File No. 33-43475
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST EFFECTIVE AMENDMENT NO. 3
TO
FORM S-6
For Registration Under the Securities Act of 1933 of Securities of
Unit Investment Trusts Registered on Form N-8B-2.
A. Exact name of Trust:
THE MUNICIPAL BOND TRUST, SERIES 235
B. Name of Depositor:
PAINEWEBBER INCORPORATED
C. Complete address of Depositor's principal executive office:
PAINEWEBBER INCORPORATED
1285 Avenue of the Americas
New York, New York 10019
D. Name and complete address of agents for service:
PAINEWEBBER INCORPORATED
Attention: Mr. Robert E. Holley
1200 Harbor Blvd.
Weehawken, New Jersey 07087
(x) Check if it is proposed that this filing should become effective
(immediately upon filing or on October 3, 1996) pursuant to paragraph
(b) of Rule 485.
E. Total and amount of securities being registered:
3,176 Units
F. Proposed maximum offering price to the public of the securities being
registered:
$2,984,931.84*
* Estimated solely for the purpose of calculating the registration fee, at
$939.84 per unit.
G. Amount of filing fee, computed at one-thirty-third of 1 percent of the
proposed maximum aggregate offering price to the public:
$100.00*
H. Approximate date of proposed sale to public:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THE
REGISTRATION STATEMENT.
* The method of calculation is made pursuant to Rule 24e-2 under the
Investment Company Act of 1940.The total amount of units redeemed or
repurchased during the previous fiscal year ending 1995 is 2,825. There
have been no previous filings of post-effective amendments during the
current fiscal year 2,825 redeemed or repurchased units are being used
to reduce the filing fee for this amendment.
THE MUNICIPAL BOND TRUST, SERIES 235
Cross Reference Sheet
Pursuant to Rule 404(c) of Regulation C
under the Securities Act of 1933
(Form N-8B-2 Items required by Instruction 1
as to Prospectus on Form S-6)
Form N-8B-2 Form S-6
Item Number Heading in Prospectus
I. Organization and General Information
1. (a)Name of Trust ) Front Cover
(b)Title of securities issued )
2. Name and address of ) Back Cover
Depositor
3. Name and address of ) Back Cover
Trustee
4. Name and address of ) Back Cover
Principal
Underwriter )
5. Organization of Trust ) Nature of Trust
6. Execution and ) Nature of Trust
termination of
Trust Agreement ) Termination of the Trust
7. Changes of name ) *
8. Fiscal Year ) *
9. Litigation ) *
II. General Description of the Trust and Securities of the Trust
10. General Information ) The Trust Portfolio
regarding
Trust's Securities and ) Rights of Certificate-
Rights
of Holders ) holders
(a) Type of Securities ) Nature of Trust
(Registered or Bearer) )
(b) Type of Securities ) Nature of Trust
(Registered or Bearer) )
* Not applicable, answer negative or not required.
(c) Rights of Holders as to ) Rights of Certificate-
Withdrawal or ) holders
Redemption
) Redemption of Units by
) the Trustee
) The Municipal Bond Trust
) Reinvestment Program
(d) Rights of Holders as to ) Secondary Market for
conversion, transfer, etc. ) Units Exchange Option
(e) Rights of Trust issues )
periodic payment plan ) *
certificates )
(f) Voting rights as to ) Rights of Certificate-
Securi-
ties, under the Indenture ) holders
(g) Notice to Holders as to )
change in )
(1)Assets of Trust ) Amendment of the
Indenture
(2)Terms and Conditions ) Supervision of Trust
of Trust's Securities ) Investments
(3)Provisions of Trust ) Amendment of the
Indenture
(4)Identity of Depositor ) Administration of the and
Trustee
) Trust
(h) Consent of Security )
Holders
required to change )
(1)Composition of assets ) Amendment of the
Indenture
of Trust )
(2)Terms and conditions ) Amendment of the
Indenture
of Trust's Securities )
(3)Provisions of Indenture ) Amendment of the
Indenture
(4)Identity of Depositor ) Administration of the Trust
and Trustee )
(i) Other provisions ) The Trust-Part B
11. Type of Securities ) Front Cover-The Trust-
Comprising Units Portfolio
12. Type of securities ) *
comprising
periodic payment )
certificates
13. (a)Load, fees, expenses, etc. ) Public Offering Price of
) Units; Expenses of the
) Trust
* Not applicable, answer negative or not required.
(b)Certain information ) *
regarding periodic payment ) *
certificates )
(c)Certain percentages ) *
(d)Certain other fees, etc. ) Expenses of the Trust
payable by holders )
(e)Certain profits receivable ) Public Offering Price of
by depositor, principal ) Units
underwriters, trustee or ) Public Offering of Units
affiliated persons )
(f)Ratio of annual charges to ) *
income )
14. Issuance of Trust's ) Nature of the Trust
securities
) Public Offering of Units
15. Receipt and handling of ) *
payments from )
purchasers
16. Acquisition and ) Acquisition of Securities
disposition of
underlying securities ) for the Trust; Supervision
) of Trust Investments.
17. Withdrawal or ) Redemption of Units
redemption
) by Trustee
18. (a)Receipt and disposition of ) Distributions of Certifi-
income ) cateholders
(b)Reinvestment of distritions ) *
(c)Reserves or special fund ) Distributions to Certifi-
) cateholders
(d)Schedule of distribution ) *
19. Records, accounts and ) Statements to Certificate-
report
) holders; Administration
) of the Trust
20. Certain miscellaneous ) Administration of the Trust
pro-
visions of Trust )
agreement
21. Loans to security ) *
holders
22. Limitations on liability ) Limitation of Liabilities
23. Bonding arrangements ) Included in Form N-8B-2
24. Other material ) *
provisions of
trust agreement )
* Not applicable, answer negative or not required.
III. Organization Personnel and
Affiliated Persons of Depositor
25. Organization of ) Sponsor
Depositor
26. Fees received by ) Public Offering Price of
Depositor
) Units Expenses of the Trust
27. Business of Depositor ) Sponsor
28. Certain information as to ) Sponsor
officials and affiliated )
persons of Depositor )
29. Voting securities of ) *
Depositor
30. Persons controlling ) Sponsor
Depositor
31. Payments by Depositor ) *
for
certain other services )
rendered to Trust )
32. Payments by Depositor ) *
for
certain other services )
rendered to Trust )
33. Remuneration of ) *
employees of
Depositor for certain )
services
rendered to Trust )
34. Remuneration of other ) *
persons
for certian services )
rendered
to Trust )
IV. Distribution and Redemption of Securities
35. Distribution of Trust's ) Public Offering of Units
securities by states )
36. Suspension of sales of ) *
Trust's
securities )
37. Revocation of authority ) *
to
distribute )
38. (a)Method of distribution ) Public Offering of Units
(b)Underwriting agreements )
(c)Selling agreements )
* Not applicable, answer negative or not required.
39. (a)Organization of principal ) Sponsor
underwriter )
(b)N.A.S.D. membership of ) Sponsor
principal underwriter )
40. Certain fees received by ) Public Offering Price of
principal underwriter ) Units
41. (a)Business of principal ) Sponsor
underwriter )
(b)Branch officers of ) *
principal underwriter )
(c)Salesman of principal ) *
underwriter )
42. Ownership of Trust's ) *
securities
by certain persons )
43. Certain brokerage ) *
commissions
received by principal )
underwriter )
44. (a)Method of valuation ) Public Offering Price of
) Units
(b)Schedule as to offering ) *
price )
(c)Variation in Offering ) Public Offering Price of
price to certain persons ) Units
45. Suspension of ) *
redemption rights
46. (a)Redemption valuation ) Redemption of Units by
) Trustee
(b)Schedule as to redemption ) *
price )
V. Information concerning the Trustee or Custodian
47. Maintenance of position ) Secondary Market for Units
in
underlying securities ) Redemption of Units by
) Trustee
) Evaluation of the Trust
48. Organization and ) Administration of the Trust
regulation of
Trustee ) Trustee
49. Fees and expenses of ) Expenses of the Trust
Trustee
50. Trustee's lien ) Expenses of the Trust
* Not applicable, answer negative or not required.
VI. Information concerning Insurance of Holders of Securities
51. (a)Name and address of ) *
Insurance Company )
(b)Type of policies ) *
(c)Type of risks insured and ) *
excluded )
(d)Coverage of policies ) *
(e)Beneficiaries of policies ) *
(f)Terms and manner of ) *
cancellation )
(g)Method of determining ) *
premiums )
(h)Amount of aggregate ) *
premiums paid )
(i)Who receives any part of ) *
premiums )
(j)Other material provisions ) *
of the Trust relating to )
insurance )
VII. Policy of Registrant
52. (a)Method of selecting and ) Acquisition of Securities
eliminating securities ) for the Trust
from the Trust )
(b)Elimination of securities ) *
from the Trust )
(c)Policy of Trust regarding ) Supervision of Trust
substitution and ) Investments
elimination of securities )
(d)Description of any funda- ) Acquisition of Securities
mental policy of the Trust ) for the Trust
) Supervision of Trust
) Investments
53. (a)Taxable status of the ) Tax status of the Trust
Trust )
(b)Qualification of the Trust ) Tax status of the Trust
as a mutual investment )
company )
* Not applicable, answer negative or not required.
VIII. Financial and Statistical Information
54. Information regarding ) *
the
Trust's past ten fiscal )
years
55. Certain information ) *
regarding
periodic payment plan )
certificates )
56. Certain information ) *
regarding
periodic payment plan )
certificates )
57. Certain information ) *
regarding
periodic payment plan )
certificates )
58. Certain information ) *
regarding
periodic payment plan )
certi-
ficates )
59. Financial statements ) Statement of Financial
(Instruction 1(c) to ) Condition
Form S-6)
* Not applicable, answer negative or not required.
THE MUNICIPAL BOND TRUST
SERIES 235
This Prospectus consists of two parts. Part A
contains Essential Information Regarding the
Trust including descriptive material relating to
the Trust, Financial Statements of the Trust, and
a Schedule of Investments. Part B contains
general information about the Trust. Part A may
not be distributed unless accompanied by Part B.
Interest income to the Trust and to
Certificateholders is excludable, in the opinion
of counsel, from gross income for Federal 7,975
income tax purposes under existing law, but may be UNITS
subject to state and local taxation. Capital gains,
if any, are subject to tax.
THE INITIAL PUBLIC OFFERING OF UNITS IN THE TRUST
HAS BEEN COMPLETED. THE UNITS OFFERED HEREBY ARE
ISSUED AND OUTSTANDING UNITS WHICH HAVE BEEN
ACQUIRED BY THE SPONSOR EITHER BY PURCHASE FROM
THE TRUSTEE OF UNITS TENDERED FOR REDEMPTION OR
IN THE SECONDARY MARKET.
THE OBJECTIVES OF THE MUNICIPAL BOND TRUST,
SERIES 235-The Municipal Bond Trust, Series 235
(the "Trust") is a unit investment trust formed
for the purpose of gaining Federally tax-exempt
interest income consistent with the preservation
of capital and diversification of risk through
investment in a fixed portfolio of "investment
grade" (as of the Date of Deposit) interest-
bearing municipal bonds (the "Bonds"). The
payment of interest and the preservation of
capital is dependent upon the continuing ability
of the respective issuers of such Bonds to meet
their obligations. Since PaineWebber Incorporated
(the "Sponsor") and Investors Bank & Trust
Company and The First National Bank of Chicago,
as Co-Trustees (the "Co-Trustees") do not have
control over the source of payment of the Bonds,
they cannot guarantee that the objectives of the
Trust will be achieved. Each Unit at the date
hereof represents 1/7,975th fractional undivided
interest in the $7,975,000 principal amount of
bonds and net income of the Trust in the ratio of
1 Unit for each $1,000.00 par value of Bonds in
the Trust. (See "Nature of the Trust" in Part B).
The aggregate market value, based on the bid side
of the market, of the Bonds in the Trust was, as
of June 30, 1996, $7,554,346.
PUBLIC OFFERING PRICE-The Public Offering Price
of Units is equal to the aggregate of the bid
prices of the underlying Bonds divided by the
number of Units outstanding plus a sales charge
of up to 4.99% of the net amount invested (4.75%
of the Public Offering Price). Units are offered
at the Public Offering Price plus accrued
interest. (See "Public Offering Price of Units"
and "Secondary Market for Units" in Part B).
MARKET FOR UNITS-Although under no obligation to
do so, the Sponsor intends to maintain a market
for Units at prices based on the aggregate bid
price of the Bonds in the Trust. If such market
is terminated, a Certificateholder may be able to
dispose of his Units only through redemption.
(See "Secondary Market for Units" in Part B).
DISTRIBUTIONS-Distributions of interest received
by the Trust, less expenses, will be made on a
monthly basis. Distribution of principal, if any,
will be made on a semi-annual or more frequent
basis. See "Distribution to Certificateholders"
in Part B for details of optional distributions.
ESTIMATED CURRENT RETURN-The Estimated Current
Return per Unit is determined by dividing the net
annual interest income per Unit by the Public
Offering Price per Unit. Any change in either
amount will result in a change in Estimated
Current Return. (See "Estimated Current Return
per Unit" in Part B and "Essential Information"
in Part A).
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
SPONSOR:
PaineWebber
Incorporated
Read and retain both parts of this prospectus for future reference.
Prospectus Part A dated October 3, 1996
ESSENTIAL INFORMATION REGARDING THE TRUST
Securities in the Trust Portfolio
The Trust consists of the Securities indicated
under "Schedule of Investments", all
undistributed interest received or accrued on the
Securities, and any undistributed cash realized
from the sale, redemption or other disposition of
the Securities. The Trust portfolio consists of
17 issues of Bonds by issuers located in 12
states of the United States. All of the Bonds in
the Trust were, as of the Date of Deposit,
"investment grade" municipal bonds.
On June 30, 1996, the aggregate market value of
the Securities in the Trust, based on the bid
side of the market, was $7,554,346.
All seventeen issues of Bonds in the Trust are
revenue bonds payable from revenues derived by
the issuers, and while income to pay such Bonds
may be derived from more than one source, the
primary source of such income, along with the
number of issues of the Trust portfolio deriving
income from such source are as follows: 1 Housing
facility; 1 Lease Payment; 5 Health and Hospital
facilities; 1 Museum; 2 Water and Sewer
facilities; 3 Special Tax Revenue; 1 Bond Bank; 1
Public Benefit Corporation and 2 Escrowed to
Maturity. The Trust may be considered
"concentrated" in the following categories of
Bonds:
Percentage of
Aggregate
Market Value
of Trust
Category of Bond Portfolio
Health and Hospital 29%
See "Summary of Portfolio" contained in Part B
for a summary of the Investment risks associated
with the Securities contained in the Trust.
Ratings
On the Date of Deposit, all of the Bonds were
rated a minimum of A by Standard & Poor's
Corporation or Moody's Investors Service, Inc.
The ratings may have changed and may continue to
change after the Date of Deposit. On June 30,
1996, the percentage of the total aggregate
market value of bonds in the portfolio in each
rating category was as follows: AAA, 15%; AA, 6%;
A, 30%; Aa (Moody's), 8%; A (Moody's), 34% and
Baa1 (Moody's), 7%. (See "Summary of Portfolio"
and "Bond Ratings" in Part B and "Schedule of
Investments" in Part A).
Special Considerations
The Bonds in Lot No. 2 (approximately 7% of the
aggregate market value of the Trust) are cross-
over refunding bonds (the "Cross-Over Bonds")
which are structured to be secured and paid in
the following manner. On and prior to July 1,
2004 (the "Cross-Over Date"), the Cross-Over
Bonds will be solely payable from, and secured
by, investment revenues derived from certain
federal securities deposited with and held by the
Escrow Bank appointed pursuant to the trust
agreement under which the Cross-Over Bonds were
issued. On the Cross-Over Date, the proceeds of
the funds held by the Escrow Bank will be used to
redeem all of the pertinent prior outstanding
bonds of the issuer of the Cross-Over Bonds (the
"Issuer") scheduled to mature after the Cross-
Over Date. Thereafter, the Cross-Over Bonds will
be solely secured by, and payable from, certain
rental payments to be received by the Issuer from
the City and County of San Francisco.
See "Summary of Portfolio" contained in Part B
for a summary of investment risks associated with
the Securities contained in the Trust.
Tax Status of the Trust
At the time of issuance of the Securities,
opinions regarding the validity of such
Securities and the exemption from federal income
tax of interest on such Securities were rendered
by bond counsel to the respective issuers. Except
in certain instances in which Orrick, Herrington
& Sutcliffe LLP acted as bond counsel to issuers
of Securities, neither the Sponsor, the Co-
Trustees, nor counsel to either has made any
review of the proceedings relating to the
issuance of the Securities or the basis for such
opinions. In the case of certain Securities in
the Trust, the opinions of bond counsel indicate
that interest on such obligations received by a
"substantial user" of the facilities being
financed with the proceeds of such obligations,
or "related person," for periods such obligations
are held by such "substantial user" or "related
person," will not be exempt from federal income
tax. Interest income attributable to such
Securities received by a Unitholder who is a
"substantial user" or "related person" may be
taxable to such Unitholder.
In the opinion of Orrick, Herrington & Sutcliffe
LLP, counsel to the Sponsor, under existing law:
1. The Trust is not an association taxable as a
corporation for Federal income tax purposes.
Under the Internal Revenue Code of 1986, as
amended (the "Code"), each holder of a
certificate of ownership (a "Certificateholder")
will be treated as the owner of a pro rata
portion of the Trust, and income of the Trust
will be treated as income of the
Certificateholders. Interest on Securities in the
Trust that is excludable from gross income for
federal income tax purposes when received by the
Trust will retain its status as excludable when
distributed to Certificateholders, except that no
opinion is expressed regarding the character of
interest on any Security in the case of any
Certificateholder who is a "related person" or a
"substantial user", both as defined in Code
Section 147(a).
2. Each Certificateholder will have a taxable
event when the Trust disposes of a Security
(whether by sale, exchange, redemption, or
payment at maturity), or when the
Certificateholder redeems or sells its
Certificates. For purposes of determining gain or
loss, the total tax cost of each Unit to a
Certificateholder is allocated among each of the
Securities in accordance with the proportion of
the Trust comprised by each Security, to
determine the Certificateholder's per Unit tax
cost for each Security. Further, 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.
3. The Trust is not an association taxable as a
corporation for New York State income tax
purposes. Under New York State law, each
Certificateholder will be treated as the owner of
a pro rata portion of the Trust, and income of
the Trust will be treated as income of the
Certificateholders. Interest on Securities in the
Trust that is exempt from personal income tax
under New York State law when received by the
Trust will retain its tax-exempt status when
distributed to Certificateholders.
Additional Tax Considerations
Recognition of Gain. The Code, by virtue of the
Tax Reform Act of 1986, effects a substantial
reduction in the number of income tax brackets
and rate levels for individuals and corporations
and adversely modifies the preferential treatment
accorded the net gain from the sale or exchange
of capital assets. The maximum rate for net
capital gain of individuals in 1987 is limited to
28%. Net capital gain recognized by corporations
after 1986 and by individuals after 1987 will be
taxed at the same tax rates applicable to
ordinary income.
As a result of the tax cost reduction
requirements of the Code relating to amortization
of bond premium, under certain circumstances
Unitholders may realize a taxable gain upon
disposition of Units even though such Units are
sold or redeemed for an amount equal to or less
than their original cost.
Original Issue Discount and Market Discount. The
portfolio may contain Securities originally
issued at a discount ("original issue discount").
In general, original issue discount is defined as
the difference between the price at which a bond
is issued and its stated redemption price at
maturity. With respect to tax-exempt obligations
issued on or before September 3, 1982, original
issue discount is deemed to accrue (be "earned")
as tax-exempt interest ratably over the life of
the obligations 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 is 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 maturity date. With respect to
tax-exempt obligations issued after September 3,
1982, original issue discount is deemed earned in
a geometric progression over the life of the
obligations, taking into account the semi-annual
compounding of accrued interest, resulting in an
increasing amount of interest in each year.
In general, if a Unitholder acquires a pro rata
interest in a Security for a price that is less
than its stated redemption price at maturity (or
less than the original issue price plus accrued
original issue discount, if such Security was
issued with original issue discount), such pro
rata interest will be treated as having been
purchased at a "market discount". If gain is
realized upon the sale or other disposition of
such pro rata interest, the market discount will
constitute taxable gain. Such gain generally will
be long-term capital gain to Unitholders, other
than dealers in securities and certain financial
institutions, if the Securities are held by the
Trust for more than six months and such
Unitholders have held their Units for more than
one year.
Interest on Borrowed Funds. Interest paid on
funds borrowed to purchase or carry units of a
unit investment trust that distributes tax-exempt
interest income during a tax year is not
deductible. Under rules of the Internal Revenue
Service for determining when borrowed funds are
considered used for the purpose of purchasing or
carrying particular assets, the purchase of Units
may be considered to have been made with borrowed
funds even though the borrowed funds are not
directly traceable to the purchase of Units.
Social Security Benefits. Code Section 86
provides that a portion of social security
benefits received after December 31, 1983, are
includible in taxable income for taxpayers whose
"modified adjusted gross income", combined with
50% of their social security benefits, exceeds a
base amount. The base amount is $25,000 for an
individual, $32,000 for a married couple filing a
joint return, and zero for married persons filing
separate returns. Under Code Section 86, interest
on tax-exempt bonds is to be added to adjusted
gross income for purposes of determining whether
an individual's income exceeds the base amount
above which a portion of the benefits would be
subject to tax. The amount of social security
benefits that could be includible in taxable
income would be the lesser of one-half of the
benefits or one-half of the excess of the
taxpayer's combined income (modified adjusted
gross income plus one-half of benefits) over the
base amount.
Tax Reform Act of 1986--Effects on Tax-Exempt
Interest. The Tax Reform Act of 1986, among other
items, provided for the following: (1) Effective
for taxable years beginning after December
31,1986, the alternative minimum tax rate for
individuals is increased to 21%, and the interest
on certain Private Activity Bonds issued after
August 7, 1986 is included in the calculation of
the individual alternative minimum tax. Each
Security in the Trust received or will receive an
opinion of bond counsel to the effect that it is
not a Private Activity Bond the interest on which
is subject to the alternative minimum tax. (2)
Effective for taxable years beginning after
December 31, 1986, the alternative minimum tax
rate for corporations is increased from 15% to
20%, and for purposes of this tax, interest on
certain Private Activity Bonds issued after
August 7, 1986, and 50% of the excess of a
corporation's net book income (adjusted) over its
alternative minimum taxable income (adjusted) are
classified as tax preference items. Net book
income includes interest on all tax-exempt bonds,
such as the Securities. In taxable years
beginning after 1989, the use of adjusted net
book income in determining such alternative
minimum tax is to be replaced by the use of
adjusted current earnings, and 75% of the amount
by which adjusted current earnings exceed
alternative minimum taxable income, as modified
for this calculation, will be included in
alternative minimum taxable income. Interest on
the Securities is includible in the adjusted net
book income and adjusted current earnings of a
corporation for purposes of such alternative
minimum tax. The Tax Reform Act of 1986 does not
otherwise require corporations, and does not
require taxpayers other than corporations,
including individuals, to treat interest on the
Securities as an item of tax preference in
computing and alternative minimum tax. (3)
Subject to certain exceptions, financial
institutions may not deduct that portion of the
institution's interest expense allocable to tax-
exempt interest on tax-exempt bonds acquired
after August 7, 1986. (4) The amount of the
deduction allowed to property and casualty
insurance companies for underwriting loss is
decreased by an amount determined with regard to
tax-exempt interest income and the deductible
portion of dividends received by such companies,
effective for taxable years beginning after
December 31, 1986. (5) All taxpayers are required
to report for informational purposes on their
federal income tax returns the amount of tax-
exempt interest they receive, effective for
taxable years beginning after December 31, 1986.
(6) An issuer must meet certain requirements on a
continuing basis in order for interest on a tax-
exempt bond to be tax exempt; failure to meet
such requirements results in loss of tax
exemption. (7) For taxable years beginning after
December 31, 1986, a branch profits tax is
imposed on the U.S. branches of foreign
corporations which, because of the manner in
which the branch profits tax is calculated, may
have the effect of subjecting the U.S. branch of
a foreign corporation to federal income tax on
the interest on bonds otherwise exempt from such
tax.
The Tax Reform Act of 1986 also significantly
curtailed a taxpayer's ability to offset income
with deductions and losses. In general, a lower
overall rate of income taxation could make tax-
exempt bonds less attractive to investors and
could decrease the value of tax-exempt Securities
held by the Trust, while the limitations on the
ability to offset taxable income may have the
opposite effect. In addition, certain "S
Corporations" may have a tax imposed on passive
income including tax-exempt interest, such as
interest on the Securities.
Alternative Minimum Tax. Interest on the
Securities in the Trust is not treated as a
preference item for purposes of calculating the
individual and corporate alternative minimum tax.
However, the Code provides that for taxable years
1988 and 1989, 50% (75% for taxable years
beginning after 1989) of the excess of a
corporation's adjusted net book income over its
adjusted alternative minimum taxable income will
be treated as a preference item in the
calculation of alternative minimum taxable
income. For taxable years beginning after 1989,
the use of adjusted net book income will be
replaced by the use of adjusted current earnings.
The adjusted net book income and adjusted current
earnings of a corporation include the amount of
any income received that is otherwise exempt from
tax, such as interest on the Securities.
Superfund Revenue Act of 1986. The Superfund
Revenue Act of 1986 (the "Superfund Act") imposed
a deductible, broad-based tax on a corporation's
alternative minimum taxable income (before net
operating losses and any deduction for the tax)
at a rate of $12 per $7,250 (0.12%) of
alternative minimum taxable income in excess of
$2,000,000. The tax is imposed for tax years
beginning after 1986 and beginning before 1992.
The tax is imposed even if the corporation pays
no alternative minimum tax. For purposes of the
Superfund Act, alternative minimum taxable income
includes interest on all tax-exempt bonds to the
same extent and in the same manner as does the
Tax Reform Act of 1986. The Superfund Act does
not impose an alternative minimum tax on
taxpayers other than corporations.
Branch Profits Tax. The Code provides that
interest on exempt obligations such as the
Securities is included in effectively connected
earnings and profits for purposes of computing
the branch profits tax on certain foreign
corporations doing business in the United States.
Property and Casualty Companies. The Code
contains provisions relating to property and
casualty companies whereunder the amount of
certain loss deductions otherwise allowed is
reduced (in certain cases below zero) by a
specified percentage of, among other things,
interest on tax-exempt obligations acquired after
August 7, 1986.
Financial Institutions. The Code provides that
commercial banks, thrift institutions and other
financial institutions may not deduct the portion
of their interest expense allocable to tax-exempt
obligations after August 7, 1986 (other than
certain "qualified" obligations). The Securities
are not qualified for this purpose.
S Corporations. The Code imposes a tax on excess
net passive income of certain S corporations that
have subchapter C earnings and profits. Passive
investment income includes interest on tax-exempt
obligations.
Information Reporting. All taxpayers are
required to report for informational purposes on
their federal income tax returns the amount of
tax-exempt interest they receive.
Future Legislation. Various proposals have been
introduced before Congress from time to time to
restrict or eliminate the federal income tax
exemption for interest on municipal securities
such as those deposited in the Trust. Such
proposals may be introduced in the future. The
Sponsor cannot predict what additional
legislation, if any, may be proposed with respect
to the tax-exempt status of interest on municipal
securities, nor can it predict whether any
legislation, if enacted, would apply to
Securities in the Trust.
State Tax. The exemption from gross income of
interest on municipal bonds for federal income
tax purposes does not necessarily result in an
exemption under the income tax laws of any state
or local government. The laws of the several
states vary with respect to the taxation of
municipal bonds, and Unitholders are advised to
consult with their tax advisors regarding such
taxation.
Co-Trustees
The Co-Trustees are The First National Bank of
Chicago, a national banking association with its
corporate trust office at One First National
Plaza, Suite 0126, Chicago, Illinois 60670-0126
(which is subject to supervision by the
Comptroller of the Currency, the Federal Deposit
Insurance Corporation and the Board of Governors
of the Federal Reserve System) and Investors Bank
& Trust Company, a Massachusetts trust company
with its office at One Lincoln Plaza, P.O. Box
1537, Boston, Massachusetts 02205-1537, telephone
no. 1-800-356-2754 (which is subject to
supervision by the Massachusetts Commissioner of
Banks, the Federal Deposit Insurance Corporation
and the Federal Reserve System).
ESSENTIAL INFORMATION REGARDING THE TRUST
AS OF JUNE 30, 1996
Date of Deposit and of Trust Indenture and Agreement
July 14, 1993
Principal Amount of Bonds in Trust
$7,975,000
Number of Units Outstanding
7,975
Minimum Purchase
1 Unit
Fractional Undivided Interest in Trust Represented
by each Unit
1/7,975th
Public Offering Price
Aggregate Bid Price of Bonds in Trust $7,554,609 *~
Divided by 7,975 Units $947.29 *~
Plus Sales Charge of
5.50% of Public Offering Price 55.13
Public Offering Price per Unit $1,002.42 *~
Redemption Value per Unit
$947.29 *~
Excess of Public Offering Price per Unit Over
Redemption Value per Unit
$55.13
Sponsor's Repurchase Price per Unit
$947.29 *~
Excess of Public Offering Price per Unit Over
Sponsor's Repurchase Price per Unit
$55.13
Minimum Principal Distribution
No distribution need be made from Principal
Account if balance of Account is less than $8,000.
Evaluation Time
4 P.M. New York Time
Mandatory Termination Date * *
January 1, 2043
Discretionary Termination
Indenture may be terminated if value of Trust is
less than $1,600,000.
<TABLE>
INFORMATION BASED UPON INTEREST DISTRIBUTION PLAN
<CAPTION>
Monthly
<S> <C>
Gross annual interest income per unit $57.07
Less estimated annual fees and expenses per unit * * * * 2.32
Less Sponsor's annual fee per unit * * * * .25
Estimated net annual interest income per unit $54.50
Estimated interest distribution per unit $4.54
Daily rate at which estimated net interest accrues per unit $.1513
Estimated current return * * * 5.44%
Record dates 1st of
each month
Interest distribution dates 15th of
each month
Trustee's annual fee per $1,000 principal amount of bonds * * * * $1.09
Evaluator's daily fee per bond * * * * 12.00
__________________
* Plus accrued interest.
* * The actual termination of the Trust
may be considerably earlier (see "Termination
of the Trust" in Part B).
* * * The estimated current return is
increased for transactions entitled to a
reduced sales charge (see "Public
Offering Price of Units" in Part B).
* * * * See "Expenses of the Trust" in Part B.
~ Includes undistributed principal funds.
</TABLE>
<TABLE>
FINANCIAL SUMMARY
The following sets forth a summary of
distributions and redemption values per unit
for The Municipal Bond Trust, Series 235.
<CAPTION>
INCOME
DISTRIBUTIONS
PERIOD ENDING PER UNIT
<S> <C> <C>
MONTHLY June 30, 1994* $42.43
June 30, 1995 54.81
June 30, 1996 54.48
As of December 31, 1994, 1995 and June 30,
1996, the redemption values per unit were
$832.93, $989.31, and $947.29 plus accrued
interest to the respective dates.
* For the period from July 14, 1993 (date of
deposit) to June 30, 1994.
</TABLE>
<TABLE>
REPORT OF INDEPENDENT AUDITORS
<C> <S>
THE CERTIFICATEHOLDERS, SPONSOR AND CO-TRUSTEES
THE MUNICIPAL BOND TRUST, SERIES 235:
We have audited the accompanying statement of
financial condition, including the schedule of
investments, of The Municipal Bond Trust, Series
235 as of June 30, 1996 and the related
statements of operations and changes in net
assets for the years ended June 30, 1996 and 1995
and for the period from July 14, 1993 (date of
deposit) to June 30, 1994. These financial
statements are the responsibility of the Co-
Trustees. Our responsibility is to express an
opinion on these financial statements based on
our 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 June 30, 1996, as
shown in the statement of financial condition and
schedule of investments, by correspondence with
the Co-Trustees. An audit also includes assessing
the accounting principles used and significant
estimates made by the Co-Trustees, as well as
evaluating the overall financial statement
presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements
referred to above present fairly, in all material
respects, the financial position of The Municipal
Bond Trust, Series 235 at June 30, 1996 and the
results of its operations and changes in its net
assets for the years ended June 30, 1996 and 1995
and for the period from July 14, 1993 to June 30,
1994, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
New York, New York
September 24, 1996
</TABLE>
<TABLE>
THE MUNICIPAL BOND TRUST, SERIES 235
STATEMENT OF FINANCIAL CONDITION
June 30, 1996
ASSETS
<S> <C> <C>
Investment in municipal bonds - at market value (Cost $7,850,460)
(note 4 to schedule of investments) $7,554,346
Accrued interest receivable 155,443
Cash 263
Total Assets $7,710,052
LIABILITIES AND NET ASSETS
Trustee advance payable $43,498
Distribution payable (note E) 36,207
Accrued expenses payable 4,217
Total Liabilities 83,922
Net assets (7,975 units of fractional undivided interest outstanding):
Cost to investors (note B) $8,242,198
Less gross underwriting commissions (note C) (391,738)
7,850,460
Unrealized market depreciation (note D) (296,114)
Net amount applicable to unitholders 7,554,346
Undistributed investment income-net 71,521
Undistributed proceeds from bonds sold or redeemed 263
Net Assets 7,626,130
Total Liabilities and Net Assets $7,710,052
Net Asset Value Per Unit $956.25
STATEMENT OF OPERATIONS
<CAPTION>
Year Ended June 30,
1996 1995 1994*
<S> <C> <C> <C>
Investment Income - Interest $456,619 $456,800 $431,421
Less expenses:
Trustee's fees, expenses and Evaluator's fees 20,543 22,470 16,478
Total expenses 20,543 22,470 16,478
Investment Income-net 436,076 434,330 414,943
Realized and unrealized gain (loss) on investments-net:
Net realized loss on securities transactions (1,914) --- ---
Net change in unrealized market appreciation (depreciation) 242,698 201,602 (740,414)
Net gain (loss) on investments 240,784 201,602 (740,414)
Net increase (decrease) in net assets resulting from operations $676,860 $635,932 ($325,471)
See accompanying notes to financial statements.
* For the period from July 14, 1993 (date of deposit) to June 30, 1994.
</TABLE>
<TABLE>
THE MUNICIPAL BOND TRUST, SERIES 235
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
Year Ended June 30,
1996 1995 1994*
<S> <C> <C> <C>
Operations:
Investment income-net $436,076 $434,330 $414,943
Net realized loss on securities transactions (1,914) --- ---
Net change in unrealized market appreciation (depreciation) 242,698 201,602 (740,414)
Net increase (decrease) in net assets resulting from operations 676,860 635,932 (325,471)
Less: Distributions to Unitholders
Investment Income 435,613 438,479 339,440
Total Distributions 435,613 438,479 339,440
Less: Units Redeemed by Certificateholders (Note F)
Value of units at date of redemption 23,574 --- ---
Accrued interest at date of redemption 296 --- ---
Total Redemptions 23,870 --- ---
Increase (decrease) in net assets 217,377 197,453 (664,911)
Net Assets:
Beginning of period 7,408,753 7,211,300 7,876,211
End of period $7,626,130 $7,408,753 $7,211,300
See accompanying notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
June 30, 1996
(A) The financial statements of the Trust are
prepared on the accrual basis of accounting. Bond
transactions are accounted for on the date the bonds
are purchased or sold.
(B) Cost to the investors represents the initial
public offering price as of the date of deposit
computed on the basis set forth under "Public
Offering Price Of Units" included in Part B,
adjusted for bonds called or sold since the date of
deposit.
(C) The aggregate sales charge was computed on
the basis set forth under "Public Offering Price
of Units" included in Part B.
(D) At June 30, 1996, the gross unrealized market
appreciation was $5,405 and the gross unrealized market
depreciation was ($301,519). The net unrealized
market depreciation was ($296,114).
(E) Distributions of the net investment income to
Unitholders are declared and paid monthly. See
the Financial Summary included in Part A.
(F) The following units were redeemed with
proceeds of bonds sold as follows:
<CAPTION>
Year Ended June 30,
1996 1995 1994*
<S> <C> <C> <C>
Number of units redeemed 25 --- ---
Redemption amount $23,870 --- ---
* For the period from July 14, 1993 (date of
deposit) to June 30, 1994.
</TABLE>
<TABLE>
THE MUNICIPAL BOND TRUST, SERIES 235
Schedule of Investments as of June 30, 1996
<CAPTION>
Coupon Redemption
Aggregate Rate/ Features(3)
Lot Principal Maturity C-Callable Market
No. Amount Description Rating(1) Date(5) S.F.-Sinking Fund Value(4)
<C> <C> <S> <C> <C> <C> <C>
1. $600,000 ALASKA HOUSING FINANCE CORPO-
RATION COLLATERALIZED HOME
MORTGAGE BONDS 1990 SUBSERIES
A-3 AAA 5.85% C.12/01/03@102 $569,574
06/01/2025 S.F. 06/01/2012
2. 600,000 REDEVELOPMENT AGENCY OF THE
CITY AND COUNTY OF SAN FRAN-
CISCO LEASE REVENUE BONDS,
SERIES 1992 (GEORGE R. MOSCONE
CONVENTION CENTER) (CALIFORNIA) A(2) 5 1/2% C.07/01/02@100 551,946
07/01/2018 S.F. 07/01/2014
3. 575,000 FULCO HOSPITAL AUTHORITY REVE-
NUE ANTICIPATION CERTIFICATES
(GEORGIA BAPTIST HEALTH CARE
SYSTEM PROJECT), SERIES 1992A
(GEORGIA) Baa1(2) 6 3/8% C.09/01/02@102 556,134
09/01/2022 S.F. 09/01/2014
4. 225,000 ILLINOIS EDUCATIONAL FACILITIES
AUTHORITY REVENUE REFUNDING
BONDS THE ART INSTITUTE OF
CHICAGO, SERIES 1993 A1(2) 5 3/4% C.03/01/03@102 215,577
03/01/2018 S.F. 03/01/2009
5. 250,000 CITY OF QUINCY, ADAMS COUNTY,
ILLINOIS REVENUE BONDS, SERIES
1993 (BLESSING HOSPITAL) A(2) 6.00% C.11/15/03@102 235,623
11/15/2018 S.F. 11/15/2009
6. 600,000 HAMMOND MULTI-SCHOOL BUILDING
CORPORATION (LAKE COUNTY, IN-
DIANA), FIRST MORTGAGE REFUND-
ING BONDS, SERIES 1993 B AAA 6.00% (5) 600,336
01/15/2018 S.F. 01/15/2014
7. 500,000 SOUTHWESTERN MULTI-SCHOOL
BUILDING CORPORATION (SHELBY
COUNTY, INDIANA) FIRST MORT-
GAGE BONDS, SERIES 1993 A 5.30% C.07/15/03@102 478,165
07/15/2014 S.F. 07/15/2009
8. 600,000 MAINE MUNICIPAL BOND BANK 1993
SERIES A REFUNDING BONDS Aa(2) 5.80% C.06/01/03@102 586,938
11/01/2020 S.F. 11/01/2014
9. 475,000 MASSACHUSETTS HEALTH AND ED-
UCATIONAL FACILITIES AUTHORITY
REVENUE BONDS, ADDISON GILBERT
HOSPITAL ISSUE, SERIES C A(2) 5 3/4% C.07/01/03@102 423,325
07/01/2023 S.F. 07/01/2015
(Continued)
</TABLE>
<TABLE>
THE MUNICIPAL BOND TRUST, SERIES 235
Schedule of Investments as of June 30, 1996
<CAPTION>
Coupon Redemption
Aggregate Rate/ Features(3)
Lot Principal Maturity C-Callable Market
No. Amount Description Rating(1) Date(5) S.F.-Sinking Fund Value(4)
<C> <C> <S> <C> <C> <C> <C>
10. $380,000 MASSACHUSETTS WATER RESOUR-
CES AUTHORITY GENERAL REVENUE
BONDS 1990 SERIES A A 6.00% C.04/01/00@100 $378,529
04/01/2020 S.F. 04/01/2019
11. 670,000 NEW YORK LOCAL GOVERNMENT
ASSISTANCE CORPORATION (A
PUBLIC BENEFIT CORPORATION OF
THE STATE OF NEW YORK) SERIES
1992C BONDS A 5 1/2% C.04/01/02@100 619,683
04/01/2022 S.F. 04/01/2019
12. 600,000 UNITED NATIONS DEVELOPMENT
CORPORATION (A PUBLIC BENEFIT
CORPORATION OF THE STATE OF
NEW YORK) 1992 REFUNDING
BONDS, SERIES A (SENIOR LIEN) A(2) 6.00% C.07/01/03@102 590,160
07/01/2026 S.F. 07/01/2013
13. 500,000 THE HOSPITALS AND HIGHER EDU-
CATION FACILITIES AUTHORITY OF
PHILADELPHIA HOSPITAL REVENUE
REFUNDING BONDS (THE CHILD-
REN'S HOSPITAL OF PHILADELPHIA
PROJECT) SERIES A OF 1993 (PENN-
SYLVANIA) AA 5.00% C.02/15/03@102 433,750
02/15/2021 S.F. 02/15/2015
14. 400,000 RHODE ISLAND DEPOSITORS ECO-
NOMIC PROTECTION CORPORATION
SPECIAL OBLIGATION REFUNDING
BONDS, 1993 SERIES A A- 5 3/4% (5) 391,656
08/01/2021 S.F. NONE
15. 200,000 RHODE ISLAND DEPOSITORS ECO-
NOMIC PROTECTION CORPORATION
SPECIAL OBLIGATION REFUNDING
BONDS, 1993 SERIES A A- 5 3/4% NON-CALLAB 190,560
08/01/2021 S.F. NONE
16. 600,000 INDUSTRIAL DEVELOPMENT AU-
THORITY OF THE COUNTY OF
PRINCE WILLIAM HOSPITAL REVE-
NUE REFUNDING BONDS (PRINCE
WILLIAM HOSPITAL) SERIES 1993
(VIRGINIA) A(2) 5 1/4% C.04/01/03@102 538,992
04/01/2019 S.F. 04/01/2013
(Continued)
</TABLE>
<TABLE>
THE MUNICIPAL BOND TRUST, SERIES 235
Schedule of Investments as of June 30, 1996
<CAPTION>
Coupon Redemption
Aggregate Rate/ Features(3)
Lot Principal Maturity C-Callable Market
No. Amount Description Rating(1) Date(5) S.F.-Sinking Fund Value(4)
<C> <C> <S> <C> <C> <C> <C>
17. $200,000 PIERCE COUNTY, WASHINGTON,
SEWER IMPROVEMENT AND REFUN-
DING REVENUE BONDS, SERIES 1993 A+ 5 5/8% C.02/01/03@100 $193,398
02/01/2013 S.F. 02/01/2009
$7,975,000 $7,554,346
(1) All ratings are by Standard &
Poor's Corporation unless otherwise
indicated. A brief description of
applicable rating symbols is given under
"Bond Ratings" included in Part B. For
concentration of credit risk, see
"Securities in the Trust Portfolio" in
Part A.
(2) Moody's Investors Service, Inc.'s
rating. A brief description of
applicable rating symbols is given under
"Bond Ratings" included in Part B.
(3) C._Indicates the first year in
which an issue of bonds is redeemable in
whole, or in part, by the operation of
the optional call provisions, and the
redemption price for that year; unless
otherwise indicated, each issue
continues to be redeemable at declining
prices thereafter but not below par.
S.F._Indicates the next date on which
an issue of bonds is subject to
scheduled sinking fund redemption and
the redemption price for that date;
unless otherwise indicated, such issue
of bonds is subject to scheduled sinking
fund redemption at par.
Bonds listed as non-callable, as well
as those listed as callable, may also be
redeemable at par, under certain
circumstances, from special redemption
payments.
(4) The Market Value is
determined by the Evaluator on the bid
side of the market, on a basis identical
to that set forth under "Public Offering
Price of Units" included in Part B.
(5) Escrowed to Maturity.
</TABLE>
MUNICIPAL BOND TRUST
PROSPECTUS PART B
PART B OF THIS PROSPECTUS MAY NOT BE DISTRIBUTED
UNLESS ACCOMPANIED BY PART A
NATURE OF THE TRUST
Each series of The Municipal Bond Trust is a
separate but similar unit investment trust,
formed for the purpose of obtaining federally
tax-exempt interest income consistent with the
preservation of capital and diversification of
risk through investment in a fixed portfolio
comprised of "investment grade" (as of the Date
of Deposit) interest-bearing Bonds. State Trusts
were formed for the additional purpose of
obtaining interest income exempt from state
income taxes for purchasers who qualify as
residents of the state for which each such Trust
is named. The Sponsor and the Trustee do not have
control over the course of payment of the
principal of and interest on the Securities,
therefore they cannot guarantee that the
objectives of the Trust will be achieved. The
interest on the Bonds, in the opinion of counsel
to the issuers of such Bonds, is, or upon their
issuance and delivery will be, exempt from
present Federal income taxes. Capital gains, if
any, will be subject to taxation.
The portfolio of the Trust consists of interest-
bearing Securities, issued by or on behalf of
states, counties and municipalities within the
United States, and authorities, agencies and
other such political subdivisions.
CREATION OF THE TRUST
The Trust was created under the laws of the
State of New York pursuant to a Trust Indenture
and Agreement* (the "Indenture"), dated as of the
Date of Deposit, among PaineWebber Incorporated,
as Sponsor, the Trustee identified in Part A of
this prospectus and Kenny Information Systems,
Inc., a division of J.J. Kenny Co., Inc. as
Evaluator.
On the Date of Deposit, the Sponsor deposited
with the Trustee the Securities or confirmations
of contracts for the purchase of the Securities
at prices determined by the Evaluator on the
basis of current offering prices of the
Securities. Confirmations of contracts for the
purchase of the Bonds were delivered to the
Trustee together with an irrevocable letter of
credit drawn on a commercial bank in an amount
sufficient for their purchase. Following the
deposit, the Trustee delivered to the Sponsor
registered Certificates for Units evidencing the
entire ownership of the Trust. Each Unit
represents a fractional undivided interest in the
Trust in an amount equal to one divided by the
total number of Units outstanding. On the Date of
Deposit there was one Unit for each $1,000 face
amount of Securities deposited in the Trust.
SUMMARY OF PORTFOLIO
An investment in Units of the Trust should be
made with an understanding of the risks which an
investment in fixed rate long-term debt
obligations may entail, including the risk that
the value of the Trust portfolio and hence of the
Units will decline with increases in interest
rates. The recent period of high inflation,
together with the fiscal measures adopted to
attempt to deal with it, has seen wide
fluctuations in interest rates and thus in the
value of fixed rate long-term debt obligations
generally. The Sponsor cannot predict whether
such fluctuations will continue in the future.
As set forth under "Essential Information" and
"Schedule of Investments" in Part A, the Trust
may contain or be concentrated in one or more of
the categories of Securities referred to below.
The types of issuers and percentages of any
concentrations for this Trust are set forth in
Part A. These categories are described in Part B
because an investment in Units of the Trust
should be made with an understanding of the risks
which these investments may entail. Part B also
contains a description of the features of this
Trust.
General Obligation Bonds
General obligation debt of an issuer that is a
political subdivision or instrumentality of a
state is typically secured by the full faith and
credit of the issuer, encompassing its ability to
levy an unlimited ad valorem tax on real property
or other revenue streams, such as sales or income
taxes. The fiscal condition of an issuer may be
affected by socioeconomic factors beyond the
issuer's control (such as relocation by a major
employer) or other unanticipated events,
including: imposition of tax rate decreases or
appropriations limitations by legislation or
initiative; increased expenditures mandated by
Federal or state law or by judicial decree;
reduction of unrestricted federal or state aid
and of revenue-sharing programs due to subsequent
legislative changes in appropriations or aid
formulas; or disallowances by the Federal or
state governments for categorical grants. The
fiscal condition of an issuer that is a political
subdivision or instrumentality of a state (such
as a county, city, school district or other
entity providing public services) is related to
the size and diversification of its tax and
revenue base and to such other factors as: the
effect of inflation on the general operating
budget and of other costs, including salaries and
fringe benefits, energy and solid waste disposal;
changes in 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
____________
*Reference is hereby made to said Trust
Indenture and Agreement and any statements
contained herein are qualified in their entirety
by the provisions of said Trust Indenture and
Agreement.
disallowances for expenses incurred under Federal
or state categorical grant programs. The local
economy may be or become concentrated (i) in a
single industry, which may be affected by natural
or other disasters or by fluctuations in
commodity prices, or (ii) in a particular
company, the operations of which may be impaired
due to labor disputes, relocation, bankruptcy or
corporate take-over. Such economic factors may,
in turn, affect local tax collections and service
demands. The ability of an issuer to levy
additional taxes may be subject to state
constitutional provisions, assent of the state
legislature or voter approval in a local
referendum, or constrained by economic or
political considerations.
Housing Facility Securities
These Securities are typically secured by
mortgage revenues derived by state housing
finance agencies, municipal housing authorities
or certain non-profit organizations from
repayments on mortgage and home improvement loans
made by such entities. Special considerations
affecting housing securities include: the
condition of the local housing market,
competition from conventional mortgage lenders,
fluctuations in interest rates, increasing
construction costs and the ability of the
Issuers, lenders, servicers and borrowers to
maintain program compliance under applicable
statutory provisions. Securities issued on or
before April 24, 1979 are subject to few
restrictions on the use of proceeds. Federal tax
legislation adopted during the 1980s imposed
progressively more restrictive requirements for
post-issuance compliance necessary to maintain
the tax exemption on both single family and
multi-family housing securities. IRS regulations
provide, however, that retroactive taxation will
not occur if the issuer corrects any
noncompliance occurring after the issuance of a
security within a reasonable period after such
noncompliance is first discovered or should have
been discovered by the issuer. To maintain the
security's tax exemption, the issuer may be
required pursuant to the legal documents
governing the Security to redeem all or a portion
of such obligations at par from (i) unexpended
proceeds of the issue within a stated period that
typically does not exceed three years from the
date of issuance of such security or (ii)
optional prepayments by mortgagors. If the
issuers of such securities are unable to or
choose not to reloan these monies, they will
generally redeem such securities at par in an
amount approximately equal to such unexpended
proceeds or prepayments. The Sponsor is unable to
predict whether such redemptions will occur, or
what effect, if any, such redemptions would have
on any such Securities in the Trust.
Single Family Housing Securities
Securities issued after April 24, 1979 and prior
to August 15, 1986 are subject to the
requirements of Section 103A of the Internal
Revenue Code of 1954, as amended (the "1954
Code"). Enacted in 1980 and subsequently amended,
Section 103A established stringent criteria for
the origination or assumption of mortgage loans
and subjected Issuers to annual IRS reporting
requirements. The Technical and Miscellaneous
Revenue Act of 1988 may inhibit the ability of
Issuers to make home mortgage loans after
December 31, 1990 (and thereby increase the
likelihood of redemptions from unexpended
proceeds). Additional considerations include: the
underwriting and management ability of the
issuers, lenders and servicers (i.e., the initial
soundness of the loan and the effective use of
available remedies should there be a default in
loan payments); the financial condition and
credit rating of the private mortgage insurer
underwriting the insurance on the underlying
mortgage or pool of mortgages; and special risks
attendant to lending to mortgagors, most of whom
are first time home buyers of low or moderate
means. During periods of declining interest
rates, there may be increased redemptions of
single family housing securities from unexpended
proceeds due to insufficient demand, because
conventional mortgage loans may become available
at interest rates equal to or less than the
interest rates charged on the mortgage loans made
available from bond proceeds. In addition,
certain mortgage loans may be prepaid earlier
than their maturity dates, because mortgage loans
made with bond proceeds usually do not carry
prepayment penalties.
Multi-Family Housing Securities
Enacted in 1980, Section 103(b)(4)(A) of the
1954 Code, among other things, required that at
least 20% of the Units in each rental housing
project financed pursuant to its provisions be
occupied, in effect, by persons with low and
moderate incomes. The 1986 Code further
restricted the amount of bond proceeds that can
be spent on unqualified costs in a housing
project, and extended existing and added certain
post-issuance compliance requirements, such as
the low or moderate income occupancy
requirements, the determination of income
limitations, continuous rental requirements,
annual current income determinations and the
arbitrage rebate requirement. The IRS has
undertaken a review of a representative
statistical sample of multi-family housing bonds
issued in 1984, primarily to determine post-
issuance compliance matters. If a bond issue is
determined by the IRS to not be in compliance
with the Code, income derived from such
securities may be deemed to be taxable income.
The Sponsor is unable to determine whether the
IRS will expand its review, the outcome of any
such review, or whether such review will have an
impact on any of the Securities in the Trust.
Authorizing state statutes may have imposed
additional program requirements. Additional
considerations include: increasing operating
costs; the ability or failure to increase rental
charges; and the financial condition of housing
authority Issuers and their ability to meet
certain requirements under the Section 8 program
of the United States Housing Act of 1937, as
amended.
Multi-family housing securities may also be
subject to full or partial redemption at par from
the proceeds of the sale, assignment or
disposition of a defaulted mortgage loan or
acceleration of principal payments thereunder; a
condemnation or insurance award; or a result of
the reduction of a required reserve fund.
Airport Facilities
Bonds in the airport facilities category are
payable from and secured by revenues derived from
the gross airport operating income. The major
portion of gross airport operating income is
generally derived from fees received from
signatory airlines pursuant to use agreements
which consist of annual payments for airport use,
occupancy of certain terminal space, facilities,
service fees, concessions and leases. Airport
operating income may be affected by local
economic conditions, air traffic patterns, noise
abatement restrictions or the ability of the
airlines to meet their obligations under the use
agreements. The air transport industry is
experiencing significant variations in earnings
and traffic due to deregulation, recent
consolidations through mergers and acquisitions,
fair competition, excess industry capacity,
fluctuations in fuel and other costs, traffic
constraints and other factors. In particular,
facilities with use agreements involving airlines
experiencing financial difficulty may experience
a reduction in revenue due to the possible
inability of these airlines to meet their use
agreement obligations. Additionally, the FAA has
established a schedule for retrofitting certain
existing aircraft to comply with operating noise
standard. The Sponsor is now unable to predict
what effect, if any, air transport industry
conditions will have on the airport Bonds in the
Trust.
Hospital Facility Securities
Bonds in the hospital facilities category are
payable from revenues derived from hospital and
health care facilities which, generally, were
constructed or are being constructed with bond
proceeds. The continuing availability of
sufficient revenues is dependent upon several
factors affecting all such facilities generally,
including, among other factors: utilization
rates; the cost and availability of malpractice
insurance and the outcome of malpractice
litigation; curtailment of operations due to
shortages in qualified medical staff or labor
disputes; changes in Federal, state and private
reimbursement regulations and health care
delivery programs. The extent of the AIDS
epidemic is undetermined, and the Sponsor cannot
predict its full impact on the health care system
or particular issuers. Utilization rates for a
particular facility may be determined by cost
containment programs implemented by third party
governmental providers or private insurers; long-
term advances in health care delivery reducing
demand for in-patient services; technological
developments which may be effectively rationed by
the scarcity of equipment or specialists;
governmental approval and the ability to finance
equipment acquisitions; increased competition due
to elimination of certain certificate of need
requirements in some states; and physicians' and
public perceptions as to standards of care.
Requirements for Federal or state licenses,
certifications and contract eligibility and for
accreditation are subject to change, and may
require participating facilities to effect costly
modifications in operations. Prior to June 30,
1984, participating facilities in the Medicare
program were reimbursed for their reasonable
costs of furnishing services; thereafter, the
Social Security Amendments Act of 1983 mandated
implementation over a four year period of a
prospective payment system, based upon diagnosis
related groups ("DRGs"), for most in-patient
services. DRG reimbursement rates, because they
are set by the Federal government, may not fully
cover the actual cost of furnishing services by
any particular hospital, and Federal law
prohibits health care providers from passing
along the excess costs to Medicare beneficiaries.
Medicare payments have been, and may continue to
be, reduced under legislation adopting deficit
reduction measures. Additionally, certain states
have recently implemented prospective payment
systems for their Medicaid programs, and have
adopted other changes, including enrollment
restrictions. The Sponsor cannot predict the
effect, if any, of the DRG system or of further
reductions in Medicare and Medicaid payments on
the revenues of Issuers of hospital Securities in
the Trust. Many hospitals, including certain
issuers (or the conduit obligors) of Securities
in the Trust, have been experiencing significant
financial difficulties in recent years. The
number of hospital closings has 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. Based
upon preliminary projections including increased
payroll taxes effective in 1991 (but not
accounting for any recession) the Fund's trustees
have forecast that expenditures will exceed tax
revenues by 1999 and that the Fund will be
insolvent in 2005. Generally, a number of
additional legislative proposals concerning
health care may be introduced in Congress at any
time. Recently, these proposals have covered a
wide range of topics, including cost controls,
national health insurance, incentives for
competition in the provision of health care
services, tax incentives and penalties related to
health care insurance premiums, and promotion of
prepaid health care plans. The Sponsor is unable
to predict the effect of any of these proposals,
if enacted, on any of the Bonds in the Trust
portfolio.
Power and Electric Facility Securities
These Securities are typically secured by
revenues derived from power generating
facilities, which generally include revenues from
the sale of electricity generated and distributed
by power agencies using hydroelectric, nuclear,
fossil fuel or other power sources. Certain
aspects of the operation of such facilities,
particularly with regard to generation and
transmission at the wholesale level, are
regulated by the Federal Energy Regulatory
Commission ("FERC"); more extensive regulation
(affecting retail rate structures) is provided by
state public service commissions. Special
considerations include: restrictions on
operations and increased costs and delays
attributable to environmental statues and
regulations; the difficulties of the utilities in
financing or refinancing large construction
programs and of the capital markets in absorbing
utility debt and equity securities; fluctuations
in fuel supplies and costs, and costs associated
with conversion to alternate fuel sources;
uncertainties with regard to demand projections
due to changing economic conditions,
implementation of energy conservation measures
and competitive cogeneration projects; and other
technical and cost factors. Recent scientific
breakthroughs in fusion energy and
superconductive materials may cause current
technologies for the generation and transmission
of electricity to become obsolete during the life
of the Securities in the Portfolio. Issuers
relying upon hydroelectric generation may
encounter contests when applying for periodic
renewal of licenses 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. Such agreements have
been held unenforceable by state courts in Idaho,
Vermont and Washington, which may cause an
examination of the legal structure of certain
projects in other states and could possibly lead
to litigation challenging the enforceability of
such agreements.
Some of the issuers of Securities in the Trust
may own, operate or participate on a contractual
basis with nuclear generating facilities, which
are licensed and regulated by the Nuclear
Regulatory Commission (the "NRC"). Issuers of
such 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 in 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 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.
Public Facilities Securities
These Securities are typically secured by
revenues derived from either (i) payments
appropriated by governmental entities for the use
of equipment or facilities, such as
administrative or correctional buildings, or (ii)
user charges or other revenues derived from such
operations as parking facilities, convention
centers or sports arenas. In the first instance,
the pledged revenues may be subject to annual
appropriation by legislative body. In the latter
case, the collection of revenues may be dependent
upon the reliability of feasibility forecasts and
assumptions concerning utilization rates.
Resource Recovery/Solid Waste Securities
These Securities are typically secured by
revenues derived from the sale of electricity or
steam generated as a by-product of the process of
incinerating solid waste, and from contractual
tipping fees, user charges and ancillary
recycling earnings. Special considerations
include: the supply of solid waste at levels
sufficient for the facility to operate at design
capacity; the frequency and duration of plant
shutdowns for maintenance; the treatment and
disposal of fly ash which contains toxic
substances, especially dioxin; compliance with
air pollution control standards; unanticipated
problems associated with the use of developing
technologies; and the continuation of FERC
policies facilitating congeneration and its
certification of any particular qualifying
facility. Governmental service contract payments
may be subject to annual appropriation by a
legislative body. Older facilities may require
retrofitting to accommodate new technological
developments or to comply with environmental
standards.
Water and Sewer Facility Securities
Bonds described as "water and sewer" facilities
Bonds are typically secured by a pledge of the
net revenues derived from connection fees and
user charges imposed by the enterprise. Such
Bonds are subject to the risks typically
associated with construction projects. Among the
factors which may affect net revenues are the
destruction of facilities due to natural or other
disasters; relocation out of the service area by
a major customer or customers due to economic
factors beyond the issuer's control; or costs
incurred due to prior periods of deferred
maintenance or compliance with Federal or state
environmental standards. Water system revenues
may be additionally affected by the terms of
supply allocations and service agreements with
major wholesale customers and the imposition of
mandatory conservation measures in response to
drought. Sewer system revenues may be
additionally affected by costs to comply with
effluent and other standards pursuant to the
Federal and state laws.
Refunded Bonds
Refunded bonds (including bonds escrowed to a
call date or maturity date) are bonds that
originally had been issued generally as revenue
bonds but have been refunded for reasons which
may include changing the issuer's debt service
requirements and removing restrictive bond
covenants. Typically, a refunded bond is no
longer secured by a pledge of revenues received
by an issuer but rather by an escrow fund
consisting of U.S. Government Obligations. In
such cases the issuer establishes an escrow fund
which is irrevocable and which cannot be depleted
by the issuer so long as debt service on the
refunded bonds is required to be paid. Each
escrow fund is funded with U.S. Government
Obligations which are designed to make payments
on the refunded bonds and which cannot be
affected by a default of the issuer. An escrow
agent pays principal, redemption premium, if any,
and interest on the refunded bond from the
principal of and interest on the U.S. Government
Obligations in the escrow fund. The Trust, as
holder of the refunded bonds, is entitled to
receive such payment of principal, redemption
premium, if any, and interest on the refunded
bonds as it is paid by the escrow agents out of
the respective refunded bond escrow funds.
Student Loan Securities
Student loan revenue securities are issued
either by non profit corporations organized for
the purpose of acquiring student loans originated
under the Higher Education Act or public agencies
or instrumentalities of a state created to
provide loans for educational purposes. Proceeds
of securities issued by such entities generally
are used to make or acquire student loans which
are guaranteed by guaranty agencies; the
obligation of such guaranty agency is reinsured
by the U.S. Secretary of Education (the
"Secretary"); such reinsurance obligation may
range from 80% to 100% based on the default
levels for loans serviced by such a guaranty
agency. In addition, some loans may be insured
directly by the Secretary. Bonds issued by such
entities are generally secured by and dependent
upon such state guarantee programs, Federal
insurance and reimbursement programs, the
proceeds from payment of principal and interest
on the underlying student loans and federal
interest subsidy and/or special allowance
payments. Failure by the servicers of student
loans on the guaranty agencies guaranteeing such
loans to properly service and enforce the loans
may cause the reimbursements to decline or be
withheld by the Secretary.
Both the Higher Education Act and the
regulations promulgated thereunder have been the
subject of extensive amendments in recent years,
and the Sponsor can give no assurance that
further amendment will not materially change the
provisions or the effect thereof. There can be no
assurance that the other provisions of the Higher
Education Act affecting the Federal Guaranteed
Student Loan Program will be continued in their
present form.
The availability of various Federal payments in
connection with the Federal Guaranteed Student
Loan Program is subject to federal budgetary
appropriation. In recent years, legislation has
been enacted which has provided, subject to
certain Federal budget expenditures (including
expenditures in connection with the Federal
Guaranteed Student Loan Program), for the
recovery of certain advances previously made by
the Federal government to state guaranty agencies
in order to achieve deficit reduction. No
representation is made as to the effect, if any,
or future Congressional appropriation or
legislation upon expenditures by the Department
of Education or upon the financial condition of
any guaranty agency.
Lease Payment Bonds
Certain Bonds may be principally secured by
governmental lease payments which in turn are
subject to the budget appropriations of the
participating governmental entity. A governmental
entity that enters into a lease agreement cannot
obligate future governments to make lease
payments but generally will covenant to take such
action as is necessary to include all lease
payments due under an agreement in its annual
budgets and to make the appropriations therefor.
The failure of a governmental entity to meet its
obligations under a lease could result in an
insufficient amount of funds to cover payment of
the Bonds secured by such lease payments.
Tax Allocation Bonds
Bonds described as "tax allocation" securities
are payable from and secured by incremental
(increased) tax revenues collected on property
within the areas where redevelopment projects,
financed by bond proceeds, are located ("project
areas"). Payments on these bonds are expected to
be made from projected increases in tax revenues
derived from higher assessed value of property
resulting from development in the particular
project area and not from an increase in the tax
rates. Among the factors which could result in a
reduction of the allocated tax revenues which
secure a tax allocation Bond are: (i) reduction
of, or a less than anticipated increase in,
taxable values of property in the project area,
caused either by economic factors beyond the
issuer's control (such as a relocation out of the
project area by one or more major property
owners) or by destruction of property due to
natural or other disasters; (ii) successful
appeals by property owners of assessed
valuations; (iii) substantial delinquencies in
the payment of property taxes; or (iv) imposition
of any constitutional or legislative property tax
rate decrease. Such reduction of tax revenues
could have an adverse effect on an issuer's
ability to make timely payments of principal and
of interest on the Bonds.
Crossover Refunding Bonds
Certain Bonds in the Trust may be cross-over
refunding Bonds. Prior to a specified date, (the
"Crossover Date"), such bonds are payable solely
from an escrow fund invested in specified
securities. After the Crossover Date the Bonds
are payable from a designated source of revenues.
Such bonds are categorized in Part A as payable
from such source of revenues.
Bonds Backed by Letters of Credit
The Trust may contain securities that are
secured by letters of credit issued by commercial
or savings banks which may be drawn upon (i) if
an issuer fails to make payments of principal of,
premium, if any, or interest on a Bond backed by
such a letter of credit or (ii) in the event
interest on a Bond is deemed to be taxable and
full payment of principal and any premium due is
not made by the issuer. The letters of credit are
irrevocable obligations of the issuing banks.
Banks are subject to extensive governmental
regulations. The profitability of the banking
industry is largely dependent upon the
availability and cost of capital funds for the
purpose of financing lending operations under
prevailing money market conditions. Also, general
economic conditions play an important part in the
operations of the banking industry and exposure
to credit losses arising from possible financial
difficulties of borrowers or other issuers having
letters of credit might affect a bank's ability
to meet its obligations under a letter of credit.
****
An amendment to the Federal Bankruptcy Act
relating to the adjustment of indebtedness owed
by any political subdivision or public agency or
instrumentality of any state, including
municipalities, became effective in 1979. Among
other things, this amendment facilitates the use
of proceedings under the Federal Bankruptcy Act
by any such entity to restructure or otherwise
alter the terms of its obligations, including
those of the type comprising the Trust's
portfolio. The Sponsor is unable to predict at
this time what effect, if any, this legislation
will have on the Trust.
Each of the Bonds in the Trust was, as of the
Date of Deposit, rated "A" or higher by either
Standard & Poor's Corporation or Moody's
Investors Service, Inc. (see "Schedule of
Investments") or were Bonds which the Sponsor
reasonably believed would have obtained such
minimum rating soon thereafter. Ratings indicated
on the Schedule of Investments are Standard &
Poor's Corporation ratings unless no rating was
given to a Bond by such rating service or the
rating category assigned by Moody's Investors
Service, Inc. was higher, in which case the
Moody's Investors Service, Inc. rating was
indicated. Certain Bonds may, in addition to
their rating, be designated either "p" by
Standard & Poor's Corporation or "Con" by Moody's
Investors Service, Inc. Such designations do not
affect the rating assigned by the respective
rating services to such Bonds but provide certain
additional information (see "Bond Ratings" in
Part B and "Schedule of Investments" in Part A).
ACQUISITION OF SECURITIES FOR THE TRUST
In selecting Bonds for deposit in the Trust many
factors were considered, and based upon the
experience and judgment of the Sponsor, the
following requirements, among others, were deemed
to be of primary importance:
1. Minimum Standard & Poor's Corporation's
rating of "A-" or minimum Moody's Investors
Service, Inc.'s rating of "A" ("investment grade"
municipal bonds) or Bonds which the Sponsor
reasonably believes will obtain such minimum
ratings in the near future;
2. Reasonable value relative to other issues of
similar quality and maturity;
3. Diversification as to the purpose of each
issue and the location of each issuer; and
4. Income to the Unitholders of the Trust.
Cash, if any, received from Unitholders prior to
the settlement date for the purchase of Units or
prior to the payment for Bonds upon their
delivery may be used in the Sponsor's business
subject to the limitations of 17 C.F.R. Section
240. 15c3-3 under the Securities and Exchange Act
of 1934 and may be of benefit to the Sponsor.
The Trustee has not participated in the
selection of Securities for the Trust, and
neither the Sponsor nor the Trustee will be
liable in any way for any default, failure or
defect in any Securities.
To the best knowledge of the Sponsor, there was
no litigation pending as of the 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 have been initiated on
a variety of grounds with respect to Securities
in the Trust. Such litigation may affect the
validity of such Securities or the tax-exempt
status of the interest thereon. While the outcome
of litigation of such nature cannot be predicted,
opinions of the bond counsel are delivered with
respect to each Security on the date of issuance
to the effect that such Security has been validly
issued and that the interest thereon is exempt
from Federal income tax. If legal proceedings are
instituted after the Date of Deposit seeking,
among other things, to restrain or enjoin the
payment of any of the Bonds or attacking their
validity or the authorization or existence of the
issuer, the Sponsor may, in accordance with the
Indenture, direct the Trustee to sell such Bonds
and distribute the proceeds of such sale to
Unitholders. In addition, other factors may arise
from time to time which potentially may impair
the ability of issuers to meet obligations
undertaken with respect to Bonds.
PUBLIC OFFERING PRICE OF UNITS
The Public Offering Price per Unit during the
secondary market will be computed by dividing the
aggregate of the bid prices of the Bonds in the
Trust plus any money in the Principal Account
other than money required to redeem the tendered
Units, by the number of Units outstanding, and
then adding the appropriate sales charge. If the
primary offering period, the Public Offering
Price was determined on the basis of the offering
prices of bonds plus a sales charge ranging from
3.5% to 5.5% of the Public Offering Price.
The sales charge is determined in accordance
with the table set forth below based upon the
number of years remaining to the maturity of each
Bond. There is no sales charge with respect to
cash held in the Interest or Principal Accounts.
For purposes of this calculation, Bonds will be
deemed to mature on their stated maturity dates
unless: (a) the Bonds have been called for
redemption or funds or securities have been
placed in escrow to redeem them on an earlier
call date ("Refunded Bonds"), in which case such
call date shall be deemed to be the date upon
which they mature; or (b) such Bonds are subject
to a "mandatory put", in which case such
mandatory put date shall be deemed to be the date
upon which they mature.
The effect of this method of sales charge
calculation will be that different sales charge
rates will be applied to the various Bonds in a
Trust portfolio based upon the maturities of such
Bonds, in accordance with the following schedule:
Maximum
Percent of
Remaining Public Percent of
Years to Offering Net Mount
Maturity Price Invested
Less than 1 0% 0%
1 but less than 6 3.50 3.63
6 but less than 11 4.00 4.17
More than 11 5.50 5.82
For example, the sales charge on a Trust
consisting entirely of Bonds maturing in 13 to 16
years would be 5.50% (5.82% of the net amount
invested) and that on a Trust consisting entirely
of Bonds maturing in three to five years would be
3.50% (3.63% of the net amount invested). The
actual sales charge included in the Public
Offering Price of any particular Trust will
depend on the maturities of the Bonds in the
portfolio of such Trust.
Due to the realization of economies of scale in
sales effort and sales related expenses with
respect to the purchase of Units by employees of
the Sponsor, the Sponsor intends to permit
employees of the Sponsor and certain of their
relatives to purchase Units of the Trust at a
price equal to the bid-side evaluation of the
Securities in the Trust divided by the number of
Units outstanding plus a reduced sales charge of
$5.00 per Unit.
A proportionate share of accrued interest and
undistributed interest on the Units to the
Unitholder's settlement date (the Unitholder's
settlement date is the date so specified in the
confirmation of sale of the Units to a
Unitholder, normally five business days after
purchase) is added to the Public Offering Price.
Such proportionate share will be an asset of the
Unitholder and will be received in subsequent
distributions and upon the sale of his Units.
Aggregate bid prices of the Securities will be
determined for the Trust by the Evaluator on the
basis of: (1) the current bid prices for the
Securities; (2) the current bid prices for
comparable bonds, if bid prices are not available
for any of the Securities; (3) determining the
value of the Securities on the bid side of the
market by appraisal; or (4) any combination of
the above. Such evaluations and computations will
be made each business day as of the Evaluation
Time, effective for all sales or redemptions made
subsequent to the last preceding determination.
In addition to the sales charges, on the Date of
Deposit, the Sponsor realized a profit or loss
resulting from the difference between the
purchase price paid by the Sponsor to buy the
Securities and the cost of the Securities to the
Trust as determined by the Evaluator. The Sponsor
may realize additional profit or loss as a result
of the possible change in the daily evaluation of
the Bonds in the Trust. All proceeds received
from purchasers of Units of the Trust will be
retained by the Sponsor.
PUBLIC OFFERING OF UNITS
The Sponsor intends to qualify Units for sale in
all of the states of the United States, except
that for state trusts, the Sponsor intends to
qualify Units for sale only to residents of that
state. Sales may be made to dealers who are
members of the National Association of Securities
Dealers, Inc. at prices which include a
concession of 75% of the applicable sales charge
subject to change from time to time. The
difference between the dealer concession and the
sales charge will be retained by the Sponsor. The
Sponsor reserves the right to reject, in whole or
in part, any order for the purchase of Units.
Initial Offering of Units. During the initial
public offering period, Units were offered to the
public by the Sponsor at the Public Offering
Price calculated on each business day, plus
accrued interest.
Secondary Offering of Units. Upon the
termination of the initial public offering
period, unsold Units or Units acquired by the
Sponsor in the secondary market referred to below
may be offered to the public by the Sponsor by
this Prospectus at the then current Public
Offering Price, calculated daily, plus accrued
interest.
SECONDARY MARKET FOR UNITS
While not obligated to do so, it is the
Sponsor's present intention to maintain, at its
expense, a secondary market for Units of this
Series and to continuously offer to repurchase
Units from Unitholders at the "Sponsor's
Repurchase Price". The Sponsor's Repurchase Price
is computed by dividing the value of the Trust by
the number of Units outstanding (see "Evaluation
of the Trust"). There is no sales charge incurred
when a Unitholder sells Units back to the
Sponsor. Any Units repurchased by the Sponsor at
the Sponsor's Repurchase Price may be reoffered
to the public by the Sponsor at the then current
Public Offering Price, plus accrued interest. Any
profit or loss resulting from the resale of such
Units will belong to the Sponsor.
If the supply of Units exceeds demand, or for
some other business reason, the Sponsor may at
any time or occasionally from time to time
discontinue the repurchase of Units of this
Series at the Sponsor's Repurchase Price. In such
event, although under no obligation to do so, the
Sponsor may, as a service to Unitholders, offer
to repurchase Units at the "Redemption Value". If
the Sponsor repurchases Units in the secondary
market at the "Redemption Value", it may reoffer
these Units in the secondary market at the
"Public Offering Price". In no event will the
price offered by the Sponsor for the repurchase
of Units be less than the current Redemption
Value for those Units. See "Redemption of Units
by Trustee" and "Comparison of Public Offering
Price and Redemption Value".
ESTIMATED CURRENT RETURN AND ESTIMATED LONG TERM RETURN
The Sponsor may from time to time give investors
Estimated Current Return and Estimated Long Term
Return information, each of which give investors
different information about the return. Estimated
Current Return on a Unit represents annual cash
receipts from coupon-bearing debt obligations in
the Trust (after estimated annual expenses)
divided by the Public Offering Price (including
the sales charge).
Unlike Estimated Current Return, Estimated Long
Term Return is a measure of the estimated return
to the investor earned over the estimated life of
the Trust. Estimated Long Term Return is
calculated using a formula which (1) takes into
consideration, and determines and factors in the
relative weightings of, the market values, yields
(which takes into account the amortization of
premiums and the accretion of discounts) and
estimated retirements of all of the Securities in
the Trust and (2) takes into account the expenses
and maximum sales charge associated with each
Unit. The Estimated Long Term Return calculation
does not take into account certain delays in
distributions of income and the timing of other
receipts and distributions on Units and may,
depending on maturities, over or understate the
impact of sales charges. Both of these factors
may result in a lower figure.
Both Estimated Current Return and Estimated Long
Term Return are subject to fluctuation with
changes in Trust composition, changes in market
value of the underlying Securities and changes in
fees and expenses, including sales charges. The
size of any difference between Estimated Current
Return and Estimated Long Term Return can also be
expected to fluctuate at least as frequently. In
addition, both return figures may not be directly
comparable to yield figures used to measure other
investments, and, since the return figures are
based on certain assumptions and variables, the
actual returns received by a Unitholder may be
higher or lower.
ESTIMATED NET ANNUAL INTEREST INCOME PER UNIT
The estimated Net Annual Interest Income per
Unit of the Trust is computed by dividing the
total gross annual interest income to the Trust
by the number of Units outstanding and then
subtracting the per Unit estimated annual fees
and expenses of the Trustee, the Sponsor and the
Evaluator (see "Essential Information" in Part
A). The estimated Net Annual Interest Income per
Unit will be higher for Unitholders who do not
elect the monthly plan (where alternate plans of
distribution are available). This is the result
of the differing expenses and fees of the Trustee
in administering the distributions of interest.
See "Essential Information" in Part A and
"Distributions to Unitholders".
The estimated Net Annual Interest Income per
Unit will change whenever Securities mature, are
called for redemption, or are sold. In addition,
any change in the Trustee's, the Sponsor's (where
applicable) or Evaluator's fees or expenses will
result in a change in the estimated Net Annual
Interest Income per Unit (see "Expenses of the
Trust").
DISTRIBUTIONS TO UNITHOLDERS
The Trustee will collect the interest on the
Securities as it becomes payable and credit such
interest to a separate Interest Account created
by the Indenture. All moneys received by the
Trustee from sources other than interest will be
credited to a separate Principal Account. All
funds collected or received will be held by the
Trustee in trust without interest to Unitholders
as part of the Trust or the Reserve Account
referred to below until required to be disbursed
in accordance with the provisions of the
Indenture. Such funds will be segregated by
separate recordation on the Trust ledger of the
Trustee so long as such practice preserves a
valid preference under applicable law, or, if
such preference is not preserved the Trustee
shall handle such funds in such other manner as
shall constitute the segregation and holding
thereof in trust within the meaning of the
Investment Company Act of 1940, as the same may
be from time to time amended. To the extent
permitted by the Indenture and applicable banking
regulations, such funds are available for use by
the Trustee pursuant to normal banking
procedures.
The Trustee is authorized by the Indenture to
withdraw from the Principal and/or Interest
Accounts such amounts as it deems necessary to
establish a reserve for any taxes or other
governmental charges that may be payable out of
the Trust, which amounts will be deposited in a
separate Reserve Account. If the Trustee
determines that the amount in the Reserve Account
is greater than the amount necessary for payment
of any taxes or other governmental charges, it
will promptly deposit the excess in the Account
from which it was withdrawn.
The settlement date for the purchase of Units
must occur on or prior to the Record Date in
order for a purchaser to receive a distribution
on the next Distribution Date. If the settlement
date for the purchase of Units occurs after the
Record Date, distribution will not occur until
the second following Distribution Date.
Interest Account
After deduction of the fees and expenses of the
Trustee, the Sponsor (where applicable and as
indicated under "Essential Information") and the
Evaluator, the Trustee will distribute on each
Distribution Date or shortly thereafter, to
Unitholders of record on the preceding Record
Date, an amount approximately equal to either
one-twelfth, one-quarter or one-half of such
Unitholder's pro rata share (depending on the
distribution plans available and selected) of the
estimated annual amount to be deposited in the
Interest Account, computed as of the preceding
Record Date. However, all Unitholders of record
on the initial Record Date will receive the
initial interest distribution on the initial
Interest Distribution Date. The Trustee's fees
and expenses will be higher for monthly interest
distributions than for quarterly or semi-annual
interest distributions, where available.
Therefore, the amount distributed per Unit to
Unitholders electing the monthly plan will be
correspondingly lower than under the quarterly or
semi-annual plan. All interest distributions
following the initial interest distribution will
be in approximately the amounts shown under
"Essential Information", depending on the plan of
distribution selected. See "Essential
Information--Plan of Distribution" in Part A for
details on electing available distribution plans.
Because the Securities in the Trust pay interest
at varying semi-annual intervals and Units pay
interest at constant monthly, quarterly or semi-
annual intervals, the interest accrued on Units
of the Trust will be greater than the amount
available for distribution from the Interest
Account. The Trustee will distribute on each
Distribution Date an amount which will be less
than the interest accrued to each Unitholder on
the preceding Record Date. Pursuant to the
Indenture, in order to accommodate regular
interest distributions, the Trust will contain
undistributed cash balances. The difference
between the amount accrued to each Unitholder on
a Record Date and the amount distributed on the
following Distribution Date is an asset of the
Unitholder and will be included as part of
accrued interest which will be received in
subsequent interest distributions, upon the sale
of his Units or, in part, upon the sale,
redemption, or maturity of Securities in the
Trust.
The Trustee is authorized by the Indenture to
advance such amounts as may be necessary to
provide interest distributions of approximately
equal amounts in accordance with the distribution
plan selected. The Trustee will be reimbursed,
without interest, for any such advances in the
manner provided in the Indenture.
Principal Account
The Trustee will distribute an amount equal to
such Unitholder's pro rata share of the cash
balance, if any, in the Principal Account on the
principal Distribution Date specified under
"Distribution" under "Essential Information". The
pro rata share is computed as of the preceding
Record Date. Except for moneys used to redeem
tendered Units, proceeds received upon the
disposition of any Securities subsequent to a
Record Date and prior to the following principal
Distribution Date will be held in the Principal
Account and will not be distributed until the
next succeeding principal Distribution Date.
However, in the event of an early redemption of
bonds, sale of bonds upon the occurrence of
events set forth under "Supervision of Trust
Investments", or maturity of bonds, there may
occur a special principal distribution. Any
special principal distribution will be made
within 60 days of such event to Unitholders of
record on the Record Date selected therefor by
the Trustee as provided in the Indenture. No
distribution need be made from the Principal
Account if the cash balance therein is less than
one-tenth of one per cent of the total principal
amount of the Securities on the Date of Deposit.
Certain of the Bonds in the Trust are subject to
sinking fund or special redemption by their
issuers, as set forth under "Redemption Features"
on the "Schedule of Investments in Part A". The
redemption price of Bonds in the Trust called by
an issuer pursuant to sinking fund or special
redemption is normally equal to the principal
amount of such Bonds, while the redemption price
for Bonds called at the option of the issuer may
include a redemption premium. In most cases Bonds
are selected from among Bonds of like series and
maturity either by lot or by such method as the
bond trustee may adopt. A capital gain or loss
may occur depending upon the price at which a
Bond which is called was acquired by the Trust
and the amount received by the Trust upon
redemption (see "Tax Status of the Trust"). In
general, optional redemption provisions are more
likely to be exercised by an issuer when the
offering side valuation is greater than par than
when the offering side valuation is less than
par. If future interest rates decline, an issuer
of Bonds might find it advantageous to exercise
its option to call Bonds prior to maturity even
though, in most cases, the issuer must pay a
premium.
Reinvestment Program
Distributions are made to Unitholders monthly.
The Unitholder has the option of receiving the
monthly interest and/or principal distribution or
reinvesting at net asset value in the PaineWebber
Tax-Exempt Income Fund (the "Fund"), an open-end
investment company registered under the
Investment Company Act. The Fund's investment
objective is to provide high current income
exempt from Federal income tax, consistent with
the preservation of capital and liquidity within
the Fund's quality standards. Except under
unusual market conditions, the Fund will invest
at least 80% of its assets in municipal
obligations with varying maturities, the interest
from which, in the opinion of bond counsel to
their respective issuers, is exempt from both
Federal income tax and the Federal alternative
minimum tax. There can be no assurance that the
Fund will achieve its objective. For more
information about the Fund, including a
prospectus, Unitholders should contact their
PaineWebber Investment Executive or call the
Fund's shareholder service number at 1-800-544-
9300.
To participate in the Reinvestment Program,
Unitholders must hold Units in their own name,
must fill out an application establishing an
account and notify the Trustee of the account
number at least 10 days before the Record Date.
Elections may be revoked upon similar notice.
EXCHANGE OPTION
Unitholders may elect to exchange any or all of
their Units of this series for units of one or
more of any series of PaineWebber Municipal Bond
Fund First Series; PaineWebber Municipal Bond
Fund Second Series; PaineWebber Municipal Bond
Fund Third Series (the "PaineWebber Series"); The
Municipal Bond Fund, Series One through Series
Forty-Three; The Municipal Bond Trust, Series
Forty-Four and subsequent series (the "National
Series"); The Municipal Bond Trust, Multi-State
Program Series One and subsequent series (the
"Multi-State Series); The Municipal Bond Trust,
California Series A and subsequent series (the
"California Series"); The Municipal Bond Trust,
Insured Series One and subsequent series (the
"Insured Series"); The Corporate Bond Trust,
Series One and subsequent series (the "Corporate
Series"); The PaineWebber Pathfinders Trust,
Treasury and Growth Stock, Series 1 and
subsequent series (the "Pathfinders Trust"), the
PaineWebber Federal Government Trust, GNMA Series
1 and subsequent Series 1 (the "Federal
Government Trust") or the PaineWebber Equity
Trust, Growth Stock Series 1 and subsequent
series (the "Equity Trust") (collectively
referred to as the "Exchange Trusts"), at a
Public Offering Price for the units of the
Exchange Trusts to be acquired based on a reduced
sales charge of $15 per unit. The purpose of such
reduced sales charge is to permit the Sponsor to
pass on to the Unitholder who wishes to exchange
Units the cost savings resulting from such
exchange of Units. The cost savings result from
reductions in time and expense related to advice,
financial planning and operational expense
required for the Exchange Option. Each Exchange
Trust has different investment objectives,
therefore a Unitholder should read the prospectus
for the applicable Exchange Trust carefully prior
to executing this option. Exchange Trusts having
as their objective the receipt of tax exempt
interest income would not be suitable for tax
deferred investment plans such as Individual
Retirement Accounts. A Unitholder who purchased
Units of a series and paid a per unit sales
charge that was less than the per Unit sales
charge of the series of Exchange Trusts for which
such Unitholder desires to exchange into, will be
allowed to exercise the Exchange Option at the
Unit Offering Price plus the reduced sales
charge, provided the Unitholder has held the
Units for at least five months. Any such
Unitholder who has not held the Units to be
exchanged for the five-month period will be
required to exchange them at the Unit Offering
Price plus a sales charge based on the greater of
the reduced sales charge, or an amount which,
together with the initial sales charge paid in
connection with the acquisition of the Units
being exchanged, equals the sales charge of the
series of the Exchange Trust for which such
Unitholder desires to exchange into, determined
as of the date of the exchange.
The Sponsor will permit exchanges at the reduced
sales charge provided there is a secondary market
maintained by the Sponsor in both the Units of
this series and units of the applicable Exchange
Trust and there are units of the applicable
Exchange Trust available for sale. While the
Sponsor has indicated that it intends to maintain
a market for the units of the respective Trusts,
there is no obligation on its part to maintain
such a market. Therefore, there is no assurance
that a market for units will in fact exist on any
given date at which a Unitholder wishes to sell
his Units of this series and thus there is no
assurance that the Exchange Option will be
available to a Unitholder. Exchanges will be
effected in whole units only. Any excess proceeds
from Unitholders' units being surrendered will be
returned. Unitholders will be permitted to
advance new money in order to complete an
exchange.
An exchange of units pursuant to the Exchange
Option will normally constitute a "taxable event"
under the Code, i.e., a Unitholder will recognize
a tax gain or loss which will be of a capital or
ordinary nature depending upon among other things
the length of time such Unitholder has held the
Units. However, under the position taken by the
Internal Revenue Service in Revenue Ruling 81-204
(relating to the exchange of pools of residential
mortgage loans by several savings and loan
associations), an exchange of units for units of
any other similar series of the PaineWebber
Municipal Bond Trust, may not constitute a
taxable event if the units exchanged do not
differ materially either in kind or in extent
from each other or if the exchange has no
significant economic or business purpose or
utility apart from the anticipated tax
consequences. Unitholders are advised to consult
their own tax advisors as to the tax consequences
of exchanging units in their particular case.
The Sponsor reserves the right to modify,
suspend or terminate this plan at any time
without further notice to Unitholders. In the
event the Exchange Option is not available to a
Unitholder at the time he wishes to exercise it,
the Unitholder will be immediately notified and
no action will be taken with respect to his Units
without further instruction from the Unitholder.
To exercise the Exchange Option, a Unitholder
should notify the Sponsor of his desire to
exercise the Exchange Option and to use the
proceeds from the sale of his Units of this
series to purchase units of one or more of the
Exchange Trusts. If units of the applicable
outstanding series of the Exchange Trust are at
that time available for sale, and if such units
may lawfully be sold in the state in which the
Unitholder is resident, the Unitholder may select
the series or group of series for which he
desires his investment to be exchanged. The
Unitholder will be provided with a current
prospectus or prospectuses relating to each
series in which he indicates interest.
The exchange transaction will operate in a
manner essentially identical to any secondary
market transaction, i.e., Units will be
repurchased at a price based on the aggregate bid
price per Unit of the securities in the portfolio
of the Trust. Units of the Exchange Trust,
however, will be sold to the Unitholder at a
reduced sales charge. Units sold under the
Exchange Option will be sold at the bid prices
per unit of the underlying securities in the
particular portfolio involved plus a fixed charge
of $15 per unit. Exchange transactions will be
effected only in whole units; thus, any proceeds
not used to acquire whole units will be paid to
the selling Unitholder.
For example, assume that a Unitholder, who has
three units of a trust with a current price of
$1,030 per unit based on the bid prices of the
underlying securities, desires to sell his units
and seeks to exchange the proceeds for units of a
series of an Exchange Trust with a current price
of $890 per unit based on the bid prices of the
underlying securities. In this example, which
does not contemplate rounding up to the next
highest number of units, the proceeds from the
Unitholder's units will aggregate $3,090. Since
only whole units of an Exchange Trust may be
purchased under the Exchange Option, the
Unitholder would be able to acquire three units
in the Exchange Trust for a total cost of $2,715
($2,670 for the units and $45 for the sales
charge). The remaining $375 would be returned to
the Unitholder in cash.
CONVERSION OPTION
Owners of units of any registered unit
investment trust sponsored by others which was
initially offered at a maximum applicable sales
charge of at least 3.0% ( a `Conversion Trust')
may elect to apply the cash proceeds of the sale
or redemption of those units directly to acquire
available units of any Exchange Trust at a
reduced sales charge of $15 per Unit, per 100
Units in the case of Exchange Trusts having a
Unit price of approximately $10, or per 1,000
Units in the case of Exchange Trusts having a
Unit price of approximately $1, subject to the
terms and conditions applicable to the Exchange
Option (except that no secondary market is
required for Conversion Trust units). To exercise
this option, the owner should notify his retail
broker. He will be given a prospectus for each
series in which he indicates interest and for
which units are available. The dealer must sell
or redeem the units of the Conversion Trust. Any
dealer other than PaineWebber must certify that
the purchase of units of the Exchange Trust is
being made pursuant to and is eligible for the
Conversion Option. The dealer will be entitled to
two-thirds of the applicable reduced sales
charge. The Sponsor reserves the right to modify,
suspend or terminate the Conversion Option at any
time without further notice, including the right
to increase the reduced sales charge applicable
to this option (but not in excess of $5 more per
Unit, per 100 Units or per 1,000 Units, as
applicable than the corresponding fee then being
charged for the Exchange Option). For a
description of the tax consequences of a
conversion reference is made to the Exchange
Option section herein.
EXPENSES OF THE TRUST
The cost of the preparation and printing of the
Certificates, the Indenture and this Prospectus,
the initial fees of the Trustee and the Trustee's
counsel, the Evaluator's fees during the initial
offering period, advertising expenses and
expenses incurred in establishing the Trust,
including legal and auditing fees, are paid by
the Sponsor and not by the Trust. The Sponsor
will receive no fee from the Trust for its
services as Sponsor.
The Sponsor's fee, deducted only in trusts where
the Date of Deposit is on or after November 30,
1982, which is earned for portfolio supervisory
services, is based upon the aggregate face amount
of Bonds in the Trust at the beginning of each
annual period. The Sponsor's fee, which is not to
exceed the amount set forth under "Essential
Information" in Part A, may exceed the actual
costs of providing portfolio supervisory services
for this Trust, but at no time will the total
amount the Sponsor receives for portfolio
supervisory services rendered to all series of
the Municipal Bond Trust in any calendar year
exceed the aggregate cost to it of supplying such
services in such year.
For services performed under the Indenture, the
Trustee will be paid by the Trust at the rate per
$1,000 of principal amount of Securities in the
Trust set forth under "Essential Information" in
Part A. Such compensation will be computed
monthly, quarterly or semi-annually (depending on
available plans of distribution) on the basis of
the greatest principal amount of the Securities
in the Trust at any time during the preceding
monthly or semi-annual period. In no event will
the Trustee be paid less than $2,000 in any one
year. The Evaluator's fee for each daily
evaluation is set forth under "Essential
Information" in Part A. The fees of the Evaluator
will be payable by the Trust. See "Essential
Information" in Part A for the estimated annual
fees and expenses per Unit under the various
optional interest distribution plans.
The Sponsor's fee is payable annually, Trustee's
fees are payable monthly, quarterly and semi-
annually (depending on available plans of
distribution) and the Evaluator's fees are
payable monthly on or before each Distribution
Date from the Interest Account, to the extent
funds are available, then from the Principal
Account. Any of such fees may be increased
without approval of the Unitholders by an amount
not exceeding a proportionate increase in the
category entitled "All Services Less Rent" in the
Consumer Price Index published by the United
States Department of Labor.
In addition to the above, the following charges
are or may be incurred by the Trust and paid from
the Interest Account, or, to the extent funds are
not available in such Account, from the Principal
Account: (1) fees for the Trustee for
extraordinary services; (2) expenses of the
Trustee (including legal and auditing expenses)
and of counsel; (3) various governmental charges;
(4) expenses and costs of any action taken by the
Trustee to protect the Trust and the rights and
interests of the Unitholders; (5) indemnification
of the Trustee for any loss, liabilities or
expenses incurred by it in the administration of
the Trust without negligence, bad faith or
willful misconduct on its part; and (6) expenses
incurred in contacting Unitholders upon
termination of the Trust. The fees and expenses
set forth above are payable out of the Trust and
when unpaid will be secured by a lien on the
Trust.
The accounts of certain Trusts may be audited
not less than annually by independent public
accountants selected by the Sponsor. The expenses
of the audit shall be an expense of the Trust. So
long as the Sponsor maintains a secondary market,
Sponsor will bear any audit expense which exceeds
50 cents per Unit. Unitholders covered by the
audit (if any) during the year may receive a copy
of the audited financials upon request.
DESCRIPTION OF CERTIFICATES
Ownership of Units is evidenced by registered
Certificates, executed by the Trustee and the
Sponsor, issued in denominations of one Unit or
any integral multiple thereof. A Unitholder may
transfer its Certificate by presenting it to the
Trustee at its corporate trust office. Such
Certificate must be properly endorsed or
accompanied by a written instrument or
instruments of transfer executed by the
Unitholder or its duly authorized attorney. A
Unitholder may be required to pay $2.00 per
Certificate transferred to cover the Trustee's
costs in implementing such transfer and to pay
any tax or other governmental charge that may be
imposed in connection with any such transfer. The
Trustee is required to execute and deliver a new
Certificate in exchange and substitution for any
Certificate mutilated, destroyed, stolen or lost,
if and when the Unitholder furnishes the Trustee
with proper identification and satisfactory
indemnity, and pays such expenses as the Trustee
may reasonably incur. Any mutilated Certificate
must be presented to the Trustee before any
substitute Certificate will be issued.
STATEMENTS TO UNITHOLDERS
With each distribution from the Interest and
Principal Accounts, the Trustee will furnish each
Unitholder with a statement setting forth the
amount being distributed from each Account
expressed as a dollar amount per Unit.
Promptly after the end of each calendar year,
the Trustee will furnish to each person who at
any time during the calendar year was a
registered Unitholder a statement setting forth:
1. As to the Interest Account:
(a) the amount of interest received on the
Securities and the percentage of such amount by
states and territories in which the issuers of
the Bonds are located;
(b) the amount paid from the Interest Account
representing accrued interest for any
Certificates redeemed;
(c) the deductions from the Interest Account for
fees and expenses of the Trustee, the Sponsor and
the Evaluator or for other various fees, charges
or expenses relating to the Trust;
(d) the deductions from the Interest Account for
payment into the Reserve Account; and
(e) the net amount remaining after such payments
and deductions expressed as a total dollar amount
outstanding on the last business day of such
calendar year.
2. As to the Principal Account:
(a) the dates of the redemption, sale or
maturity of any of the Securities and the net
proceeds received therefrom, excluding any
portion credited to the Interest Account;
(b) the amount paid from the Principal Account
representing the principal of any Certificates
redeemed;
(c) the deductions from the Principal Account
for fees and expenses of the Trustee, the Sponsor
and the Evaluator or for other various fees,
charges or expenses relating to the Trust;
(d) the deductions from the Principal Account
for payment into the Reserve Account; and
(e) the net amount remaining after such payments
and deductions expressed as a total dollar amount
outstanding on the last business day of such
calendar year.
3. The following information:
(a) a list of the Securities as of the last
business day of such calendar year;
(b) the number of Units outstanding on the last
business day of such calendar year;
(c) the Unit Value based on the last evaluation
of the Trust made on the last business day during
such calendar year; and
(d) the amounts actually distributed during such
calendar year from the Interest and Principal
Accounts, separately stated, expressed both as
total dollar amounts and as dollar amounts per
Unit outstanding on the Record Dates for such
distributions.
REDEMPTION OF UNITS BY TRUSTEE
A Unitholder who wishes to dispose of its Units
should inquire through its broker as to the
current market price for such Units prior to
making a tender for redemption to the Trustee in
order to determine if there is a market for Units
in excess of the then current Redemption Value or
Sponsor's Repurchase Price. After the initial
offering period the Redemption Value will be the
same as the Sponsor's Repurchase Price.
During the period in which the Sponsor maintains
a secondary market for Units at the Sponsor's
Repurchase Price, the Sponsor has agreed to
repurchase any Unit presented for tender to the
Trustee for redemption no later than the close of
business on the second business day following
such presentation.
The Trustee is irrevocably authorized in its
discretion, in lieu of redeeming Units presented
for tender at the redemption value, to sell such
Units in the over-the-counter market for the
account of a tendering Unitholder at prices which
will return to the Unitholder amounts in cash,
net after brokerage commissions, transfer taxes
and other charges, equal to or in excess of the
Redemption Value for such Units. In the event of
any such sale the Trustee will pay the net
proceeds thereof to the Unitholder on the day he
would otherwise be entitled to receive payment of
the Redemption Value.
One or more Units represented by a Certificate
may be redeemed at the Redemption Value upon
tender of such Certificate to the Trustee at its
corporate trust office, properly endorsed or
accompanied by a written instrument of transfer
in form satisfactory to the Trustee, and executed
by the Unitholder or its authorized attorney. A
Unitholder may tender its Units for redemption at
any time after the settlement date for purchase,
whether or not it has received a definitive
Certificate. The Redemption Value per Unit is
calculated by dividing the current bid prices for
the Securities in the Trust (see "Evaluation of
the Trust") plus any money in the Principal
Account other than money required to redeem
tendered Units, by the number of Units
outstanding, plus a proportionate share of
accrued interest and undistributed
interest income on the Securities determined to
the day of tender. There is no sales charge
incurred when a Unitholder tenders his Units to
the Trustee for redemption. Subject to the
payment of any applicable tax or governmental
charges, the Redemption Value of Units redeemed
by the Trustee will be paid on the seventh
calendar day following the day of tender. If such
day of payment is not a business day, the
Redemption Value will be paid on the first
business day prior thereto.
The Trustee may, in its discretion, and will
when so directed by the Sponsor, suspend the
right of redemption, or postpone the date of
payment of the Redemption Value, for more than
seven calendar days following the day of tender
for any period during which the New York Stock
Exchange, Inc. is closed other than for weekend
and holiday closings; or for any period during
which the Securities and Exchange Commission
determines that trading on the New York Stock
Exchange, Inc. is restricted or for any period
during which an emergency exists as a result of
which disposal or evaluation of the Securities is
not reasonably practicable; or for such other
period as the Securities and Exchange Commission
may by order permit for the protection of
Unitholders. The Trustee is not liable to any
person or in any way for any loss or damages
which may result from any such suspension or
postponement.
Any amounts paid on redemption representing
interest will be withdrawn from the Interest
Account to the extent that funds are available
for such purpose. All other amounts paid on
redemption will be withdrawn from the Principal
Account. The Trustee is empowered to sell
Securities out of the Trust as selected by the
Sponsor in order to make funds available for the
redemption of Certificates, and, to the extent
Securities are sold for such purpose, the size
and diversity of the Trust will be reduced. Such
sales may be required at a time when Securities
would not otherwise be sold and may result in
lower prices than might otherwise be realized. In
addition, because of the minimum principal amount
in which Securities may be required to be sold,
the proceeds of such sales may exceed the amount
necessary for payment of Units redeemed. Such
excess proceeds will be distributed pro rata to
all remaining Unitholders of record.
EVALUATION OF THE TRUST
The Evaluator is Kenny Information Systems, a
division of J.J. Kenny Co., Inc., 65 Broadway,
New York, New York 10006.
The value of the Trust is computed as of the
Evaluation Time shown under "Essential
Information" in Part A (1) on each June 30 and
December 31 (or the last business day prior
thereto), (2) on each business day as long as the
Sponsor is maintaining a bid in the secondary
market, (3) on the day on which any Unit is
tendered for redemption and (4) on any other day
desired by the Sponsor or the Trustee, by adding:
1. The aggregate value of Securities in the
Trust, as determined by the Evaluator:
(a) on the basis of current bid prices for the
Securities,
(b) on the basis of current bid prices for
comparable bonds, if bid prices are not available
for any of the Securities,
(c) by determining the value of the Securities
on the bid side of the market by appraisal, or
(d) by any combination of the above;
2. Money on hand in the Trust, other than money
deposited to purchase Securities or money
credited to the Principal Account which is
required to redeem tendered Units; and
3. Accrued but unpaid interest on the Securities
at the close of business on the date of such
Evaluation.
The Trustee will deduct from the resulting
figure: amounts representing any applicable taxes
or governmental charges payable by the Trust for
the purpose of making an addition to the Reserve
Account; amounts representing estimated accrued
expenses of the Trust; amounts representing
unpaid fees of the Trustee, the Sponsor and the
Evaluator; and cash held for distribution to
Unitholders of record as of the business day
prior to the Evaluation being made on the days or
dates set forth above.
For the purpose of the redemption of Units, the
value per Unit is computed by the Trustee by
dividing the result of the above computation by
the total number of Units outstanding on the date
of such Evaluation.
COMPARISON OF PUBLIC OFFERING PRICE AND REDEMPTION VALUE
While the Public Offering Price of Units during
the initial offering period is determined on the
basis of the current offering prices of the
Securities, the Public Offering Price of Units in
the secondary market and the Redemption Value is
determined on the basis of the current bid prices
of such Securities. On the date of the "Essential
Information" page, the Public Offering Price per
Unit (which figure includes the sales charge)
exceeded the Redemption Value by the amount shown
under "Essential Information" in Part A. The
difference between the bid and offering prices of
the Securities is expected to average 1-1/2% to
2% of principal amount. This difference may vary
between 3% or more of principal amount for
inactively traded Securities and as little as 1/2
of 1% for actively traded Securities. For this
reason and others, including the fact that the
Public Offering Price includes the sales charge,
the amount realized by a Unitholder upon
redemption of Units may be less than the price
paid by the Unitholder for such Units.
SUPERVISION OF TRUST INVESTMENTS
The acquisition by the Trust of any securities
other than the Securities initially deposited is
prohibited by the Indenture. The Sponsor may
direct the Trustee to sell or liquidate any of
the Securities upon the happening of any of the
following events (except for the limited right to
replace securities in the case of a fail):
1. Default by an issuer in the payment of
principal of or interest on such Securities, or
any other outstanding obligations of such issuer,
when due and payable,
2. Institution of legal proceedings seeking to
restrain or enjoin the payment of any of the
Securities or attacking their validity,
3. A breach of a covenant or warranty which
could adversely affect the payment of debt
service on the Securities, 4. In the case of
revenue bonds, if the revenues, based upon
official reports, fall substantially below the
estimated revenues calculated to be necessary to
pay principal of and interest on the Bonds,
5. A decline in market price, or such other
market or credit factor, as in the opinion of the
Sponsor would make retention of any of the
Securities detrimental to the Unitholders, or
6. In the event that any of the Bonds are the
subject of an advance refunding.
In addition, if a default in the payment of
principal of or interest on any of the Securities
occurs and the Sponsor fails to instruct the
Trustee to sell or hold such Securities within
thirty days after notification by the Trustee to
the Sponsor of such default, the Indenture
provides that the Trustee will sell the defaulted
Securities promptly. The Trustee will not be
liable or responsible in any way for depreciation
or loss incurred by reason of any sale made by it
either pursuant to a direction of the Sponsor or
by reason of a failure of the Sponsor to give any
such direction.
The Sponsor is required to instruct the Trustee
to reject any offer made by an issuer of any of
the Bonds to issue new obligations in exchange
and substitution for any of the Bonds pursuant to
a refunding or refinancing plan; however, the
Sponsor may instruct the Trustee to accept or
reject such an offer or to take any other action
with respect thereto as the Sponsor deems proper
if the issuer is in default with respect to the
Securities or the issuer will, in the written
opinion of the Sponsor, probably default with
respect to the Bonds in the reasonably
foreseeable future.
Any obligations received by the Trust in the
event of such an exchange or substitution will be
held by the Trustee and will be subject to the
terms and conditions of the Indenture to the same
extent as the Securities originally deposited.
Within five days after any exchange and deposit,
notice of such will be mailed by the Trustee to
each registered Unitholder, which identifies the
Securities eliminated and the Securities
substituted.
ADMINISTRATION OF THE TRUST
Records and Accounts: Pursuant to the Indenture,
the Trustee is required to keep proper books of
record and account of all transactions relating
to the Trust at its office. Such records will
include the name and address of every Unitholder,
a list of the Certificate numbers and the number
of Units of each Certificate issued to
Unitholders. The Trustee is also required to keep
a certified copy or duplicate original of the
Indenture and a current list of Securities held
in the Trust on file at its office which will be
open to inspection by any Unitholder during usual
business hours.
The Trustee is required to make annual or other
reports as may from time to time be required
under any applicable state or Federal statute,
rule or regulation.
Successor Trustee: Under the Indenture, the
Trustee may resign and be discharged of the Trust
created by the Indenture by executing a notice of
resignation in writing and filing it with the
Sponsor. The resigning Trustee must also mail a
copy of the notice of resignation to all
Unitholders then of record, not less than sixty
days before the effective resignation date
specified in such notice. Such resignation will
become effective only upon the appointment of and
the acceptance of the Trust by a successor
Trustee. The Sponsor, upon receiving notice of
such resignation, is obligated to appoint a
successor Trustee promptly.
If within thirty days after notice of
resignation has been received by the Sponsor, no
successor Trustee has been appointed or, if
appointed, has not accepted the appointment, the
resigning Trustee may apply to a court of
competent jurisdiction for the appointment of a
successor. In case the Trustee becomes incapable
of acting as such or is adjudged a bankrupt or is
taken over by any public authority, the Sponsor
may discharge the Trustee and appoint a successor
Trustee as provided in the Indenture. Notice of
such discharge and appointment shall be mailed to
each Unitholder by the Sponsor.
Upon a successor Trustee's execution of a
written acceptance of an appointment as Trustee
for the Trust, such successor Trustee will become
vested with all the rights, powers, duties and
obligations of the original Trustee.
A successor Trustee is required to be a
corporation organized and doing business under
the laws of the United States or of the State of
New York; to be authorized under such laws to
exercise corporate trust powers; to have at all
times an aggregate capital, surplus and undivided
profit of not less than $5,000,000; and to have
its principal office in New York City.
Successor Sponsor: If at any time the Sponsor
shall fail to undertake or perform or become
incapable of undertaking or performing any of the
duties which by the terms of the Indenture are
required of it to be undertaken or performed, or
if the Sponsor resigns, the Trustee may either
appoint a successor Sponsor or Sponsors as will
be satisfactory to the Trustee or it may
terminate the Indenture and liquidate the Trust.
Any successor Sponsor may be compensated at rates
deemed by the Trustee to be reasonable.
The dissolution of the Sponsor or its ceasing to
exist as a legal entity from, or for, any cause
whatsoever will not cause the termination of the
Indenture or the Trust unless the Trustee deems
termination to be in the best interests of
Unitholders.
Successor Evaluator: The Evaluator may resign or
may be removed by the Sponsor or the Trustee, and
the Sponsor and the Trustee are to use their best
efforts to appoint a satisfactory successor. Such
resignation or removal will become effective upon
the acceptance of appointment by a successor
Evaluator. If upon resignation of the Evaluator
no successor has accepted appointment within
thirty days after notice of resignation, the
Evaluator may apply to a court of competent
jurisdiction for the appointment of a successor
Evaluator. Notice of such resignation or removal
and appointment will be mailed by the Trustee to
each Unitholder.
LIMITATION OF LIABILITIES
The Sponsor: The Indenture provides that the
Sponsor will not be liable to the Trustee, the
Trust or the Unitholders for taking any action or
for refraining from taking any action made in
good faith or for errors in judgment, but will be
liable only for its own willful misfeasance, bad
faith, gross negligence or willful disregard of
its duties. The Sponsor will not be liable or
responsible in any way for depreciation or loss
incurred by reason of the sale of any Securities
in the Trust.
The Trustee: The Indenture provides that the
Trustee will not be liable for any action taken
in good faith in reliance on properly executed
documents or for the disposition of moneys,
Securities or Certificates, except by reason of
its own gross negligence, bad faith or willful
misconduct, nor will the Trustee be liable or
responsible in any way for depreciation or loss
incurred by reason of the sale by the Trustee of
any Securities in the Trust. In the event of the
failure of the Sponsor to act, the Trustee may
act and will not be liable for any such action
taken by it in good faith. The Trustee will not
be personally liable for any taxes or other
governmental charges imposed upon or in respect
of the Securities or upon the interest thereon or
upon it as Trustee or upon or in respect of the
Trust which the Trustee may be required to pay
under any present or future law of the United
States of America or of any other taxing
authority having jurisdiction. In addition, the
Indenture contains other customary provisions
limiting the liability of the Trustee. The
Trustee will be indemnified and held harmless
against any loss or liability accruing to it
without negligence, bad faith or willful
misconduct on its part, arising out of or in
connection with its acceptance or administration
of the Trust, including the costs and expenses
(including counsel fees) of defending itself
against any claim of liability.
The Evaluator: The Trustee, Sponsor, and
Unitholders may rely on any evaluation furnished
by the Evaluator and will have no responsibility
for the accuracy thereof. The Indenture provides
that the determinations made by the Evaluator
will be made in good faith upon the basis of the
best information available to it; provided,
however, that the Evaluator will be under no
liability to the Trustee, Sponsor or Unitholders
for errors in judgment, but will be liable only
for its gross negligence, lack of good faith or
willful misconduct.
AMENDMENT OF THE INDENTURE
The Indenture may be amended by the Trustee and
the Sponsor without the consent of any of the
Unitholders to cure any ambiguity or to correct
or supplement any provision thereof which may be
defective or inconsistent or to make such other
provisions as will not adversely affect the
interest of the Unitholders; provided, however,
that after the deposit of the Securities the
Indenture may not be amended to increase the
number of Units issued thereunder or to permit
the deposit or acquisition of securities either
in addition to or in substitution for any of the
Securities initially deposited in the Trust,
except for the substitution of certain refunding
securities for the Securities. The Trustee will
promptly notify Unitholders of the substance of
any such amendment.
RIGHTS OF UNITHOLDERS
A Unitholder may at any time tender his
Certificate to the Trustee for redemption.
The death or incapacity of any Unitholder will
not operate to terminate the Trust nor entitle
his legal representatives or heirs to claim an
accounting or to take any action or proceeding in
any court for a partition or winding up of the
Trust.
No Unitholder will have the right to vote
concerning the Trust, except with respect to
termination, or in any manner control the
operation and management of the Trust, nor shall
any Unitholder ever be liable to any other person
by reason of any action taken by the Sponsor or
the Trustee.
TERMINATION OF THE TRUST
The Indenture provides that the Trust will
terminate upon the maturity, redemption, sale or
other disposition of the last of the Securities
held in the Trust. If the value of the Trust as
shown by any evaluation is less than twenty per
cent (20%) of the par value of the Securities
originally deposited in the Trust, the Trustee
may in its discretion, and will when so directed
by the Sponsor, terminate the Trust. The Trust
may also be terminated at any time by the written
consent of 100% of the Unitholders or by the
Trustee upon the resignation or removal of the
Sponsor if the Trustee determines termination to
be in the best interest of the Unitholders. In no
event will the Trust continue beyond the
Mandatory Termination Date.
Upon termination, the Trustee will sell the
Securities then held in the Trust and credit the
moneys derived from such sale to the Principal
Account and the Interest Account. The Trustee
will then, after deduction of any fees and
expenses of the Trust and payment into the
Reserve Account of any amount required for taxes
or other governmental charges that may be payable
by the Trust, distribute to each Unitholder, upon
surrender for cancellation of his Certificate
after due notice of such termination, such
Unitholder's pro rata share in the Interest and
Principal Accounts. The sale of Securities in the
Trust upon termination may result in a lower
amount than might otherwise be realized if such
sale were not required at such time. For this
reason, among others, the amount realized by a
Unitholder upon termination may be less than the
principal amount of Securities represented by the
Units held by such Unitholder.
SPONSOR
The Sponsor, PaineWebber Incorporated, is a
corporation organized under the laws of the State
of Delaware. The Sponsor is a member firm of the
New York Stock Exchange, Inc. as well as other
major securities and commodities exchanges and is
a member of the National Association of
Securities Dealers, Inc. The Sponsor is engaged
in a security and commodity brokerage business as
well as underwriting and distributing new issues.
The Sponsor also acts as a dealer in unlisted
securities and municipal bonds and, in addition
to participating as a member
of various selling groups or as an agent of other
investment companies, executes orders on behalf
of investment companies for the purchase and sale
of securities of such companies and sells
securities to such companies in its capacity as a
broker or dealer in securities.
LEGAL OPINION
The legality of the Units offered hereby has
been passed upon by Orrick, Herrington &
Sutcliffe LLP, 666 Fifth Avenue, New York, New
York, as counsel for the Sponsor.
INDEPENDENT AUDITORS
The financial statements, including the schedule
of investments, of the Trust included in Part A
of this Prospectus have been audited by Ernst &
Young LLP, independent auditors, for the period
indicated in their report appearing herein. The
financial statements audited by Ernst & Young LLP
have been included in reliance on their report
given on their authority as experts in accounting
and auditing.
BOND RATINGS*
NR _ Securities which, while not rated by
Standard & Poor's or Moody's, have been
determined by the trusts sponsor to be of
investment grade quality.
Standard & Poor's Corporation
A Standard & Poor's corporate or municipal bond
rating is a current assessment of the
creditworthiness of an obligor with respect to a
specific debt obligation. This assessment of
creditworthiness may take into consideration
obligors such as guarantors, insurers, or
lessees.
The bond rating is not a recommendation to
purchase or sell a security, inasmuch as it does
not comment as to market price.
The ratings are based on current information
furnished to Standard & Poor's by the issuer and
obtained by Standard & Poor's from other sources
it considers reliable. The ratings may be
changed, suspended or withdrawn as a result of
changes in, or unavailability of, such
information.
The ratings are based, in varying degrees, on
the following considerations:
I. Likelihood of default capacity and
willingness of the obligor as to the timely
payment of interest and repayment of principal in
accordance with the terms of the obligation, and
II. Nature of and provisions of the obligation,
III. Protection afforded by, and relative
position of, the obligation in the event of
bankruptcy, reorganization or other arrangement
under the laws of bankruptcy and other laws
affecting creditors' rights.
AAA--This is the highest rating assigned by
Standard & Poor's to a debt obligation and
indicates an extremely strong capacity to pay
principal and interest.
AA--Bonds rated AA also qualify as high-quality
debt obligations. Capacity to pay principal and
interest is very strong, and in the majority of
instances they differ from AAA issues only in
small degree.
A--Bonds rated A have a strong capacity to pay
principal and interest, although they are
somewhat more susceptible to the adverse effects
of changes in circumstances and economic
conditions.
BBB--Bonds rated BBB are regarded as having an
adequate capacity to pay principal and interest.
Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or
changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest
for bonds in this category than for bonds in the
A category.
BB, B, CCC, CC--Debt rated BB, B, CCC and CC is
regarded, on balance, as predominantly
speculative with respect to capacity to pay
interest and repay principal in accordance with
the terms of the obligation. BB indicated the
lowest degree of speculation and CC the highest
degree of speculation. While such debt will
likely have some quality and protective
characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse
conditions.
C--The rating C is reserved for income bonds on
which no interest is being paid.
D--Debt rated D is in default, and payment of
interest and/or repayment of principal in
arrears.
PLUS (+) or MINUS (-): To provide more detailed
indications of credit quality, 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" following a
rating indicates the rating is provisional. A
provisional rating assumes the successful
completion of the project being financed by the
issuance of the bonds being rated and indicates
that payment of debt service requirements is
largely or entirely dependent upon the successful
and timely completion of the project. This
rating, however, while addressing credit quality
subsequent to completion, makes no comment on the
likelihood of, or the risk of default upon
failure of, such completion. Accordingly, the
investor should exercise his own judgment with
respect to such likelihood and risk.
___________
*As described by the rating agencies.
Moody's Investors Service, Inc.
A brief description of the applicable Moody's
Investors Service, Inc.'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. They are rated lower than
the best bonds because margins of protection may
not be as large as in Aaa securities or
fluctuation of protective elements may be of
greater amplitude or there may be other elements
present which make the long-term risks appear
somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many
favorable investment attributes and are to be
considered as upper medium grade obligations.
Factors giving security to principal and interest
are considered adequate, but elements may be
present which suggest a susceptibility to
impairment sometime in the future.
Baa-Bonds which are rated Baa are considered as
medium grade obligations; i.e., they are neither
highly protected nor poorly secured. Interest
payments and principal security appear adequate
for the present but certain protective elements
may be lacking or may be characteristically
unreliable over any great length of time. Such
bonds lack outstanding investment characteristics
and in fact have speculative characteristics as
well.
Ba--Bonds which are rated Ba are judged to have
speculative elements; their future cannot be
considered as well assured. Often the protection
of interest and principal payments may be very
moderate and thereby not well safeguarded during
both good and bad times over the future.
Uncertainty of position characterizes bonds in
this class.
B--Bonds which are rated B generally lack the
characteristics of a desirable investment.
Assurance of interest and principal payments or
of maintenance of other terms of the contract
over any long period of time may be small.
Caa--Bonds which are rated Caa are in poor
standing. Such issues may be in default or there
may be present elements of danger with respect to
principal or interest.
Ca--Bonds which are rated Ca represent
obligations which are speculative in a high
degree. Such issues are often in default or have
other marked shortcomings.
C--Bonds which are rated C are the lowest rated
class of bonds and issues so rated can be
regarded as having extremely poor prospects of
ever attaining any real investment standing.
Rating symbols may include numerical modifiers
1, 2 or 3. The numerical modifier 1 indicates
that the security ranks at the high end, 2 in the
mid-range, and 3 nearer the low end of the
generic category. These modifiers of rating
symbols Aa, A and Baa are to give investors a
more precise indication of relative debt quality
in each of the historically defined categories.
Conditional ratings, indicated by "Con" are
given to bonds for which the security depends
upon the completion of some act or the
fulfillment of some condition. These are bonds
secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned
in operating experience, (c) rentals which begin
when facilities are completed, or (d) payments to
which some other limiting condition attaches. A
parenthetical rating denotes probable credit
stature upon completion of construction or
elimination of basis of such condition.
The following summarizes the applicable
designations used by Moody's for short term notes
and short term loans: MIG1--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.
MIG2--Loans bearing this designation are of high
quality, with margins of protection ample
although not so large as the preceding group.
CONTENTS OF REGISTRATION STATEMENT
This registration statement comprises the following
documents:
The facing sheet.
The Prospectus.
The signatures.
The following exhibits:
EX-99.2 Opinion of Counsel as to legality of securities
being registered
EX-99.C2 Consent of Kenny Information Systems
EX-27 Financial Data Schedule
EX-99.C1 Consent of Independent Auditors
FINANCIAL STATEMENTS
1. Statement of Condition of the Trust as shown in
the current Prospectus for this series.
2. Financial Statements of the Depositor.
PaineWebber Incorporated - Financial Statements
incorporated by reference to Form 10-k and
Form 10-Q (File No. 1-7367) respectively.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant, The Municipal Bond Trust, Series 235 certifies that it
meets all of the requirements for effectiveness of this Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this registration statement to be signed on its
behalf by the undersigned thereunto duly authorized, and its seal to
be hereunto affixed and attested, all in the City of New York, and the
State of New York on the 3rd day of October, 1996.
THE MUNICIPAL BOND TRUST, SERIES 235
(Registrant)
By: PaineWebber Incorporated
(Depositor)
/s/ ROBERT E. HOLLEY
Robert E. Holley
Senior Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed on behalf of PaineWebber
Incorporated, the Depositor, by the following persons in the
following capacities and in the City of New York, and State of New
York, on this 3rd day of October, 1996.
PAINEWEBBER INCORPORATED
Name Office
Donald B. Marron Chairman, Chief Executive Officer,
Director & Member of the Executive
Committee *
Regina A. Dolan Senior Vice President, Chief Financial Officer
and Director *
Joseph J. Grano, Jr. President, Retail Sales & Marketing,
Director and Member of the Executive
Committee *
By:/s/ ROBERT E. HOLLEY
Attorney-in-fact*
* Executed copies of the powers of attorney have been filed with the
Securities and Exchange Commission in connection with the Registration
Statement for File No. 33-19786.
October 3, 1996
PaineWebber Incorporated
1200 Harbor Blvd.
Weehawken, New Jersey 07087
Ladies and Gentlemen:
We have served as counsel for PaineWebber Incorporated as
sponsor and depositor (the "Depositor") of The Municipal Bond
Trust, Series 235 (hereinafter referred to as the "Trust"). The
Depositor seeks by means of Post-Effective Amendment No. 3 to
register for reoffering 3,176 Units acquired by the Depositor in the
secondary market (hereinafter referred to as the "Units").
In this regard, we have examined executed originals or copies of the
following:
(a) The Restated Certificate of Incorporation, as amended, and the
By-Laws of the Depositor, as amended;
(b) Resolutions of the Board of Directors of the Depositor adopted on
December 3, 1971 relating to the Trust and the sale of the Units;
(c) Resolutions of the Executive Committee of the Depositor adopted
on September 24, 1984;
(d) Powers of Attorney referred to in the Amendment;
(e) Post-Effective Amendment No. 3 to the Registration Statement on
Form S-6 (File No. 33-43475) to be filed with the Securities and
Exchange Commission (the "Commission") in accordance with
the Securities Act of 1933, as amended, and the rules and
regulations of the Commission promulgated thereunder
(collectively, the "1933 Act") proposed to be filed on or about the
date hereof (the "Amendment");
(f) The Notification of Registration of the Trust filed with the
Commission under the Investment Company Act of 1940, as
amended (collectively, the "1940 Act") on Form N-8A, as
amended;
(g) The registration of the Trust filed with the Commission under the
1940 Act on Form N-8B-2 (File No. 811-2599), as amended;
(h) The prospectus included in the Amendment (the "Prospectus");
(i) The Standard Terms and Conditions of the Trust dated as of
August 1, 1990, as amended, among the Depositor, Investors
Bank & Trust Company and the First National Bank of Chicago
(the "Co-Trustees"), as successor Co-Trustee, and Standard &
Poor's Corporation and Kenny Information Systems, a division of
J.J. Kenny Co., Inc. (the "Evaluator") (the "Standard Terms");
(j) The Trust Indenture dated as of the Date of Deposit, among the
Depositor, the Co-Trustees and the Evaluator (the "Trust
Indenture" and, collectively with the Standard Terms, the
"Indenture and Agreement");
(k) The form of certificate of ownership for units (the "Certificate") to
be issued under the Indenture and Agreement; and
(l) Such other pertinent records and documents as we have deemed
necessary.
With your permission, in such examination, we have assumed
the following: (a) the authenticity of original documents and the
genuineness of all signatures; (b) the conformity to the originals of
all documents submitted to us as copies; (c) the truth, accuracy,
and completeness of the information, representations, and warranties
contained in the records, documents, instruments and certificates we
have reviewed; (d) except as specifically covered in the opinions set
forth below, the due authorization, execution, and delivery on behalf
of the respective parties thereto of documents referred to herein and
the legal, valid, and binding effect thereof on such parties; and (e)
the absence of any evidence extrinsic to the provisions of the written
agreement(s) between the parties that the parties intended a
meaning contrary to that expressed by those provisions. However,
we have not examined the securities deposited pursuant to the
Indenture and Agreement (the "Securities") nor the contracts for the
Securities.
We express no opinion as to matters of law in jurisdictions other
than the States of New York and California and the United States,
except to the extent necessary to render the opinion as to the
Depositor in paragraph (i) below with respect to Delaware law. As
you know we are not licensed to practice law in the State of
Delaware, and our opinion in paragraph (i) and (iii) as to Delaware
law is based solely on review of the official statutes of the State of
Delaware.
Based upon such examination, and having regard for legal
considerations which we deem relevant, we are of the opinion that:
(i) The Depositor is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Delaware with full
corporate power to conduct its business as described in the
Prospectus;
(ii) The Depositor is duly qualified as a foreign corporation and is in
good standing as such within the State of New York;
(iii)The terms and provisions of the Units conform in all material
respects to the description thereof contained in the Prospectus;
(iv) The consummation of the transactions contemplated under the
Indenture and Agreement and the fulfillment of the terms thereof
will not be in violation of the Depositor's Restated Certificate of
Incorporation, as amended, or By-Laws, as amended and will not
conflict with any applicable laws or regulations applicable to the
Depositor in effect on the date hereof; and
(v) The Certificates to be issued by the Trust, when duly executed by
the Depositor and the Trustee in accordance with the Indenture
and Agreement, upon delivery against payment therefor as
described in the Prospectus will constitute fractional undivided
interests in the Trust enforceable against the Trust in accordance
with their terms, will be entitled to the benefits of the Indenture
and Agreement and will be fully paid and non-assessable.
Our opinion that any document is valid, binding, or enforceable in
accordance with its terms is qualified as to:
(a) limitations imposed by bankruptcy, insolvency, reorganization,
arrangement, fraudulent conveyance, moratorium, or other laws
relating to or affecting the enforcement of creditors' rights
generally;
(b) rights to indemnification and contribution which may be limited by
applicable law or equitable principles; and
(c) general principles of equity, regardless of whether such
enforceability is considered in a proceeding in equity or at law.
We hereby represent that the Amendment contains no disclosure
which would render it ineligible to become effective immediately
upon filing pursuant to paragraph (b) of Rule 485 of the
Commission.
We hereby consent to the filing of this opinion as an exhibit to
the Amendment and to the use of our name wherever it appears in
the Amendment and the Prospectus.
Very truly yours,
/s/ ORRICK, HERRINGTON & SUTCLIFFE LLP
KENNY INFORMATION SYSTEMS
(A Division of J.J. Kenny Co., Inc.)
October 3, 1996,
PaineWebber Incorporated
Unit Trust Department
1200 Harbor Blvd.
Weehawken, New Jersey 07087
RE: THE MUNICIPAL BOND TRUST, SERIES 235
Gentlemen:
We have examined the post-effective Amendment to the Registration
Statement File No. 33-43475 for the above-captioned trust. We
hereby acknowledge that Kenny Information Systems, a division of
J.J. Kenny Co., Inc. is currently acting as the evaluator for the trust.
We hereby consent to the use in the Amendment of the reference to
Kenny Information Systems, a division of J.J. Kenny Co. Inc., as
evaluator.
In addition, we hereby confirm that the ratings indicated in the
above-referenced Amendment to the Registration Statement for the
respective bonds comprising the trust portfolio are the ratings
currently indicated in our KENNYBASE database.
You are hereby authorized to file a copy of this letter with the
Securities and Exchange Commission.
Sincerely,
/s/ JOHN R. FITZGERALD
John R. Fitzgerald
Senior Vice President
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<NAME> THE MUNICIPAL BOND TRUST
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<PERIOD-TYPE> YEAR YEAR OTHER
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<PERIOD-END> JUN-30-1996 JUN-30-1995 JUN-30-1994
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<PER-SHARE-NAV-END> 956 0 0
<EXPENSE-RATIO> 0 0 0
<AVG-DEBT-OUTSTANDING> 0 0 0
<AVG-DEBT-PER-SHARE> 0 0 0
</TABLE>
INDEPENDENT AUDITORS' CONSENT
We consent to the reference to our firm under the caption
"Independent Auditors" and to the use of our report dated September 24,
1996, in the Registration Statement and related Prospectus of The
Municipal Bond Trust, Series 235.
/s/ ERNST & YOUNG LLP
New York, New York
October 3, 1996
