Holder) is includable in (or deductible in) the
calculation of a non-resident shareholder's distributive share
of Delaware sourced income of an S corporation for federal
income tax purposes, any such gain (or loss) will be includable
in (or deductible in) the calculation of taxable income for
purposes of the Delaware income taxes that an S corporation
must pay on behalf of a non-resident shareholder.
d. 48 U.S.C. { 745 provides that all bonds
issued by the government of Puerto Rico, or by its authority,
shall be exempt from taxation by any state, or by any county,
municipality or other municipal subdivision of any state.
Accordingly, interest income received by the Delaware Uninsured
Trust from obligations issued by Puerto Rico, or by its
authority, would be exempt from the Delaware individual, trust
and estate, and corporate income taxes, including the income
tax required to be paid by an S corporation on behalf of
certain non-resident shareholders as described in paragraph c
above. To the extent that any gain (or loss) from the sale of
such obligations held by the Delaware Uninsured Trust (whether
as a result of the sale of such obligations by the Delaware
Uninsured Trust or as the result of the sale of a Unit by a
Unit Holder) is includable in (or deductible in) the
calculation of adjusted gross income (in the case of individual
Unit Holders) or taxable income (in the case of trust, estate
and corporate Unit Holders) for federal income tax purposes,
any such gain (or loss) will be includible in (or deductible
in) the calculation of taxable income for purposes of (i)
Delaware income taxes on resident individuals, trusts and
estates and (ii) Delaware corporate income taxes including the
income tax required to be paid by an S corporation on behalf of
A-33
<PAGE>
certain non-resident shareholders as described in paragraph c
above.
No opinion is expressed regarding the Delaware tax
consequences of Unit Holders other than Delaware resident
individuals, trusts and estates, and corporations conducting or
transacting business in Delaware.
Tax counsel should be consulted as to the other
Delaware tax consequences not specifically considered herein,
such as the Delaware franchise tax imposed upon the taxable
income of certain banking organizations and upon the net income
of certain building and loan associations. In addition, no
opinion is being rendered as to the Delaware consequences
resulting from any proposed or future federal or State tax
legislation.
A-34
<PAGE>
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
THE UNIT HOLDERS, SPONSOR AND TRUSTEE
DEAN WITTER SELECT MUNICIPAL TRUST
INSURED CALIFORNIA SERIES 51
DELAWARE PORTFOLIO SERIES 9
We have audited the statements of financial condition and schedules of
portfolio securities of the Dean Witter Select Municipal Trust Insured
California Series 51 and Delaware Portfolio Series 9 (formerly Sears
Municipal Trust Insured California Series 51 and Delaware Portfolio Series
9) as of October 31, 1993, and the related statements of operations and
changes in net assets for the year ended October 31, 1993 and for the
period from November 6, 1991 (date of deposit) to October 31, 1992. These
financial statements are the responsibility of the Trustee (see Footnote
(a)(1)). Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of the securities owned as of October 31,
1993 as shown in the statements of financial condition and schedules of
portfolio securities by correspondence with United States Trust Company of
New York, the Trustee. An audit also includes assessing the accounting
principles used and the significant estimates made by the Trustee, as well
as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Dean Witter Select
Municipal Trust Insured California Series 51 and Delaware Portfolio Series 9
as of October 31, 1993, and the results of their operations and the changes
in their net assets for the year ended October 31, 1993 and for the period
from November 6, 1991 (date of deposit) to October 31, 1992, in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE
January 10, 1994
New York, New York
F-1
</AUDIT-REPORT>
<PAGE>
STATEMENT OF FINANCIAL CONDITION
DEAN WITTER SELECT MUNICIPAL TRUST
INSURED CALIFORNIA SERIES 51
October 31, 1993
TRUST PROPERTY
Investments in municipal bonds at market value (cost
$2,884,127) (Note (a) and Schedule of Portfolio
Securities Notes (4) and (5)) $3,230,821
Accrued interest receivable 55,726
Cash 9,096
Total 3,295,643
LIABILITY AND NET ASSETS
Less Liability:
Accrued Trust fees and expenses 4,010
Net Assets:
Balance applicable to 2,939 units of fractional
undivided interest outstanding (Note (c))
Capital, plus unrealized market
appreciation of $346,694 $3,230,821
Undistributed principal and net
investment income (Note (b)) 60,812
Net assets $3,291,633
Net asset value per unit ($3,291,633 divided by 2,939 units) $ 1,119.98
See notes to financial statements
F-2
<PAGE>
STATEMENTS OF OPERATIONS
DEAN WITTER SELECT MUNICIPAL TRUST
INSURED CALIFORNIA SERIES 51
For the period from
November 6, 1991
For the year ended (date of deposit)
October 31, 1993 to October 31, 1992
Investment income -- interest $195,446 $192,629
Less: Expenses
Trust fees and expenses 7,834 7,122
Total expenses 7,834 7,122
Investment income -- net 187,612 185,507
Net gain on investments:
Realized gain on securities sold or
redeemed 5,653 -
Unrealized market appreciation 315,447 31,247
Net gain on investments 321,100 31,247
Net increase in net assets resulting
from operations $508,712 $216,754
See notes to financial statements
F-3
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
DEAN WITTER SELECT MUNICIPAL TRUST
INSURED CALIFORNIA SERIES 51
For the period from
November 6, 1991
For the year ended (date of deposit)
October 31, 1993 to October 31, 1992
Operations:
Investment income -- net $ 187,612 $ 185,507
Realized gain on securities sold or
redeemed 5,653 -
Unrealized market appreciation 315,447 31,247
Net increase in net assets
resulting from operations 508,712 216,754
Less: Distributions to Unit Holders
Investment income -- net (185,622) (120,232)
Total distributions (185,622) (120,232)
Less: Capital Share Transactions
Redemption of 61 Units (67,410) -
Accrued interest on redemption (1,199) -
Total capital share transactions (68,609) -
Net increase in net assets 254,481 96,522
Net assets:
Beginning of period (Note (c)) 3,037,152 2,940,630
End of period (including undistrib-
uted principal and net investment
income of $60,812 and undistributed
net investment income of $63,253,
respectively) $3,291,633 $3,037,152
See notes to financial statements
F-4
<PAGE>
NOTES TO FINANCIAL STATEMENTS
DEAN WITTER SELECT MUNICIPAL TRUST
INSURED CALIFORNIA SERIES 51
October 31, 1993
(a) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Trust is registered under the Investment Company Act of 1940 as a
Unit Investment Trust. Effective March 16, 1993, the name of the Trust was
changed from Sears Municipal Trust Insured California Series 51 to Dean
Witter Select Municipal Trust Insured California Series 51. The following is
a summary of the significant accounting policies of the Trust:
(1) Basis of Presentation
The Trustee has custody of and responsibility for all accounting and
financial books, records, financial statements and related data of the
Trust and is responsible for establishing and maintaining a system of
internal controls directly related to, and designed to provide
reasonable assurance as to the integrity and reliability of, financial
reporting of the Trust. The Trustee is also responsible for all
estimates and accruals reflected in the Trust's financial statements.
The Evaluator determines the price for each underlying Security included
in the Trust's Portfolio of Securities on the basis set forth in Part B
of this Prospectus, "Public Offering of Units -- Public Offering Price".
Under the Securities Act of 1933 ("the Act"), as amended, the Sponsor is
deemed to be an issuer of the Trust Units. As such, the Sponsor has the
responsibility of an issuer under the Act with respect to financial
statements of the Trust included in the Trust's Registration Statement
under the Act and amendments thereto.
(2) Investments
Investments are stated at market value as determined by the
Evaluator based on the bid side evaluations on the last day of trading
during the period, except that value on the date of deposit (November 6,
1991) represents the cost of investments to the Trust based on the
offering side evaluations as of the day prior to the date of deposit.
(3) Income Taxes
The Trust is not an association taxable as a corporation for Federal
income tax purposes; accordingly, no provision is required for such
taxes.
(4) Expenses
The Trust pays annual Trustee's fees, including estimated expenses,
Evaluator's fees, and annual Sponsor's portfolio supervision fees and
may incur additional charges as explained under "Expenses and Charges
-- Fees" and "-- Other Charges" in Part B of this Prospectus.
F-5
<PAGE>
NOTES TO FINANCIAL STATEMENTS
DEAN WITTER SELECT MUNICIPAL TRUST
INSURED CALIFORNIA SERIES 51
October 31, 1993
(b) DISTRIBUTIONS
Interest received by the Trust is distributed to the Unit Holders on or
shortly after the fifteenth day of each month after deducting applicable
expenses. Receipts other than interest are distributed as explained in
"Administration of the Trust -- Distribution of Interest and Principal" in
Part B of this Prospectus.
(c) ORIGINAL COST TO INVESTORS
The original cost to investors represents the aggregate initial public
offering price as of the date of deposit (November 6, 1991) exclusive of
accrued interest, computed on the basis set forth under "Public Offering of
Units -- Public Offering Price" in Part B of this Prospectus.
A reconciliation of the original cost of units to investors to the net
amount applicable to investors as of October 31, 1993 follows:
Original cost to investors $3,092,131
Less: Gross underwriting commissions (sales charge) (151,501)
Net cost to investors 2,940,630
Cost of Securities Sold or Redeemed (60,579)
Unrealized market appreciation 346,694
Accumulated interest accretion 4,076
Net amount applicable to investors $3,230,821
(d) OTHER INFORMATION
Selected data for a unit of the Trust during each period:
For the period from
November 6, 1991
For the year ended (date of deposit)
October 31, 1993 to October 31, 1992
Net investment income
distributions during
period $ 61.98 $ 40.08
Net asset value at end
of period $1,119.98 $1,012.38
Trust units outstanding at end
of period 2,939 3,000
F-6
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE OF PORTFOLIO SECURITIES
DEAN WITTER SELECT MUNICIPAL TRUST
INSURED CALIFORNIA SERIES 51
October 31, 1993
Port- Optional
folio Rating Face Coupon Maturity Sinking Fund Refunding Market
No. Title of Securities <F3> Amount Rate Date Redemptions<F5> Redemptions<F4> Value<F6><F7>
<C> <S> <C> <C> <C> <C> <C> <C> <C>
1. The City of Los Angeles, Waste-
water System Revenue Bonds, Series
1991A (MBIA/MBIAC Insured) (Re-
funded) <F8><F9> AAA $ 375,000 7.100% 02/01/21 02/01/14@100 02/01/99@102 $ 432,765
2. California State University, Ful-
lerton Student Union Revenue
Bonds, Series (AMBAC Insured) <F10> AAA 50,000 6.625 03/01/19 NONE 03/01/01@102 55,340
3. California Health Facilities
Financing Authority, Insured
Health Facility Revenue Bonds,
(Catholic Healthcare West), 1991
Series D (AMBAC Insured) <F10> AAA 400,000 6.500 07/01/16 07/01/05@100 07/01/01@102 444,104
4. Los Angeles Community College Dis-
trict, Certificates of Participa-
tion (1990 Capital Improvements
Project), Series A (CGIC Insured)
(Refunded) <F8><F10> AAA 400,000 6.900 08/15/15 08/15/11@100 08/15/00@102 469,020
5. City and County of San Francisco,
Redevelopment Financing Authority,
1990 Tax Allocation Revenue Bonds
(FGIC Insured) <F11> AAA 100,000 6.875 08/01/20 08/01/11@100 08/01/00@102 112,307
6. San Mateo County Transit District,
Limited Tax Bonds, 1990 Series A
(MBIA/MBIAC Insured) (Refunded)
<F8><F9> AAA 340,000 6.700 06/01/10 06/01/05@100 06/01/98@102 379,848
7. Los Angeles County Certificates of
Participation (Correctional Facil-
ities Projects) (MBIA/MBIAC In-
sured) <F9> AAA 125,000 0.000 09/01/13 NONE NONE 41,948
8. Rohnert Park Redevelopment Proj-
ect, 1991 Tax Allocation Refunding
Bonds (AMBAC Insured) <F10> AAA 400,000 6.500 08/01/20 08/01/12@100 08/01/00@102 440,708
9. The Regents of the University of
California Revenue Bonds, (1989
Multiple Purpose Projects), Series
B (AMBAC Insured)(Refunded)<F8><F10>AAA 400,000 6.750 09/01/23 09/01/13@100 09/01/99@102 460,152
10. Culver City Redevelopment Financ-
ing Authority, 1989 Revenue Bonds,
Series A (Senior Lien) (AMBAC
Insured) <F10> AAA 350,000 6.750 11/01/15 11/01/11@100 11/01/99@102 394,629
$2,940,000 $3,230,821
F-7
</TABLE>
<PAGE>
[FN]
<F3> All ratings are provided by Standard & Poor's Corporation. A brief
description of applicable Security ratings is given under "Bond Ratings" in
Part B of this Prospectus.
<F4> There is shown under this heading the date on which each issue of
Securities is redeemable by the operation of optional call provisions and
the redemption price for that date; unless otherwise indicated, each issue
continues to be redeemable at declining prices thereafter but not below
par. Securities listed as non-callable, as well as Securities listed as
callable, may also be redeemable at par under certain circumstances from
special redemption payments.
<F5> There is shown under this heading the date on which an issue of
Securities is subject to scheduled sinking fund redemption, at a redemption
price of par.
<F6> The market value of the Securities as of October 31, 1993 was
determined by the Evaluator on the basis of bid side evaluation for the
Securities on the last trading date during the period (October 29, 1993).
<F7> At October 31, 1993, the unrealized market appreciation of all
Securities was comprised of the following:
Gross unrealized market appreciation ... $346,694
Gross unrealized market depreciation ... -
Unrealized market appreciation ......... $346,694
The aggregate cost of the Securities for Federal income tax purposes was
$2,884,127 at October 31, 1993.
<F8> The Issuer has indicated that it will refund this Security on its
optional redemption date.
<F9> Insured by Municipal Bond Insurance Association ("MBIA").
<F10> Insured by AMBAC Indemnity Corporation ("AMBAC").
<F11> Insured by Financial Guaranty Insurance Company ("FGIC").
<F12> Insured by Capital Guaranty Insurance Company ("CGIC").
F-8
<PAGE>
STATEMENT OF FINANCIAL CONDITION
DEAN WITTER SELECT MUNICIPAL TRUST
DELAWARE PORTFOLIO SERIES 9
October 31, 1993
TRUST PROPERTY
Investments in municipal bonds at market value (cost
$2,794,696) (Note (a) and Schedule of Portfolio
Securities Notes (4) and (5)) $3,134,966
Accrued interest receivable 60,136
Cash 4,745
Total 3,199,847
LIABILITY AND NET ASSETS
Less Liability:
Accrued Trust fees and expenses 4,276
Net Assets:
Balance applicable to 2,851 units of fractional
undivided interest outstanding (Note (c))
Capital, plus unrealized market
appreciation of $340,270 $3,134,966
Undistributed principal and net
investment income (Note (b)) 60,605
Net assets $3,195,571
Net asset value per unit ($3,195,571 divided by 2,851 units) $ 1,120.86
See notes to financial statements
F-9
<PAGE>
STATEMENTS OF OPERATIONS
DEAN WITTER SELECT MUNICIPAL TRUST
DELAWARE PORTFOLIO SERIES 9
For the period from
November 6, 1991
For the year ended (date of deposit)
October 31, 1993 to October 31, 1992
Investment income -- interest $195,477 $194,482
Less: Expenses
Trust fees and expenses 7,742 7,123
Total expenses 7,742 7,123
Investment income -- net 187,735 187,359
Net gain on investments:
Realized gain on securities sold or
redeemed 17,406 -
Unrealized market appreciation 321,766 18,504
Net gain on investments 339,172 18,504
Net increase in net assets resulting
from operations $526,907 $205,863
See notes to financial statements
F-10
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
DEAN WITTER SELECT MUNICIPAL TRUST
DELAWARE PORTFOLIO SERIES 9
For the period from
November 6, 1991
For the year ended (date of deposit)
October 31, 1993 to October 31, 1992
Operations:
Investment income -- net $ 187,735 $ 187,359
Realized gain on securities sold or
redeemed 17,406 -
Unrealized market appreciation 321,766 18,504
Net increase in net assets
resulting from operations 526,907 205,863
Less: Distributions to Unit Holders
Investment income -- net (185,972) (121,860)
Total distributions (185,972) (121,860)
Less: Capital Share Transactions
Redemption of 149 units (162,408) -
Accrued interest on redemption (2,945) -
Total capital share transactions (165,353) -
Net increase in net assets 175,582 84,003
Net assets:
Beginning of period (Note (c)) 3,019,989 2,935,986
End of period (including undistrib-
uted principal and net investment
income of $60,605 and undistributed
net investment income of $63,665,
respectively) $3,195,571 $3,019,989
See notes to financial statements
F-11
<PAGE>
NOTES TO FINANCIAL STATEMENTS
DEAN WITTER SELECT MUNICIPAL TRUST
DELAWARE PORTFOLIO SERIES 9
October 31, 1993
(a) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Trust is registered under the Investment Company Act of 1940 as a
Unit Investment Trust. Effective March 16, 1993, the name of the Trust was
changed from Sears Municipal Trust Delaware Portfolio Series 9 to Dean Witter
Select Municipal Trust Delaware Portfolio Series 9. The following is a
summary of the significant accounting policies of the Trust:
(1) Basis of Presentation
The Trustee has custody of and responsibility for all accounting and
financial books, records, financial statements and related data of the
Trust and is responsible for establishing and maintaining a system of
internal controls directly related to, and designed to provide
reasonable assurance as to the integrity and reliability of, financial
reporting of the Trust. The Trustee is also responsible for all
estimates and accruals reflected in the Trust's financial statements.
The Evaluator determines the price for each underlying Security included
in the Trust's Portfolio of Securities on the basis set forth in Part B
of this Prospectus, "Public Offering of Units -- Public Offering Price".
Under the Securities Act of 1933 ("the Act"), as amended, the Sponsor is
deemed to be an issuer of the Trust Units. As such, the Sponsor has the
responsibility of an issuer under the Act with respect to financial
statements of the Trust included in the Trust's Registration Statement
under the Act and amendments thereto.
(2) Investments
Investments are stated at market value as determined by the
Evaluator based on the bid side evaluations on the last day of trading
during the period, except that value on the date of deposit (November 6,
1991) represents the cost of investments to the Trust based on the
offering side evaluations as of the day prior to the date of deposit.
(3) Income Taxes
The Trust is not an association taxable as a corporation for Federal
income tax purposes; accordingly, no provision is required for such
taxes.
(4) Expenses
The Trust pays annual Trustee's fees, including estimated expenses,
Evaluator's fees, and annual Sponsor's portfolio supervision fees and
may incur additional charges as explained under "Expenses and Charges
-- Fees" and "-- Other Charges" in Part B of this Prospectus.
F-12
<PAGE>
NOTES TO FINANCIAL STATEMENTS
DEAN WITTER SELECT MUNICIPAL TRUST
DELAWARE PORTFOLIO SERIES 9
October 31, 1993
(b) DISTRIBUTIONS
Interest received by the Trust is distributed to the Unit Holders on or
shortly after the fifteenth day of each month after deducting applicable
expenses. Receipts other than interest are distributed as explained in
"Administration of the Trust -- Distribution of Interest and Principal" in
Part B of this Prospectus.
(c) ORIGINAL COST TO INVESTORS
The original cost to investors represents the aggregate initial public
offering price as of the date of deposit (November 6, 1991) exclusive of
accrued interest, computed on the basis set forth under "Public Offering of
Units -- Public Offering Price" in Part B of this Prospectus.
A reconciliation of the original cost of units to investors to the net
amount applicable to investors as of October 31, 1993 follows:
Original cost to investors $3,087,247
Less: Gross underwriting commissions (sales charge) (151,262)
Net cost to investors 2,935,985
Cost of Securities Sold or Redeemed (145,088)
Unrealized market appreciation 340,270
Accumulated interest accretion 3,799
Net amount applicable to investors $3,134,966
F-13
<PAGE>
NOTES TO FINANCIAL STATEMENTS
DEAN WITTER SELECT MUNICIPAL TRUST
DELAWARE PORTFOLIO SERIES 9
October 31, 1993
(d) OTHER INFORMATION
Selected data for a unit of the Trust during each period:
For the period from
November 6, 1991
For the year ended (date of deposit)
October 31, 1993 to October 31, 1992
Net investment income
distributions during
period $ 62.67 $ 40.62
Net asset value at end of
period $1,120.86 $1,006.66
Trust units outstanding at
end of period 2,851 3,000
F-14
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE OF PORTFOLIO SECURITIES
DEAN WITTER SELECT MUNICIPAL TRUST
DELAWARE PORTFOLIO SERIES 9
October 31, 1993
Port- Optional
folio Rating Face Coupon Maturity Sinking Fund Refunding Market
No. Title of Securities <F13> Amount Rate Date Redemptions<F15> Redemptions<F14> Value
<F16><F17>
<C> <S> <C> <C> <C> <C> <C> <C> <C>
1. Sussex County, General Obligation
Bonds, Series 1991 (Refunded) <F24> <F22> $ 375,000 6.750% 06/01/16 NONE 06/01/01@102 $ 433,279
2. Wilmington General Obligation
Bonds, Series of 1990 (AMBAC
Insured) <F23> AAA 390,000 6.750 05/15/10 05/15/06@100 05/15/00@102 434,265
3. Town of Georgetown, General Obli-
gation Bonds, Series of 1991
(AMBAC Insured) (Refunded)<F23><F24>AAA 450,000 6.800 06/01/21 06/01/10@100 06/01/01@100 515,268
4. Delaware Health Facilities Author-
ity Revenue Refunding Bonds, The
Medical Center of Delaware, Series
1989 (MBIA/MBIAC Insured) <F21> AAA 400,000 7.000 10/01/15 10/01/08@100 10/01/99@102 457,856
5. Delaware Economic Development
Authority, Pollution Control
Refunding Revenue Bonds, (Delmarva
Power & Light Company Project),
Series 1991B (FGIC Insured) <F20> AAA 250,000 7.150 07/01/18 NONE 07/01/01@102 292,205
6. Delaware Economic Development
Authority, Variable Rate Demand
Exempt Facilities Revenue Bonds,
(Delmarva Power & Light Company
Project), Series 1985 (FGIC
Insured) <F20> AAA 250,000 7.300 09/01/15 NONE 09/01/99@103 292,215
7. Dover Electric Revenue Bonds,
Series 1990 A1<F19> 350,000 7.000 07/01/15 07/01/06@100 07/01/00@102 392,613
8. Delaware Transportation Authority
Transportation System Senior Reve-
nue Bonds, 1991 Series (Refunded)
<F24> AAA 260,000 6.000 07/01/14 07/01/12@100 07/01/01@100 285,399
9. Wilmington Single-Family Residual
Revenue Zero Coupon Bonds, Series
1990C <F18> AA+ 125,000 0.000 07/25/14 NONE NONE 31,866
$2,850,000 $3,134,966
F-15
</TABLE>
<PAGE>
[FN]
<F13> All ratings are provided by Standard & Poor's Corporation, unless
otherwise indicated. A brief description of applicable Security ratings is
given under "Bond Ratings" in Part B of this Prospectus.
<F14> There is shown under this heading the date on which each issue of
Securities is redeemable by the operation of optional call provisions and
the redemption price for that date; unless otherwise indicated, each issue
continues to be redeemable at declining prices thereafter but not below
par. Securities listed as non-callable, as well as Securities listed as
callable, may also be redeemable at par under certain circumstances from
special redemption payments.
<F15> There is shown under this heading the date on which an issue of
Securities is subject to scheduled sinking fund redemption, at a redemption
price of par.
<F16> The market value of the Securities as of October 31, 1993 was
determined by the Evaluator on the basis of bid side evaluations for the
Securities on the last trading date during the period (October 29, 1993).
<F17> At October 31, 1993, the unrealized market appreciation of all
Securities was comprised of the following:
Gross unrealized market appreciation ... $340,270
Gross unrealized market depreciation ... -
Unrealized market appreciation ......... $340,270
The aggregate cost of the Securities for Federal income tax purposes was
$2,794,696 at October 31, 1993.
<F18> See "The Trust - Summary Description of the Portfolios - Revenue
Securities - Housing Securities" in Part B of this Prospectus for the
discussion relating to Housing Securities.
<F19> Moody's Investors Service, Inc. rating.
<F20> Insured by Financial Guaranty Insurance Company ("FGIC").
<F21> Insured by Municipal Bond Insurance Association ("MBIA").
<F22> These Securities, although unrated, have, in the opinion of the
Sponsor, credit characteristics comparable to investment grade securities.
<F23> Insured by AMBAC Indemnity Corporation ("AMBAC").
<F24> The Issuer has indicated that it will refund this Security on its
optional redemption date.
F-16
<PAGE>
PROSPECTUS PART B
DEAN WITTER SELECT MUNICIPAL TRUST
PART B OF THIS PROSPECTUS MAY NOT BE
DISTRIBUTED UNLESS ACCOMPANIED BY PART A.
________________
INTRODUCTION
Each Trust described in Part A of this Prospectus is one of a series
in the Dean Witter Select Municipal Trust, each of which is a separate and
distinct unit investment trust. Each trust may be singularly referred to
as the "Trust" and collectively referred to as the "Trusts". Certain
series of the Trusts may be designated as an "Insured Trust", a "State
Trust", a combination thereof or other appropriate designation. Each Trust
was created under the laws of the State of New York pursuant to a Trust
Indenture and Agreement and a related Reference Trust Agreement
(collectively, the "Indenture")1 <F41>, among Dean Witter Reynolds Inc. (the
"Sponsor"), United States Trust Company of New York (the "Trustee") and
Kenny S&P Evaluation Services, a division of Kenny Information Systems,
Inc. (the "Evaluator"). The Sponsor is a principal operating subsidiary of
Dean Witter, Discover & Co., a publicly-held corporation ("DWDC"). (See
"Sponsor".) The objectives of each Trust are to provide interest income
which is exempt, in the opinion of counsel, from Federal income tax under
existing law (except in certain cases depending on the Unit Holder) and to
conserve capital through investment in a fixed portfolio of Securities (the
"Portfolio") consisting primarily of investment-grade state, municipal and
public authority debt obligations. Part A of the Prospectus indicates the
extent, if any, to which interest income on the Securities held or
contracted to be purchased on the Date of Deposit is subject to alternative
minimum tax. There can be no assurances, however, that the above
objectives will be achieved because they are subject to the continuing
ability of the issuers of the Securities held in the Trust to meet their
obligations to pay principal and interest.
On the date of creation of the Trust (the "Date of Deposit"), the
Sponsor deposited with the Trustee certain debt obligations and contracts
and funds (represented by irrevocable letter(s) of credit issued by major
commercial bank(s)) for the purchase of such debt obligations
(collectively, the "Securities"). Each Trust was created simultaneously
with the execution of the Indenture and the deposit of the Securities with
the Trustee. The Trustee then immediately delivered to the Sponsor
certificates of beneficial interest (the "Certificates") representing the
units (the "Units") comprising the entire ownership of each Trust. Through
this Prospectus, the Sponsor is offering the Units, including Additional
Units, as defined below, for sale to the public. On the Date of Deposit,
the Evaluator evaluated the Securities at prices equal to the evaluation of
such Securities on the offering side of the market. (See Part A--"Schedule
<F41>1 Reference is hereby made to said Indenture and any statements
contained herein are qualified in their entirety by the provisions of
said Indenture.
1
<PAGE>
of Portfolio Securities".) The holders of Certificates (the "Unit
Holders") will have the right to have their Units redeemed at a price based
on the aggregate bid side evaluation of the Securities (the "Redemption
Price") if they cannot be sold in the secondary market which the Sponsor,
although not obligated to do so, proposes to maintain. In addition, the
Sponsor may offer for sale, through this Prospectus, Units which the
Sponsor may have repurchased in the secondary market or upon the tender of
such Units for redemption.
Notwithstanding the availability of the above-mentioned irrevocable
letter(s) of credit, it is expected that the Sponsor will pay for the
Securities as the contracts for their purchase become due. A substantial
portion of such contracts have not become due by the date of the initial
Date of Deposit. To the extent Units are sold prior to the settlement of
such contracts, the Sponsor will receive the purchase price of such Units
prior to the time at which it pays for Securities pursuant to such
contracts and have the use of such funds during this period.
During the 90-day period following the first deposit of Securities in
the Trust, the Sponsor may deposit in the Trust additional Securities and
cash, if required. Any such Securities deposited shall be substantially
similar to the initially deposited Securities held in the Trust immediately
prior to the deposit. Among other things, a failure to meet the
proportionality requirements due to establishment by the Sponsor of a
minimum amount of a particular Security to be included in a deposit or the
fact that a Security identical to a Security in the Trust immediately prior
to the deposit is not readily obtainable will be considered as justifying a
variation in such requirements. Any deposit made after the close of such
90-day period must exactly replicate the Securities and any cash (other
than cash distributable only to the Sponsor or to Unit Holders who were
Unit Holders prior to the date of deposit of the additional Securities)
held in the Trust immediately prior to the deposit. As additional Units
are issued by the Trust as a result of the deposit of additional Securities
by the Sponsor (the "Additional Units"), the aggregate value of the
Securities in the Trust will be increased and the fractional undivided
interest in the Trust represented by each Unit will be decreased.
THE TRUST
Special Considerations
An investment in Units of a Trust should be made with an
understanding of the risks which an investment in fixed rate debt
obligations of the term and type set forth in Part A--"Summary of Essential
Information" and "Schedule of Portfolio Securities" may entail, including
the risk that the value of the Portfolios and hence of the Units will
decline with increases in interest rates. In recent years, the national
economy has experienced significant variations in rates of inflation and
economic growth, substantial increases in the national debt and in reliance
upon foreign investors to finance it, and material reformulations of
Federal tax, monetary and regulatory policies. These conditions have been
associated with wide fluctuations in interest rates and thus in the value
of fixed rate obligations. The Sponsor cannot predict whether such
fluctuations will continue in the future. In addition, a regional or
national economic recession would increase the risk that certain issuers
(or the obligors of the Securities, in the case of a conduit financing) may
experience a revenue shortfall adversely affecting their ability to pay
principal or interest.
2<PAGE>
Summary Description of the Portfolios
Each Portfolio consists of the Securities listed under Part A--
"Schedule of Portfolio Securities" as long as such Securities may continue
to be held from time to time in the Trust (including certain obligations
deposited in a Trust in exchange or substitution for any Securities
pursuant to the Indenture), together with accrued and undistributed
interest thereon and undistributed and uninvested cash realized from the
disposition of Securities.
The Securities have been issued by or on behalf of states or
territorial possessions or commonwealths of the United States, or the
municipalities, counties, public authorities or other political
subdivisions or instrumentalities thereof (the "Issuers"). The interest on
such Securities, in each instance, in the opinion of bond counsel or
special tax counsel to the Issuer of such Securities or by ruling of the
Internal Revenue Service (the "IRS") is not included in gross income for
Federal income tax purposes under existing law (but may be subject to state
and local taxation). In addition, in the opinion of counsel, interest
income of each State Trust is exempt, to the extent indicated, from state
and any local income taxes in the State for which such State Trust is
named. Capital gains, if any, will be subject to Federal income tax and,
generally, to state and/or local income tax. (See "Tax Status". Part A
may contain a discussion of certain special tax considerations applicable
to a particular Trust.)
The yields on Securities of the type deposited in a Trust are
dependent on a variety of factors, including general money market
conditions, interest rates, general conditions of the municipal bond
market, size of a particular offering, the maturity of the obligation and
rating of the issue. The ratings represent the opinions of the rating
organizations as to the quality of the obligations which they undertake to
rate. It should be emphasized, however, that ratings are general and are
not absolute standards of quality. Consequently, debt obligations with the
same maturity, coupon and rating may have different yields, while debt
obligations of the same maturity and coupon with different ratings may have
the same yield.
All of the Securities in the Portfolio were, as of the Date of
Deposit of the Trust, rated "BBB" or better by Standard & Poor's
Corporation or "Baa" or "MIG 2" or better by Moody's Investors Service or
had, in the opinion of the Sponsor, credit characteristics comparable to
Securities so rated. No assurance can be given that such ratings would be
issued if the Securities were reevaluated by Standard & Poor's Corporation
or Moody's Investors Service. Subsequent to the Date of Deposit, a
Security in the Trust may cease to be rated or the rating assigned may be
reduced below the minimum requirements of such Trust for the acquisition
of Securities. Although such events may be considered by the Sponsor in
determining whether to direct the Trustee to dispose of the Security (see
"Sponsor--Responsibility"), such events do not automatically require the
elimination of such Security from the Portfolio.
On the Date of Deposit, a Unit of the Trust represented the
fractional undivided interest in the Securities and net income of such
Trust set forth under Part A--"Summary of Essential Information" in the
ratio of 1 Unit for each approximately $1,000 face amount of Securities
3
<PAGE>
initially deposited in such Trust ($1.00 per unit in the case of certain
Trusts (see Part A--"Summary of Essential Information")). If any Units are
redeemed by the Trustee, the face amount of Securities in the Trust will be
reduced by an amount allocable to redeemed Units and the fractional
undivided interest in such Trust represented by each unredeemed Unit will
be increased. Units will remain outstanding until redeemed upon tender to
the Trustee by any Unit Holder (which may include the Sponsor) or until the
termination of the Trust pursuant to the Indenture.
Because certain of the Securities from time to time may be redeemed
or will mature in accordance with their terms or may be sold under certain
circumstances described herein, no assurance can be given that a Trust will
retain for any length of time its present size and composition. The
Trustee has not participated in the selection of Securities for the Trust,
and neither the Sponsor nor the Trustee will be liable in any way for any
default, failure or defect in any Securities.
Under certain circumstances described in "Sponsor--Responsibility",
the Sponsor may direct the Trustee to dispose of a Security. No assurance
can be given that a sale of any Security under such circumstances would
yield proceeds equivalent to the face amount or purchase price of such
Security. In addition, such a sale may reduce the average life of the
Portfolio and may adversely affect the Estimated Annual Income and
Estimated Current Return and Estimated Long-Term Return of the Trust.
Certain of the Securities in the Portfolio of the Trust are valued at
prices in excess of prices at which such Securities may be redeemed in the
future. (See Part A--"Schedule of Portfolio Securities" for information
relating to the particular series described therein on the Date of
Deposit.) To the extent that a Security is redeemed (or sold) at a price
which is less than the valuation of such Security on the date a Unit Holder
acquired his Units, the proceeds distributable to such Unit Holder in
respect of such redemption (or sale) will be less than that portion of the
purchase price for such Units which was attributable to such Security
(representing a loss of capital to such Unit Holder). Such proceeds,
however, may be more or less than the valuation of such Security at the
time of such redemption (or sale). Similarly, certain of the Securities in
the Trust may be valued at a price in excess of their face value at
maturity (i.e., such Securities were valued at a premium above face
amount). (See Part A--"Schedule of Portfolio Securities" for information
relating to the particular series described therein on the Date of
Deposit.) The proceeds distributable to a Unit Holder upon the maturity of
a Security which was valued at a premium on the date such Unit Holder
acquired Units will be less than that portion of the purchase price for
such Units which was attributable to such Security (representing a loss of
capital to such Unit Holder).
The Portfolio of the Trust may consist of Securities the current
market value of some of which were below face value. A primary reason for
the market value of such Securities being less than face value at maturity
is that the interest coupons of such Securities are at lower rates than the
current market interest rate for comparably rated debt securities, even
though at the time of the issuance of such Securities the interest coupons
thereon represented then prevailing interest rates on comparably rated debt
securities then newly issued. The current yields (coupon interest income
as a percentage of market price, ignoring any original issue discount) of
such Securities are lower than the current yields (computed on the same
basis) of comparably rated debt securities of similar type newly issued at
currently prevailing interest rates. Securities selling at market
4
<PAGE>
discounts tend to increase in market value as they approach maturity when
the principal amount is payable. A market discount tax-exempt Security
held to maturity will have a larger portion of its total return in the form
of taxable ordinary income and less in the form of tax-exempt income than a
comparable Security bearing interest at current market rates. Under the
provisions of the Internal Revenue Code in effect on the date of this
Prospectus, any ordinary income attributable to market discount will be
taxable but will not be realized until maturity, redemption or sale of the
Securities or Units. The current yield of such discounted securities
carrying the same coupon interest rate and which are otherwise comparable
tends to be higher for securities with longer periods to maturity than it
is for those with shorter periods to maturity because the market value of
such securities with a longer period to maturity tends to be less than the
market value of such a bond with a shorter period to maturity. If
currently prevailing interest rates for newly issued and otherwise
comparable securities increase, the market discount of previously issued
bonds will become deeper and if such currently prevailing interest rates
for newly issued comparable securities decline, the market discount of
previously issued securities will be reduced, other things being equal.
Market discount attributable to interest rate changes does not indicate a
lack of market confidence in the issue.
The following description of the major categories in which Securities
in the Portfolios may be classified is provided by the Sponsor for general
information purposes only, and does not purport to be complete. This
Prospectus does not provide detailed information with respect to any
Security or to any Issuer, or with respect to any rights or obligations,
legal, financial or otherwise, arising thereunder or related thereto. Each
Security is subject to the terms and conditions, and to the actual
performance of tax and other covenants, contained in the legal documents
governing such Security. The special risk considerations listed are among
the factors which may result in the inability of an Issuer to make
scheduled payments of interest and principal.
General Obligation Securities
A Portfolio may contain Securities that are general obligations of
governmental entities and/or bonds that are guaranteed by governmental
entities. Such general obligations and guarantees are backed by the taxing
power of the respective entities. The ability of the issuer of a general
obligation bond to meet its obligation depends largely upon its economic
condition. Many issuers rely upon ad valorem real property taxes as a
source of revenue. Proposals in the form of state legislative or voter
initiatives to limit ad valorem real property taxes have been introduced in
various states. It is not presently possible to predict the impact of
these or future proposals, if adopted, on states, local governments or
school districts or on their abilities to make future payments of their
outstanding debt obligations. The remaining issues are payable from the
income of specific projects or authorities and are not supported by the
issuer's power to levy taxes. This latter group of issues contains
Securities that are also supported by the moral obligations of governmental
entities. In the event of a deficiency in the debt service reserve funds
of moral obligation Securities, the governmental entity having the moral
commitment may (but is not legally obligated to) satisfy such deficiency.
However, in the event of a deficiency in the debt service reserve funds of
Securities not backed by such moral obligations, no such moral commitment
of a governmental entity exists.
5
<PAGE>
The fiscal condition of an Issuer that is a governmental entity (such
as a county, city, school district or other entity providing public
services) is related to the size and diversification of its tax and revenue
base and to such other factors as: the effect of inflation on the general
operating budget and of other costs, including salaries and fringe
benefits, energy and solid waste disposal; changes in state law and
statutory interpretations affecting traditional home rule powers (which
vary from state to state); levels of unrestricted state aid or
revenue-sharing programs and state categorical grants subject to annual
appropriation by a state legislature; increased expenditures mandated by
state law or judicial decree; and disallowances for expenses incurred under
Federal or state categorical grant programs. The local economy may be or
become concentrated (i) in a single industry, which may be affected by
natural or other disasters or by fluctuations in commodity prices, or (ii)
in a particular company, the operations of which may be impaired due to
labor disputes, relocation, bankruptcy or corporate takeover. Such
economic factors may, in turn, affect local tax collections and service
demands. The ability of an Issuer to levy additional taxes may be subject
to state constitutional provisions, assent of the state legislature or
voter approval in a local referendum, or constrained by economic or
political considerations. (See also "Additional Securities Considerations-
- -Issuer Default" and "--Issuer Bankruptcy".)
The fiscal condition of an Issuer may be negatively impacted by
socio-economic factors beyond the Issuer's control (which may hinder the
collection of economically sensitive taxes or entail additional
expenditures) or may be affected by other unanticipated events, including:
imposition of tax rate decreases or appropriations limitations by
legislation or voter initiative; revenue shortfalls due to the imprecise
nature of forecasting actual collections; increased expenditures mandated
by Federal law or by judicial decree; reduction of Federal aid due to
subsequent legislative changes in appropriations or aid formulas;
disallowances by the Federal government for expenses incurred in
connection with categorical grants; or the outcome of litigation.
Zero Coupon Bonds
The Portfolio of the Trust may contain zero coupon bond(s) (including
bonds known as multiplier bonds, money multiplier bonds, capital
appreciation bonds, capital accumulator bonds, compound interest bonds, and
discount maturity payment bonds) or one or more other Securities which were
issued with an "original issue discount". "Original issue discount" bonds
are issued at prices which represent a discount from face amount,
principally because such bonds bear current interest at rates which have
lower than prevailing market rates at the time of issuance. (See Part A--
"Summary of Essential Information--Portfolio Summary as of Date of Deposit"
for information relating to the particular series described therein.) Zero
coupon bonds do not provide for the payment of any current interest and
provide for payment at maturity at face value unless sooner sold or
redeemed. Zero coupon bonds may be subject to more price volatility than
conventional bonds, i.e., the market value of zero coupon bonds is subject
to greater fluctuation in response to changes in interest rates than is the
market value of bonds which pay interest currently. Due to such
volatility, in the event that the zero coupon bonds are sold prior to
maturity (in order to satisfy redemptions, due to early termination of the
Trust or for credit reasons), such sale may result in a loss to Unit
Holders. Zero coupon bonds generally are subject to redemption at compound
accreted value based on par value at maturity. Because the Issuer is not
obligated to make current interest payments, zero coupon bonds may be less
6
<PAGE>
likely to be redeemed than coupon bonds issued at a similar interest rate.
While some types of zero coupon bonds, such as multipliers and capital
appreciation bonds, define par as the initial offering price rather than
the maturity value, they share the basic zero coupon bond features of
(1) not paying interest on a semi-annual basis and (2) providing for the
reinvestment of the bond's semiannual earnings at the bond's stated yield
to maturity.
Revenue Securities
Many of the Securities in the Portfolios are limited obligations,
payable solely from (i) revenues or receipts derived from operation of a
facility acquired or constructed from the proceeds of the obligation or
(ii) special taxes, the receipts from which have been dedicated to the
payment of the obligations. Neither the "full faith and credit" of the
Issuer nor its general taxing power, if any, is pledged to pay the debt
service on such obligations. The availability of revenues to pay debt
service on such Securities may be subject to the prior payment of operating
costs. Prior to commencement of operations, Securities for which the
proceeds are used to construct a facility are subject to the risks
typically associated with construction projects, which include: cost
overruns, delays in their timely completion (due to litigation, labor
disputes or other construction problems) and the ability to obtain
necessary operating permits. Thereafter, the operation of a facility could
be impaired by labor disputes, or by damage or destruction of the facility,
or interruption of essential utilities, due to natural or other disasters.
Collection of revenues necessary to pay debt service could be affected,
among other factors, by: (a) economic factors beyond the Issuer's control
(such as relocation, cessation of operations or bankruptcy of a major
employer or customer) impacting upon demand for services, delinquency rates
for payments or collection of dedicated taxes; (b) the availability and
cost of insurance, which may be required under bond covenants; or (c)
compliance with Federal and state operating or licensing permits, health,
safety and environmental standards or other regulations. The ability of an
Issuer to set rates for its charges and fees and to recover fully its
capital costs through incorporation of such costs in its rate structure, or
to levy special taxes, may be constrained by legal requirements (such as
Federal or state regulatory approval) or by economic, competitive or
political considerations.
Significant changes in intergovernmental relations have occurred in
recent decades. Most, if not all, Issuers (or the obligors in conduit
financings) of Securities in the Portfolios receive either significant
direct Federal financial assistance for operating or capital purposes or
necessary licenses or operating permits, authorized pursuant to various
legislation. Tax-exempt obligors of Securities (including colleges,
non-profit hospitals and museums) may be affected financially by changes in
the Internal Revenue Code of 1986, as amended (the "Code" or the "1986
Code"), or the regulations thereunder, affecting their qualification as a
tax-exempt entity, the deductibility of charitable contributions or the
operation of certain unrelated business activities, such as gift shops.
Such legislation and the regulations promulgated thereunder have been the
subject of extensive amendment in recent years, and no assurance can be
given that further amendment will not materially change the provisions or
effect thereof. The availability of monies in connection with the programs
authorized by such legislation is subject to annual Congressional
appropriation and the budgetary process, and to the application of
provisions of the Balanced Budget and Emergency Deficit Control Act of
7
<PAGE>
1985, popularly known as the Gramm-Rudman-Hollings Act and/or the Budget
Reconciliation Act of 1990.
In addition, institutions reliant upon state financial
assistance may be subject to significant reductions in funding in the event
such state experiences fiscal difficulties. No assurance can be given that
existing forms and levels of state aid will be maintained.
Income to pay debt service on revenue securities may be derived from
more than one source. The primary source of income and the additional
related considerations regarding certain categories of revenue securities,
which may be included in the Portfolio, are further described below.
Airport Securities. These Securities are typically secured by
revenues derived from fees received from use agreements (which consist of
payments for landing fees, terminal rental and other charges) and from
parking facilities, service fees, concessions and other lease rents. The
ability of airports to set landing fees is regulated by the U.S. Department
of Transportation; other aspects of operations are subject to regulation by
the Federal Aviation Administration ("FAA") or, in certain cases, pursuant
to the terms of a court stipulation to abate noise or mitigate traffic.
Special risk considerations include: local economic conditions; chronic
congestion at many major airports, which may affect future revenues if
traffic is diverted or a competitive airport developed; and costs to
install enhanced security measures. Recent developments affecting the
financial condition of a signatory airline (and its ability to meet its
obligations under an existing use agreement) include: corporate
consolidations through mergers and acquisitions; labor disputes including
major strikes; fare competition; excess industry capacity; fluctuations in
fuel costs; and increased capital costs to remain competitive
technologically or to comply with FAA schedules to retrofit aircraft to
comply with operating noise and safety standards. Cumulatively, in 1992
the domestic airline industry lost over 2 billion dollars. Several
airlines are experiencing severe financial difficulty and others have filed
for bankruptcy. The ability of an Issuer to renew a use agreement may be
additionally affected by the increased flexibility granted to airlines to
terminate service under the Airline Deregulation Act and by the development
at certain airports of a monopoly in air carrier service.
Convention Facilities Securities. These Securities include special
limited obligation securities issued to finance convention and sports
facilities and are typically secured by rental payments and annual
gvernmental appropriations. The governmental agency is not obligated to
make payments in any year in which the monies have not been appropriated to
make such payments. In addition, these facilities are limited use
facilities that may not be used for purposes other than as convention or
sports facilities.
Electric and Power Securities. These Securities are typically
secured by revenues derived from power generating facilities, which
generally include revenues from the sale of electricity generated and
distributed by power agencies using hydro-electric, nuclear, fossil fuel or
other power sources. Certain aspects of the operation of such facilities,
particularly with regard to generation and transmission at the wholesale
level, are regulated by the Federal Energy Regulatory Commission ("FERC");
more extensive regulation (affecting retail rate structures) is provided by
state public service commissions. Special risk considerations include:
restrictions on operations and increased costs and delays attributable to
environmental statutes and regulations; the difficulties of the utilities
8
<PAGE>
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. Scientific breakthroughs in fusion energy and
superconductive materials could cause current technologies for the
generation and transmission of electricity to become obsolete during the
life of the Securities. Issuers relying upon hydroelectric generation may
encounter contests when applying for periodic renewal of licenses from FERC
to operate dams. Issuers relying upon coal as a fuel source may be subject
to significant costs and operating restrictions to comply with emission
standards which may be adopted to alleviate the problems associated with
acid rain. Issuers relying upon fossil fuel sources and located in air
quality regions designated as nonattainment areas may become subject to
pollution control measures (which could include abandonment of construction
projects in progress, plant shutdowns or relocation of facilities) ordered
pursuant to the Clean Air Act. In addition, such Securities are sometimes
secured by payments to be made to state and local joint action power
agencies pursuant to "take or pay" agreements. The inability of an Issuer
to pass on certain of its costs to its customers, whether due to government
regulation, judicial decisions or for other reasons, may have a negative
impact on the financial standing of such Issuer and, therefore, may have a
negative impact on the Securities of such Issuer contained in the Trust.
In addition, the Clean Air Act, affects nearly all electric power
facilities that burn oil or coal. Current and future environmental
legislation, regulations or other governmental actions may increase the
cost of utility service. The Sponsor is unable to predict the ultimate
form that any such future legislation, regulations or other governmental
action may take or the resulting impact on the Securities.
Some of the Issuers of Securities in the Portfolios own, operate or
participate on a contractual basis with nuclear generating facilities,
which are licensed and regulated by the Nuclear Regulatory Commission (the
"NRC"). Nuclear generating projects have experienced substantial cost
increases, construction delays and licensing difficulties. Issuers of
Securities may incur substantial expenditures as a result of complying with
NRC requirements. Additional considerations include: the frequency and
duration of plant shutdowns and associated costs due to maintenance or
safety considerations; the problems and associated costs related to the use
and disposal of radioactive materials and wastes in compliance with Federal
and local law; the implementation of emergency evacuation plans for areas
surrounding nuclear facilities; and other issues associated with
construction, licensing, regulation, operation and eventual decommissioning
of such facilities. These Securities may be subject to industry-wide
fluctuations in market value as a consequence of market perception of
certain highly publicized events, as in the Washington Public Power Supply
System's defaults on its Project 4 and 5 revenue bonds and the 1988
bankruptcy filing by the Public Service Corporation of New Hampshire.
Federal, state or municipal governmental authorities, or voters by
initiative, may from time to time impose additional regulations or take
such other governmental action which might cause delays in the licensing,
construction or operation of nuclear power plants, or the suspension or
cessation of operations of facilities which have been or are being financed
by proceeds of certain Securities. Such delays, suspensions or other
action may affect the payment of interest on, or the repayment of the
principal amount of, such Securities.
9
<PAGE>
Health Care and Hospital Securities. These Securities are typically
secured by revenues derived from health care and hospital facilities, which
are subject to extensive Federal and state regulations affecting
construction, licensing, acquisition of equipment, standards of care,
disposal of medical wastes, and participation in reimbursement programs
under Medicare and Medicaid. Health care and hospital facilities are
subject to extreme cost-containment pressures. Special risk considerations
include: increased competition among health care facilities to sell their
services more cheaply to third-party insurers and to offer new services;
the availability and cost of malpractice and other insurance; shortages in
qualified nursing and other health care professional staff; the rising
caseload of indigent, uninsured patients with aggravated symptoms;
demographic trends, such as an increased elderly population; and the
unpredictable effects of the AIDS epidemic (which may have a
disproportionate impact on certain communities). Utilization rates are a
major factor in hospital revenue projections and can be affected by cost
containment measures implemented by governmental or private insurers,
long-term advances in health care delivery reducing demand for in-patient
services, technological developments which may be rationed by scarcity of
equipment or specialists and requirements for state approval, and the
facility's reputation in the community. A number of legislative proposals
concerning health care are typically under review by Congress or the
various state legislatures at any given time, including national health
insurance, cost control, incentives for competition in the provision of
health care services, tax incentives and penalties related to health care
insurance premiums, and promotion of prepaid health care plans.
Additionally, the current administration has promised to substantially
reform the health care system. The Sponsor is unable to predict the effect
of these proposals, if enacted, on any of the Securities. Hospital revenue
securities issued by or on behalf of teaching facilities may also share the
characteristics of Higher Education Securities, described below.
Many hospitals, which may include certain Issuers (or the conduit
obligors) of Securities, have been experiencing significant financial
difficulties in recent years. The number of hospital closings increased
during the late 1980s, particularly among smaller institutions located in
rural or inner-city areas. Hospital revenues nationwide are primarily
derived from private insurers, many of which have experienced significant
operating losses in recent years. The Medicare program accounts for an
increasing share of hospital revenues nationwide, and is financed by the
Hospital Insurance Trust Fund through payroll taxes. The Fund's trustees
have projected, based on current trends, that expenditures will exceed tax
revenues by 1995 and that the Fund will be insolvent before 1999. The
Social Security Act Amendments of 1983 mandated implementation of a
prospective payment system, based upon diagnosis related groups ("DRGs"),
for most in-patient services. DRG reimbursement rates are pre-set and may
not fully cover the actual cost of furnishing services by any particular
facility, and Federal law prohibits health care providers from passing
along the excess costs to Medicare beneficiaries. Additionally, many
states have implemented prospective payment systems for their Medicaid
programs, and have adopted other changes, including enrollment
restrictions. Several states, from time to time, have exhausted their
Medicaid appropriations during their fiscal years, and temporarily
suspended reimbursements.
States regulate the operation of nursing facilities and may implement
guidelines having an adverse impact on their finances, and under certain
circumstances states may cause a facility to be placed under receivership.
DRG reimbursement rates for hospitals have resulted in increased transfers
10
<PAGE>
of acute care patients to nursing homes, causing higher in-patient costs
and greater potential malpractice exposure. Medicare nursing home
reimbursement, now provided on a cost recovery basis (rather than the DRG
system), may be curtailed due to budgetary restrictions.
Higher Education Securities. These Securities are typically secured
by revenues derived from the operations of public or private institutions
of higher education, and may include student tuition payments, student
activities fees, student or faculty housing charges, parking facility fees
and/or other sources of income such as grants, unrestricted gifts or
endowment income. Special risk considerations include: the projected
decline of the traditional college-aged population in the early 1990s;
increases in tuition which may cause a competitive disadvantage in
recruitment; the rising cost of faculty salaries; the size of the
institution's endowment and investment return; the reputation and
competitive position of an institution; levels of Federal and state direct
operating assistance, research grants and student aid; and the costs of
complying with Federal and state laws and regulations, especially those
concerning access to the handicapped.
Highway Securities. These Securities are typically secured by
revenues derived from motor fuel taxes, vehicle registration fees, license
fees and fines and/or vehicular tolls or concession lease rentals derived
from the operation of road, bridge or tunnel facilities. Revenue sources
for such facilities are economically sensitive, particularly with regard to
fluctuations in fuel supply, costs and Federal supply allocation or
rationing policies; and are also sensitive to local demographic trends with
respect to the size and income characteristics of the driving age
population. Issuers may incur substantial unanticipated remedial repair
expenses as a result of regular safety inspections mandated by Federal or
state law. Issuers located in air quality regions designated as
nonattainment areas may become subject to stringent transportation control
measures ordered pursuant to the Clean Air Act. Revenues of a vehicular
toll facility may additionally be affected by lower cost of alternative
modes of transportation or the construction and operation in its vicinity
of another transportation facility, which could alter established traffic
patterns.
Housing Securities. These Securities are issued by housing
authorities payable from revenues derived by state housing finance agencies
or municipal housing authorities from repayments on mortgage and home
improvement loans made by such agencies. Since housing authority
obligations, which are not general obligations of a particular state, are
generally supported to some extent by Federal, state or local housing
subsidy programs, budgetary constraints, the failure of a housing authority
to meet the qualifications required for coverage under the Federal
programs, or any legal or administrative determination that the coverage of
such Federal programs is not available to a housing authority could result
in a decrease or elimination of subsidies available for payment of
principal and interest on such housing authority's obligations. Weaknesses
in Federal housing subsidy programs and their administration may result in
a decrease of subsidies available for payment of principal and interest on
housing authority bonds. Repayment of housing loans and home improvement
loans in a timely manner is dependent on many factors affecting the housing
market generally and upon the underwriting and management ability of the
individual agencies (i.e., the initial soundness of the loan and the
effective use of available remedies should there be a default in loan
payments). Economic developments, including failure or inability to
increase rentals, fluctuations in interest rates and increasing
11
<PAGE>
construction and operating costs may also have an adverse impact on
revenues of housing authorities. In the case of some housing authorities,
inability to obtain additional financing could also reduce revenues
available to pay existing obligations.
The Portfolio of the Trust may contain Securities which are subject
to the requirements of Section 103A of the Internal Revenue Code of 1954,
as amended (the "1954 Code"), or Section 143 of the Internal Revenue Code
of 1986, as amended (the "1986 Code" or the "Code"). Sections 103A and 143
provide that obligations issued to provide single family housing will be
exempt from Federal income taxation if all of the proceeds of the issue
(exclusive of issuance costs and a reasonably required reserve) are used to
make or acquire loans which meet requirements including certain
requirements which must be satisfied after issuance. If proceeds of the
issue are not used to acquire such loans, the issuer may be required to
redeem all or a portion of such issue from such uncommitted proceeds to
maintain the issue's tax exemption. Bond counsel to each such issuer has
issued an opinion that the interest on such Securities was exempt from
Federal income tax at the time the Securities were issued. The failure of
the issuers of such Securities to meet certain ongoing compliance
requirements imposed by Sections 103A and 143 could render the interest on
such Securities subject to Federal income taxation, possibly from the date
of their issuance. If interest on such Securities in a Trust is deemed to
be subject to Federal income taxation, the loss of tax-exempt status can be
expected to adversely affect the market value of such Securities. In this
event and under the terms of the Indenture the Sponsor may direct the sale
of such Securities. The sale of such Securities in such circumstances is
likely to result in a loss to the Trust.
The Portfolio of the Trust may include certain housing authority
obligations whose tax exemption depends upon qualification under Section
103(b)(4)(A) of the 1954 Code or Section 142 of the 1986 Code and
appropriate Treasury Regulations. Both Sections require that specified
minimum percentages of the units in each rental housing project financed
by tax-exempt debt are to be continuously occupied by low or moderate
income tenants for specified periods. Department of the Treasury
Regulations issued under Section 103(b)(4)(A) of the 1954 Code provide that
in order to prevent possible retroactive Federal income taxation of
interest on such Securities certain conditions must be met. The
regulations provide, however, that such retroactive taxation will not occur
if the issuer corrects any non-compliance occurring after the issuance of
the Securities within a reasonable period after such non-compliance is
first discovered or should have been discovered by the issuer. Similar
regulations are expected to be issued under 1986 Code Section 142. If the
interest on any of the Securities in the Trust that are housing securities
should ultimately be deemed to be taxable, the Sponsor may instruct the
Trustee to sell such Securities and, since they would be sold as taxable
securities, it is expected that such Securities would have to be sold at a
substantial discount from current market price of a comparable tax-exempt
security.
The Portfolio of the Trust may contain Securities which contain
provisions which require the issuer to redeem such obligations at par from
unused proceeds of the issue within a stated period which typically does
not exceed three years from the date of issuance of such Securities. In
periods in which interest rates decline there may be increased redemptions
of housing securities pursuant to such redemption provisions. Such an
increase in redemptions may occur because conventional mortgage loans may
have become available at interest rates equal to or less than the interest
12
<PAGE>
rates charged on the mortgage loans previously made available from the
proceeds of such housing securities. Therefore, some issuers of such
housing securities may have experienced insufficient demand to complete
mortgage loan originations for all of the money made available from such
securities. In addition, mortgage loans made with the proceeds of housing
securities, in general, do not carry prepayment penalties and therefore
certain mortgage loans may be prepaid earlier than their maturity dates.
If the issuers of such housing securities are unable to or choose not to
reloan these monies, they will generally redeem housing securities in an
amount approximately equal to such prepayments. The Sponsor is unable to
predict at this time whether such redemptions will be made at a high rate.
The disposition of such Securities may result in a loss to the Trust.
Industrial Development/Pollution Control Securities. These
Securities were generally issued prior to the enactment of 1986 Code
restrictions, and are typically secured by payments made under a loan
agreement entered into between the Issuer and the obligor. In some cases,
the Securities were additionally secured by guarantees provided by
corporate guarantors or by a stand-by letter of credit issued by a bank.
Special risk considerations include: the financial condition of the
corporate obligor (or guarantor), especially as it may be affected by
subsequent corporate restructuring or changes in corporate control.
Mass Transit Securities. These Securities are typically secured by
revenues derived from fares, dedicated sales or property tax revenues, and
intergovernmental subsidies. (See also "Special Tax Securities", below.)
Most mass transit systems in the country depend upon Federal and state
operating subsidies and capital grants. The Federal government
significantly reduced its mass transit assistance during the 1980s.
Special risk considerations include: ridership and fare levels, quality of
services, maintenance and capital construction needs, the commitment and
reliability of intergovernmental financial support, and the stability of
local tax sources.
Port Securities. These Securities are typically secured by revenues
derived from the operation of port facilities and related commercial
activities. Certain port districts have taxing powers granted under
interstate compacts or authorizing statutes. Special considerations
include: the proximity to major markets, the access and cost of intermodal
truck and rail transportation, the type and diversity of the cargo mix,
currency and commodity price fluctuations, international trade and tariff
policies. Port operations have been sensitive to technological
developments, as in the development of containerized shipping, which have
led to changes in the competitive position of different ports. No
assurance can be given that the Federal government will not impose an
embargo on exports to or imports from any current trading partner or that
current international trading patterns and policies will not otherwise
materially change in the future.
13
<PAGE>
Public Facilities Securities. These Securities are typically secured
by revenues derived from either (i) payments appropriated by governmental
entities for the use of equipment or facilities, such as administrative or
correctional buildings, or (ii) user charges or other revenues derived
from such operations as parking facilities, convention centers or sports
arenas. In the first instance, the pledged revenues may be subject to
annual appropriation by a legislative body. (See also "Additional
Securities Considerations--Non-Obligatory Appropriations", below.) In the
latter case, the collection of revenues may be dependent upon the
reliability of feasibility forecasts and assumptions concerning utilization
rates.
Resource Recovery/Solid Waste Securities. These Securities are
typically secured by revenues derived from the sale of electricity or steam
generated as a by-product of the process of incinerating solid waste, and
from contractual tipping fees, user charges and ancillary recycling
earnings. Special risk considerations include: the supply of solid waste
at levels sufficient for the facility to operate at design capacity; the
frequency and duration of plant shutdowns for maintenance; the treatment
and disposal of fly ash which contains toxic substances, especially dioxin;
compliance with air pollution control standards; unanticipated problems
associated with the use of developing technologies; and the continuation of
FERC policies facilitating cogeneration and its certification of any
particular qualifying facility. Governmental service contract payments may
be subject to annual appropriation by a legislative body. (See also
"Additional Securities Considerations--Non-Obligatory Appropriations",
below.) Older facilities may require retrofitting to accommodate new
technological developments or to comply with environmental standards. In
addition, there may be technological risks that become apparent in the long
run that are not presently apparent because of the relatively short history
of these facilities, which risks may affect the successful construction or
operation of such facilities.
Special Tax Securities. These Securities are typically secured by
revenues derived from specific taxes levied by an Issuer and dedicated to
the payment of debt service, such as special levies on retail sales, hotel
occupancy or mortgage recordation, or special assessments on real property.
Special risk considerations include: the economic sensitivity of the type
of tax, the stability of the tax base and any restrictions on the ability
of the Issuer to increase tax rates in the event of a shortfall of
revenues.
Student Loan Securities. These Securities are typically secured by
revenues derived from payments on student loans; Federal interest subsidies
and special allowance payments made to the holders of eligible student
loans; insurance payments made on defaulted loans by state guarantee
agencies or the Federal government; and proceeds from the sale of the
Securities themselves. Eligible loans may be guaranteed by an eligible
guarantee agency, typically a state agency or non-profit corporation (the
"Guarantor"), which is responsible for servicing the loans and enforcing
collections. The obligation of such Guarantor is reinsured by the U.S.
Secretary of Education or the U.S. Secretary of Health and Human Services
from 80% to 100% of the value of the loan, depending upon the Guarantor's
overall default rate. In addition, some loans may be insured directly by
the Federal government. Special risk considerations include: high default
levels in the underlying student loan notes and reduction or disallowance
of reimbursements by the Federal government due to improper servicing and
enforcement by the Guarantor. Additionally, the financial condition of a
Guarantor may have a direct effect on its ability to make guaranty payments
14
<PAGE>
on defaulted student loans, to operate at reduced reimbursement levels and
to perform its servicing duties. The credit of certain Student Loan
Securities may have been enhanced by a letter of credit. (See "Additional
Securities Considerations--Letter of Credit Securities", below.)
Tax Allocation Securities. These Securities are typically secured by
incremental tax revenues collected on property within the areas where
redevelopment projects, financed by bond proceeds, are located ("project
areas"). Such payments are expected to be made from projected increases in
tax revenues derived from higher assessed values of property resulting from
development in the particular project area and not from an increase in tax
rates. Special risk considerations include: reduction of, or a less than
anticipated increase in, taxable values of property in the project area,
caused either by economic factors beyond the Issuer's control (such as a
relocation out of the project area by one or more major property owners) or
by destruction of property due to natural or other disasters; successful
appeals by property owners of assessed valuations; substantial
delinquencies in the payment of property taxes; or imposition of any
constitutional or legislative property tax rate decrease.
Water and Sewer Securities. These Securities are typically secured
by revenues derived from connection fees and user charges imposed by the
enterprise. Water system finances may be additionally affected by the
terms of supply allocations and of service agreements with major wholesale
customers, the imposition of mandatory conservation measures in response
to drought and the costs to comply with Federal or state health and
environmental standards. Water systems, particularly those located in
Western states, may also be financially affected by changes in Federal
water policies. A significant number of Federal water contracts with such
water systems are scheduled for renewal through the 1990s, and may be
subject to increased environmental scrutiny. Sewer systems may be
financially affected by costs to comply with Federal or state environmental
standards for secondary or tertiary sewage treatment, the pretreatment of
toxic industrial wastes prior to discharge into sewer systems, and for
municipal storm sewer systems. Special risk considerations include:
failure of municipalities to utilize fully the facilities constructed by
the authorities; economic or population decline; the difficulty of
obtaining or discovering new supplies of fresh water; the effects of
conservation programs and the impact of "no growth" zoning ordinances.
Puerto Rico. The Portfolio of the Trust may contain obligations of
Issuers located in the Commonwealth of Puerto Rico. (See Part A--"Summary
of Essential Information--Portfolio Summary as of Date of Deposit".) The
ability of the issuers of such bonds to meet their obligations may be
affected by the economic and social problems facing Puerto Rico.
Unemployment in Puerto Rico remains high by United States standards. The
island's per capita personal income has been lower than in any state of the
United States. Transfer payments from the United States Government under
various social welfare programs (such as food stamps, social security and
veterans' benefits) contribute significantly to personal income.
The economy of Puerto Rico is closely integrated with that of the
mainland United States and is largely dependent for its development on U.S.
policies and programs that could be eliminated by the U.S. Congress. Aid
for Puerto Rico's economy has traditionally depended heavily on Federal
programs, which aid may not always be available. An adverse effect on the
Puerto Rican economy could result from other U.S. policies, including a
reduction of tax benefits for distilled products, further reduction in
15
<PAGE>
transfer payment programs such as food stamps, curtailment of military
spending and policies which could lead to a stronger dollar.
The Puerto Rican economy consists principally of manufacturing
(pharmaceuticals, scientific instruments, computers, microprocessors,
medical products, textiles and petrochemicals), agriculture (largely
sugar), tourism and the service sector (including finance, insurance, and
real estate). Since Puerto Rico is an island and is heavily dependent upon
imports and exports, maritime and air transportation are of basic
importance to its economy. The manufacturing and service sectors generate
the largest portion of gross product. Most of the island's manufacturing
output is shipped to the mainland United States, which is also the chief
source of semi-finished manufactured articles on which further
manufacturing operations are performed in Puerto Rico. The finance,
insurance and real estate components of this sector have recently
experienced the most growth.
The government sector of the Commonwealth plays an important role in
the economy of the island. Since World War II, the economic importance of
agriculture for Puerto Rico, particularly in the dominance of sugar
production, has declined. Nevertheless, the Commonwealth-controlled sugar
monopoly remains an important economic factor and is largely dependent upon
Federal maintenance of sugar prices, the discontinuation of which could
severely affect Puerto Rican sugar production. The level of tourism is
affected by various factors, including the strength of the U.S. dollar.
During periods when the dollar is strong, tourism in foreign countries
becomes relatively more attractive.
The Puerto Rican economy is affected by a number of Commonwealth and
Federal investment incentive programs. For example, Section 936 of the
1986 Code generally provides deferral of Federal income taxes for U.S.
companies operating on the island until profits are repatriated. No
assessment can be made at this time as to whether or not Section 936 and
other incentive programs will be continued. It is expected that the
elimination of Section 936, if it occurred, would have a strongly negative
impact on Puerto Rico's economy. In 1993, the United States, Mexico and
Canada entered into the North American Free Trade Agreement ("NAFTA"). If
ratified by Congress, NAFTA would permit the duty-free entry of low-wage
Mexican goods into the United States. This additional competition for
sales in the U.S. market could have an adverse effect on Puerto Rican
exports and the Puerto Rican economy.
There have for many years been three major viewpoints in Puerto Rico
with respect to the island's relationship to the United States, one
essentially favoring the existing Commonwealth status (but with
modifications providing for greater local autonomy), another favoring
statehood and a third seeking independence from the United States. The
Sponsor cannot predict what effect, if any, a change in the relationship
between Puerto Rico and the United States would have on the Issuers'
ability to meet their obligations.
Additional Securities Considerations
Non-Obligatory Appropriations/Lease Payment Securities. A Trust may
contain Securities secured in whole or in part by governmental payments,
pursuant to a lease agreement, service contract, installment sale or other
agreement. A governmental entity that enters into such an agreement cannot
obligate future governments to make payments thereunder, but generally has
covenanted to take such action as is necessary to include all such payments
16
<PAGE>
due under such agreement in its annual budgets and to make the
appropriations therefor. However, a budgetary imbalance in future fiscal
years could affect the ability and willingness of the governing legislative
body to appropriate, and the availability of monies to make, the payments
provided for under such agreement. The leases backing the Securities could
be cancelled resulting in a cessation of interest payments to
securityholders. If interest payments are discontinued, the
securityholders have recourse only to the equipment or property that is
being leased. There is no guarantee that a foreclosure on the equipment or
property securing the leases would provide sufficient funds to fully repay
investors. (For a discussion of additional considerations affecting the
financial condition of an Issuer, see: "General Obligation Securities,"
above.)
Letter of Credit Securities. A Trust may contain Securities that are
additionally secured by letters of credit issued by commercial or savings
banks which may be drawn upon (i) if an Issuer fails to make payments of
principal of, premium, if any, or interest on a Security backed by such a
letter of credit or (ii) if interest on a Security is deemed to be taxable
and full payment of principal and any premium due is not made by the
Issuer. The letters of credit are irrevocable obligations of the issuing
banks. Certain of these letters of credit and guarantees may, in time, be
secured by a security interest in collateral. The profitability of the
banking industry is largely dependent upon the availability and cost of
capital funds for the purpose of financing lending operations under
prevailing money market conditions, and is affected by general economic
conditions. While banks are subject to extensive governmental regulations,
exposure to credit losses arising from possible financial difficulties of
borrowers or other issuers having letters of credit might affect a bank's
credit rating or ability to meet its obligations under a letter of credit.
Bond Insurance. A Trust may contain Securities that were insured
under a policy of insurance ("Bond Insurance") guaranteeing the scheduled
payment of interest and principal by the Issuer. Payment under a policy of
Bond Insurance will be made in respect of principal of and interest on
Securities which shall be due for payment, but which shall be unpaid by
reason of nonpayment by the Issuer. All such policies provide for payment
of the principal or interest due to a bond trustee or paying agent on the
date such payment is due or on the business day following receipt by the
bond insurer of notice of nonpayment. In turn, such bond trustee or paying
agent will make payment to the securityholder (in this case, the Trustee of
the Trust) upon presentation of satisfactory evidence of such
securityholder's right to receive such payment. Bond Insurance will
provide payment only on scheduled maturity dates and sinking fund payment
dates, in the case of principal, and on scheduled dates for payment, in the
case of interest. It will not insure payment on acceleration, as a result
of a call for redemption (other than sinking fund redemption) or as a
result of any other advancement of maturity, nor will it insure the payment
of any redemption, prepayment or acceleration premium or any risk other
than nonpayment. In the event of any acceleration of the principal of the
obligation, the insurance payments will be made at such times and in such
amounts as would have been made had there not been an acceleration. Bond
Insurance will not insure against nonpayment of principal or interest
caused by the insolvency, fraud or negligence of any trustee or paying
agent. Bond Insurance does not guarantee the market value of the
Securities or the value of the Units. However, any such Bond Insurance
represents an element of market value in regard to the Securities thus
insured, but the exact effect, if any, of Bond Insurance on such market
value cannot be predicted. No assurance can be given that the rating
17
<PAGE>
assigned to the claims-paying ability of a bond insurer will not be
withdrawn or reduced subsequent to the date of this Prospectus. While Bond
Insurance is non-cancelable, no assurance can be given that a bond insurer
will be able to perform on its contracts of Bond Insurance in the event a
claim should be made thereunder at some time in the future.
State Guaranty/Insurance. A Trust may contain Securities that were
guaranteed or insured as to the scheduled payment of interest and
principal by the Issuer, by a state, commonwealth or territorial
government, or by an agency thereof. Special considerations include
whether the nature of the pledge under the guaranty or insurance agreement
is of the "full faith and credit" of the state, and the financial condition
of the state. Any such guaranty or insurance policy represents an element
of market value in regard to the Security thus guaranteed, but the exact
effect, if any, of such guaranty or insurance policy on market value cannot
be predicted. (For a discussion of additional considerations affecting the
financial condition of a governmental entity providing such guaranty or
insurance policy, see "General Obligation Securities", above.)
Refunded/Escrowed to Maturity/Crossover Refunding Securities. A
Trust may contain Securities that have been refunded through the issuance
of refunding obligations. Principal and interest payments on such
Securities are no longer derived from the revenues or other monies
originally pledged for debt service. Instead, principal and interest are
payable from the proceeds of the refunding obligations, which monies are
held in an escrowed trust fund in amounts sufficient to pay principal and
interest on the originally issued Securities when due. These monies are
typically held in the form of direct obligations of the United States.
"Escrowed to Maturity Securities" are required to be paid at the scheduled
sinking fund payment or maturity date, at which time such Escrowed to
Maturity Securities will be paid or redeemed at par. "Refunded Securities"
will be redeemed prior to their stated maturity date, but only on the
earlier of any scheduled sinking fund payment date or the optional
redemption date. "Crossover Refunding Securities" become secured by the
revenues or other monies originally pledged to secure an earlier bond issue
at a predetermined time in the future. Prior to such time, the proceeds
from the sale of these crossover refunding bonds are placed in an escrow
fund and secure the bonds.
Redemption of Securities. Most of the Securities are subject to
redemption prior to their stated maturity dates, pursuant to optional
redemption and/or sinking fund payments by the Issuers. In general,
optional redemption provisions are more likely to be exercised when the bid
side evaluation is at a premium over par value than when it is at a
discount from par. Generally, the bid side evaluation of Securities will
be at a premium over par when market interest rates fall below the stated
interest rate on such Securities. Certain Securities may be subject to
redemption at par pursuant to sinking fund provisions. Such provisions
are designed to redeem a significant portion of such obligations gradually
over the life of such Securities. Particular bonds of an issue of
Securities to be redeemed are generally chosen by lot. The Part A--
"Schedule of Portfolio Securities", contains a listing of the optional
redemption and sinking fund payment provisions, if any, with respect to
each of the Securities. Certain Securities, identified in Part A--"Summary
of Essential Information", are subject to redemption early in the life of
the Trust; the redemption price for such Securities may be less than the
market price at the time a Unit Holder purchased Units, which may result in
a loss. Most of the Securities are also subject to "special" or
"extraordinary" mandatory redemption provisions and calls resulting from
18
<PAGE>
certain events, including (but not limited to) unexpended proceeds, the
receipt of excess revenues or casualty insurance proceeds, or failure to
renew any required letter of credit. Securities so redeemed will reduce
the average life of the Portfolio, and will cease to bear interest after
their redemption and such redemption, at a price less than the price paid
therefor, will result in a loss.
BECAUSE THE REDEMPTION PRICE AND THE SPONSOR'S REPURCHASE PRICE ARE
BASED ON BID PRICES FOR THE SECURITIES, THEY MAY BE LESS THAN THE PRICE
PAID BY A PURCHASING UNIT HOLDER (OFFERING PRICES ARE NORMALLY HIGHER THAN
BID PRICES). DUE TO FLUCTUATIONS IN THE MARKET PRICE OF THE SECURITIES IN
THE PORTFOLIO AND THE FACT THAT THE PUBLIC OFFERING PRICE INCLUDES A SALES
CHARGE, AMONG OTHER FACTORS, THE AMOUNT REALIZED BY A UNIT HOLDER UPON THE
REDEMPTION OR SALE OF UNITS MAY BE LESS THAN THE PRICE PAID FOR SUCH UNITS
BY THE HOLDER. (SEE "REDEMPTION--COMPUTATION OF REDEMPTION PRICE PER
UNIT".)
Issuer Default. Although the Sponsor has selected the Securities in
the Portfolios in a manner consistent with each Trust's objectives, and
taking into consideration the factors listed in "Objectives and Securities
Selection," herein, it is possible that one or more of the Securities may
experience an event of default in the payment of principal or interest.
Should that occur, the bond trustee for such Securities is empowered to
protect and enforce its rights and the rights of the Unit Holders
(including the Trust) by suits, legal actions and proceedings deemed
advisable and expedient, usually including declaring an acceleration of all
outstanding principal and interest. However, the enforceability of
covenants and agreements of an Issuer, including the pledge to deposit
into and retain monies in a debt service fund, may be subject to
bankruptcy, insolvency, reorganization, moratorium and other laws affecting
creditors' rights and may also be subject to sovereign immunity, the
exercise of the state's police powers, and judicial discretion in
appropriate cases. It is therefore possible that bankruptcy proceedings,
other legal actions, the limited alternative uses to which certain
facilities may be put in the event of an asset sale, or other events may
limit the bond trustee's recovery of total principal and interest owed on
such defaulted Securities (if any) and, hence, the monies paid to the
Trustee for distribution to Unit Holders. (See "Issuer Bankruptcy".) The
Sponsor is permitted to direct the Trustee to dispose of any Security in a
Trust upon default in the payment of principal or interest, when due. (See
"Sponsor--Responsibility".) No assurance can be given that a sale under
such circumstances would yield proceeds equivalent to the par amount or
purchase price of such Security.
Issuer Bankruptcy. Under Chapter 9 of the Federal Bankruptcy Code, a
petition may be filed by a political subdivision or agency of a state which
is insolvent or unable to meet its obligations as they mature. Generally,
the filing of such a petition operates as a stay of any proceeding to
enforce a claim against the debtor. The Federal Bankruptcy Code also
requires the debtor to file a plan for the adjustment of its debts which
may modify or alter the rights of creditors. Under such a plan the Federal
bankruptcy court may permit the debtor to issue certificates of
indebtedness which have priority over existing creditors and which could be
secured. Any plan of reorganization confirmed by the Federal bankruptcy
court would be binding upon all creditors affected by it. The right of the
owners of Securities to receive interest, principal payments and redemption
premium from any such entity could be adversely affected by a restructuring
of such petitioner's debt under Chapter 9. It is possible that recipients
of debt service payments made by such entity within ninety days of the
19
<PAGE>
filing of a petition could be required to refund them, and their claims
would then be treated as if such payments had not been made. No assurance
can be given that any priority of holders of securities to payment from
monies retained in a debt service reserve fund or from other cash resources
would be recognized if a petition were filed under Chapter 9 or pursuant to
other subsequently enacted law relating to creditors' rights; such monies
might, under such circumstances, be available for the payment of all such
entity's creditors generally. Certain Issuers of Securities in the
Portfolios have the legal capacity pursuant to state law to file a petition
under Chapter 9 without prior state approval.
No assurance can be given that any obligor of a Security (under the
legal documents governing such Security, including any related loan
agreement) will not file a voluntary petition or be subject to involuntary
reorganization under the Federal Bankruptcy Code.
Litigation Affecting Securities. To the best knowledge of the
Sponsor, there is no material litigation pending as of the Date of Deposit
in respect of any Securities which might reasonably be expected to have a
material adverse effect upon the Trust. At any time after the Date of
Deposit, litigation may be initiated on a variety of grounds with respect
to Securities in the Trust, including the validity or tax status of the
Securities. While the outcome of litigation of such nature cannot be
predicted, an opinion of bond counsel has been delivered with respect to
each Security on the date of its issuance to the effect that such Security
has been validly issued and that the interest thereon is not included in
gross income for Federal income tax purposes under existing law. Such
opinion may or may not deal with the status of interest on the Security for
alternative minimum tax purposes. If legal proceedings are instituted
after the Date of Deposit seeking, among other things, to restrain or
enjoin the payment of any of the Securities or attacking their validity or
the authorization or existence of an Issuer, the Sponsor may, in accordance
with the Indenture, direct the Trustee to dispose of such Security. (See
"Sponsor--Responsibility".) No assurance can be given that a sale under
such circumstances would yield proceeds equivalent to the par amount or
purchase price of such Security.
Contract Obligations
Certain Securities in each Trust may be purchased by the Sponsor on a
"when, as and if issued" or "delayed delivery" basis; that is, they may not
yet be issued by their governmental entities on the Date of Deposit
(although such governmental entities are committed to issue such
Securities). Contracts relating to such "when, as and if issued"
Securities may not settle by the first settlement date for Units.
Moreover, the delivery of such Securities may be delayed or may not occur.
Unit Holders who purchase Units prior to settlement of such Securities will
be "at risk" with respect to these Securities (i.e., they may derive either
gain or loss from changes in the prices of the Securities) from the date
they commit to purchase such Units. Interest on such Securities begins
accruing to the benefit of Unit Holders as tax-exempt interest on the
respective delivery dates of such Securities. In order to provide level
interest payments to Unit Holders where the Trust purchases Securities
which will settle after the settlement date for Units, the Trustee will
reduce its fee over a period of time in an amount equal to the amount of
interest that would have so accrued, on such Securities between the initial
settlement date for the Units and the delivery date of any such Securities
as if such Securities had been delivered prior to purchase of the Units.
The reduction of the Trustee's fee eliminates the necessity of reducing
20
<PAGE>
regular monthly interest distributions until such Securities are delivered.
The Trustee will be reimbursed for the reduction in its fee by the Sponsor.
To the extent that the delivery of such Securities is delayed beyond their
respective expected delivery dates, the Estimated Current Return and
Estimated Long-Term Return for the first year may be lower than indicated
in Part A--"Summary of Essential Information."
Replacement Securities
In the event that any contract for the purchase of any Security
fails, the Sponsor is authorized under the Indenture, subject to the
conditions set forth below, to instruct the Trustee to acquire other
securities (the "Replacement Securities") for inclusion in the Portfolio of
a Trust. Any Replacement Securities must be deposited not later than the
earlier of (i) the first monthly Distribution Date of the Trust or (ii) 90
days after the Trust was established. The cost and aggregate principal
amount of the Replacement Securities may not exceed the cost and aggregate
principal amount of the Securities which they replace. In addition, the
Replacement Securities must (1) be tax-exempt bonds; (2) have a fixed
maturity date in the same category as the Security replaced; (3) be
purchased at a price that results in a yield to maturity and in a current
return, in each case as of the execution and delivery of the Indenture,
which is approximately equivalent to the yield to maturity and current
return of the Securities which they replace; (4) be purchased within 20
days after delivery of notice of the failed contracts; and (5) have a
rating that is investment grade by at least one national rating
organization or have, in the opinion of the Sponsor, comparable credit
characteristics. Whenever a Replacement Security has been acquired for the
Trust, the Trustee will, within five days thereafter, notify all Unit
Holders of the acquisition of the Replacement Security.
In the event a contract to purchase Securities fails and Replacement
Securities are not acquired, the Trustee will, not later than the second
monthly Distribution Date, distribute to Unit Holders the funds
attributable to the failed contract. The Sponsor will, in such a case,
refund the sales charge applicable to the failed contract. If less than
all the funds attributable to a failed contract are applied to purchase
Replacement Securities, the remaining moneys will be distributed to Unit
Holders not later than the second monthly Distribution Date. Moreover, the
failed contract will reduce the Estimated Net Annual Income per Unit, and
may lower the Estimated Current Return and Estimated Long-Term Return.
INSURANCE ON THE SECURITIES IN AN INSURED TRUST
The Securities in the Portfolio of a Trust designated in Part A as an
Insured Trust, including a State Trust designated as an Insured State
Trust, are each covered by a policy of Bond Insurance. (See "Additional
Securities Considerations--Bond Insurance".) The information contained
herein relating to the insurance companies providing Bond Insurance is from
published documents and other public sources. No representation is made
herein as to the accuracy or adequacy of such information or as to the
absence of material adverse changes in such information subsequent to the
dates thereof, but the Sponsor is not aware that the information herein is
inaccurate or incomplete. Regulation of an insurance company by a state is
no guarantee that such insurance company will be able to perform on its
contracts of Bond Insurance in the event a claim should be made thereunder
at some time in the future.
21
<PAGE>
AMBAC INDEMNITY--AMBAC Indemnity Corporation ("AMBAC Indemnity") is a
Wisconsin-domiciled stock insurance company, regulated by the Insurance
Department of the State of Wisconsin, and is licensed to do business in all
50 states, the District of Columbia and the Commonwealth of Puerto Rico
with admitted assets of approximately $1.725 billion (unaudited) and
statutory capital of approximately $963.0 million (unaudited) as of
March 31, 1993. Statutory capital consists of statutory contingency
reserve and AMBAC Indemnity's policyholders surplus. AMBAC Indemnity is a
wholly owned subsidiary of AMBAC Inc., a 100% publicly-held financial
holding company. AMBAC Inc. is not obligated to pay the debts of or
claims against AMBAC Indemnity Corporation. Standard & Poor's Corporation
has rated the claims-paying ability of AMBAC Indemnity "AAA".
CAPITAL GUARANTY--Capital Guaranty Insurance Company ("Capital
Guaranty" or "CGIC") is a monoline stock insurance company incorporated in
the State of Maryland, and is a wholly owned subsidiary of Capital Guaranty
Corporation, a Maryland insurance holding company (herein, the
"Corporation"). The Corporation is owned by the following investors:
Constellation Investments, Inc., an affiliate of Baltimore Gas and
Electric; Fleet Financial Group, Inc.; Safeco Corporation; Sibag Finance
Corporation, an affiliate of Siemens A.G.; United States Fidelity and
Guaranty Company and certain members of the management and staff of Capital
Guaranty. Other than their capital commitment to the Corporation, the
investors of the Corporation are not obligated to pay the debts of, or the
claims against, Capital Guaranty. As of March 31, 1993, the total
policyholders' surplus of Capital Guaranty was approximately $117.672
million (unaudited) and total admitted assets were approximately $228.208
million (unaudited), as reported to the Insurance Department of the State
of Maryland. Standard & Poor's Corporation has rated the claims-paying
ability of Capital Guaranty "AAA".
FINANCIAL GUARANTY--Financial Guaranty Insurance Company ("Financial
Guaranty") is a wholly owned subsidiary of FGIC Corporation, a Delaware
holding company. FGIC Corporation is a wholly owned subsidiary of General
Electric Capital Corporation. Neither FGIC Corporation nor General
Electric Capital Corporation is obligated to pay the debts of or the claims
against Financial Guaranty. Financial Guaranty is domiciled in the State
of New York and is subject to regulation by the State of New York Insurance
Department. As of March 31, 1993, the total capital and surplus of
Financial Guaranty was approximately $667 million, as reported to the State
of New York Insurance Department. Financial Guaranty is currently
authorized to write insurance in 49 states and the District of Columbia.
Standard & Poor's Corporation has rated the claims-paying ability of
Financial Guaranty "AAA".
MBIA--Each insurance company comprising Municipal Bond Insurance
Association ("MBIA") will be severally and not jointly obligated under MBIA
policies in the following respective percentages: The Aetna Casualty and
Surety Company (33%); Fireman's Fund Insurance Company (30%); The Travelers
Indemnity Company (15%); Cigna Property and Casualty Insurance Company,
formerly known as Aetna Insurance Company (12%); and The Continental
Insurance Company (10%). Each insurance company comprising MBIA is
licensed to do business in various states. As a several obligor, each such
insurance company will be obligated only to the extent of its percentage of
any claim under the MBIA policy and will not be obligated to pay any unpaid
obligation of any other member of MBIA. Each insurance company's
participation is backed by all of its assets. However, each insurance
company is a multiline insurer involved in several lines of insurance other
than municipal bond insurance, and the assets of each insurance company
22
<PAGE>
also secure all of its other insurance policy and surety bond obligations.
As reported to the New York State Insurance Department in accordance with
statutory accounting principles, the total assets of the participating
insurance companies as of September 30, 1992, were $35.972 billion, the
total statutory liabilities were $29.295 billion and the total
policyholders' surplus was $6.667 billion. Some of the members of MBIA are
among the shareholders of MBIA, Inc. MBIA, Inc. is the parent of the
Municipal Bond Investors Assurance Corporation ("MBIAC"). MBIAC is a
separate and distinct entity from MBIA. MBIAC has no liability to the
bondholders for the obligations of MBIA under its policy of Bond Insurance.
Standard & Poor's Corporation has rated the claims-paying ability of MBIA
"AAA".
MBIAC--Municipal Bond Investors Assurance Corporation ("MBIAC") is
the principal operating subsidiary of MBIA, Inc. The principal shareholders
of MBIA, Inc. are Aetna Casualty and Surety Company, The Fund American
Companies, subsidiaries of CIGNA Corporation, The Continental Insurance
Company and one of its affiliates, and Credit Local de France, CAECL S.A.,
and they own approximately 35% of the outstanding common stock of MBIA,
Inc. Neither MBIA, Inc. nor its shareholders are obligated to pay the
debts of or claims against MBIAC. MBIAC, which commenced municipal bond
insurance operations on January 5, 1987, is a limited liability corporation
rather than a several liability association. MBIAC is domiciled in the
State of New York and licensed to do business in all 50 states, the
District of Columbia and the Commonwealth of Puerto Rico. Effective
December 31, 1989, MBIA, Inc. acquired Bond Investors Group, Inc. On
January 5, 1990, MBIAC acquired all the outstanding stock of Bond Investors
Group, Inc., the parent of Bond Investors Guaranty Insurance Company
("BIG"). Through a reinsurance agreement, BIG has ceded all of its net
insured risks, as well as its unearned premium and contingency reserves, to
MBIAC and MBIAC has reinsured BIG's net outstanding exposure. As of
March 31, 1993, MBIAC had admitted assets of approximately $2.7 billion
(unaudited), total liabilities of $1.8 billion (unaudited) and total
capital and surplus of approximately $918 million (unaudited) determined in
accordance with statutory accounting practices prescribed or permitted by
insurance regulatory authorities. Standard & Poor's Corporation rates all
new issues insured by MBIAC "AAA" Prime Grade.
RATINGS OF THE SECURITIES IN AN INSURED TRUST--On the Date of
Deposit, all of the Securities in the Insured Trust were rated "AAA" by
Standard & Poor's Corporation because of the Bond Insurance policies issued
in respect of such Securities. (See Part A--"Schedule of Portfolio
Securities," and "Bond Ratings" herein.) Subsequent to the Date of
Deposit, a Security may cease to be rated or the rating assigned may be
reduced below the minimum requirements of the Insured Trust for the
acquisition of Securities. Such reduction would most likely occur if
Standard & Poor's Corporation reduced its rating of any of the bond
insurers, and, hence, the rating on the Securities insured by such bond
insurer. While such events may be considered by the Sponsor in determining
whether to direct the Trustee to dispose of the Security (see "Sponsor-
- -Responsibility," herein), such events do not automatically require the
elimination of such Security from the Portfolio.
RATING OF THE UNITS OF AN INSURED TRUST--Standard & Poor's
Corporation has rated the Units of an Insured Trust "AAA" because the bond
insurers have issued Bond Insurance policies to insure each of the
Securities in the Insured Trust. This is the highest rating assigned by
Standard & Poor's Corporation. (See "Description of Rating".) The
obtaining of this rating by the Insured Trust should not be construed as an
23
<PAGE>
approval of the offering of the Units by Standard & Poor's Corporation or
as a guarantee of the market value of the Insured Trust or of the Units.
Standard & Poor's Corporation has been compensated by the Sponsor for its
services in rating Units of the Insured Trusts. There can be no assurance
that Units of an Insured Trust will retain the AAA rating.
DESCRIPTION OF RATING (as described by Standard & Poor's
Corporation)--A Standard & Poor's Corporation rating on the units of an
investment trust (hereinafter referred to collectively as "units" and
"fund") is a current assessment of creditworthiness with respect to the
investments held by such fund. This assessment takes into consideration
the financial capacity of the issuers and of any guarantors, insurers,
lessees, or mortgagors with respect to such investments. The assessment,
however, does not take into account the extent to which fund expenses or
portfolio asset sales for less than the fund's purchase price will reduce
payment to the unit holder of the interest and principal required to be
paid on the portfolio assets. In addition, the rating is not a
recommendation to purchase, sell, or hold units, inasmuch as the rating
does not comment as to market price of the units or suitability for a
particular investor.
REGULATION OF INSURANCE COMPANIES--Insurance companies are subject to
regulation and supervision in the jurisdictions in which they do business
under statutes which delegate regulatory, supervisory and administrative
powers to state insurance commissioners. This regulation, supervision and
administration relate, among other things, to: the standards of solvency
which must be met and maintained; the licensing of insurers and their
agents; the nature of and limitations on investments; deposits of
securities for the benefit of policyholders; approval of policy forms and
premium rates; periodic examinations of the affairs of insurance companies;
annual and other reports required to be filed on the financial condition of
insurers or for other purposes; and requirements regarding reserves for
unearned premiums, losses and other matters. A significant portion of the
assets of insurance companies is required by law to be held in reserve
against potential claims on policies and is not available to general
creditors.
Although the Federal government does not regulate the business of
insurance, Federal initiatives, such as ERISA regulations on pensions,
medical care cost restrictions, no-fault automobile insurance standards,
changes in the antitrust exception for insurance businesses and changes in
the tax laws, can significantly impact the insurance business. In
addition, the Federal government operates in some cases as a co-insurer
with the private sector insurance companies.
Insurance companies are also affected by a variety of state and
Federal regulatory measures and judicial decisions that define and extend
the risks and benefits for which insurance is sought and provided. These
include judicial decisions on risk exposure in areas such as products
liability and state and Federal extension and protection of employee
benefits, including pension, workers' compensation, and disability
benefits. These developments may result in short-term adverse effects on
the profitability of various lines of insurance. Longer-term adverse
effects can often be minimized through prompt repricing of coverages and
revision of policy terms. In some instances these developments may create
new business opportunities. All insurance companies write policies and set
premiums based on actuarial assumptions about mortality, injury, the
occurrence of accidents and other insured events. These assumptions, while
well supported by past experience, necessarily do not take account of
24
<PAGE>
future events. The occurrence in the future of unforeseen circumstances
could affect the financial condition of one or more insurance companies.
The insurance business is highly competitive and with the deregulation of
financial service businesses, it should become more competitive. In
addition, insurance companies may expand into non-traditional lines of
business which may involve different types of risks.
INSURANCE RISK--There is no guarantee that the objectives of an
Insured Trust will be achieved since an issuer may be unable to meet its
principal and interest payment obligations and, in such event, the
insurance company issuing the Bond Insurance may be unable to satisfy its
insurance obligation. Insurance is not a substitute for the basic credit
of an issuer. NO REPRESENTATION IS MADE AS TO THE ABILITY OF THE INSURANCE
COMPANIES TO MEET THEIR COMMITMENTS.
EVALUATION OF THE SECURITIES--Insurance does not guarantee the market
value of the Securities or the value of the Units. However, any such Bond
Insurance represents an element of market value in regard to the Securities
thus insured, but the exact effect, if any, of this insurance on such
market value cannot be predicted. The evaluation of the Securities covered
by Bond Insurance was determined in the manner set forth in "Public
Offering of Units--Public Offering Price".
OBJECTIVES AND SECURITIES SELECTION
The objectives of each Trust are the providing of interest income
which is exempt, in the opinion of counsel, from Federal income taxes under
existing law (with certain exceptions depending on the Unit Holder) and the
conservation of capital through an investment in a diversified portfolio of
municipal and public authority debt obligation Securities. The extent, if
any, to which interest income of the Trust is subject to alternative
minimum tax is stated in Part A - Schedule of Portfolio Securities. There
is, of course, no guarantee that a Trust's objectives will be achieved.
In selecting Securities for each Trust, the following factors, among
others, were considered by the Sponsor: (a) rating of the Securities of no
less than "BBB" by Standard & Poor's Corporation or "Baa" or "MIG 2" by
Moody's Investors Service, or, if unrated, the Securities must have, in the
opinion of the Sponsor, comparable credit characteristics, (b) maturities
or mandatory payment dates consistent with the life of the Trust, (c)
prices of the Securities relative to prices of other securities of
comparable quality and maturity, (d) diversification of the Securities as
to purpose and location of Issuer (purpose only in the case of a State
Trust) and (e) in the case of an Insured Trust, whether or not a Security
is insured or insurable. Subsequent to the date specified in Part A of
this Prospectus, a Security may cease to be rated or its rating may be
reduced below the minimum required as of the Date of Deposit.
25
<PAGE>
THE UNITS
On the date specified in Part A of this Prospectus, each Unit
represented the fractional undivided interest in each Trust set forth under
Part A--"Summary of Essential Information". The present size and
composition of each Trust may be reduced through the maturity, redemption,
sale or other disposition of Securities in each Trust, and, as the proceeds
of such dispositions are distributed to Unit Holders, the principal amount
of Securities represented by each Unit will be reduced. If any Units are
redeemed by the Trustee, the fractional undivided interest represented by
each Unit still outstanding will be increased although the actual interest
in each Trust represented by each such Unit will remain unchanged. (See:
"Redemption".) Units will remain outstanding until tendered for redemption
by any Unit Holder (including the Sponsor) or until the termination of the
Trust itself. No assurance can be given that a Trust will maintain, for
any length of time, its present size and composition. (See "Amendment and
Termination of the Indenture--Termination".)
Estimated Annual Income and Current Return
On the date specified in Part A of this Prospectus, the estimated net
annual interest income per Unit of a Trust (or per 1,000 Units in the case
of certain Trusts) was the amount set forth under Part A--"Summary of
Essential Information" in Part A. This figure is computed by dividing the
estimated total gross annual interest income to the Trust (based upon a
360-day year) by the number of Units outstanding on such date, less
estimated annual fees and expenses of the Sponsor (if any), the Trustee,
counsel and the Evaluator (multiplied by 1,000 Units in the case of certain
Trusts). Thereafter, the net annual interest income will change whenever
Securities mature, are redeemed or are sold, as the expenses of the
respective Trust change. The fees of the Sponsor (if any), the Trustee,
counsel and the Evaluator are subject to change without the consent of Unit
Holders, to the extent provided under "Expenses and Charges". Interest on
the Securities, less estimated expenses of the respective Trust, is
expected to accrue at the daily rate shown under Part A--"Summary of
Essential Information". This rate will change as Securities mature, are
redeemed or are sold, or as the expenses or income of the respective Trust
change and if an issuer defaults in the payment of interest.
The Public Offering Price will vary due to fluctuations in the
offering and/or bid prices of the Securities and the net annual interest
income per Unit may change as Securities mature, are redeemed or are sold,
and/or as the expenses of the Trust change.
The Estimated Current Return is calculated by dividing the Estimated
Net Annual Income per Unit by the Public Offering Price per Unit. The
Estimated Net Annual Income per Unit will vary with changes in fees and
expenses of the Trustee and the Evaluator and with the principal
prepayment, redemption, maturity, exchange or sale of Securities while the
Public Offering Price will vary with changes in the offering price of the
underlying Securities; therefore, there is no assurance that the present
Estimated Current Return indicated in Part A will be realized in the
future. The Estimated Long-Term Return is calculated using a formula which
(1) takes into consideration, and factors in the relative weightings of,
the market values, yields (which takes into account the amortization of
premiums and the accretion of discounts) and estimated retirements of all
of the Securities in the Trust and (2) takes into account the expenses and
sales charge associated with each Unit. Since the market values and
estimated retirements of the Securities and the expenses of the Trust will
26
<PAGE>
change, there is no assurance that the present Estimated Long-Term Return
as indicated in Part A will be realized in the future. The Estimated
Current Return and Estimated Long-Term Return are expected to differ
because the calculation of the Estimated Long-Term Return reflects the
estimated date and amount of principal returned while the Estimated Current
Return calculations include only Net Annual Interest Income and Public
Offering Price as of the Date of Deposit. The Estimated Current Return and
the Estimated Long-Term Return will be higher for those Unit Holders paying
a reduced sales charge. Neither calculation reflects the lower return
which results from the delay in payments which may occur during the first
few months of Trust operations.
TAX STATUS
The following discussion applies to each Trust offered by this
Prospectus.
In the opinion of bond counsel to the issuing governmental
authorities, interest income on the Securities comprising the Portfolio of
the Trust is (except in certain instances depending upon the Unit Holder,
as described below) exempt from Federal income tax under the provisions of
the Internal Revenue Code as in effect at the date of issuance. In the
case of Securities issued at a time when the 1954 Code was in effect,
redesignation of the Code as the Internal Revenue Code of 1986 (the "Code"
or the "1986 Code") has not adversely affected the exemption from Federal
income tax of interest income on such Securities. Gain (exclusive of any
earned original issue discount) realized on sale or redemption of the
Securities or on sale of a Unit is, however, includable in gross income for
Federal income tax purposes and for state and local income tax purposes
generally. (It should be noted in this connection that such gain does not
include any amounts received in respect of accrued interest.) Such gain
may be capital gain or ordinary income and, if capital gain, may be long or
short-term depending upon the facts and circumstances. Securities selling
at market discount tend to increase in market value as they approach
maturity when the principal amount is payable, thus increasing the
potential for taxable gain on their maturity, redemption or sale.
In the opinion of Cahill Gordon & Reindel, special counsel to the
Sponsor, under existing law:
The Trust is not an association taxable as a
corporation for Federal income tax purposes, and interest on an
underlying Security which is exempt from Federal income tax under the
Code when received by the Trust will retain its status as tax-exempt
interest for Federal income tax purposes to the Unit Holders.
Each Unit Holder will be considered the owner of a pro
rata portion of the Trust's assets under Sections 671-678 of the
Code. Each Unit Holder will be considered to have received a pro
rata share of interest derived from the Trust's assets when it is
received by the Trust and each Unit Holder will have a taxable event
when an underlying Security is disposed of (whether by sale,
exchange, redemption, or payment at maturity) or when the Unit Holder
redeems or sells Units. The total tax cost of each Unit to a Unit
Holder is allocated among each of the underlying Securities (in
accordance with the proportion of the Trust's assets comprised by
each Security) in order to determine the Unit Holder's per Unit tax
cost for each Security, and the tax cost reduction requirements of
the Code relating to amortization of bond premium will apply
separately to the per Unit tax cost of each Security. Therefore,
27
<PAGE>
under some circumstances a Unit Holder may realize taxable gains when
Units are sold or redeemed for an amount equal to or less than the
Unit Holder's original cost.
When a contract to acquire an underlying Security is
settled after the Unit Holder's settlement date for a Unit, the Unit
Holder's proportionate share of the interest accrued on the
underlying Security on the Security settlement date will exceed the
portion of the purchase price that was allocable to interest accrued
on the Unit settlement date. A Unit Holder will not be subject to
Federal income tax on the Unit Holder's proportionate share of the
interest which accrues during the period between the Unit settlement
date and the Security settlement date either when such interest is
received by the Trust or when it is distributed to the Unit Holder.
Under the income tax laws of the State and City of New
York, the income of the Trust will be treated as the income of its
Unit Holders.
If the proceeds received by the Trust upon the sale or redemption of
an underlying Security exceed a Unit Holder's adjusted tax cost allocable
to the Security disposed of, that Unit Holder will realize a taxable gain
to the extent of such excess. Conversely, if the proceeds received by the
Trust upon the sale or redemption of an underlying Security are less than a
Unit Holder's adjusted tax cost allocable to the Security disposed of, that
Unit Holder will realize a loss for tax purposes to the extent of such
difference.
Any gain recognized on a sale or exchange of a Unit Holder's pro rata
interest in a Security, and not constituting a realization of accrued
"market discount", and any loss will be a capital gain or loss, except in
the case of a dealer or financial institution. Gain realized on the
disposition of the interest of a Unit Holder in a market discount Security
is treated as ordinary income to the extent the gain does not exceed the
accrued market discount. A Unit Holder has an interest in a market
discount Security in a case in which the Unit Holder's tax cost for the
Unit Holder's pro rata interest in the Security is less than the stated
redemption price thereof at maturity (or the issue price plus original
issue discount accrued up to the acquisition date, in the case of an
original issue discount Security). Any capital gain or loss arising from
the disposition of a Unit Holder's pro rata interest in a Security will be
a long-term capital gain or loss if the Unit Holder has held his or her
Units and the Trust has held the Security for more than one year. Under
the Code, net capital gain (i.e., the excess of net long-term capital gain
over net short-term capital loss) of individuals, estates and trusts is
subject to a maximum nominal tax rate of 28%. Such net capital gain may,
however, result in a disallowance of itemized deductions and/or affect a
personal exemption phase-out.
Opinions relating to the validity of the underlying Securities and
the exemption of interest thereon from Federal income tax are rendered by
bond counsel to the issuing governmental authorities. It is the view of
the Sponsor that interest on the Securities will not be a tax preference
item for purposes of the alternative minimum tax unless the "Schedule of
Portfolio Securities" indicates that the interest on a particular Security
is, in the opinion of bond counsel, to be treated as a tax preference item
for alternative minimum tax purposes. See Part A--"Schedule of Portfolio
Securities". Neither the Sponsor nor its counsel have made any review of
proceedings relating to the issuance of underlying Securities or the bases
28
<PAGE>
for bond counsel's opinions. The Sponsor and its counsel are, however,
aware of nothing which would indicate to the contrary.
Furthermore, exemption of interest on a Security from Federal income
tax may require that the issuer of the Security (or other user of the
Security proceeds) meet certain ongoing compliance requirements. Failure
to meet these requirements could result in loss of the exemption and such
loss of exemption could apply retroactively from the date of issuance. A
Security may provide that if a loss of exemption is determined to have
occurred, the Security is immediately due and payable; and, in the case of
a Security which is a secured obligation, that the security can be reached
if the Security is not then paid. If such a loss of exemption were to
occur and the Security did not contain such an acceleration clause, or if
the acceleration did not in fact result in payment of the Security, the
affected Security would likely be sold as a taxable bond. Sale of a
Security as a taxable bond would likely result in a realization of proceeds
less than the cost of the Security.
In the case of certain of the underlying Securities comprising the
Portfolio of the Trust, the opinions of bond counsel indicate that although
interest on such underlying Securities is generally exempt from Federal
income tax, such underlying Securities are "industrial development bonds"
under the 1954 Code or "private activity bonds" under the 1986 Code as
those terms are defined in the relevant Code provisions, and interest on
such underlying Securities will not be exempt from Federal income tax for
any period during which such underlying Securities are held by a
"substantial user" of the facilities financed by the proceeds of such
underlying Securities (or a "related person" to such a "substantial user").
In the opinion of Messrs. Cahill Gordon & Reindel, interest attributable to
such underlying Securities (although not subject to Federal income tax to
the Trust), if received by the Trust for the account of a Unit Holder who
is such a "substantial user" or "related person," will be taxable (i.e.,
not tax exempt) to the same extent as if such underlying Securities were
held by the Unit Holder directly as owner. No investigation as to the
users or of the facilities financed by the underlying Securities has been
made by the Sponsor or its counsel. Investors should consult their tax
counsel for advice with respect to the effect of these provisions on their
particular tax situations.
In the case of an Insured Trust, assuming that the insurance policies
described in "Insurance on the Securities in an Insured Trust" have been
validly issued, are of standard form with respect to subrogation and do not
relieve the issuer of the Security of its obligations thereunder, Messrs.
Cahill Gordon & Reindel are of the opinion that proceeds received under the
insurance policies representing matured interest on a defaulted obligation
will be excludable from Federal gross income if, and to the same extent,
such interest would have been so excludable if paid by the issuer of such
defaulted obligation.
Persons in receipt of Social Security benefits should be aware that a
portion of such Social Security benefits may be includible in gross income.
For 1993, the includible amount is the lesser of (i) one-half of the Social
Security benefits or (ii) one-half of the amount by which the sum of
"modified adjusted gross income" plus one-half of the Social Security
benefits exceeds a base amount. The base amount is $25,000 for unmarried
taxpayers, $32,000 for married taxpayers filing a joint return, and zero
for married taxpayers not living apart who file separate returns. For 1994
and subsequent taxable years, two threshold amounts apply. The 1993 rule
continues to apply to a taxpayer whose modified adjusted gross income plus
29
<PAGE>
one-half of his or her Social Security benefits does not exceed $34,000
($44,000 for married taxpayers filing a joint return). Taxpayers with
modified adjusted gross income in excess of the $34,000 threshold ($44,000
for married taxpayers filing a joint return) are, however, required to
include up to 85% of their Social Security benefits in gross income.
Modified adjusted gross income is adjusted gross income determined
without regard to certain otherwise allowable deductions and exclusions
from gross income, plus tax-exempt interest on municipal obligations
including interest on the Securities. To the extent that Social Security
benefits are includible in gross income they will be treated as any other
item of gross income and therefore may be taxable.
Investors should also consult their tax counsel for advice with
respect to the effect, if any, on the tax cost of Units to a Unit Holder in
cases in which a contract to acquire a Security is settled after the
settlement date for such Units and the Unit Holder's proportionate share of
the interest accrued on the underlying Security on the Security settlement
date will exceed the portion of the purchase price allocable to interest
accrued on the Unit settlement date. In such cases, the Unit Holder may
have an adjustment to his tax basis in his Units for interest accruing on
such Securities during the interval between purchase of Units and delivery
of Securities.
THE EXEMPTION OF INTEREST ON MUNICIPAL OBLIGATIONS FOR FEDERAL INCOME
TAX PURPOSES DOES NOT NECESSARILY RESULT IN EXEMPTION UNDER ANY OTHER
FEDERAL TAX LAW OR UNDER THE INCOME OR OTHER TAX LAWS OF ANY STATE OR CITY.
THE LAWS OF THE SEVERAL STATES VARY WITH RESPECT TO THE TAXATION OF SUCH
OBLIGATIONS. (See "Administration of the Trust--Reports to Unit Holders".)
The Portfolio of the Trust may contain zero coupon bond(s) or one or
more other Securities which were originally issued at a discount ("original
issue discount"). In general, original issue discount can be defined as
the difference between the price at which a Security was issued and its
stated redemption price at maturity. In the case of a Security issued
before September 4, 1982, original issue discount is deemed to accrue (be
"earned") as tax-exempt interest ratably over the period from the date of
issuance of the Security to the date of maturity and is apportioned among
the original holder of the obligation and subsequent purchasers in
accordance with a ratio the numerator of which is the number of calendar
days the obligation was owned by the holder and the denominator of which is
the total number of calendar days from the date of issuance of the
obligation to its date of maturity. Gain or loss upon the disposition of
an original issue discount Security in a Portfolio is measured by the
difference between the amount realized upon disposition of and the amount
paid for such obligation. A holder is entitled, however, to exclude from
gross income that portion of such gain attributable to accrued interest and
the "earned" portion of original issue discount.
In the case of a Security issued after September 3, 1982, original
issue discount is deemed to accrue on a constant interest method which
corresponds, in general, to the economic accrual of interest (adjusted to
eliminate proportionately on an elapsed-time basis any excess of the amount
paid for the Security over the sum of the issue price and the accrued
original issue discount on the acquisition date). The tax basis in the
Security is increased by the amount of original issue discount that is
deemed to accrue while the Security is held. The difference between the
amount realized on a disposition of the Security (ex currently accrued
interest) and the adjusted tax basis of the Security will give rise to
30
<PAGE>
taxable gain or deductible loss upon a disposition of the Security by the
Trust (or a sale or redemption of Units by a Unit Holder).
The Code provides, generally, that adjustments to taxable income to
produce alternative minimum taxable income for corporations will include
75% of the amount by which adjusted current earnings (which would include
tax-exempt interest) of the taxpayer exceeds the alternative minimum
taxable income of the taxpayer before any amount is added to alternative
minimum taxable income because of this adjustment.
For Federal income tax purposes, Trust expenses allocable to
producing or collecting Trust interest income are not deductible because
the interest income derived by the Trust is exempt from Federal income tax.
A state or local income tax may provide for a deduction for the portion of
such Trust expenses attributable to the production or collection of income
derived by the Trust and taxed by the state or locality. The effect on any
such deductions of the Code rules whereby investment expenses and other
miscellaneous deductions are deductible only to the extent in excess of 2%
of adjusted gross income would depend upon the law of the particular state
or locality involved.
The Code also imposes an additional 12/100% ($12.00 per $10,000)
environmental tax on the alternative minimum taxable income (determined
without regard to any alternative tax net operating loss deduction) of a
corporation in excess of $2,000,000 for each taxable year beginning before
January 1, 1996. The environmental tax is an excise tax and is deductible
for Federal income tax purposes (but not for purposes of the environmental
tax itself). Although the environmental tax is based on alternative
minimum taxable income, the environmental tax must be paid in addition to
any Federal income taxes payable by the corporation.
From time to time proposals have been introduced before Congress the
purpose of which is to restrict or eliminate the Federal income tax
exemption for interest on securities similar to the Securities in the
Trust or to require treatment of such interest as a "tax preference" for
alternative minimum tax purposes, and it can be expected that similar
proposals may be introduced in the future. The Trust and the Sponsor
cannot predict what legislation, if any, in respect of the tax status of
interest on Securities may be proposed by the Executive Branch or by
members of Congress, nor can they predict which proposals, if any, might be
enacted or whether any legislation if enacted would apply to the Securities
in the Trust.
In addition, investors should be aware that no deduction is allowed
for Federal income tax purposes for interest on indebtedness incurred or
continued to purchase or carry Units in the Trust. Under rules used by the
Internal Revenue Service for determining when borrowed funds are considered
used for the purpose of purchasing or carrying particular assets, the
purchase of Units may be considered to have been made with borrowed funds
even though the borrowed funds are not directly traceable to the purchase
of the Units.
All taxpayers are required to report for informational purposes on
their Federal income tax returns the amount of tax-exempt interest they
receive.
INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE
APPLICABILITY OF THE FOREGOING GENERAL COMMENTS TO THEIR OWN PARTICULAR
31
<PAGE>
SITUATIONS AND AS RESPECTS STATE AND LOCAL TAX CONSEQUENCES OF AN
INVESTMENT IN UNITS.
PUBLIC OFFERING OF UNITS
Public Offering Price
The Public Offering Price of Units, including Additional Units,
during the initial public offering period is computed by adding to the
aggregate offering price of the Securities in a Trust, and thereafter, by
adding to the aggregate bid price of the Securities in the Trust, any money
in the Principal Account other than money required to redeem previously
tendered Units and money to be distributed to the Sponsor or solely to Unit
Holders other than the purchasing Unit Holders, dividing such sum by the
number of Units outstanding, and then adding a sales charge (as shown in
Part A--"Summary of Essential Information--Special Considerations"). For
the short and short intermediate term Trusts, this Sales Charge will be
reduced over the life of the Trust, as set forth under Part A--"Summary of
Essential Information--Public Offering Price". A proportionate share of
accrued and undistributed interest on the Securities to the settlement date
for Units purchased is also added to the Public Offering Price. The Public
Offering Price on the date specified in this Prospectus or on any
subsequent date will vary in accordance with fluctuations in the evaluation
of the underlying Securities in each Trust.
During the initial public offering period and thereafter, the
aggregate bid or offering prices of the Securities in the Trust, as is
appropriate, shall be determined for the Trust by the Evaluator in the
following manner: (a) on the basis of current bid or offering prices for
the Securities as obtained from investment dealers or brokers (including
the Depositor), (b) if bid or offering prices are not available for the
Securities, on the basis of current bid or offering prices for comparable
securities, (c) by determining the value of the Securities on the bid or
offering side of the market by appraisal, or (d) by any combination of the
above. The value of insurance obtained by the issuer of a Security is
reflected and included in the market value of such Security. With respect
to the initial evaluation of the offering prices of Securities which at the
Date of Deposit were subject to syndicate offering period pricing
restrictions, it is the practice of the Evaluator to determine such
evaluation on the basis of the syndicate offering price, unless factors
cause the Evaluator to conclude that such syndicate offering price does not
then accurately reflect the fair market value of such Securities, in which
case the Evaluator will also take into account the other criteria described
above for the purpose of making its determination. Such evaluations and
computations will be made during the initial public offering period on the
offering side of the market as of the close of business on each day
commencing with the Date of Deposit of the Securities, and will be
effective for all sales of Units made during the preceding 24-hour period.
Following the initial public offering period, evaluations made for purposes
of secondary market transactions by the Sponsor will be made on the bid
side of the market on each business day as of the Evaluation Time,
effective for all sales made during the preceding 24-hour period.
Evaluations for purposes of redemptions by the Trustee will be made each
business day as of the Evaluation Time, effective for all redemptions made
subsequent to the last preceding determination. The price at which Units
may be repurchased by the Sponsor in the secondary market could be less
than the price paid by the Unit Holder. For information relating to the
calculation of the Redemption Price, which, like the Public Offering Price
in the secondary market, is based upon the aggregate bid price of the
32
<PAGE>
underlying Securities and which may be expected to be less than the
aggregate offering price, see "Redemption".
In addition to the Public Offering Price, the price of a Unit
includes accrued interest on the Securities. Because of the varying
interest payment dates of the Securities, accrued interest on the
Securities at any point in time will be greater than the amount of interest
actually received by the respective Trust and distributed to Unit Holders.
Therefore, accrued interest is always added to the value of the Units. If
a Unit Holder sells all or a portion of his or her Units, such Unit Holder
will ordinarily receive a proportionate share of the accrued interest from
the purchaser of such Units. Similarly, if a Unit Holder redeems all or a
portion of its Units, the Redemption Price per Unit will include accrued
interest on the Securities.
Securities deposited in a Trust on the Date of Deposit include an
item of accrued but unpaid interest up to the Date of Deposit. Unless
otherwise indicated in Part A--"Summary of Essential Information--Public
Offering Price," in an effort to reduce the amount of accrued interest
which investors would have to pay in addition to the Public Offering Price,
the Trustee may advance to the Trust the amount of interest accrued on the
Securities up to and including the Date of Deposit; thus, the Sponsor can
sell the Units at a price which includes accrued interest only from the
Date of Deposit. In such case, the Trustee will recover the amount of this
advance from interest payments received on the Securities deposited in each
Trust. Unless otherwise indicated in Part A--"Summary of Essential
Information--Public Offering Price", the amount of accrued interest to be
added to the Public Offering Price of Units purchased by Unit Holders will
include accrued interest from the Date of Deposit to the settlement date
for the Units, less any distributions from the Interest Account. Such
proportionate share will be an asset of the Unit Holder and will be
received in subsequent distributions or upon the sale of its Units.
On the Date of Deposit, the Public Offering Price per Unit and the
Sponsor's Initial Repurchase Price per Unit (based on the offering side
evaluation of the Securities in a Trust) each exceeded the Redemption and
Sponsor's Secondary Market Repurchase Price per Unit (based upon the bid
side evaluation of the Securities in a Trust) by the amounts set forth in
Part A--"Summary of Essential Information".
Public Distribution
During the initial public offering period, Units, including
Additional Units, will be distributed to the public by the Sponsor and
through dealers at the Public Offering Price, calculated on each business
day, plus accrued interest. The initial public offering period is 30 days,
unless all Units are sold prior thereto whereupon the initial public
offering period will terminate. The initial public offering period may be
extended by the Sponsor for as long as Units remain unsold. Upon the
termination of the initial public offering period, unsold Units or Units
acquired by the Sponsor in the secondary market referred to below may be
offered to the public by this Prospectus at the then current Public
Offering Price calculated daily, plus accrued interest.
The Sponsor intends to qualify Units in states selected by the
Sponsor for sale by the Sponsor, and from time to time may offer Units for
sale through dealers who are members of the National Association of
Securities Dealers, Inc.
33
<PAGE>
Secondary Market
While not obligated to do so, it is the Sponsor's present intention
to maintain a secondary market for Units of the Trust and to offer
continuously to repurchase Units from Unit Holders at the applicable
Sponsor's Repurchase Price. During the initial public offering period, the
Sponsor's Repurchase Price is computed by adding to the aggregate of the
offering prices of the Securities in the Trust any money in the Principal
Account other than money required to redeem tendered Units, plus accrued
interest, deducting therefrom expenses of the Trustee, Evaluator, Sponsor
and counsel, and taxes, if any, and then dividing the resulting sum by the
number of Units outstanding, as of the date of such computation. After the
initial public offering period, the Sponsor's Repurchase Price is based on
the aggregate of the bid prices of the Securities in the Trust. There is
no refund of the sales charge, nor is there any additional sales charge
incurred, when a Unit Holder sells Units back to the Sponsor. Any Units
repurchased by the Sponsor at the Sponsor's Repurchase Price may be
reoffered to the public by the Sponsor at the then current Public Offering
Price, plus accrued interest. Any profit or loss resulting from the resale
of such Units will belong to the Sponsor.
If the supply of Units exceeds demand (or for any other business
reason), the Sponsor may, at any time, occasionally, from time to time, or
permanently, discontinue the repurchase of Units. In such event, although
under no obligation to do so, the Sponsor may, as a service to Unit
Holders, offer to repurchase Units at the Redemption Price, a price based
on the current bid prices for the Securities, plus accrued interest.
Alternatively, Unit Holders may redeem their Units through the Trustee.
The Redemption Price per Unit is computed based on the bid side evaluation
of the Securities, not the offering side evaluation. There is no refund of
the sales charge, nor is any additional sales charge incurred, when a Unit
Holder tenders Units for redemption. If the Sponsor repurchases Units in
the secondary market at the Redemption Price, it may reoffer these Units in
the secondary market at the Public Offering Price, or the Sponsor may
tender Units so purchased to the Trustee for redemption. In no event will
the price offered by the Sponsor for the repurchase of Units be less than
the current Redemption Price for those Units. (See "Redemption".)
The bid prices for the Securities may be expected to be less than the
offering prices. In the past, bid prices of securities similar to those in
a short or short intermediate term trust have been lower than the offering
prices thereof by as much as 1 1/4% of principal amount for inactively traded
securities and as little as 1/4 of 1% in the case of actively traded issues.
It can be expected that the difference between the bid and offering prices
in a short or short intermediate term trust will average about 1/2% to 1% of
principal amount. Bid prices of securities similar to those in an
intermediate or intermediate long term trust have been lower than the
offering prices thereof by as much as 2 1/2% and as little as 1/2 of 1%; the
difference between the bid and offering prices will average about 1% to 2%.
Bid prices of securities similar to those in a long term trust have been
lower than the offering prices thereof by as much as 3 1/2% of principal
amount for inactively traded securities and as little as 1/2 of 1% in the
case of actively traded issues. It can be expected that the difference
between the bid and offering prices will average about 1 1/2% to 2% of
principal amount. All of the ranges discussed above are estimates only;
the actual difference for a particular Security or Trust may be greater or
less, depending on market conditions. For this reason, among others
(including the fact that the Public Offering Price includes a sales
34
<PAGE>
charge), the amount realized by a Unit Holder upon redemption or sale of
Units may be less than the price paid by the Unit Holder for such Units.
Profit of Sponsor
The Sponsor receives a sales charge on Units sold to the public. On
the sale of Units to dealers, the Sponsor will retain the difference
between the dealer concession and the sales charge. The Sponsor may have
also realized a profit (or sustained a loss) on the deposit of the
Securities in each Trust, representing the difference between the cost of
the Securities to the Sponsor and the cost of the Securities to the Trust.
In addition, the Sponsor may receive placement fees or may realize profits
or sustain losses with respect to Securities acquired from underwriting
syndicates of which the Sponsor is a member. The Trust may contain
Securities which were acquired through the Sponsor's participation as sole
underwriter or manager or as a member of the underwriting syndicate for
such Securities. (See Part A--"Summary of Essential Information--Portfolio
Summary as of Date of Deposit".) An underwriter typically purchases
securities, such as the Securities in each Trust, from the issuer on a
negotiated or competitive bid basis in order to market such securities to
investors at a profit. The Sponsor may realize additional profit (or
sustain a loss) due to daily fluctuations in the prices of the Securities
in each Trust and, thus, in the Public Offering Price of Units received by
the Sponsor during the initial offering period and during the maintenance
of a secondary market, if any. Cash, if any, received by the Sponsor from
the Unit Holders prior to the settlement date for purchase of Units or
prior to the payment for Securities upon their delivery may be used in the
Sponsor's business to the extent permitted by applicable regulations and
may be of benefit to the Sponsor.
The Sponsor may also realize profits (or sustain losses) while
maintaining a secondary market in the Units, in the amount of any
difference between the prices at which the Sponsor buys Units (based on the
bid side of the Securities in each Trust) and the prices at which the
Sponsor resells such Units (such prices include the sales charge) or the
prices at which the Sponsor redeems such Units (also based on the bid side
of the Securities in each Trust), as the case may be.
Volume Discount
Although under no obligation to do so, the Sponsor intends to permit
volume purchasers of Units to purchase Units at a reduced sales charge.
The volume discount is available due to the realization of economies of
scale in sales effort and sales-related expenses involved in volume
purchases. The Sponsor may at any time change the amount by which the
sales charge is reduced, or may discontinue the discount altogether.
The reduced sales charges, as shown on the chart in Part A of this
Prospectus, will apply to all purchases of Units of a particular Trust on
any one day by the same person, partnership or corporation (other than a
dealer) in the amounts stated herein. Purchases of Units of a particular
Trust will not be aggregated with concurrent purchases of Units of any
other trust that may be offered by the Sponsor.
Units held in the name of the purchaser's spouse or in the name of a
purchaser's child under the age of 21 are deemed for volume discount
purposes to be registered in the name of the purchaser. The reduced sales
charges are also applicable to a trustee or other fiduciary, including a
35
<PAGE>
partnership or corporation, purchasing Units for a single trust estate or
single fiduciary account.
EXCHANGE OPTION
Unit Holders of any Dean Witter sponsored unit investment trust or
any holders of units of any other unit investment trust (collectively,
"Unit Holders") may elect to exchange any or all of their units for units
of one or more of any series of the Dean Witter Select Municipal Trust or
for units of any other Dean Witter sponsored unit investment trust that may
from time to time be made available for such exchange by the Sponsor (the
"Exchange Trusts"). Such units may be acquired at prices based on reduced
sales charges per unit. The purpose of such reduced sales charge is to
permit the Sponsor to pass on to the Unit Holder who wishes to exchange
units the cost savings resulting from such exchange. The cost savings
result from reductions in time and expense related to advice, financial
planning and operational expense required for the Exchange Option. Series
of the following Exchange Trusts are currently available: the Dean Witter
Select Municipal Trust, the Dean Witter Select Government Trust, the Dean
Witter Select Equity Trust, the Dean Witter Select Investment Trust and the
Dean Witter Select Corporate Trust.
Each Exchange Trust has different investment objectives; a Unit
Holder should read the Prospectus for the applicable Exchange Trust
carefully to determine the investment objective prior to exercise of this
option.
This option will be available provided the Sponsor maintains a
secondary market in units of the applicable Exchange Trust and provided
that units of the applicable Exchange Trust are available for sale and are
lawfully qualified for sale in the state in which the Unit Holder is a
resident. While it is the Sponsor's present intention to maintain a
secondary market for the units of Exchange Trusts, there is no obligation
on its part to do so. Therefore, there is no assurance that a market for
units will in fact exist on any given date on which a Unit Holder wishes to
sell or exchange Units; thus, there is no assurance that the Exchange
Option will be available to any Unit Holder. The Sponsor reserves the
right to modify, suspend or terminate this option at any time without
further notice to Unit Holders. In the event the Exchange Option is not
available to a Unit Holder at the time such Unit Holder wishes to exercise
such option, the Unit Holder will be immediately notified and no action
will be taken with respect to such tendered Units without further
instruction from the Unit Holder.
Exchanges will be effected in whole units only. Any excess proceeds
from the surrender of a Unit Holder's Units will be returned.
Alternatively, Unit Holders will be permitted to make up any difference
between the amount representing the Units being submitted for exchange and
the amount representing the units being acquired up to the next highest
number of whole units.
An exchange of Units pursuant to the Exchange Option will generally
constitute a "taxable event" under the Code, i.e., a Unit Holder will
recognize a gain or loss at the time of exchange. However, an exchange of
Units of this Series of the Dean Witter Select Municipal Trust for units of
any other series of the Exchange Trusts which are grantor trusts for U.S.
federal income tax purposes will not constitute a taxable event to the
extent that the underlying securities in each trust do not differ
materially either in kind or in extent. Unit Holders are urged to consult
36
<PAGE>
their own tax advisors as to the tax consequences of exchanging Units in
their particular cases.
To exercise the Exchange Option, a Unit Holder should notify the
Sponsor of the desire to acquire units of one or more of the Exchange
Trusts. If units of the applicable outstanding series of the Exchange
Trust are at that time available for sale, the Unit Holder may select the
series or group of series for which its Units are to be exchanged. The
Unit Holder will be provided with a current prospectus or prospectuses
relating to each series in which interest is indicated.
The exchange transaction will operate in a manner essentially
identical to any secondary market transaction, i.e., Units will be
repurchased at a price equal to the aggregate bid side evaluation per Unit
of the Securities in the Portfolio, plus accrued interest. Units of the
Exchange Trust will be sold to the Unit Holder at a price equal to the
offering or bid side evaluation (as applicable) per unit of the securities
in the Exchange Trust's Portfolio, plus accrued interest and the applicable
sales charge of $25 per unit ($25 per 1,000 units in the case of a short
term or a short intermediate term Exchange Trust or 2.5% of the Public
Offering Price where the cost per unit is significantly less than $1.00).
If a Unit Holder has held its Units for less than a five-month period the
sales charge shall be the greater of (i) $25 or (ii) the difference between
the sales charge on the Exchange Trust and the sales charge on the Trust
currently held.
REINVESTMENT PROGRAMS
Distributions of interest and principal, if any, from the
intermediate term Trusts and the long term Trusts are made monthly, and
distributions of interest from the short or short intermediate term Trusts
are made to Unit Holders semiannually. Distributions of principal from the
short or short intermediate term Trust may be made more frequently than
semiannually. (See "Administration of the Trust--Distributions from the
Interest and Principal Accounts".) The Unit Holder has the option,
however, of either receiving an interest check, together with any principal
payments, from the Trustee or participating in a choice of reinvestment
programs offered by the Sponsor: (i) the Dean Witter Select Municipal
Reinvestment Fund, an open-end investment company whose investment
objective is to provide a high level of current income which is not
included in gross income for Federal income tax purposes, or (ii) the
Active Assets Account. The Unit Holder may not choose reinvestment for
Units of a Trust in both the Dean Witter Select Municipal Reinvestment Fund
and the Active Assets Account. Participation in the reinvestment programs
is conditioned on such programs' lawful qualification for sale in the
state in which the Unit Holder is a resident. Upon enrollment in a
reinvestment program, the Trustee will direct interest distributions and
principal distributions, if any, to the chosen fund. The Dean Witter
Select Municipal Reinvestment Fund is composed primarily of high yielding,
long term bonds, the interest on which is not included in gross income for
Federal tax purposes, that are managed by the InterCapital Division of the
Sponsor. The Active Assets Account offers a choice of four funds as well
as check writing and a variety of other privileges; there is an initial
minimum requirement of a deposit with the InterCapital Division of $20,000
worth of cash or marginable securities upon enrollment. For more
information concerning these funds, the Unit Holder should fill out and
mail the attached card. The appropriate prospectus or prospectuses will be
sent to the Unit Holder according to the indicated choice. A Unit Holder's
election to participate in either reinvestment program will apply to all
37
<PAGE>
Units of each Trust owned by such Unit Holder. A Unit Holder should read
the prospectus for the reinvestment program carefully before deciding
to participate.
REDEMPTION
Tender of Units
Units may be tendered to the Trustee for redemption at its unit
investment trust office upon payment of any relevant tax. (See "Trustee".)
At the present time there are no specific taxes related to the redemption
of the Units. No redemption fee will be charged by the Sponsor or the
Trustee. Units redeemed by the Trustee will be canceled.
Certificates for Units to be redeemed must be properly endorsed or
accompanied by a written instrument of transfer, although redemptions
without the necessity of certificate presentation will be effected for
record Unit Holders for whom Certificates have not been issued. Unit
Holders must sign exactly as their name appears on the face of the
Certificate with the signature guaranteed by an officer of a national bank
or trust company or by a member firm of either the New York, Midwest or
Pacific Stock Exchanges. In certain instances the Trustee may require
additional documents such as, but not limited to, trust instruments,
certificates of death, appointments as executor or administrator or
certificates of corporate authority.
Within seven calendar days following such tender, or if the seventh
calendar day is not a business day, on the first business day prior
thereto, the Unit Holder will be entitled to receive in cash an amount for
each Unit tendered equal to the Redemption Price per Unit computed as of
the Evaluation Time set forth in Part A--"Summary of Essential Information"
on the date of tender. (See "Redemption--Computation of Redemption Price
per Unit".) The date of tender is deemed to be the date on which Units are
received by the Trustee, except that as regards Units received after the
Evaluation Time, the date of tender is the first day after such date on
which the New York Stock Exchange is open for trading, and such Units will
be deemed to have been tendered to the Trustee on such day for redemption
at the Redemption Price computed on that day.
Accrued interest paid on redemption shall be withdrawn from the
Interest Account, or, if the balance therein is insufficient, from the
Principal Account. All other amounts paid on redemption shall be withdrawn
from the Principal Account. The Trustee is empowered to sell Securities in
order to make funds available for redemption. Such sales, if required,
could result in a sale of Securities by the Trustee at a loss. To the
extent Securities are sold, the size and diversity of the Trust will be
reduced.
The Trustee reserves the right to suspend the right of redemption and
to postpone the date of payment of the Redemption Price per Unit for any
period during which the New York Stock Exchange is closed, other than
weekend and holiday closings, or trading on that Exchange is restricted or
during which (as determined by the Securities and Exchange Commission by
rule or regulation) an emergency exists as a result of which disposal or
evaluation of the underlying Securities is not reasonably practicable, or
for such other periods as the Securities and Exchange Commission has by
order permitted. The Trustee is not liable to any person or in any way for
any loss or damage that may result from any such suspension or
postponement.
38
<PAGE>
Computation of Redemption Price per Unit
The Redemption Price per Unit of the Trust is determined by the
Trustee on the basis of the bid prices of the Securities in the Trust (or
contracts for Securities to be acquired by the Trust) as of the Evaluation
Time on the date any such determination is made. The Redemption Price per
Unit is each Unit's pro rata share, determined by the Trustee, of: (1) the
aggregate value of the Securities in the Trust (or contracts for securities
to be acquired by the Trust) on the bid side of the market (determined by
the Evaluator as set forth below), (2) cash on hand in the Trust, and
accrued and unpaid interest on the Securities as of the date of
computation, less (a) amounts representing taxes or governmental charges
payable out of the Trust, (b) the accrued expenses of the Trust, and (c)
cash held for distribution to Unit Holders of record as of a date prior to
the evaluation. Accrued interest payable in respect of the Units from the
date of tender to, but not including, the fifth business day thereafter
also comprises a part of the Redemption Price per Unit. The Evaluator may
determine the value of the Securities in the Trust (1) on the basis of
current bid prices for the Securities, (2) if bid prices are not available
for any Securities, on the basis of current bid prices for comparable
securities, (3) by appraisal, or (4) by any combination of the above.
Securities insured under a policy obtained by the issuer thereof are
entitled to the benefits of such insurance at all times and such benefits
are reflected and included in the market value of such Securities.
Purchase by the Sponsor of Units
Tendered for Redemption
The Indenture requires that the Trustee notify the Sponsor of any
tender of Units for redemption. So long as the Sponsor is maintaining a
bid in the secondary market, the Sponsor, prior to the close of business on
the second succeeding business day, may purchase any Units tendered to the
Trustee for redemption at the price so bid by making payment therefor to
the Unit Holder in an amount not less than the Redemption Price not later
than the day on which the Units would otherwise have been redeemed by the
Trustee. (See "Public Offering of Units--Secondary Market".) Units held
by the Sponsor may be tendered to the Trustee for redemption as any other
Units.
The price of any Units resold by the Sponsor will be the Public
Offering Price determined in the manner provided in this Prospectus. (See
"Public Offering of Units--Public Offering Price".) Any profit resulting
from the resale of such Units will belong to the Sponsor which likewise
will bear any loss resulting from a lower Public Offering or Redemption
Price subsequent to its acquisition of such Units. (See "Public Offering
of Units--Profit of Sponsor".)
RIGHTS OF UNIT HOLDERS
Certificates
Ownership of Units is evidenced by registered certificates issued in
denominations of one or more Units, which have been executed by the Trustee
and the Sponsor. These Certificates are transferable or exchangeable upon
presentation at the corporate trust office of the Trustee, properly
endorsed or accompanied by an instrument of transfer satisfactory to the
Trustee and executed by the Unit Holder or its authorized attorney,
together with the payment of $2.00, if required by the Trustee (or such
other amount as may be determined by the Trustee and approved by the
39
<PAGE>
Sponsor) and any other tax or governmental charge imposed upon the transfer
of Certificates. The Trustee will replace any mutilated, lost, stolen or
destroyed Certificate upon proper identification, satisfactory indemnity
and payment of charges incurred. Any mutilated Certificate must be
presented to the Trustee before any substitute Certificate will be issued.
Certain Limitations
No Unit Holder shall have the right to vote except with respect to
removal of the Trustee, certain amendments of the Indenture, or termination
of a Trust. (See "Amendment and Termination of the Indenture".) Unit
Holders shall have no right to control the operation or administration of a
Trust in any manner, except upon the vote of 51% of the Unit Holders
outstanding at any time for purposes of amendment, or termination of a
Trust or discharge of the Trustee, all as provided in the Indenture.
The death or incapacity of any Unit Holder (or the dissolution of the
Sponsor) will not operate to terminate a Trust, nor entitle the legal
representatives or heirs of such Unit Holder to claim an accounting or to
take any other action or proceeding in any court for a partition or winding
up of a Trust.
EXPENSES AND CHARGES
Initial Expenses
All expenses and charges incurred prior to or in the establishment of
each Trust, including the cost of bond insurance premiums for Securities
for which the Sponsor has obtained bond insurance (if any), the initial
preparation, printing and execution of the Indenture and the Certificates,
the initial fees of the Evaluator, initial legal and auditing expenses, the
cost of the preparation and printing of this Prospectus and all other
advertising and selling expenses, have been or will be, paid by the Sponsor
or the members of the underwriting account.
Fees
The Sponsor's fee is set forth in Part A--"Summary of Essential
Information--Sponsor's Annual Portfolio Supervision Fee". Such fee, earned
for Portfolio supervisory services, is based upon the aggregate face amount
of Securities in each Trust at the beginning of each calendar year and may
exceed the actual costs of providing Portfolio supervisory services for
these Trusts, but at no time will the total amount the Sponsor receives for
Portfolio supervisory services rendered to all series of the Dean Witter
Select Municipal Trust in any calendar year exceed the aggregate cost to
the Sponsor of supplying such services in such year.
For its services as Trustee under the Indenture, the Trustee receives
annually the amount set forth under Part A--"Summary of Essential
Information", computed monthly on the basis of the largest principal amount
of Securities in each Trust at any time during the preceding month.
Certain regular and recurring expenses of a Trust, including certain
mailing and printing expenses, are borne by the Trust. The Trustee also
receives benefits to the extent that it holds funds on deposit in various
non-interest bearing accounts created under the Agreement.
For each evaluation of the Securities in each Trust, the Evaluator
shall receive a fee, payable monthly, set forth under Part A--"Summary of
Essential Information".
40
<PAGE>
The Sponsor's fee accrues monthly but is paid quarterly, and the
Trustee's fees and the Evaluator's fees are payable semiannually in short
and short intermediate term trusts (monthly in intermediate, intermediate
long and long term trusts) on or before each Distribution Date from the
Interest Account, to the extent funds are available and thereafter from the
Principal Account. Any of such fees may be increased without approval of
the Unit Holders in accordance with the terms of the Indenture.
Other Charges
The following additional charges are or may be incurred by the
Trusts, as more fully described in the Indenture: (a) fees of the Trustee
for extraordinary services, (b) expenses of the Trustee (including legal
expenses and the cost of an annual audit of the accounts of a Trust by an
independent public accountant selected by the Sponsor) and of counsel
designated by the Sponsor, (c) various governmental charges, (d) expenses
and costs of any action taken by the Trustee to protect the Trust and the
rights and interests of the Unit Holders, (e) indemnification of the
Trustee for any loss, liability or expenses incurred by it in the
administration of the Trust without gross negligence, bad faith, willful
misfeasance or willful misconduct on its part or reckless disregard of its
obligations and duties, (f) indemnification of the Sponsor for any losses,
liabilities and expenses incurred in acting as Sponsor or Depositor under
the Indenture without gross negligence, bad faith, willful misfeasance or
willful misconduct or reckless disregard of its obligations and duties,
(g) expenditures incurred in contacting Unit Holders upon termination of
the Trust and (h) to the extent then lawful, expenses (including legal,
auditing and printing expenses) of maintaining registration or
qualification of the Units and/or the Trust under Federal or state
securities laws so long as the Sponsor is maintaining a market for the
Units.
The fees and expenses set forth herein are payable out of each Trust
and when so paid by or owing to the Trustee are secured by a lien on that
Trust. If the balances in the Interest and Principal Accounts are
insufficient to provide for amounts payable by each Trust, the Trustee has
the power to sell Securities to pay such amounts. To the extent Securities
are sold, the size of such Trust will be reduced and the proportions of the
types of Securities will change. Such sales might be required at a time
when Securities would not otherwise be sold and might result in lower
prices than might otherwise be realized. Moreover, due to the minimum
principal amount in which Securities may be required to be sold, the
proceeds of such sales may exceed the amount necessary for the payment of
such fees and expenses.
ADMINISTRATION OF THE TRUST
Records and Accounts
The Trustee will keep records and accounts of all transactions of
each Trust at its unit investment trust office. (See "Trustee".) These
records and accounts and executed copies of the Indenture will be available
for inspection by Unit Holders at reasonable times during normal business
hours. The Trustee will additionally keep on file for inspection by Unit
Holders a current list of the Securities held in a Trust. In connection
with the storage and handling of certain Securities deposited in the Trust,
the Trustee is authorized to use the services of Depository Trust Company.
These services would include safekeeping of the Securities, coupon-
clipping, computer book-entry transfer and institutional delivery services.
41
<PAGE>
under the Banking Law of the State of New York, a member of the Federal
Reserve System and a clearing agency registered under the Securities
Exchange Act of 1934.
Distribution
The Trustee will collect the interest on the Securities (including
monies representing penalties for the failure to make timely payments on
the Securities, liquidated damages for default or breach of any condition
or term of the Securities, and monies paid (if any) pursuant to any
contract of insurance representing interest on the Securities) as it
becomes payable, and credit such interest to a separate Interest Account
created by the Indenture. All monies received by the Trustee from sources
other than interest will be credited to a separate Principal Account. All
funds collected or received will be held by the Trustee in trust without
interest to Unit Holders as part of each Trust or the Reserve Account (if
any) established pursuant to the Indenture, for taxes or charges referred
to herein until required to be disbursed in accordance with the provisions
of the Indenture.
Distribution of Interest and Principal
Interest and principal received by the Trust will be distributed on
each Distribution Date on a pro rata basis to Unit Holders of record as of
the preceding Record Date. All distributions will be net of applicable
expenses, funds required for the redemption of Units and, if applicable,
reimbursements to the Trustee for interest payments advanced to Unit
Holders on previous monthly Distribution Dates. (See Part A--"Summary of
Essential Information", "Expenses and Charges" and "Redemption".)
The pro rata share of the Interest Account and the pro rata share of
cash in the Principal Account represented by each Unit will be computed by
the Trustee each month as of the Record Date. (See Part A--"Summary of
Essential Information".) Proceeds received from the disposition of any of
the Securities subsequent to a Record Date and prior to the next succeeding
Distribution Date will be held in the Principal Account and will not be
distributed until the following Distribution Date. The distribution to
Unit Holders as of each Record Date will be made on the following
Distribution Date or shortly thereafter and shall consist of an amount
substantially equal to one-twelfth of such Unit Holders' pro rata share of
the estimated annual income to be credited to the Interest Account after
deducting estimated expenses (the "Interest Distribution") plus such Unit
Holders' pro rata share of the cash balance in the Principal Account
computed as of the close of business on the preceding Record Date. Persons
who purchase Units between a Record Date and a Distribution Date will
receive their first distribution on the second Distribution Date following
their purchase of Units. No distribution need be made from the Principal
Account if the balance therein is less than an amount sufficient to
distribute the Minimum Principal Distribution per Unit set forth in Part A
of the Prospectus. (See "Summary of Essential Information".) The Interest
Distribution per Unit initially will be in the amount shown under "Summary
of Essential Information" in Part A and will change as the income and
expenses of the Trust change and as Securities are exchanged, redeemed,
paid down or sold.
Because interest on the Securities is not received by a Trust at a
constant rate throughout the year, any semiannual Interest Distribution or
monthly Interest Distribution may be equal to, greater than or less than
the amount actually received by that Trust representing interest on the
42
<PAGE>
Securities in its Portfolio as of a Distribution Date. In order to make
Interest Distributions at a constant amount, the Trustee is required under
the Indenture to advance such amounts as may be necessary to provide such
level Interest Distributions, thereby eliminating fluctuations which would
otherwise occur in such distributions as a result of the variances in
interest payments on Securities in the Trusts. The date of the first
Interest Distribution has been chosen, in part, to provide an overall
positive cash balance in the Interest Account to reduce the amount of
advances to be made by the Trustee. The Trustee will be reimbursed,
without interest, for any such advances from interest received on the
Securities thereafter. If all or a portion of the Securities for which
advances have been made subsequently fail to pay interest when due, the
Trustee may recoup advances made by it in anticipation of receipt of
interest payments on such Securities by reducing the amount otherwise
distributable per Unit with respect to one or more monthly Interest
Distributions. If Units are redeemed subsequent to such advances by the
Trustee, but prior to receipt by the Trustee of actual notice of such
failure to pay interest, the amount of which was so advanced by the
Trustee, each remaining Unit Holder will be subject to a greater pro rata
reduction in its monthly Interest Distribution than would have occurred
absent such redemptions. Funds which are available for future
distributions, payments of expenses and redemptions are in accounts which
are non-interest bearing to Unit Holders and are available for use by
United States Trust Company of New York, pursuant to normal banking
procedures. In addition, because of the varying interest payment dates of
the Securities comprising the Trust's Portfolio, accrued interest at any
point in time will be greater than the amount of interest actually received
by the Trust and distributed to Unit Holders. This excess accrued but
undistributed interest amount (the "accrued interest carryover"), will be
added to the value of the Units on any purchase after the date of the
Prospectus.
The Trust has been structured so that a positive cash balance in the
Interest Account will be available to pay the current expenses and charges
of each Trust. Therefore, it is not anticipated that the Trustee will have
to sell Securities in each Trust to pay such expenses. The Trustee, when
making Interest Distributions, will have previously deducted from the
Interest Account the expenses and charges mentioned above, and thus will
distribute on each Distribution Date an amount which will be less than the
interest accrued to each Unit Holder on or immediately prior to such
Distribution Date by amounts equal to the current expenses and charges of
each Trust. The amount paid to a Unit Holder on a Distribution Date
typically includes interest which has recently been paid on the Securities
in the Trust. To the extent such recently received interest payments
exceed the amount of the next regularly scheduled Interest Distribution,
such interest will be held by the Trustee until the next following
Distribution Date as an asset of the Unit Holders and will be included as
part of the amount which will be received in subsequent Interest
Distributions, upon the sale of Units or, in part, upon the sale,
redemption, or maturity of Securities in each Trust.
The Trustee will distribute to Unit Holders an amount equal to such
Unit Holder's pro rata share of the cash balance in the Principal Account
resulting from the sale, redemption or maturity of Securities, less any
monies received as proceeds of Securities which were sold to redeem
tendered Units. In a short or short intermediate term trust, the pro rata
share of the cash balance in the Principal Account will be distributed
within one month of the date of such sale, redemption or maturity of
Securities (the "Principal Record Date") to all Unit Holders of record on
43
<PAGE>
the Principal Record Date. In an intermediate, intermediate long or long
term trust, the pro rata share of the cash balance in the Principal Account
will be distributed on each Distribution Date, or shortly thereafter, to
Unit Holders of record on the preceding Record Date.
Any amounts to be paid on redemption of Units representing interest
shall be withdrawn from the Interest Account to the extent funds are
available. All other amounts paid on redemption shall be withdrawn from
the Principal Account.
Reports to Unit Holders
With each distribution, the Trustee will furnish to the Unit Holders,
a statement of the amount of interest and other receipts, if any,
distributed, expressed in each case as a dollar amount per Unit (or per
1,000 Units, in the case of a short or short intermediate term Trust) and a
change of address card. In the event that the Issuer of any of the
Securities fails to make payment when due of any interest or principal and
such failure results in a change in the amount which would otherwise be
distributed as a distribution, the Trustee will, with the first such
distribution following such failure, set forth in an accompanying
statement, the Issuer and the Securities, the amount of the reduction in
the distribution per Unit resulting from such failure, the percentage of
the aggregate face amount of Securities which such Security represents and,
to the extent then determined, information regarding any disposition or
legal action with respect to such Security. Within two months after the
end of each calendar year, the Trustee will furnish to each person who at
any time during such calendar year was a Unit Holder of record a statement
setting forth:
As to the Interest Account: the amount of interest received on the
Securities and the percentage of such amount by states and territories in
which the Issuers of the Securities are located; the amount paid from the
Interest Account upon the redemption of Units; the deductions from the
Interest Account for applicable taxes or other governmental charges, if
any, and fees and expenses of the Sponsor (if any), the Trustee, the
Evaluator and counsel; the deductions from the Interest Account for payment
into the Reserve Account; and the net amount remaining after such payments
and deductions expressed both as a total dollar amount and as a dollar
amount per Unit (or per 1,000 Units) outstanding on the last business day
of such calendar year.
As to the Principal Account: the dates of the sale, maturity,
liquidation or redemption of any of the Securities and the net proceeds
received therefrom, excluding any portion credited to the Interest Account;
the amount paid from the Principal Account representing the Units which
were redeemed; if amounts in the Interest Account were insufficient, the
deductions from the Principal Account, if any, for payment of applicable
taxes or other governmental charges, fees and expenses of the Sponsor (if
any), the Trustee, the Evaluator and counsel; if amounts in the Interest
Account were insufficient, the deductions from the Principal Account for
payment into the Reserve Account; and the net amount remaining after such
payments and deductions expressed both as a total dollar amount and as a
dollar amount per Unit (or per 1,000 Units) outstanding on the last
business day of such calendar year.
The following information: a list of the Securities of the last
business day of such calendar year; the number of Units outstanding on the
last business day of such calendar year; the Redemption Price per Unit (or
44
<PAGE>
per 1,000 Units) based on the last Trust evaluation made during such
calendar year; and the amounts actually distributed during such calendar
year from the Interest and Principal Accounts, separately stated, expressed
both as total dollar amounts and as dollar amounts per Unit (or per 1,000
Units) outstanding on the Record Dates for such distributions.
In order to comply with state and local tax reporting requirements,
the Trustee will furnish to Unit Holders, upon request, evaluations of the
Securities as determined by the Evaluator. The accounts of the Trust shall
be audited not less frequently than annually by independent certified
public accountants designated by the Sponsor, and the report of such
accountants will be furnished by the Trustee to Unit Holders upon request.
SPONSOR
Dean Witter Reynolds Inc. ("Dean Witter") is a corporation organized
under the laws of the State of Delaware and is a principal operating
subsidiary of Dean Witter, Discover & Co., a publicy-traded corporation
("DWDC"). Dean Witter is a financial services company that provides to its
individual, corporate, and institutional clients services as a broker in
securities and commodities, a dealer in corporate, municipal, and
government securities, an investment banker, an investment adviser, and an
agent in the sale of life insurance and various other products and
services. Dean Witter is a member firm of the New York Stock Exchange, the
American Stock Exchange, the Chicago Board Options Exchange, other major
securities exchanges and the National Association of Securities Dealers,
and is a clearing member of the Chicago Board of Trade, the Chicago
Mercantile Exchange, the Commodity Exchange Inc., and other major commo-
dities exchanges. Dean Witter is currently servicing its clients through a
network of approximately 375 domestic and international offices with
approximately 7,500 account executives servicing individual and
institutional client accounts.
Limitations on Liability
The Sponsor is liable for the performance of its obligations arising
from its responsibilities under the Indenture, but will be under no
liability to Unit Holders for taking any action or refraining from any
action in good faith or for errors in judgment or liable or responsible in
any way for depreciation or loss incurred by reason of the sale of any
Securities, except in case of its own willful misfeasance, bad faith, gross
negligence or reckless disregard for its obligations and duties. (See
"Sponsor-Responsibility".)
Responsibility
The Trust is a unit investment trust and is not actively managed.
The Indenture, however, permits the Sponsor to direct the Trustee to
dispose of any Security in the Trust upon the happening of certain events,
including without limitation, the following:
1. Default in the payment of principal or interest on any Security when
due and payable,
2. Institution of legal proceedings seeking to restrain or enjoin the
payment of any Security or attacking their validity,
3. A breach of covenant or warranty which could adversely affect the
payment of debt service on the Security,
45
<PAGE>
4. Default in the payment of principal or interest on any other
outstanding obligations of the same Issuer of any Security,
5. In the case of a Security that is a revenue bond, a fall in revenues,
based upon official reports, substantially below the estimated revenues
calculated to be necessary to pay principal and interest,
6. A decline in market price to such an extent, or such other market or
credit factor, as in the opinion of the Sponsor would make retention of a
Security detrimental to the Trust and to the interests of the Unit Holders,
7. Refunding or refinancing of the Security, as set forth in the
Indenture for the Trust, or
8. The loss of Federal income tax exemption with respect to interest
on the Security.
The Sponsor intends to monitor continuously developments affecting
the Securities in each Trust in order to determine whether the Trustee
should be directed to dispose of any such Securities.
It is the responsibility of the Sponsor to instruct the Trustee to
reject any offer made by an Issuer of any of the Securities to issue new
obligations in exchange and substitution for any Security pursuant to a
refunding or refinancing plan, except that the Sponsor may instruct the
Trustee to accept such an offer or to take any other action with respect
thereto as the Sponsor may deem proper if the Issuer is in default with
respect to such Security or in the judgment of the Sponsor the Issuer will
probably default in respect to such Security in the foreseeable future.
Any obligations so received in exchange or substitution will be held
by the Trustee subject to the terms and conditions of the Indenture to the
same extent as Securities originally deposited thereunder. Within five
days after the deposit of obligations in exchange or substitution for any
of the underlying Securities, the Trustee is required to give notice
thereof to each Unit Holder, identifying the Securities eliminated and the
Securities substituted therefor. Except as stated in this and the
preceding paragraph, the acquisition by the Trust of any securities other
than the Securities initially deposited and any additional Securities
supplementally deposited in the Trust (see "Introduction" herein), and/or a
Replacement Security is prohibited.
Resignation
If at any time the Sponsor shall resign under the Indenture or shall
fail to perform or be incapable of performing its duties thereunder or
shall become bankrupt or if its affairs are taken over by public
authorities, the Indenture directs the Trustee to either (1) appoint a
successor Sponsor or Sponsors at rates of compensation deemed reasonable by
the Trustee not exceeding amounts prescribed by the Securities and Exchange
Commission, or (2) terminate the Trust. The Trustee will promptly notify
Unit Holders of any such action.
46
<PAGE>
TRUSTEE
The Trustee for the Trust will be specified in Part A of this
prospectus and be either United States Trust Company of New York or The
Bank of New York. United States Trust Company of New York, with its
principal place of business at 114 West 47th Street, New York, New York
10036, and its unit investment trust office at 770 Broadway, New York, New
York 10003, has, since its establishment in 1853, engaged primarily in the
management of trust and agency accounts for individuals and corporations.
The Bank of New York has its principal place of business at 48 Wall Street,
New York, New York 10286, and its unit investment trust office at 101
Barclay Street, New York, New York 10286. Unit Holders should direct
inquiries regarding distributions, address changes and other matters
relating to the administraiton of a Trust for which The Bank of New York is
Trustee to Unit Investment Trust Division, P.O. Box 974, Wall Street
Station, New York, New York 10268-0974.
The Trustee is a member of the New York Clearing House Association
and is subject to supervision and examination by the Superintendent of
Banks of the State of New York, the Federal Deposit Insurance Corporation
and the Board of Governors of the Federal Reserve System. In connection
with the storage and handling of certain Securities deposited in a Trust,
the Trustee may use the services of the Depository Trust Company. These
services may include safekeeping of the Securities and coupon-clipping,
computer book-entry transfer and institutional delivery services. The
Depository Trust Company is a limited purpose trust company organized under
the Banking Law of the State of New York, a member of the Federal Reserve
System and a clearing agency registered under the Securities Exchange Act
of 1934.
Limitations on Liability
The Trustee shall not be liable or responsible in any way for
depreciation or loss incurred by reason of the disposition of any moneys,
Securities or Certificates or in respect of any evaluation or for any
action taken in good faith reliance on prima facie properly executed
documents except in cases of willful misfeasance, bad faith, gross
negligence or reckless disregard for its obligations and duties. In
addition, the Indenture provides that the Trustee shall not be personally
liable for any taxes or other governmental charges imposed upon or in
respect of the Trust which the Trustee may be required to pay under current
or future laws of the United States or any other authority having
jurisdiction.
Responsibility
For information relating to the responsibilities of the Trustee under
the Indenture, reference is made to the material set forth under "Rights of
Unit Holders" and "Sponsor--Resignation".
Resignation
By executing an instrument in writing and filing the same with the
Sponsor, the Trustee and any successor may resign. In such an event the
Sponsor is obligated to appoint a successor trustee as soon as possible.
If the Trustee becomes incapable of acting or becomes bankrupt or its
affairs are taken over by public authorities, the Sponsor may remove the
Trustee and appoint a successor as provided in the Indenture. The Sponsor
47
<PAGE>
may remove the Trustee in the event that the Sponsor determines that the
Trustee has materially failed to perform its duties under the Indenture and
the interest of Unit Holders has been substantially impaired as a result,
and such failure has continued for a period of sixty days following the
Trustee's receipt of notice of such determination by the Sponsor. The
Sponsor may also remove the Trustee in certain other instances as specified
in the Indenture. Such resignation or removal shall become effective upon
the acceptance of appointment by the successor trustee. If upon
resignation of a trustee no successor has been appointed or, if appointed,
has not accepted the appointment within thirty days after notification, the
retiring trustee may apply to a court of competent jurisdiction for the
appointment of a successor. The resignation or removal of a trustee
becomes effective only when the successor trustee accepts its appointment
as such or when a court of competent jurisdiction appoints a successor
trustee.
EVALUATOR
The Evaluator is Kenny S&P Evaluation Services, a division of Kenny
Information Systems, Inc., with main offices located at 65 Broadway, New
York, New York 10004.
Limitations on Liability
The Trustee, Sponsor and Unit Holders may rely on any evaluation
furnished by the Evaluator and shall have no responsibility for the
accuracy thereof. Determinations by the Evaluator under the Indenture
shall be made in good faith upon the basis of the best information
available to it, provided, however, that the Evaluator shall be under no
liability to the Trustee, the Sponsor, or Unit Holders for errors in
judgment. But this provision shall not protect the Evaluator in cases of
willful misfeasance, bad faith, gross negligence or reckless disregard of
its obligations and duties.
Responsibility
The Indenture requires the Evaluator to evaluate the Securities in a
Trust on the basis of their bid prices on the last business day of June and
December in each year, on the day on which any Unit is tendered for
redemption and on any other day such evaluation is desired by the Trustee
or is requested by the Sponsor. For information relating to the
responsibility of the Evaluator to evaluate the Securities on the basis of
their offering or bid prices as appropriate, see "Public Offering of
Units--Public Offering Price".
Resignation
The Evaluator may resign or may be removed by the Sponsor, and in
such event, the Sponsor is to use its best efforts to appoint a
satisfactory successor. Such resignation or removal shall become effective
upon the acceptance of appointment by a successor evaluator. If upon
resignation of the Evaluator no successor has accepted appointment within
thirty days after notice of resignation, the Evaluator may apply to a court
of competent jurisdiction for the appointment of a successor.
48
<PAGE>
AMENDMENT AND TERMINATION OF THE INDENTURE
Amendment
The Sponsor and the Trustee have the power to amend the Indenture
without the consent of any of the Unit Holders when such an amendment is
(1) to cure any ambiguity or to correct or supplement any provision of the
Indenture which may be defective or inconsistent with any other provision
contained therein, or (2) to make such other provisions as shall not
adversely affect the interests of the Unit Holders; provided that the
Indenture may also be amended by the Sponsor and the Trustee (or the
performance of any of the provisions of the Indenture may be waived) with
the consent of Unit Holders owning 51% of the Units of the Trust at the
time outstanding for the purposes of adding any provisions to or changing
in any manner or eliminating any of the provisions of the Indenture or of
modifying in any manner the rights of Unit Holders. In no event, however,
shall the Indenture be amended to increase the number of Units issuable
thereunder, to permit the deposit or acquisition of securities or other
property either in addition to or in substitution for any of the Securities
initially deposited in the Trust, except for the substitution of certain
refunding securities for such Securities as initially provided in the
Indenture or in connection with a supplemental deposit of Securities and
issuance of Additional Units, nor shall the Indenture be amended to provide
the Trustee with the power to engage in business or investment activities
not specifically authorized in the Indenture as originally adopted or so as
to affect adversely the characterization of the Trust as a grantor trust
for Federal income tax purposes. In the event of any amendment, the
Trustee is obligated to notify promptly all Unit Holders of the substance
of such amendment.
Termination
The Trust may be terminated at any time by the consent of the holders
of 51% of the Units or by the Trustee upon the direction of the Sponsor
when the value of the Trust as shown on the last business day of June or
December in any year is less than 40% of the value of the Securities
initially deposited therein supplemented by the deposit of additional
Securities, if any. However, in no event may the Trust continue beyond the
Mandatory Termination Date set forth under Part A--"Summary of Essential
Information." In the event of termination, written notice thereof will be
sent by the Trustee to all Unit Holders. Within a reasonable period after
termination, the Trustee will sell any Securities remaining in the
terminated Trust, and, after paying all expenses and charges incurred by
the Trust, will distribute to each Unit Holder, upon surrender for
cancellation of his Certificate for Units, his pro rata share of the
balances remaining in the Interest and Principal Accounts. The sale of
Securities in a Trust upon termination may result in a lower amount than
might otherwise be realized if such sale were not required at such time.
For this reason, among others, the amount realized by a Unit Holder upon
termination may be less than the principal amount of Securities represented
by the Units held by such Unit Holder.
LEGAL OPINIONS
Certain legal matters in connection with the Units offered hereby
have been passed upon by Cahill Gordon & Reindel, a partnership including a
professional corporation, 80 Pine Street, New York, New York 10005, as
special counsel for the Sponsor.
49
<PAGE>
AUDITORS
The financial statements of the Trust included in this Prospectus
have been examined by Deloitte & Touche, certified public accountants, as
stated in their report appearing herein, and are included in reliance upon
such report given upon the authority of that firm as experts in accounting
and auditing.
BOND RATINGS2 <F42>
Standard & Poor's Corporation
A Standard & Poor's Corporation corporate or municipal debt rating is
a current assessment of the creditworthiness of an obligor with respect to
a specific obligation. This assessment of creditworthiness may take into
consideration obligors such as guarantors, insurers, or lessees.
The bond rating is not a recommendation to purchase or sell a
security, inasmuch as it does not comment as to market price or suitability
for a particular investor.
The ratings are based on current information furnished to Standard &
Poor's Corporation by the issuer or obtained by Standard & Poor's
Corporation from other sources it considers reliable. Standard & Poor's
Corporation does not perform an audit in connection with any rating and
may, on occasion, rely on unaudited financial information. The ratings may
be changed, suspended or withdrawn as a result of changes in, or
unavailability of, such information.
The ratings are based, in varying degrees, on the following
considerations: (1) likelihood of default -- capacity and willingness of
the obligor as to the timely payment of interest and repayment of principal
in accordance with the terms of the obligation; (2) nature of and
provisions of the obligation; and (3) protection afforded by, and relative
position of, the obligation in the event of bankruptcy, reorganization or
other arrangement under the laws of bankruptcy and other laws affecting
creditors' rights.
AAA -- Debt rated "AAA" has the highest rating assigned by
Standard & Poor's Corporation. Capacity to pay interest and repay
principal is extremely strong.
AA -- Debt rated "AA" has a very strong capacity to pay interest and
repay principal, differs from the highest rated issues only in small
degree.
A -- Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than bonds in higher
rated categories.
BBB -- Debt rated "BBB" is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
<F42>2 As described by the rating agencies.
50
<PAGE>
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories.
Plus (+) or Minus (-): The ratings from "AA" to "BB" may be modified
by the addition of a plus or minus sign to show relative standing within
the major rating categories.
Provisional Ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the debt being rated and indicates that payment
of debt service requirements is largely or entirely dependent upon the
successful and timely completion of the project. This rating, however,
while addressing credit quality subsequent to completion, makes no comment
on the likelihood of, or the risk of default upon failure of, such
completion. The investor should exercise judgment with respect to such
likelihood and risk.
Bond Investment Quality Standards: Under present commercial bank
regulations issued by the Comptroller of the Currency, bonds rated in the
top four categories ("AAA," "AA," "A," "BBB," commonly known as "Investment
Grade" ratings) are generally regarded as eligible for bank investment. In
addition, the laws of various states governing legal investments impose
certain rating or other standards for obligations eligible for investment
by savings banks, trust companies, insurance companies and fiduciaries
generally.
Moody's Investors Service
A brief description of the applicable Moody's Investors Service's
rating symbols and their meanings is as follows:
Aaa -- Bonds which are rated "Aaa" are judged to be of the best
quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure. While
the various protective elements are likely to change, such changes as can
be visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa -- Bonds which are rated "Aa" are judged to be of high quality by
all standards. Together with the "Aaa" group they comprise what are
generally known as high grade bonds. "Aa" bonds are rated lower than the
best bonds because margins of protection may not be as large as in "Aaa"
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-term
risks appear somewhat larger than in "Aaa" securities.
A -- Bonds which are rated "A" possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered adequate,
but elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa -- Bonds which are rated "Baa" are considered as medium grade
obligations; i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be characteristically
51
<PAGE>
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Rating symbols may include numerical modifiers "1," "2," or "3." The
numerical modifier "1" indicates that the security ranks at the high end,
"2" in the mid-range, and "3" nearer the low end of the generic category.
These modifiers of rating symbols "Aa," "A" and "Baa" are to give investors
a more precise indication of relative debt quality in each of the
historically defined categories.
Conditional ratings, indicated by "Con" are given to bonds for which
the security depends upon the completion of some act or the fulfillment of
some condition. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operating experience,
(c) rentals which begin when facilities are completed, or (d) payments to
which some other limiting condition attaches. A parenthetical rating
denotes probable credit stature upon completion of construction or
elimination of basis of condition.
The following summarizes the applicable designations used by Moody's
for short-term notes and short-term loans:
MIG 1 -- Loans bearing this designation are of the best quality,
enjoying strong protection from established cash flows of funds for their
servicing or from established and broad-based access to the market for
refinancing, or both.
MIG 2 -- Loans bearing this designation are of high quality, with
margins of protection ample although not so large as in the preceding
group.
Fitch Investors Service, Inc.
A brief description of the applicable Fitch Investors Services, Inc.
rating symbols and their meanings is as follows:
AAA -- Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA." Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated "F-1+."
A -- Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal
is considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
52
<PAGE>
bonds, and therefore, impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for
bonds with higher ratings.
Plus (+) Minus (-): Plus and minus signs are used with a rating
symbol to indicate the relative position of a credit within the rating
category. Plus and minus signs, however, are not used in the "AAA"
category.
Conditional: A conditional rating is premised on the successful
completion of a project or the occurrence of a specific event.
53
<PAGE>
FEDERAL TAX FREE VS. TAXABLE INCOME
This table shows the approximate yields which taxable securities must
earn in various income brackets to produce, after Federal income tax,
returns equivalent to tax-exempt bond yields. The table is computed on the
theory that the taxpayer's highest bracket tax rate is applicable to the
entire amount of any increase or decrease in his or her taxable income
resulting from a switch from taxable to tax-exempt securities or vice
versa. The table reflects the Federal income tax rates and tax brackets
for the 1993 taxable year under the Code as in effect on the date of this
Prospectus. Because the Federal rate brackets are subject to adjustment
based on changes in the Consumer Price Index, the taxable equivalent yields
for subsequent years may vary somewhat from those indicated in the table.
Use this table to find your tax bracket. Read across to determine the
approximate taxable yield you would need to equal a return free of Federal
income tax.
<TABLE>
<CAPTION>
1993 Tax Year
Taxable Income Bracket* Tax Exempt Yield
Joint Single Tax
Return Return Rate 4% 4.5% 5% 5.5% 6% 6.5% 7%
Taxable Equivalent Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to Up to
$ 36,900 $ 22,100 15.0% 4.705 5.294 5.882 6.470 7.059 7.647 8.235
$ 36,900- $ 22,100-
89,150 53,500 28.0% 5.555 6.250 6.944 7.638 8.333 9.028 9.722
$ 89,150- $ 53,500-
140,000 115,000 31.0% 5.797 6.521 7.246 7.971 8.696 9.420 10.145
$ 140,000- $ 115,000-
250,000 250,000 36.0% 6.250 7.031 7.812 8.593 9.375 10.156 10.937
Over Over
$250,000 $250,000 39.6% 6.622 7.450 8.278 9.105 9.933 10.761 11.589
<F43>
*The income amount shown is income subject to Federal income
tax reduced by adjustments to income, exemptions, and itemized
deductions or the standard deduction. It is assumed that the
investor is not subject to the alternative minimum tax. Where
applicable, investors should take into account the provisions of
the Code under which the benefit of certain itemized deductions
and the benefit of personal exemptions are limited in the case of
higher income individuals. Under the Code, an individual taxpayer
with adjusted gross income in excess of a $108,450 threshold
amount is subject to an overall limitation on certain itemized
deductions, requiring a reduction equal to the lesser of (i) 3% of
adjusted gross income in excess of the $108,450 threshold amount
or (ii) 80% of the amount of such itemized deductions otherwise
allowable. The benefit of each personal exemption is phased out
for married taxpayers filing a joint return with adjusted gross
income in excess of $162,700 and for single taxpayers with
adjusted gross income in excess of $108,450. Personal exemptions
are phased out at the rate of two percentage points for each
$2,500 (or fraction thereof) of adjusted gross income in excess of
the applicable threshold amount. The first three Federal tax
brackets, the threshold amounts at which itemized deductions are
subject to reduction, and the range over which personal exemptions
are phased out will be adjusted for inflation in each year after
1993. The 36% and the 39.6% Federal tax brackets will be adjusted
for inflation for each year after 1994, using 1993 as the base
year.
</TABLE>
54
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This registration statement comprises the following
documents:
The facing sheet.
The Cross Reference Sheet.
The Prospectus.
The signatures.
Consents of the Evaluator, Independent Auditors and
Standard and Poor's Corporation; all other consents
were previously filed.
The following exhibits:
23. 1a. Consent of Kenny S&P Evaluation Services.
1b. Consent of Independent Auditors.
1d. Consent of Standard & Poor's Corporation.
FINANCIAL STATEMENTS
1. Statement of Financial Condition, Statement of Operations
and Statement of Changes in Net Assets of each Trust, as
shown in the Prospectus.
<PAGE>
CONSENT OF COUNSEL
The consents of Counsel to the use of their names in
the Prospectus included in this Registration Statement are
contained in their opinions filed as Exhibits 3., 4. and 23.5.
to this Registration Statement.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933, each of the registrants, Dean Witter Select Municipal
Trust, Insured California Series 51 and Delaware Portfolio
Series 9, certifies that it meets all of the requirements for
effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused
this Post-Effective Amendment No. 2 to the Registration
Statement to be signed on their behalf by the undersigned,
thereunto duly authorized, all in The City of New York and
State of New York on the 27th day of January, 1994.
DEAN WITTER SELECT MUNICIPAL TRUST,
INSURED CALIFORNIA SERIES 51
DELAWARE PORTFOLIO SERIES 9
(Registrants)
By: DEAN WITTER REYNOLDS INC.
(Depositor)
Michael D. Browne
Michael D. Browne
Authorized Signatory
Pursuant to the requirements of the Securities Act of
1933, this Post-Effective Amendment No. 2 to the Registration
Statement has been signed on behalf of Dean Witter Reynolds
Inc., the Depositor, by the following persons in the following
capacities and by the following persons who constitute a
majority of the Depositor's Board of Directors in The City of
New York and State of New York on this 27th day of January,
1994.
DEAN WITTER REYNOLDS INC.
Name Office
Philip J. Purcell Chairman and Chief )
Executive Officer<F33> )
Thomas C. Schneider Executive Vice )
President and
Chief Financial )
Officer<F33> ) By:
Michael D. Browne
Michael D. Browne
Attorney-in-fact<F33>
_________________________
<F33> Executed copies of the Powers of Attorney have been filed with the
Securities and Exchange Commission in connection with the
Registration Statement on Form S-6 for File No. 33-32860.
<PAGE>
Name Office
Richard M. DeMartini Director<F33>
Nancy S. Donovan Director<F33>
Charles A. Fiumefreddo Director<F33>
James F. Higgins Director<F33>
Stephen R. Miller Director<F33>
Richard F. Powers Director<F33>
Philip J. Purcell Director<F33>
Thomas C. Schneider Director<F33>
William B. Smith Director<F33>
Robert E. Wood, II Director<F33>
_________________________
<F33> Executed copies of the Powers of Attorney have been filed with the
Securities and Exchange Commission in connection with the
Registration Statement on Form S-6 for File No. 33-32860.
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. TITLE OF DOCUMENT
23. 1a. Consent of Kenny S&P Evaluation
Services
1b. Consent of Deloitte & Touche
1d. Consent of Standard & Poor's
Corporation
<PAGE>
Exhibit 23.1a.
Letterhead of KENNY S&P EVALUATION SERVICES
(A division of Kenny Information Systems, Inc.)
January 27, 1994
Dean Witter Reynolds Inc.
Two World Trade Center
New York, NY 10048
Re: Dean Witter Select Municipal Trust,
Insured California Series 51
Gentlemen:
We have examined the post-effective Amendment to the
Registration Statement File No. 33-42797 for the above-
captioned trust. We hereby acknowledge that Kenny S&P
Evaluation Services, a division of Kenny Information Systems,
Inc. is currently acting as the evaluator for the trust. We
hereby consent to the use in the Amendment of the reference to
Kenny S&P Evaluation Services, a division of Kenny Information
Systems, 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,
F.A. Shinal
F.A. Shinal
Senior Vice President/
Chief Financial Officer
<PAGE>
Letterhead of KENNY S&P EVALUATION SERVICES
(A division of Kenny Information Systems, Inc.)
January 27, 1994
Dean Witter Reynolds Inc.
Two World Trade Center
New York, NY 10048
Re: Dean Witter Select Municipal Trust,
Delaware Portfolio Series 9
Gentlemen:
We have examined the post-effective Amendment to the
Registration Statement File No. 33-40708 for the above-
captioned trust. We hereby acknowledge that Kenny S&P
Evaluation Services, a division of Kenny Information Systems,
Inc. is currently acting as the evaluator for the trust. We
hereby consent to the use in the Amendment of the reference to
Kenny S&P Evaluation Services, a division of Kenny Information
Systems, 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,
F.A. Shinal
F.A. Shinal
Senior Vice President/
Chief Financial Officer
<PAGE>
Exhibit 23.1b.
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated January 10, 1994,
accompanying the financial statements of the Dean Witter Select
Municipal Trust Insured California Series 51 and Delaware Portfolio
Series 9 included herein and to the reference to our Firm as experts
under the heading "Auditors" in the prospectus which is a part of
this registration statement.
DELOITTE & TOUCHE
January 27, 1994
New York, New York
<PAGE>
Exhibit 23.1d.
Letterhead of Standard & Poor's Corporation
January 27, 1994
Dean Witter Reynolds Inc.
Two World Trade Center
New York, New York 10048
Re: Dean Witter Select Municipal Trust,
Insured California Series 51
We have received the post-effective amendment to the
registration statement SEC file number 33-42797 for the above-
captioned trust.
Since the portfolio is composed solely of securities
covered by bond insurance policies that insure against default
in the payment of principal and interest on the securities for
so long as they remain outstanding and such policies have been
issued by one or more insurance companies which have been
assigned "AAA" claims paying ability ratings by S&P, we
reaffirm the assignment of a "AAA" rating to the units of the
trust and a "AAA" rating to the securities contained in the
trust.
You have permission to use the name of Standard &
Poor's Corporation and the above-assigned ratings in connection
with your dissemination of information relating to these units,
provided that it is understood that the ratings are not
"market" ratings nor recommendations to buy, hold, or sell the
units of the trust or the securities in the trust. Further, it
should be understood that the rating on the units does not take
into account the extent to which fund expenses or portfolio
asset sales for less than the fund's purchase price will reduce
payment to the unit holders of the interest and principal
required to be paid on the portfolio assets. S&P reserves the
right to advise its own clients, subscribers, and the public of
the ratings. S&P relies on the sponsor and its counsel,
<PAGE>
-2-
accountants, and other experts for the accuracy and
completeness of the information submitted in connection with
the ratings. S&P does not independently verify the truth or
accuracy of any such information.
This letter evidences our consent to the use of the
name of Standard & Poor's Corporation in connection with the
rating assigned to the units in the amendment referred to
above. However, this letter should not be construed as a
consent by us, within the meaning of Section 7 of the
Securities Act of 1933, to the use of the name of Standard &
Poor's Corporation in connection with the ratings assigned to
the securities contained in the trust. You are hereby
authorized to file a copy of this letter with the Securities
and Exchange Commission.
We are pleased to have had the opportunity to be of
service to you. If we can be of further help, please do not
hesitate to call upon us.
STANDARD & POOR'S CORPORATION
Vincent S. Orgo
Vincent S. Orgo
