<PAGE>
As filed with the Securities and Exchange Commission on February 28, 2000
Registration No. 33-66108
=========================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________
POST-EFFECTIVE AMENDMENT NO. 6 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:
NATIONAL MUNICIPAL TRUST,
Series 164
B. Name of depositor:
PRUDENTIAL SECURITIES INCORPORATED
C. Complete address of depositor's principal executive office:
One Seaport Plaza
199 Water Street
New York, New York 10292
D. Name and complete address of agent for service:
Copy to:
LEE B. SPENCER, JR., ESQ. KENNETH W. ORCE, ESQ.
PRUDENTIAL SECURITIES CAHILL GORDON & REINDEL
INCORPORATED 80 Pine Street
One Seaport Plaza New York, New York 10005
199 Water Street
New York, New York 10292
It is proposed that this filing will become effective (check appropriate box.)
__
/__/ immediately upon filing on (date) pursuant to paragraph (b);
__
/x_/ on February 29, 2000 pursuant to paragraph (b);
__
/__/ 60 days after filing pursuant to paragraph (a);
__
/__/ on (date) pursuant to paragraph (a) of rule 485.
<PAGE>
CUSIP: 63701J421R MAIL CODE A
Prospectus--PART A
NOTE: PART A of this Prospectus may not be distributed unless accompanied by
Part B.
- --------------------------------------------------------------------------------
NATIONAL MUNICIPAL TRUST
Series 164
NMT
- --------------------------------------------------------------------------------
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 Trust are the providing of interest income which, in the
opinion of counsel, under existing law, is excludable from gross income for
Federal income tax purposes (except in certain instances depending on the Unit
Holder), through investment in a fixed portfolio consisting primarily of
long-term state, municipal and public authority debt obligations, and the
conservation of capital. There is, of course, no guarantee that the Trust's
objectives will be achieved. The value of the Units of the Trust will fluctuate
with the value of the portfolio of underlying Securities. The Securities in the
Trust are not insured by The Prudential Insurance Company of America. The
Prospectus indicates the extent to which interest income of the Trust is subject
to alternative minimum tax under the Internal Revenue Code of 1986, as amended.
See 'Schedule of Portfolio Securities' and 'Portfolio Summary.'
Minimum Purchase : 1 Unit.
PUBLIC OFFERING PRICE of the Units of the Trust is equal to the aggregate bid
side evaluation of the underlying Securities in the Trust's Portfolio divided by
the number of Units outstanding in such Trust, plus a sales charge as set forth
in the table herein. (See Part B--'Public Offering of Units--Volume Discount.')
Units are offered at the Public Offering Price plus accrued interest. (See Part
B--'Public Offering of Units.')
- --------------------------------------------------------------------------------
Sponsor:
(LOGO)
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
Please read and retain Prospectus dated
this Prospectus for future reference February 29, 2000
<PAGE>
NATIONAL MUNICIPAL TRUST
Series 164
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Summary................................................................................. Part A A-i
Summary of Essential Information........................................................ A-iii
Independent Auditors' Report............................................................ A-1
Statement of Financial Condition........................................................ A-2
Schedule of Portfolio Securities........................................................ A-7
The Trust............................................................................... Part B 1
Portfolio Summary.................................................................. 2
Insurance on the Securities in the Portfolio of an Insured Trust--General.......... 9
Insurance on the Securities in the Portfolio of an Insured Trust--Insurers......... 9
Objectives and Securities Selection................................................ 14
Estimated Annual Income Per Unit................................................... 14
Tax Status.............................................................................. 15
Public Offering of Units................................................................ 18
Public Offering Price.............................................................. 18
Public Distribution................................................................ 19
Secondary Market................................................................... 20
Sponsor's and Underwriters' Profits................................................ 20
Secondary Market Sales Charge...................................................... 20
Volume Discount.................................................................... 21
Employee Discount.................................................................. 21
Exchange Option......................................................................... 21
Tax Consequences................................................................... 23
Reinvestment Program.................................................................... 23
Expenses and Charges.................................................................... 23
Expenses........................................................................... 23
Fees............................................................................... 23
Other Charges...................................................................... 25
Rights of Unit Holders.................................................................. 25
Certificates....................................................................... 25
Distribution of Interest and Principal............................................. 25
Reports and Records................................................................ 27
Redemption......................................................................... 27
Sponsor................................................................................. 28
Limitations on Liability........................................................... 29
Responsibility..................................................................... 30
Resignation........................................................................ 30
Trustee................................................................................. 30
Limitations on Liability........................................................... 31
Responsibility..................................................................... 31
Resignation........................................................................ 31
Evaluator............................................................................... 31
Limitations on Liability........................................................... 31
Responsibility..................................................................... 31
Resignation........................................................................ 31
Amendment and Termination of the Indenture.............................................. 32
Amendment.......................................................................... 32
Termination........................................................................ 32
Legal Opinions.......................................................................... 32
Auditors................................................................................ 32
Bond Ratings............................................................................ 32
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
This Prospectus does not contain all of the information with respect to the
investment company set forth in its registration statement and exhibits relating
thereto which have been filed with the Securities and Exchange Commission,
Washington, D.C. under the Securities Act of 1933 and the Investment Company Act
of 1940, and to which reference is hereby made.
- --------------------------------------------------------------------------------
No person is authorized to give any information or to make any representations
with respect to this investment company not contained herein; and any
information or representations not contained herein must not be relied upon as
having been authorized. This Prospectus does not constitute an offer to sell, or
a solicitation of an offer to buy, securities in any state to any person to whom
it is not lawful to make such offer in such state.
- --------------------------------------------------------------------------------
SUMMARY
NATIONAL MUNICIPAL TRUST, Series 164 (the 'National Trust' or the 'Trust' as
the context requires) is composed of interest-bearing municipal bonds (the
'Securities'). The interest on these bonds, in the opinion of bond counsel to
the issuing governmental authorities is, under existing law, excludable from
gross income for Federal income tax purposes (except in certain instances
depending on the Unit Holder). The Securities in the Trust were, as of the Date
of Deposit, rated in the category of 'A' or better by Standard & Poor's
Corporation or Moody's Investors Service. (See Part B--'Bond Ratings.')
MONTHLY DISTRIBUTIONS of principal, premium, if any, and interest received
by the Trust will be made on or shortly after the twenty-fifth day of each month
to Unit Holders of record as of the immediately preceding Record Date. In some
cases, distribution on a semi-annual basis may be available. (See Part
B--'Rights of Unit Holders--Distribution of Interest and Principal.')
Alternatively, Unit Holders may elect to have their distributions reinvested in
the Reinvestment Program of the Sponsor, as, if and when such program is
available to Unit Holders. (See Part B--'Reinvestment Program.')
THE SPONSOR, although not obligated to do so, presently intends to maintain
a secondary market for the Units in the Trust based on the aggregate bid side
evaluation of the underlying Securities, as more fully described under Part
B--'Public Offering of Units--Secondary Market.' If such a market is not
maintained, a Unit Holder may be able to dispose of his Units only through
redemption at prices based on the aggregate bid side evaluation of the
underlying Securities. (See Part B--'Rights of Unit
Holders--Redemption--Computation of Redemption Price per Unit.')
SPECIAL CONSIDERATIONS. An investment in Units of the Trust should be made
with an understanding of the risks which an investment in fixed rate long-term
debt obligations may entail, including the risk that the value of the Units will
decline with increases in interest rates. (See Part B--'The Trust--Portfolio
Summary.') The ratings of the Securities set forth in Part A--'Schedule of
Portfolio Securities' may have declined due to, among other factors, a decline
in creditworthiness of the issuer of said Securities.
Note: In Part B 'Trustee' the location of the unit investment trust office
of The Chase Manhattan Bank is amended to read 4 New York Plaza, New York, New
York 10004.
Note: In Part B the second and third sentences in the carry-over paragraph
on page B-16 have been deleted and replaced with the following:
Under the Code, capital gain of individuals, estates and trusts from the
disposition of a Unit Holder's pro rata interest in a Security when the Unit
Holder has held his or her Units, and the Trust has held the Security, for more
than 1 year, will be subject to a maximum nominal rate of 20%.
Note: In Part B the fifth sentence of the second paragraph on page B-4 is
amended to delete such sentence and replace it with the following:
Department of Treasury Regulations issued under section 142 also provide,
for bonds issued on or after May 16, 1997, that no retroactive taxation will
generally occur if certain conditions are met in specified time frames. This
rule does not apply to qualified residential rental project obligations when the
net proceeds from those obligations have been spent.
The following paragraph replaces the last paragraph that begins on page B-17
and continues on to page B-18.
The Code also imposed an additional 12/100% ($12.00 per $10,000)
environmental tax on the alternative minimum taxable income (determined without
regard to any alternative tax net operating loss deduction) of a corporation in
excess of $2,000,000 for each taxable year beginning before January 1, 1996. The
Clinton Administration has proposed to reinstate the environmental tax, most
recently in its 2000 budget proposal, which was released on February 1, 1999, to
A-i
<PAGE>
taxable years after December 31, 1998 and before January 1, 2010. The
environmental tax was an excise tax and was deductible for United States Federal
income tax purposes (but not for purposes of the environmental tax itself).
Although the environmental tax was based on alternative minimum taxable income,
the environmental tax had to be paid in addition to any Federal income taxes
payable by the corporation.
Note: The second paragraph in Part B 'Sponsor' is amended to delete such
paragraph and replace it with the following:
Prudential Securities is distributor for series of Prudential Government
Securities Trust, The BlackRock Government Income Trust, Command Government
Fund, Command Money Fund, Command Tax-Free Fund, Global Utility Fund, Inc.,
Nicholas-Applegate Fund, Inc., Prudential Allocation Fund, Prudential California
Municipal Fund, Prudential Distressed Securities Fund, Inc., Prudential
Diversified Bond Fund, Inc., Prudential Dryden Fund, Prudential Emerging Growth
Fund, Inc., Prudential Equity Fund, Inc., Prudential Equity Income Fund,
Prudential Europe Growth Fund, Inc., Prudential Global Genesis Fund, Inc., The
Global Government Plus Fund, Inc., Prudential Global Limited Maturity Fund,
Inc., Prudential Global Natural Resources Fund, Inc., The Global Total Return
Fund, Inc., Prudential Government Income Fund, Prudential High Yield Fund, Inc.,
Prudential Institutional Liquidity Portfolio, Inc., Prudential Intermediate
Global Income Fund, Inc., Prudential Jennison Series Fund, Inc., Prudential
MoneyMart Assets, Inc., Prudential Mortgage Income Fund, Inc., Prudential
Multi-Sector Fund, Inc., Prudential Municipal Bond Fund, Prudential Municipal
Series Fund, Prudential National Municipals Fund, Inc., Prudential Pacific
Growth Fund, Inc., Prudential Small Companies Fund, Inc., Prudential Special
Money Market Fund, Inc., Prudential Structured Maturity Fund, Inc., Prudential
Tax-Free Money Fund, Inc. Prudential Utility Fund, Inc., and Prudential World
Fund, Inc.
Note: In Part B the fourth sentence of the fourth paragraph on page B-13 is
amended to delete such sentence and replace it with the following:
As of June 30, 1999, the total capital and surplus of Financial Guaranty was
$1,285,559,848.
Portfolio Summary
National Trust
The Portfolio contains 11 issues of Securities of issuers located in 9
states. All of the issues are payable from the income of specific projects or
authorities and are not supported by the issuer's power to levy taxes. Although
income to pay such Securities may be derived from more than one source, the
primary sources of such income and the percentage of issues deriving income from
such sources are as follows: airport facilities: 19.1%* of the Trust; health and
hospital facilities: 26.2%* of the Trust; industrial revenue facilities: 11.0%*
of the Trust; utility facilities: 16.6%* of the Trust; water and sewer
facilities: 11.1%* of the Trust; resource recovery facilities: 10.6%* of the
Trust; power facilities: 5.4%* of the Trust. The Trust is concentrated in health
and hospital facilities Securities.
45.7%* of the Securities in the Trust are rated by Standard & Poor's
Corporation (12.6%* being rated AAA, 11.2%* being rated AA, 9.7%* being rated A
and 12.2%* being rated BBB) and 54.3%* of the Securities in the Trust are rated
by Moody's Investors Service (16.4%* being rated Aa, 21.7%* being rated A and
16.2%* being rated Baa). For a description of the meaning of the applicable
rating symbols as published by Standard & Poor's and Moody's, see Part B--'Bond
Ratings.' It should be emphasized, however, that the ratings of Standard &
Poor's and Moody's represent their opinions as to the quality of the Securities
which they undertake to rate and that these ratings are general and are not
absolute standards of quality.
Ten Securities in the Trust have been issued with an 'original issue
discount.' (See Part B--'Tax Status.')
Of these original issue discount bonds, approximately 8.0% of the aggregate
principal amount of the Securities in the Trust (although only 3.2%* of the
aggregate bid price of all Securities in the Trust) are zero coupon bonds
(including bonds known as multiplier bonds, money multiplier bonds, capital
appreciation bonds, capital accumulator bonds, compound interest bonds, and
discount maturity payment bonds.)
As of the date of the Summary of Essential Information, the Sponsor's
affiliate, the Prudential Investment Corporation, estimates that 40.3%* of the
estimated annual income per Unit consists of interest on private activity bonds,
which interest is to be treated as a tax preference for alternative minimum tax
purposes. (See 'Tax Status' and 'Schedule of Portfolio Securities.')
The Sponsor participated as sole underwriter or manager of underwriting
syndicates from which approximately 20.5%* of the Trust was acquired.
- ------------
* Percentages computed on the basis of the aggregate bid price of the
Securities in the Trust on January 27, 2000.
A-ii
<PAGE>
SUMMARY OF ESSENTIAL INFORMATION
NATIONAL MUNICIPAL TRUST
Series 164
As of January 27, 2000
<TABLE>
<S> <C>
FACE AMOUNT OF SECURITIES.......................... $9,360,000.00
NUMBER OF UNITS.................................... 9,316
FRACTIONAL UNDIVIDED INTEREST IN THE TRUST
REPRESENTED BY EACH UNIT......................... 1/9,316th
PUBLIC OFFERING PRICE
Aggregate bid side evaluation of Securities in
the Trust...................................... $8,429,079.11
Divided by 9,316 Units........................... $ 904.80
Plus sales charge of 5.325% of Public Offering
Price (5.624% of net amount invested in
Securities).................................... $ 50.89
-------------
Public Offering Price per Unit(2)(4)............. $ 955.69
-------------
-------------
REDEMPTION PRICE AND SPONSOR'S REPURCHASE PRICE PER
UNIT (based on bid side evaluation of underlying
Securities, $50.89 less than Public Offering
Price per Unit)(4)............................... $ 904.80
-------------
-------------
MINIMUM PRINCIPAL DISTRIBUTION: No distribution need be made from
the Principal Account if the balance therein is less than $5
per Unit.
SPONSOR'S ANNUAL PORTFOLIO SUPERVISION FEE: Maximum $.25 per
$1,000 face amount of underlying Securities.
PREMIUM AND DISCOUNT ISSUES IN PORTFOLIO:
Face amount of Securities with bid side evaluation:
over par--20.2%; at par--0%; at a discount from par--79.8%
EVALUATOR'S FEE FOR EACH EVALUATION: Maximum of $14.
EVALUATION TIME: 3:30 P.M. New York time
MANDATORY TERMINATION DATE: December 1, 2040
MINIMUM VALUE OF TRUST: The Trust may be terminated if the value
of the Trust is less than $4,000,000.00
Percentage of Unit Holders required to consent in order to amend
(as permitted) the Trust. Indenture and Agreement (except under
certain circumstances when Unit Holder consent is not
required).................................................. 51%
Percentage of Unit Holders required to consent in order to
terminate the Trust........................................ 51%
DATE OF DEPOSIT: November 17, 1993(1)
</TABLE>
<TABLE>
<CAPTION>
Monthly
-------
<S> <C>
CALCULATION OF ESTIMATED NET ANNUAL INCOME PER UNIT
Estimated Annual Income per Unit............................................................... $57.12
Less estimated annual expenses per Unit(3)..................................................... (1.80 )
-------
Estimated Net Annual Income per Unit........................................................... $55.32
-------
-------
Trustee's Annual Fee per $1,000 principal amount of underlying Securities........................ $ 1.05
Daily Rate of Income Accrual per Unit............................................................ $.1537
Estimated Current Return (based on Public Offering Price)(5)(6).................................. 5.79 %
Estimated Long-Term Return(6).................................................................... 5.88 %
INTEREST DISTRIBUTION
Estimated Net Annual Income per Unit / 12...................................................... $ 4.61
Record Dates--tenth day of each month
Distribution Dates--twenty-fifth day of each month
</TABLE>
- ------------
(1) The Date of Deposit is the date on which the Indenture was signed and
the deposit of Securities with the Trustee was made.
(2) This Public Offering Price is computed as of January 27, 2000 and may
vary from the Public Offering Price on the date of this Prospectus or any
subsequent date.
(3) Includes Trustee's fee, Sponsor's Portfolio supervision fee, estimated
expenses and Evaluator's fees.
(4) Exclusive of accrued interest which to February 1, 2000, the expected
date of settlement for the purchase of Units on January 27, 2000 was $15.49.
(5) The estimated current return is increased for transactions entitled to a
reduced sales charge. (See Part B--'The Trust'--'Estimated Annual Income and
Current Return per Unit.')
(6) The Estimated Current Return is calculated by dividing the Estimated Net
Annual Income per Unit by the Public Offering Price per Unit. The Estimated Net
Annual Income per Unit will vary with changes in fees and expenses of the
Trustee and the Evaluator and with the principal prepayment, redemption,
maturity, exchange or sale of Securities while the Public Offering Price will
vary with changes in the bid price of the underlying Securities; therefore,
there is no assurance that the present Estimated Current Return indicated above
will be realized in the future. The Estimated Long-Term Return is calculated on
a pre-tax basis using a formula which takes into consideration, and factors in
the relative weightings of, the market values, yields (which takes into account
the amortization of premiums and the accretion of discounts) and estimated
retirements of all of the Securities in the Trust and takes into account the
expenses and sales charge associated with each Unit. Since the market values and
estimated retirements of the Securities and the expenses of the Trust will
change, there is no assurance that the present Estimated Long-Term Return as
indicated above will be realized in the future. The after-tax Estimated
Long-Term Return will be lower to the extent of any taxation on the disposition
of Securities. The Estimated Current Return and Estimated Long-Term Return are
expected to differ because the calculation of the Estimated Long-Term Return
reflects the estimated date and amount of principal returned while the Estimated
Current Return calculations include only Net Annual Interest Income and Public
Offering Price as of the above indicated calculation date of the Summary of
Essential Information.
A-iii
<PAGE>
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
THE UNIT HOLDERS, SPONSOR AND TRUSTEE
NATIONAL MUNICIPAL TRUST SERIES 164
We have audited the statement of financial condition, including the schedule
of portfolio securities, of the National Municipal Trust Series 164 as of
October 31, 1999, and the related statements of operations and changes in
net assets for each of the three years in the period then ended. These
financial statements are the responsibility of the Trustee (see Footnote
(a)(1)). Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of the securities owned as of
October 31, 1999 by correspondence with The Chase Manhattan Bank, the
Trustee. An audit also includes assessing the accounting principles used
and the significant estimates made by the Trustee, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the National Municipal
Trust Series 164 as of October 31, 1999, and the results of its operations
and the changes in its net assets for each of the three years in the period
then ended in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
New York, New York
February 2, 2000
A-1
</AUDIT-REPORT>
<PAGE>
STATEMENT OF FINANCIAL CONDITION
NATIONAL MUNICIPAL TRUST
SERIES 164
October 31, 1999
<TABLE>
<CAPTION>
TRUST PROPERTY
<S> <C>
Investments in municipal bonds at market value (amortized cost
$9,570,512) (Note (a) and Schedule of Portfolio Securities Notes
(4) and (5)) $9,060,589
Accrued interest receivable 177,474
Total 9,238,063
LIABILITIES AND NET ASSETS
Less Liabilities:
Due to Trustee 21,731
Accrued Trust fees and expenses 6,813
Total liabilities 28,544
Net Assets:
Balance applicable to 9,799 Units of fractional
undivided interest outstanding (Note (c)):
Capital, less unrealized market depreciation
of $509,923 $9,060,589
Undistributed principal and net investment income
(Note (b)) 148,930
Net assets $9,209,519
Net asset value per Unit ($9,209,519 divided by 9,799 Units) $ 939.84
See notes to financial statements
</TABLE>
A-2
<PAGE>
<TABLE>
STATEMENTS OF OPERATIONS
NATIONAL MUNICIPAL TRUST
SERIES 164
<CAPTION>
For the years ended October 31,
1999 1998 1997
<S> <C> <C> <C>
Investment income - interest $ 585,126 $586,033 $585,222
Less Expenses:
Trust fees and expenses 17,948 18,000 18,000
Total expenses 17,948 18,000 18,000
Investment income - net 567,178 568,033 567,222
Net (loss) gain on investments:
Realized loss on securities sold or redeemed (1,630) - -
Net unrealized market (depreciation) appreciation (807,765) 218,052 314,081
Net (loss) gain on investments (809,395) 218,052 314,081
Net (decrease) increase in net assets resulting from
operations $(242,217) $786,085 $881,303
See notes to financial statements
</TABLE>
A-3
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
NATIONAL MUNICIPAL TRUST
SERIES 164
<CAPTION>
For the years ended October 31,
1999 1998 1997
<S> <C> <C> <C>
Operations:
Investment income - net $ 567,178 $ 568,033 $ 567,222
Realized loss on securities sold or redeemed (1,630) - -
Unrealized market (depreciation) appre-
ciation (807,765) 218,052 314,081
Net (decrease) increase in net
assets resulting from operations (242,217) 786,085 881,303
Less Distributions to Unit Holders:
Investment income - net (550,531) (552,000) (552,000)
Total distributions (550,531) (552,000) (552,000)
Less Capital Share Transactions:
Redemption of 201 Units (192,629) - -
Accrued interest on redemption (3,108) - -
Total capital share transactions (195,737) - -
Net (decrease) increase in net assets (988,485) 234,085 329,303
Net assets:
Beginning of year 10,198,004 9,963,919 9,634,616
End of year (including undistributed prin-
cipal and net investment income of
$148,930, $151,736 and $150,611, respec-
tively) $ 9,209,519 $10,198,004 $9,963,919
See notes to financial statements
</TABLE>
A-4
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NATIONAL MUNICIPAL TRUST
SERIES 164
October 31, 1999
(a) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Trust is registered under the Investment Company Act of 1940 as a
Unit Investment Trust. The following is a summary of the significant
accounting policies of the Trust:
(1) Basis of Presentation
The Trustee has custody of and responsibility for all accounting
and financial books, records, financial statements and related data
of the Trust and is responsible for establishing and maintaining a
system of internal controls directly related to, and designed to
provide reasonable assurance as to the integrity and reliability
of, financial reporting of the Trust. The Trustee is also
responsible for all estimates and accruals reflected in the Trust's
financial statements. The Evaluator determines the price for each
underlying Security included in the Trust's Schedule of Portfolio
Securities on the basis set forth in Part B of this Prospectus,
"Public Offering of Units - Public Offering Price". Under the
Securities Act of 1933 ("the Act"), as amended, the Sponsor is
deemed to be an issuer of the Trust Units. As such, the Sponsor
has the responsibility of an issuer under the Act with respect to
financial statements of the Trust included in the Registration
Statement under the Act and amendments thereto.
(2) Investments
Investments are stated at market value as determined by the
Evaluator based on the bid side evaluations on the last day of
trading during the period, except that value on the date of deposit
(November 17, 1993) represents the cost of investments to the Trust
based on the offering side evaluations as of the date of deposit.
(3) Income Taxes
The Trust is not an association taxable as a corporation for
Federal income tax purposes; accordingly, no provision is required
for such taxes.
(4) Expenses
The Trust pays an annual Trustee's fee, estimated expenses,
Evaluator's fees, and an annual Sponsor's portfolio supervision
fee, and may incur additional charges as explained under "Expenses
and Charges" in Part B of this Prospectus.
A-5
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NATIONAL MUNICIPAL TRUST
SERIES 164
October 31, 1999
(b) DISTRIBUTIONS
Interest received by the Trust is distributed to the Unit Holders on or
shortly after the twenty-fifth day of the month after deducting
applicable expenses. Receipts other than interest are distributed as
explained in "Rights of Units Holders - Distribution of Interest and
Principal" in Part B of this Prospectus.
(c) ORIGINAL COST TO INVESTORS
The original cost to investors represents the aggregate initial public
offering price as of the date of initial deposit (November 17, 1993)
exclusive of accrued interest.
<TABLE>
<CAPTION>
A reconciliation of the original cost of Units to investors to the net
amount applicable to investors as of October 31, 1999 follows:
<S> <C>
Original cost to investors $10,164,400
Less: Gross underwriting commissions (sales charge) (482,837)
Net cost to investors 9,681,563
Cost of securities sold or redeemed (193,678)
Unrealized market depreciation (509,923)
Accumulated interest accretion 82,627
Net amount applicable to investors $ 9,060,589
</TABLE>
(d) OTHER INFORMATION
<TABLE>
Selected data for a Unit of the Trust during each year:
<CAPTION>
For the years ended October 31,
1999 1998 1997
<S> <C> <C> <C>
Net investment income distributions
during year $ 55.23 $ 55.20 $ 55.20
Net asset value at end of year $939.84 $1,019.80 $996.39
Trust Units outstanding at end of year 9,799 10,000 10,000
</TABLE>
A-6
<PAGE>
<TABLE>
SCHEDULE OF PORTFOLIO SECURITIES
NATIONAL MUNICIPAL TRUST
SERIES 164
October 31, 1999
<CAPTION>
Port- Optional
folio Rating Face Coupon Maturity Sinking Fund Refunding Market
No. Title of Securities <F1> Amount Rate Date Redemptions<F3> Redemptions<F2> Value<F4><F5>
<C><S> <C> <C> <C> <C> <C> <C> <C>
1. City of Valdez, Alaska,
Marine Terminal Revenue
Refunding Bonds, (BP Pipe-
lines (Alaska) Inc. Proj-
ect), Series 1993A. AA+ $1,000,000 5.850% 08/01/25 NONE 08/01/03@102 $ 956,390
2. California Pollution Con-
trol Financing Authority
Pollution Control Revenue
Bonds, (Pacific Gas & Elec-
tric Co.), Series 1993B.
<F7> AA- 1,000,000 5.850 12/01/23 NONE 12/01/03@102 973,510
3. City of Chicago, Chicago-
O'Hare International Air-
port, General Airport Reve-
nue Bonds, 1992 Series A.
<F7> A+ 930,000 6.000 01/01/18 01/01/13@100 01/01/02@102 910,786
4. Illinois Health Facilities
Authority Revenue Bonds
(Proctor Community Hospital
Project). Baa3<F6> 1,000,000 7.375 01/01/23 01/01/12@100 01/01/01@102 949,490
5. Massachusetts Water
Resources Authority, General
Revenue Refunding Bonds,
1993 Series B. A+ 1,000,000 5.500 03/01/17 03/01/14@100 03/01/03@102 943,390
6. Northeast Maryland Waste
Disposal Authority, Solid
Waste Revenue Bonds, (Mont-
gomery County Resource
Recovery Project), Series
1993A. <F7> A2<F6> 1,250,000 6.300 07/01/16 07/01/11@100 07/01/03@102 1,277,900
7. North Carolina Municipal
Power Agency No. 1 Catawba
Electric Revenue Bonds,
Series 1992. BBB+ 500,000 5.750 01/01/15 01/01/13@100 01/01/03@100 462,755
8. County of Ward, North
Dakota Health Care Facili-
ties Refunding Revenue
Bonds, (Trinity Obligated
Group), Series 1991 B. BBB+ 1,000,000 7.500 07/01/11 07/01/05@100 07/01/01@102 1,041,850
9. Allegheny County Hospital
Development Authority Hospi-
tal Revenue Refunding Bonds,
Series 1992 (Magee-Womens
Hospital), (FGIC Insured).
<F8> AAA 750,000 0.000 10/01/16 NONE NONE 269,528
10. Lehigh-Northampton Air-
port Authority Airport Reve-
nue Bonds, (Allentown Beth-
lehem Easton International
Airport), Series 1993A
(MBIA Insured). <F7><F8> AAA 875,000 5.600 01/01/23 01/01/13@100 01/01/04@102 810,810
11. Washington State Public
Power Supply System Nuclear
Project 3 Revenue Refunding
Series 1993C. Aa1<F6> 500,000 5.375 07/01/15 07/01/13@100 07/01/03@102 464,180
$9,805,000 $9,060,589
</TABLE>
See notes to schedule of portfolio securities
A-7
<PAGE>
NOTES TO SCHEDULE OF PORTFOLIO SECURITIES
NATIONAL MUNICIPAL TRUST
SERIES 164
October 31, 1999
<F1>All ratings are provided by Standard & Poor's Corporation, unless
otherwise indicated. A brief description of applicable Security
ratings is given under "Bond Ratings" in Part B of this Prospectus.
<F2>There is shown under this heading the date on which each issue of
Securities is redeemable by the operation of optional call
provisions and the redemption price for that date; unless otherwise
indicated, each issue continues to be redeemable at declining
prices thereafter but not below par. Securities listed as non-
callable, as well as Securities listed as callable, may also be
redeemable at par under certain circumstances from special
redemption payments.
<F3>There is shown under this heading the date on which an issue of
Securities is subject to scheduled sinking fund redemption and the
redemption price on such date.
<F4>The market value of the Securities as of October 31, 1999 was
determined by the Evaluator on the basis of bid side evaluations
for the Securities on the last trading date during the period
(October 29, 1999).
<F5>At October 31, 1999, the unrealized market depreciation of all
Securities was comprised of the following:
Gross unrealized market appreciation $ -
Gross unrealized market depreciation (509,923)
Unrealized market depreciation $ (509,923)
The amortized cost of the Securities for Federal income tax
purposes was $9,570,512 at October 31, 1999.
<F6>Moody's Investors Service, Inc. rating.
<F7>In the opinion of bond counsel to the issuing governmental
authorities, interest payments on these bonds will be a tax
preference item for individuals and corporations for alternative
minimum tax purposes. Normally, the bonds pay interest
semiannually. The payment dates can generally be determined based
on the date of maturity, i.e., a bond maturing on December 1 will
pay interest semiannually on June 1 and December 1. See "Tax
Status" in Part B of this Prospectus.
<F8>Insurance to maturity has been obtained by the issuer from the
listed Insurance Company for this Security. The "AAA" rating on
this Security is based in part on the creditworthiness and claims-
paying ability of the Insurance Company insuring such Security to
maturity. No premium is payable therefor by the Trust.
A-8
<PAGE>
<PAGE>
PROSPECTUS--Part B:
- --------------------------------------------------------------------------------
Note that Part B of this Prospectus may not be distributed unless accompanied by
Part A.
- --------------------------------------------------------------------------------
THE TRUST
Each Trust set forth in Part A is one of a series of similar but separate
unit investment trusts. Unless the context otherwise requires, each trust,
including each trust comprising a Multistate Series, a ``State Trust,''
hereinafter will be referred to as the ``Trust'' or the ``Trusts,'' and as the
context requires, for an insured Trust, the ``Insured Trust.'' Each Trust was
created under the laws of the State of New York pursuant to a Trust Indenture
and Agreement and a related Reference Trust Agreement dated the Date of Deposit
(collectively, the ``Indenture''),* among Prudential Securities Incorporated
(the ``Sponsor''), The Chase Manhattan Bank (the ``Trustee'') (successor to
United States Trust Company of New York) and Kenny S&P Evaluation Services, a
division of J.J. Kenny Co., Inc. (the ``Evaluator''). On the Date of Deposit,
debt obligations and contracts and funds (represented by irrevocable letter(s)
of credit issued by major commercial bank(s)) for the purchase of such debt
obligations (collectively, the ``Securities'') were deposited into the Trust and
evaluated at prices equal to the evaluation of such Securities on the offering
side of the market (which evaluation takes into account any insurance obtained
by the issuers or previous owners of the Securities) as determined by the
Evaluator as of the Date of Deposit. The Trustee then immediately delivered to
the Sponsor certificates of beneficial interest (the ``Certificates'')
representing the units (the ``Units'') comprising the entire ownership of each
Trust which Units the Sponsor, through this Prospectus, is offering for sale to
the public. The holders of Units (the ``Unit Holders'' or ``Unit Holder,'' as
the context requires) will have the right to have their Units redeemed at a
price based on the aggregate bid side evaluation of the Securities if they
cannot be sold in the secondary market which the Sponsor, although not obligated
to do so, proposes to maintain. The Sponsor, Prudential Securities Incorporated,
is a wholly-owned, indirect subsidiary of The Prudential Insurance Company of
America. Each Trust has a mandatory termination date set forth under Part
A--``Summary of Essential Information,'' but may be terminated substantially
prior thereto upon the occurrence of certain events, including a reduction in
the value of the Trust below the value set forth under Part A--``Summary of
Essential Information.''
The objectives of each Trust are the providing of interest income which, in
the opinion of counsel is, with certain exceptions, exempt from all Federal
income taxes under existing law through investment in a fixed portfolio of
Securities (the ``Portfolio'') consisting primarily of investment grade
long-term (or intermediate term if so designated in Part A or with maturities as
designated in Part A) state, municipal and public authority (``Issuers'') debt
obligations, and the conservation of capital and, for a Trust with a deferred
sales charge (``DSC'') feature, the payment of the DSC from the interest
payments, if any, on, and the principal paid at the maturity of the Securities
held by the Trust for purposes of paying the DSC. In addition, in the opinion of
counsel, interest income of each State Trust is exempt, to the extent indicated,
from state and any local income taxes in the State for which such State Trust is
named. The Securities in the Portfolio of each Trust were, as of the Date of
Deposit, rated in the category of ``BBB'' or better by Standard & Poor's
Corporation, ``Baa'' or better by Moody's Investors Service or ``BBB'' or better
by Fitch Investors Service, Inc. or if not rated had comparable credit
characteristics in the opinion of The Prudential Investment Corporation, the
Sponsor's affiliate. There is, of course, no guarantee that the Trust's
objectives will be achieved. Subsequent to the Date of Deposit, a Security in
the Trust may cease to be rated or the rating assigned may be reduced below the
minimum requirements of such Trust for the acquisition of Securities. Although
such events may be considered by the Sponsor in determining whether to direct
the Trustee to dispose of the Security (see ``Sponsor--Responsibility,''
herein), such events do not automatically require the elimination of such
Security from the Portfolio. An investment in the Trust should be made with an
understanding of the risks which an investment in fixed rate debt obligations
may entail, including the risk that the value of the Units will decline with
increases in interest rates.
On a recent date, a Unit of the Trust represented the fractional undivided
interest in the Securities and net income of such Trust set forth under Part
A--``Summary of Essential Information'' in the ratio of 1 Unit for each
approximately $1,000 face amount of Securities initially deposited in such
Trust. If any Units are redeemed by the Trustee, the face amount of Securities
in the Trust will be reduced by an amount allocable to redeemed Units and the
fractional undivided interest in such Trust represented by each unredeemed Unit
will be increased. Units will remain outstanding until
- ------------
* Reference is hereby made to said Indenture and any statements contained herein
are qualified in their entirety by the provisions of said Indenture.
B-1
<PAGE>
redeemed upon tender to the Trustee by any Unit Holder (which may include the
Sponsor) or until the termination of the Trust pursuant to the Indenture.
Certain of the Securities in the Portfolio of the Trust are valued at prices
in excess of prices at which such Securities may be redeemed in the future. (See
Part A--``Schedule of Portfolio Securities'' for information relating to the
particular series described therein.) To the extent that a Security is redeemed
(or sold) at a price which is less than the valuation of such Security on the
date a Unit Holder acquired his Units, the proceeds distributable to such Unit
Holder in respect of such redemption (or sale) will be less than that portion of
the purchase price for such Units which was attributable to such Security
(representing a loss of capital to such Unit Holder). Such proceeds, however,
may be more or less than the valuation of such Security at the time of such
redemption (or sale). Similarly, certain of the Securities in the Trust may be
valued at a price in excess of their face value at maturity (i.e., such
Securities were valued at a premium above par). (See Part A--``Schedule of
Portfolio Securities'' for information relating to the particular series
described therein.) The proceeds distributable to a Unit Holder upon the
maturity of a Security which was valued at a premium on the date he acquired his
Units will be less than that portion of the purchase price for such Units which
was attributable to such Security (representing a loss of capital to such Unit
Holder).
The Portfolio of the Trust may consist of Securities the current market
value of some of which were below face value. A primary reason for the market
value of such Securities being less than face value at maturity is that the
interest coupons of such Securities are at lower rates than the current market
interest rate for comparably rated debt securities, even though at the time of
the issuance of such Securities the interest coupons thereon generally
represented then prevailing interest rates on comparably rated debt securities
then newly issued. The current yields (coupon interest income as a percentage of
market price, ignoring any original issue discount) of such Securities are lower
than the current yields (computed on the same basis) of comparably rated debt
securities of similar type newly issued at currently prevailing interest rates.
Securities selling at market discounts tend to increase in market value as they
approach maturity when the principal amount is payable. A market discount
tax-exempt Security held to maturity will have a larger portion of its total
return in the form of taxable income or gain and less in the form of tax-exempt
income than a comparable Security bearing interest at current market rates.
Under the provisions of the Internal Revenue Code in effect on the date of this
Prospectus, any gain attributable to market discount will not be recognized
until maturity, redemption or sale of the Securities or Units. The current yield
of such discounted securities carrying the same coupon interest rate and which
are otherwise comparable tends to be higher for securities with longer periods
to maturity than it is for those with shorter periods to maturity because the
market value of such securities with a longer period to maturity tends to be
less than the market value of such a bond with a shorter period to maturity. If
currently prevailing interest rates for newly issued and otherwise comparable
securities increase, the market discount of previously issued bonds will become
deeper and if such currently prevailing interest rates for newly issued
comparable securities decline, the market discount of previously issued
securities will be reduced, other things being equal. Market discount
attributable to interest rate changes does not indicate a lack of market
confidence in the issue.
Portfolio Summary
The Securities in the Portfolio of the Trust consist of Securities issued by
or on behalf of states, counties, municipalities or other political subdivisions
of the United States or issued by or on behalf of the Commonwealth of Puerto
Rico or possessions of the United States, or municipalities or other political
subdivisions thereof. The interest on such Securities is, with certain
exceptions, or upon their delivery will be, in each instance, in the opinion of
recognized bond counsel to the Issuer of such Securities or by ruling of the
Internal Revenue Service, exempt from all Federal income taxes under existing
law (but may be subject to state and local taxation). In the case of State
Trusts, the Securities are obligations of the specified state or counties,
municipalities, authorities or political subdivisions thereof or of the
Commonwealth of Puerto Rico or possessions of the United States, interest on
which will, in the opinion of recognized bond counsel to the issuing
governmental authorities, be exempt under existing law from Federal and the
specified state and local income taxes to the extent indicated. (See ``Tax
Status.'') Capital gains, if any, will be subject to Federal income tax and,
generally, to state and/or local income taxes.
The Portfolio of the Trust may contain Securities that are general
obligations of governmental entities and/or bonds that are guaranteed by
governmental entities. Such general obligations and guarantees are backed by the
taxing power of the respective entities. The ability of the issuer of a general
obligation bond to meet its obligation depends largely upon its economic
condition. Many issuers rely upon ad valorem real property taxes as a source of
revenue. Proposals in the form of state legislative or voter initiatives to
limit ad valorem real property taxes have been introduced in various states. It
is not presently possible to predict the impact of these or future proposals, if
adopted, on states, local governments or
B-2
<PAGE>
school districts or on their abilities to make future payments of their
outstanding debt obligations. The remaining issues are payable from the income
of specific projects or authorities and are not supported by the issuer's power
to levy taxes. This latter group of issues contains Securities that are also
supported by the moral obligations of governmental entities. In the event of a
deficiency in the debt service reserve funds of moral obligation Securities, the
governmental entity having the moral commitment may (but is not legally
obligated to) satisfy such deficiency. However, in the event of a deficiency in
the debt service reserve funds of Securities not backed by such moral
obligations, no such moral commitment of a governmental entity exists.
The Portfolio of the Trust may contain zero coupon bond(s) (including bonds
known as multiplier bonds, money multiplier bonds, capital appreciation bonds,
capital accumulator bonds, compound interest bonds, and discount maturity
payment bonds) or one or more other Securities which were issued with an
``original issue discount.'' ``Original issue discount'' bonds are acquired at
prices which represent a discount from face amount, principally because such
bonds bear interest at rates which are lower than currently-prevailing market
rates. A discounted bond held to maturity will have a larger portion of its
total return in the form of capital gain and less in the form of tax-exempt
income than a comparable bond bearing interest at current market rates. Zero
coupon bonds do not provide for the payment of any current interest and provide
for payment at maturity at face value unless sooner sold or redeemed. Zero
coupon bonds may be subject to more price volatility than conventional bonds,
i.e., the market value of zero coupon bonds is subject to greater fluctuation in
response to changes in interest rates than is the market value of bonds which
pay interest currently. Zero coupon bonds generally are subject to redemption at
compound accreted value based on par value at maturity. Because the issuer is
not obligated to make current interest payments, zero coupon bonds may be less
likely to be redeemed than coupon bonds issued at a similar interest rate. While
some types of zero coupon bonds, such as multipliers and capital appreciation
bonds, define par as the initial offering price rather than the maturity value,
they share the basic zero coupon bond features of (1) not paying interest on a
semi-annual basis and (2) providing for the reinvestment of the bond's
semi-annual earnings at the bond's stated yield to maturity. In addition, in the
event the portfolio is valued at less than the optional termination value, the
Trust may terminate at a time when the only Securities in the portfolio are zero
coupon bonds. The sale of such zero coupon bonds at such time may result in a
loss to Unit Holders.
The Portfolio of the Trust may contain Securities of housing authorities
payable from revenues derived by state housing finance agencies or municipal
housing authorities from repayments on mortgage and home improvement loans made
by such agencies. Since housing authority obligations, which are not general
obligations of a particular state, are generally supported to a large extent by
Federal housing subsidy programs, the failure of a housing authority to meet the
qualifications required for coverage under the Federal programs, or any legal or
administrative determination that the coverage of such Federal programs is not
available to a housing authority, could result in a decrease or elimination of
subsidies available for payment of principal and interest on such housing
authority's obligations. Weaknesses in Federal housing subsidy programs and
their administration may result in a decrease in subsidies available for payment
of principal and interest on housing authority bonds. Repayment of housing loans
and home improvement loans in a timely manner is dependent on factors affecting
the housing market generally and upon the underwriting and management ability of
the individual agencies (i.e., the initial soundness of the loan and the
effective use of available remedies should there be a default in loan payments).
Economic developments, including failure or inability to increase rentals,
fluctuations in interest rates and increasing construction and operating costs
may also have an adverse impact on revenues of housing authorities. In the case
of some housing authorities, inability to obtain additional financing could also
reduce revenues available to pay existing obligations.
The Portfolio of the Trust may contain Securities which are subject to the
requirements of Section 103A of the Internal Revenue Code of 1954, as amended,
(the ``1954 Code''), or Section 143 of the Internal Revenue Code of 1986, as
amended (the ``1986 Code'' or the ``Code''). Sections 103A and 143 provide that
obligations issued to provide single family housing will be exempt from Federal
income taxation if all of the proceeds of the issue (exclusive of issuance costs
and a reasonably required reserve) are used to make or acquire loans which meet
requirements including certain requirements which must be satisfied after
issuance. If proceeds of the issue are not used to acquire such loans, the
issuer may be required to redeem all or a portion of such issue from such
uncommitted proceeds to maintain the issue's tax exemption. Bond counsel to each
such issuer has issued an opinion that the interest on such Securities was
exempt from Federal income tax at the time the Securities were issued. The
failure of the issuers of such Securities to meet certain ongoing compliance
requirements imposed by Sections 103A and 143 could render the interest on such
Securities subject to Federal income taxation, possibly from the date of their
issuance. If interest on such Securities in a Trust is deemed to be subject to
Federal income taxation, the loss of tax-exempt status can be expected to
adversely affect the market value
B-3
<PAGE>
of such Securities. In this event and under the terms of the Indenture the
Sponsor may direct the sale of such Securities. The sale of such Securities in
such circumstances is likely to result in a loss to the Trust.
The Portfolio of the Trust may include certain housing authority obligations
whose tax exemption depends upon qualification under Section 103(b)(4)(A) of the
1954 Code, or Section 142 of the 1986 Code, and appropriate Treasury
Regulations. Both Sections require that specified minimum percentages of the
units in each rental housing project financed by tax-exempt debt are to be
continuously occupied by low or moderate income tenants for specified periods.
Department of the Treasury Regulations issued under Section 103(b)(4)(A) of the
1954 Code provide that in order to prevent possible retroactive Federal income
taxation of interest on such Securities certain conditions must be met. The
regulations provide, however, that such retroactive taxation will not occur if
the issuer corrects any non-compliance occurring after the issuance of the
Securities within a reasonable period after such non-compliance is first
discovered or should have been discovered by the issuer. Similar regulations are
expected to be issued under 1986 Code Section 142. If the interest on any of the
Securities in the Trust that are housing securities should ultimately be deemed
to be taxable, the Sponsor may instruct the Trustee to sell such Securities and,
since they would be sold as taxable securities, it is expected that such
Securities would have to be sold at a substantial discount from the current
market price of a comparable tax-exempt security.
The Portfolio of the Trust may contain Securities which contain provisions
which require the issuer to redeem such obligations at par from unused proceeds
of the issue within a stated period which typically does not exceed three years
from the date of issuance of such Securities. In periods in which interest rates
decline there may be increased redemptions of housing securities pursuant to
such redemption provisions. Such an increase in redemptions may occur because
conventional mortgage loans may have become available at interest rates equal to
or less than the interest rates charged on the mortgage loans previously made
available from the proceeds of such housing securities. Therefore, some issuers
of such housing securities may have experienced insufficient demand to complete
mortgage loan originations for all of the money made available from such
securities. In addition, mortgage loans made with the proceeds of housing
securities, in general, do not carry prepayment penalties and therefore certain
mortgage loans may be prepaid earlier than their maturity dates. If the issuers
of such housing securities are unable to or choose not to reloan these monies,
they will generally redeem housing securities in an amount approximately equal
to such prepayments. The Sponsor is unable to predict at this time whether such
redemptions will be made at a high rate. The disposition of such Securities may
result in a loss to the Trust.
The Portfolio of the Trust may contain Securities in the hospital facilities
category that are payable from revenues derived from hospitals and health care
facilities which, generally, were constructed or are being constructed from the
proceeds of such Securities. The continuing availability of sufficient revenues
is dependent upon several factors affecting all such facilities generally,
including, among other factors, the ability of the facilities to provide the
services required by patients, changes in Medicare and Medicaid reimbursement
regulations, the success of efforts by the states and the Federal government to
limit the cost of health care, changes in contracts between health care
institutions and public or private insurers, the timely completion of the
construction of projects and achieving and maintaining projected rates of
utilization. Additionally, a major portion of hospital revenues typically is
derived from Federal or state programs such as Medicare and Medicaid and from
Blue Cross and other insurers. The future solvency of the Medicare trust fund is
periodically subject to question. Changes in the compensation and reimbursement
formulas of these governmental programs or in the rates of insurers may reduce
revenues available for the payment of principal of, or interest on, hospital
revenue bonds. Governmental legislation or regulations and other factors, such
as the inability to obtain sufficient malpractice insurance, may also adversely
impact upon the revenues or costs of hospitals and may also adversely affect the
ratings of hospital revenue bonds held in the Trust. Future actions by the
Federal government with respect to Medicare and by the Federal and State
governments with respect to Medicaid, reducing the total amount of funds
available for either or both of these programs or changing the reimbursement
regulations, or their interpretations, could adversely affect the amount of
reimbursement available to hospital facilities. A number of additional
legislative proposals concerning health care are typically under review by the
United States Congress at any given time. These proposals span a wide range of
topics, including cost control, national health insurance, incentives for
competition in the provision of health care services, tax incentives and
penalties related to health care insurance premiums and promotion of prepaid
health care plans. The Sponsor is unable to predict the effect of these
proposals, if enacted, on any of the Securities in the Portfolio of the Trust.
The Portfolio of the Trust may contain Securities in the power and electric
facilities category payable from revenues derived from power facilities, which
generally include revenues from the sale of electricity generated and
distributed by
B-4
<PAGE>
power agencies using hydro-electric, nuclear, fossil or other power sources. The
ability of the issuers of such Securities to make payments of principal of, or
interest on, such obligations is dependent, among other things, upon the
continuing ability of such issuers to derive sufficient revenues from their
operations to meet debt service requirements. General problems of the power and
electric utility industry include difficulty in financing large construction
programs during an inflationary period, restrictions on operations and increased
cost and delays attributable to environmental considerations, uncertain
technical and cost factors relating to the construction and operation of nuclear
power generating facilities, the difficulty of the capital markets in absorbing
utility debt and equity securities, the availability of fuel for electric
generation at reasonable prices, the steady rise in fuel costs and the costs
associated with conversion to alternate fuel sources such as coal. Some of the
issuers of Securities in the Portfolio may own or operate nuclear facilities for
electric generation. Additional considerations in the case of such issuers
include the problems associated with the use and disposal of radioactive
materials and wastes, and other problems associated with construction,
licensing, regulation and operation of such facilities. In addition, Federal,
state or municipal governmental authorities may from time to time impose
additional regulations or take other governmental action which might cause
delays in the licensing, construction or operation of nuclear power plants, or
the suspension of operation of such plants which have been or are being financed
by proceeds of certain of the Securities held in the Portfolio of the Trust.
Such delays, suspensions or other action may affect the payment of interest on,
or the repayment of the principal amount of, such Securities. The Clean Air Act
Amendments of 1990 provide for attainment and maintenance of health protective
national ambient air quality standards. The goal of the law is to cut acid rain
pollutants by half, sharply reduce urban smog and eliminate most of the toxic
chemical emissions from industrial plants by the turn of the century. As
enacted, the law affects nearly all electric power facilities that burn oil or
coal. Greenhouse effect bills and hazardous waste bills may further increase the
cost of utility service. The Sponsor is unable to predict the ultimate form that
any such regulations or other governmental action may take or when such
legislation may be enacted or the resulting impact on the Securities in the
Portfolio of the Trust.
The Portfolio of the Trust may contain Securities which are in the
industrial revenue facilities category. Industrial Revenue Bonds (``IRBs'') are
tax-exempt securities issued by states, municipalities or public authorities to
finance the cost of acquiring, constructing or improving various projects,
including pollution control, environmental improvement, industrial or special
airport facilities. IRBs are payable from the income of specific facilities or
from payments made by private corporations to the state authorities issuing such
bonds. (See ``Tax Status.'')
The Portfolio of the Trust may contain Securities which are in the water and
sewer facilities category. Bonds in the water and sewer facilities category
include securities issued to finance public water and sewer projects for water
management and supply and sewer control and securities issued by public issuers
on behalf of private corporations for such projects. These bonds are payable
from the income of specific facilities or from payments made by such private
corporations to the state authorities issuing such bonds. The income of such
facilities is generated from the payment of user fees. The ability of state and
local water and sewer authorities to meet their obligations may be affected by
failure of municipalities to utilize fully the facilities constructed by these
authorities, economic or population decline and resulting decline in revenue
from user charges, rising construction and maintenance costs and delays in
construction of facilities, impact of environmental requirements, the difficulty
of obtaining or discovering new supplies of fresh water, the effect of
conservation programs and the impact of ``no growth'' zoning ordinances.
The Portfolio of the Trust may contain Securities which are in the revenue
obligations of universities and schools category. The ability of universities
and schools to meet their obligations is dependent upon various factors,
including the revenues, costs, and enrollment levels of the institutions. In
addition, their ability may be affected by declines in enrollment and tuition
revenue, the availability of Federal, state and alumni financial support, the
method and validity, under state constitutions, of present systems of financing
public education, fluctuations in interest rates and construction costs,
increased maintenance and energy costs, failure or inability to raise tuition or
room charges and adverse results of endowment fund investments.
The Portfolio of the Trust may contain Securities in the pollution control
facilities category. Bonds in the pollution control facilities category include
securities issued to finance public water, sewage or solid waste treatment
facilities and securities issued by a public issuer on behalf of a private
corporation to provide facilities for the treatment of air, water and solid
waste pollution. These Securities are payable from the income of specific
facilities, state authorities or from payments made by such private
corporations.
The Portfolio of the Trust may contain Securities which are in the
redevelopment facilities category. The purpose of redevelopment is to revitalize
deteriorated and/or underdeveloped areas within a community. As new construction
progresses, property values normally increase significantly and the ultimate
result is a proportionate increase in ad
B-5
<PAGE>
valorem property tax revenues. However, if, due to various economic factors, the
assessed valuation is reduced, such reduction may result in insufficient tax
revenues, which could in turn impair the ability of the issuer to make payments
of principal and/or interest on the bonds when due. A reduction in property tax
rates or delinquencies in the payment of property taxes could have a similar
adverse effect.
The Portfolio of the Trust may contain Securities in the resource recovery
category. The issuers of such Securities are municipalities or agencies or
authorities thereof that have allocated the proceeds of the issue towards the
construction and operation of a resource recovery facility operated by a
corporate operator. Payments on the bonds are dependent upon the
creditworthiness of the corporate operator of the particular project. The
operation of such facilities typically depends upon the delivery thereto of
specified quantities of solid waste from which refuse-derived fuel can be
extracted and in turn converted into electricity or steam by the facility. The
operation of the facility may be limited or totally curtailed from operating
because of failure to comply with governmental regulations concerning the
environment, failure to obtain necessary environmental permits, zoning permits
and other municipal ordinances or inability to maintain or renew such permits
because of an inability to comply with changes in government environmental
regulations. If the resource recovery facility is unable to operate or cannot
operate at full capacity, the corporate operator of such facility will be unable
to generate revenues necessary to cover payments on the resource recovery bonds.
Furthermore, the corporate operator's revenue is typically derived from the sale
of the power generated by the facility to a power agency or company under a
power purchase agreement. The continued flow and level of payments made by the
corporate operator might therefore depend upon the financial condition of the
purchaser under such a power agreement and the operator's continued ability to
generate the minimum amount of power required to be delivered thereunder. Such a
purchaser may be subject to the various general problems and risks associated
with the power industry and the regulatory environment in which it operates. A
decline in price of the extracted materials or the electricity or steam created
by the facility may also result in insufficient revenues generated by the
corporate operator as will an increase in its operating costs. Finally there may
be technological risks that become apparent in the long run that are not
presently apparent because of the relatively short history of these facilities
which risks may involve the successful construction or operation of such
facilities.
The Portfolio of the Trust may contain Securities of issuers in the
transportation facilities category. Bonds in the transportation facilities
category may be used to finance capital projects in connection with bridges,
highways, airports, tunnels, bus terminals, ports or other property owned by
transportation authorities. These bonds are generally payable from the income of
the specific facilities, existing facilities or future sales of bonds. The risks
of an investment in such bonds include a deterioration of national and regional
economic conditions, including fuel availability and costs, labor and equipment
costs and the nature of governmental regulations with respect to transportation,
commerce, energy, safety and environmental protection. Revenue of toll
facilities may be affected by lower costs of alternative modes of transportation
or construction and operation in its vicinity of another transportation facility
which could alter established transportation patterns. Other risks include
reductions in various Federal programs and a shift in local demographic trends.
The Portfolio of the Trust may contain Securities which are in the special
tax bond category. Special tax bonds are payable from and secured by the
revenues derived by a municipality from a particular tax. Special tax bonds are
not secured by the general tax revenues of the municipality and they do not
represent general obligations of the municipality. Therefore, the ability of the
issuers of special tax bonds to pay interest and/or principal on special tax
bonds may be adversely affected by the inability to collect all or part of the
special tax due to various factors including: a general decline in the local
economy or population, inability or failure to pay the special tax, failure to
develop property backing certain special tax bonds for reasons including
prohibitions or restraints on development such as failure to receive regulatory
agency approval for development and fluctuations in the real estate market, a
decline in the value of projects backing certain tax bonds, natural disasters or
environmental hazards.
The Portfolio of the Trust may contain Securities which are in the tax
allocation bond category. These Securities are typically secured by incremental
tax revenues collected on property within the areas where redevelopment
projects, financed by bond proceeds are located (``project areas''). Such
payments are expected to be made from projected increases in tax revenues
derived from higher assessed values of property resulting from development in
the particular project area and not from an increase in tax rates. Special risk
considerations include: reduction of, or a less than anticipated increase in,
taxable values of property in the project area, caused either by economic
factors beyond the Issuer's control (such as a relocation out of the project
area by one or more major property owners) or by destruction of property due to
natural or other disasters; successful appeals by property owners of assessed
valuations; substantial
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delinquencies in the payment of property taxes; or imposition of any
constitutional or legislative property tax rate decrease.
The Portfolio of the Trust may contain Securities secured in whole or in
part by governmental payments, pursuant to a lease agreement, service contract,
installment sale or other agreement. A governmental entity that enters into such
an agreement cannot obligate future governments to make payments thereunder, but
generally has covenanted to take such action as is necessary to include all such
payments due under such agreement in its annual budgets and to make the
appropriations therefor. However, a budgetary imbalance in future fiscal years
could affect the ability and willingness of the governing legislative body to
appropriate, and the availability of monies to make, the payments provided for
under such agreement. The failure of a governmental entity to meet its
obligations under such an agreement could result in an insufficient amount of
funds to cover the debt service on the Securities.
The Portfolio of the Trust may contain Securities in the certificates of
participation category. Each certificate represents an undivided and
proportionate interest in lease or installment purchase payments to be made by
governmental entities (which are the participants) to a third party for the use
and possession or acquisition of a particular project or equipment. Each payment
is divided into an interest portion and a principal portion, the interest
portion of which constitutes tax-exempt interest in the opinion of special
counsel retained in connection with the issue. The third party assigns its
rights to the payments to a trustee for the benefit of the certificate holders.
The amounts paid to the trustee by the participants are used to make the
payments of principal and interest due with respect to the certificates. The
obligation of a participant to make the payments does not constitute an
obligation for which the participant is obligated to levy or pledge any form of
taxation.
The Portfolio of the Trust may contain obligations of issuers located in the
Commonwealth of Puerto Rico. The ability of the issuers of such bonds to meet
their obligations may be affected by the economic and social problems facing
Puerto Rico. Unemployment in Puerto Rico remains high by United States
standards. The island's per capita personal income has been lower than in any
state of the United States. Transfer payments from the United States Government
under various social welfare programs (such as food stamps, social security and
veterans' benefits) contribute significantly to personal income.
The economy of Puerto Rico is closely integrated with that of the mainland
United States and is largely dependent for its development on U.S. policies and
programs that could be eliminated by the U.S. Congress. Aid for Puerto Rico's
economy has traditionally depended heavily on Federal programs which may not
always be available. An adverse effect on the Puerto Rican economy could result
from other U.S. policies, including a reduction of tax benefits for distilled
products, further reduction in transfer payment programs such as food stamps,
curtailment of military spending and policies which could lead to a stronger
dollar. Growth in the Puerto Rican economy will depend on several factors
including the state of the U.S. economy.
The Puerto Rican economy consists principally of manufacturing
(pharmaceuticals, scientific instruments, computers, microprocessors, medical
products, textiles and petrochemicals), agriculture (largely sugar), tourism and
the service sector (including finance, insurance, and real estate). Since Puerto
Rico is an island and is heavily dependent upon imports and exports, maritime
and air transportation are of basic importance to its economy. The manufacturing
and service sectors generate the largest portion of gross product. Most of the
island's manufacturing output is shipped to the mainland United States, which is
also the chief source of semi-finished manufactured articles on which further
manufacturing operations are performed in Puerto Rico. The finance, insurance
and real estate components of this sector have recently experienced the most
growth. The level of tourism is affected by various factors, including the
strength of the U.S. dollar. During periods when the dollar is strong, tourism
in foreign countries becomes relatively more attractive.
The government sector of the Commonwealth plays an important role in the
economy of the island. Since World War II, the economic importance of
agriculture for Puerto Rico, particularly in the dominance of sugar production,
has declined. Nevertheless, the Commonwealth-controlled sugar monopoly remains
an important economic factor and is largely dependent upon Federal maintenance
of sugar prices, the discontinuation of which could severely affect Puerto Rican
sugar production.
The Puerto Rican economy is affected by a number of Commonwealth and Federal
investment incentive programs. For example, Section 936 of the Internal Revenue
Code generally provides deferral of Federal income taxes for U.S. companies
operating on the island until profits are repatriated. No assessment can be made
as to whether or not Section 936 and other incentive programs will be continued.
It is expected that the elimination of Section 936, if it occurred, would have a
strongly negative impact on Puerto Rico's economy.
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There have for many years been two major viewpoints in Puerto Rico with
respect to the island's relationship to the United States, one essentially
favoring the existing commonwealth status (but with modifications providing for
greater local autonomy), and the other favoring statehood. A third viewpoint
favors independence from the United States. The Sponsor cannot predict what
effect, if any, a change in the relationship between Puerto Rico and the United
States would have on the issuers' ability to meet their obligations.
Each Trust consists of the Securities listed under Part A--``Schedule of
Portfolio Securities'' herein, as long as such Securities may continue to be
held from time to time in the Trust (including certain securities deposited in
the Trust in exchange or substitution for any Securities pursuant to the
Indenture) together with accrued and undistributed interest thereon and
undistributed and uninvested cash realized from the disposition of Securities.
BECAUSE CERTAIN OF THE SECURITIES FROM TIME TO TIME MAY BE REDEEMED OR WILL
MATURE IN ACCORDANCE WITH THEIR TERMS OR MAY BE SOLD UNDER CERTAIN CIRCUMSTANCES
DESCRIBED HEREIN, NO ASSURANCE CAN BE GIVEN THAT THE TRUST WILL RETAIN FOR ANY
LENGTH OF TIME ITS PRESENT SIZE AND COMPOSITION. THE TRUSTEE HAS NOT
PARTICIPATED IN THE SELECTION OF SECURITIES FOR THE TRUST, AND NEITHER THE
SPONSOR NOR THE TRUSTEE WILL BE LIABLE IN ANY WAY FOR ANY DEFAULT, FAILURE OR
DEFECT IN ANY SECURITIES.
To the best knowledge of the Sponsor, there was no material litigation
pending as of the Date of Deposit in respect of any Securities which might
reasonably be expected to have a material adverse effect upon the Trust. At any
time after the Date of Deposit, litigation may be initiated on a variety of
grounds with respect to Securities in the Trust. Such litigation may affect the
validity of such Securities or the tax-free nature of the interest thereon.
Although the outcome of litigation of such nature cannot be predicted, opinions
of bond counsel are delivered with respect to each Security on the date of
issuance to the effect that such Security has been validly issued and that the
interest thereon is exempt from Federal income tax under then existing law. If
legal proceedings are instituted after the Date of Deposit seeking, among other
things, to restrain or enjoin the payment of principal or interest on any of the
Securities or attacking their validity or the authorization or existence of the
issuer, the Sponsor may, in accordance with the Indenture, direct the Trustee to
sell such Securities and distribute the proceeds of such sale to Unit Holders.
In addition, other factors may arise from time to time which potentially may
impair the ability of issuers to meet obligations undertaken with respect to
Securities (e.g., state legislative proposals or voter initiatives to limit ad
valorem real property taxes).
Under the Federal Bankruptcy Code, political subdivisions, public agencies
or other instrumentalities of any state (including municipalities) which are
insolvent or unable to meet their debts as they mature and which meet certain
other conditions may file a petition in Federal bankruptcy court. Generally, the
filing of such a petition operates as a stay of any proceeding to enforce a
claim against the debtor. The Federal Bankruptcy Code also requires the debtor
to file a plan for the adjustment of its debts which may modify or alter the
rights of creditors. Under such a plan the Federal bankruptcy court may permit
the debtor to issue certificates of indebtedness which have priority over
existing creditors and which could be secured. Any plan of adjustment confirmed
by the court must be approved by the requisite majorities of creditors of
different classes. If confirmed by the bankruptcy court, the plan would be
binding upon all creditors affected by it. The Sponsor is unable to predict the
effect these bankruptcy provisions may have on the Trust.
Most of the Securities are subject to redemption prior to their stated
maturity dates pursuant to optional refunding redemption and/or sinking fund
provisions. In general, optional refunding redemption provisions are more likely
to be exercised when the evaluation of a Security is at a premium over par than
when it is at a discount from par. Generally, the evaluation of Securities will
be at a premium over par when market interest rates fall below the coupon rate
on such Securities. In addition, certain Securities may be redeemed in whole or
in part other than by operation of the stated redemption or sinking fund
provisions under certain unusual or extraordinary circumstances specified in the
instruments setting forth the terms and provisions of such Securities. The
redemption of a Security at par may result in a loss to the Trust. See Part
A--``Schedule of Portfolio Securities'' for those Securities in the Portfolio of
a Trust which as of the date of such schedule were evaluated in excess of par.
Certain Securities in the Portfolio may be subject to sinking fund provisions
during the life of a Trust. Such provisions are designed to redeem a significant
portion of an issue of Securities gradually over the life of such issue.
Particular bonds of an issue of Securities to be redeemed are generally chosen
by lot. The ``Schedule of Portfolio Securities'' herein contains a listing of
the optional refunding and sinking fund redemption provisions, if any, with
respect to each of the Securities.
BECAUSE THE REDEMPTION PRICE AND THE SPONSOR'S REPURCHASE PRICE ARE BASED ON
BID PRICES FOR THE SECURITIES, THEY MAY BE LESS THAN THE PRICE PAID BY A UNIT
HOLDER PURCHASING IN THE PRIMARY MARKET (OFFERING PRICES ARE NORMALLY HIGHER
THAN BID
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PRICES). DUE TO FLUCTUATIONS IN THE MARKET PRICE OF THE SECURITIES IN THE
PORTFOLIO AND THE FACT THAT THE PUBLIC OFFERING PRICE INCLUDES A SALES CHARGE,
AMONG OTHER FACTORS, THE AMOUNT REALIZED BY A UNIT HOLDER UPON THE REDEMPTION OR
SALE OF UNITS MAY BE LESS THAN THE PRICE PAID FOR SUCH UNITS BY THE HOLDER. (SEE
``RIGHTS OF UNIT HOLDERS--REDEMPTION--COMPUTATION OF REDEMPTION PRICE PER
UNIT,'' HEREIN.)
Unit Holders of a Trust not designated as Insured should omit the following
and continue with ``Objectives and Securities Selection.'' All of the Securities
in any Series not identified as insured are not insured and the following
section ``Insurance on the Securities in the Portfolio of an Insured Trust'' is
inapplicable to such Series.
Insurance on the Securities in the Portfolio of an Insured Trust
Certain of the Securities in an Insured Trust are insured to maturity by
AMBAC, CapMAC, ConnieLee, FSA, MBIA, MBIAC, BIGID and/or Financial Guaranty (the
``Insurance Companies'') at the cost of the issuer of such Security and the
remainder of the Securities are insured by Financial Guaranty under a Portfolio
Insurance policy obtained by such Insured Trust (see Part A--``Portfolio Summary
as of Date of Deposit'' for the percentage of the Securities in a Trust insured
by insurance obtained by the issuer and the percentage for which a Trust
purchased Portfolio Insurance). The respective insurance policies are
noncancellable and, except in the case of any Portfolio Insurance, will continue
in force so long as Securities are outstanding and the insurers remain in
business. The insurance policies guarantee the scheduled payment of principal
and interest on the Securities but do not guarantee the market value of the
Securities covered by each policy or the value of the Units. The value of any
insurance obtained by the issuer of a Security is reflected and included in the
market value of such Security. In the event the issuer of an insured Security
defaults in payment of interest or principal the insurance company insuring the
Security will be required to pay to the Trustee any interest or principal
payments due. Payment under the insurance policies is to be made in respect of
principal of and interest on Securities covered thereby which becomes due for
payment but is unpaid. Each such policy provides for payment of the defaulted
principal or interest due to a trustee or paying agent. In turn, such trustee
or paying agent will make payment to the bondholder (in this case, the Trustee)
upon presentation of satisfactory evidence of such bondholder's right to receive
such payment. The single premium for any insurance policy or policies obtained
by an issuer of Securities has been paid in advance by such issuer and any such
policy or policies are noncancellable and will continue in force so long as the
Securities so insured are outstanding. Insurance is not a substitute for the
basic credit of an issuer, but supplements the existing credit and provides
additional security. Contracts to purchase Securities are not covered by
insurance although Securities underlying such contracts are covered by insurance
upon physical delivery to the Trust.
A description of each of the insurers follows:
AMBAC Indemnity Corporation
AMBAC Indemnity Corporation (``AMBAC Indemnity'') is a Wisconsin-domiciled
stock insurance company, regulated by the Office of the Commissioner of
Insurance of the State of Wisconsin. Such regulation, however, is no guarantee
that AMBAC Indemnity will be able to perform on its contracts of insurance in
the event a claim should be made thereunder at some time in the future. AMBAC
Indemnity is licensed to do business in 50 states, the District of Columbia and
the Commonwealth of Puerto Rico, with admitted assets of approximately
$2,440,000,000 (unaudited) and statutory capital of approximately $1,387,000,000
(unaudited) as of March 31, 1996. Statutory capital consists of statutory
contingency reserve and AMBAC Indemnity's policyholders' surplus. AMBAC
Indemnity is a wholly owned subsidiary of AMBAC, Inc., a 100% publicly-held
company. Moody's Investors Service, Inc., Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc., and Fitch Investors Service, LP
have each assigned a triple-A claims-paying ability rating to AMBAC Indemnity.
The address of the administrative offices of AMBAC Indemnity is One State Street
Plaza, New York, New York 10004.
Capital Markets Assurance Corporation
Capital Markets Assurance Corporation (``CapMAC'') is a New York-domiciled
monoline stock insurance company which engages only in the business of financial
guarantee and surety insurance. CapMAC is licensed in 50 states in addition to
the District of Columbia, the Commonwealth of Puerto Rico and the territory of
Guam. CapMAC insures structured asset-backed, corporate, municipal and other
financial obligations in the U.S. and international markets. CapMAC also
provides financial guarantee reinsurance for structured asset-backed, corporate,
municipal and other financial obligations written by other major insurance
companies. CapMAC is wholly owned by CapMAC Holdings Inc.
- ------------
D Securities originally insured by BIGI have been reinsured by MBIAC pursuant to
reinsurance agreements.
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<PAGE>
(``Holdings''). Neither CapMAC Holdings Inc. nor any of its stockholders is
obligated to pay any claims under any surety bond issued by CapMAC or any debts
of CapMAC or to make additional capital contributions. As of June 30, 1996 and
December 31, 1995, CapMAC had statutory capital (policy holders surplus and
contingency reserve) of $250.2 million and $239.9 million, respectively.
CapMAC's claims-paying ability is rated triple-A by Moody's Investors Service,
Inc., Standard & Poor's Ratings Services, A Division of The McGraw-Hill
Companies, Inc., and Duff & Phelps Credit Rating Co., and Nippon Investors
Service, Inc., a Japanese rating agency. Such ratings reflect only the views of
the respective ratings agencies, are not recommendations to buy, sell or hold
securities and are subject to revision or withdrawal at any time by such rating
agencies. The address of CapMAC is 885 Third Avenue, New York, New York 10022.
Connie Lee Insurance Co.
Connie Lee Insurance Co. (``ConnieLee''), a Wisconsin stock insurance
company, is a wholly owned subsidiary of the College Construction Loan Insurance
Association, an insurance holding company authorized and established by Congress
as a private corporation under the laws of the District of Columbia. The
legislation establishing the company stipulated that it provide a mix of direct
insurance and reinsurance business to issuers incurring debt obligations for an
``educational facilities purpose.'' The enabling legislation calls for ConnieLee
to provide credit enhancement services to colleges, universities, teaching
hospitals, and other educational institutions. As of March 31, 1996
policyholders' surplus (unaudited) was $111,462,000, stockholders' equity
(unaudited) was $161,352,000 and total assets (unaudited) were $258,462,000.
Standard & Poor's Ratings Services, A Division of The McGraw-Hill Companies,
Inc., has rated the claims-paying ability of ConnieLee ``AAA.'' The address of
ConnieLee is 2445 M Street, N.W., Washington, D.C. 20037.
Financial Security Assurance
Financial Security Assurance (``FSA'') is a monoline insurance company
incorporated in 1984 under the laws of the State of New York. Financial Security
is a wholly owned subsidiary of Financial Security Assurance Holdings Ltd.
(``Holdings''), a New York Stock Exchange listed company. Major shareholders of
Holdings include Fund American Enterprises Holdings, Inc., US West Capital
Corporation and The Tokio Marine and Fire Insurance Co., Ltd. No shareholder of
Holdings is obligated to pay any debt of FSA or any claim under any insurance
policy issued by FSA or to make any additional contribution to the capital of
FSA. FSA is licensed to engage in financial guaranty insurance business in all
50 states, the District of Columbia and Puerto Rico.
FSA and its subsidiaries are engaged in the business of writing financial
guaranty insurance, principally in respect of securities offered in domestic and
foreign markets. FSA and its subsidiaries principally insure asset-backed,
collateralized and municipal securities. Financial Security insures both newly
issued securities sold in the primary market and outstanding securities sold in
the secondary market that satisfy Financial Security's underwriting criteria.
Pursuant to an intercompany agreement, liabilities on financial guaranty
insurance written or reinsured from third parties by FSA or either of its
subsidiaries are reinsured among such companies on an agreed-upon percentage
substantially proportional to their respective capital, surplus and reserves,
subject to applicable statutory risk limitations. In addition, FSA reinsures a
portion of its liabilities under certain of its financial guaranty insurance
policies with other reinsurers under various quota share treaties and on a
transaction-by-transaction basis. Such reinsurance is utilized by FSA as a risk
management device and to comply with certain statutory and rating agency
requirements; it does not alter or limit FSA's obligations under any financial
guaranty insurance policy.
On December 20, 1995, Capital Guaranty Corporation merged with a subsidiary
of Financial Security Assurance Holdings Ltd. In connection with such merger,
(i) CGIC, the principal operating subsidiary of Capital Guaranty Corporation,
became a wholly-owned subsidiary of FSA, the principal operating subsidiary of
Financial Security Assurance Holdings Ltd., and (ii) the corporate name of CGIC
was changed to Financial Security Assurance of Maryland Inc.
As of June 30, 1996, the unearned premium reserve of FSA was $351,180,000
(unaudited) and its total shareholder's equity was $785,072,000 (unaudited).
FSA's claims-paying ability is rated ``Aaa'' by Moody's Investors Service, Inc.
and ``AAA'' by Standard & Poor's Corporation. The principal executive offices of
Financial Security are located at 350 Park Avenue, New York New York 10022.
MBIA
The insurance companies comprising MBIA and their respective percentage
liabilities are as follows: The Aetna Casualty and Surety Company, (33%);
Fireman's Fund Insurance Company, (30%); The Travelers Indemnity Company, (15%);
Cigna Property and Casualty Company, (12%); and The Continental Insurance
Company, (10%). As a several
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obligor, each such insurance company will be obligated only to the extent of its
percentage of any claim under the MBIA policy and will not be obligated to pay
any unpaid obligation of any other member of MBIA. Each insurance company's
participation is backed by all of its assets. However, each insurance company is
a multiline insurer involved in several lines of insurance other than municipal
bond insurance, and the assets of each insurance company also secure all of its
other insurance policy and surety bond obligations. The total New York statutory
assets of the participating insurance companies as of March 31, 1995 was
$35,133,937,000, the statutory liabilities were $28,100,583,000 and
policyholder's surplus was $7,033,354,000. Standard & Poor's Corporation rates
all new issues insured by MBIA ``AAA'' and Moody's Investors Service rates all
bond issues insured by MBIA ``Aaa''. The address of MBIA is 113 King Street,
Armonk, New York 10504.
MBIAC
MBIAC (MBIA Insurance Corporation ``MBIAC'') is the principal operating
subsidiary of MBIA, Inc. Neither MBIA, Inc. nor its shareholders are obligated
to pay the debts of or claims against MBIAC. MBIAC is a limited liability
corporation rather than a several liability association. MBIAC is domiciled in
the State of New York and licensed to do business in all 50 states, the District
of Columbia and the Commonwealth of Puerto Rico.
As of March 31, 1996, MBIAC had admitted assets (unaudited) of $4.0 billion,
total liabilities (unaudited) of $2.7 billion, and total capital and surplus
(unaudited) of $1.3 billion, determined in accordance with statutory accounting
practices prescribed or permitted by insurance regulatory authorities. Standard
& Poor's Ratings Services, A Division of The McGraw-Hill Companies, Inc. rates
all new issues insured by MBIAC and Moody's Investors Service rates all bond
issues insured by MBIAC ``AAA'' and ``Aaa,'' respectively. The address of MBIAC
is 113 King Street, Armonk, New York 10504.
Portfolio Insurance
In an effort to protect Unit Holders against delay in payment of interest
and against principal loss, insurance (``Portfolio Insurance'') may be obtained
by an Insured Trust from Financial Guaranty for those Securities not insured by
the issuer, guaranteeing the scheduled payment of interest and principal with
respect to certain of the Securities deposited in and delivered to an Insured
Trust. Any Portfolio Insurance policy obtained by an Insured Trust will be
noncancellable and will continue in force so long as an Insured Trust is in
existence and the securities described in the policy continue to be held by an
Insured Trust (see Part A--``Schedule of Portfolio Securities'') and Financial
Guaranty remains in business. As a result of any such Portfolio Insurance and
any Insurance obtained by the issuer from the Insurance Companies the Units of
an Insured Trust were rated AAA by Standard & Poor's Corporation as of the Date
of Deposit. (See ``Bond Ratings.'') Portfolio Insurance obtained by an Insured
Trust is effective only while the Securities thus insured are held in an Insured
Trust.
Insurance is not a substitute for the basic credit of an issuer, but
supplements the existing credit and provides additional security therefor. If an
issue is accepted for insurance, a noncancellable policy for the scheduled
payment of interest and principal on the Security is issued by the Insurance
Company. A single premium is paid by the issuer for Securities insured by the
issuer. A monthly premium is paid by an Insured Trust for the Portfolio
Insurance obtained by such Insured Trust. Upon the sale of a Security from an
Insured Trust, the Trustee, pursuant to an irrevocable commitment of Financial
Guaranty, has the right to obtain permanent insurance (i.e., insurance to
maturity of the Security regardless of the identity of the holder thereof)
(``Permanent Insurance'') with respect to such Security upon the payment of a
single predetermined insurance premium from the proceeds of the sale of such
Security. An Insured Trust will obtain and pay a premium for the Permanent
Insurance upon the sale of a Security if the Sponsor determines that such sale
will result in a net realization greater than would the sale of such Security
without the purchase of such Permanent Insurance. Accordingly, any Security
covered by Portfolio Insurance in an Insured Trust is eligible to be sold on an
insured basis. The premium for any Permanent Insurance with respect to a
Security is determined based upon the insurability of such Security as of the
Date of Deposit and will not be increased or decreased thereafter. Standard &
Poor's Corporation and Moody's Investors Service have rated the claims-paying
ability of Financial Guaranty ``AAA'' and ``Aaa,'' respectively.
Neither the Public Offering Price nor any evaluation of Units for purposes
of repurchases or redemptions reflects any element of value for any Portfolio
Insurance obtained and any Permanent Insurance obtainable by an Insured Trust
unless a Security is in default in payment of principal or interest or in
significant risk of such default. The value of any Permanent Insurance will be
equal to the difference between (i) the market value of defaulted Securities
assuming the exercise of the right to obtain Permanent Insurance (less the
insurance premium attributable to the purchase of Permanent Insurance) and (ii)
the market value of such defaulted Securities not covered by Permanent
Insurance. In
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addition, the Evaluator will consider the ability of Financial Guaranty to meet
its commitments under an Insured Trust's insurance policy, including the
commitments to issue Permanent Insurance.
Nonpayment of premiums on a Portfolio Insurance policy obtained by an
Insured Trust will not result in the cancellation of the insurance but will
permit Financial Guaranty to take action against the Insured Trust to recover
premium payments due it. Premium rates for each issue of Securities protected by
Portfolio Insurance obtained by an Insured Trust are fixed for the life of an
Insured Trust.
Under the provisions of a Financial Guaranty insurance policy, Financial
Guaranty unconditionally and irrevocably agrees to pay to Citibank, N.A., or its
successor, as its agent (the ``Fiscal Agent''), that portion of the principal of
and interest on a Security which shall become due for payment but shall be
unpaid by reason of nonpayment by the issuer of the Security and which has not
been paid by insurance of the Security obtained by the issuer. The term ``due
for payment'' means, when referring to the principal of a Security, its stated
maturity date or the date on which it shall have been called for mandatory
sinking fund redemption and does not refer to any earlier date on which payment
is due by reason of call for redemption (other than by mandatory sinking fund
redemption), acceleration or other advancement of maturity. When used in
reference to interest on a Security, the term ``due for payment'' means the
stated date for payment of interest. When, however, the interest on a Security
shall have been determined (as provided in the underlying documentation relating
to such Security) to be subject to Federal income taxation, the term ``due for
payment'' also means, (i) when referring to the principal of such Security, the
date on which such Security has been called for mandatory redemption as a result
of such determination of taxability, and (ii) when referring to interest on such
Security, the accrued interest at the rate provided in such documentation to the
date on which such Security has been called for such mandatory redemption,
together with any applicable redemption premium.
Financial Guaranty will make any such payments to the Fiscal Agent on the
date such principal or interest becomes due for payment or on the business day
next following the day on which Financial Guaranty shall have received notice of
nonpayment, whichever is later. The Fiscal Agent will disburse to the Trustee
the face amount of principal and interest which is then due for payment but is
unpaid by reason of nonpayment by the issuer but only upon receipt by the Fiscal
Agent of (i) evidence of the Trustee's right to receive payment of the principal
or interest due for payment and (ii) evidence, including any appropriate
instruments of assignment, that all of the rights to payment of such principal
or interest due for payment shall thereupon vest in Financial Guaranty. Upon any
such disbursement, Financial Guaranty shall become the owner of the Security,
appurtenant coupon or right to payment of principal or interest on such
Security, and shall succeed to all of the Trustee's rights thereunder, including
the right to payment thereof.
In determining whether to insure bonds, Financial Guaranty applies its own
standards which are not necessarily the same as the criteria used in regard to
the selection of bonds by the Sponsor. Financial Guaranty's determination to
issue insurance with respect to a bond is made prior to or on the date of
deposit of a bond in an Insured Trust. Any Portfolio Insurance obtained by an
Insured Trust covers certain Securities deposited in an Insured Trust and
physically delivered to the Trustee or a custodian for an Insured Trust in the
case of bearer bonds or registered in the name of the Trustee or its nominee or
delivered along with an assignment in the case of registered bonds, or
registered in the name of the Trustee or its nominee in the case of Securities
held in book-entry form. Contracts to purchase Securities are not covered by
insurance obtained by an Insured Trust although Securities underlying such
contracts are covered by insurance upon physical delivery to the Trust.
Insurance obtained by an Insured Trust or by the Security issuer does not
guarantee the market value of the Securities or the value of the Units. Any
Portfolio Insurance obtained by an Insured Trust is effective only as to
Securities owned by and held in such Insured Trust. In the event of a sale of
any such Security by the Trustee, the Portfolio Insurance terminates as to such
Security on the date of sale but the Trustee may exercise the right to obtain
Permanent Insurance with respect to the Security upon the payment of an
insurance premium from the proceeds of the sale of such Security. Except as
indicated below, Portfolio Insurance obtained by an Insured Trust has no effect
on the price or redemption value of Units. The Evaluator will attribute a value
to the Portfolio Insurance obtained by an Insured Trust (including the right to
obtain Permanent Insurance) for the purpose of computing the price or redemption
value of Units only if the Securities covered by such insurance are in default
in payment of principal or interest or, in the Sponsor's opinion, in significant
risk of such default. (See ``Public Offering of Units--Public Offering Price.'')
Insurance obtained by the issuer of a Security is effective so long as such
Security is outstanding. Such insurance may be considered to represent an
element of market value in regard to the Securities thus insured.
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A contract of Portfolio Insurance relating to an Insured Trust and the
negotiations in respect thereof represent the only relationship between
Financial Guaranty and the Trust. Otherwise neither Financial Guaranty nor its
parent, FGIC Corporation, or any affiliate thereof has any significant
relationship, direct or indirect, with a Trust or the Sponsor, except that the
Sponsor has in the past and may from time to time in the future, in the normal
course of its business, participate as sole underwriter or as manager or as a
member of underwriting syndicates in the distribution of new issues of municipal
bonds in which the investors or the affiliates of FGIC Corporation have or will
be participants or for which a policy of insurance guaranteeing the scheduled
payment of interest and principal has been obtained from Financial Guaranty.
Neither an Insured Trust nor the Units nor the Portfolio is insured directly or
indirectly by FGIC Corporation.
The purpose of any Portfolio Insurance obtained by an Insured Trust is to
obtain a higher yield on the Securities in the Portfolio than would be available
if all the Securities in such Portfolio had the Standard & Poor's Corporation
``AAA,'' Moody's Investors Service ``Aaa'' and/or Fitch Investors Service, Inc.
``AAA'' rating(s) and, at the same time, to have the protection of Portfolio
Insurance with respect to scheduled payment of interest and principal on the
Securities. There is, of course, no certainty that such purpose will be
realized.
Financial Guaranty
Financial Guaranty Insurance Company (``Financial Guaranty'') is a
wholly-owned subsidiary of FGIC Corporation (the ``Corporation''), a Delaware
holding company. Financial Guaranty, domiciled in the State of New York,
commenced its business of providing insurance and financial guarantees for a
variety of investment instruments in January 1984. The Corporation is a
subsidiary of General Electric Capital Corporation. The Corporation and General
Electric Capital Corporation are not obligated to pay the debts of or the claims
against Financial Guaranty.
Financial Guaranty, in addition to providing insurance for the payment of
interest on and principal of municipal bonds and notes held in unit investment
trust portfolios, provides insurance for all or portions of new issues of
municipal bonds and notes and municipal bonds and notes held by mutual funds.
Financial Guaranty expects to provide other forms of financial guaranties in the
future. It is also authorized to write fire, property damage liability,
workmen's compensation and employer's liability and fidelity and surety
insurance. As of March 31, 1996, the total capital and surplus of Financial
Guaranty was approximately $1,032,675,000 as reported to the State of New York
Insurance Department. Although the Sponsor has not undertaken an independent
investigation of Financial Guaranty, the Sponsor is not aware that the
information herein is inaccurate or incomplete.
Financial Guaranty is currently licensed or otherwise authorized to provide
insurance in all 50 states and the District of Columbia, files reports with
state insurance regulatory agencies and is subject to audit and review by such
authorities. Financial Guaranty is also subject to regulation by the State of
New York Insurance Department. Such regulation, however, is no guarantee that
Financial Guaranty will be able to perform on its commitments or contracts of
insurance in the event claims should be made thereunder at some time in the
future. Fitch Investors Service, Inc., Standard & Poor's Ratings Services, A
Division of The McGraw-Hill Companies, Inc. and Moody's Investors Service have
rated the claims paying ability of Financial Guaranty ``AAA,'' ``AAA'' and
``Aaa,'' respectively. The address of Financial Guaranty is 115 Broadway, New
York, New York 10006.
The information relating to the above referenced insurers has been furnished
by publicly available sources including the respective issuers. The financial
information contained herein with respect to Financial Guaranty is unaudited but
appears in reports or other materials filed with state insurance regulatory
authorities and is subject to audit and review by such authorities. No
representation is made herein as to the accuracy or adequacy of such information
or as to the absence of material adverse changes in such information subsequent
to the date thereof, but the Sponsor is not aware that the information herein is
inaccurate or incomplete.
Because the Securities in an Insured Trust are insured by the Insurance
Companies as to the scheduled payment of principal and interest and on the basis
of the financial condition and the method of operation of the Insurance
Companies, Standard & Poor's Corporation has assigned a ``AAA'' investment
rating to Units of an Insured Trust. This is the highest rating assigned to
securities by Standard & Poor's Corporation. (See ``Bond Ratings.'') The
obtaining of this rating by an Insured Trust should not be construed as an
approval of the offering of the Units by Standard & Poor's Corporation or as a
guarantee of the market value of an Insured Trust or the Units. Standard &
Poor's Corporation has indicated that this rating is not a recommendation to
buy, hold or sell Units nor does it take into account the extent to which
expenses of an Insured Trust or sales by an Insured Trust of Securities for less
than the purchase price paid by an Insured Trust will reduce payment to Unit
Holders of the interest and principal required to be paid on the insured
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Securities. There is no guarantee that the ``AAA'' investment rating with
respect to the Securities or Units will be maintained.
Objectives and Securities Selection
The objectives of each Trust are the providing of interest income which, in
the opinion of counsel is, under existing law, excludable from gross income for
Federal income tax purposes through investment in a fixed portfolio consisting
primarily of investment grade long-term (or intermediate term if so designated
in Part A or with maturities as designated in Part A) state, municipal and
public authority debt obligations, and the conservation of capital and, in the
case of a Trust with a deferred sales charge feature ``DSC,'' the payment of the
DSC from the interest payments, if any, on, and the principal paid at the
maturity of the Securities deposited to pay the DSC. There is, of course, no
guarantee that a Trust's objectives will be achieved.
The Prudential Insurance Company of America, the indirect parent of the
Sponsor, or a division or subsidiary thereof (collectively, ``Prudential'') has
selected and negotiated for the Securities purchased by the Sponsor. In
selecting Securities for a Trust, Prudential considered factors established by
the Sponsor including, among others, the following: (a) ratings as of the Date
of Deposit in the category of ``BBB'' or better by Standard & Poor's Corporation
or ``Baa'' or better by Moody's Investors Service or ``BBB'' or better by Fitch
Investors Service, Inc. (see ``Bond Ratings'') or comparable credit
characteristics in the opinion of Prudential, (b) maturities or mandatory
payment dates consistent with the life and objectives of a Trust, (c) yields of
the Securities relative to other securities of comparable quality and maturity,
(d) the availability and cost of, rating of the claims paying ability of an
insurer of, insurance of the scheduled payment of principal and interest, when
due, on the Securities in an Insured Trust, and (e) diversification of the
Securities as to purpose and location of Issuer (purpose only in the case of
State Trusts).
Prudential, for selecting and negotiating the purchase of the Securities,
will receive from the Sponsor a fee based on the face amount of Securities
selected and a portion of the Sponsor's net profit on the Date of Deposit.
The Trust may contain Securities which were acquired through the Sponsor's
participation as sole underwriter or manager or as a member of the underwriting
syndicate for such Securities. (See Part A--``Portfolio Summary.'') An
underwriter typically purchases securities, such as the Securities in each
Trust, from the issuer on a negotiated or competitive bid basis in order to
market such securities to investors at a profit.
The yields on Securities of the type deposited in each Trust are dependent
on a variety of factors, including interest rates, general conditions of the
municipal bond market, size of a particular offering, the maturity of the
obligation and rating of the issue. The ratings represent the opinions of the
rating organizations as to the quality of the securities which they undertake to
rate. It should be emphasized, however, that ratings are general and are not
absolute standards of quality. Consequently, securities with the same maturity,
coupon and rating may have different yields, while securities of the same
maturity and coupon with different ratings may have the same yield.
Estimated Annual Income Per Unit
On a recent date the Estimated Net Annual Income per Unit of the Trust was
the amount set forth above under Part A--``Summary of Essential Information.''
This figure is computed by dividing the aggregate net annual interest income
(i.e., less estimated annual fees and expenses of the Sponsor, the Trustee,
counsel and the Evaluator), ignoring any original issue discount, by the number
of Units outstanding. Thereafter, the net annual interest income per Unit for
the Trust will change whenever Securities mature, are redeemed or are sold, or
as the expenses of the Trust change. The fees of the Trustee, the Sponsor,
counsel and the Evaluator are subject to change without the consent of Unit
Holders, to the extent provided under ``Expenses and Charges.''
Interest on the Securities, less estimated expenses of the Trust, is
expected to accrue at the daily rate shown under Part A--``Summary of Essential
Information.'' This rate will change as Securities mature, are redeemed or are
sold, or as the expenses of the Trust change.
The Public Offering Price will vary due to fluctuations in the offering
and/or bid prices of the Securities and the net annual interest income per Unit
may change as Securities mature, are redeemed or are sold or as the expenses of
the Trust change.
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TAX STATUS
In the opinion of bond counsel to the issuing governmental authorities,
interest income on the Securities comprising the Portfolio of the Trust is
(except in certain instances depending upon the Unit Holder, as described below)
exempt from Federal income tax under the provisions of the Internal Revenue Code
as in effect at the date of issuance. In the case of Securities issued at a time
when the 1954 Code was in effect, redesignation of the Code as the Internal
Revenue Code of 1986 (the ``Code'' or the ``1986 Code'') has not adversely
affected the exemption from Federal income tax of interest income on such
Securities. Gain (exclusive of any earned original issue discount) realized on
sale or redemption of the Securities or on sale of a Unit is, however,
includible in gross income for Federal income tax purposes and for state and
local income tax purposes generally. (It should be noted in this connection that
such gain does not include any amounts received in respect of accrued interest.)
Such gain may be capital gain or ordinary income and if capital gain may be long
or short-term depending upon the facts and circumstances. Securities selling at
market discount tend to increase in market value as they approach maturity when
the principal amount is payable, thus increasing the potential for taxable gain
on their maturity, redemption or sale.
In the opinion of Messrs. Cahill Gordon & Reindel, special counsel for the
Sponsor, under existing law:
The Trust is not an association taxable as a corporation for Federal
income tax purposes, and interest on an underlying Security which is exempt
from Federal income tax under the Code when received by the Trust will
retain its status as tax exempt interest for Federal income tax purposes to
the Unit Holders.
Each Unit Holder will be considered the owner of a pro rata portion of
the Trust's assets under Sections 671-678 of the Code. Each Unit Holder will
be considered to have received a pro rata share of interest derived from the
Trust's assets when it is received by the Trust and each Unit Holder will
have a taxable event when an underlying Security is disposed of (whether by
sale, exchange, redemption, or payment at maturity) or when the Unit Holder
redeems or sells Units. The total tax cost of each Unit will equal the cost
of Units (including the up-front sales charge) plus the amount of
organizational expenses borne by the Unit Holder and the portion of the
deferred sales charge paid from interest on the DSC Payment Securities. The
total tax cost of each Unit to a Unit Holder is allocated among each of the
underlying Securities (in accordance with the proportion of the Trust's
assets comprised by each Security) in order to determine the Unit Holder's
per Unit tax cost for each Security, and the tax cost reduction requirements
of the Code relating to amortization of bond premium will apply separately
to the per Unit tax cost of each Security. Therefore, under some
circumstances a Unit Holder may realize taxable gains when Units are sold or
redeemed for an amount equal to or less than the Unit Holder's original
cost. The relevant tax reporting forms sent to Unit Holders will reflect the
actual amount paid to them net of any deferred sales charge. Accordingly,
Unit Holders should not increase the total cost for their Units by the
amount of the principal of DSC Payment Securities used to pay a portion of
the deferred sales charge.
When a contract to acquire an underlying Security is settled after the
Unit Holder's settlement date for a Unit, the Unit Holder's proportionate
share of the interest accrued on the underlying Security on the Security
settlement date will exceed the portion of the purchase price that was
allocable to interest accrued on the Unit settlement date. A Unit Holder
will not be subject to Federal income tax on the Unit Holder's proportionate
share of the interest which accrues during the period between the Unit
settlement date and the Security settlement date either when such interest
is received by the Trust or when it is distributed to the Unit Holder.
Under the income tax laws of the State and City of New York, the income of
the Trust will be treated as the income of its Unit Holders.
If the proceeds received by the Trust upon the sale or redemption of an
underlying Security exceed a Unit Holder's adjusted tax cost allocable to the
Security disposed of, that Unit Holder will realize a taxable gain to the extent
of such excess. Conversely, if the proceeds received by the Trust upon the sale
or redemption of an underlying Security are less than a Unit Holder's adjusted
tax cost allocable to the Security disposed of, that Unit Holder will realize a
loss for tax purposes to the extent of such difference.
Any gain recognized on a sale or exchange of a Unit Holder's pro rata
interest in a Security, and not constituting a realization of accrued ``market
discount,'' and any loss will be a capital gain or loss, except in the case of a
dealer or financial institution. Gain realized on the disposition of the
interest of a Unit Holder in a market discount Security is treated as ordinary
income to the extent the gain does not exceed the accrued market discount. A
Unit Holder has an interest in a market discount Security in a case in which the
tax cost for the Unit Holder's pro rata interest in the Security
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<PAGE>
is less than the stated redemption price thereof at maturity (or the issue price
plus original issue discount accrued up to the acquisition date, in the case of
an original issue discount Security). If the market discount is less than .25%
of the stated redemption price of the Security at maturity multiplied by the
number of complete years to maturity, the market discount shall be considered to
be zero. Any capital gain or loss arising from the disposition of a Unit
Holder's pro rata interest in a Security will be a long-term capital gain or
loss if the Unit Holder has held his or her Units and the Trust has held the
Security for more than one year. Under the Code, net capital gain (i.e., the
excess of net long-term capital gain over net short-term capital loss) of
individuals, estates and trusts is subject to a maximum nominal tax rate of 28%.
Such net capital gain may, however, result in a disallowance of itemized
deductions and/or affect a personal exemption phase-out.
Opinions relating to the validity of the underlying Securities and the
exemption of interest thereon from Federal income tax are rendered by bond
counsel to the issuing governmental authorities. It is the view of The
Prudential Investment Corporation, which is an affiliate of the Sponsor, that
interest on the Securities will not be a tax preference item unless otherwise
indicated on the ``Schedule of Portfolio Securities'' as Securities the interest
on which is in the opinion of bond counsel, treated as a tax preference item for
alternative minimum tax purposes. See ``Schedule of Portfolio Securities.''
Neither the Sponsor nor its counsel have made any review of proceedings relating
to the issuance of underlying Securities or the bases for bond counsel's
opinions or the view of The Prudential Investment Corporation, the Sponsor's
affiliate. The Sponsor and its counsel are, however, aware of nothing which
would indicate to the contrary.
Furthermore, exemption of interest on a Security from regular income tax
requires that the issuer of the Security (or other user of the Security
proceeds) meet certain ongoing compliance requirements. Failure to meet these
requirements could result in loss of the exemption and such loss of exemption
could apply retroactively from the date of issuance. A Security may provide that
if a loss of exemption is determined to have occurred, the Security is
immediately due and payable; and, in the case of a secured Security, that the
security can be reached if the Security is not then paid. If such a loss of
exemption were to occur and the Security did not contain such an acceleration
clause, or if the acceleration did not in fact result in payment of the
Security, the affected Security would likely be sold as a taxable bond. Sale of
a Security as a taxable bond would likely result in a realization of proceeds
less than the cost of the Security.
In the case of certain of the underlying Securities comprising the Portfolio
of the Trust, the opinions of bond counsel indicate that although interest on
such underlying Securities is generally exempt from Federal income tax, such
underlying Securities are ``industrial development bonds'' under the 1954 Code
or ``private activity bonds'' under the 1986 Code as those terms are defined in
the relevant Code provisions, and interest on such underlying Securities will
not be exempt from Federal income tax for any period during which such
underlying Securities are held by a ``substantial user'' of the facilities
financed by the proceeds of such underlying Securities (or a ``related person''
to such a ``substantial user''). In the opinion of Messrs. Cahill Gordon &
Reindel, interest attributable to such underlying Securities (although not
subject to Federal income tax to the Trust), if received by the Trust for the
account of a Unit Holder who is such a ``substantial user'' or ``related
person,'' will be taxable (i.e., not tax exempt) to the same extent as if such
underlying Securities were held directly by the Unit Holder as owner. No
investigation as to the users or of the facilities financed by the underlying
Securities has been made by the Sponsor or its counsel. Investors should consult
their tax counsel for advice with respect to the effect of these provisions on
their particular tax situations.
In the case of an Insured Trust, assuming that the insurance policies and
any related agreements described in ``Insurance on the Securities in the
Portfolio of an Insured Trust'' have been validly issued, are of standard form
with respect to subrogation and do not relieve the issuer of the Security of its
obligations thereunder, and provided that, at the time such policies are
purchased, the amounts paid for such policies are reasonable, customary and
consistent with the reasonable expectation that the issuer of the Securities,
rather than the insurer, will pay debt service on the Securities, Messrs. Cahill
Gordon & Reindel are of the opinion that proceeds received under the insurance
policies representing matured interest on a defaulted obligation will be
excludable from Federal gross income if, and to the same extent, such interest
would have been so excludable if paid by the issuer of such defaulted
obligation.
Persons in receipt of Social Security benefits should be aware that a
portion of such Social Security benefits may be includible in gross income. For
a taxpayer whose modified adjusted gross income plus one-half of his or her
Social Security benefits does not exceed $34,000 ($44,000 for married taxpayers
filing a joint return), the includible amount is the lesser of (i) one-half of
the Social Security benefits or (ii) one-half of the amount by which the sum of
``modified adjusted gross income'' plus one-half of the Social Security benefits
exceeds $25,000 in the case of unmarried taxpayers and $32,000 in the case of
married taxpayers filing a joint return. All other taxpayers receiving Social
Security benefits are required to include up to 85% of their Social Security
benefits in income.
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<PAGE>
Modified adjusted gross income is adjusted gross income determined without
regard to certain otherwise allowable deductions and exclusions from gross
income, plus tax exempt interest on municipal obligations including interest on
the Securities. To the extent that Social Security benefits are includible in
gross income they will be treated as any other item of gross income and
therefore may be taxable.
Investors should also consult their tax counsel for advice with respect to
the effect, if any, on the tax cost of Units to a Unit Holder in cases in which
a contract to acquire a Security is settled after the settlement date for such
Units and the Unit Holder's proportionate share of the interest accrued on the
underlying Security on the Security settlement date will exceed the portion of
the purchase price allocable to interest accrued on the Unit settlement date. In
such cases, the Unit Holder may have an adjustment to the tax basis in the Units
for interest accruing on such Securities during the interval between purchase of
Units and delivery of Securities.
THE EXEMPTION OF INTEREST ON MUNICIPAL OBLIGATIONS FOR FEDERAL INCOME TAX
PURPOSES DOES NOT NECESSARILY RESULT IN EXEMPTION UNDER ANY OTHER FEDERAL TAX
LAW OR UNDER THE INCOME OR OTHER TAX LAWS OF ANY STATE OR CITY. THE LAWS OF THE
SEVERAL STATES VARY WITH RESPECT TO THE TAXATION OF SUCH OBLIGATIONS. (See
``Rights of Unit Holders--Reports and Records.'')
The Portfolio of the Trust may contain zero coupon bond(s) or one or more
other Securities which were originally issued at a discount (``original issue
discount''). In general, original issue discount can be defined as the
difference between the price at which a Security was issued and its stated
redemption price at maturity. If the original issue discount is less than .25%
of the stated redemption price of the Security at maturity multiplied by the
number of complete years to maturity, the original issue discount shall be
considered to be zero. In the case of a Security issued before September 4,
1982, original issue discount is deemed to accrue (be ``earned'') as tax-exempt
interest ratably over the period from the date of issuance of the Security to
the date of maturity and is apportioned among the original holder of the
obligation and subsequent purchasers in accordance with a ratio the numerator of
which is the number of calendar days the obligation was owned by the holder and
the denominator of which is the total number of calendar days from the date of
issuance of the obligation to its date of maturity. Gain or loss upon the
disposition of an original issue discount Security in a Portfolio is measured by
the difference between the amount realized upon disposition of and the amount
paid for such obligation. A holder is entitled, however, to exclude from gross
income that portion of such gain attributable to accrued interest and the
``earned'' portion of original issue discount.
In the case of a Security issued after September 3, 1982, original issue
discount is deemed to accrue on a constant interest method which corresponds, in
general, to the economic accrual of interest (adjusted to eliminate
proportionately on an elapsed-time basis any excess of the amount paid for the
Security over the sum of the issue price and the accrued original issue discount
on the acquisition date). The tax basis in the Security is increased by the
amount of original issue discount that is deemed to accrue while the Security is
held. The difference between the amount realized on a disposition of the
Security (ex currently accrued interest) and the adjusted tax basis of the
Security will give rise to taxable gain or deductible loss upon a disposition of
the Security by the Trust (or a sale or redemption of Units by a Unit Holder).
The Code provides, generally, that adjustments to taxable income to produce
alternative minimum taxable income for corporations will include 75% of the
amount by which adjusted current earnings (which would include tax-exempt
interest) of the taxpayer exceeds the alternative minimum taxable income of the
taxpayer before any amount is added to alternative minimum taxable income
because of this adjustment.
For Federal income tax purposes, Trust expenses allocable to producing or
collecting Trust interest income are not deductible because the interest income
derived by the Trust is exempt from Federal income tax. A state or local income
tax may provide for a deduction for the portion of such Trust expenses
attributable to the production or collection of income derived by the Trust and
taxed by the state or locality. The effect on any such deductions of the Code
rules whereby investment expenses and other miscellaneous deductions are
deductible only to the extent in excess of 2% of adjusted gross income would
depend upon the law of the particular state or locality involved.
The Code also imposes an additional 12/100% ($12.00 per $10,000)
environmental tax on the alternative minimum taxable income (determined without
regard to any alternative tax net operating loss deduction) of a corporation in
excess of $2,000,000 for each taxable year beginning before January 1, 1996. The
Clinton Administration has proposed to extend the environmental tax, most
recently in the Revenue Reconciliation Bill of 1996, which was released on March
19, 1996, to taxable years after December 31, 1995 and before January 1, 2007.
The bill has not been introduced in either house of Congress. The environmental
tax is an excise tax and is deductible for United States Federal income tax
purposes (but not
B-17
<PAGE>
for purposes of the environmental tax itself). Although the environmental tax is
based on alternative minimum taxable income, the environmental tax must be paid
in addition to any Federal income taxes payable by the corporation.
From time to time proposals have been introduced before Congress the purpose
of which is to restrict or eliminate the Federal income tax exemption for
interest on securities similar to the Securities in the Trust or to require
treatment of such interest as a ``tax preference'' for alternative minimum tax
purposes, and it can be expected that similar proposals may be introduced in the
future. The Trust and the Sponsor cannot predict what legislation, if any, in
respect of the tax status of interest on Securities may be proposed by the
Executive Branch or by members of Congress, nor can they predict which
proposals, if any, might be enacted or whether any legislation if enacted would
apply to the Securities in the Trust. At any time Congress may have under
consideration various proposals to revise the tax system in the United States
including current proposals to impose a flat tax system. Any flat tax system may
have the effect of reducing or eliminating the benefit presently received in
connection with the receipt of interest on municipal debt obligations as
compared to the receipt of interest on other obligations. Moreover, a flat tax
system, if implemented, may have an adverse effect on the value of the
Securities held in the portfolio of the Trust. The Sponsor cannot predict
whether a flat tax or similar system will be enacted nor can it predict the
impact any such system would have on the portfolio of the Trust.
In addition, investors should be aware that no deduction is allowed for
Federal income tax purposes for interest on indebtedness incurred or continued
to purchase or carry Units in the Trust. Under rules used by the Internal
Revenue Service for determining when borrowed funds are considered used for the
purpose of purchasing or carrying particular assets, the purchase of Units may
be considered to have been made with borrowed funds even though the borrowed
funds are not directly traceable to the purchase of the Units.
All taxpayers are required to report for informational purposes on their
Federal income tax returns the amount of tax-exempt interest they receive.
State risk factors, including opinions of special State counsels with
respect to certain state tax aspects of an investment in Units of a State Trust
are discussed in Part C, if applicable.
New York Trust
In the opinion of Messrs. Cahill Gordon & Reindel, special New York counsel
on New York tax matters, under existing law:
Under the income tax laws of the State and City of New York, the income
of each Trust will be treated as the income of its Unit Holders.
Interest on the underlying debt obligations which is exempt from tax
under the laws of the State and City of New York when received by the New
York Trust will retain its status as tax-exempt interest to its Unit
Holders. (Interest on the underlying obligations in the New York Trust is,
however, not excludable from income in determining the amount of the
income-based (i) New York State franchise taxes on business and financial
corporations or (ii) the New York City general corporation tax and the New
York City financial corporation tax.) The minimum income taxes imposed by
New York State and New York City on individuals, estates and trusts exclude
from their taxable bases the Federal tax preference item with respect to
tax-exempt interest.
Non-residents of New York City will not be subject to the City personal
income tax on gains derived with respect to their Units. Non-residents of
the State will not be subject to New York State personal income tax on such
gains unless the Units are employed in a business, trade or occupation
carried on in New York State. A New York State or City resident should
determine his basis and holding period for his Units in the same manner for
New York State and City personal income tax purposes as for Federal income
tax purposes.
Investors should consult their own tax advisors with respect to the
applicability of the foregoing general comments to their own particular
situations and as respects state and local tax consequences of an investment in
Units.
PUBLIC OFFERING OF UNITS
Public Offering Price
The Public Offering Price of Units during the initial public offering period
is computed by adding to the aggregate offering price of the Securities in a
Trust, any money in the Principal Account other than money required to redeem
tendered Units, dividing such sum by the number of Units outstanding, and then
adding a sales charge of 4.75% of the
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Public Offering Price (in the case of a Trust with a DSC feature, 4.9% of the
offering price of the Securities subject to a sales charge plus the total sales
charge (5.152% of the offering side evaluation of such Securities)) in the case
of a trust composed of long term securities (4.987% of the net amount invested)
or a sales charge of 3.00% of the Public Offering Price in the case of an
Intermediate Term Trust (3.093% of the net amount invested) or such other sales
charge as is designated in Part A. For purchases settling after the first
settlement date (including purchases of Units created after the initial date of
deposit) a proportionate share of accrued and undistributed interest on the
Securities from such date to the settlement date for Units is also added to the
Public Offering Price. After the initial public offering period the Public
Offering Price of the Units will be determined by adding to the Evaluator's
determination of the aggregate bid price of the Securities per Unit a sales
charge as set forth under Secondary Market Sales Charge herein. A proportionate
share of accrued and undistributed interest on the Securities (other than DSC
Payment Securities) to the settlement date for Units purchased and of cash on
hand in the Trust is also added to the Public Offering Price.
The Public Offering Price on the date of this Prospectus or any subsequent
date may vary from the Public Offering Price set forth in the Part A--``Summary
of Essential Information'' in accordance with fluctuations in the evaluation of
the underlying Securities in the Trust.
The aggregate bid or offering prices of the Securities in the Trust, as is
appropriate, shall be determined for the Trust by the Evaluator as of the
Evaluation Time, in the following manner: (a) on the basis of current bid or
offering prices for the Securities as obtained from investment dealers or
brokers (including the Sponsor) who customarily deal in securities comparable to
those held in the Trust, (b) if there is no market for such securities and bid
or offering prices are not available, on the basis of prices for comparable
securities, (c) by determining the value of the Securities on the bid or
offering side of the market by appraisal, or (d) by any combination of the
above. Unless a Security covered by Portfolio Insurance is in default in payment
of principal or interest or in significant risk of such default, the Evaluator
will not attribute any value to the Portfolio Insurance obtained by an Insured
Trust or to an Insured Trust's right to secure Permanent Insurance with respect
to such Security in the event of a sale of such Security. The value of insurance
to maturity obtained by the issuer of a Security or by the Sponsor on the Date
of Deposit is reflected and included in the market value of such Security. The
Public Offering Price will be effective for all sales of Units made during the
preceding 24-hour period. Following the initial public offering period,
determinations of the aggregate bid price of the Securities, for purposes of
secondary market transactions by the Sponsor and redemptions by the Trustee,
will be made each business day as of the Evaluation Time, effective for all
sales or redemptions made subsequent to the last preceding determination. (See
``Rights of Unit Holders--Redemption.'') The difference between the bid and
offering prices of the Securities may be expected to average approximately
1 1/2% of principal amount. In the case of actively traded securities, the
difference may be as little as 1/2 of 1%, and in the case of inactively traded
securities such difference will usually not exceed 3%. The price at which Units
may be repurchased by the Sponsor in the secondary market could be less than the
price paid by the Unit Holder (such repurchase price will be reduced by any
unpaid DSC). For information relating to the calculation of the Redemption
Price, which, like the Public Offering Price in the secondary market, is based
upon the aggregate bid price of the underlying Securities and which may be
expected to be less than the aggregate offering price, see ``Rights of Unit
Holders--Redemption--Computation of Redemption Price per Unit.''
Public Distribution
Upon the termination of the initial public offering period, unsold Units or
Units acquired by the Sponsor in the secondary market referred to below may be
offered to the public by this Prospectus at the then current Public Offering
Price, plus accrued interest.
Sales to dealers will initially be made at prices which include a concession
per Unit as set forth below, but subject to change from time to time at the
discretion of the Sponsor. The Sponsor reserves the right to reject, in whole or
in part, any order for the purchase of Units.
The dealer concession per Unit in the secondary market will generally be 65%
of the sales charge per Unit. Sales to dealers utilizing the service of Wexford
Clearing Services Corporation will be made at prices which include a concession
of 70% of the total sales charge per Unit. However, the Sponsor may negotiate a
different concession (either higher or lower) with dealers on a case-by-case
basis. In addition to such discounts, the Sponsor may, from time to time, pay or
allow an additional discount in the form of cash or other compensation, to
dealers who underwrite additional Units of a Trust or who sell, during a
specified time period, a minimum dollar amount of Units of a Trust and other
unit investment trusts underwritten by the Sponsor.
B-19
<PAGE>
Sales will be made only with respect to whole Units, and the Sponsor
reserves the right to reject, in whole or in part, any order for the purchase of
Units.
In addition, sales of Units may be made pursuant to distribution
arrangements with certain banks which are acting as agents for their customers.
These banks are making Units of the Trust available to their customers on an
agency basis. A portion of the sales charge paid by these customers is retained
by or remitted to the banks in amounts comparable to the aforementioned dealers'
concessions. The Glass-Steagall Act prohibits banks from underwriting certain
securities, including Units of the Trust; however, this Act does permit certain
agency transactions, and banking regulators have not indicated that these
particular agency transactions are impermissible under this Act. In certain
states, any bank making Units available must be registered as a broker-dealer in
that state.
Secondary Market
While not obligated to do so, it is the Sponsor's present intention to
maintain a secondary market for Units of each Trust and to continuously offer to
repurchase Units from Unit Holders at the applicable Sponsor's Repurchase Price
(See Part A--``Summary of Essential Information'') based upon each Unit's pro
rata share of the aggregate value of the Securities determined (by the
Evaluator) on the basis of the bid side of the market (less any unpaid DSC). Any
Units repurchased by the Sponsor at the Sponsor's Repurchase Price may be
reoffered to the public by the Sponsor at the then current Public Offering
Price, plus accrued interest. Any profit or loss resulting from the resale of
such Units will belong to the Sponsor.
If the supply of Units exceeds demand (or for any other business reason),
the Sponsor may, at any time, occasionally, from time to time, or permanently,
discontinue the repurchase of Units. In such event, Unit Holders (including the
Sponsor) may redeem their Units through the Trustee at the Redemption Price,
which is based upon the aggregate bid price of the Securities and which may be
expected to be less than the aggregate offering price. (See ``Rights of Unit
Holders--Redemption--Computation of Redemption Price per Unit.'') If the Sponsor
repurchases Units in the secondary market at the ``Redemption Price,'' it may
reoffer these Units in the secondary market at the ``Public Offering Price,'' or
the Sponsor may tender Units so purchased to the Trustee for redemption. In no
event will the price offered by the Sponsor for the repurchase of Units be less
than the current Redemption Price for those Units. (See ``Rights of Unit
Holders--Redemption.'')
Sponsor's and Underwriters' Profits
The Sponsor receives a sales charge as set forth in the table below in the
secondary market. On the sale of Units to dealers, the Sponsor will retain the
difference between the dealer concession and the sales charge. (See ``Public
Distribution,'' herein.)
In addition, the Sponsor may realize profits (or sustain losses) due to
daily fluctuations in the bid prices of the Securities in the Trust and thus in
the Public Offering Price of Units received by the Sponsor. Cash, if any,
received by the Sponsor from the Unit Holders prior to the settlement date for
purchase of Units may be used in the Sponsor's business to the extent permitted
by applicable regulations and may be of benefit to the Sponsor.
The Sponsor may also realize profits (or sustain losses) while maintaining a
secondary market in the Units, in the amount of any difference between the
prices at which the Sponsor buys Units (based on the bid side evaluation of the
Securities in a Trust) and the prices at which the Sponsor resells such Units or
the prices at which the Sponsor redeems such Units (also based on the bid side
evaluation of the Securities in the Trust), as the case may be.
Secondary Market Sales Charge
The sales charge per Unit in the secondary market will be computed by
multiplying the Evaluator's determination of the bid side evaluation of each
Security by a sales charge determined in accordance with the table set forth
below based upon the number of years remaining to the maturity of each such
Security, totalling all such calculations, and dividing this total by the number
of Units then outstanding. In calculating the date of maturity, a Security will
be considered to mature on its stated maturity date unless: (a) the Security has
been called for redemption or funds or securities have been placed in escrow to
redeem it on an earlier call date, in which case the call date will be deemed
the date on which such Security matures; or (b) the Security is subject to a
mandatory tender, in which case the mandatory tender date will be deemed the
date on which such Security matures.
B-20
<PAGE>
<TABLE>
<CAPTION>
(As Percent
(As Percent of Public
of Bid Side Offering
Time to Maturity Evaluation) Price)(1)
- -------------------------- ------------ ----------------
<S> <C> <C>
Less than six months...... 0% 0%
Six months to 1 year...... 0.756% 0.75%
Over 1 year to 2 years.... 1.523% 1.50%
Over 2 years to 4 years... 2.564% 2.50%
Over 4 years to 8 years... 3.627% 3.50%
Over 8 years to 15
years..................... 4.712% 4.50%
Over 15 years............. 5.820% 5.50%
</TABLE>
- ---------------
(1) Units subject to DSC--as a percent of the bid side evaluation of the
Securities on which a sales charge is imposed plus the total sales charge.
The up-front sales charge will equal the difference between the amount of
the total secondary market sales charge and any unpaid DSC remaining and,
therefore, as the amount of the unpaid DSC declines, the amount of the
up-front sales charge will increase.
Volume Discount
Although under no obligation to do so, the Sponsor intends to permit volume
purchasers of Units to purchase Units at a reduced sales charge. The Sponsor may
at any time change the amount by which the sales charge is reduced, or
discontinue the discount altogether.
The sales charge per Unit will be reduced pursuant to the following
graduated scale for sales to any person of at least 100 Units in the secondary
market.
<TABLE>
<CAPTION>
% of
Number of Units Sales Charge
------------------------------- ------------
<S> <C>
Less than 100 Units............ 100%
100-249 Units.................. 90%
250-499 Units.................. 80%
500-749 Units.................. 75%
750-999 Units.................. 70%
1,000 Units or More............ 65%
</TABLE>
The respective reduced sales charges as shown on each of the above charts
will apply to all purchases of Units in any fourteen day period by the same
person in the amounts stated herein, and for this purpose, purchases of Units of
the Trust will be aggregated with concurrent purchases of Units of any other
trust that may be offered by the Sponsor.
Units held in the name of the purchaser's spouse, in the name of a
purchaser's child under the age of 21 or in the name of an entity controlled by
the purchaser are deemed for the purposes hereof to be acquired by the
purchaser. The reduced sales charges are also applicable to a trustee or other
fiduciary purchasing Units for a single trust estate or single fiduciary
account.
Employee Discount
The Sponsor intends to permit employees of Prudential Securities
Incorporated and its subsidiaries and affiliates to purchase Units of 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 (or in the case of Units subject to DSC, the remaining DSC), subject to
a limit of 5% of the Units of a Trust at the discretion of the Sponsor.
EXCHANGE OPTION
Unit Holders may elect to exchange any or all of their Units of this series
of the National Municipal Trust for units of one or more of any other series in
the Prudential Securities Incorporated family of unit investment trusts or
certain additional trusts that may from time to time be made available for such
exchange by the Sponsor (collectively referred to as the ``Exchange Trusts'').
Such units may be acquired at prices based on reduced sales charges per unit.
The purpose of such reduced sales charges is to permit the Sponsor to pass on to
the Unit Holder who wishes to exchange Units the cost
B-21
<PAGE>
savings resulting from such exchange of Units. The cost savings result from
reductions in time and expense related to advice, financial planning and
operational expense required for the Exchange Option. Exchange Trusts may have
different investment objectives; a Unit Holder should read the prospectus for
the applicable Exchange Trust carefully to determine the investment objective
prior to the exercise of this option.
This option will be available provided that units of the applicable Exchange
Trust are available for sale and are lawfully qualified for sale in the
jurisdiction in which the Unit Holder resides. There is no assurance that a
market for units will in fact exist on any given date on which a Unit Holder
wishes to sell or exchange his units; thus there is no assurance that the
Exchange Option will be available to any Unit Holder. The Sponsor reserves the
right to modify, suspend or terminate this option at any time without further
notice to Unit Holders (in the case of Units subject to a DSC, sixty days'
notice will be given prior to the date of the termination of, or material
amendment to, the Exchange Option except that no notice need be given under
certain circumstances). In the event the Exchange Option is not available to a
Unit Holder at the time he wishes to exercise it, the Unit Holder will be
immediately notified and no action will be taken with respect to his units
without further instruction from the Unit Holder.
Exchanges will be effected in whole units only. If the proceeds from the
Units being surrendered are less than the cost of a whole number of units being
acquired, the exchanging Unit Holder will be permitted to add cash in an amount
to round up to the next highest number of whole units. When units held for less
than five months are exchanged for units with a higher regular sales charge, the
sales charge will be the greater of (a) the reduced sales charge or (b) the
difference between the sales charge paid in acquiring the units being exchanged
and the regular sales charge for the quantity of units being acquired,
determined as of the date of the exchange.
To exercise the Exchange Option, a Unit Holder should notify the Sponsor of
his desire to use the proceeds from the sale of his Units to purchase units of
one or more of the Exchange Trusts. If units of the applicable outstanding
series of the Exchange Trust are at that time available for sale, the Unit
Holder may select the series or group of series for which he desires his Units
to be exchanged. The Unit Holder will be provided with a current prospectus or
prospectuses relating to each series in which he indicates interest.
Units of the Exchange Trust trading in the secondary market maintained by
the Sponsor, if so maintained, will be sold to the Unit Holder at a price equal
to the aggregate bid side evaluation per unit of the securities in that
portfolio plus accrued interest and the applicable sales charge of $15* per
unit. Excess proceeds not used to acquire whole units will be paid to the
exchanging Unit Holder. Owners of units of any registered unit investment trust
other than National Municipal Trust which was initially offered at a minimum
applicable sales charge of 3.0% of the public offering price exclusive of any
applicable sales charge discounts may elect to apply the cash proceeds of sale
or redemption of those units directly to acquire units of any Exchange Trust
trading in the secondary market at the reduced sales charge of $20* per Unit,
subject to the terms and conditions applicable to the Exchange Option. The
reduced sales charge for Units of any Exchange Trust acquired during the initial
offering period for such Units will be sold at a price equal to the offering
side evaluation per unit of the securities in the portfolio plus accrued
interest plus a reduced sales charge of $25* per unit. To exercise this option,
the owner should notify his retail broker. He will be given a prospectus of each
series in which he indicates interest of which units are available. The Sponsor
reserves the right to modify, suspend or terminate the option at any time
without further notice, including the right to increase the reduced sales charge
applicable to this option (but not in excess of $5 more per unit than the
corresponding fee then charged for a unit of an Exchange Trust which is being
exchanged).
For example, assume that a Unit Holder, who has three units of a Trust with
a 4.75% sales charge and a current price of $1,100 per unit, sells his units and
exchanges the proceeds for units of a series of an Exchange Trust with a current
price of $950 per unit and an ordinary sales charge of 4.75%. The proceeds from
the Unit Holder's units will aggregate $3,300. Since only whole units of an
Exchange Trust may be purchased under the Exchange Option, the Holder would be
able to acquire four units in the Exchange Trust for a total cost of $3,860
($3,800 for units and $60 for the $15 per unit sales charge) by adding an extra
$560 in cash. Were the Unit Holder to acquire the same number of units at the
same time in the regular secondary market maintained by the Sponsor, the price
would be $3,989.50 [$3,800 for the units and $189.50 for the 4.75% sales charge
(4.987% of the net amount invested)].
- ------------
* In the case of Units subject to a DSC, the exchange sales charge will be the
remaining DSC if greater than the applicable reduced sales charge ($15, $20 or
$25) or if the remaining DSC is less than applicable reduced sales charge, the
Unit will be subject to the remaining DSC and the sales charge payable at the
time of the exchange will be the difference between the amount of the reduced
sales charge and the remaining DSC.
B-22
<PAGE>
Tax Consequences
An exchange of Units pursuant to the Exchange Option will constitute a
``taxable event'' under the Code, i.e., a Unit Holder will recognize gain or
loss at the time of exchange, except that upon an exchange of Units of this
series of the National Municipal Trust for units of any other series of Exchange
Trusts which are grantor trusts for U.S. federal income tax purposes the
Internal Revenue Service may seek to disallow any loss incurred upon such
exchange to the extent that the underlying securities in each trust are
substantially identical and the purchase of Units of an Exchange Trust takes
place less than thirty-one days after the sale of the Units. Unit Holders are
urged to consult their own tax advisors as to the tax consequences to them of
exchanging Units in particular cases.
REINVESTMENT PROGRAM
Distributions of interest and principal, if any, are made to Unit Holders
monthly or semiannually. A Unit Holder will have the option of either receiving
his monthly or semiannual income check from the Trustee or reinvesting the
distribution in an open-end diversified management investment company offered by
the Sponsor or by one of the Underwriters whose investment objective is to
attain for investors the highest level of current income that is exempt from
Federal income taxes, consistent with liquidity and the preservation of capital.
Participation in any such fund is conditioned on such fund's lawful
qualification for sale in the jurisdiction in which the Unit Holder resides.
There can be no assurance, however, that such qualification will be obtained.
Upon enrollment in the reinvestment program, the Trustee will direct monthly or
semiannual interest distributions and principal distributions, if any, to the
designated fund. This Reinvestment Program does not involve insured securities.
The appropriate prospectus will be sent to the Unit Holder. A Unit Holder's
election to participate in this reinvestment program will apply to all Units of
the Trust owned by such Unit Holder. The Unit Holder should read the prospectus
for the fund carefully before deciding to participate. The Sponsor may terminate
or modify the reinvestment program at any time without further notice to Unit
Holders.
EXPENSES AND CHARGES
Expenses
For Trusts with a date of deposit after June 26, 1995, all or a portion of
the organizational expenses and charges incurred in connection with the
establishment of the Trust including the cost of the preparation, printing and
execution of the Indenture, the Certificates, Registration Statement and other
documents relating to the Trust, Federal and State registration fees and costs,
the initial fees and expenses of the Trustee, and legal and auditing expenses
and other out-of-pocket expenses will be paid by the Trust. Historically, the
costs of establishing unit investment trusts have been borne by a trust's
sponsor. Advertising and selling expenses will be paid by the Sponsor and the
Underwriters, if any, at no cost to the Trust.
Fees
The Portfolio supervision fee (the ``Supervision Fee'') which is earned for
Portfolio supervisory services, is based upon the aggregate face amount of
Securities in the Trust at the beginning of each calendar year.
The Supervision Fee, which is not to exceed the amount (set forth in Part
A--``Summary of Essential Information'') per $1,000 face amount of Securities in
the Trust, may exceed the actual costs of providing Portfolio supervisory
services for such Trust, but at no time will the total amount the Sponsor and/or
an affiliate thereof receive for Portfolio supervisory services rendered to all
series of National Municipal Trust and Prudential Unit Trusts in any calendar
year exceed the aggregate cost to it of supplying such services in such year.
For a description of the Portfolio supervisory services to be provided by the
Sponsor and/or an affiliate thereof, see ``Sponsor--Responsibility.'' The
Supervision Fee will be paid to the Sponsor by the Trust. The Prudential
Insurance Company of America, the indirect parent of the Sponsor, or a division
or subsidiary thereof, has agreed to advise the Sponsor regarding the Sponsor's
Portfolio supervisory services and will be compensated by the Sponsor for such
advisory services.
For its service as Trustee under the Indenture, the Trustee receives an
annual fee in the amount set forth under Part A--``Summary of Essential
Information.''
For each evaluation of the Securities in a Trust, the Evaluator will receive
a fee in the amount set forth under Part A--``Summary of Essential
Information.''
B-23
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
B-24
<PAGE>
AUTHORIZATION FOR REINVESTMENT
NATIONAL MUNICIPAL TRUST
D I hereby elect to participate in the Reinvestment Program to the extent
E indicated below and do authorize The Chase Manhattan Bank, Trustee, to
T direct distributions as indicated below to the Prudential Tax Free Money
A Fund, Inc. where such amounts shall immediately be invested into shares
C of the fund.
H
The foregoing authorization is subject in all respects to the terms and
H conditions of participation set forth in the National Municipal Trust
E prospectus and shall remain in effect until such time as I notify The
R Chase Manhattan Bank to the contrary in writing.
E
(fold here)
A -----------------------------------------------------------------------
N Soc. Sec./Tax I.D. No.: ___________________________
D
Series / / Please reinvest all NMT series which I/we own
M / / Please list below the specific series I/we wish
A to reinvest
I
L ----------------------------------------------
----------------------------------------------
T
O ----------------------------------------------
Check One / / Reinvest Interest
A / / Reinvest Principal
D / / Reinvest Both Interest and Principal
D
R Exact registration as it
E appears on your Units: _______________________________________
S
S ---------------------------------------
O ---------------------------------------
N
Street address: _______________________________________
T City, State, Zip Code: _______________________________________
H Unit Holder Signature(s): ______________________ Date:________
E (all joint holders must sign)
R
E
V
E
R
S
E
<PAGE>
REINVESTMENT ADDRESS
The Chase Manhattan Bank
Attn: Dividend Reinvestment--Dept. A
P.O. Box 834
New York, N.Y. 10003
<PAGE>
The Supervision Fee accrues quarterly but is paid annually, and the
Trustee's fees and the Trust expenses and the Evaluator's fees are payable
monthly on or before each Distribution Date from the Interest Account, to the
extent funds are available, and thereafter from the Principal Account. Any of
such fees may be increased without approval of the Unit Holders in proportion to
increases under the classification ``All Services Less Rent'' in the Consumer
Price Index published by the United States Department of Labor. The Trustee also
receives benefits to the extent that it holds funds on deposit in various
non-interest bearing accounts created under the Indenture.
The cost of the Portfolio Insurance obtained by an Insured Trust is an
annual amount set forth in Part A--``Summary of Essential Information'' and is
payable so long as such Insured Trust retains the Securities thus insured.
Premiums for the Portfolio Insurance are payable monthly in advance by the
Trustee on behalf of an Insured Trust.
Other Charges
The following additional charges are or may be incurred by the Trust as more
fully described in the Indenture: (a) fees of the Trustee for extraordinary
services, (b) expenses of the Trustee (including legal and auditing expenses)
and of counsel designated by the Sponsor, (c) various governmental charges, (d)
expenses and costs of any action taken by the Trustee to protect a Trust and the
rights and interests of the Unit Holders, (e) indemnification of the Trustee for
any losses, liabilities or expenses incurred by it in the administration of a
Trust without gross negligence, bad faith, willful misfeasance or willful
misconduct on its part or reckless disregard of its obligations and duties, (f)
indemnification of the Sponsor for any losses, liabilities and expenses incurred
in acting as Sponsor or Depositor under the Indenture without gross negligence,
bad faith, willful misfeasance or willful misconduct or reckless disregard of
its obligations and duties, (g) expenditures incurred in contacting Unit Holders
upon termination of the Trust and (h) to the extent then lawful, expenses
(including legal, auditing and printing expenses) of maintaining registration or
qualification of the Units and/or the Trust under Federal or state securities
laws so long as the Sponsor is maintaining a market for the Units.
The fees and expenses set forth herein for the Trust are payable out of such
Trust and when so paid by or owing to the Trustee are secured by a lien on such
Trust. If the balances in the Interest and Principal Accounts are insufficient
to provide for amounts payable by a Trust, the Trustee has the power to sell
Securities to pay such amounts. To the extent Securities are sold, the size of
such Trust will be reduced and the proportions of the types of Securities will
change. Such sales might be required at a time when Securities would not
otherwise be sold and might result in lower prices than might otherwise be
realized. Moreover, due to the minimum principal amount in which Securities may
be required to be sold, the proceeds of such sales may exceed the amount
necessary for the payment of such fees and expenses.
RIGHTS OF UNIT HOLDERS
Certificates
Ownership of Units is evidenced by registered certificates executed by the
Trustee and the Sponsor. Certificates are transferable by presentation and
surrender to the Trustee properly endorsed or accompanied by a written
instrument or instruments of transfer.
Certificates may be issued in denominations of one Unit or any multiple
thereof. A Unit Holder may be required to pay $2.00 per certificate reissued or
transferred, and will be required to pay any governmental charge that may be
imposed in connection with each such transfer or interchange. For new
certificates issued to replace destroyed, stolen or lost certificates, the Unit
Holder must furnish indemnity satisfactory to the Trustee and must pay such
expenses as the Trustee may incur. Mutilated Certificates should be surrendered
to the Trustee for replacement.
Distribution of Interest and Principal
Interest and principal received by the Trust will be distributed on each
Distribution Date on a pro rata basis to Unit Holders of record as of the
preceding Record Date unless distributed to the Sponsor in payment of the DSC.
Record dates for monthly distributions will be the tenth day of each month,
record dates for quarterly distributions will be the tenth day of January,
April, July and October, and record dates for semi-annual distributions will
be the tenth day of January and July. All distributions will be net of
applicable expenses, funds required for the redemption of Units and, if
applicable, reimbursements to the Trustee for interest payments advanced to
Unit Holders on previous monthly Distribution Dates. (See ``Summary of
Essential Information,'' ``Expenses and Charges'' and ``Rights of Unit
Holders--Redemption.'')
The Trustee will credit to the Interest Account all interest received by the
Trust, including that part of the proceeds of any disposition of Securities
which represents accrued interest. Other receipts will be credited to the
Principal Account. The pro rata share of the Interest Account and the pro rata
share of cash in the Principal Account represented by each Unit will be computed
by the Trustee each month as of the Record Date. (See ``Summary of Essential
Information'' in Part A.) Proceeds received from the disposition of any of the
Securities subsequent to a Record Date and prior to the next succeeding
Distribution Date will be held in the Principal Account and will not be
distributed until the following
B-25
<PAGE>
Distribution Date. The distribution to Unit Holders as of each Record Date will
be made on the following Distribution Date or shortly thereafter and shall
consist of an amount substantially equal to one-twelfth of such Unit Holders'
pro rata share of the estimated annual income to be credited to the Interest
Account after deducting estimated expenses (the ``Interest Distribution'' plus
such Unit Holders' pro rata share of the cash balance in the Principal Account
computed as of the close of business on the preceding Record Date. Persons who
purchase Units between a Record Date and a Distribution Date will receive their
first distribution on the second Distribution Date following their purchase of
Units. No distribution need be made from the Principal Account if the balance
therein is less than an amount sufficient to distribute $5.00 per Unit. The
Interest Distribution per Unit will be in the amount shown under ``Summary of
Essential Information'' in Part A and will change as the income and expenses of
the Trust change and as Securities are exchanged, redeemed, paid down or sold.
Normally, interest on the Securities in the Portfolio is paid on a
semiannual basis. Because interest is not received by a Trust at a constant rate
throughout the year, any Monthly Interest Distribution may be more or less than
the amount credited to the Interest Account as of the Record Date. In order to
eliminate fluctuations in monthly interest distributions resulting from such
variances the Trustee is required by the Indenture to advance such amounts as
may be necessary to provide monthly interest distributions of approximately
equal amounts. The Trustee will be reimbursed, without interest, for any such
advance from funds available from the Interest Account on the next ensuing
Record Date or Record Dates, as the case may be. If all or a portion of the
Securities for which advances have been made subsequently fail to pay interest
when due, the Trustee may recoup advances made by it in anticipation of receipt
of interest payments on such Securities by reducing the amount otherwise
distributable per Unit with respect to one or more Monthly Interest
Distributions. If units are redeemed subsequent to such advances by the Trustee,
but prior to receipt by the Trustee of actual notice of such failure to pay
interest, the amount of which was so advanced by the Trustee, each remaining
Unit Holder will be subject to a greater pro rata reduction in his Monthly
Interest Distribution than would have occurred absent such redemptions. Funds
which are available for future distributions, payments of expenses and
redemptions are in accounts which are non-interest bearing to Unit Holders and
are available for use by The Chase Manhattan Bank pursuant to normal banking
procedures. In addition, because of the varying interest payment dates of the
Securities comprising the Trust's Portfolio, accrued interest at any point in
time will be greater than the amount of interest actually received by the Trust
and distributed to Unit Holders. This excess accrued but undistributed amount
will be added to the value of the Units on any purchase. If a Unit Holder sells
all or a portion of his Units a portion of his sale proceeds will be allocable
to his proportionate share of the accrued interest. Similarly, if a Unit Holder
redeems all or a portion of his Units, the Redemption Price per Unit which he is
entitled to receive from the Trustee will include accrued interest. (See
``Rights of Unit Holders--Redemption--Computation of Redemption Price per
Unit.'')
Unit Holders purchasing Units in the secondary market will initially receive
distributions in accordance with the monthly or semi-annual distribution
election of the prior owner. In November of each year, the Trustee will furnish
each Unit Holder a card to be returned to the Trustee by December 20 of such
year if the Unit Holder desires to change such Unit Holder's plan of
distribution. Unit Holders desiring to change the plan of distribution in which
they are participating may so indicate on the card and return same, together
with their Certificate to the Trustee. If the card and Certificate are returned
to the Trustee, the change will become effective on December 21 of such year for
the ensuing twelve months. If the card and Certificate are not returned to the
Trustee, the Unit Holder will be deemed to have elected to continue with the
same plan for the following twelve months.
As of the tenth day of each month the Trustee will deduct from the Interest
Account and, to the extent funds are not sufficient therein, from the Principal
Account, amounts necessary to pay the expenses of the Trust. (See ``Expenses and
Charges.'') The Trustee may also withdraw from said accounts such amounts, if
any, as it deems necessary to establish a reserve for any governmental charges
payable out of the Trust. Amounts so withdrawn shall not be considered a part of
a Trust's assets for purposes of determining the amount of distributions until
such time as the Trustee shall return all or any part of such amounts to the
appropriate account. In addition, the Trustee may withdraw from the Interest
Account and the Principal Account such amounts as may be necessary to cover
redemption of Units by the Trustee. (See ``Rights of Unit
Holders--Redemption.'') The Trustee is also entitled to withdraw from the
Interest Account, and, to the extent funds are not sufficient therein, from the
Principal Account, on one or more record dates as may be appropriate, amounts
sufficient to recoup advances which the Trustee has made in anticipation of the
receipt by the Trust of interest in respect of Securities which subsequently
fail to pay interest when due.
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Reports and Records
The Trustee shall furnish Unit Holders in connection with each distribution
a statement of the amount of interest, if any, and the amount of other receipts,
if any, which are being distributed, expressed in each case as a dollar amount
per Unit. In the event that the Issuer of any of the Securities fails to make
payment when due of any interest or principal and such failure results in a
change in the amount which would otherwise be distributed as a distribution, the
Trustee will, with the first such distribution following such failure, set forth
in an accompanying statement, the Issuer and the Securities, the amount of the
reduction in the distribution per Unit resulting from such failure, the
percentage of the aggregate face amount of Securities which such Security
represents and, to the extent then determined, information regarding any
disposition or legal action with respect to such Security. Within a reasonable
time after the end of each calendar year, the Trustee will furnish to each
person who at any time during the calendar year was a Unit Holder of record, a
statement: (1) as to the Interest Account: interest received (including amounts
representing interest received upon any disposition of Securities), and, if the
Issuers of the Securities are located in different states or possessions or in
the Commonwealth of Puerto Rico, the percentage of such interest by such states
or other jurisdictions, deductions for payment of applicable taxes and for fees
and expenses of the Trust, deferred sales charge, redemptions of Units, and the
balance remaining after such distributions and deductions, expressed both as a
total dollar amount and as a dollar amount representing the pro rata share of
each Unit outstanding on the last business day of such calendar year; (2) as to
the Principal Account: the dates of disposition of any Securities and the net
proceeds received therefrom (excluding any portion representing interest and any
premium paid to obtain Permanent Insurance), deductions for payments of
applicable taxes and for fees and expenses of the Trust and redemptions of
Units, deferred sales charge, and the balance remaining after such distributions
and deductions, expressed both as a total dollar amount and as a dollar amount
representing the pro rata share of each Unit outstanding on the last business
day of such calendar year; (3) a list of the Securities held and the number of
Units outstanding on the last business day of such calendar year; (4) the
Redemption Price per Unit based upon the last computation thereof made during
such calendar year; and (5) amounts actually distributed during such calendar
year from the Interest Account and from the Principal Account, separately
stated, expressed both as total dollar amounts and as dollar amounts
representing the pro rata share of each Unit outstanding on the last business
day of such calendar year. The accounts of the Trust shall be audited not less
frequently than annually by independent certified public accountants designated
by the Sponsor, and the report of such accountants will be furnished by the
Trustee to Unit Holders upon request. The Trustee shall keep available for
inspection by Unit Holders at all reasonable times during usual business hours,
books of record and account of its transactions as Trustee including records of
the names and addresses of Unit Holders, certificates issued or held, a current
list of Securities in the portfolio and a copy of the Indenture.
Redemption
Tender of Units
Units may be tendered to the Trustee for redemption at its unit investment
trust office at 770 Broadway, New York, New York 10003, upon payment of any
relevant tax. At the present time there are no specific taxes related to the
redemption of the Units. No redemption fee will be charged by the Sponsor or the
Trustee. Units redeemed by the Trustee will be cancelled.
Certificates for Units to be redeemed must be properly endorsed or
accompanied by a written instrument of transfer, although redemptions without
the necessity of certificate presentation will be effected for record Unit
Holders for whom Certificates have not been issued. Unit Holders must sign
exactly as their name appears on the face of the Certificate with the signature
guaranteed by an officer of a national bank or trust company or by a member firm
of either the New York, Midwest or Pacific Stock Exchanges. In certain instances
the Trustee may require additional documents such as, but not limited to, trust
instruments, certificates of death, appointments as executor or administrator or
certificates of corporate authority.
Within three business days following such tender, or if the third business
day is not a business day, on the first business day prior thereto, the Unit
Holder will be entitled to receive in cash an amount for each Unit tendered
equal to the Redemption Price per Unit computed as of the Evaluation Time set
forth in the ``Summary of Essential Information'' in Part A on the date of
tender. (See ``Redemption--Computation of Redemption Price per Unit.'') The
``date of tender'' is deemed to be the date on which Units are received by the
Trustee, except that as regards Units received after the Evaluation Time, the
date of tender is the first day after such date on which the New York Stock
Exchange is open for trading, and such Units will be deemed to have been
tendered to the Trustee on such day for redemption at the Redemption Price
computed on that day.
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Accrued interest paid on redemption shall be withdrawn from the Interest
Account, or, if the balance therein is insufficient, from the Principal Account.
All other amounts paid on redemption shall be withdrawn from the Principal
Account. The Trustee is empowered to sell Securities in order to make funds
available for redemption. Such sales, if required, could result in a sale of
Securities by the Trustee at a loss. To the extent Securities are sold, the size
and diversity of the Trust will be reduced.
The Trustee reserves the right to suspend the right of redemption and to
postpone the date of payment of the Redemption Price per Unit for any period
during which the New York Stock Exchange is closed, other than weekend and
holiday closings, or trading on that Exchange is restricted or during which (as
determined by the Securities and Exchange Commission by rule or regulation) an
emergency exists as a result of which disposal or evaluation of the underlying
Securities is not reasonably practicable, or for such other periods as the
Securities and Exchange Commission has by order permitted. The Trustee is not
liable to any person or in any way for any loss or damage that may result from
any such suspension or postponement.
Computation of Redemption Price per Unit
The Redemption Price per Unit (``Redemption Price'') of the Trust is
determined by the Trustee on the basis of the bid prices of the Securities in
the Trust (or contracts for Securities to be acquired by the Trust) as of the
Evaluation Time on the date any such determination is made. The Redemption Price
per Unit is each Unit's pro rata share, determined by the Trustee, of: (1) the
aggregate value of the Securities in the Trust (or contracts for securities to
be acquired by the Trust) on the bid side of the market (determined by the
Evaluator as set forth below), (2) cash on hand in the Trust, and accrued and
unpaid interest on the Securities as of the date of computation, less (a)
amounts representing taxes or governmental charges payable out of the Trust, (b)
the accrued expenses of the Trust, (c) any unpaid DSC and (d) cash held for
distribution to Unit Holders of record as of a date prior to the evaluation.
Accrued interest payable in respect of the Units from the date of tender to, but
not including, the third business day thereafter also comprises a part of the
Redemption Price per Unit. The Evaluator may determine the value of the
Securities in the Trust (1) on the basis of current bid prices for the
Securities, (2) if bid prices are not available for any Securities, on the basis
of current bid prices for comparable securities, (3) by appraisal, or (4) by any
combination of the above. In determining the Redemption Price per Unit no value
will be attributed to the Portfolio Insurance obtained by an Insured Trust on a
Security or to an Insured Trust's right to obtain Permanent Insurance on such
Security in the event of its sale of such Security, unless such Security is in
default in payment of principal or interest or in significant risk of such
default. Securities insured under a policy obtained by the issuer thereof or by
the Sponsor on the Date of Deposit are entitled to the benefits of such
insurance at all times and such benefits are reflected and included in the
market value of such Securities. (See ``The Trust--Insurance on the Securities
in the Portfolio of an Insured Trust.'')
Purchase by the Sponsor of Units Tendered for Redemption
The Indenture requires that the Trustee notify the Sponsor of any tender of
Units for redemption. So long as the Sponsor is maintaining a bid in the
secondary market, the Sponsor, prior to the close of business on the second
succeeding business day, will purchase any Units tendered to the Trustee for
redemption at the price so bid by making payment therefor to the Unit Holder in
an amount not less than the Redemption Price not later than the day on which the
Units would otherwise have been redeemed by the Trustee. (See ``Public Offering
of Units--Secondary Market.'') Units held by the Sponsor may be tendered to the
Trustee for redemption as any other Units.
The price of any Units resold by the Sponsor will be the Public Offering
Price determined in the manner provided in this Prospectus. (See ``Public
Offering of Units--Public Offering Price.'') Any profit resulting from the
resale of such Units will belong to the Sponsor which likewise will bear any
loss resulting from a lower Public Offering or Redemption Price subsequent to
its acquisition of such Units. (See ``Public Offering of Units--Profit of
Sponsor.'')
SPONSOR
Prudential Securities Incorporated is a Delaware corporation and is engaged
in the underwriting, securities and commodities brokerage business and is a
member of the New York Stock Exchange, Inc., other major securities exchanges
and commodity exchanges and the National Association of Securities Dealers, Inc.
Prudential Securities Incorporated, a wholly-owned subsidiary of Prudential
Securities Group Inc. and an indirect wholly-owned subsidiary of The Prudential
Insurance Company of America, is engaged in the investment advisory business.
Prudential Securities Incorporated has acted as principal underwriter and
managing underwriter of other investment companies. In addition to participating
as a member of various selling groups or as an agent of other investment
companies, Prudential Securities
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Incorporated executes orders on behalf of investment companies for the purchase
and sale of securities of such companies and sells securities to such companies
in its capacity as a broker or dealer in securities.
Prudential Securities Incorporated is distributor for Prudential Government
Securities Trust (Intermediate Term Series), The Target Portfolio Trust and for
Class B shares of The BlackRock Government Income Trust, and Prudential
Adjustable Rate Securities Fund, Inc. and for Class B and C shares of Global
Utility Fund, Inc., Nicholas-Applegate Fund, Inc. (Nicholas-Applegate Growth
Equity Fund), Prudential Allocation Fund, Prudential California Municipal Fund
(California Income Series and Series), Prudential Europe Growth Fund, Inc.,
Prudential Equity Fund, Inc., Prudential Equity Income Fund, Prudential Global
Fund, Inc., Prudential Global Genesis Fund, Inc., Prudential Global Natural
Resources Fund, Inc., Prudential GNMA Fund, Inc., Prudential Government Income
Fund, Inc., Prudential Growth Opportunity Fund, Inc., Prudential High Yield
Fund, Inc., Prudential IncomeVertible(R) Plus Fund, Inc., Prudential
Intermediate Global Income Fund, Prudential Multi-Sector Fund, Inc., Prudential
Municipal Bond Fund, Prudential Municipal Series Fund (except Connecticut Money
Market Series, Massachusetts Money Market Series, New York Money Market Series
and New Jersey Money Market Series), Prudential National Municipals Fund, Inc.,
Prudential Pacific Growth Fund, Inc., Prudential Short-Term Global Income Fund,
Inc., Prudential Strategist Income Fund, Inc., Prudential Structured Maturity
Fund, Inc., Prudential U.S. Government Fund and Prudential Utility Fund, Inc.
On October 21, 1993, Prudential Securities Incorporated entered into an
omnibus settlement with the Securities and Exchange Commission (``SEC''), state
securities regulators (with the exception of the Texas Securities Commissioner
who joined the settlement on January 18, 1994) and the National Association of
Securities Dealers, Inc. (``NASD'') to resolve allegations that from 1980
through 1990 Prudential Securities Incorporated sold certain limited partnership
interests in violation of securities laws to persons for whom such securities
were not suitable and misrepresented the safety, potential returns and liquidity
of these investments. Without admitting or denying the allegations asserted
against it, Prudential Securities Incorporated consented to the entry of an SEC
Administrative Order which stated that the conduct of Prudential Securities
Incorporated violated the federal securities laws, directed Prudential
Securities Incorporated to cease and desist from violating the federal
securities laws, pay civil penalties, and adopt certain remedial measures to
address the violations.
Pursuant to the terms of the SEC settlement, Prudential Securities
Incorporated agreed to the imposition of a $10,000,000 civil penalty,
established a settlement fund in the amount of $330,000,000 and procedures to
resolve legitimate claims for compensatory damages by purchasers of the
partnership interests. Prudential Securities Incorporated has agreed to provide
additional funds, if necessary, for the purpose of the settlement fund. The
settlement with the state securities regulators included an agreement to pay a
penalty of $500,000 per jurisdiction. Prudential Securities Incorporated
consented to a censure and to the payment of a $5,000,000 fine in settling the
NASD action.
In October 1994, a criminal complaint was filed with the United States
Magistrate for the Southern District of New York alleging that Prudential
Securities Incorporated committed fraud in connection with the sale of certain
limited partnership interests in violation of federal securities laws. An
agreement was simultaneously filed to defer prosecution of these charges for a
period of three years from the signing of the agreement, provided that
Prudential Securities Incorporated complies with the terms of the agreement. If,
upon completion of the three year period, Prudential Securities Incorporated has
complied with the terms of the agreement, no prosecution will be instituted by
the United States for the offenses charged in the complaint. If on the other
hand, during the course of the three year period, Prudential Securities
Incorporated violates the terms of the agreement, the U.S. Attorney can then
elect to pursue these charges. Under the terms of the agreement, Prudential
Securities Incorporated agreed, among other things, to pay an additional
$330,000,000 into the fund established by the SEC to pay restitution to
investors who purchased certain Prudential Securities Incorporated limited
partnership interests.
Limitations on Liability
The Sponsor is liable for the performance of its obligations arising from
its responsibilities under the Indenture, but will be under no liability to Unit
Holders for taking any action or refraining from any action in good faith or for
errors in judgment or liable or responsible in any way for depreciation or loss
incurred by reason of the sale of any Securities, except in case of its own
willful misfeasance, bad faith, gross negligence or reckless disregard for its
obligations and duties. (See ``Sponsor--Responsibility.'')
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<PAGE>
Responsibility
The Trust is a unit investment trust and is not actively managed. The
Indenture, however, permits the Sponsor to direct the Trustee to dispose of any
Security in the Trust upon the happening of certain events including the payment
of the DSC, including without limitation, the following:
1. Default in the payment of principal or interest on any Security when
due and payable,
2. Institution of legal proceedings seeking to restrain or enjoin the
payment of any Security or attacking their validity,
3. A breach of covenant or warranty which could adversely affect the
payment of debt service on the Security,
4. Default in the payment of principal or interest on any other
outstanding obligations of the same Issuer of any Security,
5. In the case of a Security that is a revenue bond, a fall in revenues,
based upon official reports, substantially below the estimated revenues
calculated to be necessary to pay principal and interest,
6. A decline in market price to such an extent, or such other market or
credit factor, as in the opinion of the Sponsor would make retention of
a Security detrimental to the Trust and to the interests of the Unit
Holders,
7. Refunding or refinancing of the Security, as set forth in the
Indenture, or
8. The loss of Federal income tax exemption with respect to interest on
the Security and,
in the case of an Insured Trust, a determination by the Sponsor that any
insurance that may be applicable to the Security cannot be relied upon to
maintain the interests of such Insured Trust to at least as great an extent as
such disposition. An Insured Trust will obtain and pay a premium for the
Permanent Insurance upon the sale of a Security if the Sponsor determines that
such sale and payment of premium will result in a net realization of such
Insured Trust greater than would the sale of such Security without the purchase
of such Permanent Insurance.
The Sponsor and/or an affiliate thereof intend to continuously monitor
developments affecting the Securities in each Trust in order to determine
whether the Trustee should be directed to dispose of any such Securities.
It is the responsibility of the Sponsor to instruct the Trustee to reject
any offer made by an Issuer of any of the Securities to issue new obligations in
exchange and substitution for any Security pursuant to a refunding or
refinancing plan, except that the Sponsor may instruct the Trustee to accept
such an offer or to take any other action with respect thereto as the Sponsor
may deem proper if the Issuer is in default with respect to such Security or in
the judgment of the Sponsor the Issuer will probably default in respect to such
Security in the foreseeable future.
Any obligations so received in exchange or substitution will be held by the
Trustee subject to the terms and conditions of the Indenture to the same extent
as Securities originally deposited thereunder. Within five days after the
deposit of obligations in exchange or substitution for any of the underlying
Securities, the Trustee is required to give notice thereof to each Unit Holder,
identifying the Securities eliminated and the Securities substituted therefor.
Except as stated in this and the preceding paragraph, the acquisition by the
Trust of any securities other than the Securities initially deposited and any
additional Securities supplementally deposited in the Trust (see ``The Trust''
herein), and/or a Replacement Security is prohibited.
Resignation
If at any time the Sponsor shall resign under the Indenture or shall fail to
perform or be incapable of performing its duties thereunder or shall become
bankrupt or if its affairs are taken over by public authorities, the Indenture
directs the Trustee to either (1) appoint a successor Sponsor or Sponsors at
rates of compensation deemed reasonable by the Trustee not exceeding amounts
prescribed by the Securities and Exchange Commission, or (2) terminate the
Trust. The Trustee will promptly notify Unit Holders of any such action.
TRUSTEE
The Trustee is The Chase Manhattan Bank, a New York Bank with its principal
executive office located at 270 Park Avenue, New York, New York 10017 and its
unit investment trust office at 770 Broadway, New York, New York 10003. The
Trustee is subject to supervision by the Superintendent of Banks of the State of
New York, the Federal Deposit Insurance Corporation and the Board of Governors
of the Federal Reserve System. In connection with the storage and handling of
certain Securities deposited in a Trust, the Trustee may use the services of the
Depository Trust Company.
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<PAGE>
These services may include safekeeping of the Securities and coupon-clipping,
computer book-entry transfer and institutional delivery services. The Depository
Trust Company is a limited purpose trust company organized under the Banking Law
of the State of New York, a member of the Federal Reserve System and a clearing
agency registered under the Securities Exchange Act of 1934.
Limitations on Liability
The Trustee shall not be liable or responsible in any way for depreciation
or loss incurred by reason of the disposition of any moneys, Securities or
Certificates or in respect of any evaluation or for any action taken in good
faith reliance on prima facie properly executed documents except in cases of
willful misfeasance, bad faith, gross negligence or reckless disregard for its
obligations and duties. In addition, the Indenture provides that the Trustee
shall not be personally liable for any taxes or other governmental charges
imposed upon or in respect of the Trust which the Trustee may be required to pay
under current or future laws of the United States or any other authority having
jurisdiction.
Responsibility
For information relating to the responsibilities of the Trustee under the
Indenture, reference is made to the material set forth under ``Rights of Unit
Holders'' and ``Sponsor--Resignation.''
Resignation
By executing an instrument in writing and filing the same with the Sponsor,
the Trustee and any successor may resign. In such an event the Sponsor is
obligated to appoint a successor trustee as soon as possible. If the Trustee
becomes incapable of acting or becomes bankrupt or its affairs are taken over by
public authorities, the Sponsor may remove the Trustee and appoint a successor
as provided in the Indenture. The Sponsor may also remove the Trustee in the
event that the Sponsor determines that the Trustee has materially failed to
perform its duties under the Indenture and the interest of Unit Holders has been
substantially impaired as a result, and such failure has continued for a period
of sixty days following the Trustee's receipt of notice of such determination by
the Sponsor. Such resignation or removal shall become effective upon the
acceptance of appointment by the successor trustee. If upon resignation of a
trustee no successor has been appointed or, if appointed, has not accepted the
appointment within thirty days after notification, the retiring trustee may
apply to a court of competent jurisdiction for the appointment of a successor.
The resignation or removal of a trustee becomes effective only when the
successor trustee accepts its appointment as such or when a court of competent
jurisdiction appoints a successor trustee.
EVALUATOR
The Evaluator is Kenny S&P Evaluation Services, a division of J.J. Kenny
Co., Inc., with main offices located at 65 Broadway, New York, New York 10006.
Limitations on Liability
The Trustee, Sponsor and Unit Holders may rely on any evaluation furnished
by the Evaluator and shall have no responsibility for the accuracy thereof.
Determinations by the Evaluator under the Indenture shall be made in good faith
upon the basis of the best information available to it, provided, however, that
the Evaluator shall be under no liability to the Trustee, the Sponsor, or Unit
Holders for errors in judgment. This provision shall not protect the Evaluator
in cases of willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations and duties.
Responsibility
The Indenture requires the Evaluator to evaluate the Securities in a Trust
on the basis of their bid prices on the last business day of June and December
in each year, on the day on which any Unit is tendered for redemption and on any
other day such evaluation is desired by the Trustee or is requested by the
Sponsor. For information relating to the responsibility of the Evaluator to
evaluate the Securities on the basis of their offering or bid prices as
appropriate, see ``Public Offering of Units--Public Offering Price.''
Resignation
The Evaluator may resign or may be removed by the Sponsor, and in such
event, the Sponsor is to use its best efforts to appoint a satisfactory
successor. Such resignation or removal shall become effective upon the
acceptance of appointment by a successor evaluator. If upon resignation of the
Evaluator no successor has accepted appointment within thirty days after notice
of resignation, the Evaluator may apply to a court of competent jurisdiction for
the appointment of a successor.
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AMENDMENT AND TERMINATION OF THE INDENTURE
Amendment
The Sponsor and the Trustee have the power to amend the Indenture without
the consent of any of the Unit Holders when such an amendment is: (1) to cure
any ambiguity or to correct or supplement any provision of the Indenture which
may be defective or inconsistent with any other provision contained therein, or
(2) to make such other provisions as shall not adversely affect the interests of
the Unit Holders; provided, that the Indenture may also be amended by the
Sponsor and the Trustee (or the performance of any of the provisions of the
Indenture may be waived) with the consent of Unit Holders owning 51% of the
Units of the Trust at the time outstanding for the purposes of adding any
provisions to or changing in any manner or eliminating any of the provisions of
the Indenture or of modifying in any manner the rights of Unit Holders. In no
event, however, shall the Indenture be amended to increase the number of Units
issuable thereunder, to permit the deposit or acquisition of securities or other
property either in addition to or in substitution for any of the Securities
initially deposited in the Trust, except for the substitution of certain
refunding securities for such Securities as initially provided in the Indenture,
or to provide the Trustee with the power to engage in business or investment
activities not specifically authorized in the Indenture as originally adopted or
so as to adversely affect the characterization of the Trust as a grantor trust
for federal income tax purposes. In the event of any amendment, the Trustee is
obligated to notify promptly all Unit Holders of the substance of such
amendment.
Termination
The Trust may be terminated at any time by the consent of the holders of 51%
of the Units or by the Trustee upon the direction of the Sponsor when the value
of the Trust as shown on the last business day of June or December in any year
is less than 40% of the principal amount of the Securities initially deposited
therein supplemented by the deposit of additional Securities, if any. However,
in no event may the Trust continue beyond the Mandatory Termination Date set
forth under ``Summary of Essential Information in Part A.'' In the event of
termination, written notice thereof will be sent by the Trustee to all Unit
Holders. Within a reasonable period after termination, the Trustee will sell any
Securities remaining in a Trust, and, after paying all expenses and charges
incurred by a Trust, will distribute to each Unit Holder, upon surrender for
cancellation of his Certificate for Units, his pro rata share of the balances
remaining in the Interest and Principal Accounts. The sale of Securities in 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 Unit Holder upon termination may be less than
the principal amount of Securities represented by the Units held by such Unit
Holder.
LEGAL OPINIONS
Certain legal matters in connection with the Units offered hereby have been
passed upon by Messrs. Cahill Gordon & Reindel, a partnership including a
professional corporation, 80 Pine Street, New York, New York 10005, as special
counsel for the Sponsor.
AUDITORS
The financial statements of the Trusts included in this Prospectus have been
audited by Deloitte & Touche LLP, certified public accountants, as stated in
their report appearing herein, and are included in reliance upon such report
given upon the authority of that firm as experts in accounting and auditing.
BOND RATINGSD
All ratings except those identified otherwise are by Standard & Poor's
Corporation.
Standard & Poor's Corporation
A Standard & Poor's corporate or municipal bond rating is a current
assessment of the creditworthiness of an obligor with respect to a specific debt
obligation. This assessment of creditworthiness may take into consideration
obligors such as guarantors, insurers, or lessees.
The bond rating is not a recommendation to purchase or sell a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
- ------------
D As described by the rating agencies.
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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;
II. Nature of and provisions of the obligation; and
III. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization or other arrangement under the laws
of bankruptcy and other laws affecting creditors' rights.
AAA--This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay interest and repay
principal.
AA--Bonds rated AA have a very strong capacity to pay interest and repay
principal, and in the majority of instances they differ from AAA issues only in
small degrees.
A--Bonds rated A have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse affects of changes in
circumstances and economic conditions than bonds in higher-rated categories.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in the higher-rated categories.
Plus (+) or Minus (-): To provide more detailed indications of credit
quality, the ratings from ``AA'' to ``BBB'' 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.
Bond Investment Quality Standards: Under present commercial bank regulations
issued by the Comptroller of the Currency, bonds rated in the top four
categories (AAA, AA, A, BBB, commonly known as ``Investment Grade'' ratings) are
generally regarded as eligible for bank investment. In addition, the Legal
Investment Laws of various states impose certain rating or other standards for
obligations eligible for investment by savings banks, trust companies, insurance
companies and fiduciaries generally.
Conditional rating(s), indicated by ``Con'' are given to bonds for which the
continuance of the security rating is contingent upon Standard & Poor's receipt
of an executed copy of the escrow agreement or closing documentation confirming
investments and cash flows and/or the security rating is conditional upon the
issuance of insurance by the respective insurance company.
Moody's Investors Service
A brief description of the applicable Moody's Investors Service's rating
symbols and their meanings is as follows:
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
``gilt edge.'' Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. Aa bonds are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
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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.
Those municipal bonds in the Aa, A and Baa groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa1,
A1 and Baa1. In addition, Moody's applies numerical modifiers, 1, 2, and 3 in
each generic rating classification from Aa through B in its corporate bond
rating system. The modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower end of
its generic rating category. Although Industrial Revenue Bonds and Environmental
Control Revenue Bonds are tax-exempt issues, they are included in the corporate
bond rating system.
Conditional ratings, indicated by ``Con'' are given to bonds for which the
security depends upon the completion of some act or the fulfillment of some
condition. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operating experience, (c)
rentals which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. A parenthetical rating denotes probable
credit stature upon completion of construction or elimination of basis of
condition.
Fitch Investors Service, Inc.
A brief description of the applicable Fitch Investors Service, Inc. rating
symbols and their meanings is as follows:
AAA--Bonds which are considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA--Bonds which are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal is
very strong although not quite as strong as bonds rated AAA.
A--Bonds which are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is considered
to be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB--Bonds which are considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore impair timely payment. The likelihood that these bonds will fall
below investment grade is higher than for bonds with higher ratings.
Plus (+) Minus (-)--Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the ``AAA'', ``DDD'', ``DD'' or ``D''
categories.
Conditional--A conditional rating is premised on the successful completion
of a project or the occurrence of a specific event.
- ------------
NR--Not rated (credit characteristics comparable to A or better (BBB or better
in the case of an insured trust) in the opinion of the Sponsor's affiliate on
the Date of Deposit).
B-34
<PAGE>
This Post-Effective Amendment to the Registration
Statement on Form S-6 comprises the following papers and documents:
The facing sheet on Form S-6.
The Prospectus.
Signatures.
Consent of independent public accountants and consent
of evaluator; all other consents were previously
filed.
The following Exhibits:
****EX-3.(i) - Restated Certificate of Incorporation of
Prudential Securities Incorporated dated
March 29, 1993.
***EX-3.(ii)- Revised By-Laws of Prudential Securities In-
corporated as amended through September 28,
1998.
*EX-4 - Trust Indenture and Agreement dated Septem-
ber 6, 1989.
*EX-23 - Consent of Kenny S&P Evaluation Services, a
division of J.J. Kenny Co., Inc. (as
evaluator).
**EX-24 - Powers of Attorney executed by a majority of
the Board of Directors of Prudential Secu-
rities Incorporated.
****Ex-99 - Information as to Officers and Directors of
Prudential Securities Incorporated is in-
corporated by reference to Schedules A and
D of Form BD filed by Prudential Securities
Incorporated pursuant to Rules l5b1-1 and
l5b3-1 under the Securities Exchange Act of
1934 (1934 Act File No. 8-16267).
****EX-99.2 - Affiliations of Sponsor with other invest-
ment companies.
****EX-99.3 - Broker's Blanket Policies, Standard Form No.
39 in the aggregate amount of $62,500,000.
*EX-99.4 - Investment Advisory Agreement.
II-1
<PAGE>
_________________________
* Filed herewith.
** Incorporated by reference to exhibits of same designa-
tion filed with the Securities and Exchange Commission
as an exhibit to the Registration Statement under the
Securities Act of 1933 of National Municipal Trust Se-
ries, Series 172, Registration No. 33-54681 (filed Octo-
ber 13, 1994), National Equity Trust, Top Ten Portfolio
Series 3, Registration No. 333-15919 (filed January 1,
1998), and National Equity Trust, Low Five Portfolio Se-
ries 17, Registration No. 333-44543 (filed January 31,
1997).
*** Incorporated by reference to exhibit of same designation
filed with the Securities and Exchange Commission as an
exhibit to the Registration Statement under the Securi-
ties Act of 1933 of National Municipal Trust, Series
186, Registration No. 33-54697 (filed August 9, 1996)
and National Equity Trust, S&P 500 Strategy Trust Series
2, Registration No. 333-39521 (filed October 14, 1998).
**** Incorporated by reference to exhibit of same designation
filed with the Securities and Exchange Commission as
an exhibit to the Registration Statement under the
Securities Act of 1933 of National Equity Trust, Low
Five Portfolio Series 31, Registration No. 333-96071
(filed February 3, 2000)
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933, the registrant, National Municipal Trust, Series 164 cer-
tifies 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 Registra-
tion Statement or amendment thereto to be signed on its behalf
by the undersigned thereunto duly authorized, in the City of
New York, and State of New York on the 28th day of February,
2000.
NATIONAL MUNICIPAL TRUST,
Series 164
(Registrant)
By PRUDENTIAL SECURITIES INCORPORATED
(Depositor)
By the following persons,* who
constitute a majority of the
Board of Directors of Prudential
Securities Incorporated
A. Laurence Norton, Jr.
Leland B. Paton
Martin Pfinsgraff
Vincent T. Pica II
James D. Price
Hardwick Simmons
Lee B. Spencer, Jr.
By /s/ Kenneth Swankie
(Kenneth Swankie
Senior Vice President,
Manager - Unit Investment
Trust Department,
as authorized signatory for
Prudential Securities
Incorporated and Attorney-
in-Fact for the persons
listed above)
_____________________
* Pursuant to Powers of Attorney previously filed.
II-3
<PAGE>
CONSENT OF COUNSEL
The consent of counsel to the use of its name in the
Prospectus included in this Registration Statement is contained
in its opinion filed as Exhibit 5 to the Registration State-
ment.
II-4
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in the Post Effective Amendment No. 6 to Registration
Statement No. 33-66108 of the National Municipal Trust Series 164 of our
report dated February 2, 2000 appearing in the Prospectus, which is a part
of such Registration Statement, and to the reference to our Firm under the
heading "Auditors" in the such Prospectus.
DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
New York, New York
February 28, 2000
II-5
<PAGE>
Ex-4
===========================================================================
NATIONAL MUNICIPAL TRUST
TRUST INDENTURE AND AGREEMENT
for all series formed on or subsequent to the
effective date specified below
Among
PRUDENTIAL-BACHE SECURITIES INC.
As Depositor
UNITED STATES TRUST COMPANY
OF NEW YORK
As Trustee
STANDARD & POOR'S CORPORATION
As Evaluator
------------------------
Dated: September 6, 1989
===========================================================================
<PAGE>
TRUST INDENTURE AND AGREEMENT
NATIONAL MUNICIPAL TRUST
CONTENTS
Section Page
PREAMBLES......................................................................1
Form of Certificates ................................................ 3
ARTICLE I
Definitions
ARTICLE II
Deposit of Securities; Acceptance of Trust;
Issuance of Units; Form of Certificates
Section 2.01. Deposit of Securities..............................15
Section 2.02. Acceptance of Trust................................15
Section 2.03. Issue of Units.....................................15
Section 2.04. Form of Certificates...............................16
ARTICLE III
Administration of Trust
Section 3.01. Initial Costs......................................16
Section 3.02. Interest Account...................................16
Section 3.03. Principal Account..................................17
Section 3.04. Reserve Account....................................17
Section 3.05. Distribution.......................................17
Section 3.06. Distribution Statements............................22
Section 3.07. Sale of Bonds......................................24
Section 3.08. Refunding Bonds....................................27
Section 3.09. Bond Counsel.......................................27
Section 3.10. Notice and Sale by Trustee.........................27
Section 3.11. Trustee Not to Amortize............................28
Section 3.12. Notice to Depositor................................28
Section 3.13. Sale of Deposited Units............................28
Section 3.14. Replacement Bond...................................29
ARTICLE IV
Evaluation of Securities; Evaluator
Section 4.01. Evaluation by Evaluator............................30
Section 4.02. Tax Reports........................................31
Section 4.03. Evaluator's Compensation...........................31
Section 4.04. Liability of Evaluator.............................32
Section 4.05. Successor Evaluator................................32
ARTICLE V
Trust Evaluation; Redemption, Purchase, Transfer,
Interchange or Replacement of Certificates
Section 5.01. Trust Evaluation...................................33
Section 5.02. Redemptions by Trustee; Purchases by Depositor.....34
Section 5.03. Transfer or Interchange of Certificates............36
Section 5.04. Certificates Mutilated, Destroyed, Stolen or Lost..37
ARTICLE VI
Trustee
Section 6.01. General Definition of Trustee's Liabilities, Rights
and Duties.........................................38
Section 6.02. Books, Records and Reports.........................41
Section 6.03. Indenture and List of Securities on File...........42
Section 6.04. Compensation.......................................42
Section 6.05. Removal and Resignation of Trustee; Successor......43
Section 6.06. Qualifications of Trustee..........................45
ARTICLE VII
Rights of Unit Holders
Section 7.01. Beneficiaries of Trust.............................46
Section 7.02. Rights, Terms and Conditions.......................46
ARTICLE VIII
Depositor
Section 8.01. Liabilities; Power of Attorney.....................47
Section 8.02. Discharge..........................................48
Section 8.03. Successors.........................................49
Section 8.04. Resignation........................................50
Section 8.05. Additional Depositors..............................50
Section 8.06. Exclusions from Liability..........................50
Section 8.07. Compensation.......................................51
ARTICLE IX
Additional Covenants; Miscellaneous Provisions
Section 9.01. Amendments.........................................52
Section 9.02. Termination........................................53
Section 9.03. Construction.......................................54
Section 9.04. Registration of Units..............................55
Section 9.05. Written Notice.....................................55
Section 9.06. Severability.......................................55
Section 9.07. Dissolution of Depositors Not to Terminate.........56
EXECUTION......................................................................*
ACKNOWLEDGEMENTS................................................................
This Table of Contents does not constitute part of the Indenture.
- -----------------------------
* See Applicable Reference Trust Agreement.
<PAGE>
TRUST INDENTURE AND AGREEMENT dated September 6, 1989 among
PRUDENTIAL-BACHE SECURITIES INC. as Depositor, and UNITED STATES TRUST COMPANY
OF NEW YORK as Trustee, and STANDARD & POOR'S CORPORATION as Evaluator.
WITNESSETH that:
WHEREAS, it is desired to expand the market for certain
interest-bearing Securities the interest income on which is exempt from Federal
income tax pursuant to the applicable provisions of the United States Internal
Revenue Code of 1954 or pursuant to other provisions of law, some of which
Securities, as individual issues or parts thereof, might be unavailable or
impracticable as investments to certain individual investors, and to provide
proper diversification to such investors, particularly those with limited
investment capital; and
WHEREAS, Prudential-Bache Securities Inc. desires to provide
for the collection and distribution of the principal of and interest on such
Securities by the Trustee to such persons as shall purchase an interest therein,
as hereinafter provided; and
WHEREAS, Prudential-Bache Securities Inc., the Trustee and the
Evaluator are entering into this Trust Indenture and Agreement for the purpose
of establishing certain of the terms, covenants and conditions of the National
Municipal Trust, and each subsequent Series which may be established from time
to time hereafter, incorporating by reference the terms hereof; and
WHEREAS, for the National Municipal Trust, and each subsequent
Series of the National Municipal Trust, to which this Trust Indenture and
Agreement is applicable, the Depositor, the Trustee, and the Evaluator shall
execute a separate Reference Trust Agreement incorporating by reference this
Trust Indenture and Agreement and effecting any amendment, supplement or
variation from or to such incorporation by reference with respect to the related
series, and specifying for that series: (1) the Bonds and Deposited Units (if
any) deposited in trust and the number of Units delivered by the Trustee in
exchange for the Bonds and Deposited Units (if any) pursuant to section 2.03;
(2) the initial fractional undivided interest represented by each Unit in each
Trust; (3) the First Settlement Date; (4) the Computation Date; (5) the first
Distribution Date; (6) the first Monthly Distribution Date; (7) the first and
subsequent Semiannual Distribution Dates; (8) the first Monthly Record Date; (9)
the Semi-annual Record Dates, if applicable; (10) the name of the Depositor; 11)
the amount of the first distribution to Certificate holders of record as of the
Computation Date; (12) the amount of the first Monthly and Semi-Annual
Distributions, if applicable; (13) the Depositor's fee; (14) the Trustee's
Annual Fee; (15) the Termination Date; (16) whether the semi-annual payment
option will be offered and (17) any other change or addition contemplated or
permitted by this Trust Indenture and Agreement; and
<PAGE>
-2-
WHEREAS, the Depositor will acquire and, concurrently with the
execution and delivery of the appropriate Reference Trust Agreement, will
deposit in trust with the Trustee the interest-bearing tax exempt Bonds and the
units of prior Series of National Municipal Trust, if any, to be listed in the
Schedule thereto, all to be held by the Trustee in trust upon the terms and
conditions hereinafter set forth as amended, supplemented or varied by such
Reference Trust Agreement, for the use and benefit of all registered holders of
units of fractional undivided interest in the Trust to which such Reference
Trust Agreement relates; and
WHEREAS, concurrently with the receipt of the aforesaid
deposit, the Trustee will record on its books the ownership by the Depositor
thereof of units of fractional undivided interest in such interest-bearing tax
exempt Securities and such units of prior series of National Municipal Trust and
in the Interest Account and the Principal Account maintained under this
Indenture in the manner hereinafter provided (which units of fractional
undivided interest so recorded respectively will represent in the aggregate 100%
of the beneficial interest established hereby in such Securities, units of prior
series of National Municipal Trust, Interest Account and Principal Account) and
will execute in the name of the Depositor thereof certificates representing the
ownership of the aggregate number of Units specified in such Reference Trust
Agreement (hereinafter called the 'Certificates"), and will deliver said
Certificates to or upon the order of the Depositor; and
WHEREAS, the form of the Certificates shall be substantially
as follows:
<PAGE>
-3-
Number _________________ ____________ Units
CERTIFICATE OF OWNERSHIP
--evidencing--
An Undivided Interest
--in the--
NATIONAL MUNICIPAL TRUST
PLAN OF DISTRIBUTION
CUSIP
- -------------------------------------------------------------------------------
Name of Trust:
This is to certify that ____________________ is the owner and
registered holder of this Certificate evidencing the ownership of unit(s) of
undivided interest in the Series of the National Municipal Trust that is
specified on the face hereof (hereinafter called the "Trust"). The Trust was
created by the Trust Indenture and Agreement applicable to this Series of
National Municipal Trust, as amended, supplemented or varied by the Reference
Trust Agreement applicable to this Series of National Municipal Trust (such
Trust Indenture and Agreement as amended, supplemented or varied by such
Reference Trust Agreement being hereafter called the "Indenture"), among
PRUDENTIAL-BACHE SECURITIES INC. (hereinafter called the "Depositor"), United
States Trust Company (hereinafter called the "Trustee") and the evaluator
specified in the Indenture (hereinafter called the "Evaluator"). The Trust
consists of (1) such of the interest-bearing tax exempt securities and units of
preceding Series of National Municipal Trust, if any, deposited in trust and
listed in the Schedule of the Reference Trust Agreement relating to the Trust,
and any other securities that may be deposited in the Trust in exchange or
substitution therefor by reason of refunding of the securities initially
deposited in accordance with the Indenture, as may from time to time continue to
be held as part of the Trust and (2) such cash amounts as from time to time may
be held in the Interest Account and the Principal Account for the Trust
maintained under the Indenture in the manner described in this Certificate.
<PAGE>
-4-
At any given time this Certificate shall represent a
fractional undivided interest in the Trust, the numerator of which fraction
shall be the number of Units set forth on the face hereof and the denominator of
which shall be the sum of the total of all Units outstanding at such time.
The Depositor hereby grants and conveys all of its right,
title and interest in and to the Trust to the extent of the fractional undivided
interest represented hereby to the registered holder of this Certificate subject
to and in pursuance of the Indenture, all the terms, conditions and covenants of
which are incorporated herein as if fully set forth at length.
The registered holder of this Certificate is entitled at any
time upon tender of this Certificate to the Trustee at its corporate trust
office in the City of New York, and upon payment of any tax or other
governmental charges, to receive, on the seventh calendar day following the day
on which such tender is made, or, if such calendar day is not a business day, on
the first business day prior to such calendar day, an amount in cash equal to
the evaluation of the fractional undivided interest in the Trust evidenced by
this Certificate, upon the basis provided for in the Indenture. The right of
redemption may be suspended and the date of payment may be postponed for any
period during which the New York Stock Exchange is closed or trading on that
Exchange is restricted, for any period during which an emergency exists so that
disposal of the Securities held in the Trust is not reasonably practicable or it
is not reasonably practicable to determine fairly the value of such Securities,
or for such other periods as the Securities and Exchange Commission may by order
permit.
Interest received by the Trustee as part of the Trust
(including interest accrued and unpaid prior to the day of deposit of any
security in the Trust and that part of the proceeds of the sale, liquidation,
redemption or maturity of any such security which represents accrued interest)
shall be credited by the Trustee to the Interest Account of the Trust. The
fractional undivided interest represented by this Certificate in the balance in
the Interest Account of the Trust (after the deductions referred to below) shall
be computed as of the First Settlement Date as defined in the Indenture, and
paid to the Depositor on such date. The next computation shall be made as of the
Computation Date as defined in the Indenture, and thereafter as of the twentieth
day of each month of each year.
<PAGE>
-5-
With certain exceptions specified in the Indenture, all moneys
(other than interest) received by the Trustee as part of the Trust (including
amounts received from the sale, liquidation, redemption or maturity of any
securities held in the Trust) shall be credited by the Trustee to a separate
Principal Account. The fractional undivided interest represented by this
Certificate in the cash balance in the Principal Account of the Trust (after the
deductions referred to below) shall be computed as of the Computation Date as
defined in the Indenture and, thereafter, as of the twentieth day of each month
of each year. An amount in cash equal to the sum of said fractional undivided
interest in the Interest Account (on the basis of one-twelfth of the amount of
net annual interest per Unit expected to be received by the Trust during the
ensuing twelve months, except that the first monthly distribution of interest on
the first Distribution Date may be a partial or more than a full distribution in
an amount specified in the Reference Trust Agreement for the Trust) and
Principal Account computed as set forth above, shall be distributed on the fifth
day of the respective months, or within a reasonable period of time thereafter,
to the registered holder of this Certificate electing a monthly distribution as
of the close of business on the twentieth day of the month immediately preceding
the month in which such distribution is made.
Certain Series of National Municipal Trust may offer an
optional semi-annual plan of distribution as shall be specified in the Reference
Trust Agreement applicable to such Series. If the Series of National Municipal
Trust indicated on the face hereof offers a semi-annual plan of distribution and
if the registered holder hereof has elected the semi-annual option, then he
agrees that, in lieu of the monthly distributions set forth above, the
fractional undivided interest represented by this Certificate in the balance in
the Interest account and Principal Account shall be computed semi-annually. All
holders of record on the Computation Date, however, regardless of the plan of
distribution selected, will receive a distribution on the first Distribution
Date to be made as provided in the Indenture, and thereafter distributions will
be made monthly or semi-annually, depending upon the plan of distribution chosen
by the holder hereof.
If semi-annual distributions have been selected, the
fractional undivided interest represented by this Certificate in the balance in
the Interest Account and Principal Account after the Computation Date will be
computed as of each Semi-annual Record Date, commencing with the first such day
after the Computation Date and an amount in cash equal to one half of the amount
of net annual interest per Unit expected to be received by the Trust during the
ensuing twelve months shall be distributed on or shortly after the next
following Semi-annual Distribution Date, to the Unit Holders of record electing
the semi-annual distribution option on such Semi-annual Record Date.
<PAGE>
-6-
An optional plan of distribution chosen by the registered
holder may be changed by written notice to the Trustee not later than December
20 in any calendar year by surrender to the Trustee of this Certificate together
with a completed form for selection of plan of distribution provided by the
Trustee. A plan of distribution shall continue in effect until changed as herein
provided. A change in a plan of distribution may only be made as indicated
herein and will be effective as of December 21 for the following twelve months.
The Trustee shall not be required to make a distribution from the Principal
Account unless the cash balance on deposit therein available for such
distribution shall be sufficient to distribute at least $1.00 per Unit.
Distributions from the Interest and Principal Accounts shall
be made by mail at the post office address of the holder hereof appearing in the
registration books of the Trustee.
From time to time deductions shall be made from the Interest
Account and Principal Account, as more fully set forth in the Indenture, for
redemptions, compensation of the Trustee, Depositor, and Evaluator,
reimbursement of certain expenses incurred by or on behalf of the Trustee,
payment of Insurance Premiums, if any, certain legal expenses and payment of, or
the establishment of a reserve for, applicable taxes, if any.
Within a reasonable period of time after the end of each
calendar year, not later than February 15, the Trustee shall furnish to the
registered holder of this Certificate a statement setting forth, among other
things, the amounts received and deductions therefrom and the amounts
distributed during the preceding year in respect of interest on, and sales,
redemptions or maturities of, securities held in the Trust.
This Certificate shall be transferable by the registered
holder hereof by presentation and surrender hereof at the corporate trust office
of the Trustee properly endorsed or accompanied by a written instrument or
instruments of transfer in form satisfactory to the Trustee and executed by the
registered holder hereof or his authorized attorney. Certificates of the Trust
are interchangeable for one or more Certificates in an equal aggregate number of
units of undivided interest in the Trust at the corporate trust office of the
Trustee, in denominations of a single unit of undivided interest or any multiple
thereof.
<PAGE>
-7-
The holder hereof may be required to pay a charge of $2.00 per
Certificate issued in connection with the transfer or interchange of this
Certificate and will be required to pay any tax or other governmental charge
that may be imposed in connection with the transfer, interchange or other
surrender of this Certificate.
The holder of this Certificate, by virtue of the acceptance
hereof, assents to and shall be bound by the terms of the Indenture, a copy of
which is on file and available for inspection at the corporate trust office of
the Trustee, to which reference is made for all the terms, conditions and
covenants thereof.
The Trustee may deem and treat the person in whose name this
Certificate is registered upon the books of the Trustee as the owner hereof for
all purposes and the Trustee shall not be affected by any notice to the
contrary.
The Trust shall terminate upon the maturity, redemption, sale
or other disposition of the last security held therein, provided, however, that
in no event shall the Indenture and the Trust continue beyond the date set forth
in Part II of the Reference Trust Agreement. The Indenture also provides that
the Trust may be terminated at any time by the written consent of the holders of
51% of the units of undivided interest in the Trust and under certain
circumstances which include a decrease in the value of the securities held in
the Trust to less than 40% of the value of securities originally deposited in
the Trust. Upon any termination the Trustee shall fully liquidate the securities
then held, if any, and distribute pro rata the funds then held in the Trust upon
surrender of the Certificates, all in the manner provided in the Indenture. Upon
termination, the Trustee shall be under no further obligation with respect to
the Trust, except to hold the funds in trust without interest until distribution
as aforesaid and shall have no duty upon any such termination to communicate
with the holder hereof other than by mail at the address of such holder
appearing in the registration books of the Trustee.
<PAGE>
-8-
This Certificate shall not become valid or binding for any
purpose until properly executed by the Trustee under the Indenture.
<PAGE>
-9-
IN WITNESS WHEREOF, Prudential-Bache Securities Inc. has
caused this Certificate to be executed in facsimile by its Senior Vice
President; and United States Trust Company of New York, as Trustee, has caused
this Certificate to be executed in its corporate name by an authorized officer.
Dated:
PRUDENTIAL-BACHE SECURITIES
INC., DEPOSITOR
By_________________________
Senior Vice President
UNITED STATES TRUST COMPANY OF
NEW YORK, TRUSTEE
By_________________________
Authorized Officer
The following abbreviations, when used in the inscription on
the face of the certificate, shall be construed as though they were written out
in full according to applicable laws or regulations:
TEN COM as tenants in common UNIF GIFT MIN ACT ...Custodian..
(Cust) (Minor)
TEN ENT as tenants by the entireties under Uniform
Gifts to Minors
JT TEN as joint tenants with right
of survivorship and not as Act ........
tenants in common (State)
Additional abbreviations may also be used though not in the
above list.
<PAGE>
-10-
FORM OF ASSIGNMENT
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
For Value Received hereby sells, assigns and transfers unto
the within Certificate and does hereby irrevocably constitute and appoint
attorney, to transfer the within Certificate on the books of the Trustee, with
full power of substitution in the premises.
Date:
NOTICE: the signature to
this assignment must
correspond with the name as
written upon the face
without alteration or
enlargement or any change
whatever.
Signature guarantee should
be made by the Depositor, a
member of the New York,
American, Midwest or
Pacific Stock Exchange, or
by a commercial bank or
trust company having its
principal office or
correspondent in the City
of New York.
Signature Guaranteed
----------------------
----------------------
<PAGE>
-11-
NOW, THEREFORE, in consideration of the premises and of the
mutual agreements herein contained, the Depositor, the Trustee and the Evaluator
agree as follows:
ARTICLE I
Definitions
Section 1.01. Whenever used in this Indenture the following
words and phrases, unless the context clearly indicates otherwise, shall have
the following meanings:
(1) "Basic Agreement" shall mean this Trust Indenture and
Agreement dated September 6, 1989 as originally executed, or if amended
as hereinafter provided, as so amended, exclusive of the terms
contained in any related Reference Trust Agreement.
(2) "Bonds" shall mean such of the interest-bearing tax
exempt obligations, including "when, as and if issued" and/or "regular
way" contracts, if any, for the purchase of certain bonds, and a
certified check or checks and/or an irrevocable letter or letters of
credit in the amount required for such purchase, deposited in
irrevocable trust and listed in the Schedule to the Reference Trust
Agreement, and any obligations received in exchange, substitution or
replacement for such obligations pursuant to Sections 3.08 and 3.14
hereof, as may from time to time continue to be held as a part of the
Trust to which such Reference Trust Agreement relates.
(3) "Business day' shall mean any day other than a Saturday
or Sunday or, in the City of New York, a legal holiday, or a day on
which banking institutions are authorized by law to close.
(4) "Certificate" shall mean any one of the certificates
executed by the Trustee and the Depositor evidencing ownership of an
undivided fractional interest in the Trust.
(5) "Computation Date" of a Trust shall have the meaning
assigned to it in Part II of the Reference Trust Agreement relating to
such Trust.
(6) "Contract Bonds" shall mean Bonds which are to be
acquired by the Trust pursuant to contracts, including (i) Bonds listed
in the Schedule to the Reference Trust Agreement and (ii) Bonds which
the Depositor has contracted to purchase for the Trust pursuant to
Section 3.14.
(7) "Deposited Units" shall mean such of the units of
preceding series of National Municipal Trust, if any, deposited in
irrevocable trust and listed in the Schedule to the Reference Trust
Agreement, as may from time to time continue to be held as a part of
the Trust to which such Reference Trust Agreement relates.
(8) "Depositor" of the Trust shall have the meaning
assigned to it in Part II of the Reference Trust Agreement.
(9) "Distribution Date" of a Trust shall have the meaning
assigned to it in Part II of the Reference Trust Agreement relating to
such Trust.
(10) "Evaluation Time" shall mean the time set forth under
Summary of Essential Information in a prospectus for a Trust.
(11) "Evaluator" shall mean Standard & Poor's Corporation or
any corporation into which such firm may be merged or with which it may
be consolidated, or any corporation resulting from any merger or
consolidation to which such firm shall be a party, or any firm
succeeding to all or substantially all of the business of such firm; or
any successor evaluator as hereinafter provided for.
(12) "First Settlement Date" of the Trust shall have the
meaning assigned to it in Part II of the Reference Trust Agreement
relating to such Trust.
(13) "Indenture" shall mean the Basic Agreement, as further
amended, supplemented or varied by the Reference Trust Agreement.
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(14) "Portfolio Insurance' shall mean, for any Trust which is
included in an insured series and designated as such by the Indenture,
the policy of insurance issued by an Insurer for the benefit of the
Trust guaranteeing the scheduled payment of interest and principal with
respect to each Bond covered by such policy obtained by the Trust while
each such Bond is retained in the Trust.
(15) "Insurance to Maturity" shall mean, for any Trust which
is included in an insured series and designated as such by the
Indenture, the policy of insurance obtained by the issuer issued by an
Insurer(s) guaranteeing the scheduled payment of principal and interest
with respect to any such Bond.
(16) "Insurance" shall mean the Portfolio Insurance and
the Insurance to Maturity, collectively.
(17) "Insurer' shall have the meaning assigned to it in Part
II of the Reference Trust Agreement relating to such Trust.
(18) "Monthly Distribution Date" of a Trust shall have the
meaning assigned to it in Part II of the Reference Trust Agreement
relating to such Trust.
(19) "Monthly Record Date" of a Trust shall have the meaning
assigned to it in Part II of the Reference Trust Agreement relating to
such Trust.
(20) "Permanent Insurance Policy' shall mean a municipal bond
guaranty insurance policy covering scheduled payment of principal and
interest with respect to any Security, regardless of the holder of such
Security.
(21) "Reference Trust Agreement" shall mean a supplement to
the Basic Agreement, the purpose of which shall be to amend, supplement
and/or vary certain of the terms contained in the Basic Agreement. Each
Reference Trust Agreement, together with the Basic Agreement to the
extent that such Reference Trust Agreement incorporates it by
reference, defines all the terms, rights and duties relevant to the
series of National Municipal Trust, to which such Reference Trust
Agreement relates.
(22) "Replacement Bond" shall mean a Bond purchased by the
Trustee pursuant to Section 3.14 hereof.
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(23) "Securities" shall mean both the Bonds and the
Deposited Units, if any.
(24) "Semi-annual Distribution Date" if applicable to a Trust
shall have the meaning assigned to it in Part II of the Reference Trust
Agreement relating to such Trust.
(25) "Semi-annual Record Date" if applicable to a Trust shall
have the meaning assigned to it in Part II of the Reference Trust
Agreement relating to such Trust.
(26) "Special Bond" shall have the meaning assigned to it
in Section 3.14 hereof.
(27) "Termination Date" shall mean the date set forth in
Part II of the Reference Trust Agreement.
(28) "Trust" shall mean the trust created by this Indenture
(including the separate, respective State trusts mentioned in a
Reference Trust Agreement), which trust shall be denominated as
indicated in Part II of the Reference Trust Agreement relating to such
Trust and which shall consist of the Securities held pursuant and
subject to this Indenture together with all undistributed interest
received or accrued thereon, and any undistributed cash held in the
Interest and Principal Accounts realized from the sale, redemption,
liquidation, or maturity of the Bonds, the Deposited Units, if any, or
the underlying obligations held in those series of National Municipal
Trust to which the Deposited Units relate.
(29) "Trustee" shall mean United States Trust Company of New
York, or any successor trustee as hereinafter provided for.
(30) "Unit" with respect to the Trust shall represent a
fractional undivided interest in and ownership of the Trust initially
equal to the fraction specified for the Trust in Part II of the
Reference Trust Agreement relating to the Trust. From time to time, the
denominator of each of these fractions shall be decreased by the number
of any such Units redeemed as provided in Section 5.02.
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(31) "Unit Holder" shall mean the registered holder of any
Unit as recorded on the books of the Trustee, his legal representatives
and heirs and the successors of any corporation, partnership or other
legal entity which is a registered holder of any Unit and as such shall
be deemed a beneficiary of the Trust created by this Indenture to the
extent of his pro rata share thereof.
(32) Words importing singular number shall include the plural
number in each case and vice versa, and words importing person shall
include corporations, and associations, as well as natural persons.
(33) The words "herein", "hereby", "herewith", "hereof",
"hereinafter", "hereunder", "hereinabove", "hereafter", "heretofore"
and similar words or phrases of reference and association shall refer
to this Indenture in its entirety.
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ARTICLE II
Deposit of Securities; Acceptance of Trust;
Issuance of Units; Form of Certificates
Section 2.01. Deposit of Securities: The Depositor,
concurrently with the execution and delivery of the Reference Trust Agreement,
will deposit with the Trustee in trust the Securities listed in the Schedule or
Schedules attached to such Reference Trust Agreement in bearer form or duly
endorsed in blank or accompanied by all necessary instruments of assignment and
transfer in proper form to be held, administered and applied by the Trustee as
herein provided. The Depositor shall deliver the Securities listed on said
Schedule or Schedules to the Trustee which were not actually delivered
concurrently with the execution and delivery of the Reference Trust Agreement
within 90 days after said execution and delivery or, if Section 3.14 applies,
within such shorter period as is specified in Section 3.14.
Section 2.02. Acceptance of Trust: The Trustee hereby
accepts the Trusts created by this Indenture for the use
-------------------
and benefit of the Unit Holders in the Trust, subject to the terms and
conditions of this Indenture.
Section 2.03. Issue of Units: By executing the Reference Trust
Agreement, the Trustee will thereby acknowledge receipt of the deposit relating
to the Trust to which such Reference Trust Agreement relates, referred to in
Section 2.01, and simultaneously with the receipt of said deposit, will execute
Certificates substantially in the form above recited representing the ownership
of all Units of the Trust as specified in Part II of the Reference Trust
Agreement.
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The Trusts created by this Indenture are separate and distinct
trusts for all purposes and the assets of one such trust may not be commingled
with the assets of any other, except as expressly provided herein, nor shall the
expenses of any such trust be charged against the other. The Certificates
representing the ownership of a fractional undivided interest in one Trust shall
not be exchangeable for certificates representing the ownership of an undivided
fractional interest in any other.
Section 2.04. Form of Certificates: Each certificate referred
to in Section 2.03 shall be in substantially the form hereinabove recited,
numbered serially for identification, in fully registered form, transferable
only on the books of the Trustee as herein provided, executed manually or in
facsimile by an authorized officer of the Trustee and in facsimile by a Senior
Vice-President of the Depositor of the Trust to which the Certificate relates,
and dated the date of execution and delivery by the Trustee.
ARTICLE III
Administration of Trust
Section 3.01. Initial Costs: With respect to the Trust, the
cost of the initial preparation, printing and execution of the Certificates and
this Indenture and other reasonable expenses in connection therewith, shall be
paid by the Depositor; provided, however, that the liability on the part of the
Depositor for such initial costs, fees and expenses shall not include any fees,
costs or other expenses incurred in connection herewith after the execution of
this Indenture, and the deposit relating to the Trust, referred to in Section
2.01.
Section 3.02. Interest Account: The Trustee shall collect the
interest on the Securities in the Trust as such becomes payable (including all
interest accrued but unpaid prior to the date of deposit of the Securities in
trust and including that part of the proceeds of the sale, liquidation,
redemption or maturity of any Securities which represents accrued interest
thereon and including all moneys paid pursuant to any Insurance contract
representing interest on the Bonds in the Trust) and credit such interest to a
separate account to be known as the "Interest Account."
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Section 3.03. Principal Account: The Securities in the Trust
and all moneys, including all moneys paid pursuant to any Insurance contract
representing principal of any Bond in the Trust, other than amounts credited to
the Interest Account for the Trust, received by the Trustee in respect of the
Securities in the Trust shall be credited to a separate account for the Trust to
be known as the "Principal Account" for the Trust.
Section 3.04. Reserve Account: From time to time the Trustee
shall withdraw from the cash on deposit in the Interest Account or the Principal
Account of the Trust such amounts as it, in its sole discretion, shall deem
requisite to establish a reserve for any applicable taxes or other governmental
charges that may be payable out of the Trust. Such amounts so withdrawn shall be
credited to a separate account for the Trust which shall be known as the
"Reserve Account." The Trustee shall not be required to distribute to the Unit
Holders any of the amounts in the Reserve Account; provided, however, that if it
shall, in its sole discretion, determine that such amounts are no longer
necessary for payment of any applicable taxes or other governmental charges,
then it shall promptly deposit such amounts in the appropriate account or, if
such Trust has been terminated or is in the process of termination, the Trustee
shall distribute to each Unit Holder thereof such holder's interest in the
Reserve Account of such Trust in accordance with Section 9.02.
Section 3.05. Distribution: The Trustee, as of the First
Settlement Date for the Trust, shall advance out of its own funds and cause to
be deposited in and credited to the Interest Account for such Trust such amount
as may be required to permit payment of the amount of interest accrued on the
Securities in the Trust through such date and shall pay to Unit Holders of the
Trust then of record such amount. The Trustee will advance the initial premium
for Portfolio Insurance obtained by any Trust which is included in an insured
series. The Trustee shall be entitled to reimbursements, without interest, for
such advancements and such reimbursements shall be made from interest received
by the Trust before any further distributions shall be made from the Interest
Account to Unit Holders. Subsequent distributions shall be made as hereinafter
provided.
As of the Computation Date and each subsequent Monthly Record
Date for a Trust, the Trustee shall:
(a) deduct from the Interest Account, or, to the extent funds
are not available in such Account, from the Principal Account and pay
to itself individually the amounts that it is at the time entitled to
receive pursuant to Section 6.04;
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(b) deduct from the Interest Account, or, to the extent funds
are not available in such Account, from the Principal Account and pay
to the Evaluator the amount that it is at the time entitled to receive
pursuant to Section 4.03;
(c) for any trust which is included in an insured series and
designated as such by the Indenture, deduct from the Interest Account,
or, to the extent funds are not available in such Account, from the
Principal Account and pay the Insurer an amount equal to the monthly
premium payable by the Trustee in respect of the Portfolio Insurance
policy;
(d) deduct from the Interest Account, or, to the extent funds
are not available in such Account, from the Principal Account and pay
to bond counsel, as hereinafter provided for, an amount equal to unpaid
fees and expenses, if any, of such bond counsel as certified to by the
Depositor; and
(e) deduct from the Interest Account, or, to the extent funds
are not available in such Account, from the Principal Account
one-twelfth of the estimated annual amount that the Depositor is
entitled to receive pursuant to Section 8.07 and hold such amount
without interest until such time as it is payable to the Depositor as
set forth below. On or before the first Monthly Distribution Date after
the conclusion of each calendar year, the Trustee shall, upon
certification in satisfactory form to the Trustee, upon which the
Trustee may rely, distribute to the Depositor from the amount so held
pursuant to the immediately preceding paragraph the amounts that the
Depositor is at the time entitled to receive pursuant to Section 8.07
on account of its services theretofore performed and expenses
theretofore incurred.
On or shortly after the first Distribution Date, the Trustee
shall distribute to all Unit Holders of record on the Computation Date,
regardless of the plan of distribution selected by the Unit Holder, an amount
from the Interest Account specified in the Reference Trust Agreement for the
Trust together with each Unit Holder's fractional share of the balance of the
Principal Account, computed as of close of business on such Computation Date,
provided, however, that the Trustee shall not be required to make a distribution
from the Principal Account unless the cash balance on deposit therein shall be
sufficient to distribute at least $1.00 per Unit. Thereafter, on each Monthly
Distribution Date or within a reasonable period of time thereafter, the Trustee
shall distribute by mail to each Unit Holder, electing to receive monthly
distributions, of record at the close of business on the immediately preceding
Monthly Record Date at his post office address such holder's pro rata share of
the balance of the Interest Account (on the basis of one-twelfth of the amount
of Net Annual Interest Per Unit expected to be received by the Trust during the
ensuing twelve months, except that the first monthly distribution may be a
partial distribution, equal to a fraction of subsequent monthly distributions as
provided for in the Reference Trust Agreement), computed as of the preceding
Monthly Record Date for the Trust, plus such holder's pro rata share of the cash
balance of the Principal Account of the Trust, computed as of the preceding
Monthly Record Date for the Trust, except as reduced by any amounts deducted
pursuant to Paragraphs (a), (b), (c), (d) and (e) of this Section 3.05. The
Trustee shall not be required to make a distribution from the Principal Account
unless the cash balance on deposit therein available for distribution shall be
sufficient to distribute at least $1.00 per unit.
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In the event the amount on deposit in the Interest Account of
the Trust on a Monthly Distribution Date therefor is not sufficient for the
payment of the amount of interest to be distributed on the basis of the
aforesaid computation, the Trustee shall advance out of its own funds and cause
to be deposited in and credited to such Interest Account such amount as may be
required to permit payment of the monthly interest distribution to be made on
such Monthly Distribution Date and shall be entitled to be reimbursed, without
interest, out of interest received on the first Monthly Record Date following
the date of such advance on which such reimbursement may be made without
reducing the amount of such Interest Account to an amount less than that
required for the next ensuing monthly or semi-annual interest distribution,
except where advances were made by the Trustee on Securities which have
defaulted, in which case the Trustee may reimburse itself for such advances and
reduce, if necessary, the amount of ensuing Monthly or Semi-Annual Interest
Distributions. The Trustee shall be deemed to be the beneficial owner of the
interest payments received by the Trust to the extent of all amounts advanced by
it pursuant to this Section 3.05, and such advances shall be considered a lien
on the Trust and the Trustee shall have priority over Unit Holders on funds
received as payments upon the Securities, as such payments are received by the
Trustee.
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If the Reference Trust Agreement applicable to any Trust
specifies that such Trust will offer an optional semi-annual plan of
distribution, in lieu of the monthly distributions of interest provided above, a
Unit Holder may elect to receive distribution from the Interest Account and
Principal Account semi-annually.
Unit Holders desiring to receive semi-annual distributions and
who purchase their Units prior to the Computation Date may elect at the time of
purchase to receive distributions on a semi-annual basis by notice to the
Trustee. Such notice shall be effective with respect to subsequent distributions
until changed by further notice to the Trustee. Upon request of a Unit Holder,
the Trustee will furnish each Unit Holder a form of notice of change of plan of
distribution to be returned to the Trustee by December 20 of such year if the
Unit Holder wishes to change his plan of distribution. Those wishing to change
shall so indicate on the notice and return it to the Trustee. Changes may be
made only as herein provided and will become effective as of the following
December 21 to continue until further notice.
For semi-annual distributions, the share of the balance in the
Interest Account and Principal Account to be distributed to a Unit Holder who
has elected to receive semiannual distributions shall be computed as of each
semi-annual Record Date, and an amount in cash as thus computed distributed on
or shortly after the next Semi-annual Distribution Date to the Unit Holders of
record on such Semi-annual Record Date electing such semi-annual distribution
option. Such computation shall be made on the basis of one-half of the estimated
annual interest income to the Trust for the ensuing twelve months for the
account of Unit Holders who have elected to receive semi-annual distributions,
after deduction of the estimated costs and expenses to be incurred on behalf of
such Unit Holders during the twelve month period for which such interest income
has been estimated, except that the first Semi-annual Distribution may be a
partial distribution, equal to a fraction of subsequent Semi-annual
Distributions as provided for in the Reference Trust Agreement.
To the extent practicable, the Trustee shall allocate the
expenses of the Trust among Units, giving effect to differences in
administrative and operational cost among those who have chosen to receive
distributions monthly or semi-annually.
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In the event the amount on deposit in the Interest Account for
a semi-annual distribution is not sufficient for the payment of the amount of
interest to be distributed to Unit Holders participating in such distribution on
the basis of the aforesaid computation, the Trustee shall advance its own funds
and cause to be deposited in and credited to the Interest Account such amounts
as may be required to permit payment of the semi-annual interest distribution to
be made as aforesaid and shall be entitled to be reimbursed, without interest,
out of interest received by the Trust subsequent to the date of such advance and
subject to the condition that any such reimbursement shall be made only under
conditions which will not reduce the funds in or available for the Interest
Account to an amount less than required for the next ensuing distribution of
interest. Distributions to Unit Holders who are participating in one of the
optional plans for distribution of interest shall not be affected because of
advancements by the Trustee for the purpose of equalizing distributions to Unit
Holders participating in a different plan.
If the Depositor fails to replace any failed Special Bond in
accordance with Section 3.14, the Trustee shall distribute to all Unit Holders,
regardless of distribution option selected, the principal and accrued interest
attributable to such Special Bond not later than the second Monthly Distribution
Date and, to the extent funds are provided by the Sponsor, will at such time
distribute on behalf of the Sponsor the sales charge attributable to such
Special Bond.
If less than all moneys attributable to a failed Special Bond
have been applied by the Trustee to purchase Replacement Bonds, the Trustee
shall distribute the remaining moneys to all Unit Holders, regardless of
distribution option selected, not later than the second Monthly Distribution
Date.
The amounts to be so distributed to each Unit Holder of the
Trust shall be that pro rata share of the cash balance of the Interest and
Principal Accounts of the Trust, computed as set forth above, as shall be
represented by the Units registered in the name of such Unit Holder.
In the computation of each such share, fractions of less than
one cent shall be omitted. After any such distribution provided for above, any
cash balance remaining in the Interest Account or the Principal Account of the
Trust shall be held in the same manner as other amounts subsequently deposited
in each of such Accounts, respectively.
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For the purpose of distribution as herein provided, the
holders of record on the registration books of the Trustee at the close of
business on each monthly or Semi-annual Record Date shall be conclusively
entitled to such distribution, and no liability shall attach to the Trustee by
reason of payment to any such registered Unit Holder of record. Nothing herein
shall be construed to prevent the payment of amounts from the Interest Account
and the Principal Account of the Trust to individual Unit Holders by means of
one check, draft or other proper instrument, provided that the appropriate
statement of such distribution shall be furnished therewith as provided in
Section 3.06 hereof.
Section 3.06. Distribution Statements: With each distribution
from the Interest or Principal Accounts of the Trust the Trustee shall set
forth, either in the instrument by means of which payment of such distribution
is made or in an accompanying statement, the amount being distributed from each
such account expressed as a dollar amount per Unit.
In the event that the issuer of any of the Bonds in the Trust
shall fail to make payment when due of any interest or principal and such
failure results in a change in the amount which would otherwise be distributed
as a periodic distribution, the Trustee shall, except where a contract of
Insurance exists, with the first such distribution relating to such Trust
following such failure, set forth in an accompanying statement (a) the name of
the issuer and the Bond, (b) the amount of the reduction in the distributions
per Unit resulting from such failure, (c) the percentage of the aggregate
principal amount of Securities which such Bond represents and (d) to the extent
then determined, information regarding any disposition or legal action with
respect to such Bond.
In the event that a preceding series of National Municipal
Trust to which any of the Deposited Units relate fails to make a distribution
when due of any interest or principal and such failure results in a change in
the amount which would otherwise be distributed hereunder as a monthly
distribution, the Trustee shall, with the first such distribution following such
failure, set forth in an accompanying statement (a) the name of the preceding
series and the Deposited Units, (b) the amount of the reduction in the
distributions per unit resulting from such failure, (c) the percentage of the
aggregate face amount of Securities which such Deposited Units represent and (d)
to the extent then determined, information regarding any disposition or legal
action with respect to such preceding series or such Deposited Units.
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Within a reasonable period of time after the last business day
of each calendar year, but not later than February 15, the Trustee shall furnish
to each person who at any time during such calendar year was a Unit Holder of
the Trust a statement setting forth, with respect to such calendar year:
(A) as to the Interest Account of the Trust:
(1) the amount of interest received on the Securities,
(a) and, if the Issuers of the Securities are
located in different states or possessions
or in the Commonwealth of Puerto Rico, the
percentage of such interest by such states
or other jurisdictions,
(2) the amounts paid for purchases of Replacement Bonds
pursuant to Section 3.14 and for redemption pursuant
to Section 5.02,
(3) the deductions for payment of applicable taxes,
Portfolio Insurance premiums, compensation of the
Evaluator and fees and expenses of the Trustee and
bond counsel, and
(4) the balance remaining after such distributions and
deductions, expressed both as a total dollar amount
and as a dollar amount per Unit outstanding on the
last business day of such calendar year;
(B) as to the Principal Account of the Trust:
(1) the dates of the sale, maturity, liquidation or
redemption of any of the Securities and the net
proceeds received therefrom, excluding any portion
thereof credited to the Interest Account,
(2) the amount paid for purchases of Replacement Bonds
pursuant to Section 3.14, and for redemptions
pursuant to Section 5.02,
(3) the deductions for payment of applicable taxes,
compensation of the Evaluator and fees and expenses
of the Trustee and bond counsel, and
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(4) the balance remaining after such distributions and
deductions, expressed both as a total dollar amount
and as a dollar amount per Unit outstanding on the
last business day of such calendar year; and
(C) the following information:
(1) a list of the Securities held in the Trust as of
the last business day of such calendar year,
(2) the number of Units of such Trust outstanding on the
last business day of the calendar year,
(3) the Unit Value (as defined in Section 5.01) based on
the last evaluation of such Trust made during such
calendar year, and
(4) the amounts actually distributed during such calendar
year from the Interest and Principal Accounts of the
Trust, separately stated, expressed both as total
dollar amounts and as dollar amounts per Unit
outstanding on the record dates for such
distributions.
Section 3.07. Sale of Bonds: In order to maintain the sound
investment character of the Trust, the Depositor thereof may direct the Trustee
to sell Bonds in the Trust at such price and time and in such manner as shall be
determined by the Depositor, provided that the Depositor has determined that any
one or more of the following conditions exist:
(a) that there has been a default on such Bonds in the
payment of principal or interest, or both, when due and payable;
(b) that any action or proceeding has been instituted in law
or equity seeking to restrain or enjoin the payment of principal or
interest on any such Bonds, attacking the constitutionality of any
enabling legislation or alleging and seeking to have judicially
determined the illegality of the issuing body or the constitution of
its governing body or officers, the illegality, irregularity or
omission of any necessary acts or proceedings preliminary to the
issuance of such Bonds, or seeking to restrain or enjoin the
performance by the officers or employees of any such issuing body of
any improper or illegal act in connection with the administration of
funds necessary for debt service on such Bonds or otherwise; or that
there exists any other legal question or impediment affecting such
Bonds or the payment of debt service on the same;
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(c) that there has occurred any breach of covenant or warrant
in any resolution, ordinance, trust, indenture or other document, which
would adversely affect either immediately or contingently the payment
of debt service on such Bonds, or other general credit standing, or
otherwise impair the sound investment character of such Bonds;
(d) that there has been a default in the payment of
principal of or interest on any other outstanding Securities of an
issuer of such Bonds;
(e) that in the case of revenue Bonds, the revenues and income
of the facility or project or other special funds expressly charged and
pledged for debt service on any such Bonds shall fall substantially
below the estimated revenues or income calculated by the engineers or
other proper officials charged with the acquisition, construction or
operation of such facility or project, so that, in the opinion of the
Depositor, the retention of such Bonds would be detrimental to the
sound investment character of the Trust and to the interest of the Unit
Holders thereof;
(f) that the price of any such Bonds has declined to such an
extent, or such other market or credit factor exists, that in the
opinion of the Depositor the retention of such Bonds would be
detrimental to the Trust and to the interest of the Unit Holders
thereof;
(g) that such Bonds are the subject of an advanced refunding.
For the purposes of this Section 3.07(g), "an advanced refunding" shall
be deemed to have occurred when refunding Bonds are issued and the
proceeds thereof are deposited in irrevocable trust to retire the Bonds
on or before their redemption date; or
(h) that as of any Monthly or Semi-annual Record Date (if
applicable) such Bonds are scheduled to be redeemed to the next
succeeding Monthly or Semi-Annual (if applicable) Distribution Date;
provided, however, that as the result of such sale the Trustee will
receive funds in an amount sufficient to enable the Trustee to include
in the distribution from the Principal Account on such next succeeding
Monthly Distribution Date at least $.50 per Unit;
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(i) that the Federal tax exemption on such Bonds has
been lost; and, if the Trust be an insured Trust, that any Insurance
that may be applicable to the Bonds cannot be relied upon to maintain the
interests of the Trust to at least as great an extent as such sale. In the
event the Sponsor has directed the Trustee to sell a Bond, the Trustee shall
exercise its right to purchase a Permanent Insurance Policy if the Sponsor
determines that such purchase and payment of related premium will result
in a net realization for the Trust greater than would the sale of the Bond
without the purchase of a Permanent Insurance Policy with respect to such
Bond sold and shall pay an amount equal to the premium payable for such
Permanent Insurance Policy to the Portfolio Insurer at the time and in the
manner required by such Permanent Insurance Policy. Such
premium shall be payable only from the proceeds of sale of such Bonds.
Upon receipt of such direction from the Depositor, upon which
the Trustee shall rely, the Trustee shall proceed to sell the specified Bonds in
accordance with such direction; provided, however, that the Trustee shall not
sell any Bonds upon receipt of a direction from the Depositor that they have
determined that the conditions in subdivision (h) above exist, unless the
Trustee shall receive on account of such sale the full principal amount of such
Bonds, plus the premium, if any, and the interest accrued and to accrue thereon
to the date of the redemption of such Bonds. The Trustee shall not be liable or
responsible in any way for depreciation or loss incurred by reason of any sale
made pursuant to any such direction or by reason of the failure of the Depositor
to give any such direction, and in the absence of such direction the Trustee
shall have no duty to sell any Bonds under this Section 3.07 except to the
extent otherwise required by Section 3.10 of this Indenture.
For any series of the Trust which is insured, the Trustee
shall not, except as otherwise provided herein, sell Bonds as provided in
clauses (a) through (i) above, but shall (upon advice of counsel in writing that
such policy of Insurance is currently in effect and legally binding on the
Insurer) hold such Bonds, receive the payments due in respect of principal and
interest covered by such Insurance and deposit such payments into the Principal
and Interest Accounts as appropriate.
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Section 3.08. Refunding Bonds: In the event that an offer
shall be made by an obligor of any of the Bonds in the Trust to issue new
obligations in exchange and substitution for any issue of Bonds pursuant to a
plan for the refunding or refinancing of such Bonds, the Depositor of the Trust
shall instruct the Trustee in writing to reject such offer and either to hold or
sell such Bonds, except that if (1) the issuer is in default with respect to
such Bonds or (2) in the opinion of the Depositor, given in writing to the
Trustee, the issuer will probably default with respect to such Bonds in the
reasonably foreseeable future, and in either case, Insurance is not available to
protect the Trust if the Trust is an insured Trust, the Depositor shall instruct
the Trustee in writing to accept or reject such offer or take any other action
with respect thereto as the Depositor may deem proper; provided, however, that
if the Trust is an insured Trust, the Trustee shall accept only new obligations
that are insured. Any obligation so received in exchange shall be deposited
hereunder and shall be subject to the terms and conditions of this Indenture to
the same extent as the Bonds originally deposited hereunder. Within five days
after such deposit, notice of such exchange and deposit shall be given by the
Trustee to each Unit Holder, including an identification of the Bonds eliminated
and the Bonds substituted therefor.
Section 3.09. Bond Counsel: The Depositor may employ from time
to time as it may deem necessary a firm of municipal bond attorneys for any
legal services that may be required in connection with the disposition of Bonds
pursuant to Section 3.07 or the substitution of any securities for Bonds as the
result of any refunding permitted under Section 3.08. The fees and expenses of
such bond counsel shall be paid by the Trustee from the Interest and Principal
Accounts of the Trust as provided for in Section 3.05(d) hereof.
Section 3.10. Notice and Sale by Trustee: If at any time the
principal of or interest on any of the Bonds in a Trust shall be in default and
not paid or provision for payment thereof shall not have been duly made, the
Trustee shall notify the Depositor thereof, and, in addition, if the Trust is
part of an insured series, the Trustee shall notify the Insurer of such Bonds
and make claims for payments under the Insurance policy for the amounts due and
not paid. If the Trust is part of an insured series, the Depositor shall
determine whether the Insurance can be relied upon to maintain the interests of
the Trust to at least as great an extent as a sale. If within thirty days after
such notification the Depositor has not given any instruction to sell or to hold
or has not taken any other action in connection with such Bonds, the Trustee
shall sell such Bonds forthwith, and the Trustee shall not be liable or
responsible in any way for depreciation or loss incurred by reason of such sale.
<PAGE>
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Section 3.11. Trustee Not to Amortize: Nothing in this
Indenture, or otherwise, shall be construed to require the Trustee to make any
adjustments between the Interest and Principal Accounts of the Trust by reason
of any premium or discount in respect of any of the Bonds.
Section 3.12. Notice to Depositor: In the event that the
Trustee shall have been notified at any time of any action to be taken or
proposed to be taken by holders of the Securities in a Trust (including but not
limited to the making of any demand, direction, request, giving of any notice,
consent or waiver or the voting with respect to any amendment or supplement to
any indenture, resolution, agreement or other instrument under or pursuant to
which the Securities have been issued) the Trustee shall promptly notify the
Depositor and shall thereupon take such action or refrain from taking any action
(not inconsistent with its duties as Trustee) as the Depositor shall in writing
direct; provided, however, that if the Depositor shall not within five business
days of the giving of such notice to the Depositor direct the Trustee to take or
refrain from taking any action, the Trustee shall take such action as it, in its
sole discretion, shall deem advisable. Neither the Depositor nor the Trustee
shall be liable to any person for any action or failure to take action with
respect to this Section 3.12.
Section 3.13. Sale of Deposited Units: In order to maintain
the sound investment character of the Trust, the Depositor of such Trust may
direct the Trustee to sell or redeem Deposited Units at such price (in the case
of a sale) and time and in such manner as shall be determined by the Depositor,
provided that the Depositor has determined that the price of any such Deposited
Units has declined to such an extent, or such other market or credit factor
exists, that in the opinion of the Depositor the retention of such Deposited
Units would be detrimental to the Trust and to the interest of the Unit Holders.
Upon receipt of such direction from the Depositor, upon which
the Trustee shall rely, the Trustee shall proceed to sell or redeem the
specified Deposited Units in accordance with such direction. The Trustee shall
not be liable or responsible in any way for depreciation or loss incurred by
reason of any sale or redemption made pursuant to any such direction or by
reason of the failure of the Depositor to give any such direction, and in the
absence of such direction the Trustee shall have no duty to sell any Deposited
Units under this Section 3.13.
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Section 3.14. Replacement Bond: In the event that any Contract
Bond is not delivered due to any occurrence, act or event beyond the control of
the Depositor and of the Trustee (such a Contract Bond being herein called a
"Special Bond"), the Depositor may instruct the Trustee to purchase Replacement
Bonds which have been selected by the Depositor having a cost and an aggregate
principal amount not in excess of the cost and aggregate principal amount of the
Special Bonds not so delivered. To be eligible for inclusion in the Trust, the
Replacement Bonds which the Depositor selects must: (i) yield current interest
which is exempt. from taxation for Federal income tax purposes and, if the Trust
is a State Trust, exempt from taxation under the personal income tax law of the
particular state involved; (ii) have a fixed maturity or disposition date at
least 10 years after the acquisition; (iii) be purchased at a price that results
in a yield to maturity and in a current return, in each case as of the execution
and delivery of the applicable Reference Trust Agreement, which is approximately
equivalent to the yield to maturity and current return of the Special Bonds
which failed to be delivered and for which the Replacement Bonds are
substituted; (iv) be purchased within twenty days after delivery of notice of
the failed contract to the Trustee or to the Depositor, whichever occurs first;
(v) for any trust which is an insured Trust be insured either by the insurance
obtained by the issuer or under the Portfolio Insurance policy and be eligible
for Permanent Insurance, and not cause the Units to cease to be rated AAA by
Standard & Poor's Corporation, if the Trust is an insured Trust; and (vi) for
any Trust which is not an insured Trust be rated in the category A or better by
at least one national rating organization or have, in the opinion of the
Depositor, comparable credit characteristics. Any Replacement Bonds received by
the Trustee shall be deposited hereunder and shall be subject to the terms and
conditions of this Indenture to the same extent as other Bonds deposited
hereunder. No such deposit of Replacement Bonds shall be made after the earlier
of (i) 90 days after the date of execution and delivery of the applicable
Reference Trust Agreement or (ii) the first Distribution Date.
Whenever a Replacement Bond is acquired by the Depositor
pursuant to the provisions of this Section 3.14, the Trustee shall, within five
days thereafter, mail to all Unit Holders notices of such acquisition, including
an identification of the failed Special Bond and the Replacement Bond acquired.
The purchase price of a Replacement Bond shall be paid out of the principal
attributable to the failed Special Bond which it replaces. The Trustee shall not
be liable or responsible in any way for depreciation or loss incurred by reason
of any purchase made pursuant to any such instructions and in the absence of
such instructions the Trustee shall have no duty to purchase any Replacement
Bonds under this Indenture. The Depositor shall not be liable for any failure to
instruct the Trustee to purchase any Replacement Bond or for errors of judgment
in selecting any Replacement Bond.
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ARTICLE IV
Evaluation of Securities; Evaluator
Section 4.01. Evaluation by Evaluator: The Evaluator shall
determine separately and promptly furnish to the Trustee and the Depositor upon
request the value of each issue of Securities in the Trust (treating (a)
separate maturities of Securities and (b) Deposited Units in separate preceding
series of National Municipal Trust as separate issues) as of the Evaluation Time
on the bid side of the market on the days on which the Trustee shall make the
Trust Evaluation required by Section 5.01 and, in addition, (i) as of the
Evaluation Time on the offering side of the market each business day during the
initial public offering period, (ii) if and as long as requested by the
Depositor on the offering side of the market on each business day following such
initial public offering period, (iii) on the offering side of the market on the
last business day of each calendar week commencing with the week in which the
Evaluator and the Trustee have been informed by the Depositor that the initial
public offering of the Units for such Trust has been completed and (iv) on any
other day requested by the Depositor or the Trustee. In making the evaluations
the Evaluator may determine the value of each issue of the Securities in the
Trust by the following methods or any combination thereof which it deems
appropriate: (i) on the basis of current bid or offering prices of such
Securities as obtained from investment dealers or brokers (including the
Depositor) who customarily deal in public bonds comparable to those held by the
Trust (in the case of Deposited Units, such current bid or offering prices may
be based on prevailing daily evaluations of the underlying obligations held in
those preceding series of National Municipal Trust to which Deposited Units
relate), or (ii) if bid or offering prices are not available for any of such
Securities, on the basis of bid or offering prices for comparable Securities, or
(iii) by appraisal. The Evaluator shall also make an evaluation of the
Securities deposited in the Trust as of the times said Securities are deposited
under this Indenture. Such evaluation shall be made on the same basis as set
forth above and shall be based upon offering prices of said Securities. In
addition to the methods of determining the value of the Securities described
above, the Evaluator may make the initial evaluation of Securities in whole or
in part by reference to the Blue List of Current Municipal Offerings (a daily
publication containing the current public offering prices of public bonds of all
grades currently being offered by dealers and banks). The Evaluator's
determination of the offering price of the Securities of the Trust on the date
of deposit shall be included in the Schedules attached to the Reference Trust
Agreement. In determining the value of any Bond, the Evaluator shall take into
account the value attributable to the Insurance to Maturity. The Evaluator shall
take into account the value attributable to the Portfolio Insurance policy and
the Trustee's right to purchase a Permanent Insurance Policy with respect to
such Security at such time, and only at such time, as (A) a default in the
payment when due of the principal of or interest on such Security shall have
occurred and be continuing or (B) the Sponsor shall have informed the Evaluator
that it has determined that there is a significant risk of such a default with
respect to such Security and shall not thereafter have informed the Evaluator of
any change in such determination or (C) such Security is proposed to be sold
from the Trust. For purposes of the preceding sentence, the value attributable
to the Portfolio Insurance policy and the Trustee's right to purchase a
Permanent Insurance Policy with respect to any Security at any time shall be
equal to the excess, if any, of (X) the market value of such Security at such
time if it were covered by a Permanent Insurance Policy (less the premium
payable for such Policy) over (y) the market value of such Security at such time
if it were not covered by a Permanent Insurance Policy.
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Section 4.02. Tax Reports: For the purpose of aiding Unit
Holders to satisfy any reporting requirements of applicable Federal or state tax
law, the Evaluator shall make available to the Trustee and the Trustee shall
transmit to any Unit Holder upon request any determinations made by the
Evaluator pursuant to Section 4.01.
Section 4.03. Evaluator's Compensation: As compensation for
its services hereunder, the Evaluator, with respect to each series, shall
receive against a statement therefor submitted to the Trustee monthly on or
before each Computation Date the amount as set forth in the Summary of Essential
Information in the Prospectus for each evaluation of the series, provided,
however, that if at any time the fee of the Trustee shall have been increased
pursuant to Section 6.04, the Compensation of the Evaluator hereunder shall at
the same time be ratably increased.
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Section 4.04. Liability of Evaluator: The Trustee, Depositor
and Unit Holders may rely on any evaluation furnished by the Evaluator and shall
have no responsibility for the accuracy thereof. The determinations made by the
Evaluator hereunder shall be made in good faith upon the basis of the best
information available to it. The Evaluator shall be under no liability to the
Trustee, Depositor or Unit Holders for errors in judgment; provided, however,
that this provision shall not protect the Evaluator against any liability to
which it would otherwise be subject by reason of willful misfeasance, bad faith
or gross negligence in the performance of its duties or by reason of its
reckless disregard of its obligations and duties hereunder.
Section 4.05. Successor Evaluator: (a) The Evaluator may
resign and be discharged hereunder, by executing an instrument in writing
resigning as Evaluator and filing the same with the Depositor and the Trustee,
not less than 60 days before the date specified in such instrument when, subject
to Section 4.05(e), such resignation is to take effect. Upon receiving such
notice of resignation, the Depositor and the Trustee shall use their best
efforts to appoint a successor evaluator having qualifications and at a rate of
compensation satisfactory to the Depositor and the Trustee. Such appointment
shall be made by written instrument executed by the Depositor and the Trustee,
in duplicate, one copy of which shall be delivered to the resigning Evaluator
and one copy to the successor evaluator. The Depositor may remove the Evaluator
at any time upon 30 days' written notice and appoint a successor evaluator
having qualifications and at a rate of compensation satisfactory to the
Depositor. Such appointment shall be made by written instrument executed by the
Depositor, in duplicate, one copy of which shall be delivered to the Evaluator
so removed and one copy to the successor evaluator. Notice of such resignation
or removal and appointment of a successor evaluator shall be mailed by the
Trustee to each Unit Holder.
(b) Any successor evaluator appointed hereunder shall execute,
acknowledge and deliver to the Depositor and the Trustee an instrument accepting
such appointment hereunder, and such successor evaluator without any further
act, deed or conveyance shall become vested with all the rights, powers, duties
and obligations of its predecessor hereunder with like effect as if originally
named Evaluator herein and shall be bound by all the terms and conditions of
this Agreement.
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(c) In case at any time the Evaluator shall resign and no
successor evaluator shall have been appointed and have accepted appointment
within 30 days after notice of resignation has been received by the Depositor
and the Trustee, the Evaluator may forthwith apply to a court of competent
jurisdiction for the appointment of a successor evaluator. Such court may
thereupon, after such notice, if any, as it may deem proper and prescribe,
appoint a successor evaluator.
(d) Any corporation into which the Evaluator hereunder may be
merged or with which it may be consolidated, or any corporation resulting from
any merger or consolidation to which the Evaluator hereunder shall be a party,
shall be the successor evaluator under this Agreement without the execution or
filing of any paper, instrument or further act to be done on the part of the
parties hereto, anything herein, or in any agreement relating to such merger or
consolidation, by which the Evaluator may seek to retain certain powers, rights
and privileges theretofore obtaining for any period of time following such
merger or consolidation, to the contrary notwithstanding.
(e) Any resignation or removal of the Evaluator and
appointment of a successor evaluator pursuant to this Section shall become
effective upon acceptance of appointment by the successor evaluator as provided
in subsection (b) hereof.
ARTICLE V
Trust Evaluation; Redemption, Purchase, Transfer,
Interchange or Replacement of Certificates
Section 5.01. Trust Evaluation: The Trustee shall make an
evaluation of the Trust as of the close of trading on the New York Stock
Exchange, (i) on the last business day of each of the months of June and
December, (ii) on the day on which any Unit of the Trust is tendered for
redemption, and (iii) on any other day desired by the Trustee or requested by
the Depositor. Such evaluations shall take into account and itemize separately
(1) the cash on hand in the Principal and Interest Accounts of the Trust or
moneys in the process of being collected from matured interest coupons or bonds
matured or called for redemption prior to maturity, (2) the value of each issue
of the Securities in the Trust on the bid side of the market as determined by
the Evaluator pursuant to Section 4.01 including the value of any applicable
Insurance with respect to the Securities, and (3) interest accrued thereon not
subject to collection and distribution. For each such evaluation there shall be
deducted from the sum of the above (i) amounts representing any applicable taxes
or governmental charges payable out of the Trust and for which no deductions
shall have previously been made for the purpose of addition to the Reserve
Account, (ii) amounts representing accrued expenses of the Trust including but
not limited to unpaid fees and expenses of the Trustee, the Evaluator and bond
counsel, in each case as reported by the Trustee to the Evaluator on or prior to
the date of evaluation, and (iii) cash held for distribution to Unit Holders of
record as of a date prior to the evaluation then being made. The value of the
pro rata share of each Unit of the Trust determined on the basis of any such
evaluation shall be referred to herein as the "Unit Value".
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Section 5.02. Redemptions by Trustee; Purchases by Depositor:
Any Unit tendered for redemption by a Unit Holder or his duly authorized
attorney to the Trustee at its corporate trust office in the City of New York,
shall be redeemed by the Trustee on the seventh calendar day following the day
on which tender for redemption is made, provided that if such day of redemption
is not a business day, then such Unit shall be redeemed on the first business
day prior thereto (being herein called the "Redemption Date"). Subject to
payment by such Unit Holder of any tax or other governmental charges which may
be imposed thereon, redemption of such Unit is to be made by payment on the
Redemption Date of cash equivalent to the Unit value, determined by the Trustee
as of the close of trading on the New York Stock Exchange, on the date of tender
plus a sum equivalent to the amount of accrued interest which would have been
payable with respect to such Unit to, but not including, the fifth business day
following the date of tender (herein called the "Redemption Price"). Units
received for redemption by the Trustee on any day after the Evaluation Time will
be held by the Trustee until the next day on which the New York Stock Exchange
is open for trading and will be deemed to have been tendered on such day for
redemption at the Redemption Price computed on that day.
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The Trustee may in its discretion, and shall when so directed
by the Depositor, suspend the right of redemption for Units of the Trust or
postpone the date of payment of the Redemption Price therefor for more than
seven calendar days following the day on which tender for redemption is made (1)
for any period during which the New York Stock Exchange is closed other than
customary weekend and holiday closings or during which trading on the New York
Stock Exchange is restricted; (2) for any period during which an emergency
exists, as a result of which disposal by the Trust of the Securities is not
reasonably practicable or it is not reasonably practicable to determine fairly
in accordance herewith the value of the Securities; or (3) for such other period
as the Securities and Exchange Commission may by order permit, and shall not be
liable to any person or in any way for any loss or damage which may result from
any such suspension or postponement.
Not later than the close of business on the day of tender of a
Unit for redemption by a Unit Holder other than the Depositor, the Trustee shall
notify the Depositor of such tender. Such Depositor shall have the right to
purchase such Unit by notifying the Trustee of its election to make such
purchase as soon as practicable thereafter but in no event subsequent to the
close of business on the second business day after the day on which such Unit
was tendered for redemption. Such purchase shall be made by payment for such
Unit by the Depositor to the Unit Holder not later than the close of business on
the Redemption Date of an amount not less than the Redemption Price which would
otherwise be payable by the Trustee to such Unit Holder.
Any Unit so purchased by the Depositor may at the option of
the Depositor be tendered to the Trustee for redemption at the corporate trust
office of the Trustee in the manner provided in the first paragraph of this
Section 5.02.
If the Depositor does not elect to purchase any Unit of the
Trust tendered to the Trustee for redemption, or if a Unit is being tendered by
the Depositor for redemption, that portion of the Redemption Price which
represents interest shall be withdrawn from the Interest Account of the Trust to
the extent available. The balance paid on any redemption, including accrued
interest, if any, shall be withdrawn from the Principal Account of the Trust to
the extent that funds are available for such purpose. If such available balance
shall be insufficient the Trustee shall sell or redeem such of the Securities
held in the Trust as are currently designated for such purposes by the Depositor
as the Trustee in its sole discretion shall deem necessary. Upon such sale the
Trustee shall exercise its right to purchase a Permanent Insurance Policy if the
Depositor determines that such purchase and payment of related premium will
result in a net realization for the Trust greater than would the sale of the
Bond without the purchase of a Permanent Insurance Policy with respect to such
Bond sold and shall pay an amount equal to the premium payable for such
Permanent Insurance Policy to the Insurer for the Portfolio Insurance policy at
the time and in the manner required by such Permanent Insurance Policy. Such
premiums shall be payable only from the proceeds of sale of such Bonds. In the
event that funds are withdrawn from the Principal Account for payment of accrued
interest, the Principal Account shall be reimbursed for such funds so withdrawn
when sufficient funds are next available in the Interest Account.
<PAGE>
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The Depositor shall maintain with the Trustee a current list
of Securities held in the Trust designated to be sold for the purpose of
redemption of Units of the Trust, and for payment of expenses hereunder,
provided that if the Depositor shall for any reason fail to maintain such a
list, the Trustee, in its sole discretion, may designate a current list of
Securities for such purposes. The net proceeds of any sales of Securities from
such list representing principal shall be credited to the Principal Account of
the Trust and the proceeds of such sales representing accrued interest shall be
credited to the Interest Account of the Trust.
The Trustee shall not be liable or responsible in any way for
depreciation or loss incurred by reason of any sale or redemptions of Securities
made pursuant to this Section 5.02.
Certificates evidencing Units redeemed pursuant to this
Section 5.02 shall be cancelled by the Trustee, and any Unit or Units redeemed
pursuant to this Section 5.02 shall be terminated by such redemption.
Section 5.03. Transfer or Interchange of Certificates: A
Certificate (and the Units it represents) may be transferred by the registered
holder thereof by presentation and surrender of such Certificate at the
corporate trust office of the Trustee properly endorsed or accompanied by a
written instrument or instruments of transfer in form satisfactory to the
Trustee and executed by the Unit Holder or his authorized attorney, whereupon a
new registered Certificate or Certificates for the same number of Units of the
Trust executed by the Trustee and the Depositor will be issued in exchange and
substitution therefor. Certificates issued pursuant to this Indenture are
interchangeable for one or more other Certificates in an equal aggregate number
of Units of the Trust and all Certificates issued shall be issued in
denominations of one Unit or any multiple thereof as may be requested by the
Unit Holder.
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The Trustee may deem and treat the person in whose name any
Certificate shall be registered upon the books of the Trustee as the owner of
such Certificate for all purposes hereunder, and the Trustee shall not be
affected by any notice to the contrary, nor be liable to any person or in any
way for so deeming and treating the person in whose name any Certificate shall
be so registered.
A sum sufficient to pay any tax or other governmental charge
that may be imposed in connection with any such transfer or interchange shall be
paid by the Unit Holder to the Trustee. The Trustee may require a Unit Holder to
pay $2.00 for each new Certificate issued on any such transfer or interchange.
All Certificates cancelled pursuant to this Indenture shall be
disposed of by the Trustee without liability on its part.
Section 5.04. Certificates Mutilated, Destroyed, Stolen or
Lost: in case any Certificate shall become mutilated or be destroyed, stolen or
lost, the Trustee shall execute and deliver a new Certificate in exchange and
substitution therefor upon the holder's furnishing the Trustee with proper
identification and indemnity satisfactory to the Trustee, complying with such
other reasonable regulations and conditions as the Trustee may prescribe and
paying such expenses as the Trustee may incur. Any mutilated Certificate shall
be duly surrendered and cancelled before any new Certificate shall be issued in
exchange and substitution therefor. Upon the issuance of any new Certificate a
sum sufficient to pay any tax or other governmental charge will be imposed and
payment of the fees and expenses of the Trustee may be required. Any such new
Certificate issued pursuant to this Section shall constitute complete and
indefeasible evidence of ownership in the Trust, as if originally issued,
whether or not the lost, stolen or destroyed Certificate shall be found at any
time.
In the event the Trust has terminated or is in the process of
termination, the Trustee may, instead of issuing a new Certificate in exchange
and substitution for any Certificate which shall have become mutilated or shall
have been destroyed, stolen or lost, make the distributions in respect of such
mutilated, destroyed, stolen or lost Certificate (without surrender thereof
except in the case of a mutilated Certificate) as provided in Section 9.02
hereof if the Trustee is furnished with such security or indemnity as it may
require to save it harmless, and in the case of destruction, loss or theft of a
Certificate, evidence to the satisfaction of the Trustee of the destruction,
loss or theft of such Certificate and of the ownership thereof.
<PAGE>
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ARTICLE VI
Trustee
Section 6.01. General Definition of Trustee's Liabilities,
Rights and Duties: In addition to and notwithstanding the other duties, rights,
privileges and liabilities of the Trustee as elsewhere set forth herein, the
liabilities of the Trustee are further defined as follows:
(a) all moneys deposited with or received by the Trustee
hereunder shall be held by it without interest in trust as part of the
Trust or the Reserve Account until required to be disbursed in
accordance with the provisions of this Indenture and such moneys 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 so preserved the Trustee
shall handle such moneys in such other manner as shall constitute the
segregation and holding thereof in trust within the meaning of the
Investment Company Act of 1940;
(b) the Trustee shall be under no liability for any action
taken in good faith on any appraisal, paper, order, list, demand,
request, consent, affidavit, notice, opinion, direction, evaluation,
endorsement, assignment, resolution, draft or other document whether or
not of the same kind prima facie properly executed, or for the
disposition of moneys, Securities, Units or Certificates pursuant to
this Indenture, or in respect of any evaluation which it is required to
make or is required or permitted to have made by others under this
Indenture or otherwise, except by reason of its own willful
misfeasance, bad faith or gross negligence in the performance of its
duties or by reason of its reckless disregard of its obligations and
duties hereunder; provided, however, that the Trustee shall not in any
event be liable or responsible for any evaluation made by the
Evaluator. The parties hereto may construe any of the provisions of
this Indenture, insofar as the same may appear to be ambiguous or
inconsistent with any other provisions hereof. The Trustee shall be
under no liability for any construction of any such provisions hereof,
which construction shall be binding upon the parties hereto;
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(c) the Trustee shall not be responsible for or in respect of
the recitals herein, the validity or sufficiency of this Indenture or
for the due execution hereof by the Depositor or the Evaluator, or for
the form, character, genuineness, sufficiency, value or validity of any
Securities or for or in respect of the validity or sufficiency of the
Certificates or of the due execution thereof by the Depositor, or the
validity or sufficiency of the insurance or the due execution of any
policy of insurance and the Trustee shall in no event assume or incur
any liability, duty or obligation to any Unit Holder or the Depositor
other than as expressly provided for herein. The Trustee shall not be
responsible for or in respect of the validity of any signatures by or
on behalf of the Depositor or the Evaluator;
(d) the Trustee shall not be under any obligation to appear
in, prosecute or defend any action, which in its opinion may involve it
in expense or liability, unless as often as required by the Trustee, it
shall be furnished with reasonable security and indemnity against such
expense or liability, and any pecuniary cost of the Trustee from such
actions shall be deductible from and a charge against the Interest and
Principal Accounts of the Trust. The Trustee shall in its discretion
undertake such action as it may deem necessary at any and all times to
protect the Trust and the rights and interests of the Unit Holders
pursuant to the terms of this Indenture; provided, however, that the
expenses and costs of such actions, undertakings or proceedings shall
be reimbursable to the Trustee from the Interest and Principal
Accounts, and the payment of such costs and expenses shall be secured
by a lien on the Trust prior to the interests of the Unit Holders;
(e) the Trustee may employ agents, attorneys, accountants and
auditors and shall not be answerable for the default or misconduct of
any such agents, attorneys, accountants or auditors if such agents,
attorneys, accountants or auditors shall have been selected with
reasonable care; provided, however, that if the Trustee chooses to
employ the Depository Trust Company in connection with the storage and
handling of, and the furnishing of administrative services in
connection with the Securities, the Trustee will be answerable for any
default or misconduct of The Depository Trust Company and its employees
and agents as fully and to the same extent as if such default or
misconduct had been committed or occasioned by the Trustee. The Trustee
shall be fully protected in respect of any action under this Agreement
taken, or suffered, in good faith by the Trustee, in accordance with
the opinion of its counsel. The accounts of the Trusts shall be audited
not less frequently than annually by independent certified public
accountants designated from time to time by the Sponsor, and the
reports of such accountants shall be furnished by the Trustee to Unit
Holders upon request. The fees and expenses charged by such agents,
attorneys, accountants or auditors shall constitute an expense of the
Trustee reimbursable from the Interest and Principal Accounts of the
Trust as set forth in Section 6.04 hereof;
<PAGE>
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(f) if the Depositor should fail to undertake or perform any
of the duties which by the terms of this Agreement are required by it
to be undertaken or performed or should the Depositor resign as
Depositor or the Depositor should become incapable of acting or should
an order of relief have been entered with respect to the Depositor, or
a receiver of the Depositor or of its property should be appointed, or
any public officer shall take charge or control of the Depositor or of
its property or affairs for the purpose of rehabilitation, conservation
or liquidation, then in any such case, the Trustee may: (1) appoint a
successor depositor (which may be the Trustee) who shall act hereunder
in all respects in place of the Depositor which successor shall be
satisfactory to the Trustee, and which may be compensated semiannually,
at rates deemed by the Trustee to be reasonable under the
circumstances, by deduction from the Interest Account of the Trust or,
to the extent funds are not, available in such Account, from the
Principal Account of the Trust but no such deduction shall be made
exceeding such reasonable amount as the Securities and Exchange
Commission may prescribe in accordance with Section 26(a)(2)(C) of the
Investment Company Act of 1940, or (2) terminate this Agreement and the
trust created hereby and liquidate the Trust in the manner provided in
Section 9.02;
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(g) if the value of Securities held in the Trust as shown by
any evaluation by the Trustee pursuant to Section 5.01 hereof shall be
less than 40% of the value of Securities originally deposited in the
Trust, the Trustee shall when so directed by the Depositor, terminate
this Indenture and the trust created hereby and liquidate the Trust,
all in the manner provided in Section 9.02;
(h) the Trustee is authorized and empowered to execute and
file on behalf of the Trust any and all documents, in connection with
consents to service of process, required to be filed under the
securities laws of the various States in order to permit the sale of
Units of the Trust in such States by the Depositor;
(i) in no event shall the Trustee be 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 hereunder or upon or
in respect of the Trust which it 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 the premises. For all such
taxes and charges and for any expenses which the Trustee may sustain or
incur with respect to such taxes or charges, the Trustee shall be
reimbursed and indemnified out of the Reserve Account and/or the
Interest and Principal Accounts of the Trust, and the payment of such
amounts so paid by the Trustee shall be secured by a lien on the Trust
prior to the interests of the Unit Holders; and
(j) the Trustee except by reason of its own gross negligence,
lack of good faith or willful misconduct shall not be liable for any
action taken, omitted or suffered to be taken by it in good faith and
believed by it to be authorized or within the discretion or rights or
powers conferred upon it by this Indenture.
Section 6.02. Books, Records and Reports: The Trustee shall
keep proper books of record and account of all the transactions under this
Indenture at its corporate trust office including a record of the name and
address of, the Units held by, and the Certificates issued by the Trust and held
by, every Unit Holder, and the books and records shall be open to inspection by
any Unit Holder of the Trust at all reasonable times during the usual business
hours.
The Trustee shall make such annual or other reports as may
from time to time be required under any applicable state or federal statute or
rule or regulation thereunder.
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Section 6.03. Indenture and List of Securities on File: The
Trustee shall keep a certified copy in duplicate original of this Indenture
(including the Reference Trust Agreement) on file at its unit investment trust
office available for inspection at all reasonable times during the usual
business hours by any Unit Holder, together with a current list of the
Securities in the Trust.
Section 6.04. Compensation: For services performed under this
Indenture the Trustee shall be paid an amount set forth in Part II of the
Reference Trust Agreement per $1,000 principal amount of Bonds in the Trust.
Such compensation shall be computed on the basis of the greatest amount of such
principal amount of Bonds in the Trust at any time during the period with
respect to which such compensation is made. The Trustee may from time to time
adjust its computation set forth above; provided, however, that the total
adjustment upward does not, at the effective time of such adjustment, exceed the
percentage of the total increase, after the date hereof, in consumer prices for
services as measured by the United States Department of Labor Consumer Price
Index entitled "All Services Less Rent" or, if such Index is no longer
published, in a similar index to be determined by the Trustee and the Depositor.
After the effective time of any such adjustment or increase, the Trustee shall
also be entitled to charge an additional reasonable fee at a rate or amount to
be determined by the Trustee and the Depositor based upon the face amount of
Deposited Units in the Trust for the Trustee's services in such Deposited Units.
The consent or concurrence of any Unit Holder hereunder shall not be required
for any such adjustment or increase. Such compensation shall be deemed to
provide only for the usual normal and proper functions undertaken as Trustee
pursuant to this Indenture. The Trustee may charge the Interest and Principal
Accounts of the Trust the fees of counsel which may be retained by the Trustee
in connection with its activities hereunder, and disbursements incurred
hereunder and additional compensation for any extraordinary services performed
by the Trustee hereunder. In addition, the Trustee may charge the Interest and
Principal Accounts of the Trust for any and all expenses (including legal,
auditing and printing expenses) of maintaining registration or qualification of
the Units and/or the Trust under Federal or state securities laws subsequent to
initial registration so long as the Sponsor is maintaining a market for the
Units, provided, however, that no portion of such amount shall be deducted or
paid unless payment thereof from the Trust is at that time lawful. The Trustee
shall be indemnified by the Trust and held harmless against any loss or
liability accruing to it without gross negligence, bad faith or willful
misconduct on its part, arising out of or in connection with the acceptance or
administration of the Trust, including the costs and expenses (including counsel
fees) of defending itself against any claim of liability in the premises. If the
cash balances in the Interest and Principal Accounts of the Trust shall be
insufficient to provide for amounts payable pursuant to this Section 6.04 the
Trustee shall have the power to sell (i) Securities of the Trust from the
current list of Securities designated to be sold pursuant to Section 5.02
hereof, or (ii) if no such Securities have been so designated such Securities of
the Trust as the Trustee may see fit to sell in its own discretion, and to apply
the proceeds of any such sale in payment of the amounts payable pursuant to this
Section 6.04. The Trustee shall not be liable or responsible in any way for
depreciation or loss incurred by reason of any sale of Securities made pursuant
to this Section 6.04. Any moneys payable to the Trustee pursuant to this Section
shall be secured by a lien on the Trust prior to the interests of the Unit
Holders.
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In the event that Securities are not delivered to the Trustee
for deposit into the Trust prior to the initial settlement date for the Units,
the Trustee shall reduce the level of its compensation specified in Section
6.04(a) by an amount equal to the amount of interest which would have accrued on
such Securities from the initial settlement date of the Units to the respective
delivery dates of such Securities. The Depositor shall reimburse the Trustee for
any such reduction in its fee.
In the event that Securities (1) are issued later than their
expected date(s) of issue (but no more than two months after such expected date
in the case of Securities originally designated for deposit in the Trust) and
(2) are deemed not to be failed Contract Bonds, the Trustee shall also reduce
its fee by an amount equal to the amount of interest which would have accrued on
such Securities from the expected date of issue to the actual date of issue. If
the Trustee's fee is inadequate to cover this additional amount of accrued
interest, the Securities shall be deemed and treated as failed Contract Bonds.
The Depositor shall reimburse the Trustee for any such reduction in its fee.
Section 6.05. Removal and Resignation of Trustee;
Successor: The following provisions shall govern the removal
and resignation of the Trustee and the appointment of any successor trustee:
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(a) the Trustee or any trustee or trustees hereafter appointed
may resign and be discharged of the trusts created by this Indenture,
by executing an instrument in writing resigning as Trustee of the Trust
and filing the same with the Depositor and mailing a copy of a notice
of resignation to all Unit Holders then of record, not less than sixty
days before the date specified in such instrument when, subject to
Section 6.05(e), such resignation is to take effect. Upon receiving
such notice of resignation, the Depositor shall promptly appoint a
successor trustee as hereinafter provided, by written instrument, in
duplicate, one copy of which shall be delivered to the resigning
Trustee and one copy to the successor trustee. If at any time the
Trustee shall become incapable of acting, or shall have an order of
relief entered with respect to it, or a receiver of the Trustee or of
its property shall be appointed, or any public officer shall take
charge or control of the Trustee or of its property or affairs for the
purposes of rehabilitation, conservation or liquidation, or in the
event the Depositor determines that the Trustee has materially failed
to perform its duties under this Indenture and the interest of Unit
Holders has been substantially impaired as a result, and such failure
has continued for a period of sixty days following the Trustee's
receipt of notice of such determination by the Depositor, then in any
such case the Depositor may remove the Trustee and appoint a successor
trustee by written instrument, in duplicate, one copy of which shall be
delivered to the Trustee so removed and one copy to the successor
trustee; provided that a notice of such removal and appointment of a
successor trustee shall be mailed by the Depositor to each Unit Holder
then of record;
(b) any successor trustee appointed hereunder shall execute,
acknowledge and deliver to the Depositor and to the retiring Trustee an
instrument accepting such appointment hereunder, and such successor
trustee without any further act, deed or conveyance shall become vested
with all the rights, powers, duties and obligations of its predecessor
hereunder with like effect as if originally named Trustee herein and
shall be bound by all the terms and conditions of this Indenture. Upon
the request of such successor trustee, the Depositor and the retiring
Trustee shall, upon payment of any amounts due the retiring Trustee, or
provision therefor to the satisfaction of such retiring Trustee,
execute and deliver an instrument acknowledged by them transferring to
such successor trustee all the rights and powers of the retiring
Trustee; and the retiring Trustee shall transfer, deliver and pay over
to the successor trustee all Securities and moneys at the time held by
it hereunder, together with all necessary instruments of transfer and
assignment or other documents properly executed necessary to effect
such transfer and such of the records or copies thereof maintained by
the retiring Trustee in the administration hereof as may be requested
by the successor trustee, and shall thereupon be discharged from all
duties and responsibilities under this Indenture. The retiring Trustee
shall, nevertheless, retain a lien upon all Securities and moneys at
the time held by it hereunder to secure any amounts then due the
retiring Trustee;
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(c) in case at any time the Trustee shall resign and no
successor trustee shall have been appointed and have accepted
appointment within thirty days after notice of resignation has been
received by the Depositors, the retiring Trustee may forthwith apply to
a court of competent jurisdiction for the appointment of a successor
trustee. Such court may thereupon, after such notice, if any, as it may
deem proper and prescribe, appoint a successor trustee;
(d) any corporation into which any trustee hereunder may be
merged or with which it may be consolidated, or any corporation
resulting from any merger or consolidation to which any trustee
hereunder shall be a party, or any corporation succeeding to all or
substantially all of the business of the Trustee shall be the successor
trustee under this Indenture without the execution or filing of any
paper, instrument or further act to be done on the part of the parties
hereto, anything herein, or in any agreement relating to such merger or
consolidation, by which any such trustee may seek to retain certain
powers, rights and privileges theretofore obtaining for any period of
time following such merger or consolidation, to the contrary
notwithstanding;
(e) any resignation or removal of the Trustee and appointment
of a successor trustee pursuant to this Section shall become effective
upon acceptance of appointment by the successor trustee as provided in
subsection (b) hereof.
Section 6.06. Qualifications of Trustee: The Trustee shall be
a corporation organized and doing business under the laws of the United States
or the State of New York, which is authorized under such laws to exercise
corporate trust powers and having at all times an aggregate capital, surplus,
and undivided profits of not less than $5,000,000 and having its principal
office and place of business in the Borough of Manhattan, the City and State of
New York.
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ARTICLE VII
Rights of Unit Holders
Section 7.01. Beneficiaries of Trust: By the purchase and
acceptance or other lawful delivery and acceptance of a Unit of the Trust the
Unit Holder shall be deemed to be a beneficiary of such Trust and vested with
all right, title and interest in the Trust attributable to such Unit, subject to
the terms and conditions of this Indenture and of the Certificate evidencing
such Unit.
Section 7.02. Rights, Terms and Conditions: In addition to the
other rights and powers set forth in the other provisions and conditions of this
Indenture, the Unit Holders shall have the following rights and powers and shall
be subject to the following terms and conditions:
(a) a Unit Holder may at any time tender his Units to
the Trustee for redemption in accordance with Section 5.02;
(b) the death or incapacity of any Unit Holder shall not
operate to terminate this Indenture or the Trust, nor entitle his legal
representatives or heirs to claim an accounting or to take any action
or proceeding in any court of competent jurisdiction for a partition or
winding up of the Trust, nor otherwise affect the rights, obligations
and liabilities of the parties hereto or any of them. Each Unit Holder
expressly waives any right he may have under any rule of law, or the
provisions of any statute, or otherwise, to require the Trustee at any
time to account, in any manner other than as expressly provided in this
Indenture, in respect of the Securities or moneys from time to time
received, held and applied by the Trustee hereunder;
(c) no Unit Holder shall have any right to vote or in any
manner otherwise control the operation and management of the Trust or
the obligations of the parties hereto, nor shall anything herein set
forth, or contained in the terms of the Certificates, be construed so
as to constitute the Unit Holders from time to time as partners or
members of any association; nor shall any Unit Holder ever be under any
liability to any third persons by reason of any action taken by the
parties to this Indenture, or any other cause whatsoever.
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ARTICLE VIII
Depositor
Section 8.01. Liabilities; Power of Attorney: The Depositor,
or the Depositors if there be more than one, shall be severally liable in
accordance herewith for the obligations imposed upon and undertaken by the
Depositor hereunder, provided, however, that, without in any way affecting or
diminishing such several liability, each Depositor of the Trust shall indemnify
the other Depositors thereof and hold such other Depositors harmless from and
against any and all costs, expenses and liabilities (including attorneys' fees)
which such other Depositors may suffer or incur as a result of or by reason of
any act or failure to act hereunder on the part of the indemnifying Depositor.
At all times prior to the termination of the Trust and while the Depositors
thereof shall continue to act jointly hereunder, there shall be maintained on
file with the Trustee a power of attorney executed in favor of one Depositor by
the other Depositors constituting and appointing the nonexecuting Depositor the
true and lawful agent and attorney-in-fact of the executing Depositors to
execute and deliver for and on behalf of the executing Depositors any and all
notices, opinions, certificates, lists, demands, directions, instruments, or
other documents provided or permitted to be executed or delivered by the
Depositors hereunder in connection with the Trust or to take any other action in
respect hereof. Such power of attorney shall continue in effect as to the
executing Depositors until written notice of revocation thereof has been given
by such executing Depositors to the Trustee. Prior to receipt of such notice of
revocation the Trustee shall be entitled to rely conclusively upon such power of
attorney as authorizing the non-executing Depositor to give any notice, opinion,
certificate, list, demand, direction, instrument or other document provided for
or permitted hereunder or to take any other action in respect hereof on behalf
of the executing Depositors as to which such power of attorney is in effect.
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Section 8.02. Discharge: (i) If there be more than one
Depositor, the following provisions shall provide for the discharge of a
Depositor and the liability of the Depositors in the event of the discharge
of a Depositor:
(a) in the event that any Depositor shall fail to undertake or
perform any of the duties which by the terms of this Agreement are
required by it to be undertaken or performed and such failure shall
continue for 30 days after notice to the Depositors from the Trustee or
if any Depositor shall become incapable of acting or shall have an
order of relief entered with respect to it, or a receiver of the
property of any Depositor shall be appointed or any public officer
shall take charge or control of any Depositor or its property or
affairs for the purpose of rehabilitation, conservation or liquidation,
then such Depositor shall forthwith be and shall be deemed to be
discharged forever as a Depositor hereunder and thereupon the remaining
Depositors shall act hereunder without the necessity of any other or
further action on its part or on the part of the Trustee;
(b) in the event that the power of attorney referred to in
Section 8.01 shall be revoked by written notice given by an executing
Depositor and it shall not be replaced within one business day by
another power of attorney conforming with the requirements of said
Section 8.01, the Depositors of the Trust shall be deemed to have been
unable to reach agreement with respect to action to be taken jointly by
them hereunder in connection with the Trust and thereupon the Depositor
which has revoked the power of attorney executed by it shall be
discharged hereunder upon the expiration of such one-day period and
thereupon the other Depositors shall act hereunder without the
necessity of any other or further action on their part or on the part
of the Trustee;
(c) notwithstanding the discharge of a Depositor of the Trust
in accordance with this Section 8.02, such Depositor shall continue to
be fully liable in accordance with the provisions hereof in respect of
action taken or refrained from under this Agreement by the Depositors
before the date of such discharge or by the undischarged Depositors
before or after the date of such discharge, as fully and to the same
extent as if no discharge has occurred.
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(ii) If there is only one Depositor the following provisions
shall provide for the discharge of the Depositor and the liability of the
Depositor in the event of the discharge of the Depositor:
(a) in the event that the Depositor shall fail to undertake or
perform any of the duties which by the terms of this Agreement are
required by it to be undertaken or performed and such failure shall
continue for thirty days after notice to the Depositor from the Trustee
or if the Depositor shall become incapable of acting or shall be
adjudged a bankrupt or insolvent, or a receiver of the property of the
Depositor shall be appointed or any public officer shall take charge or
control of the Depositor or its property or affairs for the purpose of
rehabilitation, conservation or liquidation, then such Depositor shall
forthwith be and shall be deemed to be discharged forever as a
Depositor hereunder;
(b) notwithstanding the discharge of a Depositor in accordance
with this Section 8.02(ii), such Depositor shall continue to be fully
liable in accordance with the provisions hereof in respect of action
taken or refrained from under this Agreement by the Depositor before
the date of such discharge as fully and to the same extent as if no
discharge had occurred.
Section 8.03. Successors: The covenants, provisions and
agreements herein contained shall in every case be binding upon any successor or
successors to any Depositor and shall be binding upon the General Partners of
any Depositor which may be a partnership and upon the capital interest of the
limited partners of any Depositor which may be a partnership. In the event of
the death, resignation or withdrawal of any partner of any Depositor which may
be a partnership, the partner so dying, resigning or withdrawing shall be
relieved of all further liability hereunder if at the time of such death,
resignation or withdrawal such Depositor maintains a net worth (determined in
accordance with generally accepted accounting principles) of at least
$1,000,000. in the event of an assignment by any Depositor to a successor
corporation or partnership as permitted by the next following sentence, such
Depositor and, if such Depositor is a partnership, its partners shall be
relieved of all further liability under this Agreement. Any Depositor may
transfer all or substantially all of its assets to a corporation or partnership
which carries on the business of such Depositor, if at the time of such transfer
such successor duly assumes all the obligations of such Depositor under this
Agreement.
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Section 8.04. Resignation: If at any time the Depositor of the
Trust shall desire to resign its position as such a Depositor hereunder, the
Depositor desiring to resign may resign by delivering to the Trustee an
instrument executed by such resigning Depositor and upon such delivery, the
resigning Depositor shall be discharged and shall no longer be liable in any
manner hereunder except as to acts or omissions occurring prior to such
delivery; provided, however, that concurrently with or subsequent to such
resignation the Trustee may appoint a new Depositor to act and to assume the
duties of the resigning Depositor. Such new Depositor shall not be under any
liability hereunder for occurrences or omissions prior to the effective time of
execution of such instrument.
Section 8.05. Additional Depositors: The Depositor of the
Trust and the Trustee may at any time appoint one or more corporations or
partnerships to act as new Depositor of such Trust, in addition to those
currently serving, by an instrument executed by such Depositor, the Trustee, and
such corporations or partnerships; provided, however, that at the time of such
execution each new Depositor maintains a net worth (determined in accordance
with generally accepted accounting principles) of at least $1,000,000. Upon such
execution, a new Depositor shall be deemed to be a depositor for all purposes
under this Indenture, and the covenants, provisions and agreements herein
contained shall in every case be binding upon such new Depositor and shall be
binding upon the General Partner of any such new Depositor which may be a
partnership and upon the capital interest of the limited partners of any such
new Depositor which may be a partnership, but such new Depositor shall not be
liable hereunder for occurrences or omissions prior to the effective time of
execution of such instrument.
Section 8.06. Exclusions from Liability:
The following provisions shall provide for certain exclusions from the
liability of the Depositor:
(a) no Depositor of the Trust shall be under any liability to
any other Depositor of the Trust, such Trust or the Unit Holders
thereof, for any action taken or for refraining from the taking of any
action in good faith pursuant to this Agreement, or for errors in
judgment or liable or responsible in any way for depreciation or loss
incurred by reason of the acquisition or sale of any Securities;
provided, however, that this provision shall not protect the Depositor
against any liability to which it would otherwise be subject by reason
of willful misfeasance, bad faith or gross negligence in the
performance of its duties or by reason of its reckless disregard of its
obligations and duties hereunder. The Depositor of the Trust may rely
in good faith on any paper, order, notice, list, affidavit, receipt,
evaluation, opinion, endorsement, assignment, draft or any other
document of any kind prima facie properly executed and submitted to
them, or any of them, by any other Depositor of the Trust, the Trustee,
bond counsel, the Evaluator or any other person. The Depositor shall in
no event be deemed to have assumed or incurred any liability, duty, or
obligation to any Unit Holder, the Evaluator or the Trustee other than
as expressly provided for herein;
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(b) the Depositor shall not be under any obligation to appear
in, prosecute or defend any legal action which in its opinion may
involve it in any expense or liability; provided, however, that the
Depositor may in its discretion undertake any such action which it may
deem necessary or desirable in respect of this Agreement and the rights
and duties of the parties hereto and the interests of the Unit Holders
hereunder;
(c) none of the provisions of this Agreement shall be deemed
to protect or purport to protect the Depositor of the Trust against any
liability to the Trust or to the Unit Holders thereof or to each other
(if there is more than one Depositor) to which the Depositor would
otherwise be subject by reason of willful misfeasance, bad faith or
gross negligence in the performance of the duties of the Depositor, or
by reason of the Depositor's reckless disregard of the obligations and
duties of the Depositor under this Agreement.
Section 8.07. Compensation: The Depositor shall receive at the
times set forth in Section 3.05 as compensation for performing portfolio
supervisory services, such amount and for such periods as are specified in the
Reference Trust Agreement. The computation of such compensation shall be made on
the basis of the aggregate face amount of Bonds in the Trust at the beginning of
each calendar year period. At no time, however, will the total amount received
by the Depositor for services rendered to all series of the National Municipal
Trust in any calendar year exceed the aggregate cost to it of supplying such
services in such year. Such rate may be increased from time to time, without the
consent or approval of any Certificateholder or the Depositor, by amounts not
exceeding the proportionate increase during the period from the date of such
Reference Trust Agreement to the date of any such increase, in consumer prices
as published either under the classification "All Services Less Rent" in the
Consumer Price Index published by the United States Department of Labor or, if
such Index is no longer published, a similar index.
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In the event that any amount of the compensation paid to the
Depositor pursuant to Section 3.05 is found to be an improper charge against the
Trust, the Depositor shall reimburse the Trust in such amount. An improper
charge shall be established if a final judgment or order for reimbursement of
the Trust shall be rendered against the Depositor and such judgment or order
shall not be effectively stayed or a final settlement is established in which
the Depositor agrees to reimburse the Trust for amounts paid to the Depositor
pursuant to this Section 8.07.
ARTICLE IX
Additional Covenants; Miscellaneous Provisions
Section 9.01. Amendments: This Indenture may be amended from
time to time by the parties hereto or their respective successors, without the
consent of any of the Unit Holders (a) to cure any ambiguity or to correct or
supplement any provision contained herein which may be defective or inconsistent
with any other provision contained herein; or (b) to make such other provision
in regard to matters or questions arising hereunder as shall not adversely
affect the interests of the Unit Holders; provided, that the Indenture may also
be amended by the Sponsor and the Trustee (or the performance of any of the
provisions of the Indenture may be waived) with the consent of Unit Holders
evidencing 51% of the Units at the time outstanding for the purposes of adding
any provisions to or changing in any manner or eliminating any of the provisions
of the Indenture or of modifying in any manner the rights of Unit Holders;
provided, further, that this Indenture (including any Reference Trust Agreement)
may not be amended (nor may any provision thereof be waived) so as to (1)
increase the number of Units issuable in respect of the Trust above the
aggregate number specified in Part II of the Reference Trust Agreement or such
lesser amount as may be outstanding at any time during the term of this
Indenture, or reduce the relative interest in the Trust of any Unit Holder
without his consent (2) permit the deposit or acquisition hereunder of
interest-bearing obligations or other securities or other property either in
addition to or in substitution for any of the Bonds or permit the Trustee to
engage in business or investment activities not specifically authorized in this
Indenture as originally adopted or (3) adversely affect the characterization of
the Trust as a grantor trust for federal income tax purposes.
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Promptly after the execution of any such amendment the Trustee
shall furnish written notification to all holders of then outstanding Units of
the substance of such amendment.
Section 9.02. Termination: The Trust shall terminate upon the
maturity, redemption, sale or other disposition as the case may be of the last
Security held in the Trust unless sooner terminated as hereinbefore specified
and may be terminated at any time by the written consent of the Holders of Fifty
One per cent of the Units of the Trust; provided, that in no event shall the
Trust continue beyond the Termination Date. Written notice of any termination,
specifying the time or times at which the Unit Holders of such Trust may
surrender any Certificates they hold for cancellation shall be given by the
Trustee to each Unit Holder at his address appearing on the registration books
of the Trustee. Within a reasonable period of time after termination of the
Trust the Trustee shall fully liquidate the Securities of the Trust then held,
if any, and shall:
(a) deduct from the Interest Account of the Trust or, to the
extent that funds are not available in such Account, from the Principal
Account of the Trust and pay to itself individually an amount equal to
the sum of (1) its accrued compensation for its ordinary recurring
services in connection with the Trust, (2) any compensation due it for
its extraordinary services and (3) any costs, expenses or indemnities
in connection with the Trust as provided herein;
(b) deduct from the Interest Account of the Trust or, to the
extent that funds are not available in such Account, from the Principal
Account of the Trust and pay any unpaid fees and expenses of bond
counsel in connection with the Trust, if any, as directed and certified
to by the Depositor;
(c) deduct from the Interest Account of the Trust or the
Principal Account of the Trust any amounts which may be required to be
deposited in the Reserve Account of the Trust to provide for payment of
any applicable taxes or other governmental charges and any other
amounts which may be required to meet expenses incurred under this
Indenture in connection with the Trust;
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(d) distribute to each Unit Holder of the Trust, upon
surrender for cancellation of his Certificate or Certificates, such
Holder's pro rata share of the balance of the Interest Account of the
Trust;
(e) together with such distribution to each Unit Holder as
provided for in (d) and (e), furnish to each such Unit Holder a final
distribution statement as of the date of the computation of the amount
distributable to Unit Holders, setting forth the data and information
in substantially the form and manner provided for in Section 3.06
hereof.
The amounts to be so distributed to each Unit Holder shall be
that pro rata share of the balance of the total Interest and Principal Accounts
of the Trust as shall be represented by the Units therein held of record by such
Unit Holder.
The Trustee shall be under no liability with respect to moneys
held by it in the Interest and Principal Accounts of the Trust or the Reserve
Account with respect to the Trust upon termination except to hold the same in
trust without interest until disposed of in accordance with the terms of this
Indenture.
In the event that all of the Unit Holders who hold
Certificates of the Trust shall not surrender their Certificates for
cancellation within six months after the time specified in the above-mentioned
written notice, the Trustee shall give a second written notice to the remaining
holders of Certificates to surrender their Certificates for cancellation and
receive the liquidation distribution with respect thereto. If within one year
after the second notice all the Certificates shall not have been surrendered for
cancellation, the Trustee may take steps, or may appoint an agent to take
appropriate steps, to contact the remaining holders of Certificates concerning
surrender of their Certificates and the cost thereof shall be paid out of the
moneys and other assets which remain in trust hereunder.
Section 9.03. Construction: This Indenture is delivered
in the State of New York, and all laws or rules of construction of such
State shall govern the rights of the parties hereto and the Unit Holders
and the interpretation of the provisions hereof.
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Section 9.04. Registration of Units: The Depositor agrees and
undertakes on its own part to register the Units with the Securities and
Exchange Commission or other applicable governmental agency pursuant to
applicable federal or state statutes, if such registration shall be required,
and to do all things that may be necessary or required to comply with this
provision during the term of each Trust which refers to this Indenture and the
Trustee shall incur no liability or be under any obligation or expense in
connection therewith.
Section 9.05. Written Notice: Any notice, demand, direction or
instruction to be given to the Depositor hereunder shall be in writing and shall
be duly given if mailed or delivered to the Depositor c/o Prudential-Bache
Securities Inc. at One Seaport Plaza, New York, New York 10292 or at such other
address as shall be specified by the Depositor to the other parties hereto in
writing. Any notice, demand, direction or instruction to be given to the Trustee
shall be in writing and shall be duly given if mailed or delivered to the
corporate trust office of the Trustee, 770 Broadway, New York, New York 10003,
Attention: Unit Investment Trust Division or such other address as shall be
specified to the other parties by the Trustee in writing. Any notice, demand,
direction or instruction to be given to the Evaluator shall be in writing and
shall be duly given if mailed or delivered to the Evaluator, Attention: Vice
President, Bond Department, 25 Broadway, New York, New York 10004, or such other
address as shall be specified to the other parties hereto by the Evaluator in
writing. Any notice to be given to the Unit Holders shall be duly given if
mailed or delivered to each Unit Holder at the address of such holder appearing
on the registration books of the Trustee.
Section 9.06. Severability: If any one or more of the
covenants, agreements, provisions or terms of this Indenture shall be held
contrary to any express provision of law or contrary to policy of express law,
though not expressly prohibited, or against public policy, or shall for any
reason whatsoever be held invalid, then such covenants, agreements, provisions
or terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Indenture and shall in no way affect the validity or
enforceability of the other provisions of this Indenture or of the Certificates,
or the rights of the Unit Holders.
<PAGE>
-56-
Section 9.07. Dissolution of Depositors Not to Terminate: The
dissolution of one or all of the Depositors (if more than one) from or for any
cause whatsoever shall not operate to terminate this Indenture insofar as the
duties and obligations of the Trustee and Evaluator are concerned.
IN WITNESS WHEREOF, Prudential-Bache Securities Inc. has
caused this Trust Indenture and Agreement to be executed by one of its Senior
Vice-Presidents and its corporate seal to be hereto affixed and attested by its
Secretary or Assistant Secretary; United States Trust Company of New York has
caused this Trust Indenture and Agreement to be executed by one of its Vice
Presidents or Assistant Vice Presidents and its corporate seal to be hereto
affixed and attested by one of its Assistant Secretaries and Standard & Poor's
Corporation has caused this Trust Indenture and Agreement to be executed by
facsimile signature by one of its Vice Presidents or Assistant Vice Presidents
and its corporate seal to be hereto affixed and attested by facsimile signature
by one of its Vice Presidents or Secretaries; all as of the day, month and year
first above written.
<PAGE>
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PRUDENTIAL-BACHE SECURITIES INC.,
Depositor
By /s/ Richard R. Hoffman
------------------------------
Vice President
[SEAL]
Attest:
By/s/ Herbert A. Kent
Assistant Secretary
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
I, Lorraine Santhay, a Notary Public in and for the said
County in the-State aforesaid, do hereby certify that Richard R. Hoffman and
Herbert A. Kent, personally known to me to be the same persons whose names are
subscribed to the foregoing instrument and personally known to me to be the Vice
President and Assistant Secretary, respectively, of Prudential-Bache Securities
Inc., a corporation, appeared before me this day in person, and acknowledged
that they signed, sealed with the corporate seal of Prudential-Bache Securities
Inc., and delivered the said instrument as their free and voluntary act as such
Senior Vice President and Assistant Secretary, respectively, and as the free and
voluntary act of said Prudential-Bache Securities Incorporated for the uses and
purposes therein set forth.
GIVEN, under my hand and notarial seal this 6th day of
September, 1989.
/s/ Lorraine Santhay
(SEAL) Notary Public
<PAGE>
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UNITED STATES TRUST COMPANY,
OF NEW YORK, Trustee
By /s/ Thomas Porrazzo
Assistant Vice President
[SEAL]
Attest:
By/s/ Ralph E. Messina
Assistant Secretary
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
I, Christine S. Samide, a Notary Public in and for the said
County in the State aforesaid, do hereby certify that Thomas Porrazzo and Ralph
E. Messina, personally known to me to be the same persons whose names are
subscribed to the foregoing instrument and personally known to me to be the
Assistant Vice President and Assistant Secretary, respectively, of United States
Trust Company of New York, a corporation, appeared before me this day in person,
and acknowledged that they signed, sealed with the corporate seal of the United
States Trust Company of New York, and delivered the said instrument as their
free and voluntary act as such Assistant Vice President and Assistant Secretary,
respectively, and as the free and voluntary act of said United States Trust
Company of New York for the uses and purposes therein set forth.
GIVEN, under my hand and notarial seal this 6th day of
September, 1989.
(SEAL) Notary Public
<PAGE>
-59-
STANDARD & POOR'S CORPORATION,
Evaluator
By
Title:
[SEAL]
Attest:
By/s/ James F. Butler
Title:
<PAGE>
Exhibit 23
Letterhead of Kenny S&P Evaluation Services
(a division of J.J. Kenny Co., Inc.)
February 28, 2000
Prudential Securities Incorporated
1 New York Plaza
New York, NY 10292
Re: National Municipal Trust
Post-Effective Amendment No. 6
Series 164
Gentlemen:
We have examined Registration Statement File No. 33-
66108 for the above-captioned trust. We hereby acknowledge
that Kenny S&P Evaluation Services, a division of J.J. Kenny
Co., Inc. is currently acting as the evaluator for the trust.
We hereby consent to the use in the Registration Statement of
the reference to Kenny S&P Evaluation Services, a division of
J.J. Kenny Co., Inc. as evaluator.
In addition, we hereby confirm that the ratings indi-
cated in the Registration Statement for the respective bonds
comprising the trust portfolio are the ratings indicated in our
KENNYBASE database as of the date of the Evaluation Report.
You are hereby authorized to file a copy of this let-
ter with the Securities and Exchange Commission.
Sincerely,
Frank A. Ciccotto
Frank A. Ciccotto
Vice President
<PAGE>
Ex-99.4
INVESTMENT ADVISORY AGREEMENT
Agreement, made as of the lst day of September, 1989,
between The Prudential Insurance Company of America, a New Jer-
sey mutual insurance company (hereinafter "Adviser") and Pru-
dential Bache Securities, Inc., a Delaware corporation
(hereinafter "Sponsor"), an indirect wholly-owned subsidiary of
Prudential.
WHEREAS, Sponsor has in the past sponsored numerous
series of Prudential Unit Trusts; and
WHEREAS, Sponsor has been appointed the sponsor of
all series of National Municipal Trusts; and
WHEREAS, Sponsor proposes to be the sponsor of all
series of Prudential Unit Trusts and National Municipal Trusts;
and
WHEREAS, all such unit investment trusts described
above, together with all subsequent series or different series
of Prudential Unit Trusts and/or National Municipal Trusts,
have been or shall be registered under the Investment Company
Act of 1940, as amended (the 1940 Act) (all such trusts re-
ferred to collectively herein as the "Trusts"); and
WHEREAS, Sponsor desires to retain Adviser to render
investment advisory and portfolio supervisory services; and
WHEREAS, Adviser desires to perform such services in
accordance with the terms of this Agreement;
In consideration of the premises and mutual promises and cove-
nants hereinafter set forth, THE PARTIES HEREBY AGREE AS
FOLLOWS:
1. Appointment of Adviser.
Sponsor hereby appoints the Adviser to act as invest-
ment adviser to it in respect of the Trusts for the period and
on the terms set forth in this Agreement. The Adviser accepts
such appointment and agrees to render the services herein set
forth, for the compensation herein provided. Sponsor acknowl-
edges that pursuant to a Service Agreement between Adviser and
its wholly-owned subsidiary The Prudential Investment Corpora-
tion ("PIC"), PIC will furnish such services as Adviser may re-
quire in connection with its performance of its obligations un-
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<PAGE>
der this Agreement. Adviser shall continue to have responsi-
bility for all investment advisory services undertaken by this
Agreement.
2. Service and Duties.
Subject to the general supervision of Sponsor, the
Adviser shall:
A. supervise the composition of the Trusts' portfo-
lio of securities, including the selection and purchase of such
securities for accumulation account of Sponsor for subsequent
deposit in the Trusts in accordance with the Trusts' investment
objectives and policies as stated in the prospectus relating to
each series of the Trusts.
B. determine the securities to be purchased by
Sponsor for subsequent deposit in the Trusts and as agent for
Sponsor will effect such purchases pursuant to its determina-
tions.
C. continuously monitor developments affecting the
securities in each series of Trust, including material changes
in the credit quality of securities holdings, and promptly rec-
ommend actions that Adviser believes should be taken, if any,
based upon such material changes.
D. make recommendations to the Sponsor to direct
the Trustee of such Trust, as appropriate, to: (i) hold Trust
securities; (ii) sell Trust securities; (iii) consent or refuse
consent to modifications, amendments or adjustments to the
terms of any security in a Trust or agree to an exchange offer
or other similar transaction; or (iv) hold securities of an is-
suer which may be experiencing financial difficulty in in-
stances where the Adviser believes that a negotiated settlement
or "workout" may result in a better return to holders of Trust
units than a sale of such securities.
With respect to (iv), if Sponsor concurs with Ad-
viser's recommendation, Adviser shall monitor the work-out
situation and/or participate in negotiations, and provide ad-
vice to Sponsor, provided that Sponsor or Trust shall bear the
expense of retention of outside counsel or other experts which
Adviser may recommend or any other costs which may result from
such recommendation. Any modification of terms of securities
held in a Trust as a result of such negotiations, the incurring
of additional expenses by the trust and/or the acceptance of
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<PAGE>
the terms of any settlement must be authorized by Sponsor or
Trustee.
Notwithstanding anything in this section 2D to the
contrary, any expense of counsel, accountants, consultants
and/or other entities or persons the retention of which is
deemed necessary by the Adviser in order for the Adviser to
make recommendations to the Sponsor as set forth herein shall
be borne solely by the Adviser.
3. Brokerage.
Adviser may purchase securities either directly from
the issuer or from any broker and/or dealer in such securities,
including Sponsor or any other affiliate; in placing orders
with brokers and/or dealers the Adviser intends to seek best
price and execution for purchases and sales; the foregoing un-
derstanding, however, being subject in all respects to the fol-
lowing:
On occasions when the Adviser deems the purchase of a
security to be in the best interest of the Trusts as well as
affiliates or other customers of the Adviser, the Adviser may,
to the extent permitted by applicable laws and regulations, but
shall not be obligated to, aggregate the securities to be pur-
chased in order to obtain the best execution and lower broker-
age commissions, if any. In such event, allocation of the se-
curities so purchased, as well as the expense incurred in the
transaction, will be made by the Adviser in the manner it con-
siders to be the most equitable and consistent with its fiduci-
ary obligations to its affected customers.
It is also understood that it is desirable that the
Adviser have access to supplemental investment and market re-
search and security and economic analysis provided by brokers
who may execute brokerage transactions at a higher cost than
may result when allocating brokerage to other brokers on the
basis of seeking the most favorable price and efficient execu-
tion. Therefore, the Adviser is authorized to place orders for
the securities with such brokers subject to review by the Spon-
sor from time to time with respect to the extent and continua-
tion of this practice. It is understood that the services pro-
vided by such brokers may be useful to the Adviser in connec-
tion with its services to other clients.
4. Provision of Funds.
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<PAGE>
The Adviser shall have no obligation to provide funds
or credit for the purchase of securities on behalf of Sponsor,
such funds or credit to be provided by Sponsor to the Adviser
or as directed by the Adviser promptly upon demand therefor.
5. Delivery of Securities.
The Adviser shall arrange for the delivery of the se-
curities purchased on behalf of Sponsor to the offices of Spon-
sor or any other location that Sponsor may specify.
6. Duty of Care.
The Adviser shall use the same skill and care in the
selection of the Trusts' portfolios as it uses in the admini-
stration of other accounts for which it has investment respon-
sibility as agent.
7. Compliance With Prospectus and Applicable Law.
The Adviser, in the performance of its duties and ob-
ligations under this Agreement, shall act in conformity with
the Prospectus for each series of the Trusts and with the in-
structions and directions of Sponsor and will conform to and
comply with all applicable federal and state laws and regula-
tions.
8. Insurance.
With respect to any insured series of the Trust the
Adviser shall arrange for security insurance, which term shall
include all forms of portfolio insurance and insurance to ma-
turity, provided, however, that for any Trust whose Portfolio
contains securities that are not insured prior to the Date of
Deposit, the Adviser shall select an Insurer unless Sponsor
shall object to such Insurer selected in which case an Insurer
agreeable both to the Adviser and Sponsor shall be selected,
and the cost of such insurance shall be paid directly to the
insurer by Sponsor or by the Trust for insured Trusts which
have purchased security insurance.
9. Reports.
The Adviser shall provide written reports to Sponsor
at least annually, describing the overall credit quality of the
Trusts, which reports detail material changes in credit quality
of any of the securities held by the Trusts.
II-4
<PAGE>
10. Valuations.
Subject to the general supervision of Prudential-
Bache, the Adviser shall continuously monitor developments af-
fecting the securities in each series of the Trusts, including
a periodic review of the pricing evaluation of the evaluator of
the securities in the Trusts to ascertain the reasonableness of
such evaluations, and shall report any evaluations it believes
to be unreasonable to Sponsor.
11. Books and Records.
The Adviser shall (1) maintain books and records with
respect to the securities transactions in respect of the Trusts
to the extent relevant as set forth in Regulation 270.3la-1,
(b)(1), (b)(5), (b)(6), (b)(7), (b)(9), (b)(10), and (b)(12) of
the 1940 Act, (2) render to Sponsor immediate reports of such
transactions and (3) maintain books and records providing the
substantiation for the annual reports relating to the portfolio
supervisory services rendered by the Adviser.
The Adviser agrees that all records which it main-
tains for Sponsor are the property of Sponsor and it will
promptly surrender any of such records to Sponsor upon Spon-
sor's request. The Adviser further agrees to preserve for a
period of not less than six years or for such other period as
the Securities and Exchange Commission shall require any such
records as are required to be maintained by the Adviser with
respect to services rendered on behalf of Sponsor.
12. Conflicts of Interest.
The investment advisory services of the Adviser to
the Trusts under this Agreement are not to be deemed exclusive,
and the Adviser shall be free to render similar services to
others. Adviser may give advice and take action with respect
to any of its own or affiliated accounts, or the accounts of
other clients which may differ from action taken with respect
to the Trust's account.
13. Expenses.
During the term of this Agreement, the Adviser will
(i) furnish, at the Adviser's expense, the services of such
persons competent to perform the duties set forth in this
Agreement, including such administrative and clerical functions
as are necessary, in order to provide the effective selection
and effectuation of purchases of securities for the Trusts and
II-5
<PAGE>
to provide continuous portfolio supervisory services and main-
tain or provide for the maintenance of such books and records
as are required to be maintained; (ii) provide, at the Ad-
viser's expense, adequate office space and utilities and all
necessary office equipment and related services for those per-
sons performing the duties set forth in this Agreement; and
(iii) pay all expenses incurred by it in connection with its
activities under this Agreement other than the costs of securi-
ties purchased for the Trusts and any taxes and brokerage com-
missions or insurance premiums in connection therewith, and any
additional expenses incurred as a result of negotiations or
work-outs approved by Sponsor or Trustee as provided in Para-
graph 2D.
14. Compensation
A. For the services to be rendered and the obliga-
tions assumed by the Adviser pursuant to this Agreement, Spon-
sor will pay to the Adviser the following: (a) .06% of the ag-
gregate par amount of all securities purchased for and depos-
ited in each Trust; and (b) 20% of the Cumulative Accumulation
Amount realized by Sponsor on the effective date of the Trusts.
For the purposes hereof, "Cumulative Accumulation Amount" means
the gross accumulation account profits less accumulation ac-
count losses realized by Sponsor upon the effective date of the
Trusts, less letter of credit costs and insurance premiums paid
by Sponsor covering securities in the Trusts. Cumulative Accu-
mulation Amount shall not include any profit or loss realized
by the Sponsor subsequent to the effective date of the Trusts.
In the event the Cumulative Accumulation Amount is a loss, the
Adviser shall owe Sponsor 20% of such loss, but only if payment
of such amount may be accomplished by deducting such amount
from amounts due and owing by Sponsor to Adviser pursuant to
subparagraphs A and B of this paragraph 14.
B. The Adviser may determine to sell a security or
securities and if so directed by Sponsor will sell a security
or securities held in the accumulation account of Sponsor prior
to the deposit of such security or securities into the Trusts.
Such sale or sales may result in the realization of a profit or
a loss. Sponsor shall pay the Adviser 20% of the Cumulative
Predeposit Transaction Amount if such amount shall reflect a
profit and the Adviser shall owe Sponsor 20% of the Cumulative
Predeposit Transaction Amount if such amount shall reflect a
loss, the Adviser shall owe Sponsor 20% of such loss, but only
if payment of such amount may be accomplished by deducting such
amount from amounts due and owing by Sponsor to Adviser pursu-
ant to subparagraphs A and B of this paragraph 14. For the
II-6
<PAGE>
purposes hereof "Cumulative Predeposit Transaction Amount"
shall mean the amount of the aggregate of all profits realized
less the amount of the aggregate of all losses realized from
the sale of securities purchased after the date of this Agree-
ment and prior to deposit into and effectiveness of the Trusts
and shall include any hedging gains or losses realized.
C. Payments set forth above in sub-paragraphs A and
B shall be made by Sponsor to Adviser on a quarterly basis
within 30 days of the end of each quarter. The calculation of
payments pursuant to subparagraph 14A shall be made on a quar-
terly basis, based on all Trusts whose effective date falls
within each such quarter. The calculation of payments pursuant
to subparagraph 14B shall be made on a quarterly basis, based
on all trades for which the trade date falls within each such
quarter. In the event that certain figures affecting the pay-
ment amount are not available, such amount(s) will be excluded
from the current quarterly payment calculation and applied to
the next quarterly payment. A sample form of billing is at-
tached to this Agreement.
D. Sponsor agrees that if Adviser shall not have
earned a minimum of $200,000 by one year from the date of this
Agreement and for each annual period thereafter from compensa-
tion earned pursuant to sub-paragraphs A and B above, Sponsor
will pay the difference between the amount earned and $200,000,
such amount being due and payable within 120 days after the end
of each such annual period.
E. Sponsor shall pay an additional fee of $325,000,
for the one year period from the date hereof and such amounts
as shall be agreed to for each annual period thereafter. Such
fee is to be paid in quarterly installments, which fee is in
payment for the review, analysis and supervision of existing
National Municipal Trusts Series. Adviser shall provide to the
Sponsor an allocation by trust, of time spent in connection
with such review, analysis and supervision at the end of each
one year period.
15. Limitation on Liability.
The Adviser shall not be liable for any error of
judgment or for any loss suffered by Sponsor or the Trusts in
connection with the matters to which this Agreement relates,
except a loss resulting from willful misfeasance, bad faith or
gross negligence on its part in the performance of its duties
or from reckless disregard by it of its obligations and duties
under this Agreement.
II-7
<PAGE>
16. Status of Adviser.
Except as otherwise provided herein, the Adviser
shall for all purposes herein be deemed to be an independent
contractor and shall have no authority to act for or represent
the Trusts in any way or otherwise be deemed an agent of the
Trusts except in the normal course of fulfilling its duties un-
der this Agreement.
17. Notification.
During the term of this Agreement, Sponsor agrees to
furnish the Adviser at its principal office all prospectuses,
updates, reports, sales literature, or other material prepared
for distribution to investors in the Trusts or the public,
which refer to the Adviser in any way, prior to use thereof and
not to use such material if the Adviser reasonably objects in
writing within five business days (or such other time as may be
mutually agreed) after receipt thereof. In the event of termi-
nation of this Agreement, Sponsor will continue to furnish to
the Adviser copies of any of the above-mentioned materials
which refer in any way to the Adviser.
Sponsor shall furnish on a monthly basis detailed in-
formation concerning redemption of Trust units, bond calls and
sales directed and executed by Sponsor and/or Trustee, or any
other change to a Trust portfolio which is effected by a party
other than Adviser. In addition, Sponsor shall furnish or oth-
erwise make available to the Adviser such other information re-
lating to the business affairs of the Trusts as the Adviser at
any time, or from time to time, reasonably requests in order to
discharge its obligations hereunder.
18. Duration and Termination.
This Agreement, unless sooner terminated as provided
herein, shall continue automatically for successive twelve
month periods. This Agreement may be terminated by either
party at any time on thirty days notice to the other, which no-
tice shall be in writing delivered by registered mail or any
express mail service. This Agreement will automatically and
immediately terminate in the event of its assignment (as de-
fined in the 1940 Act).
19. Amendment of This Agreement.
This Agreement may be amended by mutual consent, but
any such amendment must be evidenced by an instrument in writ-
II-8
<PAGE>
ing signed by the party against which enforcement of such
amendment is sought.
20. Miscellaneous.
The captions in this Agreement are included for con-
venience of reference only and in no way define or delimit any
of the provisions hereof or otherwise affect their construction
or effect. If any provisions of this Agreement shall be held
or made invalid by a court decision, statute, rule or other-
wise, the remainder of this Agreement shall not be affected
thereby. This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective suc-
cessors.
21. Governing Law.
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused
this instrument to be executed by their officers designated be-
low as of the day and year first above written.
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By: /s/ James A. Gregoire
Name: James A. Gregoire
Title:Managing Director
PRUDENTIAL-BACHE SECURITIES,
INC.
By: Name:
Title:
II-9
