Rule 497(b)
Reg. No. 33-66102
<PAGE>
PART A
- --------------------------------------------------------------------------------
NMT [LOGO] NATIONAL MUNICIPAL TRUST
SERIES 165
MULTISTATE SERIES 62
- --------------------------------------------------------------------------------
National Municipal Trust, Series 165 designated as the National Trust
(Laddered Maturities) (the 'National Trust (Uninsured)') and Multistate Series
62 which consists of three separate underlying unit investment trusts designated
as the California Trust (Laddered Maturities), the Florida Trust (Insured
(Laddered Maturities)) and the New York Trust (Laddered Maturities) (the
'California Trust', the 'Florida Trust (Insured)' and the 'New York Trust
(Uninsured)', collectively the 'State Trusts' or singularly, the 'State Trust')
(the 'Trusts' or the 'Trust' or in the case of the Florida Trust (Insured), the
'Insured Trust') are composed of interest-bearing municipal bonds and contracts
and funds for the purchase thereof (the 'Securities'). The Securities in the
State Trusts are issued primarily by or on behalf of the State for which the
State Trust is named and counties, municipalities, authorities and political
subdivisions thereof. 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) and, as respects the underlying State
Trusts, exempt from State and any local income taxes to individual Unit Holders
resident in the State for which the State Trust is named. Each municipal bond in
the Insured Trust is covered by an irrevocable insurance policy as a result of
which the Units of the Insured Trust were rated AAA by Standard & Poor's
Corporation as of the Date of Deposit. The National Trust (Uninsured), the
California Trust, the Florida Trust (Insured) and the New York Trust (Uninsured)
are structured to return to Unit Holders each year beginning
in approximately the seventh year of each Trust, approximately 16.6% of the
per Unit principal amount of the Securities included in each Trust.
(See 'Schedule of Portfolio Securities.')
The objectives of each Trust are the providing of interest income which, in the
opinion of counsel is, under existing law, excludable from gross income for
Federal income tax purposes (except in certain instances depending on the Unit
Holder) through investment in a fixed portfolio consisting primarily of
investment grade state, municipal and public authority debt obligations with
maturities as designated in Part A, and the conservation of capital. Insurance
guaranteeing the scheduled payment of principal of and interest on the
securities in the Florida Trust (Insured) to the maturity of such Securities has
been obtained at the cost of the issuer at the time of issuance. There is, of
course, no guarantee that the Trusts' objectives will be achieved. No
representation is made as to the insurers' ability to meet their commitments.
The value of the Units of each Trust will fluctuate with the value of the
portfolio of underlying Securities. The Securities in Series 165 and the New
York Trust (Uninsured) are not insured. The Securities in the Trusts are not
insured by The Prudential Insurance Company of America.
Minimum Purchase: 1 Unit.
PUBLIC OFFERING PRICE of the Units of each Trust during the initial public
offering period is equal to the aggregate offering side evaluation of the
underlying Securities in each 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.')
(continued on next page)
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
SPONSOR:
PRUDENTIAL SECURITIES [LOGO]
- --------------------------------------------------------------------------------
PLEASE READ AND RETAIN Prospectus dated
THIS PROSPECTUS FOR FUTURE REFERENCE January 27, 1994
<PAGE>
- --------------------------------------------------------------------------------
This Prospectus does not contain all of the information with respect to the
investment company set forth in its registration statement and exhibits relating
thereto which have been filed with the Securities and Exchange Commission,
Washington, D.C. under the Securities Act of 1933 and the Investment Company Act
of 1940, and to which reference is hereby made.
- --------------------------------------------------------------------------------
INSURANCE guaranteeing the scheduled payments of principal of and interest
on the Securities in the portfolio of the Florida Trust (Insured) has been
obtained by the issuer at the cost of the issuer at the time of issuance of the
Securities from AMBAC Indemnity Corporation ('AMBAC'), Capital Market Assurance
Corporation ('CapMAC'), Connie Lee Insurance Company ('Connie Lee'), Capital
Guaranty Insurance Company ('Cap. Gty.'), Financial Security Assurance ('FSA'),
Municipal Bond Insurance Association ('MBIA'), Municipal Bond Investors
Assurance Corporation ('MBIAC') and/or Financial Guaranty Insurance Company
('Financial Guaranty' or 'FGIC') (singularly, each an 'Insurance Company' and,
collectively, the 'Insurance Companies'). (See Part B--'The Trust--Insurance on
the Securities in the Portfolio of an Insured Trust'). As a result of the
insurance, the Securities and the Units of the the Florida Trust (Insured) have
received a rating of AAA by Standard & Poor's Corporation. There can be no
assurance that Units of the Florida Trust (Insured) will retain this AAA rating.
There is, of course, no guarantee that the objectives of the Florida Trust
(Insured) will be achieved since an issuer may be unable to meet its principal
and interest payment obligations and, in such event, the Insurance Company
involved may be unable to satisfy its insurance obligation. Insurance is not a
substitute for the basic credit of an issuer, but supplements the issuer's
existing credit and provides additional security therefor. NO REPRESENTATION IS
MADE AS TO THE ABILITY OF THE INSURANCE COMPANIES TO MEET THEIR COMMITMENTS.
THE CALIFORNIA TRUST. Insurance guaranteeing the scheduled payments of
principal of and interest on seven of the Securities in the Portfolio of the
California Trust has been obtained by the issuer at the cost of the issuer at
the time of issuance of the Securities from one of the above-listed insurance
companies. The remaining two Securities in the Portfolio of the California Trust
are not insured but are collateralized by a mortgage-backed security of the
modified pass-through type, fully guaranteed as to principal and interest by the
Government National Mortgage Association ('Ginnie Mae'), as a result of which,
the Securities are rated Aaa by Moody's Investors Service. Ginnie Maes are
backed by the full faith and credit of the United States. The mortgage loan
which backs the Ginnie Mae is insured by the Federal Housing Administration.
There is, of course, no guarantee that the objectives of the California Trust
will be achieved since those Securities that are insured are subject to the
risks stated above under 'INSURANCE' and those issues that are collateralized
subject a Unit Holder to the risk that in the event that the mortgage loan is
prepaid redemptions of the Securities would result in a return of principal
earlier than scheduled which principal may be able to be reinvested by a Unit
Holder at such time only at lower rates of interest.
MONTHLY DISTRIBUTIONS of principal, premium, if any, and interest received
by each Trust will be made on or shortly after the twenty-fifth day of each
month to Unit Holders of record on the tenth day of such month, commencing with
the first distribution on the date indicated herein. In some cases distribution
on a semiannual 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 each 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.')
Subsequent to the Date of Deposit, the Sponsor may deposit additional
Securities in a trust (where additional Units are to be offered to the public).
(See Part B--'The Trust').
SPECIAL CONSIDERATIONS. An investment in Units of each Trust should be made
with an understanding of the risks which an investment in fixed rate debt
obligations with maturities of approximately seven to twelve years may entail,
including the risk that the value of the Units will decline with increases in
interest rates. Insurance obtained by the Security issuer does not guarantee the
market value of the Securities or the value of the Units. Any such insurance
obtained by the issuer may be considered to represent an element of market value
in regard to the Securities thus insured. The insurance on the Securities in the
Florida Trust (Insured) does not protect Unit Holders from the risk that the
value of the units may decline. (See Part B--'The Trust--Portfolio Summary.')
Subsequent to the Date of Deposit the ratings of the Securities set forth in
Part A--'Schedule of Portfolio Securities' may have declined due to, among other
factors (including a decline in the creditworthiness of an insurer in the case
of an insured trust which may also result in a reduction in the AAA rating of
the Units of an Insured Trust), a decline in creditworthiness of the issuer of
said Securities.
A-1
<PAGE>
LADDERED MATURITIES. The National Trust (Uninsured), the California Trust,
the Florida Trust (Insured) and the New York Trust (Uninsured) are structured to
return to Unit Holders each year beginning in approximately the seventh year of
each Trust approximately 16.6% of the per Unit principal amount of the
Securities included in each Trust. (See 'Schedule of Portfolio Securities.') The
timing and percentage amount of principal return may vary from the estimated
cash flow schedule on the Date of Deposit if Securities are sold for credit
reasons or as a result of redemptions or if an issuer calls or fails to call a
Security. Such sale, call or failure to call may result in an increase in, a
decrease in, or the elimination of, a return of principal in one or more years.
If interest rates rise, Unit Holders may be able to reinvest their principal
distributions as received in higher-yielding obligations. Conversely, however,
if interest rates decline, Unit Holders will be receiving payments of principal
at times when only lower-yielding investments of comparable quality are
available. Reinvesting at such time may result in an over-all lower yield than
would result from a single investment maturing at the close of the life of the
Trust.
PORTFOLIO SUMMARY AS OF DATE OF DEPOSIT
National Trust (Uninsured)
The Portfolio contains 9 issues of Securities of issuers located in 9
states. Three of the issues (22.55%* of the Trust) are general obligations of
governmental entities and are backed by the general taxing powers of the
entities. 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.
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: education facilities: 33.71%* of the Trust;
health and hospital facilities: 3.35%* of the Trust; pollution control
facilities: 9.99%* of the Trust; power facilities: 16.58%* of the Trust; water
and sewer facilities: 13.82%* of the Trust. The Trust is concentrated in
education facilities Securities.
Three Securities in the Trust (representing 28.6%* of the Trust) have been
purchased on a 'when, as and if issued' or 'delayed delivery' basis with
delivery expected to take place 7 to 28 days after the first settlement date for
the purchase of Units. Accordingly, the delivery of such Securities may be
delayed or may not occur. Unit Holders who purchase Units prior to settlement of
such Securities will be 'at risk' with respect to such Securities (i.e., they
may derive either gain or loss from changes in the prices of such Securities)
from the date they commit to purchase such Units. However, interest on such
Securities will not begin accruing to the benefit of Unit Holders as tax-exempt
interest until such Securities' date of delivery.
As of the Date of Deposit, 100%* of the Securities in the Trust are rated
by Standard & Poor's Corporation (18.8%* being rated AAA, 33.5%* being rated AA
and 47.7%* being rated A). For a description of the meaning of the applicable
rating symbols as published by Standard & Poor's, see Part B--'Bond Ratings'. It
should be emphasized, however, that the ratings of Standard & Poor's represent
its opinion as to the quality of the Securities which it undertakes to rate and
that these ratings are general and are not absolute standards of quality.
Five Securities in the Trust have been issued with an 'original issue
discount'. (See Part B--'Tax Status'.)
Of these original issue discount bonds, approximately 3.85% of the
aggregate principal amount of the Securities in the Trust (although only 2.05%*
of the aggregate offering price of all Securities in the Trust on the Date of
Deposit) 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.)
Alternative Minimum Tax
The Sponsor's affiliate, The Prudential Investment Corporation, estimates
that 34.7% of the estimated annual income per Unit consists of interest on
private activity bonds, which interest is to be treated as a tax preference item
for alternative minimum tax purposes (see 'Tax Status' and 'Schedule of
Portfolio Securities').
The Sponsor participated as sole underwriter or manager or member of
underwriting syndicates from which approximately 6.8%* of the Trust was
acquired.
California Trust
The Portfolio contains 9 issues of Securities of issuers located in the
State of California. 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: certificates of participation: 16.55%*
of the Trust; health and hospital facilities: 42.09%*
- ------------------
* Percentage computed on the basis of the aggregate offering price of the
Securities in the Trust on the Date of Deposit.
A-2
<PAGE>
of the Trust; housing facilities: 16.81%* of the Trust; tax allocation bonds:
24.55%* of the Trust. The Trust is concentrated in health and hospital and tax
allocation facilities Securities.
The Portfolio also contains Securities representing 9.4%* of the Trust
(single-family housing securities) which are subject to the requirements of
Section 103A of the Internal Revenue Code of 1954, as amended, or Section 143 of
the Internal Revenue Code of 1986.
Five Securities in the Trust (representing 56.9%* of the Trust) have been
purchased on a 'when, as and if issued' or 'delayed delivery' basis with
delivery expected to take place seven days after the first settlement date.
Accordingly, the delivery of such Securities may be delayed or may not occur.
Unit Holders who purchase Units prior to settlement of such Securities will be
'at risk' with respect to such Securities (i.e., they may derive either gain or
loss from changes in the prices of such Securities) from the date they commit to
purchase such Units. However, interest on such Securities will not begin
accruing to the benefit of Unit Holders as tax-exempt interest until such
Securities' date of delivery.
As of the Date of Deposit, 83.2%* of the Securities in the Trust are rated
AAA by Standard & Poor's Corporation and 16.8%* are rated Aaa by Moody's
Investor Service, 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.
Four Securities in the Trust have been issued with an 'original issue
discount'. (See Part B--'Tax Status'.)
Of these original issue discount bonds, approximately 1.67% of the
aggregate principal amount of the Securities in the Trust (although only 1.12%*
of the aggregate offering price of all Securities in the Trust on the Date of
Deposit) 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.)
The Securities in the Trust are insured to maturity by the insurance
obtained by the issuer from the following insurance companies: AMBAC: 16.8%*;
Connie Lee: 16.7%*; FGIC: 1.1%*; MBIA & MBIAC: 48.6%*.
Florida Trust (Insured)
The Portfolio contains seven issues of Securities of issuers located in the
State of Florida. Two of the issues (16.81%* of the Trust) are general
obligations of governmental entities and are backed by the general taxing powers
of the entities. 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. 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: education facilities: 16.65%* of the
Trust; health and hospital facilities: 16.65%* of the Trust; lease facilities:
16.65%* of the Trust; utility facilities: 16.59%* of the Trust; water and sewer
facilities: 16.65%* of the Trust.
Four Securities in the Trust (representing 66.3%* of the Trust) have been
purchased on a 'when, as and if issued' or 'delayed delivery' basis with
delivery expected to take place 5 to 7 days after the first settlement date.
Accordingly, the delivery of such Securities may be delayed or may not occur.
Unit Holders who purchase Units prior to settlement of such Securities will be
'at risk' with respect to such Securities (i.e., they may derive either gain or
loss from changes in the prices of such Securities) from the date they commit to
purchase such Units. However, interest on such Securities will not begin
accruing to the benefit of Unit Holders as tax-exempt interest until such
Securities' date of delivery.
As of the Date of Deposit, 100%* of the Securities in the Trust are rated
AAA by Standard & Poor's Corporation. For a description of the meaning of the
applicable rating symbols as published by Standard & Poor's, see Part B--'Bond
Ratings'. It should be emphasized, however, that the ratings of Standard &
Poor's represent its opinion as to the quality of the Securities which it
undertakes to rate and that these ratings are general and are not absolute
standards of quality.
The Securities in the Trust are insured to maturity by the insurance
obtained by the issuer from the following insurance companies: AMBAC: 33.6%*;
FSA: 49.8%*; MBIA & MBIAC: 16.6%*.
The Sponsor participated as sole underwriter or manager or member of
underwriting syndicates from which approximately 49.8%* of the Trust was
acquired.
- ------------------
* Percentage computed on the basis of the aggregate offering price of the
Securities in the Trust on the Date of Deposit.
A-3
<PAGE>
New York Trust (Uninsured)
The Portfolio contains 8 issues of Securities of issuers located in the
State of New York. Two of the issues (16.99%* of the Trust) are general
obligations of governmental entities and are backed by the general taxing powers
of the entities. 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. 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: capital improvement bonds: 16.65%* of
the Trust; health and hospital facilities: 33.33%* of the Trust; lease
facilities: 15.47%* of the Trust; transportation facilities: 16.57%* of the
Trust; miscellaneous: .99%* of the Trust. The Trust is concentrated in health
and hospital facilities Securities.
The Portfolio also contains Securities representing 16.7%* of the Trust
(single-family housing securities) which are subject to the requirements of
Section 103A of the Internal Revenue Code of 1954, as amended, or Section 143 of
the Internal Revenue Code of 1986.
Three Securities in the Trust (representing 33.1%* of the Trust) have been
purchased on a 'when, as and if issued' or 'delayed delivery' basis with
delivery expected to take place 5 to 21 days after the first settlement date.
Accordingly, the delivery of such Securities may be delayed or may not occur.
Unit Holders who purchase Units prior to settlement of such Securities will be
'at risk' with respect to such Securities (i.e., they may derive either gain or
loss from changes in the prices of such Securities) from the date they commit to
purchase such Units. However, interest on such Securities will not begin
accruing to the benefit of Unit Holders as tax-exempt interest until such
Securities' date of delivery.
As of the Date of Deposit, 100%* of the Securities in the Trust are rated
by Standard & Poor's Corporation (33.1%* being rated AAA, 33.7%* being rated A
and 33.2%* being rated BBB+). For a description of the meaning of the applicable
rating symbols as published by Standard & Poor's, see Part B--'Bond Ratings'. It
should be emphasized, however, that the ratings of Standard & Poor's represent
its opinion as to the quality of the Securities which it undertakes to rate and
that these ratings are general and are not absolute standards of quality.
Six Securities in the Trust have been issued with an 'original issue
discount'. (See Part B--'Tax Status'.)
Of these original issue discount bonds, approximately .50% of the aggregate
principal amount of the Securities in the Trust (although only .25%* of the
aggregate offering price of all Securities in the Trust on the Date of Deposit)
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.)
The Sponsor participated as sole underwriter or manager or member of
underwriting syndicates from which approximately 34.3%* of the Trust was
acquired.
- ------------------
* Percentages computed on the basis of the aggregate offering price of the
Securities in the Trust on the Date of Deposit.
+ 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. (See Part
B-- 'Bond Ratings.')
A-4
<PAGE>
UNDERWRITING ACCOUNT
The names of the Underwriters and the numbers of Units each has agreed to
purchase from the Underwriting Account are:
<TABLE>
<CAPTION>
UNITS
-------------------------------------------------------
NATIONAL TRUST FLORIDA TRUST
UNDERWRITERS (UNINSURED) CALIFORNIA TRUST (INSURED)
- ---------------------------------------------------------- -------------- ---------------- -------------
<S> <C> <C> <C>
Prudential Securities Incorporated........................ 6,150 2,900 2,750
Nathan & Lewis Securities, Inc............................ 500
William R. Hough & Co..................................... 250 250
Gruntal & Co. Incorporated................................ 100
Oppenheimer & Co., Inc.................................... 100
Roosevelt & Cross, Inc.................................... 100
M.L. Stern & Co. Inc...................................... 100 100
Stifel, Nicolaus & Co., Inc............................... 100
Southwest Securities, Inc................................. 100
W.H. Newbold's Son & Co.
(division of Fahnestock & Co. Inc.).....................
-------------- ------- -------------
7,500 3,000 3,000
-------------- ------- -------------
-------------- ------- -------------
<CAPTION>
NEW YORK TRUST
UNDERWRITERS (UNINSURED)
- ---------------------------------------------------------- --------------
<S> <C>
Prudential Securities Incorporated........................ 2,500
Nathan & Lewis Securities, Inc............................ 100
William R. Hough & Co.....................................
Gruntal & Co. Incorporated................................ 100
Oppenheimer & Co., Inc.................................... 100
Roosevelt & Cross, Inc.................................... 100
M.L. Stern & Co. Inc......................................
Stifel, Nicolaus & Co., Inc...............................
Southwest Securities, Inc.................................
W.H. Newbold's Son & Co.
(division of Fahnestock & Co. Inc.)..................... 100
--------------
3,000
--------------
--------------
</TABLE>
<PAGE>
NATIONAL MUNICIPAL TRUST
SUPPLEMENT TO PROSPECTUS DATED JANUARY 28, 1994
The Tables of Estimated Cash Flow to Unit Holders that appear on pages A-5
and A-6 of the prospectus for National Municipal Trust Series 165 and Multistate
Series 62 dated January 27, 1994 are replaced by the following:
<TABLE>
<CAPTION>
NATIONAL TRUST (UNINSURED) CALIFORNIA TRUST FLORIDA TRUST (INSURED) NEW YORK TRUST (UNINSURED)
- --------------------------- --------------------------- --------------------------- ---------------------------
DATE $ AMOUNT DATE $ AMOUNT DATE $ AMOUNT DATE $ AMOUNT
- ------------------ -------- ------------------ -------- ------------------ -------- ------------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
2/25/94 $ 0.90 2/25/94 $ 0.85 2/25/94 $ 0.82 2/25/94 $ 0.91
3/25/94-12/25/00 3.88 3/25/94-2/25/01 3.65 3/25/94-12/25/00 3.54 3/25/94-7/25/01 3.92
1/25/01 104.56 3/25/01 77.34 1/25/01 170.70 8/25/01 171.56
2/25/01-7/25/01 3.52 4/25/01-8/25/01 3.38 2/25/01-9/25/02 2.98 9/25/01-6/25/02 3.26
8/25/01 70.70 9/25/01 97.17 10/25/02 170.14 7/25/02 170.88
9/25/01-5/25/02 3.25 10/25/01-7/25/02 3.04 11/25/02-6/25/03 2.42 8/25/02-4/25/03 2.61
6/25/02 339.14 8/25/02 19.71 7/25/03 169.58 5/25/03 12.67
7/25/02-6/25/03 1.90 9/25/02 70.02 8/25/03-6/25/04 1.85 6/25/03 2.58
7/25/03 169.75 10/25/02 2.81 7/25/04 169.04 7/25/03 160.07
8/25/03-2/25/04 1.27 11/25/02 86.55 8/25/04-9/25/05 1.26 8/25/03-7/25/04 2.02
3/25/04 135.64 12/25/02-8/25/03 2.50 10/25/05 168.45 8/25/04 169.61
4/25/04 0.72 9/25/03 169.96 11/25/05-1/25/06 0.65 9/25/04-12/25/04 1.39
5/25/04 34.32 10/25/03-6/25/04 1.91 2/25/06 5.65 1/25/05 169.01
6/25/04-5/25/06 0.58 7/25/04 169.41 3/25/06-7/25/06 0.65 2/25/05-7/25/06 0.74
6/25/06 135.03 8/25/04-4/25/05 1.28 8/25/06 167.87 8/25/06 173.50
7/25/06-8/25/06 0 5/25/05 168.81
9/25/06 38.66 6/25/05-10/25/06 0.62
11/25/06 168.12
</TABLE>
TABLES OF ESTIMATED CASH FLOW TO UNIT HOLDERS
The tables below set forth the per Unit estimated monthly distributions of
principal and interest to Unit holders. The tables assume no changes in
expenses, no changes in current interest rates and no exchanges, redemptions,
sales or prepayments of the underlying Securities prior to maturity and the
receipt of principal upon maturity except that the tables assume that in the
case of a security whose market price reflects an assumption that such security
will be called by its issuer prior to its maturity date the proceeds of such
call are included on such call date. Actual distributions may vary.
<TABLE>
<CAPTION>
NATIONAL TRUST (UNINSURED) CALIFORNIA TRUST
- --------------------------------------- ----------------------------------------
DATE $ AMOUNT DATE $ AMOUNT
- --------------------------- -------- ---------------------------- --------
<S> <C> <C> <C>
January 1994 0.90 January 1994 0.85
February 1994-October 2000 $3.88 February 1994-December 2000 $3.65
November 2000 104.56 January 2001 77.34
December 2000-May 2001 3.52 February 2001-June 2001 3.38
June 2001 70.70 July 2001 97.17
July 2001-March 2002 3.25 August 2001-May 2001 3.04
April 2002 339.14 June 2002 19.71
May 2002-April 2003 1.90 July 2002 70.02
May 2003 169.75 August 2002 2.81
June 2003-December 2003 1.27 September 2002 86.55
January 2004 135.64 October 2002-June 2003 2.50
February 2004 0.72 July 2003 169.96
March 2004 34.32 August 2003-April 2004 1.91
April 2004-March 2006 0.58 May 2004 169.41
April 2006 135.03 June 2004-February 2005 1.28
May 2006-June 2006 0 March 2005 168.81
July 2006 38.66 April 2005-August 2006 0.62
September 2006 168.12
</TABLE>
A-5
<PAGE>
<TABLE>
<CAPTION>
FLORIDA TRUST (INSURED) NEW YORK TRUST (UNINSURED)
- ----------------------------------------- -----------------------------------
DATE $ AMOUNT DATE $ AMOUNT
- ----------------------------- -------- ----------------------- --------
<S> <C> <C> <C>
January 1994 0.82 January 1994 0.91
February 1994-October 2000 3.54 February 1994-May 2001 3.92
November 2000 170.70 June 2001 171.56
December 2000-July 2002 2.98 July 2001-April 2002 3.26
August 2002 170.14 May 2002 170.88
September 2002-April 2003 2.42 June 2002-February 2003 2.61
May 2003 169.58 March 2003 12.67
June 2003-April 2004 1.85 April 2003 2.58
May 2004 169.04 May 2003 160.07
June 2004-July 2005 1.26 June 2003-May 2004 2.02
August 2005 168.45 June 2004 169.61
September 2005-November 2005 0.65 July 2004-October 2004 1.39
December 2005 5.65 November 2004 169.01
January 2006-May 2006 0.65 December 2004-May 2006 0.74
June 2006 167.87 June 2006 173.50
</TABLE>
A-6
<PAGE>
SUMMARY OF ESSENTIAL INFORMATION
NATIONAL MUNICIPAL TRUST
SERIES 165
(UNINSURED)
AS OF JANUARY 26, 1994+
<TABLE>
<S> <C>
FACE AMOUNT OF SECURITIES........................ $7,540,000.00
NUMBER OF UNITS.................................. 7,500
FRACTIONAL UNDIVIDED INTEREST IN THE
TRUST REPRESENTED BY EACH UNIT................. 1/7,500
PUBLIC OFFERING PRICE(1)
Aggregate offering side evaluation of
Securities in the Trust.................... $7,510,040.00
Divided by 7,500 Units....................... $ 1,001.34
Plus sales charge of 3.25% of Public Offering
Price (3.359% of net amount invested in
Securities)++.............................. 33.64
----------
Public Offering Price per Unit+++............ $ 1,034.98
----------
----------
SPONSOR'S INITIAL REPURCHASE PRICE PER UNIT
(based on offering side evaluation of
underlying Securities)......................... $ 1,001.34
----------
----------
REDEMPTION AND SPONSOR'S SECONDARY MARKET
REPURCHASE PRICE PER UNIT (based on bid side
evaluation of underlying Securities, $37.66
less than Public Offering Price per Unit; $4.03
less than Sponsor's Initial Repurchase Price
per Unit)(2)................................... $ 997.32
----------
----------
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 offering side evaluation:
over par--70%; at par--10%; at a discount from par--20%
EVALUATOR'S FEE FOR EACH EVALUATION: For each evaluation the
Evaluator will receive a minimum fee of $14 per evaluation
of the portfolio.
EVALUATION TIME: 4:00 P.M. New York time for primary market
transactions and 3:30 P.M. New York time for secondary
market transactions.
MANDATORY TERMINATION DATE: (5) The Trust will terminate on
the date of the maturity, redemption, sale or other
disposition of the last Security held in the Trust.
MINIMUM VALUE OF TRUST: The Trust may be terminated if the
value of the Trust is less than 40% of the face amount of
Securities deposited including supplemental deposits, if
any.
WEIGHTED AVERAGE LIFE TO MATURITY: 9.9 years
</TABLE>
<TABLE>
<CAPTION>
MONTHLY
-------
<S> <C>
CALCULATION OF ESTIMATED NET ANNUAL INCOME PER UNIT(4)
Estimated Annual Income per Unit*.............................................................................. $48.54
Less estimated annual expenses per Unit*....................................................................... $ 1.99
-------
Estimated Net Annual Income per Unit........................................................................... $46.55
-------
-------
Trustee's Annual Fee (including estimated expenses and Evaluator's Fee) per $1,000 principal amount of
Securities*....................................................................................................... $ 1.74
Daily Rate of Income Accrual per Unit............................................................................... $.1293
Estimated Current Return(3)(4)...................................................................................... 4.50 %
Estimated Long-Term Return(3)....................................................................................... 4.51 %
First distribution to be paid on February 25, 1994 to Holders of record on February 10, 1994........................ $ .90
CALCULATION OF SECOND AND FOLLOWING DISTRIBUTIONS:
Estimated Net Annual Income per Unit divided by 12............................................................. $ 3.87
Record Dates--tenth day of each month
Distribution Dates--twenty-fifth day of each month
</TABLE>
- ------------
* As a result of the 'when, as and if issued,' or 'delayed delivery' Securities
in the Trust, during the first year the Trustee's fee per Unit will be reduced
by $0.61, the estimated annual income per Unit will be $47.93, the estimated
annual expenses per Unit will be $1.38, and the net annual income per Unit
will remain the same. The Trustee will be reimbursed by the Sponsor for the
reduction in its fee.
Footnotes: See Page A-11
A-7
<PAGE>
SUMMARY OF ESSENTIAL INFORMATION
NATIONAL MUNICIPAL TRUST
MULTISTATE SERIES 62
CALIFORNIA TRUST
AS OF JANUARY 26, 1994+
<TABLE>
<S> <C>
FACE AMOUNT OF SECURITIES..................... $3,000,000.00
NUMBER OF UNITS............................... 3,000
FRACTIONAL UNDIVIDED INTEREST IN THE
TRUST REPRESENTED BY EACH UNIT.............. 1/3,000th
PUBLIC OFFERING PRICE(1)
Aggregate offering side evaluation of
Securities in the Trust................. $2,992,584.30
Divided by 3,000 Units.................... $ 997.53
Plus sales charge of 3.25% of Public
Offering Price (3.359% of net amount
invested in Securities)++............... $ 33.51
-------------
Public Offering Price per Unit+++......... $ 1,031.04
-------------
-------------
SPONSOR'S INITIAL REPURCHASE PRICE PER UNIT
(based on offering side evaluation of
underlying Securities)...................... $ 997.53
-------------
-------------
REDEMPTION AND SPONSOR'S SECONDARY MARKET
REPURCHASE PRICE PER UNIT (based on bid side
evaluation of underlying Securities, $37.51
less than Public Offering Price per Unit;
$4.00 less than Sponsor's Initial Repurchase
Price per Unit)(2).......................... $ 993.53
-------------
-------------
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 $.05 per
$1,000 face amount of underlying Securities.
PREMIUM AND DISCOUNT ISSUES IN PORTFOLIO
Face amount of Securities with offering side evaluation:
over par--48%; at par--17%; at a discount from par--35%
EVALUATOR'S FEE FOR EACH EVALUATION: For each evaluation the
Evaluator will receive a minimum fee of $14 per evaluation
of the portfolio.
EVALUATION TIME: 4:00 P.M. New York time for primary market
transactions and 3:30 P.M. New York time for secondary
market transactions.
MANDATORY TERMINATION DATE: (5) The Trust will terminate on
the date of the maturity, redemption, sale or other
disposition of the last Security held in the Trust.
MINIMUM VALUE OF TRUST: The Trust may be terminated if the
value of the Trust is less than 40% of the face amount of
Securities deposited including supplemental deposits, if
any.
WEIGHTED AVERAGE LIFE TO MATURITY: 10.0 years
</TABLE>
<TABLE>
<CAPTION>
MONTHLY
-------
<S> <C>
CALCULATION OF ESTIMATED NET ANNUAL INCOME PER UNIT(4)
Estimated Annual Income per Unit*.............................................................................. $45.87
Less estimated annual expenses per Unit*....................................................................... 2.08
-------
Estimated Net Annual Income per Unit........................................................................... $43.79
-------
-------
Trustee's Annual Fee (including estimated expenses and Evaluator's Fee) per $1,000 principal amount of
Securities*....................................................................................................... $ 2.03
Daily Rate of Income Accrual per Unit............................................................................... $.1216
Estimated Current Return(3)(4)...................................................................................... 4.25 %
Estimated Long-Term Return(3)....................................................................................... 4.29 %
First distribution to be paid on February 25, 1994 to Holders of record on February 10, 1994........................ $ .85
CALCULATION OF SECOND AND FOLLOWING DISTRIBUTIONS:
Estimated Net Annual Income per Unit divided by 12............................................................. $ 3.64
Record Dates--tenth day of each month
Distribution Dates--twenty-fifth day of each month
</TABLE>
- ------------
* As a result of the 'when, as and if issued,' or 'delayed delivery' Securities
in the Trust, during the first year the Trustee's fee per Unit will be reduced
by $.20, the estimated annual income per Unit will be $45.67, the estimated
annual expenses per Unit will be $1.88, and the net annual income per Unit will
remain the same. The Trustee will be reimbursed by the Sponsor for the reduction
in its fee.
Footnotes: See Page A-11
A-8
<PAGE>
SUMMARY OF ESSENTIAL INFORMATION
NATIONAL MUNICIPAL TRUST
MULTISTATE SERIES 62
FLORIDA TRUST
(INSURED)
AS OF JANUARY 26, 1994+
STANDARD & POOR'S CORPORATION RATING: AAA
<TABLE>
<S> <C>
FACE AMOUNT OF SECURITIES..................... $3,015,000.00
NUMBER OF UNITS............................... 3,000
FRACTIONAL UNDIVIDED INTEREST IN THE
TRUST REPRESENTED BY EACH UNIT.............. 1/3,000
PUBLIC OFFERING PRICE(1)
Aggregate offering side evaluation of
Securities in the Trust................. $3,002,622.35
Divided by 3,000 Units.................... $ 1,000.87
Plus sales charge of 3.25% of Public
Offering Price (3.359% of net amount
invested in Securities)++............... $ 33.62
-------------
Public Offering Price per Unit+++......... $ 1,034.49
-------------
-------------
SPONSOR'S INITIAL REPURCHASE PRICE PER UNIT
(based on offering side evaluation of
underlying Securities)...................... $ 1,000.87
-------------
-------------
REDEMPTION AND SPONSOR'S SECONDARY MARKET
REPURCHASE PRICE PER UNIT (based on bid side
evaluation of underlying Securities, $37.64
less than Public Offering Price per Unit;
$4.02 less than Sponsor's Initial Repurchase
Price per Unit)(2).......................... $ 996.85
-------------
-------------
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 $.05 per
$1,000 face amount of underlying Securities.
PREMIUM AND DISCOUNT ISSUES IN PORTFOLIO
Face amount of Securities with offering side evaluation:
over par--0%; at par--66%; at a discount from par--34%
EVALUATOR'S FEE FOR EACH EVALUATION: For each evaluation the
Evaluator will receive a minimum fee of $14 per evaluation
of the portfolio.
EVALUATION TIME: 4:00 P.M. New York time for primary market
transactions and 3:30 P.M. New York time for secondary
market transactions.
MANDATORY TERMINATION DATE: (5) The Trust will terminate on
the date of the maturity, redemption, sale or other
disposition of the last Security held in the Trust.
MINIMUM VALUE OF TRUST: The Trust may be terminated if the
value of the Trust is less than 40% of the face amount of
Securities deposited including supplemental deposits, if
any.
WEIGHTED AVERAGE LIFE TO MATURITY: 10.0 years
</TABLE>
<TABLE>
<CAPTION>
MONTHLY
-------
<S> <C>
CALCULATION OF ESTIMATED NET ANNUAL INCOME PER UNIT(4)
Estimated Annual Income per Unit*.............................................................................. $44.62
Less estimated annual expenses per Unit*....................................................................... 2.08
-------
Estimated Net Annual Income per Unit........................................................................... $42.54
-------
-------
Trustee's Annual Fee (including estimated expenses and Evaluator's Fee) per $1,000 principal amount of
Securities*....................................................................................................... $ 2.03
-------
-------
Daily Rate of Income Accrual per Unit............................................................................... $.1182
Estimated Current Return(3)(4)...................................................................................... 4.11 %
Estimated Long-Term Return(3)....................................................................................... 4.18 %
First distribution to be paid on February 25, 1994 to Holders of record on February 10, 1994........................ $ .82
CALCULATION OF SECOND AND FOLLOWING DISTRIBUTIONS:
Estimated Net Annual Income per Unit divided by 12............................................................. $ 3.54
Record Dates--tenth day of each month
Distribution Dates--twenty-fifth day of each month
</TABLE>
- ------------
* As a result of the 'when, as and if issued,' or 'delayed delivery' Securities
in the Trust, during the first year the Trustee's fee per Unit will be reduced
by $.36, the estimated annual income per Unit will be $44.26, the estimated
annual expenses per Unit will be $1.72, and the net annual income per Unit will
remain the same. The Trustee will be reimbursed by the Sponsor for the reduction
in its fee.
Footnotes: See Page A-11
A-9
<PAGE>
SUMMARY OF ESSENTIAL INFORMATION
NATIONAL MUNICIPAL TRUST
MULTISTATE SERIES 62
NEW YORK TRUST
(UNINSURED)
AS OF JANUARY 26, 1994+
<TABLE>
<S> <C>
FACE AMOUNT OF SECURITIES........................ $3,015,000.00
NUMBER OF UNITS.................................. 3,000
FRACTIONAL UNDIVIDED INTEREST IN THE
TRUST REPRESENTED BY EACH UNIT................. 1/3,000
PUBLIC OFFERING PRICE(1)
Aggregate offering side evaluation of
Securities in the Trust.................... $3,014,607.05
Divided by 3,000 Units....................... $ 1,004.87
Plus sales charge of 3.25% of Public Offering
Price (3.359% of net amount invested in
Securities)++.............................. 33.75
-------------
Public Offering Price per Unit+++............ $ 1,038.62
-------------
-------------
SPONSOR'S INITIAL REPURCHASE PRICE PER UNIT
(based on offering side evaluation of
underlying Securities)......................... $ 1,004.87
-------------
-------------
REDEMPTION AND SPONSOR'S SECONDARY MARKET
REPURCHASE PRICE PER UNIT (based on bid side
evaluation of underlying Securities, $37.77
less than Public Offering Price per Unit; $4.02
less than Sponsor's Initial Repurchase Price
per Unit)(2)................................... $ 1,000.85
-------------
-------------
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 offering side evaluation: over
par--50%; at par--17%; at a discount from par--34%
EVALUATOR'S FEE FOR EACH EVALUATION: For each evaluation the
Evaluator will receive a minimum fee of $14 per evaluation of
the portfolio.
EVALUATION TIME: 4:00 P.M. New York time for primary market
transactions and 3:30 P.M. New York time for secondary market
transactions.
MANDATORY TERMINATION DATE: (5) The Trust will terminate on the
date of the maturity, redemption, sale or other disposition of
the last Security held in the Trust.
MINIMUM VALUE OF TRUST: The Trust may be terminated if the value
of the Trust is less than 40% of the face amount of Securities
deposited including supplemental deposits, if any.
WEIGHTED AVERAGE LIFE TO MATURITY: 9.9 years
</TABLE>
<TABLE>
<CAPTION>
MONTHLY
-------
<S> <C>
CALCULATION OF ESTIMATED NET ANNUAL INCOME PER UNIT(4)
Estimated Annual Income per Unit*.............................................................................. $49.42
Less estimated annual expenses per Unit*....................................................................... $ 2.32
-------
Estimated Net Annual Income per Unit........................................................................... $47.10
-------
-------
Trustee's Annual Fee (including estimated expenses and Evaluator's Fee) per $1,000 principal amount of
Securities*....................................................................................................... $ 2.07
-------
-------
Daily Rate of Income Accrual per Unit............................................................................... $.1308
Estimated Current Return(3)(4)...................................................................................... 4.53 %
Estimated Long-Term Return(3)....................................................................................... 4.56 %
First distribution to be paid on February 25, 1994 to Holders of record on February 10, 1994........................ $ .91
CALCULATION OF SECOND AND FOLLOWING DISTRIBUTIONS:
Estimated Net Annual Income per Unit divided by 12............................................................. $ 3.92
Record Dates--tenth day of each month
Distribution Dates--twenty-fifth day of each month
</TABLE>
- ------------
* As a result of the 'when, as and if issued,' or 'delayed delivery' Securities
in the Trust, during the first year the Trustee's fee per Unit will be reduced
by $.24, the estimated annual income per Unit will be $49.18, the estimated
annual expenses per Unit will be $2.08, and the net annual income per Unit
will remain the same. The Trustee will be reimbursed by the Sponsor for the
reduction in its fee.
Footnotes: See Page A-11
A-10
<PAGE>
- ------------
+ The Date of Deposit. The Date of Deposit is the date on which the
Indenture was signed and the deposit of Securities with the Trustee was made.
++ After the initial offering period, Units may be available for purchase
from the Sponsor at a price based upon the bid side evaluation of the Bonds plus
a sales charge as set forth in Part B, 'Public Offering of Units--Volume
Discount.'
+++ This Public Offering Price is computed as of the Date of Deposit and
may vary from the Public Offering Price on the date of this Prospectus or any
subsequent date.
(1) No accrued interest will be added to the Public Offering Price in
connection with purchases of Units contracted for on January 27, 1994. With
respect to purchases contracted for after such date, accrued interest from
February 3, 1994, the first expected settlement date, to, but not including the
date of settlement (normally five business days after purchase) will be added to
the Public Offering Price.
(2) Upon redemption the price to be paid will include accrued interest.
(3) 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 Bonds while the Public Offering Price will vary
with changes in the offering price of the underlying Bonds; 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 using a
formula which (1) takes into consideration, and factors in the relative
weightings of, the market values, yields (which takes into account the
amortization of premiums and the accretion of discounts) and estimated
retirements of all of the Bonds in the Trust and (2) takes into account the
expenses and sales charge associated with each Unit. Since the market values and
estimated retirements of the Bonds 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 Estimated Current Return and Estimated
Long-Term Return are expected to differ because the calculation of the Estimated
Long-Term Return reflects the estimated date and amount of principal returned
while the Estimated Current Return calculations include only Net Annual Interest
Income and Public Offering Price as of the Date of Deposit. (A projected cash
flow statement as of the Date of Deposit is available upon request from the
Trustee.)
(4) Does not include discount accretion on original issue discount or zero
coupon bonds.
(5) The actual date of termination of the Trust may be considerably
earlier. (See Part B, 'Amendment and Termination of the
Indenture--Termination.')
A-11
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE UNIT HOLDERS, SPONSOR AND TRUSTEE
OF THE NATIONAL MUNICIPAL TRUST,
Series 165 (Uninsured)
Multistate Series 62
California Trust
Florida Trust (Insured)
New York Trust (Uninsured)
We have audited the accompanying statements of financial condition and
schedules of portfolio securities of the National Municipal Trust Series 165
(Uninsured) and Multistate Series 62 consisting of the California Trust, the
Florida Trust (Insured) and the New York Trust (Uninsured) as of January 26,
1994. These financial statements are the responsibility of the Trustee and
Sponsor (see note (e) to each statement of financial condition). 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 irrevocable letters of credit and contracts for the purchase of
securities, as shown in the statements of financial condition and schedules of
portfolio securities as of January 26, 1994, by correspondence with United
States Trust Company of New York, the Trustee. An audit also includes assessing
the accounting principles used and 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 statements of financial condition and schedules of
portfolio securities referred to above present fairly, in all material respects,
the financial condition of the National Municipal Trust Series 165 (Uninsured)
and Multistate Series 62 consisting of the California Trust, the Florida Trust
(Insured) and the New York Trust (Uninsured) as of January 26, 1994 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE
January 26, 1994
New York, New York
A-12
<PAGE>
STATEMENT OF FINANCIAL CONDITION
NATIONAL MUNICIPAL TRUST
SERIES 165
(UNINSURED)
AS OF DATE OF DEPOSIT, JANUARY 26, 1994
TRUST PROPERTY
<TABLE>
<S> <C>
Sponsor's Contracts to Purchase underlying Securities backed by an irrevocable letter of credit(a)................. $ 7,510,040.00
Accrued interest to Date of Deposit of underlying Securities(a)(b)................................................. 59,719.62
Total.................................................................................................... $ 7,569,759.62
---------------
---------------
</TABLE>
LIABILITY AND INTEREST OF UNIT HOLDERS
<TABLE>
<S> <C>
Liability:
Accrued interest to Date of Deposit of underlying Securities(a)(b)............................................ $ 59,719.62
Interest of Unit Holders:
Units of fractional undivided interest outstanding:
Cost to investors(c)..................................................................................... 7,762,265.00
Gross underwriting commissions(d)........................................................................ (252,225.00)
---------------
Total.................................................................................................... $ 7,569,759.62
---------------
---------------
</TABLE>
- ------------------
(a) The aggregate value of the Securities represented by Contracts to
Purchase listed under 'Schedule of Portfolio Securities' and their cost to the
National Trust are the same. The value is determined by the Evaluator on the
basis set forth under Part B-- 'Public Offering of Units--Public Offering
Price.' An irrevocable letter of credit covering Series 165 drawn on Mellon
Bank, N.A. in the amount of $9,000,000 has been deposited with the Trustee. The
amount of the letter of credit includes $7,484,439.10 (equal to the Purchase
Price to Sponsor) for the purchase of $7,540,000.00 face amount of Securities
pursuant to contracts to purchase Securities, plus $59,719.62 covering accrued
interest thereon.
(b) The Trustee will advance an amount equal to the accrued interest on the
underlying Securities to the first expected settlement date (normally five
business days after purchase) and such amount will be distributed to the Sponsor
as the holder of record on such date as set forth under Part B--'Public Offering
of Units--Public Offering Price.'
(c) The aggregate Public Offering Price (exclusive of accrued interest) is
computed on the basis set forth under Part B-- 'Public Offering of Units--Public
Offering Price.'
(d) The aggregate sales charge of 3.25% of the Public Offering Price per
Unit is computed on the basis set forth under Part B--'Public Offering of
Units--Public Offering Price.'
(e) 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 control
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--'Public Offering of Units--Public Offering Price.' Under
the Securities Act of 1933, as amended (the 'Act'), the Sponsor is deemed to be
an issuer of the Trust's Units. As such, the Sponsor has the responsibility of
an issuer under the Act with respect to financial statements of each Trust
included in the Registration Statement under the Act and amendments thereto.
A-13
<PAGE>
STATEMENT OF FINANCIAL CONDITION
NATIONAL MUNICIPAL TRUST
MULTISTATE SERIES 62
CALIFORNIA TRUST
AS OF DATE OF DEPOSIT, JANUARY 26, 1994
TRUST PROPERTY
<TABLE>
<S> <C>
Sponsor's Contracts to Purchase underlying Securities backed by an irrevocable letter of credit(a)................. $ 2,992,584.30
Accrued interest to Date of Deposit of underlying Securities(a)(b)................................................. 15,154.38
---------------
Total.................................................................................................... $ 3,007,738.68
---------------
---------------
</TABLE>
LIABILITY AND INTEREST OF UNIT HOLDERS
<TABLE>
<S> <C>
Liability:
Accrued interest to Date of Deposit of underlying Securities(a)(b)............................................ $ 15,154.38
Interest of Unit Holders:
Units of fractional undivided interest outstanding:
Cost to investors(c)..................................................................................... 3,093,114.30
Gross underwriting commissions(d)........................................................................ (100,530.00)
---------------
Total.................................................................................................... $ 3,007,738.68
---------------
---------------
</TABLE>
- ------------------
(a) The aggregate value of the Securities represented by Contracts to
Purchase listed under 'Schedule of Portfolio Securities' and their cost to the
State Trust are the same. The value is determined by the Evaluator on the basis
set forth under Part B--'Public Offering of Units--Public Offering Price.' An
irrevocable letter of credit covering Multistate Series 62 drawn on Mellon Bank,
N.A. in the amount of $12,000,000 has been deposited with the Trustee. The
amount of the letter of credit includes $2,976,182.50 (equal to the Purchase
Price to Sponsor) for the purchase of $3,000,000 face amount of Securities
pursuant to contracts to purchase Securities, plus $15,154.38 covering accrued
interest thereon.
(b) The Trustee will advance an amount equal to the accrued interest on the
underlying Securities to the first expected settlement date (normally five
business days after purchase) and such amount will be distributed to the Sponsor
as the holder of record on such date as set forth under Part B--'Public Offering
of Units--Public Offering Price.'
(c) The aggregate Public Offering Price (exclusive of accrued interest) is
computed on the basis set forth under Part B-- 'Public Offering of Units--Public
Offering Price.'
(d) The aggregate sales charge of 3.25% of the Public Offering Price per
Unit is computed on the basis set forth under Part B--'Public Offering of
Units--Public Offering Price.'
(e) 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 control
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--'Public Offering of Units--Public Offering Price.' Under
the Securities Act of 1933, as amended (the 'Act'), the Sponsor is deemed to be
an issuer of the Trust's Units. As such, the Sponsor has the responsibility of
an issuer under the Act with respect to financial statements of each Trust
included in the Registration Statement under the Act and amendments thereto.
A-14
<PAGE>
STATEMENT OF FINANCIAL CONDITION
NATIONAL MUNICIPAL TRUST
MULTISTATE SERIES 62
FLORIDA TRUST
(INSURED)
AS OF DATE OF DEPOSIT, JANUARY 26, 1994
TRUST PROPERTY
<TABLE>
<S> <C>
Sponsor's Contracts to Purchase underlying Securities backed by an irrevocable letter of credit(a)................. $ 3,002,622.35
Accrued interest to Date of Deposit of underlying Securities(a)(b)................................................. 10,248.96
---------------
Total.................................................................................................... $ 3,012,871.31
---------------
---------------
</TABLE>
LIABILITY AND INTEREST OF UNIT HOLDERS
<TABLE>
<S> <C>
Liability:
Accrued interest to Date of Deposit of underlying Securities(a)(b)............................................ $ 10,248.96
Interest of Unit Holders:
Units of fractional undivided interest outstanding:
Cost to investors(c)..................................................................................... 3,103,482.35
Gross underwriting commissions(d)........................................................................ (100,860.00)
---------------
Total.................................................................................................... $ 3,012,871.31
---------------
---------------
</TABLE>
- ------------------
(a) The aggregate value of the Securities represented by Contracts to
Purchase listed under 'Schedule of Portfolio Securities' and their cost to the
State Trust are the same. The value is determined by the Evaluator on the basis
set forth under Part B--'Public Offering of Units--Public Offering Price.' An
irrevocable letter of credit covering Multistate Series 62 drawn on Mellon Bank,
N.A. in the amount of $12,000,000.00 has been deposited with the Trustee. The
amount of the letter of credit includes $2,987,022.65 (equal to the Purchase
Price to Sponsor) for the purchase of $3,015,000.00 face amount of Securities
pursuant to contracts to purchase Securities, plus $10,248.96 covering accrued
interest thereon.
(b) The Trustee will advance an amount equal to the accrued interest on the
underlying Securities to the first expected settlement date (normally five
business days after purchase) and such amount will be distributed to the Sponsor
as the holder of record on such date as set forth under Part B--'Public Offering
of Units--Public Offering Price.'
(c) The aggregate Public Offering Price (exclusive of accrued interest) is
computed on the basis set forth under Part B-- 'Public Offering of Units--Public
Offering Price.'
(d) The aggregate sales charge of 3.25% of the Public Offering Price per
Unit is computed on the basis set forth under Part B--'Public Offering of
Units--Public Offering Price.'
(e) 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 control
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--'Public Offering of Units--Public Offering Price.' Under
the Securities Act of 1933, as amended (the 'Act'), the Sponsor is deemed to be
an issuer of the Trust's Units. As such, the Sponsor has the responsibility of
an issuer under the Act with respect to financial statements of each Trust
included in the Registration Statement under the Act and amendments thereto.
A-15
<PAGE>
STATEMENT OF FINANCIAL CONDITION
NATIONAL MUNICIPAL TRUST
MULTISTATE SERIES 62
NEW YORK TRUST
(UNINSURED)
AS OF DATE OF DEPOSIT, JANUARY 26, 1994
TRUST PROPERTY
<TABLE>
<S> <C>
Sponsor's Contracts to Purchase underlying Securities backed by an irrevocable letter of credit(a)................. $ 3,014,607.05
Accrued interest to Date of Deposit of underlying Securities(a)(b)................................................. 17,909.86
---------------
Total.................................................................................................... $ 3,032,516.91
---------------
---------------
</TABLE>
LIABILITY AND INTEREST OF UNIT HOLDERS
<TABLE>
<S> <C>
Liability:
Accrued interest to Date of Deposit of underlying Securities(a)(b)............................................ $ 17,909.86
Interest of Unit Holders:
Units of fractional undivided interest outstanding:
Cost to investors(c)..................................................................................... 3,115,857.05
Gross underwriting commissions(d)........................................................................ (101,250.00)
---------------
Total.................................................................................................... $ 3,032,516.91
---------------
---------------
</TABLE>
- ------------------
(a) The aggregate value of the Securities represented by Contracts to
Purchase listed under 'Schedule of Portfolio Securities' and their cost to the
State Trust are the same. The value is determined by the Evaluator on the basis
set forth under Part B--'Public Offering of Units--Public Offering Price.' An
irrevocable letter of credit covering Multistate Series 62 drawn on Mellon Bank,
N.A. in the amount of $12,000,000 has been deposited with the Trustee. The
amount of the letter of credit includes $2,998,647.70 (equal to the Purchase
Price to Sponsor) for the purchase of $3,015,000 face amount of Securities
pursuant to contracts to purchase Securities, plus $17,909.86 covering accrued
interest thereon.
(b) The Trustee will advance an amount equal to the accrued interest on the
underlying Securities to the first expected settlement date (normally five
business days after purchase) and such amount will be distributed to the Sponsor
as the holder of record on such date as set forth under Part B--'Public Offering
of Units--Public Offering Price.'
(c) The aggregate Public Offering Price (exclusive of accrued interest) is
computed on the basis set forth under Part B-- 'Public Offering of Units--Public
Offering Price.'
(d) The aggregate sales charge of 3.25% of the Public Offering Price per
Unit is computed on the basis set forth under Part B--'Public Offering of
Units--Public Offering Price.'
(e) 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 control
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--'Public Offering of Units--Public Offering Price.' Under
the Securities Act of 1933, as amended (the 'Act'), the Sponsor is deemed to be
an issuer of the Trust's Units. As such, the Sponsor has the responsibility of
an issuer under the Act with respect to financial statements of each Trust
included in the Registration Statement under the Act and amendments thereto.
A-16
<PAGE>
SCHEDULE OF PORTFOLIO SECURITIES
NATIONAL MUNICIPAL TRUST
SERIES 165
(UNINSURED)
ON DATE OF DEPOSIT, JANUARY 26, 1994
<TABLE>
<CAPTION>
PORTFOLIO SECURITIES REPRESENTED AGGREGATE INTEREST DATES OF
NO. BY PURCHASE CONTRACTS(4)(5) RATING PRINCIPAL RATES MATURITY
- --------- ------------------------------------------------------------- ------ ------------- -------- --------
<S> <C> <C> <C> <C> <C>
1. Apache County (Arizona) Public Finance Corporation, A $ 250,000.00 5.250% 5/01/04
Certificates of Participation, Series 1994, Arizona
Department of Corrections.
2. District of Columbia, (Washington, D.C.), General Obligation A- $1,000,000.00 5.500% 6/01/06
Refunding Bonds, Series 1994A-3.
3. Kentucky Higher Education Student Loan Corporation, Insured AA- $1,250,000.00 5.000% 6/01/02
Student Loan Revenue Bonds, 1993 Series B.(7)
4. Massachusetts Water Resources Authority General Revenue A $1,000,000.00 5.125% 3/01/04
Refunding Bonds, 1993 Series B.
5. The City of New York, General Obligation Bonds, Fiscal 1994 A- $ 500,000.00 5.125% 8/01/01
Series F.
6. The Student Loan Funding Corporation, Cincinnati, Ohio, AAA $1,250,000.00 5.125% 12/01/05
Student Loan Revenue Bonds, Series 1988B-3. Ambac(7)
7. Socorro Independent School District, (El Paso County, Texas), AAA $ 290,000.00 0.000% 9/01/06
Unlimited Tax Refunding Bonds, Series 1994.**
8. Washington Public Power Supply System, Nuclear Project No. 2 AA $1,250,000.00 4.700% 7/01/03
Refunding Revenue Bonds, Series 1994A.**
9. Platte County, Wyoming, Pollution Control Refunding Revenue A $ 750,000.00 4.500% 1/01/01
Bonds, Series 1994, (Basin Electric Power
Cooperative--Laramie River Station Project).**
-------------
$7,540,000.00
-------------
-------------
<CAPTION>
YIELD TO
OPTIONAL COST OF MATURITY
PORTFOLIO SINKING FUND REFUNDING SECURITIES ON DATE OF
NO. REDEMPTIONS(6) REDEMPTIONS(2) TO TRUST(3) DEPOSIT(1)
- --------- -------------- --------------- ------------- ----------
<S> <C> <C> <C> <C>
1. NONE 5/01/00 @ 102 $ 251,250.00 5.186%
2. NONE NONE $1,031,610.00 5.150%
3. NONE NONE $1,271,250.00 4.750%
4. NONE 3/01/03 @ 102 $1,037,880.00 4.650%
5. NONE NONE $ 508,565.00 4.850%
6. NONE 6/01/02 @ 100 $1,260,462.50 5.000%+
7. NONE NONE $ 153,772.50 5.107%
8. NONE NONE $1,245,250.00 4.750%
9. NONE NONE $ 750,000.00 4.500%
-------------
$7,510,040.00
-------------
-------------
</TABLE>
- ------------
FOOTNOTES: SEE PAGE A-21
A-17
<PAGE>
SCHEDULE OF PORTFOLIO SECURITIES
NATIONAL MUNICIPAL TRUST
MULTISTATE SERIES 62
CALIFORNIA TRUST
ON DATE OF DEPOSIT, JANUARY 26, 1994
<TABLE>
<CAPTION>
SECURITIES REPRESENTED AGGREGATE INTEREST DATES OF
PORTFOLIO NO. BY PURCHASE CONTRACTS(4)(5) RATING PRINCIPAL RATES MATURITY
- ------------- -------------------------------------------------------- ------ ------------- -------- --------
<S> <C> <C> <C> <C> <C>
1. California Health Facilities Financing Authority, AAA $ 500,000.00 4.750% 7/01/04
Insured Health Facility Refunding Revenue Bonds,
(Catholic Healthcare West), 1994 Series B.Ambac
2. City of Oakland, California, Insured Refunding Revenue AAA $ 500,000.00 4.900% 5/01/05
Bonds, (Children's Hospital Medical Center of Northern
California), 1994 Series A.Connie Lee**
3. City and County of San Francisco, Redevelopment AAA $ 50,000.00 0.000% 8/01/02
Financing Authority, 1991 Series A Tax Allocation
Revenue Bonds, (San Francisco Redevelopment
Projects).FGIC
4. Palomar Pomerado Health System, Insured Revenue Bonds, AAA $ 250,000.00 4.625% 11/01/02
Series 1993.MBIA
5. Rancho Cucamonga Redevelopment Agency, Rancho AAA $ 500,000.00 4.500% 9/01/03
Redevelopment Project, 1994 Tax Allocation Refunding
Bonds.MBIA**
6. Rancho Cucamonga Redevelopment Agency, Rancho AAA $ 200,000.00 4.400% 9/01/02
Redevelopment Project, 1994 Tax Allocation Refunding
Bonds.MBIA**
7. Redevelopment Agency of the City and County of San Aaa* $ 280,000.00 4.600% 9/01/01
Francisco, Multifamily Housing Refunding Revenue Bonds,
Series 1994, (GNMA Collateralized-South Beach Marina
Project).
8. Redevelopment Agency of the City and County of San Aaa* $ 220,000.00 4.600% 3/01/01
Francisco, Multifamily Housing Refunding Revenue Bonds,
Series 1994, (GNMA Collateralized-South Beach Marina
Project).
9. San Joaquin County Public Facilities Financing AAA $ 500,000.00 4.700% 11/15/06
Corporation, Series 1993 Certificates of Participation,
(Capital Facilities Project).MBIA
-------------
$3,000,000.00
-------------
-------------
<CAPTION>
YIELD TO
OPTIONAL COST OF MATURITY
SINKING FUND REFUNDING SECURITIES ON DATE OF
PORTFOLIO NO. REDEMPTIONS(6) REDEMPTIONS(2) TO TRUST(3) DEPOSIT(1)
- ------------- -------------- -------------- ------------- ----------
<S> <C> <C> <C> <C>
1. NONE NONE $ 504,075.00 4.650%
2. NONE 5/01/04 @ 102 $ 498,750.00 4.928%
3. NONE NONE $ 33,666.00 4.709%
4. NONE NONE $ 256,782.50 4.250%
5. NONE NONE $ 500,000.00 4.500%
6. NONE NONE $ 201,000.00 4.329%
7. NONE NONE $ 281,772.40 4.500%
8. NONE NONE $ 221,313.40 4.500%
9. NONE NONE $ 495,225.00 4.800%
-------------
$2,992,584.30
-------------
-------------
</TABLE>
- ------------
FOOTNOTES: SEE PAGE A-21
A-18
<PAGE>
SCHEDULE OF PORTFOLIO SECURITIES
NATIONAL MUNICIPAL TRUST
MULTISTATE SERIES
FLORIDA TRUST
(INSURED)
ON DATE OF DEPOSIT, JANUARY 26, 1994
<TABLE>
<CAPTION>
SECURITIES REPRESENTED AGGREGATE INTEREST DATES OF
PORTFOLIO NO. BY PURCHASE CONTRACTS(4)(5) RATING PRINCIPAL RATES MATURITY
- ------------- ----------------------------------------------------------- ------ ------------- -------- --------
<S> <C> <C> <C> <C> <C>
1. Certificates of Participation, (School Board of Polk AAA $ 500,000.00 4.250% 1/01/01
County, Florida, Master Lease Program), Series 1994, Master
Lease-Purchase Agreement By The School Board of Polk
County, Florida. FSA**
2. City of Lake Worth, Florida, Sewer System, Refunding AAA $ 500,000.00 4.600% 10/01/05
Revenue Bonds, Series 1994. FSA
3. City of Miami, Florida, Health Facilities Authority, Health AAA $ 500,000.00 4.875% 8/15/06
Facilities Revenue Refunding Bonds, (Mercy Hospital
Project), Series 1994A. Ambac**
4. City of Palm Bay, Florida, Utility System Refunding AAA $ 500,000.00 4.250% 10/01/02
Revenue, Bonds, Series 1994, (Palm Bay Utility Corporation
Project). MBIA
5. Dade County, Florida, Guaranteed Entitlement Revenue Bonds, AAA $ 15,000.00 0.000% 2/01/06
Series 1990. Ambac
6. School District of Alachua County, Florida, General AAA $ 500,000.00 4.300% 7/01/03
Obligation Refunding Bonds, Series 1994. FSA**
7. State of Florida, Department of Environmental Protection, AAA $ 500,000.00 4.500% 7/01/04
Save Our Coast Refunding Revenue Bonds, Series 1993A. Ambac
-------------
$3,015,000.00
-------------
-------------
<CAPTION>
YIELD TO
OPTIONAL COST OF MATURITY
SINKING FUND REFUNDING SECURITIES ON DATE OF
PORTFOLIO NO. REDEMPTIONS(6) REDEMPTIONS(2) TO TRUST(3) DEPOSIT(1)
- ------------- -------------- -------------- ------------- ----------
<S> <C> <C> <C> <C>
1. NONE NONE $ 500,000.00 4.250%
2. NONE 10/01/03 @ 102 $ 500,000.00 4.599%
3. NONE 8/15/04 @ 102 $ 500,000.00 4.875%
4. NONE NONE $ 498,175.00 4.300%
5. NONE NONE $ 8,287.35 5.007%
6. NONE NONE $ 496,160.00 4.400%
7. NONE 7/01/03 @ 101 $ 500,000.00 4.500%
-------------
$3,002,622.35
-------------
-------------
</TABLE>
- ------------
FOOTNOTES: SEE PAGE A-21
A-19
<PAGE>
SCHEDULE OF PORTFOLIO SECURITIES
NATIONAL MUNICIPAL TRUST
MULTISTATE SERIES 62
NEW YORK TRUST
(UNINSURED)
ON DATE OF DEPOSIT, JANUARY 26, 1994
<TABLE>
<CAPTION>
PORTFOLIO SECURITIES REPRESENTED AGGREGATE INTEREST DATES OF
NO. BY PURCHASE CONTRACTS(4)(5) RATING PRINCIPAL RATES MATURITY
- --------- ------------------------------------------------------------- ------ ------------- -------- --------
<S> <C> <C> <C> <C> <C>
1. County of Nassau, New York, General Obligation Refunding AAA $ 30,000.00 4.500% 5/01/03
Serial Bonds, Serial Combined Sewer Districts Series 1994B.
FGIC**
2. Dormitory Authority, of the State of New York, Le Moyne AAA $ 470,000.00 4.500% 7/01/03
College, Insured Revenue Bonds, Series 1994. Connie Lee**
3. Grand Central District Management Association, Inc., Grand A $ 500,000.00 4.900% 1/01/05
Central Business Improvement District, Capital Improvement
Refunding Bonds, Series 1994.**
4. Metropolitan Transportation Authority, Commuter Facilities BBB $ 500,000.00 4.900% 7/01/02
1987 Service Contract Bonds, Series 7
5. New York State Medical Care, Facilities Finance Agency, BBB+ $ 500,000.00 5.000% 8/15/01
Mental Health Services Facilities Improvement Revenue Bonds,
1993 Series F Refunding
6. New York State Medical Care, Facilities Finance Agency, AAA $ 500,000.00 4.750% 8/15/04
Mental Health Services Facilities Improvement Revenue Bonds,
1993 Series F Refunding. FSA
7. The City of New York, General Obligation Bonds, Fiscal 1994 E A- $ 500,000.00 5.600% 8/01/06
8. The City of New York, General Obligation Bonds, Fiscal 1994 A- $ 15,000.00 0.000% 8/01/06
Series E
-------------
$3,015,000.00
-------------
-------------
<CAPTION>
YIELD TO
OPTIONAL COST OF MATURITY
PORTFOLIO SINKING FUND REFUNDING SECURITIES ON DATE OF
NO. REDEMPTIONS(6) REDEMPTIONS(2) TO TRUST(3) DEPOSIT(1)
- --------- ------------- ------------- ------------- ----------
<S> <C> <C> <C> <C>
1. NONE NONE $ 29,925.00 4.533%
2. NONE NONE $ 466,418.60 4.600%
3. NONE 1/01/04@102 $ 502,080.00 4.850%
4. NONE NONE $ 499,375.00 4.918%
5. NONE NONE $ 504,680.00 4.850%
6. NONE 2/15/04@102 $ 500,000.00 4.750%
7. NONE 8/01/[email protected] $ 504,475.00 5.500%
8. NONE NONE $ 7,653.45 5.457%
-------------
$3,014,607.05
-------------
-------------
</TABLE>
- ------------
FOOTNOTES: SEE PAGE A-21
A-20
<PAGE>
- ------------
Notes to Portfolios
(1) Yield of Securities was computed on the basis of offering prices on the Date
of Deposit. Evaluation of Securities by the Evaluator is made on the basis
of the current offering side evaluation. The offering side evaluation is
greater than the current bid side evaluation of the Securities, which is the
basis on which Redemption Price per Unit is determined. (See Part B--'Rights
of Unit Holders--Redemption--Computation of Redemption Price per Unit,'
herein). The aggregate value based on the bid side evaluation at the
Evaluation Time on the Date of Deposit was $7,479,880.00, $2,980,584.30,
$2,990,562.35, and $3,002,547.05 which is $30,160.00, $12,000.00,
12,060.00 and $12,060.00 lower than the aggregate Cost of Securities to
Trust based on the offering side evaluation of the National Trust
(Uninsured), California Trust, Florida Trust (Insured) and New York Trust
(Uninsured), respectively. On such date the bid side evaluation of the
Securities was lower than the offering side evaluation by .4%, .4%, .4%
and .4% of the aggregate face amount of the Securities in the National
Trust (Uninsured), California Trust, Florida Trust (Insured) and New York
Trust (Uninsured), respectively. Yield to Maturity on Date of Deposit of
Securities was computed on the basis of the offering side evaluation at
the Evaluation Time on the Date of Deposit. Percentages in this column
represent Yield to Maturity on Date of Deposit unless followed by '+'
which indicates yield to an earlier redemption date.
(2) There is shown under this heading the year in which each issue of Securities
initially is redeemable by the operation of optional call provisions and the
redemption price for that year; unless otherwise indicated, each issue
continues to be redeemable at declining prices thereafter but not below par.
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. Such circumstances include redemptions by issuers
utilizing unexpended bond proceeds, proceeds of condemnation or sale of a
project, insurance proceeds from the destruction of a project or as a result
of other factors. Redemption of a bond at par will result in a loss to Unit
Holders to the extent that the value of the bonds at the time of purchase of
Units plus the sales charge allocated to such bond exceeds the amount paid
upon redemption.
(3) Offering prices of Securities are determined by the Evaluator on the basis
stated under Part B--'Public Offering of Units--Public Offering Price'
herein. The Profit or Loss to Sponsor on Deposit totals $25,600.80,
$16,401.80, $15,599.70 and $15,959.35 for the National Trust (Uninsured),
California Trust, Florida Trust (Insured) and New York Trust (Uninsured),
respectively.
(4) The Contracts to purchase Securities were entered into from January 24, 1994
through January 26, 1994, January 21, 1994 through January 26, 1994, January
20, 1994 through January 26, 1994 and on January 21, 1994 through January
25, 1994 for the National Trust (Uninsured), California Trust, Florida Trust
(Insured) and New York Trust (Uninsured), respectively, with the final
settlement date expected to be March 1, 1994, February 10, 1994, February
10, 1994 and February 24, 1994 for the National Trust (Uninsured),
California Trust, Florida Trust (Insured) and New York Trust (Uninsured),
respectively.
(5) Certain of the Securities may have been purchased from the Sponsor's
proprietary accounts or from affiliates.
(6) There is shown under this heading the first year in which an issue of
Securities is subject to scheduled sinking fund redemption and the
redemption price for that year.
(7) 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 12/1 will
pay interest semiannually on 6/1 and 12/1 (see 'Tax Status').
* Moody's Investors Service rating.
** Represented by contracts to purchase Securities not expected to be settled by
the first expected settlement date for Units (when, as and if issued or
delayed delivery) with settlement on those Securities expected to take place
7 to 28 days, in 7 days, 5 to 7 days and 5 to 21 days after the first
expected settlement date for the purchase of Units for the National Trust
(Uninsured), California Trust, the Florida Trust (Insured) and the New York
Trust (Uninsured), respectively.
A-21
<PAGE>
PROSPECTUS--PART B:
- --------------------------------------------------------------------------------
NOTE THAT PART B OF THIS PROSPECTUS MAY NOT BE DISTRIBUTED UNLESS ACCOMPANIED BY
PART A.
- --------------------------------------------------------------------------------
NATIONAL MUNICIPAL TRUST
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'), United States Trust Company of New York (the 'Trustee') and Kenny
Information Systems, 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 (the 'Redemption
Price') if they cannot be sold in the secondary market which the Sponsor,
although not obligated to do so, proposes to maintain. The Sponsor, Prudential
Securities Incorporated, is a wholly-owned, indirect subsidiary of The
Prudential Insurance Company of America. Each Trust has a mandatory termination
date set forth under Part A--'Summary of Essential Information', but may be
terminated substantially prior thereto upon the occurrence of certain events,
including a reduction in the value of the Trust below the value set forth under
Part A--'Summary of Essential Information'.
Notwithstanding the availability of the above-mentioned irrevocable
letter(s) of credit, it is expected that the Sponsor will pay for the Securities
as the contracts for their purchase become due. A substantial portion of such
contracts have not become due by the date of this Prospectus. To the extent
Units are sold prior to the settlement of such contracts, the Sponsor will
receive the purchase price on such Units prior to the time at which it pays for
Securities pursuant to such contracts and have the use of such funds during this
period.
During the 90-day period following the first deposit of Securities in the
Trust, the Sponsor may deposit in the Trust additional Securities which are
substantially similar to the initially deposited Securities (including, in each
case, Securities described in purchase contracts, together with cash or a letter
of credit to be used to effectuate their purchase) and cash, if required. Any
deposit made after the close of such 90-day period must exactly replicate the
Securities and any cash (other than cash distributable only to the Sponsor or to
Unit Holders who were Unit Holders prior to the date of deposit of the
additional Securities) held in the Trust immediately prior to the deposit.
Deposits made during the 90-day period following the first deposit of Securities
in the Trust shall similarly replicate as to identity of Security and proportion
of principal amount represented the Securities and any cash (other than cash
distributable only to the Sponsor or to Unit Holders who were Unit Holders prior
to the date of deposit) held in the Trust immediately prior to the deposit,
except that the additional Securities deposited need only be substantially
similar to (rather than identical with) those held in the Trust immediately
prior to the deposit and the proportionality requirements need be met only to
the extent practicable. Among other things, a failure to meet the
proportionality requirements due to establishment by the Sponsor of a minimum
amount of a particular Security to be included in a deposit or the fact that a
Security identical to a Security in the Trust immediately prior to the deposit
is not readily obtainable will be considered as justifying a variation in such
requirements.
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. 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
- ------------------
* 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>
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 long-term debt obligations may entail, including the risk that the value of
the Units will decline with increases in interest rates.
On the Date of Deposit, a Unit of the Trust represented the fractional
undivided interest in the Securities and net income of such Trust set forth
under Part A--'Summary of Essential Information' in the ratio of 1 Unit for each
approximately $1,000 or $1,005 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 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 on the Date of Deposit.) To the
extent that a Security is redeemed (or sold) at a price which is less than the
valuation of such Security on the date a Unit Holder acquired his Units, the
proceeds distributable to such Unit Holder in respect of such redemption (or
sale) will be less than that portion of the purchase price for such Units which
was attributable to such Security (representing a loss of capital to such Unit
Holder). Such proceeds, however, may be more or less than the valuation of such
Security at the time of such redemption (or sale). Similarly, certain of the
Securities in the Trust may be valued at a price in excess of their face value
at maturity (i.e., such Securities were valued at a premium above par). (See
Part A--'Schedule of Portfolio Securities' for information relating to the
particular series described therein on the Date of Deposit.) The proceeds
distributable to a Unit Holder upon the maturity of a Security which was valued
at a premium on the date 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 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 be taxable but will
not be realized until maturity, redemption or sale of the Securities or Units.
The current yield of such discounted securities carrying the same coupon
interest rate and which are otherwise comparable tends to be higher for
securities with longer periods to maturity than it is for those with shorter
periods to maturity because the market value of such securities with a longer
period to maturity tends to be less than the market value of such a bond with a
shorter period to maturity. If currently prevailing interest rates for newly
issued and otherwise comparable securities increase, the market discount of
previously issued bonds will become deeper and if such currently prevailing
interest rates for newly issued comparable securities decline, the market
discount of previously issued securities will be reduced, other things being
equal. Market discount attributable to interest rate changes does not indicate a
lack of market confidence in the issue.
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.
B-2
<PAGE>
The Portfolio of the Trust may contain Securities that are general
obligations of governmental entities and/or bonds that are guaranteed by
governmental entities. (See Part A--'Portfolio Summary as of Date of Deposit'
for information relating to the particular series described therein.) Such
general obligations and guarantees are backed by the taxing power of the
respective entities. The ability of the issuer of a general obligation bond to
meet its obligation depends largely upon its economic condition. Many issuers
rely upon ad valorem real property taxes as a source of revenue. Proposals in
the form of state legislative or voter initiatives to limit ad valorem real
property taxes have been introduced in various states. It is not presently
possible to predict the impact of these or future proposals, if adopted, on
states, local governments or school districts or on their abilities to make
future payments of their outstanding debt obligations. The remaining issues are
payable from the income of specific projects or authorities and are not
supported by the issuer's power to levy taxes. This latter group of issues
contains Securities that are also supported by the moral obligations of
governmental entities. In the event of a deficiency in the debt service reserve
funds of moral obligation Securities, the governmental entity having the moral
commitment may (but is not legally obligated to) satisfy such deficiency.
However, in the event of a deficiency in the debt service reserve funds of
Securities not backed by such moral obligations, no such moral commitment of a
governmental entity exists.
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. (See Part A--'Portfolio Summary as of Date of Deposit' for information
relating to the particular series described therein.) A discounted bond held to
maturity will have a larger portion of its total return in the form of capital
gain and less in the form of tax-exempt income than a comparable bond bearing
interest at current market rates. Zero coupon bonds do not provide for the
payment of any current interest and provide for payment at maturity at face
value unless sooner sold or redeemed. Zero coupon bonds may be subject to more
price volatility than conventional bonds, i.e., the market value of zero coupon
bonds is subject to greater fluctuation in response to changes in interest rates
than is the market value of bonds which pay interest currently. Zero coupon
bonds generally are subject to redemption at compound accreted value based on
par value at maturity. Because the issuer is not obligated to make current
interest payments, zero coupon bonds may be less likely to be redeemed than
coupon bonds issued at a similar interest rate. While some types of zero coupon
bonds, such as multipliers and capital appreciation bonds, define par as the
initial offering price rather than the maturity value, they share the basic zero
coupon bond features of (1) not paying interest on a semi-annual basis and (2)
providing for the reinvestment of the bond's semi-annual earnings at the bond's
stated yield to maturity. 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. (See Part A--'Portfolio Summary as of Date of Deposit' for
information relating to the particular series therein.) Since housing authority
obligations, which are not general obligations of a particular state, are
generally supported to a large extent by Federal housing subsidy programs, the
failure of a housing authority to meet the qualifications required for coverage
under the Federal programs, or any legal or administrative determination that
the coverage of such Federal programs is not available to a housing authority,
could result in a decrease or elimination of subsidies available for payment of
principal and interest on such housing authority's obligations. Weaknesses in
Federal housing subsidy programs and their administration may result in a
decrease 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 (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
B-3
<PAGE>
is deemed to be subject to Federal income taxation, the loss of tax-exempt
status can be expected to adversely affect the market value of such Securities.
In this event and under the terms of the Indenture the Sponsor may direct the
sale of such Securities. The sale of such Securities in such circumstances is
likely to result in a loss to the Trust.
The Portfolio of the Trust may include certain housing authority
obligations whose tax exemption depends upon qualification under Section
103(b)(4)(A) of the 1954 Code, or Section 142 of the 1986 Code, and appropriate
Treasury Regulations. Both Sections require that specified minimum percentages
of the units in each rental housing project financed by tax-exempt debt are to
be continuously occupied by low or moderate income tenants for specified
periods. Department of the Treasury Regulations issued under Section
103(b)(4)(A) of the 1954 Code provide that in order to prevent possible
retroactive Federal income taxation of interest on such Securities certain
conditions must be met. The regulations provide, however, that such retroactive
taxation will not occur if the issuer corrects any non-compliance occurring
after the issuance of the Securities within a reasonable period after such
non-compliance is first discovered or should have been discovered by the issuer.
Similar regulations are expected to be issued under 1986 Code Section 142. If
the interest on any of the Securities in the Trust that are housing securities
should ultimately be deemed to be taxable, the Sponsor may instruct the Trustee
to sell such Securities and, since they would be sold as taxable securities, it
is expected that such Securities would have to be sold at a substantial discount
from current market price of a comparable tax-exempt security.
The Portfolio of the Trust may contain Securities which contain provisions
which require the issuer to redeem such obligations at par from unused proceeds
of the issue within a stated period which typically does not exceed three years
from the date of issuance of such Securities. (See Part A--'Portfolio Summary as
of Date of Deposit' for information relating to the particular series described
therein.) In periods in which interest rates decline there may be increased
redemptions of housing securities pursuant to such redemption provisions. Such
an increase in redemptions may occur because conventional mortgage loans may
have become available at interest rates equal to or less than the interest rates
charged on the mortgage loans previously made available from the proceeds of
such housing securities. Therefore, some issuers of such housing securities may
have experienced insufficient demand to complete mortgage loan originations for
all of the money made available from such securities. In addition, mortgage
loans made with the proceeds of housing securities, in general, do not carry
prepayment penalties and therefore certain mortgage loans may be prepaid earlier
than their maturity dates. If the issuers of such housing securities are unable
to or choose not to reloan these monies, they will generally redeem housing
securities in an amount approximately equal to such prepayments. The Sponsor is
unable to predict at this time whether such redemptions will be made at a high
rate. The disposition of such Securities may result in a loss to 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. (See Part A--'Portfolio
Summary as of Date of Deposit' for information relating to the particular series
described therein.) The continuing availability of sufficient revenues is
dependent upon several factors affecting all such facilities generally,
including, among other factors, the ability of the facilities to provide the
services required by patients, changes in Medicare and Medicaid reimbursement
regulations, the success of efforts by the states and the Federal government to
limit the cost of health care, changes in contracts between health care
institutions and public or private insurers, the timely completion of the
construction of projects and achieving and maintaining projected rates of
utilization. Additionally, a major portion of hospital revenues typically is
derived from Federal or state programs such as Medicare and Medicaid and from
Blue Cross and other insurers. The future solvency of the Medicare trust fund is
periodically subject to question. Changes in the compensation and reimbursement
formulas of these governmental programs or in the rates of insurers may reduce
revenues available for the payment of principal of, or interest on, hospital
revenue bonds. Governmental legislation or regulations and other factors, such
as the inability to obtain sufficient malpractice insurance, may also adversely
impact upon the revenues or costs of hospitals and may also adversely affect the
ratings of hospital revenue bonds held in 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 power agencies using hydro-electric, nuclear, fossil or other
power sources. (See Part A--'Portfolio Summary as of Date of Deposit' for
information relating to the particular series described therein.) 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
B-4
<PAGE>
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. On November 15,
1990 the President signed into law the Clean Air Act Amendments of 1990 which
provide for attainment and maintenance of health protective national ambient air
quality standards. The goal of the law is to cut acid rain pollutants by half,
sharply reduce urban smog and eliminate most of the toxic chemical emissions
from industrial plants by the turn of the century. As enacted, the law affects
nearly all electric power facilities that burn oil or coal. Greenhouse effect
bills and hazardous waste bills may further increase the cost of utility
service. The Sponsor is unable 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. (See Part A-- 'Portfolio Summary as of
Date of Deposit' for information relating to the particular series described
therein.) Industrial Revenue Bonds ('IRBs') are tax-exempt securities issued by
states, municipalities or public authorities to finance the cost of acquiring,
constructing or improving various projects, including pollution control,
environmental improvement, industrial or special airport facilities. IRBs are
payable from the income of specific facilities or from payments made by private
corporations to the state authorities issuing such bonds. (See 'Tax Status of
Each Trust.')
The Portfolio of the Trust may contain Securities which are in the water
and sewer facilities category. (See Part A--'Portfolio Summary as of Date of
Deposit' for information relating to the particular series described therein.)
Bonds in the water and sewer facilities category include securities issued to
finance public water and sewer projects for water management and supply and
sewer control and securities issued by public issuers on behalf of private
corporations for such projects. These bonds are payable from the income of
specific facilities or from payments made by such private corporations to the
state authorities issuing such bonds. The income of such facilities is generated
from the payment of user fees. The ability of state and local water and sewer
authorities to meet their obligations may be affected by failure of
municipalities to utilize fully the facilities constructed by these authorities,
economic or population decline and resulting decline in revenue from user
charges, rising construction and maintenance costs and delays in construction of
facilities, impact of environmental requirements, the difficulty of obtaining or
discovering new supplies of fresh water, the effect of conservation programs and
the impact of 'no growth' zoning ordinances.
The Portfolio of the Trust may contain Securities which are in the revenue
obligations of universities and schools category. (See Part A--'Portfolio
Summary as of Date of Deposit' for information relating to the particular series
described therein.) The ability of universities and schools to meet their
obligations is dependent upon various factors, including the revenues, costs,
and enrollment levels of the institutions. In addition, their ability may be
affected by declines in enrollment and tuition revenue, the availability of
Federal, state and alumni financial support, the method and validity, under
state constitutions, of present systems of financing public education,
fluctuations in interest rates and construction costs, increased maintenance and
energy costs, failure or inability to raise tuition or room charges and adverse
results of endowment fund investments. Studies undertaken by public and private
groups differ with respect to statistics and projections for postsecondary
enrollment at educational institutions in the 1990s.
The Portfolio of the Trust may contain Securities in the pollution control
facilities category. (See Part A--'Portfolio Summary as of Date of Deposit' for
information relating to the particular series described therein.) Bonds in the
pollution control facilities category include securities issued to finance
public water, sewage or solid waste treatment facilities and securities issued
by a public issuer on behalf of a private corporation to provide facilities for
the treatment of air, water and solid waste pollution. These Securities are
payable from the income of specific facilities, state authorities or from
payments made by such private corporations.
The Portfolio of the Trust may contain Securities which are in the
redevelopment facilities category. (See Part A--'Portfolio Summary as of Date of
Deposit' for information relating to the particular series described therein.)
The purpose of redevelopment is to revitalize deteriorated and/or underdeveloped
areas within a community. As new construction progresses, property values
normally increase significantly and the ultimate result is a proportionate
increase in ad valorem property tax revenues. However, if, due to various
economic factors, the assessed valuation is reduced, such reduction may result
in insufficient tax revenues, which could in turn impair the ability of the
issuer to make payments of principal and/or interest on the bonds when due. A
reduction in property tax rates or delinquencies in the payment of property
taxes could have a similar adverse effect.
B-5
<PAGE>
The Portfolio of the Trust may contain Securities in the resource recovery
category. (See Part A--'Portfolio Summary as of Date of Deposit' for information
relating to the particular series described therein.) The issuers of such
Securities are municipalities or agencies or authorities thereof that have
allocated the proceeds of the issue towards the construction and operation of a
resource recovery facility operated by a corporate operator. Payments on the
bonds are dependent upon the creditworthiness of the corporate operator of the
particular project. The operation of such facilities typically depends upon the
delivery thereto of specified quantities of solid waste from which
refuse-derived fuel can be extracted and in turn converted into electricity or
steam by the facility. The operation of the facility may be limited or totally
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. (See Part A--'Portfolio Summary as of Date of Deposit' for
information relating to the particular series described therein.) Special tax
bonds are payable from and secured by the revenues derived by a municipality
from a particular tax. Special tax bonds are not secured by the general tax
revenues of the municipality and they do not represent general obligations of
the municipality. Therefore, the ability of the issuers of special tax bonds to
pay interest and/or principal on special tax bonds may be adversely affected by
the inability to collect all or part of the special tax due to various factors
including: a general decline in the local economy or population, inability or
failure to pay the special tax, failure to develop property backing certain
special tax bonds for reasons including prohibitions or restraints on
development such as failure to receive regulatory agency approval for
development and fluctuations in the real estate market, a decline in the value
of projects backing certain tax bonds, natural disasters or environmental
hazards.
The Portfolio of the Trust may contain Securities which are in the tax
allocation bond category. (See Part A--'Portfolio Summary as of Date of Deposit'
for information relating to the particular series described therein.) These
Securities are typically secured by incremental tax revenues collected on
property within the areas where redevelopment projects, financed by bond
proceeds are located ('project areas'). Such payments are expected to be made
from projected increases in tax revenues derived from higher assessed values of
property resulting from development in the particular project area and not from
an increase in tax rates. Special risk considerations include: reduction of, or
a less than anticipated increase in, taxable values of property in the project
area, caused either by economic factors beyond the Issuer's control (such as a
relocation out of the project area by one or more major property owners) or by
destruction of property due to natural or other disasters; successful appeals by
property owners of assessed valuations; substantial delinquencies in the payment
of property taxes; or imposition of any constitutional or legislative property
tax rate decrease.
The Portfolio of 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. (See Part A--'Portfolio Summary as of Date
of Deposit' for information relating to the particular series described
therein.) 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
B-6
<PAGE>
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. (See Part A--'Portfolio Summary as of Date of Deposit'
for information relating to the particular series described therein.) Each
certificate represents an undivided and proportionate interest in lease or
installment purchase payments to be made by governmental entities (which are the
participants) to a third party for the use and possession or acquisition of a
particular project or equipment. Each payment is divided into an interest
portion and a principal portion, the interest portion of which constitutes
tax-exempt interest in the opinion of special counsel retained in connection
with the issue. The third party assigns its rights to the payments to a trustee
for the benefit of the certificate holders. The amounts paid to the trustee by
the participants are used to make the payments of principal and interest due
with respect to the certificates. The obligation of a participant to make the
payments does not constitute an obligation for which the participant is
obligated to levy or pledge any form of taxation.
The Portfolio of the Trust may contain obligations of issuers located in
the Commonwealth of Puerto Rico. (See Part A-- 'Portfolio Summary as of Date of
Deposit.') The ability of the issuers of such bonds to meet their obligations
may be affected by the economic and social problems facing Puerto Rico.
Unemployment in Puerto Rico remains high by United States standards. The
island's per capita personal income has been lower than in any state of the
United States. Transfer payments from the United States Government under various
social welfare programs (such as food stamps, social security and veterans'
benefits) contribute significantly to personal income.
The economy of Puerto Rico is closely integrated with that of the mainland
United States and is largely dependent for its development on U.S. policies and
programs that could be eliminated by the U.S. Congress. Aid for Puerto Rico's
economy has traditionally depended heavily on Federal programs which 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. During fiscal year 1991 approximately 87% of Puerto Rico's exports were
to the United States mainland, which was also the source of 68% of its imports.
Growth in the Puerto Rico economy in fiscal 1993 and fiscal 1994 will depend on
several factors including the state of the U.S. economy.
The Puerto Rican economy consists principally of manufacturing
(pharmaceuticals, scientific instruments, computers, microprocessors, medical
products, textiles and petrochemicals), agriculture (largely sugar), tourism and
the service sector (including finance, insurance, and real estate). Since Puerto
Rico is an island and is heavily dependent upon imports and exports, maritime
and air transportation are of basic importance to its economy. The manufacturing
and service sectors generate the largest portion of gross product. Most of the
island's manufacturing output is shipped to the mainland United States, which is
also the chief source of semi-finished manufactured articles on which further
manufacturing operations are performed in Puerto Rico. The finance, insurance
and real estate components of this sector have recently experienced the most
growth. The level of tourism is affected by various factors, including the
strength of the U.S. dollar. During periods when the dollar is strong, tourism
in foreign countries becomes relatively more attractive.
The government sector of the Commonwealth plays an important role in the
economy of the island. Since World War II, the economic importance of
agriculture for Puerto Rico, particularly in the dominance of sugar production,
has declined. Nevertheless, the Commonwealth-controlled sugar monopoly remains
an important economic factor and is largely dependent upon Federal maintenance
of sugar prices, the discontinuation of which could severely affect Puerto Rican
sugar production.
The Puerto Rican economy is affected by a number of Commonwealth and
Federal investment incentive programs. For example, Section 936 of the Internal
Revenue Code generally provides deferral of Federal income taxes for U.S.
companies operating on the island until profits are repatriated. No assessment
can be made as to whether or not Section 936 and other incentive programs will
be continued. It is expected that the elimination of Section 936, if it
occurred, would have a strongly negative impact on Puerto Rico's economy.
There have for many years been two major viewpoints in Puerto Rico with
respect to the island's relationship to the United States, one essentially
favoring the existing commonwealth status (but with modifications providing for
greater local autonomy), and the other favoring statehood. A third viewpoint
favors independence from the United States. The Sponsor cannot predict what
effect, if any, a change in the relationship between Puerto Rico and the United
States would have on the issuers' ability to meet their obligations.
Certain Securities in each Trust may be purchased by the Sponsor on a
'when, as and if issued' basis; that is, they may not yet be issued by their
governmental entities on the Date of Deposit (although such governmental
entities are committed to issue such Securities). Contracts relating to such
'when, as and if issued' Securities may not settle by the first settlement date
for Units. Moreover, the delivery of such Securities may be delayed or may not
occur. Unit Holders who purchase Units prior to settlement of such Securities
will be 'at risk' with respect to these Securities (i.e., they may derive either
gain or loss from changes in the prices of the Securities) from the date they
commit to purchase such Units. Interest on the Securities begins accruing to the
benefit of Unit
B-7
<PAGE>
Holders as tax exempt interest on the respective delivery dates of such
Securities. In order to provide level interest payments to Unit Holders where
the Trust purchases Securities which will settle after the settlement date for
Units, the Trustee will reduce its fee over a period of time in an amount equal
to the amount of interest that would have so accrued on such Securities between
the initial settlement date for the Units and the delivery date of any such
Securities as if such Securities had been delivered prior to purchase of the
Units. The reduction of the Trustee's fee eliminates the necessity of reducing
regular monthly interest distributions until such Securities are delivered. The
Trustee will be reimbursed for the reduction in its fee by the Sponsor. To the
extent that the delivery of such Securities is delayed beyond their respective
expected delivery dates, the Estimated Current Returns and Estimated Long-Term
Return for the first year may be lower than indicated in the 'Summary of
Essential Information' in Part A.
Each Trust consists of the Securities (or contracts to purchase such
Securities together with an irrevocable letter or letters of credit for the
purchase of such contracts) 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.
In the event that any contract for the purchase of any Security fails, the
Sponsor is authorized under the Indenture, subject to the conditions set forth
below, to instruct the Trustee to acquire other securities (the 'Replacement
Securities') for inclusion in the portfolio of a Trust. Any Replacement
Securities must be deposited not later than the earlier of (i) the first Monthly
Distribution Date of the Trust or (ii) 90 days after the Trust was established.
The cost and aggregate principal amount of the Replacement Securities may not
exceed the cost and aggregate principal amount of the Securities which they
replace. In addition, the Replacement Securities must (1) be tax-exempt bonds;
(2) have a fixed maturity date in the same category as the Security replaced;
(3) be purchased at a price that results in a yield to maturity and in a current
return, in each case as of the execution and delivery of the Indenture, which is
approximately equivalent to the yield to maturity and current return of the
Securities which they replace; (4) be purchased within twenty days after
delivery of notice of the failed contracts; (5) for an Insured Trust, be insured
either by insurance obtained by the issuer or under a Portfolio Insurance policy
obtained by a Trust and be eligible for Permanent Insurance and not cause the
Units of an Insured Trust to cease to be rated AAA by Standard & Poor's and (6)
for a trust which is not an insured trust, be rated by at least one national
rating organization in the same category as the Security which it replaces or
have, in the opinion of the Sponsor's affiliate, comparable credit
characteristics. Whenever a Replacement Security has been acquired for the
Trust, the Trustee will, within five days thereafter, notify all Unit Holders of
the acquisition of the Replacement Security.
In the event a contract to purchase Securities fails and Replacement
Securities are not acquired, the Trustee will, not later than the second Monthly
Distribution Date, distribute to Unit Holders the funds attributable to the
failed contract. The Sponsor will, in such a case, refund the sales charge
applicable to the failed contract. If less than all the funds attributable to a
failed contract are applied to purchase Replacement Securities, the remaining
moneys will be distributed to Unit Holders not later than the second Monthly
Distribution Date. Moreover, the failed contract will reduce the Estimated Net
Annual Income per Unit, and may lower the Estimated Current Return and Estimated
Long-Term Return.
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
B-8
<PAGE>
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 had an offering side evaluation in
excess of par. Certain Securities in the Portfolio may be subject to sinking
fund provisions during the life of a Trust. Such provisions are designed to
redeem a significant portion of an issue of Securities gradually over the life
of such issue. Particular bonds of an issue of Securities to be redeemed are
generally chosen by lot. The 'Schedule of Portfolio Securities' herein contains
a listing of the optional refunding and sinking fund redemption provisions, if
any, with respect to each of the Securities.
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 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, Cap. Gty., FSA, MBIA, MBIAC, BIGI + 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 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.
- ------------------
+ Securities originally insured by BIGI have been reinsured by MBIAC pursuant
to reinsurance agreements.
B-9
<PAGE>
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 (unaudited) of
approximately $1,936,000,000 and statutory capital (unaudited) of approximately
$1,096,000,000 as of September 30, 1993. Statutory capital consists of statutory
contingency reserve and AMBAC Indemnity's policyholders' surplus. AMBAC
Indemnity is a wholly owned subsidiary of AMBAC, Inc., a 100% publicly-held
company. Moody's Investors Service, Inc. and Standard & Poor's Corporation have
both assigned a triple-A claims-paying ability rating to AMBAC Indemnity.
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 49 states in addition to
the District of Columbia, the Commonwealth of Puerto Rico and the territory of
Guam. CapMAC insures structured asset-backed, corporate and other financial
obligations in the domestic and foreign capital markets. CapMAC may also provide
financial guarantee reinsurance for structured asset-backed, corporate and
municipal obligations written by other major insurance companies. 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. CapMAC is wholly owned by CapMAC Holdings Inc., a company
that is owned by a group of institutional and other investors, including
CapMAC's management and employees. As at December 31, 1992 and 1991, CapMAC had
statutory capital and surplus of approximately $148 million and $232 million,
respectively. CapMAC's claims-paying ability is rated triple-A by Moody's
Investors Service, Inc., Standard & Poor's Corporation and Duff & Phelps, Inc.
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 September 30, 1993,
policyholders' surplus (unaudited) was $103,869,000, stockholders' equity
(unaudited) was $140,343,000 and total assets (unaudited) were $209,600,000.
Standard & Poor's Corporation has rated the claims-paying ability of ConnieLee
'AAA'.
Capital Guaranty Insurance Company
Capital Guaranty Insurance Company ('Cap. Gty.'), a Maryland-domiciled
insurance company, which was incorporated in Maryland on June 25, 1986, and
commenced its operations in November 1986 is a wholly-owned subsidiary of
Capital Guaranty Corporation, a Maryland insurance holding company. As a result
of the recent initial public stock offering on October 6, 1993 of Cap. Gty.,
public stockholders now own 82.7% of Cap. Gty. The remaining 17.3% is held by
three original investors: Constellation Investments, Inc., an affiliate of
Baltimore Gas & Electric; Safeco Corporation; and Sibag Finance Corporation, an
affiliate of Sieman's A.G. Cap. Gty., a monoline financial guaranty insurer,
insures general obligation, tax supported and revenue bonds structured as
tax-exempt and taxable securities. Cap. Gty.'s insured portfolio currently
includes over $13.6 billion in net exposure outstanding. As of September 30,
1993, the total policyholders' surplus of Cap. Gty. was $159,931,354
(unaudited), and the total admitted assets were $270,021,126 (unaudited) as
reported to the Insurance Department of the State of Maryland. Cap. Gty.'s
claims-paying ability is rated triple-A by Moody's Investors Service, Inc. and
Standard & Poor's Corporation.
Financial Security Assurance
Financial Security Assurance ('FSA') is a monoline insurance company
incorporated on March 16, 1984 under the laws of the State of New York. FSA is
approximately 92.5% owned by US WEST Capital Corporation and 7.5% owned by Tokio
Marine and Fire Insurance Co., Ltd. ('Tokio Marine'). US West Capital
Corporation is a subsidiary of US West, Inc., which operates businesses involved
in communications, data solutions, marketing services and capital assets,
including the provision of telephone services in 14 states in the western and
mid-western United States. Tokio Marine is a major Japanese property and
casualty insurance company. No shareholder of FSA is obligated to pay any debt
of FSA or any claim under any insurance policy issued by
B-10
<PAGE>
FSA or to make any additional contribution to the capital of FSA. FSA and its
two wholly owned subsidiaries are licensed to engage in financial guaranty
insurance business in 49 states, the District of Columbia and Puerto Rico.
FSA and its subsidiaries are engaged exclusively in the business of writing
financial guaranty insurance, principally in respect of securities offered in
domestic and foreign markets. FSA and its subsidiaries principally insure
asset-backed, collateralized and municipal securities.
Pursuant to an intercompany agreement, liabilities on financial guaranty
insurance written by FSA or either of its subsidiaries are reinsured among such
companies on an agreed-upon percentage substantially proportional to their
respective capital, surplus and reserves, subject to applicable statutory risk
limitations. In addition, FSA reinsures a portion of its liabilities under
certain of its financial guaranty insurance policies with other reinsurers under
various quota share treaties and on a transaction-by-transaction basis.
As of December 31, 1993, the unearned premium reserve of FSA was
$200,316,000 (audited) and its total shareholder's equity was $542,468,000
(audited). FSA's claims-paying ability is rated 'Aaa' by Moody's Investors
Service, Inc. and 'AAA' by Standard & Poor's Corporation.
MBIA
The insurance companies comprising MBIA and their respective percentage
liabilities are as follows: The Aetna Casualty and Surety Company, thirty-three
percent (33%); Fireman's Fund Insurance Company, thirty percent (30%); The
Travelers Indemnity Company, fifteen percent (15%); Cigna Property and Casualty
Company, twelve percent (12%); and The Continental Insurance Company, ten
percent (10%). All policies are individual obligations of the participating
insurance companies and their obligations thereunder cannot be increased beyond
their percentage commitment, therefore, each company will not be obligated to
pay any unpaid obligation of any other member of MBIA. Each insurance company's
participation is backed by all of its assets. However, each insurance company is
a multiline insurer involved in several lines of insurance other than municipal
bond insurance, and the assets of each insurance company also secure all of its
other insurance policy and surety bond obligations. The total New York statutory
assets of the participating insurance companies as of June 30, 1993 was
$35,208,676. 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'.
MBIAC
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 September 30, 1993, MBIAC had admitted assets (unaudited) of $3.0
billion, total liabilities (unaudited) of $2.0 billion, and total capital and
surplus (unaudited) of $951 million, determined in accordance with statutory
accounting practices prescribed or permitted by insurance regulatory
authorities. Standard & Poor's Corporation rates all new issues insured by MBIAC
and Moody's Investors Service rates all bond issues insured by MBIAC 'AAA' and
'Aaa', respectively.
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 in respect
of 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
B-11
<PAGE>
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 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
B-12
<PAGE>
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.
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 September 30, 1993, the total capital and surplus of Financial
Guaranty was approximately $744,722,000 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 49 states and the District of Columbia, files reports with state
insurance regulatory agencies and is subject to audit and review by such
authorities. Financial Guaranty is also subject to regulation by the State of
New York Insurance Department. Such regulation, however, is no guarantee that
Financial Guaranty will be able to perform on its commitments or contracts of
insurance in the event claims should be made thereunder at some time in the
future. Fitch Investors Service, Inc., Standard & Poor's Corporation and Moody's
Investors Service have rated the claims paying ability of Financial Guaranty
'AAA', 'AAA' and 'Aaa', respectively.
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 Securities. There is no guarantee
that the 'AAA' investment rating with respect to the Securities or Units will be
maintained.
B-13
<PAGE>
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. 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 of a Trust, (c) yields of the Securities relative to other securities
of comparable quality and maturity (d) the availability of, rating of the claims
paying ability of an insurer of, cost 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 the Date of Deposit 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.
TAX STATUS OF EACH TRUST
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.
B-14
<PAGE>
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 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.
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 is less than
the stated redemption price thereof at maturity (or the issue price plus
original issue discount accrued up to the acquisition date, in the case of an
original issue discount Security). Any capital gain or loss arising from the
disposition of a Unit Holder's pro rata interest in a Security will be a
long-term capital gain or loss if the Unit Holder has held his or her Units and
the Trust has held the Security for more than one year. Under the Code, net
capital gain (i.e., the excess of net long-term capital gain over net short-term
capital loss) of individuals, estates and trusts is subject to a maximum nominal
tax rate of 28%. Such net capital gain may, however, result in a disallowance of
itemized deductions and/or affect a personal exemption phase-out.
Opinions relating to the validity of the underlying Securities and the
exemption of interest thereon from Federal income tax are rendered by bond
counsel to the issuing governmental authorities. It is the view of The
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.
B-15
<PAGE>
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, 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.
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.')
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.
The Portfolio of the Trust may contain zero coupon bond(s) or one or more
other Securities which were originally issued at a discount ('original issue
discount'). In general, original issue discount can be defined as the difference
between the price at which a Security was issued and its stated redemption price
at maturity. In the case of a Security issued before September 4, 1982, original
issue discount is deemed to accrue (be 'earned') as tax-exempt interest ratably
over the period from the date of issuance of the Security to the date of
maturity and is apportioned among the original holder of the obligation and
subsequent purchasers in accordance with a ratio the numerator of which is the
number of calendar days the obligation was owned by the holder and the
denominator of which is the total number of calendar days from the date of
issuance of the obligation to its date of maturity. Gain or loss upon the
disposition of an original issue discount Security in a Portfolio is measured by
the difference between the amount realized upon disposition of and the amount
paid for such obligation. A holder is entitled, however, to exclude from gross
income that portion of such gain attributable to accrued interest and the
'earned' portion of original issue discount.
In the case of a Security issued after September 3, 1982, original issue
discount is deemed to accrue on a constant interest method which corresponds, in
general, to the economic accrual of interest (adjusted to eliminate
proportionately on an elapsed-time basis any excess of the amount paid for the
Security over the sum of the issue price and the accrued original issue discount
on the acquisition date). The tax basis in the Security is increased by the
amount of original issue discount that is deemed to accrue while
B-16
<PAGE>
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
environmental tax is an excise tax and is deductible for United States Federal
income tax purposes (but not for purposes of the environmental tax itself).
Although the environmental tax is based on alternative minimum taxable income,
the environmental tax must be paid in addition to any Federal income taxes
payable by the corporation.
From time to time proposals have been introduced before Congress the
purpose of which is to restrict or eliminate the Federal income tax exemption
for interest on securities similar to the Securities in the Trust or to require
treatment of such interest as a 'tax preference' for alternative minimum tax
purposes, and it can be expected that similar proposals may be introduced in the
future. The Trust and the Sponsor cannot predict what legislation, if any, in
respect of the tax status of interest on Securities may be proposed by the
Executive Branch or by members of Congress, nor can they predict which
proposals, if any, might be enacted or whether any legislation if enacted would
apply to the Securities in the Trust.
In addition, investors should be aware that no deduction is allowed for
Federal income tax purposes for interest on indebtedness incurred or continued
to purchase or carry Units in the Trust. Under rules used by the Internal
Revenue Service for determining when borrowed funds are considered used for the
purpose of purchasing or carrying particular assets, the purchase of Units may
be considered to have been made with borrowed funds even though the borrowed
funds are not directly traceable to the purchase of the Units.
All taxpayers are required to report for informational purposes on their
Federal income tax returns the amount of tax-exempt interest they receive.
Investors should consult their own tax advisors with respect to the
applicability of the foregoing general comments to their own particular
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 Public Offering Price 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 Volume Discount herein. A proportionate share of
accrued and undistributed interest on the 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.
B-17
<PAGE>
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. With
respect to the initial evaluation of the offering prices of Securities which at
the Date of Deposit were subject to syndicate offering period pricing
restrictions, it is the practice of the Evaluator to determine such evaluation
on the basis of the syndicate offering price, unless factors cause the Evaluator
to conclude that such syndicate offering price does not then accurately reflect
the free market value of such Securities, in which case the Evaluator will also
take into account the other criteria described above for the purpose of making
its determination. 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. On the Date of Deposit the
aggregate current offering price of such Securities per Unit exceeded the bid
price of such Securities per Unit by the amount set forth under 'Summary of
Essential Information'. 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'.
In an effort to reduce the amount of accrued interest which investors would
have to pay in addition to the Public Offering Price, the Trustee has agreed to
advance to the Trust the amount of accrued interest due on the Securities to the
first expected settlement date for Units. This accrued interest amount will be
paid to the Sponsor as the holder of record of all Units on such date.
Consequently, when the Sponsor sells Units of the Trust, the amount of accrued
interest to be added to the Public Offering Price of the Units purchased by an
investor will include only accrued interest from the settlement date for Units
purchased on the date of this Prospectus to, but not including, the date of
settlement of the investor's purchase (normally five business days after
purchase), less any distributions from the Interest Account. The Trustee will
recover its advancements to the Trust (without interest or other cost to the
Trust) from interest received on the Securities deposited in the Trust.
On the Date of Deposit, the Public Offering Price per Unit and the
Sponsor's Initial Repurchase Price per Unit (based on the offering side
evaluation of the Securities in a Trust) each exceeded the Redemption and
Sponsor's Secondary Market Repurchase Price per Unit (based upon the bid side
evaluation of the Securities in a Trust) by the amounts set forth in Part
A--'Summary of Essential Information,' herein.
PUBLIC DISTRIBUTION
During the initial public offering period, Units will be distributed to the
public by the Sponsor and through dealers at the Public Offering Price,
calculated on each business day, plus accrued interest. The initial public
offering period is 30 days, unless all Units are sold prior thereto whereupon
the initial public offering period will terminate. The initial public offering
period may be extended by the Sponsor for up to four successive 30-day periods
as long as Units remain unsold. Upon the termination of the initial public
offering period, unsold Units or Units acquired by the Sponsor in the secondary
market referred to below may be offered to the public by this Prospectus at the
then current Public Offering Price, plus accrued interest.
The underwriters of the Units are listed in Part A--'Underwriting Account.'
It is the Underwriters' intention to qualify Units for sale in the states and to
effect a public distribution of the Units solely through their own
organizations. However, Units may be sold through dealers who are members of the
National Association of Securities Dealers, Inc. at prices which represent a
concession or agency commission per Unit. In the State of Virginia, Units of a
State Trust will not be offered for sale. Sales to dealers will initially be
made at prices which include a concession per Unit as 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 will be $21 per Unit for each Trust.
B-18
<PAGE>
The dealer concession per Unit in the secondary market will generally be
65% of the sales charge per Unit. However, the Sponsor may negotiate a different
concession (either higher or lower) with dealers on a case-by-case basis.
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 Texas, any
bank making Units available must be registered as a broker-dealer in that State.
SECONDARY MARKET
While not obligated to do so, it is the Sponsor's present intention to
maintain a secondary market for Units of each Trust and to continuously offer to
repurchase Units from Unit Holders at the applicable Sponsor's Repurchase Price.
(See Part A-- 'Summary of Essential Information.') During the initial offering
period the Sponsor's Repurchase Price is computed by adding to the aggregate of
the offering prices of the Securities in a Trust, any money in the Principal
Account other than money required to redeem tendered Units, plus accrued
interest, deducting therefrom expenses of the Trustee, Evaluator, Sponsor and
counsel, and taxes, if any, and then dividing the resulting sum by the number of
Units outstanding, as of the date of such computation. Following the initial
public offering period, the Sponsor, although it is not obligated to do so,
presently intends to maintain a market for the Units of the Trust at prices
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. 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
primary market and 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.) For their services, the
Underwriters other than the Sponsor received a concession of $23 per Unit for
each Trust.
The Sponsor may have also realized a book profit (or a loss) on the deposit
of the Securities in the Trust representing the difference between the cost of
the Securities to the Sponsor and the cost of the Securities to such Trust. (For
a description of such profit (or loss) and the amount of such difference, see
Part A--'Schedule of Portfolio Securities.') The Sponsor may realize profits or
sustain losses in respect of Securities which were acquired from the Sponsor or
from underwriting syndicates of which it was a member. (See Part A--'Portfolio
Summary as of Date of Deposit.') An underwriter or underwriting syndicate
purchases bonds from the issuer on a negotiated or competitive bid basis as
principal with the motive of marketing such bonds to investors at a profit. In
addition, the Sponsor may realize profits (or sustain losses) due to daily
fluctuations in the offering 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.
B-19
<PAGE>
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 Units in the primary market as set
forth below:
<TABLE>
<CAPTION>
PRIMARY MARKET SALES CHARGE
----------------------------------------
PERCENT OF PUBLIC PERCENT OF NET
NUMBER OF UNITS OFFERING PRICE AMOUNT INVESTED
- ----------------------------------------------------------------------- ------------------- -------------------
<S> <C> <C>
less than 49 Units..................................................... %3.25 3.359%
50-99 Units............................................................ %2.75 2.828%
100 or more Units...................................................... %2.00 2.041%
</TABLE>
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.
<TABLE>
<CAPTION>
(AS PERCENT OF BID (AS PERCENT OF PUBLIC
TIME TO MATURITY SIDE EVALUATION) OFFERING PRICE)
- -------------------------------------------------------------------- ------------------- -----------------------
<S> <C> <C>
Less than six months................................................ % 0 % 0
Six months to 1 year................................................ 0.756% % 0.75
Over 1 year to 2 years.............................................. 1.523% % 1.50
Over 2 years to 4 years............................................. 2.564% % 2.50
Over 4 years to 8 years............................................. 3.627% % 3.50
Over 8 years to 15 years............................................ 4.712% % 4.50
Over 15 years....................................................... 5.820% % 5.50
</TABLE>
The sales charge per Unit will be reduced pursuant to the following
graduated scale for sales to any person of at least 100 Units in the secondary
market.
<TABLE>
<CAPTION>
% OF
SALES
NUMBER OF UNITS 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 offering 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, subject to a limit of 5% of the Units of a Trust at the discretion of
the Sponsor.
B-20
<PAGE>
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 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 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)].
TAX CONSEQUENCES
An exchange of Units pursuant to the Exchange Option will generally
constitute a 'taxable event' under the Code, i.e., a Unit Holder will recognize
gain or loss at the time of exchange. However, 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 will not
B-21
<PAGE>
constitute a taxable event to the extent that the underlying securities in each
trust do not differ materially either in kind or in extent. Unit Holders are
urged to consult their own tax advisors as to the tax consequences to them of
exchanging Units in particular cases.
REINVESTMENT PROGRAM
Distributions of interest and principal, if any, are made to Unit Holders
monthly 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.
EXPENSES AND CHARGES
INITIAL EXPENSES
All expenses and charges incurred prior to or in the establishment of the
Trust including the cost of the initial preparation, printing and execution of
the Indenture and the Certificates, the initial fees of the Evaluator, initial
legal and auditing expenses, the cost of the preparation and printing of this
Prospectus and all other advertising and selling expenses, have been, or will
be, paid by the Sponsor or the Underwriters, if any.
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.'
The Supervision Fee accrues quarterly but is paid annually, and the
Trustee's fees and the Evaluator's fees are payable monthly on or before each
Distribution Date from the Interest Account, to the extent funds are available,
and thereafter from the Principal Account. Any of such fees may be increased
without approval of the Unit Holders in proportion to increases under the
classification 'All Services Less Rent' in the Consumer Price Index published by
the United States Department of Labor. The Trustee also receives benefits to the
extent that it holds funds on deposit in various non-interest bearing accounts
created under the Indenture.
OTHER CHARGES
The following additional charges are or may be incurred by 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
B-22
<PAGE>
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. 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 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
initially will be in the amount shown under 'Summary of Essential Information'
in Part A and will change as the income and expenses of the Trust change and as
Securities are exchanged, redeemed, paid down or sold.
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
B-23
<PAGE>
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 United States Trust Company of New
York, pursuant to normal banking procedures. In addition, because of the varying
interest payment dates of the Securities comprising the Trust's Portfolio,
accrued interest at any point in time will be greater than the amount of
interest actually received by the Trust and distributed to Unit Holders. This
excess accrued but undistributed amount (the 'accrued interest carryover') will
be added to the value of the Units on any purchase after the date of the
Prospectus. See Part A, 'Summary of Essential Information' for the Accrued Net
Interest Carryover for the particular Trust described therein. If a Unit Holder
sells all or a portion of his Units a portion of his sale proceeds will be
allocable to his proportionate share of the accrued interest. Similarly, if a
Unit Holder redeems all or a portion of his Units, the Redemption Price per Unit
which he is entitled to receive from the Trustee will include accrued interest.
(See 'Rights of Unit Holders--Redemption--Computation of Redemption Price per
Unit.')
Purchasers of Units who desire to receive distributions on a semi-annual
basis (if available) may elect to do so at the time of purchase during the
initial public offering period. Those indicating no choice will be deemed to
have chosen the monthly distribution plan. All Unit Holders, however, purchasing
Units during the initial public offering period and prior to the first Record
Date will receive the first distribution of interest. Thereafter, record dates
for monthly distributions will be the tenth day of each month, and record dates
for semi-annual distributions will be the tenth day of July and January.
The plan of distribution selected by a Unit Holder will remain in effect
until changed. Unit Holders purchasing Units in the secondary market will
initially receive distributions in accordance with the election of the prior
owner. 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.
In an effort to reduce the amount of accrued interest which investors would
have to pay in addition to the Public Offering Price, the Trustee has agreed to
advance to the Trust the amount of accrued interest due on the Securities
through the first expected settlement date. This accrued interest amount will be
paid to the Sponsor as the holder of record of all Units on such date.
Consequently, when the Sponsor sells Units after the date of the Prospectus, the
amount of accrued interest to be added to the Public Offering Price of the Units
purchased by an investor will include only accrued interest from the first
expected settlement date to, but not including, the date of settlement of the
investor's purchase (normally five business days after purchase), less any
distributions from the Interest Account. Since a person who contracts to
purchase Units on the date of the prospectus will settle such purchase on the
first expected settlement date of the Units, no accrued interest will be added
to the Public Offering Price. The Trustee will recover its advancements to the
Trust (without interest or other cost to the Trust) from interest received on
the Securities deposited in the Trust.
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.
B-24
<PAGE>
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, 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, 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 seven calendar days following such tender, or if the seventh
calendar day is not a business day, on the first business day prior thereto, the
Unit Holder will be entitled to receive in cash an amount for each Unit tendered
equal to the Redemption Price per Unit computed as of the Evaluation Time set
forth in the 'Summary of Essential Information' in Part A on the date of tender.
(See 'Redemption--Computation of Redemption Price per Unit.') The 'date of
tender' is deemed to be the date on which Units are received by the Trustee,
except that as regards Units received after the Evaluation Time, the date of
tender is the first day after such date on which the New York Stock Exchange is
open for trading, and such Units will be deemed to have been tendered to the
Trustee on such day for redemption at the Redemption Price computed on that day.
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.
B-25
<PAGE>
Computation of Redemption Price per Unit
The Redemption Price per Unit of the Trust is determined by the Trustee on
the basis of the bid prices of the Securities in the Trust (or contracts for
Securities to be acquired by the Trust) as of the Evaluation Time on the date
any such determination is made. The Redemption Price per Unit is each Unit's pro
rata share, determined by the Trustee, of: (1) the aggregate value of the
Securities in the Trust (or contracts for securities to be acquired by the
Trust) on the bid side of the market (determined by the Evaluator as set forth
below), (2) cash on hand in the Trust, and accrued and unpaid interest on the
Securities as of the date of computation, less (a) amounts representing taxes or
governmental charges payable out of the Trust, (b) the accrued expenses of the
Trust, and (c) cash held for distribution to Unit Holders of record as of a date
prior to the evaluation. Accrued interest payable in respect of the Units from
the date of tender to, but not including, the fifth business day thereafter also
comprises a part of the Redemption Price per Unit. The Evaluator may determine
the value of the Securities in the Trust (1) on the basis of current bid prices
for the Securities, (2) if bid prices are not available for any Securities, on
the basis of current bid prices for comparable securities, (3) by appraisal, or
(4) by any combination of the above. 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 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, Global Utility Fund,
Inc., Nicholas-Applegate Fund, Inc. (Nicholas-Applegate Growth Equity Fund),
Prudential Adjustable Rate Securities Fund, Inc., Prudential California
Municipal Fund (California Series), Prudential Equity Fund, Prudential Equity
Income Fund, Prudential FlexiFund, Prudential Global Fund, Prudential Global
Genesis Fund, Prudential Global Natural Resources Fund, Prudential GNMA Fund,
Prudential Government Plus Fund, Prudential Growth Opportunity Fund, Prudential
High Yield Fund, Prudential IncomeVertible(Registered) Plus Fund, Inc.,
Prudential Intermediate Global Income Fund, Inc., Prudential Multi-Sector Fund,
Inc., Prudential Municipal Bond Fund, Prudential Municipal Series Fund,
Prudential National Municipals Fund, Prudential Pacific Growth Fund, Inc.,
Prudential Short-Term Global Income Fund, Prudential Strategic Income Fund,
Prudential Total Return Fund, Prudential U.S. Government Fund and Prudential
Utility Fund.
LIMITATIONS ON LIABILITY
The Sponsor is liable for the performance of its obligations arising from
its responsibilities under the Indenture, but will be under no liability to Unit
Holders for taking any action or refraining from any action in good faith or for
errors in judgment or liable or responsible in any way for depreciation or loss
incurred by reason of the sale of any Securities, except in case of its own
B-26
<PAGE>
willful misfeasance, bad faith, gross negligence or reckless disregard for its
obligations and duties. (See 'Sponsor-- Responsibility.')
RESPONSIBILITY
The Trust is a unit investment trust and is not actively managed. The
Indenture, however, permits the Sponsor to direct the Trustee to dispose of any
Security in the Trust upon the happening of certain events, including without
limitation, the following:
1. Default in the payment of principal or interest on any Security when due
and payable,
2. Institution of legal proceedings seeking to restrain or enjoin the
payment of any Security or attacking their validity,
3. A breach of covenant or warranty which could adversely affect the
payment of debt service on the Security,
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 United States Trust Company of New York, with its principal
place of business at 114 West 47th Street, New York, New York 10036 and a unit
investment trust office at 770 Broadway, New York, New York 10003. United States
Trust Company of New York has, since its establishment in 1853, engaged
primarily in the management of trust and agency accounts for individuals and
corporations. The Trustee is a member of the New York Clearing House Association
and is subject to supervision and examination by the Superintendent of Banks of
the State of New York, the Federal Deposit Insurance Corporation and the Board
of Governors of the Federal Reserve System. In connection with the storage and
handling of certain Securities deposited in a Trust, the Trustee may use the
services of the Depository Trust Company. These services may include safekeeping
of the Securities
B-27
<PAGE>
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 Kenny
Information Systems, Inc., with main offices located at 65 Broadway, New York,
New York 10006.
LIMITATIONS ON LIABILITY
The Trustee, Sponsor and Unit Holders may rely on any evaluation furnished
by the Evaluator and shall have no responsibility for the accuracy thereof.
Determinations by the Evaluator under the Indenture shall be made in good faith
upon the basis of the best information available to it, provided, however, that
the Evaluator shall be under no liability to the Trustee, the Sponsor, or Unit
Holders for errors in judgment. But this provision shall not protect the
Evaluator in cases of willful misfeasance, bad faith, gross negligence or
reckless disregard of its obligations and duties.
RESPONSIBILITY
The Indenture requires the Evaluator to evaluate the Securities in a Trust
on the basis of their bid prices on the last business day of June and December
in each year, on the day on which any Unit is tendered for redemption and on any
other day such evaluation is desired by the Trustee or is requested by the
Sponsor. For information relating to the responsibility of the Evaluator to
evaluate the Securities on the basis of their 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.
B-28
<PAGE>
AMENDMENT AND TERMINATION OF THE INDENTURE
AMENDMENT
The Sponsor and the Trustee have the power to amend the Indenture without
the consent of any of the Unit Holders when such an amendment is: (1) to cure
any ambiguity or to correct or supplement any provision of the Indenture which
may be defective or inconsistent with any other provision contained therein, or
(2) to make such other provisions as shall not adversely affect the interests of
the Unit Holders; provided, that the Indenture may also be amended by the
Sponsor and the Trustee (or the performance of any of the provisions of the
Indenture may be waived) with the consent of Unit Holders owning 51% of the
Units of the Trust at the time outstanding for the purposes of adding any
provisions to or changing in any manner or eliminating any of the provisions of
the Indenture or of modifying in any manner the rights of Unit Holders. In no
event, however, shall the Indenture be amended to increase the number of Units
issuable thereunder, to permit the deposit or acquisition of securities or other
property either in addition to or in substitution for any of the Securities
initially deposited in the Trust, except for the substitution of certain
refunding securities for such Securities as initially provided in the Indenture,
or 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. Messrs. Adams, Duque & Hazeltine, 777 South Figueroa
Street, Los Angeles, California 90017, act as special California counsel for the
Sponsor. Messrs. Carlton, Fields, Ward, Emmanuel, Smith & Cutler, P.A., act as
special Florida counsel for the Sponsor.
AUDITORS
The financial statements of the Trusts included in this Prospectus have
been audited by Deloitte & Touche, certified public accountants, as stated in
their report appearing herein, and are included in reliance upon such report
given upon the authority of that firm as experts in accounting and auditing.
BOND RATINGS+
ALL RATINGS EXCEPT THOSE IDENTIFIED OTHERWISE ARE BY STANDARD & POOR'S
CORPORATION.
STANDARD & POOR'S CORPORATION
A Standard & Poor's corporate or municipal bond rating is a current
assessment of the creditworthiness of an obligor with respect to a specific debt
obligation. This assessment of creditworthiness may take into consideration
obligors such as guarantors, insurers, or lessees.
The bond rating is not a recommendation to purchase or sell a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
- ------------------
+ As described by the rating agencies.
B-29
<PAGE>
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.
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
B-30
<PAGE>
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-31
<PAGE>
FEDERAL TAX-FREE VS. TAXABLE INCOME FOR A TRUST
This table shows the approximate yields which taxable securities must earn in
various income brackets to produce, after Federal income tax, returns equivalent
to specified tax-exempt bond yields. The table is computed on the theory that
the taxpayer's highest bracket tax rate is applicable to the entire amount of
any increase or decrease in his taxable income resulting from a switch from
taxable to tax-exempt securities or vice versa. The table reflects the Federal
income tax rates and tax brackets for the 1994 taxable year under the Code as in
effect on the date of this Prospectus. Because the Federal rate brackets are
subject to adjustment based on changes in the Consumer Price Index, the taxable
equivalent yields for subsequent years may vary somewhat from those indicated in
the table. Use this table to find your tax bracket. Read the columns below to
determine the approximate taxable yield you would need to equal a return free of
Federal income tax.
<TABLE>
<CAPTION>
1994 TAX YEAR
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$22,750 $55,100 $115,000
TAXABLE INCOME BRACKET* UP TO TO TO TO OVER
SINGLE RETURN $22,750 $55,100 $115,000 $250,000 $250,000
- -----------------------------------------------------------------------------------------------------------------------
$38,000 $91,850 $140,000
TAXABLE INCOME BRACKET* UP TO TO TO TO OVER
JOINT RETURN $38,000 $91,850 $140,000 $250,000 $250,000
- -----------------------------------------------------------------------------------------------------------------------
FEDERAL TAX RATE 15% 28% 31% 36% 39.6%
- -----------------------------------------------------------------------------------------------------------------------
TAX EXEMPT YIELD TAXABLE EQUIVALENT YIELD
4.00% 4.705 5.555 5.797 6.250 6.622
4.50 5.294 6.250 6.521 7.031 7.450
5.00 5.882 6.944 7.246 7.812 8.278
5.50 6.470 7.638 7.971 8.593 9.105
6.00 7.059 8.333 8.696 9.375 9.933
6.50 7.647 9.028 9.420 10.156 10.761
7.00 8.235 9.722 10.145 10.937 11.589
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
* The income amount shown is income subject to Federal income tax reduced by
adjustments to income, exemptions, and itemized deductions or the standard
deduction. It is assumed that the investor is not subject to the alternative
minimum tax. Where applicable, investors should take into account the
provisions of the Code under which the benefit of certain itemized deductions
and the benefit of personal exemptions are limited in the case of higher
income individuals. Under the Code, individual taxpayers with adjusted gross
income in excess of a $111,800 threshold amount are subject to an overall
limitation on certain itemized deductions, requiring a reduction equal to the
lesser of (i) 3% of adjusted gross income in excess of the $111,800 threshold
amount or (ii) 80% of the amount of such itemized deductions otherwise
allowable. The benefit of each personal exemption is phased-out for married
taxpayers filing a joint return with adjusted gross income in excess of
$167,700 and for single taxpayers with adjusted gross income in excess of
$111,800. Personal exemptions are phased out at the rate of two percentage
points for each $2,450 (or fraction thereof) of adjusted gross income in
excess of the applicable threshold amount. The first three Federal tax
brackets, the threshold amounts at which itemized deductions are subject to
reduction, and the range over which personal exemptions are phased out will be
adjusted for inflation for each year after 1994. The 36% and 39.6% Federal tax
brackets will be adjusted for inflation for each year after 1994, using 1993
as the base year.
B-32
<PAGE>
AUTHORIZATION FOR REINVESTMENT
NATIONAL MUNICIPAL TRUST SERIES
I hereby elect to participate in the Reinvestment Program to the extent
indicated below and do authorize United States Trust Company of New York,
Trustee, to direct distributions as indicated below to the Prudential Tax Free
Money Fund, Inc. where such amounts shall immediately be invested into shares of
the fund.
The foregoing authorization is subject in all respects to the terms and
conditions of participation set forth in the National Municipal Trust prospectus
and shall remain in effect until such time as I notify United States Trust
Company of New York to the contrary in writing.
(fold here)
________________________________________________________________________________
Soc. Sec./Tax I.D. No.: ___________________________
<TABLE>
<S> <C> <C>
Series / / Please reinvest all NMT series which I/we own
/ / Please list below the specific series I/we wish to reinvest
____________________________________________________
____________________________________________________
____________________________________________________
Check One / / Reinvest Interest
/ / Reinvest Principal
/ / Reinvest Both Interest and Principal
</TABLE>
<TABLE>
<S> <C>
Exact registration as it
appears on your Units: _______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
Street address: _______________________________________________________
City, State, Zip Code: _______________________________________________________
Unit Holder Signature(s): __________________________________ Date: _____________
(all joint holders must sign)
</TABLE>
Detach here and mail to address on the reverse
- -------------------------------------------------------------------------------
<PAGE>
REINVESTMENT ADDRESS
US TRUST COMPANY
ATTN: DIVIDEND REINVESTMENT__DEPT. A
P.O. BOX 834
NEW YORK, N.Y. 10003
<PAGE>
PROSPECTUS--PART C
- --------------------------------------------------------------------------------
NOTE: PART C OF THIS PROSPECTUS MAY NOT BE DISTRIBUTED UNLESS ACCOMPANIED BY
PARTS A AND B.
- --------------------------------------------------------------------------------
NATIONAL MUNICIPAL TRUST, MULTISTATE SERIES
STATE RISK FACTORS
The Securities in a State Trust were chosen by the Sponsor with a view to
achieving a balance of income and diversification as to purpose of issue and
safety of principal. The following factors, among others, were considered in
selecting the Securities: (1) all of the Securities deposited in a State Trust
are obligations of the State for which such State Trust is named, counties,
municipalities, authorities or political subdivisions thereof or of certain
territories or possessions of the United States (including Puerto Rico), so that
the interest on them will, in the opinion of bond counsel to the issuing
governmental authorities, be exempt from Federal income tax and exempt, to the
extent indicated, from State and any local income taxes of the State for which
such State Trust is named, under existing law, and (2) the Securities are
diversified as to purpose of issue. The Securities are interest-bearing
obligations of the Issuers thereof or, in the case of Securities not delivered
on the Date of Deposit, confirmations of contracts to purchase such obligations.
The Sponsor believes the information summarized below describes some of the
more significant aspects of each of the State Trusts. The sources of such
information are the official statements of issuers as well as other publicly
available documents. While the Sponsor has not independently verified this
information, it has no reason to believe that such information is not correct in
all material respects.
California Trust
California's economy is the largest among the 50 states and one of the
largest in the world. The State's July 1, 1992 population of 31 million
represented over 12.0% of the total United States population. Total employment
is about 14 million, the majority of which was in the service, trade and
manufacturing sectors.
Since the start of the 1990-91 fiscal year, the State has faced the worst
economic, fiscal and budget conditions since the 1930s. Construction,
manufacturing (especially aerospace), exports and financial services, among
others, have all been severely affected. Job losses have been the worst of any
post-war recession. Employment levels are expected to stabilize by late 1993.
However, pre-recession job levels are not expected to be reached for several
more years. Unemployment reached 10% in November 1992 and is expected to remain
above 9% through 1993 and 1994. According to the Department of Finance, recovery
from the recession in California is not expected in meaningful terms until late
1993 or 1994, notwithstanding signs of recovery elsewhere in the nation.
After three years of recession, California's economy seems to be
stabilizing, however, economic signals remain mixed. On the plus side, nonfarm
employment in April was essentially unchanged from the December level. The
unemployment rate seems to be moving down, although the large April drop, from
9.4% to 8.6%, probably exaggerates the improvement. Personal income growth is
improving gradually, from gains of 2% or less in 1991 to slightly over 3% at the
beginning of 1993, and taxable sales are stabilizing after a lengthy decline.
There are still ample signs of weakness. Manufacturing employment continues
to decline, with deep losses in aerospace, reflecting defense cuts and weak
commercial markets. Despite strong output and sales gains, electronics firms
continue to cut payrolls. All manufacturing industries, with the exception of
apparel and textiles, are posting employment losses. Housing, usually an engine
of recovery, remains in a slump. Permit volume has averaged a 95,000 unit annual
rate in recent months, actually somewhat below 1992's 98,000 total.
Nonresidential construction continues to hit new recession lows, reflecting
oversupplied commercial office, retail and hotel markets. Employment continues
to decline in normally stable industries such as banking, the utilities and most
segments of wholesale and retail trade. Food, department and apparel stores are
shedding jobs, and government employment is down 30,000 jobs over the past year.
The Department of Finance, in its May 1993 Revision of the Governor's
1993-94 Budget, states that it expects this essentially flat pattern of economic
activity to persist throughout 1993, with employment by year end only marginally
higher than in April. Gains in service industries, mainly health care, temporary
agencies (in business services), motion picture production and amusements are
expected to continue. There should be modest increases in wholesale and retail
trade. The finance and transportation and utilities groups will be stable to
down slightly. Assuming a modest pickup in homebuilding, construction employment
will also be flat this year. Against these, manufacturing and government will
continue to lose jobs. The largest losses
C-1
<PAGE>
in percentage terms will be in aerospace manufacturing and the Federal
Department of Defense, reflecting cuts in the military budget. Budget
constraints will also affect State and local government.
The recession has seriously affected State tax revenues, which basically
mirror economic conditions. It has also caused increased expenditures for health
and welfare programs. The State has also been facing a structural imbalance in
its budget with the largest programs supported by the General Fund--K-14
education (kindergarten through community college), health, welfare and
corrections--growing at rates significantly higher than the growth rates for the
principal revenue sources of the General Fund. As a result, the State has
experienced recurring budget deficits; the State Controller reports that
expenditures exceeded revenues for four of the last five completed fiscal years.
Revenues declined in 1990-91 over 1989-90, the first time since the 1930s. By
June 30, 1993, according to the Department of Finance, the State's Reserve for
Economic Uncertainties had a deficit, on a budget basis, of approximately $2.75
billion. A further consequence of the large budget imbalances over the last
three fiscal years has been that the State depleted its available cash resources
and has had to use a series of external borrowings to meet its cash needs.
1992-93 BUDGET
By the time the 1992-93 Governor's Budget was presented in January 1992, it
was evident the recession was much deeper than earlier anticipated. To balance
the proposed budget, program reductions totalling $4.365 billion and revenue and
transfer increases of $872 million were proposed for the 1991-92 and 1992-93
fiscal years. By the time of the Governor's May Revision, issued on May 20,
1992, the Administration estimated that the 1992-93 Budget needed to address a
gap of about $7.9 billion, much of which was needed to repay the accumulated
budget deficits of the previous two years.
The severity of the budget actions needed led to a long delay in adopting
the budget. With the failure to adopt a budget by July 1, 1992, which would have
allowed the State to carry out its normal annual cash flow borrowing, the
Controller was forced to issue registered warrants to pay a variety of
obligations representing prior years' or continuing appropriations, and mandates
from court orders. Available funds were used to make constitutionally-mandated
payments, such as debt service on bonds and revenue anticipations warrants.
Between July 1 and September 4, 1992, the Controller issued a total of
approximately $3.8 billion of registered warrants. After that date, all
remaining outstanding registered warrants (about $2.9 billion) were called for
redemption from proceeds of the issuance of 1992 Interim Notes after the budget
was adopted.
The 1992-93 Budget Act, signed by the Governor on September 2, 1992,
provided for expenditures of $57.4 billion and consisted of General Fund
expenditures of $40.8 billion and Special Fund and Bond Fund expenditures of
$16.6 billion. The Department of Finance estimated in September 1992 that there
would be a balance in the Special Fund for Economic Uncertainties of $28 million
on June 30, 1993.
The $7.9 billion budget gap was closed through a combination of increased
revenues and transfers and expenditure cuts such as:
1. General Fund savings in health and welfare programs totalling $1.6
billion.
2. General Fund reductions of $1.9 billion for K-12 schools and
community colleges.
3. General Fund savings of $1.3 billion by revising the State aid
program to local governments originally enacted after Proposition 13.
4. Program cuts for higher education totalling $415 million.
5. A total of $1.6 billion of transfers and accelerated collections of
State revenues.
6. Approximately $1.0 billion from various additional program
reductions.
Shortly after the 1992-93 Budget Act was enacted, it became evident the
economic conditions in the State were not beginning to improve in the second
half of 1992, as assumed by the Department of Finance's May 1992 economic
estimates. This was exacerbated by enactment of an initiative measure in
November 1992 repealing a sales tax for certain candy, snack foods and bottled
water, reducing revenues by about $300 million for a full fiscal year ($200
million in 1992-93). The Governor's Budget proposal for 1993-94, released on
January 8, 1993 (the 'January Governor's Budget'), confirmed the earlier
forecasts about the State's economy and the 1992-93 Budget Act. The January
Governor's Budget projected that the economy would not start meaningful recovery
from the recession until late 1993 or 1994. With the economy continuing in
recession throughout the 1992-93 fiscal year, revenues were projected about $2.5
billion lower than anticipated when the 1992-93 Budget Act was signed, leading
to a projected $2.1 billion budget deficit at June 30, 1993 (compared to the
Budget Act projection of a $28 million balance). That deficit amount was
projected if, by March 1993, the Legislature adopted several actions proposed by
the Governor to save about $475 million in the 1992-93 fiscal year. The
Legislature did not adopt any of the Governor's proposals.
On May 20, 1993, the Department of Finance released its May Revision to the
January Governor's Budget (the 'May Revision'), updating revenue and expenditure
projections and proposals for the 1992-93 and 1993-94 fiscal years. The May
C-2
<PAGE>
Revision projected that the General Fund will end the fiscal year on June 30,
1993 with an accumulated budget deficit of about $2.8 billion, and a negative
fund balance of about $2.2 billion (the difference being certain reserves for
encumbrances and school funding costs). The Governor projected revenues for
1992-93 of $41.0 billion, $1.0 billion less than in the 1991-92 fiscal year. On
the expenditure side, the continued recession increased health and welfare costs
above the original Budget Act projections. Also, property tax receipts at the
local level were less than projected, so that the State will not get the full
$1.3 billion benefit from the property tax shift enacted in the 1992-93 Budget
Act. Overall, the May Revision projected total General Fund expenditures of
$41.1 billion for the 1992-93 fiscal year, about $300 million higher than the
Budget Act and $2.2 billion less than fiscal year 1991-92.
The January Governor's Budget had projected that, because of severely
reduced revenues, the State would face a cash flow shortfall in May 1993,
necessitating additional external borrowing. The State met this cash flow need
by issuing $3.0 billion of revenue anticipation notes on April 26, 1993, which
matured on June 24, 1993. The State also issued the 1993 Revenue Participation
Warrants in the principal amount of $2.0 billion to meet cash flow requirements
for the end of the 1992-93 fiscal year and the start of the 1993-94 fiscal year.
1993-94 BUDGET
The 1993-94 fiscal year represents the third consecutive year the Governor
and the Legislature were faced with a very difficult budget environment,
requiring revenue actions and expenditure cuts totalling multiple billions of
dollars to produce a balanced budget.
The Governor's Budget introduced on January 8, 1993 proposed General Fund
expenditures of $37.33 billion, with projected revenues of $39.87 billion. It
also proposed Special Fund expenditures of $12.35 billion and Special Fund
Revenues of $12.10 billion. To balance the budget in the face of declining
revenues, the Governor proposed a series of revenue shifts from local
government, reliance on increased federal aid, and reductions in State spending.
The May Revision of the Governor's Budget, released on May 20, 1993,
indicated that the revenue projections of the January Budget Proposal were
tracking well, with the full year 1992-93 about $80 million higher than the
January projection. Personal income tax revenue was higher than projected, sales
tax was close to target, and bank and corporation taxes were lagging behind
projections. The May Revision projected the State would have about $2.7 billion
accumulated deficit by June 30, 1993. The Governor proposed to repay this
deficit over an 18-month period. He also agreed to retain the 0.5% sales tax
scheduled to expire June 30 for a six-month period, dedicated to local public
safety purposes, with a November election to determine a permanent extension.
Unlike previous years, the Governor's Budget and May Revision did not calculate
a 'gap' to be closed, but rather set forth revenue and expenditure forecasts and
proposals designed to produce a balanced budget.
The 1993-94 Budget Act, signed by the Governor on June 30, 1993, is
predicated on revenue and transfer estimates of $40.6 billion, about $700
million higher than the January Governor's Budget, but still about $400 million
below 1992-93 (and the second consecutive year of actual decline). The principal
reasons for this decline are the continued weak economy and the expiration (or
repeal) of three fiscal steps taken in 1991--a half cent temporary sales tax
(which generates about $1.5 billion annually), a deferral of operating loss
carry forwards ($440 million), and repeal by initiative of a sales tax on candy
and snack foods ($300 million). The Governor also proposes a number of fiscal
steps (tax credits and the like) to stimulate job growth, which could result in
short-term revenue costs. The 1993-94 Budget Act assumes Special Fund revenues
of $11.8 billion, an increase of 5.0% over 1992-93.
The 1993-94 Budget Act includes General Fund expenditures of $38.5 billion
(a 6.5% reduction from projected 1992-93 expenditures of $41.2 billion), in
order to keep a balanced budget within the available revenues. The Budget also
includes Special Fund expenditures of $12.1 billion, a 4.2% increase. The Budget
Act reflects the following major adjustments:
1. Changes in local government financing to shift about $2.6 billion
in property taxes from cities, counties, special districts and
redevelopment agencies to school and community college districts.
2. The Budget keeps K-12 Proposition 98 funding on a cash basis at the
same per-pupil level as 1992-93 by providing schools a loan payable from
future years' Proposition 98 funds.
3. Receipt in 1993-94 of about $550 million in aid from the federal
government to offset health and welfare costs associated with foreign
immigrants living in the State, which would reduce a like amount of General
Fund expenditures.
4. Reductions of $0.3 billion in health and welfare programs.
5. Reductions of $400 million in support for higher education.
6. A 2 year suspension of the renters' tax credit ($390 million
expenditure reduction in 1993-94).
7. Various miscellaneous cuts (totalling approximately $150 million)
in State government services in many agencies, up to 15%.
C-3
<PAGE>
8. Miscellaneous one-time items, including deferral of payment to the
Public Employees Retirement Fund and a change in accounting for debt
service from accrual to cash basis, saving $107 million.
A key feature of the 1993-94 Budget Act is a plan to retire the projected
$2.8 billion accumulated deficit over an 18-month period by the use of external
borrowing. The Budget Act estimates that about $1.6 billion of the deficit
elimination loan would be repaid by December 23, 1993 from the proceeds of the
$2.0 billion Revenue Anticipation Warrants issued on June 23, 1993.
The 1993-94 Budget Act continues to predict that population growth in the
1990's will keep upward pressure on major State programs, such as K-14
education, health, welfare and corrections, outstripping projected revenue
growth in an economy only very slowly emerging from a deep recession. The
Governor's health, welfare and local government reductions continue his efforts
to keep expenditures in line with resources in the long term. The Budget Act
also proposes significant restructuring of State government, with elimination
and consolidation of several agencies and numerous smaller boards, and change to
a 'performance budgeting' concept which would be more efficient and
cost-effective (with a pilot project to be implemented in 1994-95). The Governor
also proposes initiatives in the field of information technology to increase
governmental productivity.
On June 2, 1993, the Commission on State Finance ('COSF') issued its
Quarterly General Fund Forecast, which assessed the Governor's May Revision. The
COSF report projected stagnant economic conditions through 1994, and agreed
generally with the Governor's economic projections, although the COSF showed
slightly lower growth than the Governor in some California economic factors. The
COSF projects lower revenues and higher expenditures in 1993-94 than the May
Revision, and notes that the May Revision continues the use of off-book loans to
schools and has no built-in protection against downside risk.
The COSF projects about $700 million lower revenues in 1993-94 than the May
Revision, principally because COSF believes most of the increase in personal
income taxes seen late in 1992-93 came from a one-time income shift, rather than
reflecting a permanent base of greater tax revenues. COSF also shows other major
taxes (and local property taxes) a little weaker than the May Revision, with a
resulting increase in expenditures to make up the property tax shortfall for
school financing. Altogether, COSF projects in its 'primary forecast' that the
fund balance at June 30, 1994 would be over $800 million more negative than the
May Revision forecast, and the negative difference would grow to $1.9 billion by
June 30, 1995.
The COSF report includes two alternative forecasts based on either
continued recession, or stronger recovery. The pessimistic forecast is $3.8
billion worse at June 30, 1995 than the Primary Forecast, and the optimistic
forecast is about $3.8 billion better. The COSF also expressed concern that the
proposed $2.6 billion shift of property taxes could materially impact local
governments' fiscal stability.
THE FOREGOING DISCUSSION OF THE 1993-94 FISCAL YEAR BUDGET IS BASED IN
LARGE PART ON STATEMENTS MADE IN A RECENT 'PRELIMINARY OFFICIAL STATEMENT'
DISTRIBUTED BY THE STATE OF CALIFORNIA. IN THAT DOCUMENT, THE STATE INDICATED
THAT ITS DISCUSSION OF THE 1993-94 FISCAL YEAR BUDGET IS BASED ON ESTIMATES AND
PROJECTIONS OF REVENUES AND EXPENDITURES FOR THE CURRENT FISCAL YEAR AND MUST
NOT BE CONSTRUED AS STATEMENTS OF FACT. THE STATE NOTED FURTHER THAT THE
ESTIMATES AND PROJECTIONS ARE BASED UPON VARIOUS ASSUMPTIONS WHICH MAY BE
AFFECTED BY NUMEROUS FACTORS, INCLUDING FUTURE ECONOMIC CONDITIONS IN THE STATE
AND THE NATION, AND THAT THERE CAN BE NO ASSURANCE THAT THE ESTIMATES WILL BE
ACHIEVED.
STATE APPROPRIATIONS LIMIT
The State is subject to an annual appropriations limit imposed by Article
XIIIB of the State Constitution (the 'Appropriations Limit'), and is prohibited
from spending 'appropriations subject to limitation' in excess of the
Appropriations Limit. Article XIIIB, originally adopted in 1979, was modified
substantially by Propositions 98 and 111 in 1988 and 1990, respectively.
'Appropriations subject to limitation' are authorizations to spend 'proceeds of
taxes,' which consist of tax revenues and certain other funds, including
proceeds from regulatory licenses, user charges or other fees to the extent that
such proceeds exceed the reasonable cost of providing the regulation, product or
service. The Appropriations Limit is based on the limit for the prior year,
adjusted annually for certain changes, and is tested over consecutive two-year
periods. Any excess of the aggregate proceeds of taxes received over such
two-year period above the combined Appropriation Limits for those two years is
divided equally between transfers to K-14 districts and refunds to taxpayers.
Exempted from the Appropriations Limit are debt service costs of
certain bonds, court or federally mandated costs, and, pursuant to
Proposition 111, qualified capital outlay projects and appropriations or
revenues derived from any increase in gasoline taxes and motor vehicle
weight fees above January 1, 1990 levels. Some recent initiatives
were structured to create new tax revenues dedicated to specific uses
and expressly exempted from the Article XIIIB limits. The
Appropriations Limit may also be exceeded in cases of emergency arising
from civil disturbance or natural disaster declared by the Governor and
approved by two-
C-4
<PAGE>
thirds of the Legislature. If not so declared and approved, the Appropriations
Limit for the next three years must be reduced by the amount of the excess.
Article XIIIB, as amended by Proposition 98 on November 8, 1988, also
establishes a minimum level of state funding for school and community college
districts and requires that excess revenues up to a certain limit be transferred
to schools and community college districts instead of returned to the taxpayers.
Determination of the minimum level of funding is based on several tests set
forth in Proposition 98. During fiscal year 1991-92 revenues were smaller than
expected, thus reducing the payment owed to schools in 1991-92 under alternate
'test' provisions. In response to the changing revenue situation, and to fully
fund the Proposition 98 guarantee in the 1991-92 and 1992-93 fiscal years
without exceeding it, the Legislature enacted legislation to reduce 1991-92
appropriations. The amount budgeted to schools but which exceeded the reduced
appropriation was treated as a non-Proposition 98 short-term loan in 1991-92. As
part of the 1992-93 Budget, $1.1 billion of the amount budgeted to K-14 schools
was designated to 'repay' the prior year loan, thereby reducing cash outlays in
1992-93 by that amount.
Because of the complexities of Article XIIIB, the ambiguities and possible
inconsistencies in its terms, the applicability of its exceptions and exemptions
and the impossibility of predicting future appropriations, the Sponsors cannot
predict the impact of this or related legislation on the Bonds in the Trust
Portfolio. Other Constitutional amendments affecting state and local taxes and
appropriations have been proposed from time to time. If any such initiatives are
adopted, the State could be pressured to provide additional financial assistance
to local governments or appropriate revenues as mandated by such initiatives.
Propositions such as Proposition 98 and others that may be adopted in the
future, may place increasing pressure on the State's budget over future years,
potentially reducing resources available for other State programs, especially to
the extent the Article XIIIB spending limit would restrain the State's ability
to fund such other programs by raising taxes.
STATE INDEBTEDNESS
As of June 30, 1993, the State had over $17.64 billion aggregate amount of
its general obligation bonds outstanding. General obligation bond authorizations
in the aggregate amount of approximately $7.24 billion remained unissued as of
June 30, 1993. The State also builds and acquires capital facilities through the
use of lease purchase borrowing. As of June 30, 1992, the State had
approximately $2.88 billion of outstanding Lease-Purchase Debt.
In addition to the general obligation bonds, State agencies and authorities
had approximately $21.87 billion aggregate principal amount of revenue bonds and
notes outstanding as of March 31, 1993. Revenue bonds represent both obligations
payable from State revenue-producing enterprises and projects, which are not
payable from the General Fund, and conduit obligations payable only from
revenues paid by private users of facilities financed by such revenue bonds.
Such enterprises and projects include transportation projects, various public
works and exposition projects, educational facilities (including the California
State University and University of California systems), housing, health
facilities and pollution control facilities.
LITIGATION
The State is a party to numerous legal proceedings, many of which normally
occur in governmental operations. In addition, the State is involved in certain
other legal proceedings that, if decided against the State, might require the
State to make significant future expenditures or impair future revenue sources.
Examples of such cases include challenges to the State's method of taxation of
certain businesses, challenges to certain vehicle license fees, and challenges
to the State's use of Public Employee Retirement System funds to offset future
State and local pension contributions. Other cases which could significantly
impact revenue or expenditures involve reimbursement to school districts for
voluntary school desegregation and state mandated costs, challenges to Medi-Cal
eligibility, recovery for flood damages, and liability for toxic waste cleanup.
Because of the prospective nature of these proceedings, it is not presently
possible to predict the outcome of such litigation or estimate the potential
impact on the ability of the State to pay debt service on its obligations.
The January 1994 Los Angeles earthquake may negatively impact the ability
of certain issuers to make scheduled interest and principal payments, for
example, if the specific project for which bonds were issued is damaged or if
revenues backing certain bonds decline. In addition, the impact on tourism and
business spending resulting from earthquake damage and any delay in its repair
could negatively impact the ability of certain issuers to make timely debt
payments. Further, as with the October 1989 Loma Prieta earthquake that struck
San Francisco, lawsuits may be filed against state agencies. Both Moody's
Investors Service, Inc. ('Moody's') and Standard & Poor's Corporation have said
that it is too soon to offer official assessments of the damage and its effect
on bondholders. However, Moody's has also stated that because the pledge to make
debt service payments for general obligation bonds and essential purpose revenue
bonds is absolute and unconditional, it does not expect any rating adjustment
over the short-term for such bonds. The Sponsor is unable to predict the effects
of this earthquake or any other future natural disaster on the bonds in the
Portfolio of the Trust.
C-5
<PAGE>
RATINGS
As a result of the deterioration in the State's budget and cash situation
in fiscal year 1991-92, and the delay in adopting the 1992-93 budget which
resulted in issuance of registered warrants, rating agencies reduced the State's
credit rating. Between November 1991 and September 30, 1992, the rating on the
State's general obligation bonds was reduced by Standard & Poor's Corporation
from 'AAA' to 'A+', by Moody's Investors Service, Inc. from 'Aaa' to 'Aa', and
by Fitch Investors Service, Inc. from 'AAA' to 'AA'. There can be no assurance
that such ratings will continue for any given period of time or that they will
not in the future be further revised or withdrawn.
It is the Sponsor's intention to qualify and/or offer Units of the
California Trust for sale only in the States of California, Hawaii, New Jersey,
Wyoming and in the District of Columbia.
The Florida Trust (Insured)
POPULATION
In 1980, Florida was the seventh most popular state in the U.S. The State
has grown dramatically since then and as of April 1, 1992, ranks fourth with an
estimated population of 13.4 million. Florida's attraction, as both a growth and
retirement state, has kept net migration fairly steady with an average of
252,000 new residents a year from 1982 through 1991. The U.S. average population
increase since 1982 is about 1% annually, while Florida's average annual rate of
increase is about 2.8%. Florida continues to be the fastest growing of the
eleven largest states. This strong population growth is one reason the State's
economy is performing better than the nation as a whole. In addition to
attracting senior citizens to Florida as a place for retirement, the State is
also recognized as attracting a significant number of working age individuals.
Since 1982, the prime working age population (18-44) has grown at an average
annual rate of 3.3%. The share of Florida's total working age population (18-59)
to total State population is approximately 54%. This share is not expected to
change appreciably into the twenty-first century.
INCOME
The State's personal income has been growing strongly the last several
years and has generally out performed both the U.S. as a whole and the southeast
in particular, according to the U.S. Department of Commerce and the Florida
Consensus Economic Estimating Conference. This is due to the fact that Florida's
population has been growing at a very strong pace and, since the early 70's, the
State's economy has diversified so as to provide greater insulation from
national economic downturns. As a result, Florida's real per capita personal
income has tracked closely with the national average and has tracked above the
southeast. From 1983 through 1992, the State's real per capita income rose an
average 5.4% a year, while the national real per capita income increased at an
average 5.5%.
Because Florida has a proportionately greater retirement age population,
property income (dividends, interest, and rent) and transfer payments (Social
Security and pension benefits, among other sources of income) are relatively
more important sources of income. For example, Florida's total wages and
salaries and other labor income in 1992 was 61% of total personal income, while
a similar figure for the nation for 1990 was 72.0%. Transfer payments are
typically less sensitive to the business cycle than employment income and,
therefore, act as stabilizing forces in weak economic periods.
The State's per capita personal income in 1992 of $19,347 was slightly
below the national average of $19,841 and significantly ahead of that for the
southeast United States, which was $17,661. Real personal income in the State is
estimated to increase 3.7% in 1993-94 and 4.6% in 1994-95. Personal income was
also affected by Hurricane Andrew which should have some lingering effects. By
the end of 1994-95, real personal income per capita in the State is projected to
average 4.8% higher than its 1992-93 level.
EMPLOYMENT
Since 1980, the State's job creation rate is well over twice the rate for
the nation as a whole, and its growth rate in new non-agricultural jobs is the
fastest of the 11 most populous states, second only to California in the
absolute number of new jobs created. Contributing to the State's rapid rate of
growth in employment and income is international trade. Since 1980, the State's
unemployment rate has generally been below that of the U.S. In recent years,
however, as the State's economic growth has slowed from its previous highs, the
State's unemployment rate has tracked above the national average. The average
rate in Florida since 1980 has been 6.5% while the national average is 7.1%.
According to the U.S. Department of Commerce, the Florida Department of Labor
and Employment Security, and the Florida Consensus Economic Estimating
Conference (together the 'Organization') the State's unemployment rate was 8.2%
during 1992. As of October 1993, the Organization estimates that the
unemployment rate will be 6.5% for 1993-94 and 6.0% in 1994-95.
C-6
<PAGE>
The rate of job creation in Florida's manufacturing sector has exceeded
that of the U.S. From the beginning of 1980 through 1992, the state added over
37,000 new manufacturing jobs, an 8.4% increase. During the same period,
national manufacturing employment declined nine out of the thirteen years, for a
loss 2,852,000 jobs.
Total non-farm employment in Florida is expected to increase 2.8% in
1993-94 and rise 3.8% in 1994-95. These figures, as well as the figures for
income above, include the post-Hurricane Andrew impact. Trade and services, the
two largest, account for more than half of the total non-farm employment.
Employment in the service sectors should experience an increase of 3.9% in
1993-94, while growing 4.7% in 1994-95. Trade is expected to expand 2.3% in 1994
and 3.4% in 1995. The service sector is now the State's largest employment
category.
CONSTRUCTION
The State's economy has in the past been highly dependent on the
construction industry and construction related manufacturing. This dependency
has declined in recent years and continues to do so as a result of continued
diversification of the State's economy. For example, in 1980, total contract
construction employment as a share of total non-farm employment was just over
7%, and in 1992, the share had edged downward to 5%. This trend is expected to
continue as the State's economy continues to diversify. Florida, nevertheless,
has a dynamic construction industry, with single and multi-family housing starts
accounting for 8.3% of total U.S. housing starts in 1992 while the State's
population is 5.3% of the U.S. total population. Florida's housing starts since
1980 have represented an average of 11.1% of the U.S.'s total annual starts, and
since 1980, total housing starts have averaged 160,400 a year.
A driving force behind the State's construction industry has been the
State's rapid rate of population growth. Although the State currently is the
fourth most populous state, its annual population growth is now projected to
decline as the number of people moving into the State is expected to hover near
the mid 250,000 range annually throughout the 1990's. This population trend
should provide plenty of fuel for business and home builders to keep
construction activity lively in Florida for some time to come. However, other
factors do influence the level of construction in the State. For example,
federal tax reform in 1986 and other changes to the federal income tax code have
eliminated tax deductions for owners of more than two residential real estate
properties and have lengthened depreciation schedules on investment and
commercial properties. Economic growth and existing supplies of commercial
buildings and homes also contribute to the level of construction in the State.
Hurricane Andrew left some parts of south Florida devastated. Post-Andrew
clean up and rebuilding have changed the outlook for the State's economy. Single
and multi-family housing starts in 1993-94 are projected to reach a combined
level of 120,000, increasing to 138,100 next year. Lingering recessionary
effects on consumers and tight credit are some of the reasons for relatively
slow core construction activity, as well as lingering effects from the 1986 tax
reform legislation discussed above. However, construction is one of the sectors
most severely affected by Andrew. Low interest rates and pent up demand combined
with improved consumer confidence should lead to improved housing starts. The
construction figures above include additional housing starts as a result of
destruction by Andrew. Total construction expenditures are forecasted to
increase 13.8% this year and increase 14.3% next year.
The State has continuously been dependent on the highly cyclical
construction and construction related manufacturing industries. While that
dependency has decreased, the State is still somewhat at the mercy of the
construction and construction related manufacturing industries. The construction
industry is driven to a great extent by the State's rapid growth in population.
There can be no assurance that population growth will continue throughout the
1990's in which case there could be an adverse impact on the State's economy
through the loss of construction and construction related manufacturing jobs.
Also, while interest rates remain low currently, an increase in interest rates
could significantly adversely impact the financing of new construction within
the State, thereby adversely impacting unemployment and other economic factors
within the State. In addition, available commercial office space has tended to
remain high over the past few years. So long as this glut of commercial rental
space continues, construction of this type of space will likely continue to
remain slow.
TOURISM
Tourism is one of Florida's most important industries. Approximately 40.9
million tourists visited the State in 1992, as reported by the Florida
Department of Commerce. In terms of business activities and state tax revenues,
tourists in Florida in 1992 represented an estimated 4.5 million additional
residents. Visitors to the State tend to arrive equally by air and car. The
State's tourist industry over the years has become more sophisticated,
attracting visitors year-round and, to a degree, reducing its seasonality. The
dollar's depreciation has enhanced the State's tourism industry. Tourist
arrivals should be flat this year, but recover next year with 4.0% growth.
Tourist arrivals to Florida by air and car are expected to diverge from each
other, air decreasing 5.1% and auto increasing 5.3%. By the end of the State's
current fiscal year, 41.9 million domestic and international tourists are
expected to have visited the State, up 0.2%. In 1994-95, tourist arrivals should
approximate 43.6 million.
C-7
<PAGE>
REVENUES AND EXPENSES
Estimated fiscal year 1992-93 General Revenue plus Working Capital funds
available to the State total $13,554.8 million, an 8.2% increase over 1992-93.
This reflects a transfer of $190 million, out of an estimated $220.0 million in
non-recurring revenue due to Andrew, to a hurricane relief trust fund. Of the
total General Revenue plus Working Capital funds available to the State,
$12,959.2 million of that is Estimated Revenues (excluding the Andrew impact)
which represents an increase of 7.5% over the previous year's Estimated
Revenues. With effective General Revenues plus Working Capital Fund
appropriations at $13,276.9 million, unencumbered reserves at the end of 1993-94
are estimated at $277.9 million. Estimated, fiscal year 1994-95 General Revenue
plus Working Capital funds available total $14,310.7 million, a 5.6% increase
over 1993-94. This amount reflects a transfer of $159.00 million in
non-recurring revenue due to Hurricane Andrew, to a hurricane relief trust fund.
The $13,944.0 million in Estimated Revenues (excluding the Hurricane Andrew
impact) represent an increase of 7.6% over the previous year's Estimated
Revenues. The massive effort to rebuild and replace destroyed or damaged
property in the wake of Andrew is responsible for the substantial positive
revenue impacts shown here. Most of the impact is in the increase in the State's
sales tax.
In fiscal year 1992-93, approximately 62% of the State's total direct
revenue to its three operating funds were derived from State taxes, with Federal
grants and other special revenue accounting for the balance. State sales and use
tax, corporate income tax, intangible personal property tax, and beverage tax
amounted to 68%, 7%, 4%, and 4%, respectively, of total General Revenue Funds
available during fiscal 1992-93. In that same year, expenditures for education,
health and welfare, and public safety amounted to approximately 49%, 30%, and
11%, respectively, of total expenditures from the General Revenue Fund.
The State's sales and use tax (6%) currently accounts for the State's
single largest source of tax receipts. Slightly less than 10% of the State's
sales and use tax is designated for local governments and is distributed to the
respective counties in which collected for use by the counties, and the
municipalities therein. In addition to this distribution, local governments may
(by referendum) assess a 0.5% or a 1.0% discretionary sales surtax within their
county. Proceeds from this local option sales tax are earmarked for funding
local infrastructure programs and acquiring land for public recreation or
conservation or protection of natural resources as provided under applicable
Florida law. Certain charter counties have other taxing powers in addition, and
non-consolidated counties with a population in excess of 800,000 may levy a
local option sales tax to fund indigent health care. It alone cannot exceed 0.5%
and when combined with the infrastructure surtax cannot exceed 1.0%. For the
fiscal year ended June 30, 1993, sales and use tax receipts (exclusive of the
tax on gasoline and special fuels) totalled $9,426.0 million, an increase of
12.5% over fiscal year 1991-1992.
The second largest source of State tax receipts is the tax on motor fuels.
However, these revenues are almost entirely dedicated trust funds for specific
purposes and are not included in the State's General Revenue Fund.
The State imposes an alcoholic beverage, wholesale tax (excise tax) on
beer, wine, and liquor. This tax is one of the State's major tax sources, with
revenues totalling $442.2 million in fiscal year ending June 30, 1993. Alcoholic
beverage tax receipts increased 1.6% from the previous years total. The revenues
collected from this tax are deposited into the State's General Revenue Fund.
The State imposes a corporate income tax. All receipts of the corporate
income tax are credited to the General Revenue Fund. For the fiscal year ended
June 30, 1993, receipts from this source were $846.6 million, an increase of
5.6% from fiscal year 1991-92.
The State imposes a documentary stamp tax on deeds and other documents
relating to realty, corporate shares, bonds, certificates of indebtedness,
promissory notes, wage assignments, and retail charge accounts. The documentary
stamp tax collections totalled $639.0 million during fiscal year 1992-93, a
27.0% increase from the previous fiscal year. Beginning in fiscal year 1992-93,
71.29% of these taxes are to be deposited to the General Revenue Fund.
The State imposes an intangible personal property tax on stocks, bonds,
including bonds secured by liens in Florida real property, notes, governmental
leaseholds, and certain other intangibles not secured by a lien on Florida real
property. The annual rate of tax is 2 mils. Second, the State imposes a
non-recurring 2 mil tax on mortgages and other obligations secured by liens on
Florida real property. In fiscal year 1992-93, total intangible personal
property tax collections were $783.4 million, a 33% increase over the prior
year. Of the tax proceeds, 66.5% are distributed to the General Revenue Fund.
The State's severance tax taxes, oil, gas, and sulphur production, as well
as the severance of phosphate rock and other solid minerals. Total collections
from severance taxes total $64.5 million during fiscal year 1992-93, down 4.0%
from the previous year. Currently, 60% of this amount is transferred to the
General Revenue Fund.
The State began its own lottery in 1988. State law requires that lottery
revenues be distributed 50% to the public in prizes, 38.0% for use in enhancing
education, and the balance, 12.0%, for costs of administering the lottery.
Fiscal year 1992-93 lottery ticket sales totalled $2.13 billion, providing
education with approximately $810.4 million.
C-8
<PAGE>
DEBT-BALANCED BUDGET REQUIREMENT
At the end of fiscal 1992, approximately $5.21 billion in principal amount
of debt secured by the full faith and credit of the State was outstanding. In
addition, since July 1, 1992, the State issued about $1.26 billion in principal
amount of full faith and credit bonds.
The State Constitution and statutes mandate that the State budget, as a
whole, and each separate fund within the State budget, be kept in balance from
currently available revenues each fiscal year. If the Governor or Comptroller
believes a deficit will occur in any State fund, by statute, he must certify his
opinion to the Administrative Commission, which then is authorized to reduce all
State agency budgets and releases by a sufficient amount to prevent a deficit in
any fund. Additionally, the State Constitution prohibits issuance of State
obligations to fund State operations.
LITIGATION
Currently under litigation are several issues relating to State actions or
State taxes that put at risk substantial amounts of General Revenue Fund monies.
Accordingly, there is no assurance that any of such matters, individually or in
the aggregate, will not have a material adverse affect on the State's financial
position.
In the wake of the U.S. Supreme Court decision holding that a Hawaii law
unfairly discriminated against out-of-state liquor producers, suits have been
filed in the State's courts contesting a similar State law (in effect prior to
1985) that seek $384 million in tax refunds. A trial court, in a ruling that was
subsequently upheld by the Florida Supreme Court, found the State law in
question to be unconstitutional but made its ruling operate prospectively,
thereby denying any tax refunds. The issue of whether the unconstitutionality of
the tax should be applied retroactively was decided in favor of the taxpayers by
the U.S. Supreme Court on June 4, 1990. On remand from the U.S. Supreme Court,
the Florida Supreme Court, on January 15, 1991, mandated further proceedings to
fashion a 'clear and certain remedy' consistent with constitutional restrictions
and the opinion of the U.S. Supreme Court. The Florida Department of Revenue has
proposed to the Florida Supreme Court that the Department be allowed to collect
back tax from those who received a tax preference under the prior law. The
Florida Supreme Court remanded the matter to the Circuit Court for the 2nd
Judicial Circuit to hear arguments on the method chosen by the State to provide
a clear and certain remedy. On October 15, 1992, the Circuit Court trial judge
orally stated that the method chosen by the State is unconstitutional. The
Circuit Court has not issued a written, final order, which the State is likely
to appeal. An unfavorable outcome could result in the State having to refund
over $340 million.
Florida law provides preferential tax treatment to insurers who maintain a
home office in the State. Certain insurers challenged the constitutionality of
this tax preference and sought a refund of taxes paid. Recently, the Florida
Supreme Court ruled in favor of the State. This case and others, along with
pending refund claims, total about $200 million.
The State maintains a bond rating of Aa and AA from Moody's Investors
Service and Standard & Poors Corporation, respectively, on the majority of its
general obligation bonds, although the rating of a particular series of revenue
bonds relates primarily to the project, facility, or other revenue source from
which such series derives funds for repayment. While these ratings and some of
the information presented above indicate that the State is in satisfactory
economic health, there can be no assurance that there will not be a decline in
economic conditions or that particular Florida Municipal Obligations purchased
by the Fund will not be adversely affected by any such changes.
The sources for the information presented above include official statements
and financial statements of the State of Florida. While the Sponsor has not
independently verified this information, the Sponsor has no reason to believe
that the information is not correct in all material respects.
New York State
The national and regional economic recession has caused a substantial
reduction in State tax receipts. This reduction is the principal cause of the
imbalance between recurring receipts and disbursements that faced the Governor
and Legislature in the adoption of the budget for the 1991-1992 and subsequent
fiscal years. The Governor is required by the State Constitution to submit an
Executive Budget that balances receipts and disbursements.
As a result of the national and regional economic recession, the State's
projections of tax revenues for its 1991, 1992 and 1993 fiscal years were
substantially reduced. Consequently, the State took various actions for its
1991-1992 fiscal year, which included increases in certain State taxes and fees,
substantial decreases in certain expenditures from previously projected levels,
including cuts in State operations and reductions in State aid to localities,
and the sale of $531 million of short-term deficit notes prior to the end of the
State's 1991-1992 fiscal year. The State's 1992-93 budget was passed on time,
closing an estimated $4.8 billion imbalance resulting primarily from the
national and regional economic recession. Major budgetary actions included a
freeze in the scheduled reduction in the personal income tax and business tax
surcharge, adoption of significant Medicaid cost containment or revenue
initiatives, and cost reductions in both agency operations and grants to local
governments from previously anticipated
C-9
<PAGE>
levels. For its 1992-93 fiscal year, the State had a balanced budget on a cash
basis with a positive margin of $671 million. This performance was primarily
attributable to income tax collections that were more than $700 million higher
than originally projected.
The 1993-94 State Financial Plan projects receipts and transfers from other
funds at $32.367 billion and disbursements and transfers to other funds at
$32.300 billion. The 1993-94 State budget, as enacted, reflects increases in
both receipts and disbursements in the General Fund of $811 million over the
Executive Budget, as submitted by the Governor.
The State has noted that its forecasts of tax receipts have been subject to
variance in recent fiscal years. In addition, many uncertainties exist in
forecasts of both national and State economies, including consumer attitudes
toward spending, Federal financial and monetary policies, the availability of
credit, and the condition of the world economy which could have an adverse
effect on the State. As a result of these uncertainties and other factors,
actual results could differ materially and adversely from the State's current
projections and the State's projections could be materially and adversely
changed from time to time. To address any potential budgetary imbalance, the
State may need to take significant actions to align recurring receipts and
disbursements in future fiscal years.
On January 13, 1992, Standard & Poor's reduced its ratings on the State's
general obligation bonds from A to A-and, in addition, reduced its ratings on
the State's moral obligation, lease purchase, guaranteed and contractual
obligation debt. However, on April 26, 1993, Standard & Poor's revised its
negative rating outlook assessment on State general obligation debt to stable.
On March 9, 1993, Standard & Poor's confirmed its A-rating with respect to the
State's general obligation bonds. On January 6, 1992, Moody's reduced its
ratings on outstanding limited-liability State lease purchase and contractual
obligations from A to Baa1. On March 9, 1993, Moody's reconfirmed its A rating
on the State's general long-term indebtedness.
STATE AUTHORITIES
The fiscal stability of the State is related to the fiscal stability of its
authorities, which generally have responsibility for financing, constructing,
and operating revenue-producing public benefit facilities. Certain authorities
of the State, including the State Housing Finance Agency ('HFA'), the Urban
Development Corporation ('UDC') and the Metropolitan Transportation Authority
('MTA') have faced and continue to experience substantial financial difficulties
which could adversely affect the ability of such authorities to make payments of
interest on, and principal amounts of, their respective bonds. Should any of its
authorities default on their respective obligations, the State's access to
public credit markets could be impaired. The difficulties have in certain
instances caused the State (under its so-called 'moral obligation') to
appropriate funds on behalf of the authorities. Moreover, it is expected that
the problems faced by these authorities will continue and will require
increasing amounts of State assistance in future years. Failure of the State to
appropriate necessary amounts or to take other action to permit those
authorities having financial difficulties to meet their obligations (including
HFA, UDC and MTA) could result in a default by one or more of the authorities.
Such default, if it were to occur, would be likely to have a significant adverse
effect on investor confidence in, and therefore the market price of, obligations
of the defaulting authority.
The MTA oversees the operation of New York City's subway and bus lines by
its affiliates, the New York City Transit Authority and the Manhattan and Bronx
Surface Transit Operating Authority (collectively, the 'Transit Authority' or
the 'TA'). Through MTA's subsidiaries, the Long Island Railroad Company, the
Metro-North Commuter Railroad Company and the Metropolitan Suburban Bus
Authority, the MTA operates certain commuter rail and bus lines in the New York
metropolitan area. In addition, the Staten Island Rapid Transit Operating
Authority, an MTA subsidiary, operates a rapid transit line on Staten Island.
Through its affiliated agency, the Triborough Bridge and Tunnel Authority (the
'TBTA'), the MTA operates certain intrastate toll bridges and tunnels. Because
fare revenues are not sufficient to finance the mass transit portion of these
operations, the MTA has depended and will continue to depend for operating
support upon a system of State, local government and TBTA support, and to the
extent available, Federal operating assistance, including loans, grants and
operating subsidies.
For 1993, the TA originally projected a budget gap of approximately $266
million. The MTA Board approved an increase in TBTA tolls which took effect
January 31, 1993. Since TBTA operating surpluses help subsidize TA operations,
the TBTA toll increased and other developments reduced the projected budget gap
to $241 million. Legislation enacted in April 1993, relating to MTA's 1992-1996
Capital Program, reflected a plan for closing this gap without raising fares. A
major element of the plan provides that the TA receive a significant share of
the petroleum business tax which will be paid directly to MTA for the TA and
MTA's subsidiaries. The plan relies significantly on State and City actions that
have not been taken and on MTA and TA resources projected to be available to
help close the gap. If any of the assumptions used in making these projections
prove incorrect, the TA's gap could grow larger and the TA would be required to
seek additional State assistance, raise fares even higher or take other actions.
A subway fire on December 28, 1990, and a subway derailment on August 28,
1991, which caused fatalities and many injuries, have given rise to substantial
claims for damages against both the TA and the City.
C-10
<PAGE>
NEW YORK CITY
The fiscal health of the State is closely related to the fiscal health of
its localities, particularly The City of New York (the 'City'), which has
required and continues to require significant financial assistance from the
State which financial assistance could be affected by State revenue shortfalls
or spending increases beyond its projections. For each of its 1981 through 1992
fiscal years, the City, as required by State law, achieved balanced operating
results, in accordance with GAAP.
The New York State Financial Emergency Act for The City of New York (the
'Financial Emergency Act'), among other things, established the New York State
Financial Control Board (the 'Control Board') to oversee the City's financial
affairs. The City operates under a four-year financial plan which is prepared
annually and is updated quarterly. The City submits its financial plans as well
as the updates quarterly to the Control Board for its review. The Municipal
Assistance Corporation for The City of New York ('MAC') and the Office of the
State Deputy Comptroller for The City of New York ('OSDC') assist the Control
Board in exercising its powers and responsibilities and exercise various
monitoring functions relating to the City's financial position.
The City's economy, whose rate of growth slowed substantially over the past
three years, is currently in recession. During each of the fiscal years
1990-1993, as a result of the slowing economy, the City experienced significant
shortfalls from earlier projections in almost all of its major tax sources, and
has been required to take exceptional measures to close substantial budget gaps
in order to maintain balanced budgets. The City's Financial Plan for the
1994-1997 fiscal years released on May 3, 1993, sets forth actions to close a
projected budget gap of $2.1 billion for the 1994 fiscal year.
On February 11, 1991, Moody's Investors Service lowered its rating on the
City's general obligation bonds from A to Baa1.
OTHER NEW YORK LOCALITIES
Certain localities in addition to New York City could also have financial
problems leading to requests for additional State assistance in the future. The
Revised 1991-92 State Financial Plan included a significant reduction in State
aid to localities in such programs as revenue sharing and aid to education from
projected base-line growth in such programs. It is expected that such reductions
will result in the need for localities to reduce their spending or increase
their revenues.
Municipalities and school districts have engaged in substantial short-term
and long-term borrowings. In 1991, the total indebtedness of all other
localities in the State was approximately $14.8 billion. Certain proposed
Federal expenditure reductions would reduce, or in some cases eliminate, Federal
funding of some local programs and accordingly might impose substantial
increased expenditure requirements on affected localities. If the State, the
City or any of the Authorities were to suffer serious financial difficulties
jeopardizing their respective access to the public credit markets, the
marketability of notes and bonds issued by localities within the State could be
adversely affected. Localities also face anticipated and potential problems
resulting from certain pending litigation, judicial decisions, and long-range
economic trends. The longer range problems of declining urban population,
increasing expenditures, and other economic trends could adversely affect
localities and require increasing State assistance in the future.
LITIGATION
The State is the subject of numerous legal proceedings relating to State
finances, State programs and miscellaneous tort, real property and contract
claims in which the State is a defendant and where monetary damages sought are
substantial. These proceedings could adversely affect the financial condition of
the State.
ECONOMY
A national recession commenced in mid-1990. The State has suffered a more
severe economic downturn. The national recession has been exacerbated in the
State by a significant retrenchment in the financial services industry, cutbacks
in defense spending, and an overbuilt real estate market.
Over the long term, serious potential economic problems may continue to
aggravate state and local financial conditions. For decades, the State economy
has grown more slowly than the nation as a whole, resulting in the gradual
erosion of the State's relative economic affluence and tax base, and the
relocation of certain manufacturing operations and executive offices outside the
State. The causes of this relative decline are varied and complex, in many cases
involving national and international developments beyond the State's control.
Part of the reason for the long-term relative decline in the State economy has
been attributed to the combined state and local tax burden, which is among the
highest in the nation. The existence of this tax burden limits the State's
ability to impose higher taxes in the event of future financial difficulties.
If during the existence of the New York Trust, the City, the State, or
any of its agencies or municipalities, because of its or their own
financial difficulties, become unable to meet regular commitments or if
there should be a default, moratorium or other interruption of payments
of interest or principal on any obligation issued by the City, the State,
or a municipality or other authority
C-11
<PAGE>
in New York State, the market value and marketability of Bonds in the New York
Trust, the asset value of Units of the New York Trust and the interest income to
the New York Trust could be adversely affected.
It is the Sponsor's intention to qualify and/or offer the Units of the New
York Trust for sale only in the States of New York, Hawaii, New Jersey and
Wyoming and the District of Columbia.
SUPPLEMENT TO PART B--TAX STATUS
The description of Federal tax consequences under Part B--'The Trust--Tax
Status of Each Trust' applies separately for each State Trust of a Multistate
Series. Below is a description of certain state tax consequences for residents
of the state for which such State Trust is named.
The California Trust
The opinion of Messrs. Adams, Duque & Hazeltine, special California counsel
on California tax matters, given under existing law, includes the following:
The California Trust is not an association taxable as a corporation under
the income tax laws of the State of California;
The income, deductions and credits against tax of the California Trust
will be treated as the income, deductions and credits against tax of the
holders of Units in the California Trust under the income tax laws of the
State of California;
Interest on the bonds held by the California Trust to the extent that
such interest is exempt from taxation under California law will not lose
its character as tax-exempt income merely because that income is passed
through to the holders of Units; however, a corporation subject to the
California franchise tax is required to include that interest income in its
gross income for purposes of determining its franchise tax liability;
Each holder of a Unit in the California Trust will have a taxable
event when the California Trust disposes of a bond (whether by sale,
exchange, redemption, or payment at maturity) or when the Unit Holder
redeems or sells his Units. The total tax cost of each Unit to a holder of
a Unit in the California Trust is allocated among each of the bond issues
held in the California Trust (in accordance with the proportion of the
California Trust comprised by each bond issue) in order to determine the
holder's per Unit tax cost for each bond issue, and the tax cost reduction
requirements relating to amortization of bond premium will apply separately
to the per Unit tax cost of each bond issue. Therefore, under some
circumstances, a holder of a Unit may realize taxable gain when the
California Trust which issued such Unit disposes of a bond or the holder's
Units are sold or redeemed for an amount equal to or less than his original
cost of the bond or Unit;
Each holder of a Unit in the California Trust is deemed to be the
owner of a pro rata portion of the California Trust under the personal
property tax laws of the State of California;
Each Unit Holder's pro rata ownership of the bonds held by the
California Trust, as well as the interest income therefrom, is exempt from
California personal property taxes; and
Amounts paid in lieu of interest on defaulted bonds held by the
Trustee under policies of insurance issued with respect to such bonds will
be excludable from gross income for California income tax purposes if, and
to the same extent as, those amounts would have been so excludable if paid
as interest by the respective issuer.
The Florida Trust (Insured)
In the opinion of Messrs. Carlton, Fields, Ward, Emmanuel, Smith & Cutler,
P.A, special Florida counsel on Florida tax matters, under existing law:
The Florida Trust will not be subject to the Florida income tax imposed by
Chapter 220. In addition, political subdivisions of Florida do not impose any
income taxes.
Non-Corporate Unit Holders will not be subject to any Florida income
taxation on income realized by the Florida Trust. Corporate Unit Holders with
commercial domiciles in Florida will be subject to Florida income taxation on
income realized by the Trust. Other corporate Unit holders will be subject to
Florida income taxation on income realized by the Florida Trust only to the
extent that the income realized is other than 'non-business income' as defined
by Chapter 220.
Florida Trust Units will be subject to Florida estate tax only if owned by
Florida residents and may be subject to Florida estate tax if owned by other
decedents at death. However, the Florida estate tax is limited to the amount of
the credit allowable under the applicable Federal Revenue Act (currently Section
2011 [and in some cases Section 2102] of the Internal Revenue Code of 1986, as
amended) for death taxes actually paid to the several states.
Neither the Bonds nor the Units will be subject to the Florida ad valorem
property tax or Florida sales or use tax.
C-12
<PAGE>
Neither the Florida Trust nor the Units of the Florida Trust will be
subject to Florida intangible personal property tax.
Neither the issuance and sale of the Units by the Florida Trust nor the
transfer of Units by a Unit Holder will subject either the Florida Trust or the
Unit Holders to Florida documentary stamp tax.
In the event Bonds issued by the government of Puerto Rico, the government
of Guam, or the government of the United States Virgin Islands are included in
the Florida Trust, the opinions expressed above will be unchanged.
The tax consequences discussed in the above paragraphs will remain the same
with respect to amounts paid in lieu of interest on defaulted Bonds held by the
Trustee under policies of municipal bond insurance.
For the purposes of the foregoing opinion, the following terms have the
following meanings:
(a) 'Non-Corporate Unit Holder'--a Unit Holder of the Florida Trust who is
an individual not subject to the Florida state income tax on corporations, under
Chapter 220, Florida Statutes ('Chapter 220').
(b) 'Corporate Unit Holder'--a Unit Holder of the Florida Trust that is a
corporation subject to the Florida state income tax on corporations under
Chapter 220.
New York Trust (Uninsured)
In the opinion of Messrs. Cahill Gordon & Reindel, special New York counsel
on New York tax matters, under existing law:
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.
TAX FREE VS. TAXABLE INCOME
These tables show the approximate yields which taxable securities must earn
in various income brackets to equal tax exempt yields under combined Federal and
state and local individual income tax rates. The tables reflect Federal income
tax rates and tax brackets for the 1994 taxable year under the Code as in effect
on the date of this Prospectus and state and local income tax rates that were
available on the date of the Prospectus. Because the Federal rate brackets are
subject to adjustment based on changes in the Consumer Price Index, the taxable
equivalent yields for subsequent years may be lower than indicated in the table.
The tables are computed on the theory that the taxpayer's highest bracket tax
rate is applicable to the entire amount of any increase or decrease in taxable
income (after allowance for any resulting change in state or local income tax)
resulting from a switch from taxable to tax-free securities or vice versa.
Variations between state and local and Federal allowable deductions and
exemptions are generally ignored. The state and local tax is thus computed by
applying to the Federal taxable income bracket amounts shown in the tables the
appropriate state and local rate for those same dollar amounts. For example, a
married couple living in the State of California and filing a Joint Return with
$53,000 in taxable income for the 1994 tax year would need a taxable investment
yielding 9.058% in order to equal a tax-free return of 6.00%. Use the
appropriate table to find your tax bracket. Read across to determine the
approximate taxable yield you would need to equal a return free of Federal
income tax and state and local income taxes for the state and locality indicated
by the table heading.
C-13
<PAGE>
<TABLE>
<CAPTION>
STATE OF CALIFORNIA
1994 TAX YEAR
TAX EXEMPT YIELD
---------------------------------------------------------------------------
APPROX. COMBINED 4.00 4.50 5.00 5.50 6.00 6.50 7.00
TAXABLE FEDERAL & STATE --------- --------- --------- --------- --------- --------- ---------
INCOME BRACKET* TAX RATE TAXABLE EQUIVALENT YIELD
- --------------- ----------------- ---------------------------------------------------------------------------
JOINT RETURN
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 22,118 to $ 34,906........ 18.400% 4.901 5.514 6.127 6.740 7.353 7.966 8.578
$ 34,906 to $ 38,000........ 20.100% 5.006 5.632 6.257 6.883 7.509 8.135 8.761
$ 38,000 to $ 48,456........ 32.320% 5.910 6.648 7.387 8.126 8.865 9.604 10.343
$ 48,456 to $ 61,240........ 33.760% 6.038 6.793 7.548 8.303 9.058 9.813 10.568
$ 61,240 to $ 91,850........ 34.696% 6.125 6.890 7.656 8.422 9.188 9.953 10.719
$ 91,850 to $140,000........ 37.417% 6.391 7.190 7.989 8.788 9.587 10.386 11.185
$140,000 to $212,380........ 41.952% 6.890 7.752 8.613 9.474 10.336 11.197 12.058
$212,380 to $250,000........ 42.400% 6.944 7.812 8.680 9.548 10.416 11.284 12.152
$250,000 to $424,760........ 45.640% 7.358 8.278 9.197 10.117 11.037 11.957 12.877
Over $424,760............... 46.244% 7.441 8.371 9.301 10.231 11.161 12.091 13.021
<CAPTION>
SINGLE RETURN
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 24,228 to $ 30,620........ 33.760% 6.038 6.793 7.548 8.303 9.058 9.813 10.568
$ 30,620 to $ 55,100........ 34.696% 6.125 6.890 7.656 8.422 9.188 9.953 10.719
$ 55,100 to $106,190........ 37.417% 6.391 7.190 7.989 8.788 9.587 10.386 11.185
$106,190 to $115,000........ 37.900% 6.441 7.246 8.051 8.856 9.661 10.467 11.272
$115,000 to $212,380........ 42.400% 6.944 7.812 8.680 9.548 10.416 11.284 12.152
$212,380 to $250,000........ 43.040% 7.022 7.900 8.778 9.655 10.533 11.411 12.289
Over $250,000............... 46.244% 7.441 8.371 9.301 10.231 11.161 12.091 13.021
<CAPTION>
TAX EXEMPT YIELD
------------------------
7.50 8.00
TAXABLE --------- ---------
INCOME BRACKET* TAXABLE EQUIVALENT YIELD
- --------------- ------------------------
JOINT RETURN
<S> <C> <C>
$ 22,118 to $ 34,906........ 9.191 9.803
$ 34,906 to $ 38,000........ 9.386 10.012
$ 38,000 to $ 48,456........ 11.081 11.820
$ 48,456 to $ 61,240........ 11.322 12.077
$ 61,240 to $ 91,850........ 11.484 12.250
$ 91,850 to $140,000........ 11.984 12.783
$140,000 to $212,380........ 12.920 12.781
$212,380 to $250,000........ 13.020 13.888
$250,000 to $424,760........ 13.796 14.716
Over $424,760............... 13.951 14.882
<CAPTION>
SINGLE RETURN
<S> <C> <C>
$ 24,228 to $ 30,620........ 11.322 12.077
$ 30,620 to $ 55,100........ 11.484 12.250
$ 55,100 to $106,190........ 11.984 12.783
$106,190 to $115,000........ 12.077 12.882
$115,000 to $212,380........ 13.020 13.888
$212,380 to $250,000........ 13.167 14.044
Over $250,000............... 13.951 14.882
</TABLE>
- ------------------
* The income amount shown is income subject to Federal income tax reduced by
adjustments to income, exemptions, and itemized deductions (including the
deduction for state income tax). If the standard deduction had been taken for
Federal income tax purposes in order to reach the amount shown in the table,
the taxable equivalent yield required to equal a specified tax-exempt yield
would be at least as great as that shown in the table. It is assumed that the
investor is not subject to the alternative minimum tax. Where applicable,
investors should take into account the provisions of the Code under which the
benefit of certain itemized deductions and the benefit of personal exemptions
are limited in the case of higher income individuals. Under the Code, an
individual taxpayer with adjusted gross income in excess of a $111,800
threshold amount is subject to an overall limitation on certain itemized
deductions, requiring a reduction equal to the lesser of (i) 3% of adjusted
gross income in excess of the $111,800 threshold amount or (ii) 80% of the
amount of such itemized deductions otherwise allowable. The benefit of each
personal exemption is phased out for married taxpayers filing a joint return
with adjusted gross income in excess of $167,700 and for single taxpayers with
adjusted gross income in excess of $111,800. Personal exemptions are phased
out at the rate of two percentage points for each $2,450 (or fraction thereof)
of adjusted gross income in excess of the applicable threshold amount.
California has adopted provisions corresponding to the Federal law provisions
limiting the benefit of certain itemized deductions and phasing out the
benefits of personal exemptions. However, the California threshold amounts and
percentage reductions differ from those applicable under Federal law. The
Federal and California tax brackets, the threshold amounts at which itemized
deductions are subject to reduction, and the range over which personal
exemptions are phased out will be adjusted for inflation. The 36% and the
39.6% Federal tax brackets will, however, be adjusted for inflation only for
years after 1994, using 1993 as the base year.
C-14
<PAGE>
<TABLE>
<CAPTION>
STATE OF FLORIDA
1994 TAX YEAR
- -----------------------------------------------------------------------------------------------------------------------
$22,750 $55,100 $115,000
TAXABLE INCOME BRACKET* UP TO TO TO TO OVER
SINGLE RETURN $22,750 $55,100 $115,000 $250,000 $250,000
- -----------------------------------------------------------------------------------------------------------------------
$38,000 $91,850 $140,000
TAXABLE INCOME BRACKET* UP TO TO TO TO OVER
JOINT RETURN $38,000 $91,850 $140,000 $250,000 $250,000
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FEDERAL TAX RATE 15% 28% 31% 36% 39.6%
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
TAX EXEMPT YIELD TAXABLE EQUIVALENT YIELD
<S> <C> <C> <C> <C> <C>
4.00% 4.705 5.555 5.797 6.250 6.622
4.50 5.294 6.250 6.521 7.031 7.450
5.00 5.882 6.944 7.246 7.812 8.278
5.50 6.470 7.638 7.971 8.593 9.105
6.00 7.059 8.333 8.696 9.375 9.933
6.50 7.647 9.028 9.420 10.156 10.761
7.00 8.235 9.722 10.145 10.937 11.589
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
* The income amount shown is income subject to Federal income tax reduced by
adjustments to income, exemptions, and itemized deductions or the standard
deduction. It is assumed that the investor is not subject to the alternative
minimum tax. Where applicable, investors should take into account the
provisions of the Code under which the benefit of certain itemized deductions
and the benefit of personal exemptions are limited in the case of higher
income individuals. Under the Code, individual taxpayers with adjusted gross
income in excess of a $111,800 threshold amount are subject to an overall
limitation on certain itemized deductions, requiring a reduction equal to the
lesser of (i) 3% of adjusted gross income in excess of the $111,800 threshold
amount or (ii) 80% of the amount of such itemized deductions otherwise
allowable. The benefit of each personal exemption is phased-out for married
taxpayers filing a joint return with adjusted gross income in excess of
$167,700 and for single taxpayers with adjusted gross income in excess of
$111,800. Personal exemptions are phased out at the rate of two percentage
points for each $2,450 (or fraction thereof) of adjusted gross income in
excess of the applicable threshold amount. The first three Federal tax
brackets, the threshold amounts at which itemized deductions are subject to
reduction, and the range over which personal exemptions are phased out will be
adjusted for inflation for each year after 1994. The 36% and 39.6% Federal tax
brackets will be adjusted for inflation for each year after 1994, using 1993
as the base year.
C-15
<PAGE>
<TABLE>
<CAPTION>
STATE OF NEW YORK**
1994 TAX YEAR
TAX EXEMPT YIELD
---------------------------------------------------------------------------
APPROX. COMBINED 4.00 4.50 5.00 5.50 6.00 6.50 7.00
TAXABLE FEDERAL & STATE --------- --------- --------- --------- --------- --------- ---------
INCOME BRACKET* TAX RATE TAXABLE EQUIVALENT YIELD
- --------------- ----------------- ---------------------------------------------------------------------------
JOINT RETURN
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 22,000 to 26,000............. 20.950% 5.060 5.692 6.325 6.957 7.590 8.222 8.855
$ 26,000 to 38,000............. 21.693% 5.108 5.746 6.385 7.023 7.662 8.300 8.939
$ 38,000 to 91,850............. 33.670% 6.030 6.784 7.538 8.291 9.045 9.799 10.553
$ 91,850 to 140,000............. 36.433% 6.292 7.079 7.865 8.652 9.438 10.225 11.012
$140,000 to 250,000............. 41.040% 6.784 7.632 8.480 9.328 10.176 11.024 11.872
Over $250,000................... 44.356% 7.188 8.087 9.985 9.884 10.782 11.681 12.579
<CAPTION>
SINGLE RETURN
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 15,000 to 22,750............. 21.693% 5.108 5.746 6.385 7.023 7.662 8.300 8.939
$ 22,750 to 55,100............. 33.670% 6.030 7.784 7.538 8.291 9.045 9.799 10.553
$ 55,100 to 115,000............. 36.433% 6.292 7.079 7.865 8.652 9.438 10.225 11.012
$115,000 to 250,000............. 41.040% 6.784 7.632 8.480 9.328 10.176 11.024 11.872
Over $250,000................... 44.356% 7.188 8.087 8.985 9.884 10.782 11.681 12.579
<CAPTION>
CITY OF NEW YORK***
TAX EXEMPT YIELD
---------------------------------------------------------------------------
APPROX. COMBINED 4.00 4.50 5.00 5.50 6.00 6.50 7.00
TAXABLE FEDERAL & STATE --------- --------- --------- --------- --------- --------- ---------
INCOME BRACKET* TAX RATE TAXABLE EQUIVALENT YIELD
- --------------- ----------------- ---------------------------------------------------------------------------
JOINT RETURN
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 22,000 to 26,000............. 24.061% 5.267 5.925 6.584 7.242 7.901 8.559 9.217
$ 26,000 to 27,000............. 24.804% 5.319 5.984 6.649 7.314 7.979 8.644 9.309
$ 27,000 to 38,000............. 25.331% 5.356 6.026 6.696 7.365 8.035 8.705 9.374
$ 38,000 to 45,000............. 36.751% 6.324 7.114 7.905 8.695 9.486 10.276 11.067
$ 45,000 to 91,850............. 36.838% 6.332 7.124 7.916 8.707 9.499 10.290 11.082
$ 91,850 to 108,000............. 39.469% 6.608 7.434 8.260 9.086 9.912 10.738 11.564
$108,000 to 140,000............. 39.511% 6.612 7.439 8.265 9.092 9.919 10.745 11.572
$140,000 to 250,000............. 43.894% 7.129 8.020 8.911 9.802 10.694 11.585 12.476
Over $250,000................... 47.050% 7.554 8.498 9.442 10.387 11.331 12.275 13.220
<CAPTION>
SINGLE RETURN
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 15,000 to 22,750............. 25.331% 5.356 6.026 6.696 7.365 8.035 8.705 9.374
$ 22,750 to 25,000............. 36.751% 6.324 7.114 7.905 8.695 9.486 10.276 11.067
$ 25,000 to 55,100............. 36.838% 6.332 7.124 7.916 8.707 9.499 10.290 11.082
$ 55,100 to 60,000............. 39.469% 6.608 7.434 8.260 9.086 9.912 10.738 11.564
$ 60,150 to 115,000............. 39.511% 6.612 7.439 8.265 9.092 9.919 10.745 11.572
$115,000 to 250,000............. 43.894% 7.129 8.020 8.911 9.802 10.694 11.585 12.476
Over $250,000................... 47.050% 7.554 8.498 9.442 10.387 11.331 12.275 13.220
</TABLE>
- ------------------
* The income amount shown is income subject to Federal income tax reduced by
adjustments to income, exemptions, and itemized deductions (including the
deduction for state and local income taxs). If the standard deduction had
been taken for Federal income tax purposes, the taxable equivalent yield
required to equal a specified tax-exempt yield would be at least as great as
that shown in the table. It is assumed that the investor is not subject to
the alternative minimum tax.
** The New York State personal income tax rates are scheduled to change in 1994
and later years. For example, the highest New York State tax for 1993 is
7.875% and is scheduled to decrease to 7.59375% for 1994, 7.125% for 1995
and 7% for later years. The scheduled reductions in the New York State top
bracket rates will, if implemented, result in taxable equivalent yields for
1994 and later years that are somewhat lower than those indicated in the
above tables. These tables reflect 1993 rates.
*** The City of New York table reflects the surcharges of between .51% and .55%
applicable to City of New York residents in certain instances and the
addtional tax equal to 14% of the sum of the income tax and surcharge.
Note:
Where applicable, investors should take into account the provisions of the Code
under which the benefit of certain itemized deductions and the benefit of
personal exemptions are limited in the case of higher income individuals. Under
the Code, individual taxpayers with adjusted gross income in excess of a
$111,800 threshold amount are subject to an overall limitation on certain
itemized deductions, requiring a reduction equal to
C-16
<PAGE>
the lesser of (i) 3% of adjusted gross income in excess of the $111,800
threshold amount or (ii) 80% of the amount of such itemized deductions otherwise
allowable. The benefit of each personal exemption is phased out for married
taxpayers filing a joint return with adjusted gross income in excess of $167,700
and for single taxpayers with adjusted gross income in excess of $111,800.
Personal exemptions are phased out at the rate of two percentage points for each
$2,450 (or fraction thereof) of adjusted gross income in excess of the
applicable threshold amount. The 15%, 28% and 31% Federal tax brackets, the
threshold amounts at which itemized deductions are subject to reduction, and the
range over which personal exemptions are phased out will be adjusted for
inflation annually after 1994. The 36% and the 39.6% Federal tax brackets will
be adjusted for inflation for each year after 1994, using 1993 as the base year.
For New York State tax purposes, the benefit of tax rates below 7.875% on
taxable income amounts up to $26,000 in the case of a joint return and $13,000
in the case of a single return is phased out for a taxpayer with adjusted gross
income in excess of a $100,000 threshold amount. The benefit is phased out pro
rata over the first $50,000 of adjusted gross income in excess of $100,000 and
the phase out is complete when New York adjusted gross income equals $150,000.
The tables assume that New York adjusted gross income does not exceed $100,000
in every case in which a phase-out of the benefit of the rate on taxable income
below $26,000 would affect the computation.
C-17
<PAGE>
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This Prospectus contains information concerning the Trusts and the Sponsor, but
does not contain all of the information set forth in the registration statements
and exhibits relating thereto, which the Trusts have 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.
- --------------------------------------------------------------------------------
INDEX
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Summary of Essential Information......................... A- 7
Independent Auditors' Report............................. A-12
Statement of Financial Condition......................... A-13
National Municipal Trust, The Trust...................... B- 1
Portfolio Summary..................................... B- 2
Insurance on the Securities in the Portfolio of an
Insured Trust...................................... B- 9
Objectives and Securities Selection................... B-14
Estimated Annual Income Per Unit...................... B-14
Tax Status of Each Trust................................. B-14
Public Offering of Units................................. B-17
Public Offering Price................................. B-17
Public Distribution................................... B-18
Secondary Market...................................... B-19
Sponsor's and Underwriters' Profits................... B-19
Volume Discount....................................... B-20
Employee Discount..................................... B-20
Exchange Option.......................................... B-21
Tax Consequences...................................... B-21
Reinvestment Program..................................... B-22
Expenses and Charges..................................... B-22
Initial Expenses...................................... B-22
Fees.................................................. B-22
Other Charges......................................... B-22
Rights of Unit Holders................................... B-23
Certificates.......................................... B-23
Distribution of Interest and Principal................ B-23
Reports and Records................................... B-24
Redemption............................................ B-25
Sponsor.................................................. B-26
Limitations on Liability.............................. B-26
Responsibility........................................ B-27
Resignation........................................... B-27
Trustee.................................................. B-27
Limitations on Liability.............................. B-28
Responsibility........................................ B-28
Resignation........................................... B-28
Evaluator................................................ B-28
Limitations on Liability.............................. B-28
Responsibility........................................ B-28
Resignation........................................... B-28
Amendment and Termination of the Indenture............... B-29
Amendment............................................. B-29
Termination........................................... B-29
Legal Opinions........................................... B-29
Auditors................................................. B-29
Bond Ratings............................................. B-29
State Risk Factors....................................... C- 1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NMT [LOGO]
- --------------------------------------------------------------------------------
SERIES 165
MULTISTATE SERIES 62
- --------------------------------------------------------------------------------
NATIONAL TRUST--7,500 UNITS
CALIFORNIA TRUST--3,000 UNITS
FLORIDA TRUST--3,000 UNITS
NEW YORK TRUST--3,000 UNITS
- --------------------------------------------------------------------------------
16,500 UNITS
in diversified
PORTFOLIOS of
municipal bonds
- --------------------------------------------------------------------------------
Sponsor
Prudential Securities Incorporated
One Seaport Plaza
199 Water Street
New York, New York 10292
- --------------------------------------------------------------------------------
