MUNICIPAL INVT TR FD MULTISTATE SER 54 DEFINED ASSET FUNDS, 497, 1994-02-04

MUNICIPAL INVT TR FD MULTISTATE SER 54 DEFINED ASSET FUNDS
497, 1994-02-04

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<PAGE>
Def ined

Asset FundsSM

MUNICIPAL INVESTMENT This Defined Fund consists of separate underlying
TRUST FUND Trusts designated as the Florida, Massachusetts,
- ------------------------------New Jersey and Pennsylvania Trusts, each of which
MULTISTATE SERIES - 54 is a portfolio of preselected securities issued by
(UNIT INVESTMENT TRUSTS) or on behalf of the State for which the Trust is
FLORIDA TRUST (INSURED) named and political subdivisions and public
4.78% authorities thereof or certain United States
ESTIMATED CURRENT RETURN territories or possessions. The Fund is formed for
4.79% the purpose of providing interest income which in
ESTIMATED LONG TERM RETURN the opinion of counsel is, with certain
MASSACHUSETTS TRUST exceptions, exempt from regular Federal income
4.93% taxes and from certain state and local personal
ESTIMATED CURRENT RETURN income taxes in the State for which each Trust is
4.90% named but may be subject to other state and local
ESTIMATED LONG TERM RETURN taxes. In addition, the Debt Obligations included
NEW JERSEY TRUST (INSURED) in the Florida, New Jersey and Pennsylvania Trusts
4.65% are insured. This insurance guarantees the timely
ESTIMATED CURRENT RETURN payment of principal and interest on but does not
4.63% guarantee the market value of the Debt Obligations
ESTIMATED LONG TERM RETURN or the value of the Units. As a result of this
PENNSYLVANIA TRUST (INSURED) insurance, Units of the Florida, New Jersey and
4.88% Pennsylvania Trusts are rated AAA by Standard &
ESTIMATED CURRENT RETURN Poor's Corporation. The value of the Units of each
4.87% Trust will fluctuate with the value of the
ESTIMATED LONG TERM RETURN Portfolio of underlying Debt Obligations in the
AS OF FEBRUARY 2, 1994 Trust.
The Estimated Current Return and Estimated Long
Term Return figures shown give different
information about the return to investors.
Estimated Current Return on a Unit shows a net
annual current cash return based on the initial
Public Offering Price and the maximum applicable
sales charge and is computed by multiplying the
estimated net annual interest rate per Unit by
$1,000 and dividing the result by the Public
Offering Price per Unit (including the sales
charge but not including accrued interest).
Estimated Long Term Return shows a net annual
long-term return to investors holding to maturity
based on the yield on the individual bonds in the
Portfolio, weighted to reflect the time to
maturity (or in certain cases to an earlier call
date) and market value of each bond in the
Portfolio, adjusted to reflect the Public Offering
Price (including the sales charge) and estimated
expenses. Unlike Estimated Current Return,
Estimated Long Term Return takes into account
maturities of the underlying Securities and
discounts and premiums. Distributions of income on
Units are generally subject to certain delays; if
the Estimated Long Term Return figure shown above
took these delays into account, it would be lower.
Both Estimated Current Return and Estimated Long
Term Return are subject to fluctuations with
changes in Portfolio composition (including the
redemption, sale or other disposition of
Securities in the Portfolio), changes in the
market value of the underlying Securities and
changes in fees and expenses. Estimated cash flows
for each Trust are available upon request from the
Sponsors at no charge.
Minimum purchase: 1 Unit.

----------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED
OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY
SPONSORS: REPRESENTATION
Merrill Lynch, TO THE CONTRARY IS A CRIMINAL OFFENSE.
Pierce, Fenner & Smith Inc. INQUIRIES SHOULD BE DIRECTED TO THE
Smith Barney Shearson Inc. TRUSTEE AT 1-800-323-1508.
PaineWebber Incorporated PROSPECTUS DATED FEBRUARY 3, 1994.
Prudential Securities Incorporated READ AND RETAIN THIS PROSPECTUS FOR
Dean Witter Reynolds Inc. FUTURE REFERENCE.

<PAGE>
- ------------------------------------------------------------------------------

DEFINED ASSET FUNDSSM is America's oldest and largest family of unit investment
trusts with over $90 billion sponsored since 1970. Each Defined Fund is a
portfolio of preselected securities. The portfolio is divided into 'units'
representing equal shares of the underlying assets. Each unit receives an equal
share of income and principal distributions.

With Defined Asset Funds you know in advance what you are investing in and that
changes in the portfolio are limited. Most defined bond funds pay interest
monthly and repay principal as bonds are called, redeemed, sold or as they
mature. Defined equity funds offer preselected stock portfolios with defined
termination dates.

Your financial advisor can help you select a Defined Fund to meet your personal
investment objectives. Our size and market presence enable us to offer a wide
variety of investments. Defined Funds are available in the following types of
securities: municipal bonds, corporate bonds, government bonds, utility stocks,
growth stocks, even international securities denominated in foreign currencies.

Termination dates are as short as one year or as long as 30 years. Special funds
are available for investors seeking extra features: insured funds, double and
triple tax-free funds, and funds with 'laddered maturities' to help protect
against rising interest rates. Defined Funds are offered by prospectus only.

- --------------------------------------------------------------------------------
CONTENTS

Investment Summary.......................................... A-3
Tax-Free vs. Taxable Income................................. A-7
Underwriting Account........................................ A-9
Report of Independent Accountants........................... A-10
Statements of Condition..................................... A-11
Portfolios.................................................. A-12
Fund Structure.............................................. 1
Risk Factors................................................ 2
Description of the Fund..................................... 16
Taxes....................................................... 18
Public Sale of Units........................................ 21
Market for Units............................................ 24
Redemption.................................................. 24
Expenses and Charges........................................ 26
Administration of the Fund.................................. 26
Resignation, Removal and Limitations on Liability........... 30
Miscellaneous............................................... 31
Description of Ratings...................................... 33
Exchange Option............................................. 34
Appendix:
The Florida Trust........................................... A-1
The Massachusetts Trust..................................... A-5
The New Jersey Trust........................................ A-11
The Pennsylvania Trust...................................... A-15

A-2

<PAGE>
INVESTMENT SUMMARY AS OF FEBRUARY 2, 1994 (THE BUSINESS DAY PRIOR TO THE INITIAL
DATE OF DEPOSIT)+

FLORIDA MASSACHUSETTS
TRUST TRUST
-------------- --------------
ESTIMATED CURRENT RETURN*
(based on Public Offering
Price)--...................... 4.78% 4.93%
ESTIMATED LONG TERM RETURN*
(based on Public Offering
Price)--...................... 4.79% 4.90%
PUBLIC OFFERING PRICE PER UNIT
(including 4.50% sales
charge).......................$ 1,034.59**$ 1,043.63**
FACE AMOUNT OF DEBT
OBLIGATIONS...................$ 3,300,000 $ 3,250,000
INITIAL NUMBER OF UNITS***...... 3,300 3,250
FRACTIONAL UNDIVIDED INTEREST IN
TRUST REPRESENTED BY EACH
UNIT.......................... 1/3,300th 1/3,250th
MONTHLY INCOME DISTRIBUTIONS
First distribution to be paid
on the 25th day of May 1994
to Holders of record on the
10th day of May 1994.......$ 4.93 $ 5.13
Calculation of second and
following distributions:
Estimated net annual interest
rate per Unit times
$1,000...................$ 49.44 $ 51.48
Divided by 12.................$ 4.12 $ 4.29
SPONSORS' REPURCHASE PRICE AND
REDEMPTION PRICE PER
UNIT****
(based on bid side
evaluation)...................$ 983.46**$ 992.67**
REDEMPTION PRICE PER UNIT LESS
THAN:
Public Offering Price by...$ 51.13 $ 50.96
Sponsors' Initial
Repurchase Price by.........$ 4.58 $ 4.00
CALCULATION OF PUBLIC OFFERING
PRICE
Aggregate offering side
evaluation of Debt
Obligations in Trust $ 3,260,522.00 $ 3,239,165.00
-------------- --------------
Divided by Number of
Units....................$ 988.04 $ 996.67
Plus sales charge of 4.50%
of Public Offering Price
(4.712% of net amount
invested in Debt
Obligations)++........... 46.55 46.96
-------------- --------------
Public Offering Price per
Unit.......................$ 1,034.59 $ 1,043.63
Plus accrued interest+++... 0.96 1.00
-------------- --------------
Total....................$ 1,035.55 $ 1,044.63
-------------- --------------
-------------- --------------
CALCULATION OF ESTIMATED NET
ANNUAL INTEREST RATE PER UNIT
(based on face amount of
$1,000 per Unit)
Annual interest rate per
Unit....................... 5.162% 5.365%
Less estimated annual
expenses per Unit
expressed as a
percentage............... .218% .217%
-------------- --------------
Estimated net annual
interest rate per
Unit................... 4.944% 5.148%
-------------- --------------
-------------- --------------
DAILY RATE AT WHICH ESTIMATED
NET INTEREST ACCRUES
PER UNIT........................ .0137% .0143%
SPONSORS' PROFIT (LOSS) ON
DEPOSIT.........................$ 27,811.00 $ 32,357.50
TRUSTEE'S ANNUAL FEE AND
EXPENSES........................$ 2.18+++++$ 2.17++++
Per Unit commencing March
1994 and February 1994
for the Florida and
Massachusetts Trusts,
respectively (see
Expenses and Charges).

- ------------------
* Estimated Current Return represents annual interest income after
estimated annual expenses divided by the maximum public offering price including
a 4.50% maximum sales charge. Estimated Long Term Return is the net annual
percentage return based on the yield on each underlying Debt Obligation weighted
to reflect market value and time to maturity or earlier call date. Estimated
Long Term Return is adjusted for estimated expenses and the maximum offering
price but not for delays in a Trust's distribution of income. Estimated Current
Return shows current annual cash return to investors while Estimated Long Term
Return shows the return on Units held to maturity, reflecting maturities,
discounts and premiums on underlying Debt Obligations. Each figure will vary
with purchase price including sales charge, changes in the net interest income
and the redemptions, sale, or other disposition of Debt Obligations in the
Portfolio.
** Plus accrued interest.
*** The Sponsors may create additional Units during the offering period
of the Fund.
**** During the initial offering period, the Sponsors intend to offer to
purchase Units at prices based on the offer side value of the underlying
Securities. Thereafter, the Sponsors intend to maintain such a market based on
the bid side value of the underlying Securities which will be equal to the
Redemption Price. (See Market for Units.)
+ The Indentures were signed and the initial deposits were made on the
date of this Prospectus.
++ The sales charge during the initial offering period and in the
secondary market will be reduced on a graduated scale in the case of purchases
of 250 or more Units; the secondary market sales charge will also vary depending
on the maturities of the underlying Securities (see Public Sale of Units--Public
Offering Price). Any resulting reduction in the Public Offering Price will
increase the effective current and long term returns on a Unit.
+++ Figure shown represents interest accrued on underlying Securities
from the Initial Date of Deposit to expected date of settlement (normally five
business days after purchase) for Units purchased on Initial Date of Deposit
(see Description of the Fund--Income; Estimated Current Return; Estimated Long
Term Return).
++++ In the event that any Debt Obligations have a delayed delivery, the
Trustee's Annual Fee and Expenses will be reduced over a period in the amount of
interest that would have accrued on the Debt Obligations between the date of
settlement for the Units and the actual date of delivery of the Debt
Obligations. The Trustee will be reimbursed for this reduction (see Description
of Fund--Income; Estimated Current Return; Estimated Long Term Return).
+++++ During the first year this amount will be reduced by $0.26 for the
Florida Trust. Estimated annual interest income per Unit (estimated annual
interest rate per Unit times $1,000) during the first year will be $51.36 and
estimated expenses per Unit will be $1.92 for the Florida Trust. Estimated net
annual interest income per Unit will remain the same (see Description of the
Fund--Income; Estimated Current Return; Estimated Long Term Return).

A-3

<PAGE>
INVESTMENT SUMMARY AS OF FEBRUARY 2, 1994 (CONTINUED)

FLORIDA MASSACHUSETTS
TRUST TRUST
------------- -------------
NUMBER OF ISSUES IN PORTFOLIO-- 7 7
NUMBER OF ISSUES BY
SOURCE OF REVENUE*:
Airports/Ports/Highways-- -- 2
Hospitals/Healthcare Facilities-- 3 1
Municipal Water/Sewer Utilities-- 3 1
General Obligation-- -- 1
State/Local Municipal Electric
Utilities-- 1 --
Universities/Colleges-- -- 2
NUMBER OF ISSUES RATED BY
STANDARD &
POOR'S/RATING-- AAA-- 7+ 4
A-- -- 3
RANGE OF FIXED FINAL MATURITY DATES
OF DEBT
OBLIGATIONS...................... 2018-2023 2020-2026
TYPE OF ISSUE EXPRESSED AS A
PERCENTAGE OF THE AGGREGATE FACE
AMOUNT OF PORTFOLIO
General Obligation Issues........ -- 15%
Issues Payable from Income of
Specific Project or Authority.... 100% 85%
Debt Obligations Issued at an
'Original Issue
Discount'**................... 100% 100%
Obligations Insured by certain
Insurance Companies:***
AMBAC......................... 15% --
Connie Lee.................... -- 46%
Financial Guaranty............ 46% --
MBIA.......................... 39% 15%
Issues of Issuers located in
Puerto Rico................... -- 8%
CONCENTRATIONS* EXPRESSED AS A
PERCENTAGE OF THE AGGREGATE FACE
AMOUNT OF PORTFOLIO****
Universities/Colleges......... -- 31%
Hospitals/Healthcare
Facilities.................... 39% --
Municipal Water/Sewer
Utilities..................... 45% --
PREMIUM AND DISCOUNT ISSUES IN
PORTFOLIO
Face amount of Debt
Obligations
with offering side
evaluation: over
par-- 30% 62%
at par-- 15% --
at a discount from par-- 55% 38%
PERCENTAGE OF PORTFOLIO ACQUIRED
FROM
UNDERWRITING SYNDICATE IN WHICH
CERTAIN SPONSORS
PARTICIPATED AS SOLE UNDERWRITER,
MANAGING
UNDERWRITER OR MEMBER............ 15% --
PERCENTAGE OF PORTFOLIOS NOT
SUBJECT TO OPTIONAL
REDEMPTIONS PRIOR TO 2003 AND
2002, RESPECTIVELY (AT PRICES
INITIALLY AT LEAST 100% OF
PAR)++........................... 100% 100%

- ------------------
+ All of the Debt Obligations in this Trust are insured as to scheduled
payments of principal and interest as a result of which the Units of the Trust
are rated AAA by Standard & Poor's (see Description of Ratings).
++ See Footnote (2) to Portfolios.
* See Risk Factors for a brief summary of certain investment risks
relating to certain of these issues.
** See Taxes.
*** See Risk Factors--Obligations Backed by Insurance.
**** A Trust is considered to be 'concentrated' in these categories when
they constitute 25% or more of the aggregate face amount of the Portfolio.

A-4

<PAGE>
INVESTMENT SUMMARY AS OF FEBRUARY 2, 1994 (THE BUSINESS DAY PRIOR TO THE INITIAL
DATE OF DEPOSIT)+

NEW JERSEY PENNSYLVANIA
TRUST TRUST
-------------- --------------
ESTIMATED CURRENT RETURN*
(based on Public Offering
Price)--...................... 4.65% 4.88%
ESTIMATED LONG TERM RETURN*
(based on Public Offering
Price)--...................... 4.63% 4.87%
PUBLIC OFFERING PRICE PER UNIT
(including 4.50% sales
charge).......................$ 1,047.63**$ 1,043.43**
FACE AMOUNT OF DEBT
OBLIGATIONS...................$ 3,250,000 $ 3,500,000
INITIAL NUMBER OF UNITS***...... 3,250 3,500
FRACTIONAL UNDIVIDED INTEREST IN
TRUST REPRESENTED BY EACH UNIT.. 1/3,250th 1/3,500th
MONTHLY INCOME DISTRIBUTIONS
First distribution to be paid
on the 25th day of May 1994
to Holders of record on the
10th day of May 1994.......$ 4.30 $ 3.76
Calculation of second and
following distributions:
Estimated net annual interest
rate per Unit times
$1,000...................$ 48.72 $ 50.88
Divided by 12.................$ 4.06 $ 4.24
SPONSORS' REPURCHASE PRICE AND
REDEMPTION PRICE PER
UNIT****
(based on bid side
evaluation)...................$ 996.49**$ 992.47**
REDEMPTION PRICE PER UNIT LESS
THAN:
Public Offering Price by...$ 51.14 $ 50.96
Sponsors' Initial
Repurchase Price by.........$ 4.00 $ 4.00
CALCULATION OF PUBLIC OFFERING
PRICE
Aggregate offering side
evaluation of Debt
Obligations in Trust $ 3,251,592.50 $ 3,487,655.00
-------------- --------------
Divided by Number of
Units....................$ 1,000.49 $ 996.47
Plus sales charge of 4.50%
of Public Offering Price
(4.712% of net amount
invested in Debt
Obligations)++........... 47.14 46.96
-------------- --------------
Public Offering Price per
Unit.......................$ 1,047.63 $ 1,043.43
Plus accrued interest+++... 0.94 0.98
-------------- --------------
Total....................$ 1,048.57 $ 1,044.41
-------------- --------------
-------------- --------------
CALCULATION OF ESTIMATED NET
ANNUAL INTEREST RATE PER UNIT
(based on face amount of
$1,000 per Unit)
Annual interest rate per
Unit....................... 5.088% 5.300%
Less estimated annual
expenses per Unit
expressed as a
percentage............... .216% .212%
-------------- --------------
Estimated net annual
interest rate per
Unit................... 4.872% 5.088%
-------------- --------------
-------------- --------------
DAILY RATE AT WHICH ESTIMATED
NET INTEREST ACCRUES
PER UNIT........................ .0135% .0141%
SPONSORS' PROFIT (LOSS) ON
DEPOSIT.........................$ 47,097.50 $ 36,950.00
TRUSTEE'S ANNUAL FEE AND
EXPENSES........................$ 2.16++++$ 2.12++++
Per Unit commencing March
1994 and July 1994 for
the New Jersey and
Pennsylvania Trusts,
respectively (see
Expenses and Charges).

- ------------------
* Estimated Current Return represents annual interest income after
estimated annual expenses divided by the maximum public offering price including
a 4.50% maximum sales charge. Estimated Long Term Return is the net annual
percentage return based on the yield on each underlying Debt Obligation weighted
to reflect market value and time to maturity or earlier call date. Estimated
Long Term Return is adjusted for estimated expenses and the maximum offering
price but not for delays in a Trust's distribution of income. Estimated Current
Return shows current annual cash return to investors while Estimated Long Term
Return shows the return on Units held to maturity, reflecting maturities,
discounts and premiums on underlying Debt Obligations. Each figure will vary
with purchase price including sales charge, changes in the net interest income
and the redemptions, sale, or other disposition of Debt Obligations in the
Portfolio.
** Plus accrued interest.
*** The Sponsors may create additional Units during the offering period
of the Fund.
**** During the initial offering period, the Sponsors intend to offer to
purchase Units at prices based on the offer side value of the underlying
Securities. Thereafter, the Sponsors intend to maintain such a market based on
the bid side value of the underlying Securities which will be equal to the
Redemption Price. (See Market for Units.)
+ The Indentures were signed and the initial deposits were made on the
date of this Prospectus.
++ The sales charge during the initial offering period and in the
secondary market will be reduced on a graduated scale in the case of purchases
of 250 or more Units; the secondary market sales charge will also vary depending
on the maturities of the underlying Securities (see Public Sale of Units--Public
Offering Price). Any resulting reduction in the Public Offering Price will
increase the effective current and long term returns on a Unit.
+++ Figure shown represents interest accrued on underlying Securities
from the Initial Date of Deposit to expected date of settlement (normally five
business days after purchase) for Units purchased on Initial Date of Deposit
(see Description of the Fund--Income; Estimated Current Return; Estimated Long
Term Return).
++++ During the first year this amount will be reduced by $0.15 and
$0.87 for the New Jersey and Pennsylvania Trusts, respectively. Estimated annual
interest income per Unit (estimated annual interest rate per Unit times $1,000)
during the first year will be $50.73 and $52.13 and estimated expenses per Unit
will be $2.01 and $1.25 for the New Jersey and Pennsylvania Trusts,
respectively. Estimated net annual interest income per Unit will remain the same
(see Description of the Fund--Income; Estimated Current Return; Estimated Long
Term Return).

A-5

<PAGE>
INVESTMENT SUMMARY AS OF FEBRUARY 2, 1994 (CONTINUED)

NEW JERSEY PENNSYLVANIA
TRUST TRUST
------------- -------------
NUMBER OF ISSUES IN PORTFOLIO-- 7 7
NUMBER OF ISSUES BY
SOURCE OF REVENUE*:
General Obligation-- 2 1
Airports/Ports/Highways-- 2 --
Hospitals/Healthcare Facilities-- -- 3
Municipal Water/Sewer Utilities-- 3 1
Special Tax-- -- 1
Universities/Colleges-- -- 1
NUMBER OF ISSUES RATED BY
STANDARD &
POOR'S/RATING-- AAA-- 7+ 7+
RANGE OF FIXED FINAL MATURITY DATES
OF DEBT
OBLIGATIONS...................... 2013-2024 2014-2024
TYPE OF ISSUE EXPRESSED AS A
PERCENTAGE OF THE AGGREGATE FACE
AMOUNT OF PORTFOLIO
General Obligation Issues........ 31% 14%
Issues Payable from Income of
Specific Project or Authority.... 69% 86%
Debt Obligations Issued at an
'Original Issue
Discount'**................... 54% 100%
Obligations Insured by certain
Insurance Companies:***
AMBAC......................... -- 28%
Connie Lee.................... -- 29%
Financial Guaranty............ 54% 14%
MBIA.......................... 46% 29%
CONCENTRATIONS* EXPRESSED AS A
PERCENTAGE OF THE AGGREGATE FACE
AMOUNT OF PORTFOLIO****
Airports/Ports/Highways....... 31% --
Hospitals/Healthcare
Facilities.................... -- 43%
Municipal Water/Sewer
Utilities..................... 38% --
General Obligation............ 31% --
PREMIUM AND DISCOUNT ISSUES IN
PORTFOLIO
Face amount of Debt
Obligations
with offering side
evaluation: over
par-- 46% 29%
at par-- 15% --
at a discount from par-- 39% 71%
PERCENTAGE OF PORTFOLIO ACQUIRED
FROM
UNDERWRITING SYNDICATE IN WHICH
CERTAIN SPONSORS
PARTICIPATED AS SOLE UNDERWRITER,
MANAGING
UNDERWRITER OR MEMBER............ -- --
PERCENTAGE OF PORTFOLIOS NOT
SUBJECT TO OPTIONAL
REDEMPTIONS PRIOR TO 2003 (AT
PRICES INITIALLY AT LEAST 100% OF
PAR)++........................... 100% 100%

A-6

<PAGE>
Def ined
Asset Funds

INVESTOR'S GUIDE
MUNICIPAL INVESTMENT MUNICIPAL INVESTMENT TRUST FUND
TRUST FUND Our defined portfolios of municipal bonds offer
- ------------------------------investors a simple and convenient way to earn
Multistate Series monthly income tax-free. And by purchasing
municipal Defined Funds, investors not only avoid
the problem of selecting municipal bonds by
themselves, but also gain the advantage of
diversification by investing in bonds of several
different issuers. Spreading your investment among
different securities and issuers reduces your
risk, but does not eliminate it.
MONTHLY TAX-FREE INTEREST INCOME
Each Trust pays monthly income, even though the
underlying bonds pay interest semi-annually. This
income is generally 100% exempt under existing
laws from regular federal income tax and from
certain state and local personal income taxes in
the State for which the Trust is named. Any gain
on disposition of the underlying bonds will be
subject to tax.
REINVESTMENT OPTION
You can elect to automatically reinvest your
distributions into a separate portfolio of
federally tax-exempt bonds. Reinvesting helps to
compound your income tax-free. Income from the
reinvestment program may be subject to state and
local taxes.
A-RATED INVESTMENT QUALITY
Each bond in the Fund has been selected by
investment professionals among available bonds
rated A or better by at least one national rating
organization or has, in the opinion of Defined
Funds research analysts, comparable credit
characteristics. Bonds with these 'investment
grade' ratings are judged to have a strong
capacity to pay interest and repay principal. In
addition, units of any insured Fund are rated AAA
by Standard & Poor's Corporation.
PROFESSIONAL SELECTION AND SUPERVISION
Each Trust contains a variety of securities
selected by experienced buyers and market
analysts. The Trusts are not actively managed.
However, each portfolio is regularly reviewed and
a security can be sold if, in the opinion of
Defined Funds analysts and buyers, retaining it
could be detrimental to investors' interests.
A LIQUID INVESTMENT
Although not legally required to do so, the
Sponsors have maintained a secondary market for
Defined Asset Funds for over 20 years. You can
cash in your units at any time. Your price is
based on the market value of the bonds in the
Fund's portfolio at that time as determined by an
independent evaluator. Or, you can exchange your
investment for another Defined Fund at a reduced
sales charge. There is never a fee for cashing in
your investment.
PRINCIPAL DISTRIBUTIONS
Principal from sales, redemptions and maturities
of bonds in the Fund is distributed to investors
periodically.
RISK FACTORS
Unit price fluctuates and is affected by interest
rates as well as the financial condition of the
issuers of the bonds.

This page may not be distributed unless included in a current prospectus.
Investors should refer to the prospectus for further information.
<PAGE>
TAX-FREE VS. TAXABLE INCOME
A COMPARISON OF TAXABLE AND TAX-FREE YIELDS

FOR FLORIDA RESIDENTS
<TABLE><CAPTION>

TAXABLE INCOME 1994* EFFECTIVE
TAX RATE
TAX-FREE YIELD OF
%
SINGLE RETURN JOINT RETURN 3% 3.5% 4% 4.5% 5% 5.5% 6%
IS EQUIVALENT TO A TAXABLE YIELD OF
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
$0-36,900 15.00 3.53 4.12 4.71 5.29 5.88 6.47 7.06
- ------------------------------------------------------------------------------------------------------------------------------
$0-22,100 15.00 3.53 4.12 4.71 5.29 5.88 6.47 7.06
- ------------------------------------------------------------------------------------------------------------------------------
$36,900-89,150 28.00 4.17 4.86 5.56 6.25 6.94 7.64 8.33
- ------------------------------------------------------------------------------------------------------------------------------
$22,100-53,500 28.00 4.17 4.86 5.56 6.25 6.94 7.64 8.33
- ------------------------------------------------------------------------------------------------------------------------------
$89,150-140,000 31.00 4.35 5.07 5.80 6.52 7.25 7.97 8.70
- ------------------------------------------------------------------------------------------------------------------------------
$53,500-115,000 31.00 4.35 5.07 5.80 6.52 7.25 7.97 8.70
- ------------------------------------------------------------------------------------------------------------------------------
$140,000-250,000 36.00 4.69 5.47 6.25 7.03 7.81 8.59 9.38
- ------------------------------------------------------------------------------------------------------------------------------
$115,000-250,000 36.00 4.69 5.47 6.25 7.03 7.81 8.59 9.38
- ------------------------------------------------------------------------------------------------------------------------------
OVER $250,000 39.60 4.97 5.79 6.62 7.45 8.28 9.11 9.93
- ------------------------------------------------------------------------------------------------------------------------------
OVER $250,000 39.60 4.97 5.79 6.62 7.45 8.28 9.11 9.93
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
TAXABLE INCOME 1994*

SINGLE RETURN 6.5% 7%

- ----------------
7.65 8.24
- ----------------
$0-22,100 7.65 8.24
- ----------------
9.03 9.72
- ----------------
$22,100-53,500 9.03 9.72
- ----------------
9.42 10.14
- ----------------
$53,500-115,000 9.42 10.14
- ----------------
10.16 10.94
- ----------------
$115,000-250,000 10.16 10.94
- ----------------
10.76 11.59
- ----------------
OVER $250,000 10.76 11.59
- ----------------

FOR MASSACHUSETTS RESIDENTS

<TABLE><CAPTION>
COMBINED
TAXABLE INCOME 1994* EFFECTIVE
TAX RATE
TAX-FREE YIELD OF
%
SINGLE RETURN JOINT RETURN 3% 3.5% 4% 4.5% 5% 5.5% 6%
IS EQUIVALENT TO A TAXABLE YIELD OF
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
$0-36,900 25.20 4.01 4.68 5.35 6.02 6.68 7.35 8.02
- ------------------------------------------------------------------------------------------------------------------------------
$0-22,100 25.20 4.01 4.68 5.35 6.02 6.68 7.35 8.02
- ------------------------------------------------------------------------------------------------------------------------------
$36,900-89,150 36.64 4.73 5.52 6.31 7.10 7.89 8.68 9.47
- ------------------------------------------------------------------------------------------------------------------------------
$22,100-53,500 36.64 4.73 5.52 6.31 7.10 7.89 8.68 9.47
- ------------------------------------------------------------------------------------------------------------------------------
$89,150-140,000 39.28 4.94 5.76 6.59 7.41 8.23 9.06 9.88
- ------------------------------------------------------------------------------------------------------------------------------
$53,500-115,000 39.28 4.94 5.76 6.59 7.41 8.23 9.06 9.88
- ------------------------------------------------------------------------------------------------------------------------------
$140,000-250,000 43.68 5.33 6.21 7.10 7.99 8.88 9.77 10.65
- ------------------------------------------------------------------------------------------------------------------------------
$115,000-250,000 43.68 5.33 6.21 7.10 7.99 8.88 9.77 10.65
- ------------------------------------------------------------------------------------------------------------------------------
OVER $250,000 46.85 5.64 6.58 7.53 8.47 9.41 10.35 11.29
- ------------------------------------------------------------------------------------------------------------------------------
OVER $250,000 46.85 5.64 6.58 7.53 8.47 9.41 10.35 11.29
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
TAXABLE INCOME 1994*

SINGLE RETURN 6.5% 7%

- ----------------
8.69 9.36
- ----------------
$0-22,100 8.69 9.36
- ----------------
10.26 11.05
- ----------------
$22,100-53,500 10.26 11.05
- ----------------
10.70 11.53
- ----------------
$53,500-115,000 10.70 11.53
- ----------------
11.54 12.43
- ----------------
$115,000-250,000 11.54 12.43
- ----------------
12.23 13.17
- ----------------
OVER $250,000 12.23 13.17
- ----------------

FOR NEW JERSEY RESIDENTS

<TABLE><CAPTION>
COMBINED
TAXABLE INCOME 1994* EFFECTIVE
TAX RATE
TAX-FREE YIELD OF
%
SINGLE RETURN JOINT RETURN 3% 3.5% 4% 4.5% 5% 5.5% 6%
IS EQUIVALENT TO A TAXABLE YIELD OF
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
$0-36,900 17.13 3.62 4.22 4.83 5.43 6.03 6.64 7.24
- ------------------------------------------------------------------------------------------------------------------------------
$0-22,100 17.13 3.62 4.22 4.83 5.43 6.03 6.64 7.24
- ------------------------------------------------------------------------------------------------------------------------------
$36,900-89,150 32.68 4.46 5.20 5.94 6.68 7.43 8.17 8.91
- ------------------------------------------------------------------------------------------------------------------------------
$22,100-53,500 32.68 4.46 5.20 5.94 6.68 7.43 8.17 8.91
- ------------------------------------------------------------------------------------------------------------------------------
$89,150-140,000 35.83 4.68 5.45 6.23 7.01 7.79 8.57 9.35
- ------------------------------------------------------------------------------------------------------------------------------
$53,500-115,000 35.83 4.68 5.45 6.23 7.01 7.79 8.57 9.35
- ------------------------------------------------------------------------------------------------------------------------------
$140,000-250,000 40.48 5.04 5.88 6.72 7.56 8.40 9.24 10.08
- ------------------------------------------------------------------------------------------------------------------------------
$115,000-250,000 40.48 5.04 5.88 6.72 7.56 8.40 9.24 10.08
- ------------------------------------------------------------------------------------------------------------------------------
OVER $250,000 43.83 5.34 6.23 7.12 8.01 8.90 9.79 10.68
- ------------------------------------------------------------------------------------------------------------------------------
OVER $250,000 43.83 5.34 6.23 7.12 8.01 8.90 9.79 10.68
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
TAXABLE INCOME 1994*

SINGLE RETURN 6.5% 7%

- ----------------
7.84 8.45
- ----------------
$0-22,100 7.84 8.45
- ----------------
9.66 10.40
- ----------------
$22,100-53,500 9.66 10.40
- ----------------
10.13 10.91
- ----------------
$53,500-115,000 10.13 10.91
- ----------------
10.92 11.76
- ----------------
$115,000-250,000 10.92 11.76
- ----------------
11.57 12.46
- ----------------
OVER $250,000 11.57 12.46
- ----------------

FOR PENNSYLVANIA RESIDENTS

<TABLE><CAPTION>
COMBINED
TAXABLE INCOME 1994* EFFECTIVE
TAX RATE
TAX-FREE YIELD OF
%
SINGLE RETURN JOINT RETURN 3% 3.5% 4% 4.5% 5% 5.5% 6%
IS EQUIVALENT TO A TAXABLE YIELD OF
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
$0-36,900 17.38 3.63 4.24 4.84 5.45 6.05 6.66 7.26
- ------------------------------------------------------------------------------------------------------------------------------
$0-22,100 17.38 3.63 4.24 4.84 5.45 6.05 6.66 7.26
- ------------------------------------------------------------------------------------------------------------------------------
$36,900-89,150 30.02 4.29 5.00 5.72 6.43 7.14 7.86 8.57
- ------------------------------------------------------------------------------------------------------------------------------
$22,100-53,500 30.02 4.29 5.00 5.72 6.43 7.14 7.86 8.57
- ------------------------------------------------------------------------------------------------------------------------------
$89,150-140,000 32.93 4.47 5.22 5.96 6.71 7.46 8.20 8.95
- ------------------------------------------------------------------------------------------------------------------------------
$53,500-115,000 32.93 4.47 5.22 5.96 6.71 7.46 8.20 8.95
- ------------------------------------------------------------------------------------------------------------------------------
$140,000-250,000 37.79 4.82 5.63 6.43 7.23 8.04 8.84 9.65
- ------------------------------------------------------------------------------------------------------------------------------
$115,000-250,000 37.79 4.82 5.63 6.43 7.23 8.04 8.84 9.65
- ------------------------------------------------------------------------------------------------------------------------------
OVER $250,000 41.29 5.11 5.96 6.81 7.66 8.52 9.37 10.22
- ------------------------------------------------------------------------------------------------------------------------------
OVER $250,000 41.29 5.11 5.96 6.81 7.66 8.52 9.37 10.22
- ------------------------------------------------------------------------------------------------------------------------------

</TABLE>
TAXABLE INCOME 1994*

SINGLE RETURN 6.5% 7%

- ----------------
7.87 8.47
- ----------------
$0-22,100 7.87 8.47
- ----------------
9.29 10.00
- ----------------
$22,100-53,500 9.29 10.00
- ----------------
9.69 10.44
- ----------------
$53,500-115,000 9.69 10.44
- ----------------
10.45 11.25
- ----------------
$115,000-250,000 10.45 11.25
- ----------------
11.07 11.92
- ----------------
OVER $250,000 11.07 11.92
- ----------------

To compare the yield of a taxable security with the yield of a tax-free security
find your taxable income and read across. These tables incorporate current
Federal and applicable State income tax rates and assume that all income would
otherwise be taxable at the investor's highest tax rates. Yield figures are for
example only.

Legislation has recently been enacted that would increase rates for certain
individuals, thereby increasing the tax-free equivalent yield.

*Based upon net amount subject to Federal income tax after deductions and
exemptions. These tables do not reflect other possible tax factors such as the
alternative minimum tax, personal exemptions, the phase out of exemptions,
itemized deductions and the possible partial disallowance of deductions.
Consequently, holders are urged to consult their own tax advisers in this
regard.

A-7
<PAGE>
MUNICIPAL INVESTMENT TRUST FUND
MULTISTATE SERIES
DEFINED ASSET FUNDS
I want to learn more about automatic reinvestment in the Investment Accumulation
Program. Please send me information about participation in the Municipal Fund
Accumulation Program, Inc. and a current Prospectus.
My name (please
print) ________________________________________________________________________
My address (please print):
Street and Apt.
No. ___________________________________________________________________________
City, State, Zip
Code ___________________________________________________________________________
This page is a self-mailer. Please complete the information above, cut along the
dotted line, fold along the lines on the reverse side, tape, and mail with the
Trustee's address displayed on the outside.
1 2 3 4 5 6 7 8

A-8
<PAGE>

BUSINESS REPLY MAIL NO POSTAGE
FIRST CLASS PERMIT NO. 644 NEW YORK, NY NECESSARY
IF MAILED
POSTAGE WILL BE PAID BY ADDRESSEE IN THE
THE CHASE MANHATTAN BANK, N.A. UNITED STATES
UNIT TRUST DEPARTMENT
BOX 2051
NEW YORK, NY 10081

- ------------------------------------------------------------------------------
(Fold along this line.)

- ------------------------------------------------------------------------------
(Fold along this line.)
<PAGE>
INVESTMENT SUMMARY FOR EACH TRUST AS OF FEBRUARY 2, 1994 (CONTINUED)

RECORD DAY
The 10th day of each month
DISTRIBUTION DAY
The 25th day of each month
MINIMUM CAPITAL DISTRIBUTION
No distribution need be made from Capital Account of any Trust if balance
is less than $5.00 per Unit outstanding.
EVALUATION TIME
3:30 P.M. New York Time
PORTFOLIO SUPERVISION FEE+
Maximum of $0.25 per $1,000 face amount of underlying Debt Obligations (see
Expenses and Charges)
EVALUATOR'S FEE FOR EACH SERIES
Minimum of $13.00 (see Expenses and Charges)
MANDATORY TERMINATION DATE
Each Trust must be terminated no later than one year after the maturity
date of the last maturing Debt Obligation listed under its Portfolio (see
Portfolios).
MINIMUM VALUE OF TRUSTS
Any Trust may be terminated if its value is less than 40% of the Face
Amount of Securities in the Portfolio on the date of their deposit.

OBJECTIVE--To provide tax-exempt interest income through investment in
fixed-income long-term debt obligations issued by or on behalf of the States for
which the Trusts are named and political subdivisions and public authorities
thereof or certain United States territories or possessions. There is no
assurance that this objective will be met because it is subject to the
continuing ability of issuers of the Debt Obligations held by the Trusts to meet
their principal and interest requirements. Furthermore, the market value of the
underlying Debt Obligations, and therefore the value of the Units, will
fluctuate with changes in interest rates and other factors.

The Sponsors may deposit additional Securities in a Trust (where additional
Units are to be offered to the public) subsequent to the Initial Date of Deposit
(see Fund Structure).

RISK FACTORS--Investment in a Trust should be made with an understanding
that the value of the underlying Portfolio may decline with increases in
interest rates. In recent years there have been wide fluctuations in interest
rates and thus in the value of fixed-rate, long-term debt obligations generally.
The Sponsors cannot predict whether these fluctuations will continue in the
future. The Securities are generally not listed on a national securities
exchange. Whether or not the Securities are listed, the principal trading market
for the Securities will generally be in the over-the-counter market. As a
result, the existence of a liquid trading market for the Securities may depend
on whether dealers will make a market in the Securities. There can be no
assurance that a market will be made for any of the Securities, that any market
for the Securities will be maintained or of the liquidity of the Securities in
any markets made. In addition, the Fund may be restricted under the Investment
Company Act of 1940 from selling Securities to any Sponsor. The price at which
the Securities may be sold to meet redemptions and the value of Trust Units will
be adversely affected if trading markets for the Securities are limited or
absent.

PUBLIC OFFERING PRICE--During the initial offering period and any offering
of additional units the Public Offering Price of the Units of a Trust is based
on the aggregate offering side evaluation of the underlying Securities in the
Trust (the price at which they could be directly purchased by the public
assuming they were available) divided by the number of Units of the Trust
outstanding plus a sales charge of 4.712% of the offering side evaluation per
Unit (the net amount invested); this results in a sales charge of 4.50% of the
Public Offering Price.* For secondary market sales charges see Public Sale of
Units--Public Offering Price. Units are offered at the Public Offering Price
computed as of the Evaluation Time for all sales made subsequent to the previous
evaluation, plus cash per unit in the Capital Account not allocated to the
purchase of specific Securities and net interest accrued. The Public Offering
Price on the Initial Date of Deposit and subsequent dates will vary from the
Public Offering Price set forth on page A-3. (See Public Sale of Units--Public
Offering Price and Redemption.)

ESTIMATED CURRENT RETURN; ESTIMATED LONG TERM RETURN--Estimated Current
Return on a Unit of the Trust shows the return based on the Initial Public
Offering Price and the maximum applicable sales charge of 4.50%* and is computed
by multiplying the estimated net annual interest rate per Unit (which shows the
return per Unit based on $1,000 face amount per Unit) by $1,000 and dividing the
result by the Public Offering Price per Unit (not including accrued interest).
Estimated Long Term Return on a Unit of the Trust shows a net annual long-term
return to investors holding to maturity based on the individual Debt Obligations
in the Portfolio weighted to reflect the time to maturity (or in certain cases
to an earlier call date) and market value of each Debt Obligation in the
Portfolio, adjusted to reflect the Public Offering Price (including the maximum
applicable sales charge of 4.50%) and estimated expenses. The net annual
interest rate per Unit and the net annual long-term

- ---------------
+ In addition to this amount, the Sponsors may be reimbursed for bookkeeping or
other administrative expenses not exceeding their actual costs, currently at a
maximum annual rate of $0.10 per Unit.

* The sales charge during the initial offering period and in the secondary
market will be reduced on a graduated scale in the case of purchases of 250 or
more Units (see Public Sale of Units--Public Offering Price).

A-8

<PAGE>

INVESTMENT SUMMARY FOR EACH TRUST AS OF FEBRUARY 2, 1994 (CONTINUED)

return to investors will vary with changes in the fees and expenses of the
Trustee and Sponsors and the fees of the Evaluator which are paid by the Fund,
and with the exchange, redemption, sale, prepayment or maturity of the
underlying Securities; the Public Offering Price will vary with any reduction in
sales charges paid in the case of purchases of 250 or more Units, as well as
with fluctuations in the offering side evaluation of the underlying Securities.
Therefore, it can be expected that the Estimated Current Return and Estimated
Long Term Return will fluctuate in the future (see Description of the
Fund--Income; Estimated Current Return; Estimated Long Term Return).

MONTHLY DISTRIBUTIONS--Monthly distributions of interest and any principal
or premium received by a Trust will be made in cash on or shortly after the 25th
day of each month to Holders of record of Units of the Trust on the 10th day of
such month commencing with the first distribution on the date indicated above
(see Administration of the Fund--Accounts and Distributions). Alternatively,
Holders may elect to have their monthly distributions reinvested in the
Municipal Fund Accumulation Program, Inc. Further information about the program,
including a current prospectus, may be obtained by returning the enclosed form
(see Administration of the Fund-- Investment Accumulation Program).

TAXATION--In the opinion of special counsel to the Sponsors, each Holder of
Units of a Trust will be considered to have received the interest on his pro
rata portion of each Debt Obligation in the Trust when interest on the Debt
Obligation is received by the Trust. In the opinion of bond counsel rendered on
the date of issuance of the Debt Obligation, this interest is exempt under
existing law from regular Federal income tax and exempt from certain state and
local personal income taxes of the State for which the Trust is named (except in
certain circumstances depending on the Holder), but may be subject to other
state and local taxes. Any gain on the disposition of a Holder's pro rata
portion of a Debt Obligation will be subject to tax. (See Taxes.)

MARKET FOR UNITS--The Sponsors, though not obligated to do so, intend to
maintain a secondary market for Units based on the aggregate bid side evaluation
of the underlying Securities (see Market for Units). If this market is not
maintained a Holder will be able to dispose of his Units through redemption at
prices also based on the aggregate bid side evaluation of the underlying
Securities (see Redemption). There is no fee for selling Units. Market
conditions may cause the prices available in the market maintained by the
Sponsors or available upon exercise of redemption rights to be more or less than
the total of the amount paid for Units plus accrued interest.

REPLACEMENT SECURITIES--The Indenture permits the deposit of Replacement
Securities under certain circumstances described under Administration of the
Fund--Portfolio Supervision. The Securities on the current list from which
Replacement Securities are to be selected are:

State of Florida, Dept. of Trans., Turnpike Rev. Rfdg. Bonds,
Ser. 1993 A (Financial Guaranty Ins.), 5.25%, due 7/1/22.

Florida Muni. Pwr. Agency, All-Requirements Pwr. Supply Proj.
Rev. Bonds, Ser. 1993 (AMBAC Ins.), 5.10%, due 10/1/25.

The Commonwealth of Massachusetts, G.O. Bonds, Consolidated Loan
of 1993, Ser. B, 4.875%, due 10/1/13.

Massachusetts Hsg. Fin. Agency, Single Family Hsg. Rev. Bonds,
Ser. 28, 5.30%, due 12/1/12.

New Jersey Hlth. Care Facilities Financing Auth. Rev. Bonds,
Allegany Hlth. Sys.--Our Lady of Lourdes Med. Cntr. Iss., Ser.
1993 (MBIA Ins.), 5.20%, due 7/1/18.

The Board of Educ. of the City of Perth Amboy in the Cnty. of
Middlesex, NJ, Sch. Bonds (AMBAC Ins.), 5.40%, due 7/15/17.

Derry Area Sch. Dist. (Westmoreland Cnty., PA), G.O. Bonds,
Rfdg. Ser. of 1993 (MBIA Ins.), 5.50%, due 2/1/21.

Doylestown Hosp. Auth., PA, Doylestown Hosp. Rev. Bonds, 1993
Ser. A (AMBAC Ins.), 5.00%, due 7/1/14.

UNDERWRITING ACCOUNT

The names and addresses of the Underwriters and their several interests in
the Underwriting Account are:

<TABLE>
<S> <C> <C>
Merrill Lynch, Pierce, Fenner & Smith Incorporated P.O. Box 9051, Princeton, N.J. 08543-9051 63.54%
Smith Barney Shearson Inc. Two World Trade Center--101st Floor, New York, N.Y.
10048 7.14
PaineWebber Incorporated 1285 Avenue of the Americas, New York, N.Y. 10019 16.92
Prudential Securities Incorporated One Seaport Plaza--199 Water Street, New York, N.Y.
10292 7.14
Dean Witter Reynolds Inc. Two World Trade Center--59th Floor, New York, N.Y.
10048 5.26
----------
100.00%
----------
----------
</TABLE>

A-9

<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

The Sponsors, Trustee and Holders of Municipal Investment Trust Fund,
Multistate Series - 54, Defined Asset Funds (Florida, Massachusetts, New Jersey
and Pennsylvania Trusts):

We have audited the accompanying statements of condition, including the
portfolios, of Municipal Investment Trust Fund, Multistate Series - 54, Defined
Asset Funds (Florida, Massachusetts, New Jersey and Pennsylvania Trusts) as of
February 3, 1994. These financial statements are the responsibility of the
Trustee. 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. The deposit on February
3, 1994 of securities and an irrevocable letter or letters of credit for the
purchase of securities, as described in the statements of condition, was
confirmed to us by The Chase Manhattan Bank, N.A., 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 financial statements referred to above present fairly, in
all material respects, the financial position of Municipal Investment Trust
Fund, Multistate Series - 54, Defined Asset Funds (Florida, Massachusetts, New
Jersey and Pennsylvania Trusts) at February 3, 1994 in conformity with generally
accepted accounting principles.

DELOITTE & TOUCHE
New York, N.Y.
February 3, 1994

A-10
<PAGE>
MUNICIPAL INVESTMENT TRUST FUND
MULTISTATE SERIES - 54
DEFINED ASSET FUNDS
STATEMENTS OF CONDITION AS OF INITIAL DATE OF DEPOSIT, FEBRUARY 3, 1994
<TABLE>
<CAPTION>

FLORIDA MASSACHUSETTS NEW JERSEY PENNSYLVANIA
TRUST TRUST TRUST TRUST
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
FUND PROPERTY
Investment in Debt
Obligations(1)
Debt Obligations Deposited
in the Trust............. $ 488,505.00 $ 500,000.00
Contracts to purchase Debt
Obligations..............$ 3,260,522.00 2,750,660.00 2,751,592.50 $ 3,487,655.00
Accrued interest to Initial Date
of Deposit on underlying Debt
Obligations................... 42,727.77 28,180.55 13,275.69 23,484.01
-------------- -------------- -------------- --------------
Total...............$ 3,303,249.77 $ 3,267,345.55 $ 3,264,868.19 $ 3,511,139.01
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
LIABILITY AND INTEREST OF
HOLDERS
Liability--Accrued interest to
Initial Date of Deposit on
underlying Debt
Obligations(2)................$ 42,727.77 $ 28,180.55 $ 13,275.69 $ 23,484.01
-------------- -------------- -------------- --------------
Interest of Holders--
Units of fractional undivided
interest outstanding
(Florida Trust--3,300;
Massachusetts Trust--3,250;
New Jersey Trust--3,250;
Pennsylvania Trust--3,500)
Cost to investors(3)....... 3,414,137.00 3,391,785.00 3,404,797.50 3,652,015.00
Gross underwriting
commissions(4)...........$ (153,615.00) $ (152,620.00) $ (153,205.00) $ (164,360.00)
-------------- -------------- -------------- --------------
Net amount applicable to
investors..................... 3,260,522.00 3,239,165.00 3,251,592.50 3,487,655.00
-------------- -------------- -------------- --------------
Total...............$ 3,303,249.77 $ 3,267,345.55 $ 3,264,868.19 $ 3,511,139.01
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------

</TABLE>
- ------------------

(1) Aggregate cost to each Trust of the Debt Obligations is based on the
offering side evaluation determined by the Evaluator at the Evaluation Time
on the business day prior to the Initial Date of Deposit as set forth under
Public Sale of Units--Public Offering Price. See also the column headed Cost
of Debt Obligations to Trust under Portfolios. An irrevocable letter or
letters of credit in the aggregate amount of $12,239,161.96 has been
deposited with the Trustee. The amount of such letter or letters of credit
includes $12,127,333.50 (equal to the aggregate purchase price to the
Sponsors) for the purchase of $12,300,000 face amount of Debt Obligations in
connection with contracts to purchase Debt Obligations, plus $111,828.46
covering accrued interest thereon to the earlier of the date of settlement
for the purchase of Units or the date of delivery of the Debt Obligations.
The letter or letters of credit has been issued by Banca Nazionale
Dell'Agricoltura, New York Branch.

(2) Representing, as set forth under Description of the Fund--Income; Estimated
Current Return; Estimated Long Term Return, a special distribution by the
Trustee of an amount equal to accrued interest on the Debt Obligations as of
the Initial Date of Deposit.

(3) Aggregate public offering price (exclusive of interest) computed on the
basis of the offering side evaluation of the underlying Debt Obligations as
of the Evaluation Time on the Business Day prior to the Initial Date of
Deposit.

(4) Assumes sales charge of 4.50% on all Units computed on the basis set forth
under Public Sale of Units--Public Offering Price.

A-11
<PAGE>
MUNICIPAL INVESTMENT TRUST FUND, MULTISTATE SERIES - 54
ON THE INITIAL DATE OF DEPOSIT,
DEFINED ASSET FUNDS
FEBRUARY 3, 1994
PORTFOLIO OF THE FLORIDA TRUST (INSURED)

<TABLE><CAPTION>
OPTIONAL
PORTFOLIO NO. AND TITLE OF RATINGS OF FACE REFUNDING
DEBT OBLIGATIONS CONTRACTED FOR ISSUES (1) AMOUNT COUPON MATURITIES REDEMPTIONS (2)
--------------------------------------------- ----------- ------------- ----------- ----------- -------------------
<S> <C> <C> <C> <C> <C>
1. The City of Altamonte Springs, FL, Hlth. Fac. AAA $ 500,000 5.125% 11/15/18 11/15/03 @ 102
Auth., Hosp. Rev. Bonds, Ser. 1993-B
(Adventist Hlth. Sys./Sunbelt, Inc.) (AMBAC
Ins.)
2. City of Melbourne, FL, Wtr. and Swr. Rfdg. AAA 500,000 5.00 10/1/22 10/1/04 @ 102
Rev. Bonds, Ser. 1994 A (Financial Guaranty
Ins.)
3. City of Tampa, FL, Allegany Hlth. Sys. Rev. AAA 300,000 5.125 12/1/23 12/1/03 @ 102
Bonds, St. Joseph's Hosp., Inc. Iss., Ser.
1993 (MBIA Ins.)
4. Dade Cnty., FL, Pub. Fac. Rev. Bonds (Jackson AAA 500,000 5.25 6/1/23 6/1/03 @ 102
Mem. Hosp.), Ser. 1993 (MBIA Ins.)
5. Kissimmee Util. Auth., FL, Elec. Sys. Imp. AAA 500,000 5.25 10/1/18 10/1/03 @ 102
and Rfdg. Rev. Bonds, Ser. 1993 (Financial
Guaranty Ins.)
6. Reedy Creek Imp. Dist., FL, Util. Rev. Imp. AAA 500,000 5.00 10/1/19 4/1/04 @ 101
and Rfdg. Bonds, Ser. 1994-1 (MBIA Ins.)
7. Village Ctr. Comm. Dev. Dist. (Lake Cnty., AAA 500,000 5.375 11/1/23 11/1/03 @ 102
FL), Util. Rev. Bonds, Ser. 1993 (Financial
Guaranty Ins.)
-------------
$ 3,300,000
-------------
-------------
</TABLE>

SINKING COST OF YIELD TO MATURITY
FUND DEBT OBLIGATIONS ON INITIAL DATE OF
REDEMPTIONS (2) TO TRUST (3) DEPOSIT (3)
--------------- ------------------ -------------------
1. 11/15/14 $ 491,345.00 5.250%

2. 10/1/19 485,145.00 5.200

3. 12/1/13 292,152.00 5.300

4. 6/1/19 500,000.00 5.249

5. 10/1/16 502,125.00 5.200+

6. 10/1/15 484,375.00 5.222

7. 11/1/19 505,380.00 5.250+

------------------
$ 3,260,522.00
------------------
------------------

A-12
<PAGE>
- ------------
NOTES

(1) All ratings are by Standard & Poor's Corporation. Any rating followed by
'*' is subject to submission and review of final documentation. Any rating
followed by a 'p' is provisional and assumes the successful completion of
the project being financed. (See Description of Ratings.)

(2) Debt Obligations are first subject to optional redemption (which may be
exercised in whole or in part) on the dates and at the prices indicated
under the Optional Refunding Redemptions column in the table. In subsequent
years Debt Obligations are redeemable at declining prices, but typically
not below par value. Some issues may be subject to sinking fund redemption
or extraordinary redemption without premium prior to the dates shown.

Certain Debt Obligations may provide for redemption at par prior or in
addition to any optional or mandatory redemption dates or maturity, for
example, if proceeds are not able to be used as contemplated, if the
project is sold by the owner, if the project is condemned or sold, if the
project is destroyed and insurance proceeds are used to redeem the Debt
Obligations, if interest on the Debt Obligations becomes subject to
taxation, if any related credit support expires prior to maturity and is
not renewed or substitute credit support not obtained, if, in the case of
housing obligations, mortgages are prepaid, or in other special
circumstances.

Sinking fund redemptions are all at par and generally redeem only part of an
issue. Some of the Debt Obligations have mandatory sinking funds which
contain optional provisions permitting the issuer to increase the principal
amount of Debt Obligations called on a mandatory redemption date. The
sinking fund redemptions with optional provisions may, and optional
refunding redemptions generally will, occur at times when the redeemed Debt
Obligations have an offering side evaluation which represents a premium
over par. To the extent that the Debt Obligations were deposited in the
Trust at a price higher than the redemption price, this will represent a
loss of capital when compared with the original Public Offering Price of
the Units. Monthly distributions will generally be reduced by the amount of
the income which would otherwise have been paid with respect to redeemed
Debt Obligations and there will be distributed to Holders any principal
amount and premium received on such redemption after satisfying any
redemption requests received by the Trust. The current return and long term
return in this event may be affected by redemptions. The tax effect on
Holders of redemptions and related distributions is described under Taxes.

(3) Evaluation of Debt Obligations by the Evaluator is made on the basis of
current offering side evaluation. The offering side evaluation is greater
than the current bid side evaluation of the Debt Obligations, which is the
basis on which Redemption Price per Unit is determined (see Redemption).
The aggregate value based on the bid side evaluation at the Evaluation Time
on the business day prior to the Initial Date of Deposit was $3,245,422.00,
which is $15,100.00 (approximately .46% of the aggregate face amount) lower
than the aggregate Cost of Debt Obligations to Trust based on the offering
side evaluation.
Yield to Maturity on the Initial Date of Deposit of Debt Obligations was
computed on the basis of the offering side evaluation at the Evaluation Time
on the business day prior to the Initial Date of Deposit. Percentages in
this column represent Yield to Maturity on Initial Date of Deposit unless
followed by '+' which indicates yield to an earlier redemption date. (See
Description of the Fund--Income; Estimated Current Return; Estimated Long
Term Return for a description of the computation of yield price.)

------------------------------------

All Debt Obligations are represented entirely by contracts to purchase such
Debt Obligations, which were entered into by the Sponsors during the period
January 31, 1994 to February 2, 1994. All contracts are expected to be
settled by the initial settlement date for purchase of Units, except for the
Debt Obligations in Portfolio Numbers 2 and 6 (approximately 30% of the
aggregate face amount of the Portfolio) which have been purchased on a when,
as and if issued basis, or have a delayed delivery, and are expected to be
settled 5 to 7 days after the settlement date for purchase of Units.

All Debt Obligations have been insured or guaranteed to maturity by the
indicated insurance company (see Risk Factors--Obligations Backed by
Insurance).

+ See Footnote (3).

A-13
<PAGE>
MUNICIPAL INVESTMENT TRUST FUND, MULTISTATE SERIES - 54
ON THE INITIAL DATE OF DEPOSIT,
DEFINED ASSET FUNDS
FEBRUARY 3, 1994
PORTFOLIO OF THE MASSACHUSETTS TRUST

<TABLE><CAPTION>
PORTFOLIO NO. AND TITLE OF RATINGS OF FACE
DEBT OBLIGATIONS CONTRACTED FOR ISSUES (1) AMOUNT COUPON MATURITIES
----------------------------------------------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
1. Massachusetts Hlth. and Educl. Facs. Auth., AAA $ 500,000 5.50% 7/1/23
Rev. Bonds, Morton Hosp. and Med. Ctr. Iss.,
Ser. B (Connie Lee Ins.)
2. Massachusetts Hlth. and Educl. Facs. Auth., AAA 500,000 5.50 10/1/23
Rev. Bonds, Wentworth Inst. of Tech., Inc.
Iss., Ser. B (Connie Lee Ins.)
3. Massachusetts Turnpike Auth., Turnpike Rev. A+ 500,000 5.00 1/1/20
Bonds, 1993 Ser. A
4. Massachusetts Bay Trans. Auth., Gen. Trans. AAA 500,000 5.50 3/1/22
Sys. Bonds, 1993 Ser. A Rfdg. (MBIA Ins.)
5. Massachusetts Wtr. Res. Auth., Gen. Rev. Bonds, A 500,000 5.50 7/15/22
1992 Ser. A
6. City of Boston, MA, Ind. Dev. Fin. Auth., Rev. AAA 500,000 5.25 10/1/26
Bonds (MA Coll. of Pharmacy Proj.), 1993 Ser.
A (Connie Lee Ins.)
7. Puerto Rico Hgwy. and Trans. Auth., Hgwy. Rev. A 250,000 5.25 7/1/20
Bonds (Ser. W)
-------------
$ 3,250,000
-------------
-------------
</TABLE>
<TABLE><CAPTION>

OPTIONAL SINKING COST OF YIELD TO MATURITY
REFUNDING FUND DEBT OBLIGATIONS ON INITIAL DATE
REDEMPTIONS (2) REDEMPTIONS (2) TO TRUST (3) OF DEPOSIT (3)
------------------- --------------- ----------------- -----------------
<S> <C> <C> <C> <C>
1. 7/1/03 @ 102 7/1/15 $ 504,190.00 5.400%+

2. 10/1/03 @ 102 10/1/14 504,245.00 5.400+

3. 1/1/03 @ 100 1/1/14 482,380.00 5.250

4. 3/1/03 @ 102 3/1/13 510,375.00 5.250+

5. 7/15/02 @ 100 7/15/21 501,250.00 5.462+

6. 10/1/04 @ 102 10/1/15 488,505.00 5.400

7. 7/1/03 @ 101.5 7/1/18 248,220.00 5.300

-----------------
$ 3,239,165.00
-----------------
-----------------
</TABLE>

A-14
<PAGE>
- ------------

NOTES

(1) All ratings are by Standard & Poor's Corporation unless followed by 'm',
which indicates a Moody's Investor's service rating. Any rating followed by
'*' is subject to submission and review of final documentation. Any rating
followed by a 'p' is provisional and assumes the successful completion of
the project being financed. (See Description of Ratings.)

(3) Evaluation of Debt Obligations by the Evaluator is made on the basis of
current offering side evaluation. The offering side evaluation is greater
than the current bid side evaluation of the Debt Obligations, which is the
basis on which Redemption Price per Unit is determined (see Redemption).
The aggregate value based on the bid side evaluation at the Evaluation Time
on the business day prior to the Initial Date of Deposit was $3,226,165.00,
which is $13,000.00 (.40% of the aggregate face amount) lower than the
aggregate Cost of Debt Obligations to Trust based on the offering side
evaluation.
Yield to Maturity on the Initial Date of Deposit of Debt Obligations was
computed on the basis of the offering side evaluation at the Evaluation Time
on the business day prior to the Initial Date of Deposit. Percentages in
this column represent Yield to Maturity on Initial Date of Deposit unless
followed by '+' which indicates yield to an earlier redemption date. (See
Description of the Fund--Income; Estimated Current Return; Estimated Long
Term Return for a description of the computation of yield price.)

------------------------------------

The Debt Obligations in Portfolio Number 6 have been deposited with the
Trustee. All other Debt Obligations are represented entirely by contracts to
purchase such Debt Obligations, which were entered into by the Sponsors
during the period February 1, 1994 to February 2, 1994. All contracts are
expected to be settled by the initial settlement date for purchase of Units.

The Debt Obligations in Portfolio Numbers 1, 2, 4 and 6 have been insured or
guaranteed to maturity by the indicated insurance company (see Risk
Factors--Obligations Backed by Insurance).

+ See Footnote (3).

A-15
<PAGE>
MUNICIPAL INVESTMENT TRUST FUND, MULTISTATE SERIES - 54
ON THE INITIAL DATE OF DEPOSIT,
DEFINED ASSET FUNDS
FEBRUARY 3, 1994
PORTFOLIO OF THE NEW JERSEY TRUST (INSURED)

<TABLE>
<CAPTION>
PORTFOLIO NO. AND TITLE OF RATINGS OF FACE
DEBT OBLIGATIONS CONTRACTED FOR ISSUES (1) AMOUNT COUPON MATURITIES
----------------------------------------------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
1. County of Passaic, State of NJ, G.O. Rfdg. AAA $ 500,000 5.00% 5/1/17
Bonds, Ser. 1994 (MBIA Ins.)
2. The Delaware River and Bay Auth., Rev. Bonds, AAA 500,000 5.00 1/1/17
Ser. 1993 (MBIA Ins.)
3. The Essex Cnty. Imp. Auth. (Essex Cnty., NJ), AAA 500,000 5.20 12/1/24
G.O. Lease Rev. Bonds, Ser. 1994 (Gibraltar
Bldg. Proj.) (Financial Guaranty Ins.)
4. The Monmouth Cnty. Imp. Auth. (Monmouth Cnty., AAA 500,000 5.00 2/1/13
NJ), Sewage Fac. Rev. Rfdg. Bonds, Ser. 1994
(MBIA Ins.)
5. The Passaic Valley Wtr. Com., NJ, 1993 Wtr. AAA 250,000 5.00 12/15/22
Supply Sys. Rev. Rfdg. Bonds, Ser. A
(Financial Guaranty Ins.)
6. The Port Auth. of NY and NJ, Consol. Bonds, AAA 500,000 5.25 7/15/21
Eighty-Seventh Ser. (Financial Guaranty Ins.)
7. The Town of West New York Mun. Util. Auth. AAA 500,000 5.125 12/15/17
(Hudson Cnty., NJ), Swr. Rev. Rfdg. Bonds,
Ser. 1993 (Financial Guaranty Ins.)
-------------
$ 3,250,000
-------------
-------------
</TABLE>
<TABLE><CAPTION>
OPTIONAL SINKING COST OF YIELD TO MATURITY
REFUNDING FUND DEBT OBLIGATIONS ON INITIAL DATE
REDEMPTIONS (2) REDEMPTIONS (2) TO TRUST (3) OF DEPOSIT (3)
------------------- --------------- ----------------- -----------------
<S> <C> <C> <C> <C>
1. 5/1/04 @ 102 5/1/11 $ 496,560.00 5.050%

2. 1/1/04 @ 102 1/1/11 496,605.00 5.050

3. 12/1/04 @ 101 12/1/15 502,285.00 5.150+

4. 2/1/04 @ 102 2/1/09 500,000.00 5.000

5. 12/15/03 @ 102 12/15/10 246,227.50 5.100

6. 7/15/03 @ 101 7/15/19 506,430.00 5.100+

7. 12/15/04 @ 102 12/15/14 503,485.00 5.050+

-----------------
$ 3,251,592.50
-----------------
-----------------
</TABLE>

A-16
<PAGE>
- ------------

NOTES

(3) Evaluation of Debt Obligations by the Evaluator is made on the basis of
current offering side evaluation. The offering side evaluation is greater
than the current bid side evaluation of the Debt Obligations, which is the
basis on which Redemption Price per Unit is determined (see Redemption).
The aggregate value based on the bid side evaluation at the Evaluation Time
on the business day prior to the Initial Date of Deposit was $3,238,592.50,
which is $13,000.00 (.40% of the aggregate face amount) lower than the
aggregate Cost of Debt Obligations to Trust based on the offering side
evaluation.
Yield to Maturity on the Initial Date of Deposit of Debt Obligations was
computed on the basis of the offering side evaluation at the Evaluation Time
on the business day prior to the Initial Date of Deposit. Percentages in
this column represent Yield to Maturity on Initial Date of Deposit unless
followed by '+' which indicates yield to an earlier redemption date. (See
Description of the Fund--Income; Estimated Current Return; Estimated Long
Term Return for a description of the computation of yield price.)

------------------------------------

The Debt Obligations in Portfolio Number 4 have been deposited with the
Trustee. All other Debt Obligations are represented entirely by contracts to
purchase such Debt Obligations, which were entered into by the Sponsors
during the period January 10, 1994 to February 2, 1994. All contracts are
expected to be settled by the initial settlement date for purchase of Units,
except for the Debt Obligations in Portfolio Number 1 (approximately 15% of
the aggregate face amount of the Portfolio), which have been purchased on a
when, as and if issued basis, or have a delayed delivery, and are expected to
be settled 7 days after the settlement date for purchase of Units.

All Debt Obligations have been insured or guaranteed to maturity by the
indicated insurance company (see Risk Factors--Obligations Backed by
Insurance).

+ See Footnote (3).

A-17
<PAGE>
MUNICIPAL INVESTMENT TRUST FUND, MULTISTATE SERIES - 54
ON THE INITIAL DATE OF DEPOSIT,
DEFINED ASSET FUNDS
FEBRUARY 3, 1994
PORTFOLIO OF THE PENNSYLVANIA TRUST (INSURED)

PORTFOLIO NO. AND TITLE OF RATINGS OF FACE
DEBT OBLIGATIONS CONTRACTED FOR ISSUES (1) AMOUNT COUPON MATURITIES
----------------------------------------------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
1. Pennsylvania Higher Educl. Facs. Auth. AAA $ 500,000 5.25% 7/15/18
(Commonwealth of PA), Rev. Bonds (Widener
Univ.), 1993 Ser. A (Connie Lee Ins.)
2. Pennsylvania Intergovernmental Coop. Auth., AAA 500,000 5.60 6/15/15
Spec. Tax Rev. Bonds (City of Philadelphia,
Funding Prog.), Ser. of 1993 (MBIA Ins.)
3. Bucks Cnty. Ind. Dev. Auth., Bucks Cnty., PA, AAA 500,000 5.25 7/1/21
Hosp. Rev. Rfdg. Bonds (Grand View Hosp.),
Ser. of 1993 (AMBAC Ins.)
4. Delaware Cnty. Auth., PA, Hlth. Fac. Rev. AAA 500,000 5.375 11/15/23
Bonds, Ser. of 1993 A (Mercy Hlth. Corp. of
Southeastern PA Obligated Gr.) (Connie Lee
Ins.)
5. Montgomery Cnty. Higher Ed. and Hlth. Auth., AAA 500,000 5.125 6/1/24
PA, Hosp. Rev. Bonds, Ser. A of 1994
(Abington Mem. Hosp.) (AMBAC Ins.)
6. Bethlehem Auth., Northampton and Lehigh Cntys., AAA 500,000 5.20 11/15/21
PA, Wtr. Rev. Rfdg. Bonds, Ser. of 1994 (MBIA
Ins.)
7. Hempfield Sch. Dist., Lancaster Cnty., PA, G.O. AAA 500,000 5.30 10/15/14
Bonds, Ser. of 1994 (Financial Guaranty Ins.)
-------------
$ 3,500,000
-------------
-------------
</TABLE>
<TABLE><CAPTION>
OPTIONAL SINKING COST OF YIELD TO MATURITY
REFUNDING FUND DEBT OBLIGATIONS ON INITIAL DATE
REDEMPTIONS (2) REDEMPTIONS (2) TO TRUST (3) OF DEPOSIT (3)
------------------- --------------- ----------------- -----------------
<S> <C> <C> <C> <C>
1. 7/15/03 @ 102 7/15/12 $ 493,205.00 5.350%

2. 6/15/03 @ 100 6/15/10 512,785.00 5.250+

3. 7/1/03 @ 102 7/1/13 496,380.00 5.300

4. 11/15/03 @ 102 11/15/13 498,110.00 5.400

5. 6/1/04 @ 102 6/1/15 486,830.00 5.300

6. 11/15/04 @ 102 11/15/18 496,325.00 5.250

7. 10/15/04 @ 100 10/15/11 504,020.00 5.200+

-----------------
$ 3,487,655.00
-----------------
-----------------

</TABLE>
A-18
<PAGE>
- ------------

NOTES

(3) Evaluation of Debt Obligations by the Evaluator is made on the basis of
current offering side evaluation. The offering side evaluation is greater
than the current bid side evaluation of the Debt Obligations, which is the
basis on which Redemption Price per Unit is determined (see Redemption).
The aggregate value based on the bid side evaluation at the Evaluation Time
on the business day prior to the Initial Date of Deposit was $3,473,655.00,
which is $14,000.00 (.40% of the aggregate face amount) lower than the
aggregate Cost of Debt Obligations to Trust based on the offering side
evaluation.
Yield to Maturity on the Initial Date of Deposit of Debt Obligations was
computed on the basis of the offering side evaluation at the Evaluation Time
on the business day prior to the Initial Date of Deposit. Percentages in
this column represent Yield to Maturity on Initial Date of Deposit unless
followed by '+' which indicates yield to an earlier redemption date. (See
Description of the Fund--Income; Estimated Current Return; Estimated Long
Term Return for a description of the computation of yield price.)

------------------------------------

All Debt Obligations are represented entirely by contracts to purchase such
Debt Obligations, which were entered into by the Sponsors during the period
January 31, 1994 to February 2, 1994. All contracts are expected to be
settled by the initial settlement date for purchase of Units, except for the
Debt Obligations in Portfolio Numbers 5 and 6 (approximately 29% of the
aggregate face amount of the Portfolio) which have been purchased on a when,
as and if issued basis, or have a delayed delivery, and are expected to be
settled 14 to 26 days after the settlement date for purchase of Units.

All the Debt Obligations have been insured or guaranteed to maturity by the
indicated insurance company (see Risk Factors--Obligations Backed by
Insurance).

+ See Footnote (3).

A-19
<PAGE>
MUNICIPAL INVESTMENT TRUST FUND
MULTISTATE SERIES
DEFINED ASSET FUNDS

FUND STRUCTURE

This Series (the 'Fund') consists of separate 'unit investment trusts'
created under New York law by Trust Indentures (the 'Indentures') among the
Sponsors, the Trustee and the Evaluator. Unless otherwise indicated, when
Investors Bank & Trust Company and The First National Bank of Chicago act as
Co-Trustees to the Fund, reference to the Trustee in the Prospectus shall be
deemed to refer to Investors Bank & Trust Company and The First National Bank of
Chicago, as Co-Trustees. To the extent that references in this Prospectus are to
articles and sections of the Indenture, which are hereby incorporated by
reference, the statements made herein are qualified in their entirety by this
reference. On the date of this Prospectus (the 'Initial Date of Deposit') the
Sponsors, acting as managers for the underwriters named under Underwriting
Account, deposited the underlying Securities with the Trustee at a price equal
to the evaluation of the Securities on the offering side of the market on that
date as determined by the Evaluator, and the Trustee delivered to the Sponsors
units of interest ('Units') representing the entire ownership of the Trusts.
Except as otherwise indicated under Portfolios (the 'Portfolios'), the
Securities so deposited were represented by purchase contracts assigned to the
Trustee together with an irrevocable letter or letters of credit issued by a
commercial bank or banks in the amount necessary to complete the purchase
thereof.

The Portfolio of each Trust contains different issues of debt obligations
with fixed final maturity dates. As used herein, the term 'Debt Obligations' or
'Securities' means the long-term debt obligations initially deposited in the
Trusts, and described under Portfolio for each Trust, and any replacement and
additional obligations acquired and held by the Trusts pursuant to the terms of
the Indentures. (See Description of the Fund--The Portfolios; Administration of
the Fund--Portfolio Supervision).

With the deposit of the Securities in each Trust on the Initial Date of
Deposit, the Sponsors established a proportionate relationship among the face
amounts of each Security in the Portfolio. During the 90-day period following
the Initial Date of Deposit, the Sponsors may deposit additional Securities
('Additional Securities'), contracts to purchase Additional Securities or cash
(or a bank letter of credit in lieu of cash) with instructions to purchase
Additional Securities, in order to create new Units, maintaining to the extent
practicable the original proportionate relationship among the face amounts of
each Security in the Portfolio. It may not be possible to maintain the exact
original proportionate relationship among the Securities deposited on the
Initial Date of Deposit because of, among other reasons, purchase requirements,
changes in prices, or unavailability of Securities. Replacement obligations may
be acquired under specified conditions (see Description of the Fund--The
Portfolios; Administration of the Fund--Portfolio Supervision). Units may be
continuously offered to the public by means of this Prospectus (see Public Sale
of Units--Public Distribution) resulting in a potential increase in the number
of Units outstanding. Deposits of Additional Securities subsequent to the 90-day
period following the Initial Date of Deposit must replicate exactly the
proportionate relationship among the face amounts of Securities

1
<PAGE>
comprising the Portfolio at the end of the initial 90-day period, subject to
certain events as discussed under Administration of the Fund--Portfolio
Supervision.

Certain of the Securities in the Portfolio of any Trust may have been
valued at a market discount. Securities trade at less than par value because the
interest rates on the Securities are lower than interest on comparable debt
securities being issued at currently prevailing interest rates. The current
returns of securities trading at a market discount are lower than the current
returns of comparably rated debt securities of a similar type issued at
currently prevailing interest rates because discount securities tend to increase
in market value as they approach maturity and the full principal amount becomes
payable. If currently prevailing interest rates for newly issued and otherwise
comparable securities increase, the market discount of previously issued
securities will become deeper and if 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.

Certain of the Securities in a Trust may have been valued at a market
premium. Securities trade at a premium because the interest rates on the
Securities are higher than interest on comparable debt securities being issued
at currently prevailing interest rates. The current returns of securities
trading at a market premium are higher than the current returns of comparably
rated debt securities of a similar type issued at currently prevailing interest
rates because premium securities tend to decrease in market value as they
approach maturity when the face amount becomes payable. Because part of the
purchase price is thus returned not at maturity but through current income
payments, an early redemption of a premium security at par will result in a
reduction in yield. If currently prevailing interest rates for newly issued and
otherwise comparable securities increase, the market premium of previously
issued securities will decline and if currently prevailing interest rates for
newly issued comparable securities decline, the market premium of previously
issued securities will increase, other things being equal. Market premium
attributable to interest rate changes does not indicate market confidence in the
issue.

The holders ('Holders') of Units of a Trust will have the right to have
their Units redeemed (see Redemption) at a price based on the aggregate bid side
evaluation of the Securities ('Redemption Price per Unit') if the Units cannot
be sold in the over-the-counter market which the Sponsors propose to maintain at
prices determined in the same manner (see Market for Units). On the Initial Date
of Deposit each Unit of a Trust represented the fractional undivided interest in
the Securities and net income of the Trust set forth under Investment Summary in
the ratio of one Unit for each approximately $1,000 face amount of Securities
initially deposited. Thereafter, if any Units are redeemed, the face amount of
Securities in the Trust will be reduced, and the fractional undivided interest
represented by each remaining Unit in the balance will be increased. However, if
additional Units are issued by the Fund (through deposit of Additional
Securities) the aggregate face amount of Securities will be increased and the
fractional undivided interest represented by each Unit will be decreased. Units
will remain outstanding until redeemed upon tender to the Trustee by any Holder
(which may include the Sponsors) or until the termination of the Indenture (see
Redemption; Administration of the Fund--Amendment and Termination).

2
<PAGE>
RISK FACTORS

An investment in Units of a 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 Portfolio of the Trust and
hence of the Units will decline with increases in interest rates. In recent
years there have been wide fluctuations in interest rates and thus in the value
of fixed-rate debt obligations generally. The Sponsors cannot predict future
economic policies or their consequences or, therefore, the course or extent of
any similar fluctuations in the future. To the extent that payment of amounts
due on Debt Obligations depends on revenue from publicly held corporations, an
investor should understand that these Debt Obligations, in many cases, do not
have the benefit of covenants which would prevent the corporations from engaging
in capital restructurings or borrowing transactions in connection with corporate
acquisitions, leveraged buyouts or restructurings which could have the effect of
reducing the ability of the corporation to meet its obligations and may in the
future result in the ratings of the Debt Obligations and the value of the
underlying Portfolio being reduced.

The Securities are generally not listed on a national securities exchange.
Whether or not the Securities are listed, the principal trading market for the
Securities will generally be in the over-the-counter market. As a result, the
existence of a liquid trading market for the Securities may depend on whether
dealers will make a market in the Securities. There can be no assurance that a
market will be made for any of the Securities, that any market for the
Securities will be maintained or of the liquidity of the Securities in any
markets made. In addition, the Fund may be restricted under the Investment
Company Act of 1940 from selling Securities to any Sponsor. The price at which
the Securities may be sold to meet redemptions and the value of the Fund will be
adversely affected if trading markets for the Securities are limited or absent.

As set forth under Investment Summary and Portfolios, any Trust may contain
or be concentrated in one or more of the classifications of Debt Obligations
referred to below. Percentages of any concentrations for each Trust are set
forth under Investment Summary. An investment in Units of a Trust should be made
with an understanding of the risks that these investments may entail, certain of
which are described below. In addition, investment in a single state Trust, as
opposed to a Trust which invests in the obligations of several states, may
involve some additional risk due to the decreased diversification of economic,
political, financial and market risks. Political restrictions on the ability to
tax and budgetary constraints affecting the state government, particularly in
the current recessionary climate, may result in reductions of, or delays in the
payment of, state aid to cities, counties, school districts and other local
units of government which, in turn, may strain the financial operations and have
an adverse impact on the creditworthiness of these entities. State agencies,
colleges and universities and health care organizations, with municipal debt
outstanding, may also be negatively impacted by reductions in state
appropriations.

GENERAL OBLIGATION BONDS

Certain of the Debt Obligations in the Portfolio of any Trust may be
general obligations of a governmental entity that are secured by the taxing
power of the entity. General obligation bonds are backed by the issuer's pledge
of its full faith, credit and taxing power for the payment of principal and
interest. However, the taxing

3
<PAGE>
power of any governmental entity may be limited by provisions of state
constitutions or laws and an entity's credit will depend on many factors,
including an erosion of the tax base due to population declines, natural
disasters, declines in the state's industrial base or inability to attract new
industries, economic limits on the ability to tax without eroding the tax base
and the extent to which the entity relies on Federal or state aid, access to
capital markets or other factors beyond the entity's control.

As a result of the recent recession's adverse impact upon both their
revenues and expenditures, as well as other factors, many state and local
governments are confronting deficits and potential deficits which are the most
severe in recent years. Many issuers are facing highly difficult choices about
significant tax increases and/or spending reductions in order to restore
budgetary balance. Failure to implement these actions on a timely basis could
force the issuers to depend upon market access to finance deficits or cash flow
needs.

In addition, certain of the Debt Obligations in any Trust may be
obligations of issuers who rely in whole or in part on ad valorem real property
taxes as a source of revenue. Certain proposals, in the form of state
legislative proposals or voter initiatives, to limit ad valorem real property
taxes have been introduced in various states and an amendment to the
constitution of the State of California, providing for strict limitations on ad
valorem real property taxes has had a significant impact on the taxing powers of
local governments and on the financial conditions of school districts and local
governments in California. It is not possible at this time to predict the final
impact of such measures, or of similar future legislative or constitutional
measures, on school districts and local governments or on their abilities to
make future payments on their outstanding debt obligations.

MORAL OBLIGATION BONDS

A Trust may also include 'moral obligation' bonds. If an issuer of moral
obligation bonds is unable to meet its obligations, the repayment of the bonds
becomes a moral commitment but not a legal obligation of the state or
municipality in question. Even though the state may be called on to restore any
deficits in capital reserve funds of the agencies or authorities which issued
the bonds, any restoration generally requires appropriation by the state
legislature and accordingly does not constitute a legally enforceable obligation
or debt of the state. The agencies or authorities generally have no taxing
power.

REFUNDED DEBT OBLIGATIONS

Refunded Debt Obligations are typically secured by direct obligations of
the U.S. Government, or in some cases obligations guaranteed by the U.S.
Government, placed in an escrow account maintained by an independent trustee
until maturity or a predetermined redemption date. These obligations are
generally noncallable prior to maturity or the predetermined redemption date. In
a few isolated instances to date, however, bonds which were thought to be
escrowed to maturity have been called for redemption prior to maturity.

INDUSTRIAL DEVELOPMENT REVENUE BONDS ('IDRS')

IDRs, including pollution control revenue bonds, are tax exempt securities
issued by states, municipalities, public authorities or similar entities
('issuers') to finance the cost of acquiring, constructing or improving various

4
<PAGE>
projects, including pollution control facilities and certain industrial
development facilities. These projects are usually operated by corporate
entities. IDRs are not general obligations of governmental entities backed by
their taxing power. Issuers are only obligated to pay amounts due on the IDRs to
the extent that funds are available from the unexpended proceeds of the IDRs or
receipts or revenues of the issuer under arrangements between the issuer and the
corporate operator of a project. These arrangements may be in the form of a
lease, installment sale agreement, conditional sale agreement or loan agreement,
but in each case the payments to the issuer are designed to be sufficient to
meet the payments of amounts due on the IDRs.

IDRs are generally issued under bond resolutions, agreements or trust
indentures pursuant to which the revenues and receipts payable under the
issuer's arrangements with the corporate operator of a particular project have
been assigned and pledged to the holders of the IDRs or a trustee for the
benefit of the holders of the IDRs. In certain cases, a mortgage on the
underlying project has been assigned to the holders of the IDRs or a trustee as
additional security for the IDRs. In addition, IDRs are frequently directly
guaranteed by the corporate operator of the project or by another affiliated
company. Regardless of the structure, payment of IDRs is solely dependent upon
the creditworthiness of the corporate operator of the project or corporate
guarantor. Corporate operators or guarantors that are industrial companies may
be affected by many factors which may have an adverse impact on the credit
quality of the particular company or industry. These include cyclicality of
revenues and earnings, regulatory and environmental restrictions, litigation
resulting from accidents or environmentally-caused illnesses, extensive
competition (including that of low-cost foreign companies), unfunded pension
fund liabilities or off-balance sheet items, and financial deterioration
resulting from leveraged buy-outs or takeovers. However, as discussed below,
certain of the IDRs in the Portfolios may be additionally insured or secured by
letters of credit issued by banks or otherwise guaranteed or secured to cover
amounts due on the IDRs in the event of default in payment by an issuer.

SPECIAL TAX BONDS

Special tax bonds are payable from and secured by the revenues derived by a
municipality from a particular tax such as a tax on the rental of a hotel room,
on the purchase of food and beverages, on the rental of automobiles or on the
consumption of liquor. 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, payment on special tax bonds may be adversely
affected by a reduction in revenues realized from the underlying special tax due
to a general decline in the local economy or population or due to a decline in
the consumption, use or cost of the goods and services that are subject to
taxation. Also, should spending on the particular goods or services that are
subject to the special tax decline, the municipality may be under no obligation
to increase the rate of the special tax to ensure that sufficient revenues are
raised from the shrinking taxable base.

STATE AND LOCAL MUNICIPAL UTILITY OBLIGATIONS

The ability of utilities to meet their obligations with respect to revenue
bonds issued on their behalf is dependent on various factors, including the
rates they may charge their customers, the demand for a utility's services and
the cost of providing those services. Utilities, in particular investor-owned
utilities, are subject to extensive

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regulation relating to the rates which they may charge customers. Utilities can
experience regulatory, political and consumer resistance to rate increases.
Utilities engaged in long-term capital projects are especially sensitive to
regulatory lags in granting rate increases. Any difficulty in obtaining timely
and adequate rate increases could adversely affect a utility's results of
operations.

The demand for a utility's services is influenced by, among other factors,
competition, weather conditions and economic conditions. Electric utilities, for
example, have experienced increased competition as a result of the availability
of other energy sources, the effects of conservation on the use of electricity,
self-generation by industrial customers and the generation of electricity by
co-generators and other independent power producers. Also, increased competition
will result if federal regulators determine that utilities must open their
transmission lines to competitors. Utilities which distribute natural gas also
are subject to competition from alternative fuels, including fuel oil, propane
and coal.

The utility industry is an increasing cost business making the cost of
generating electricity more expensive and heightening its sensitivity to
regulation. A utility's costs are influenced by the utility's cost of capital,
the availability and cost of fuel and other factors. In addition, natural gas
pipeline and distribution companies have incurred increased costs as a result of
long-term natural gas purchase contracts containing 'take or pay' provisions
which require that they pay for natural gas even if natural gas is not taken by
them. There can be no assurance that a utility will be able to pass on these
increased costs to customers through increased rates. Utilities incur
substantial capital expenditures for plant and equipment. In the future they
will also incur increasing capital and operating expenses to comply with
environmental legislation such as the Clean Air Act of 1990, and other energy,
licensing and other laws and regulations relating to, among other things, air
emissions, the quality of drinking water, waste water discharge, solid and
hazardous substance handling and disposal, and siting and licensing of
facilities. Environmental legislation and regulations are changing rapidly and
are the subject of current public policy debate and legislative proposals. It is
increasingly likely that some or many utilities will be subject to more
stringent environmental standards in the future that could result in significant
capital expenditures. Future legislation and regulation could include, among
other things, regulation of so-called electromagnetic fields associated with
electric transmission and distribution lines as well as emissions of carbon
dioxide and other so-called greenhouse gases associated with the burning of
fossil fuels. Compliance with these requirements may limit a utility's
operations or require substantial investments in new equipment and, as a result,
may adversely affect a utility's results of operations.

The electric utility industry in general is subject to various external
factors including (a) the effects of inflation upon the costs of operation and
construction, (b) substantially increased capital outlays and longer
construction periods for larger and more complex new generating units, (c)
uncertainties in predicting future load requirements, (d) increased financing
requirements coupled with limited availability of capital, (e) exposure to
cancellation and penalty charges on new generating units under construction, (f)
problems of cost and availability of fuel, (g) compliance with rapidly changing
and complex environmental, safety and licensing requirements, (h) litigation and
proposed legislation designed to delay or prevent construction of generating and
other facilities, (i) the uncertain effects of conservation on the use of
electric energy, (j) uncertainties associated with the development of a

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national energy policy, (k) regulatory, political and consumer resistance to
rate increases and (l) increased competition as a result of the availability of
other energy sources. These factors may delay the construction and increase the
cost of new facilities, limit the use of, or necessitate costly modifications
to, existing facilities, impair the access of electric utilities to credit
markets, or substantially increase the cost of credit for electric generating
facilities. The Sponsors cannot predict at this time the ultimate effect of such
factors on the ability of any issuers to meet their obligations with respect to
Debt Obligations.

The National Energy Policy Act ('NEPA'), which became law in October, 1992,
makes it mandatory for a utility to permit non-utility generators of electricity
access to its transmission system for wholesale customers, thereby increasing
competition for electric utilities. NEPA also mandated demand-side management
policies to be considered by utilities. NEPA prohibits the Federal Energy
Regulatory Commission from mandating electric utilities to engage in retail
wheeling, which is competition among suppliers of electric generation to provide
electricity to retail customers (particularly industrial retail customers) of a
utility. However, under NEPA, a state can mandate retail wheeling under certain
conditions.

There is concern by the public, the scientific community, and the U.S.
Congress regarding environmental damage resulting from the use of fossil fuels.
Congressional support for the increased regulation of air, water, and soil
contaminants is building and there are a number of pending or recently enacted
legislative proposals which may affect the electric utility industry. In
particular, on November 15, 1990, legislation was signed into law that
substantially revises the Clean Air Act (the '1990 Amendments'). The 1990
Amendments seek to improve the ambient air quality throughout the United States
by the year 2000. A main feature of the 1990 Amendments is the reduction of
sulphur dioxide and nitrogen oxide emissions caused by electric utility power
plants, particularly those fueled by coal. Under the 1990 Amendments the U.S.
Environmental Protection Agency ('EPA') must develop limits for nitrogen oxide
emissions by 1993. The sulphur dioxide reduction will be achieved in two phases.
Phase I addresses specific generating units named in the 1990 Amendments. In
Phase II the total U.S. emissions will be capped at 8.9 million tons by the year
2000. The 1990 Amendments contain provisions for allocating allowances to power
plants based on historical or calculated levels. An allowance is defined as the
authorization to emit one ton of sulphur dioxide.

The 1990 Amendments also provide for possible further regulation of toxic
air emissions from electric generating units pending the results of several
federal government studies to be conducted over the next three to four years
with respect to anticipated hazards to public health, available corrective
technologies, and mercury toxicity.

Electric utilities which own or operate nuclear power plants are exposed to
risks inherent in the nuclear industry. These risks include exposure to new
requirements resulting from extensive federal and state regulatory oversight,
public controversy, decommissioning costs, and spent fuel and radioactive waste
disposal issues. While nuclear power construction risks are no longer of
paramount concern, the emerging issue is radioactive waste disposal. In
addition, nuclear plants typically require substantial capital additions and
modifications throughout their operating lives to meet safety, environmental,
operational and regulatory requirements and to replace and upgrade various plant
systems. The high degree of regulatory monitoring and controls imposed on
nuclear plants could cause a plant to be out of service or on limited service
for long periods. When a nuclear facility owned by an

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investor-owned utility or a state or local municipality is out of service or
operating on a limited service basis, the utility operator or its owners may be
liable for the recovery of replacement power costs. Risks of substantial
liability also arise from the operation of nuclear facilities and from the use,
handling, and possible radioactive emissions associated with nuclear fuel.
Insurance may not cover all types or amounts of loss which may be experienced in
connection with the ownership and operation of a nuclear plant and severe
financial consequences could result from a significant accident or occurrence.
The Nuclear Regulatory Commission has promulgated regulations mandating the
establishment of funded reserves to assure financial capability for the eventual
decommissioning of licensed nuclear facilities. These funds are to be accrued
from revenues in amounts currently estimated to be sufficient to pay for
decommissioning costs.

The ability of state and local joint action power agencies to make payments
on bonds they have issued is dependent in large part on payments made to them
pursuant to power supply or similar agreements. Courts in Washington and Idaho
have held that certain agreements between the Washington Public Power Supply
System ('WPPSS') and the WPPSS participants are unenforceable because the
participants did not have the authority to enter into the agreements. While
these decisions are not specifically applicable to agreements entered into by
public entities in other states, they may cause a reexamination of the legal
structure and economic viability of certain projects financed by joint action
power agencies, which might exacerbate some of the problems referred to above
and possibly lead to legal proceedings questioning the enforceability of
agreements upon which payment of these bonds may depend.

LEASE RENTAL OBLIGATIONS

Lease rental obligations are issued for the most part by governmental
authorities that have no taxing power or other means of directly raising
revenues. Rather, the authorities are financing vehicles created solely for the
construction of buildings (administrative offices, convention centers and
prisons, for example) or the purchase of equipment (police cars and computer
systems, for example) that will be used by a state or local government (the
'lessee'). Thus, the obligations are subject to the ability and willingness of
the lessee government to meet its lease rental payments which include debt
service on the obligations. Willingness to pay may be subject to changes in the
views of citizens or government officials as to the essential nature of the
finance project. Lease rental obligations are subject, in almost all cases, to
the annual appropriation risk, i.e., the lessee government is not legally
obligated to budget and appropriate for the rental payments beyond the current
fiscal year. These obligations are also subject to the risk of abatement in many
states--rental obligations cease in the event that damage, destruction or
condemnation of the project prevents its use by the lessee. (In these cases,
insurance provisions and reserve funds designed to alleviate this risk become
important credit factors). In the event of default by the lessee government,
there may be significant legal and/or practical difficulties involved in the
re-letting or sale of the project. Some of these issues, particularly those for
equipment purchase, contain the so-called 'substitution safeguard', which bars
the lessee government, in the event it defaults on its rental payments, from the
purchase or use of similar equipment for a certain period of time. This
safeguard is designed to insure that the lessee government will appropriate the
necessary funds even though it is not legally obligated to do so, but its
legality remains untested in most, if not all, states.

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SINGLE FAMILY AND MULTI-FAMILY HOUSING OBLIGATIONS

Multi-family housing revenue bonds and single family mortgage revenue bonds
are state and local housing issues that have been issued to provide financing
for various housing projects. Multi-family housing revenue bonds are payable
primarily from the revenues derived from mortgage loans to housing projects for
low to moderate income families. Single-family mortgage revenue bonds are issued
for the purpose of acquiring from originating financial institutions notes
secured by mortgages on residences.

Housing obligations are not general obligations of the issuer although
certain obligations may be supported to some degree by Federal, state or local
housing subsidy programs. Budgetary constraints experienced by these programs as
well as the failure by a state or local housing issuer to satisfy the
qualifications required for coverage under these programs or any legal or
administrative determinations that the coverage of these programs is not
available to a housing issuer, probably will result in a decrease or elimination
of subsidies available for payment of amounts due on the issuer's obligations.
The ability of housing issuers to make debt service payments on their
obligations will also be affected by various economic and non-economic
developments including, among other things, the achievement and maintenance of
sufficient occupancy levels and adequate rental income in multi-family projects,
the rate of default on mortgage loans underlying single family issues and the
ability of mortgage insurers to pay claims, employment and income conditions
prevailing in local markets, increases in construction costs, taxes, utility
costs and other operating expenses, the managerial ability of project managers,
changes in laws and governmental regulations and economic trends generally in
the localities in which the projects are situated. Occupancy of multi-family
housing projects may also be adversely affected by high rent levels and income
limitations imposed under Federal, state or local programs.

All single family mortgage revenue bonds and certain multi-family housing
revenue bonds are prepayable over the life of the underlying mortgage or
mortgage pool, and therefore the average life of housing obligations cannot be
determined. However, the average life of these obligations will ordinarily be
less than their stated maturities. Single-family issues are subject to mandatory
redemption in whole or in part from prepayments on underlying mortgage loans;
mortgage loans are frequently partially or completely prepaid prior to their
final stated maturities as a result of events such as declining interest rates,
sale of the mortgaged premises, default, condemnation or casualty loss.
Multi-family issues are characterized by mandatory redemption at par upon the
occurrence of monetary defaults or breaches of covenants by the project
operator. Additionally, housing obligations are generally subject to mandatory
partial redemption at par to the extent that proceeds from the sale of the
obligations are not allocated within a stated period (which may be within a year
of the date of issue). Housing obligations are also generally subject to special
redemption at par in the case of mortgage prepayments. To the extent that these
obligations were valued at a premium when a Holder purchased Units, any
prepayment at par would result in a loss of capital to the Holder and, in any
event, reduce the amount of income that would otherwise have been paid to
Holders.

The tax exemption for certain housing revenue bonds depends on
qualification under Section 143 of the Internal Revenue Code of 1986, as amended
(the 'Code'), in the case of single family mortgage revenue bonds or

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Section 142(a)(7) of the Code or other provisions of Federal law in the case of
certain multi-family housing revenue bonds (including Section 8 assisted bonds).
These sections of the Code or other provisions of Federal law contain certain
ongoing requirements, including requirements relating to the cost and location
of the residences financed with the proceeds of the single family mortgage
revenue bonds and the income levels of tenants of the rental projects financed
with the proceeds of the multi-family housing revenue bonds. While the issuers
of the bonds and other parties, including the originators and servicers of the
single-family mortgages and the owners of the rental projects financed with the
multi-family housing revenue bonds, generally covenant to meet these ongoing
requirements and generally agree to institute procedures designed to ensure that
these requirements are met, there can be no assurance that the ongoing
requirements will be consistently met. The failure to meet these requirements
could cause the interest on the bonds to become taxable, possibly retroactively
from the date of issuance, thereby reducing the value of the bonds, subjecting
the Holders to unanticipated tax liabilities and possibly requiring the Trustee
to sell the bonds at reduced values. Futhermore, any failure to meet these
ongoing requirements might not constitute an event of default under the
applicable mortgage or permit the holder to accelerate payment of the bond or
require the issuer to redeem the bond. In any event, where the mortgage is
insured by the Federal Housing Administration, its consent may be required
before insurance proceeds would become payable to redeem the mortgage bonds.

HOSPITAL AND HEALTH CARE FACILITY OBLIGATIONS

The ability of hospitals and other health care facilities to meet their
obligations with respect to revenue bonds issued on their behalf is dependent on
various factors, including the level of payments received from private
third-party payors and government programs and the cost of providing health care
services.

A significant portion of the revenues of hospitals and other health care
facilities is derived from private third-party payors and government programs,
including the Medicare and Medicaid programs. Both private third-party payors
and government programs have undertaken cost containment measures designed to
limit payments made to health care facilities. Furthermore, government programs
are subject to statutory and regulatory changes, retroactive rate adjustments,
administrative rulings and government funding restrictions, all of which may
materially decrease the rate of program payments for health care facilities.
There can be no assurance that payments under governmental programs will remain
at levels comparable to present levels or will, in the future, be sufficient to
cover the costs allocable to patients participating in such programs. In
addition, there can be no assurance that a particular hospital or other health
care facility will continue to meet the requirements for participation in such
programs.

The costs of providing health care services are subject to increase as a
result of, among other factors, changes in medical technology and increased
labor costs. In addition, health care facility construction and operation is
subject to federal, state and local regulation relating to the adequacy of
medical care, equipment, personnel, operating policies and procedures,
rate-setting, and compliance with building codes and environmental laws.
Facilities are subject to periodic inspection by governmental and other
authorities to assure continued compliance with the various standards necessary
for licensing and accreditation. These regulatory requirements are subject to
change

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and, to comply, it may be necessary for a hospital or other health care facility
to incur substantial capital expenditures or increased operating expenses to
effect changes in its facilities, equipment, personnel and services.

Hospitals and other health care facilities are subject to claims and legal
actions by patients and others in the ordinary course of business. Although
these claims are generally covered by insurance, there can be no assurance that
a claim will not exceed the insurance coverage of a health care facility or that
insurance coverage will be available to a facility. In addition, a substantial
increase in the cost of insurance could adversely affect the results of
operations of a hospital or other health care facility. The Clinton
Administration may impose regulations which could limit price increases for
hospitals or the level of reimbursements for third-party payors or other
measures to reduce health care costs and make health care available to more
individuals, which would reduce profits for hospitals. Some states, such as New
Jersey, have significantly changed their reimbursement systems. If a hospital
cannot adjust to the new system by reducing expenses or raising rates, financial
difficulties may arise. Also, Blue Cross has denied reimbursement for some
hospitals for services other than emergency room services. The lost volume would
reduce revenue unless replacement patients were found.

Certain hospital bonds may provide for redemption at par prior to maturity
at any time upon the sale by the issuer of the hospital facilities to a
non-affiliated entity, if the hospital becomes subject to ad valorem taxation,
or in various other circumstances. For example, certain hospitals may have the
right to call bonds at par if the hospital may legally be required because of
the bonds to perform procedures against specified religious principles or to
disclose information that it considers confidential or privileged. Certain
FHA-insured bonds may provide that all or a portion of those bonds, otherwise
callable at a premium, can be called at par in certain circumstances. If a
hospital defaults upon a bond obligation, the realization of Medicare and
Medicaid receivables may be uncertain and, if the bond obligation is secured by
the hospital facilities, legal restrictions on the ability to foreclose upon the
facilities and the limited alternative uses to which a hospital can be put may
reduce severely its collateral value.

The Internal Revenue Service is currently engaged in a program of intensive
audits of certain large tax-exempt hospital and health care facility
organizations. Although these audits have not yet been completed, it has been
reported that the tax-exempt status of some of these organizations may be
revoked. At this time, it is uncertain whether any of the hospital and health
care facility obligations held by the Fund will be affected by such audit
proceedings.

AIRPORT, PORT AND HIGHWAY REVENUE OBLIGATIONS

Certain facility revenue bonds are payable from and secured by the revenues
from the ownership and operation of particular facilities, such as airports
(including airport terminals and maintenance facilities), marine terminals,
bridges, turnpikes and port authorities. For example, the major portion of gross
airport operating income is generally derived from fees received from signatory
airlines pursuant to use agreements which consist of annual payments for airport
use, occupancy of certain terminal space, facilities, service fees, concessions
and leases. Airport operating income may therefore be affected by the ability of
the airlines to meet their obligations under the use agreements. The air
transport industry is experiencing significant variations in earnings and
traffic, due to

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increased competition, excess capacity, increased aviation fuel, deregulation,
traffic constraints, the current recession and other factors. As a result,
several airlines are experiencing severe financial difficulties. Several
airlines including America West Airlines have sought protection from their
creditors under Chapter 11 of the Bankruptcy Code. In addition, other airlines
such as Eastern Airlines, Inc., Midway Airlines, Inc. and Pan American
Corporation have been liquidated. However, within the past few months Northwest
Airlines, Continental Airlines and Trans World Airlines have emerged from
bankruptcy. The Sponsors cannot predict what effect these industry conditions
may have on airport revenues which are dependent for payment on the financial
condition of the airlines and their usage of the particular airport facility.

Similarly, payment on bonds related to other facilities is dependent on
revenues from the projects, such as use fees from ports and parking lots, tolls
on turnpikes and bridges and rents from buildings. Therefore, payment may be
adversely affected by reduction in revenues due to such factors and increased
cost of maintenance or decreased use of a facility, lower cost of alternative
modes of transportation or scarcity of fuel and reduction or loss of rents.

TRANSIT AUTHORITY OBLIGATIONS

Mass transit is generally not self-supporting from fare revenues.
Therefore, additional financial resources must be made available to ensure
operation of mass transit systems as well as the timely payment of debt service.
Often such financial resources include Federal and state subsidies, lease
rentals paid by funds of the state or local government or a pledge of a special
tax such as a sales tax or a property tax. If fare revenues or the additional
financial resources do not increase appropriately to pay for rising operating
expenses, the ability of the issuer to adequately service the debt may be
adversely affected.

MUNICIPAL WATER AND SEWER REVENUE BONDS

Water and sewer bonds are generally payable from 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,
failure or inability to raise user charges in response to increased costs, the
difficulty of obtaining or discovering new supplies of fresh water, the effect
of conservation programs and the impact of 'no growth' zoning ordinances. In
some cases this ability may be affected by the continued availability of Federal
and state financial assistance and of municipal bond insurance for future bond
issues.

SOLID WASTE DISPOSAL BONDS

Bonds issued for solid waste disposal facilities are generally payable from
tipping fees and from revenues that may be earned by the facility on the sale of
electrical energy generated in the combustion of waste products. The ability of
solid waste disposal facilities to meet their obligations depends upon the
continued use of the facility, the successful and efficient operation of the
facility and, in the case of waste-to-energy facilities, the continued ability
of the facility to generate electricity on a commercial basis. All of these
factors may be affected by a failure

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of municipalities to fully utilize the facilities, an insufficient supply of
waste for disposal due to economic or population decline, rising construction
and maintenance costs, any delays in construction of facilities, lower-cost
alternative modes of waste processing and changes in environmental regulations.
Because of the relatively short history of this type of financing, there may be
technological risks involved in the satisfactory construction or operation of
the projects exceeding those associated with most municipal enterprise projects.
Increasing environmental regulation on the federal, state and local level has a
significant impact on waste disposal facilities. While regulation requires more
waste producers to use waste disposal facilities, it also imposes significant
costs on the facilities. These costs include compliance with frequently changing
and complex regulatory requirements, the cost of obtaining construction and
operating permits, the cost of conforming to prescribed and changing equipment
standards and required methods of operation and, for incinerators or
waste-to-energy facilities, the cost of disposing of the waste residue that
remains after the disposal process in an environmentally safe manner. In
addition, waste disposal facilities frequently face substantial opposition by
environmental groups and officials to their location and operation, to the
possible adverse effects upon the public health and the environment that may be
caused by wastes disposed of at the facilities and to alleged improper operating
procedures. Waste disposal facilities benefit from laws which require waste to
be disposed of in a certain manner but any relaxation of these laws could cause
a decline in demand for the facilities' services. Finally, waste-to-energy
facilities are concerned with many of the same issues facing utilities insofar
as they derive revenues from the sale of energy to local power utilities (see
State and Local Municipal Utility Obligations above).

UNIVERSITY AND COLLEGE OBLIGATIONS

The ability of universities and colleges to meet their obligations is
dependent upon various factors, including the size and diversity of their
sources of revenues, enrollment, reputation, management expertise, the
availability and restrictions on the use of endowments and other funds, the
quality and maintenance costs of campus facilities, and, in the case of public
institutions, the financial condition of the relevant state or other
governmental entity and its policies with respect to education. The
institution's ability to maintain enrollment levels will depend on such factors
as tuition costs, demographic trends, geographic location, geographic diversity
and quality of the student body, quality of the faculty and the diversity of
program offerings.

Legislative or regulatory action in the future at the Federal, state or
local level may directly or indirectly affect eligibility standards or reduce or
eliminate the availability of funds for certain types of student loans or grant
programs, including student aid, research grants and work-study programs, and
may affect indirect assistance for education.

PUERTO RICO

The Portfolio may contain Debt Obligations of issuers which will be
affected by general economic conditions in Puerto Rico. Puerto Rico's
unemployment rate remains significantly higher than the U.S. unemployment rate.
Furthermore, the economy is largely dependent for its development upon U.S.
policies and programs that are being reviewed and may be eliminated.

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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 (the 'Code') provides for a credit against Federal income taxes for
U.S. companies operating on the island if certain requirements are met. The
Omnibus Budget Reconciliation Act of 1993 imposes limits on such credit,
effective for tax years beginning after 1993. In addition, from time to time
proposals are introduced in Congress which, if enacted into law, would eliminate
some or all of the benefits of Section 936. Although no assessment can be made
at this time of the precise effect of such limitation, it is expected that the
limitation of Section 936 credits would have a negative impact on Puerto Rico's
economy.

Aid for Puerto Rico's economy has traditionally depended heavily on Federal
programs, and current Federal budgetary policies suggest that an expansion of
aid to Puerto Rico is unlikely. 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.

In a plebiscite held in November, 1993, the Puerto Rican electorate chose
to continue Puerto Rico's Commonwealth status. Previously proposed legislation,
which was not enacted, would have preserved the federal tax exempt status of the
outstanding debts of Puerto Rico and its public corporations regardless of the
outcome of the referendum, to the extent that similar obligations issued by the
states are so treated and subject to the provisions of the Code currently in
effect. There can be no assurance that any pending or future legislation finally
enacted will include the same or similar protection against loss or tax
exemption. The November 1993 plebiscite can be expected to have both direct and
indirect consequences on such matters as the basic characteristics of future
Puerto Rico debt obligations, the markets for these obligations, and the types,
levels and quality of revenue sources pledged for the payment of existing and
future debt obligations. Such possible consequences include, without limitation,
legislative proposals seeking restoration of the status of Section 936 benefits
otherwise subject to the limitations discussed above. However, no assessment can
be made at this time of the economic and other effects of a change in federal
laws affecting Puerto Rico as a result of the November 1993 plebiscite.

OBLIGATIONS BACKED BY LETTERS OF CREDIT

Certain Debt Obligations may be secured by letters of credit issued by
commercial banks or collateralized letters of credit issued by savings banks,
savings and loan associations and similar institutions ('thrifts') or direct
obligations of banks or thrifts pursuant to 'loans-to-lenders' programs. The
letter of credit may be drawn upon, and the Debt Obligations consequently
redeemed should an issuer fail to make payments of amounts due on a Debt
Obligation backed by a letter of credit or default under its reimbursement
agreement with the issuer of the letter of credit or, in certain cases, in the
event the interest on a Debt Obligation should be deemed to be taxable and full
payment of amounts due is not made by the issuer. The letters of credit are
irrevocable obligations of the issuing institutions, which are subject to
extensive governmental regulations which may limit both the amounts and types of
loans and other financial commitments which may be made and interest rates and
fees which may be charged.

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The profitability of financial institutions is largely dependent upon the
availability and cost of funds for the purpose of financing lending operations
under prevailing money market conditions. Also, general economic conditions play
an important part in the operations of this industry and exposure to credit
losses arising from possible financial difficulties of borrowers might affect an
institution's ability to meet its obligations. Since the late 1980's the ratings
of U.S. and foreign banks and holding companies have been subject to extensive
downgrades due primarily to deterioration in asset quality and the attendant
impact on earnings and capital adequacy. Major U.S. banks, in particular,
suffered from a decline in asset quality in the areas of loans to Lesser
Developed Countries (LDC's), construction and commercial real estate loans and
lending to support Highly Leveraged Transactions (HLT's). LDC and HLT problems
have been largely addressed, although, construction and commercial real estate
loans remain areas of concern. The Federal Deposit Insurance Corporation
('FDIC') indicated that in 1990, 169 federally insured banks with an aggregate
total of $15.7 billion in assets failed and that in 1991, 127 federally insured
banks with an aggregate total of $63.2 billion in assets failed. During 1992,
the FDIC resolved 120 failed banks with combined assets of $44.2 billion in
assets.

The Federal Deposit Insurance Corporation Improvement Act of 1991
('FDICIA') and the Resolution Trust Corporation Refinancing, Restructuring, and
Improvement Act of 1991 imposed many new limitations on the way in which banks,
savings banks, and thrifts may conduct their business and mandated early and
aggressive regulatory intervention for unhealthy institutions. Periodic efforts
by recent Administrations to introduce legislation broadening the ability of
banks and thrifts to compete with new products have not been successful, but if
enacted could lead to more failures as a result of increased competition and
added risks. Failure to enact such legislation, on the other hand, may lead to
declining earnings and an inability to compete with unregulated financial
institutions. Efforts to expand the ability of federal thrifts to branch on an
interstate basis have been initially successful through promulgation of
regulations, but legislation to liberalize interstate branching for banks
stalled in the Congress. Consolidation is likely to continue in both cases. The
Securities and Exchange Commission ('SEC') is attempting to require the expanded
use of market value accounting by banks and thrifts, and has imposed rules
requiring market accounting for investment securities held for sale. Adoption of
additional such rules may result in increased volatility in the reported health
of the industry and mandated regulatory intervention to correct such problems.

In addition, historically, thrifts primarily financed residential and
commercial real estate by making fixed-rate mortgage loans and funded those
loans from various types of deposits. Thrifts were restricted as to the types of
accounts which could be offered and the rates that could be paid on those
accounts. During periods of high interest rates, large amounts of deposits were
withdrawn as depositors invested in Treasury bills and notes and in money market
funds which provided liquidity and high yields not subject to regulation. As a
result the cost of thrifts' funds exceeded income from mortgage loan portfolios
and other investments, and their financial positions were adversely affected.
Laws and regulations eliminating interest rate ceilings and restrictions on
types of accounts that may be offered by thrifts were designed to permit thrifts
to compete for deposits on the basis of current market rates and to improve
their financial positions.

However, with respect to any Debt Obligations included in the Trusts that
are secured by collateralized letters of credit or guarantees of thrifts, on the
basis of the current financial positions of the thrifts, the Sponsors

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believe that investors in the Units should rely solely on the collateral
securing the performance of the thrifts' obligations with respect to those Debt
Obligations and not on the financial positions of the thrifts.

In certain cases, the Sponsors have agreed that their sole recourse in
connection with any default, including insolvency, by the thrifts whose
collateralized letter of credit or guarantee may back any of the Debt
Obligations will be to exercise available remedies with respect to the
collateral pledged by the thrift; should such collateral be insufficient, the
Sponsors will therefore be unable to pursue any default judgment against that
thrift.

Certain of these collateralized letters of credit or guarantees may provide
that they are to be drawn upon in the event the thrift becomes or is deemed to
be insolvent. Accordingly, investors should recognize that they are subject to
having the principal amount of their investment represented by a Debt Obligation
secured by such a collateralized letter of credit or guarantee returned prior to
the termination date of the Fund or the maturity or disposition dates of the
Debt Obligations if the thrift becomes or is deemed to be insolvent.

Certain Debt Obligations in the Portfolios of the Trusts may be supported
by guarantees or letters of credit which are secured by a security interest in
'Eligible Collateral'. Eligible Collateral may consist of mortgage-backed
securities issued by private parties and guaranteed as to full and timely
payment of interest and principal by the Government National Mortgage
Association ('GNMA') ('GNMA Pass-Throughs') or by the Federal National Mortgage
Association ('FNMA') ('FNMA Pass-Throughs'), mortgage-backed securities issued
by the Federal Home Loan Mortgage Corporation ('FHLMC') and guaranteed as to
full and timely payment of interest and full collection of principal by FHLMC
('FHLMC PCs'), conventional, FHA insured, VA guaranteed and privately insured
mortgages ('Mortgages'), debt obligations of states and their political
subdivisions and public authorities ('Municipal Obligations'), debt obligations
of public nongovernmental corporations rated at least A by Standard & Poor's (or
another acceptable rating agency at the time rating the Fund) ('Corporate
Obligations'), U.S. Government Securities and cash. In addition, Eligible
Collateral may also consist of other securities specified by the Sponsors.

With respect to each Debt Obligation as to which Eligible Collateral has
been pledged, the Sponsors have established minimum percentage levels
('Collateral Requirements') of the aggregate market value of each type of
Eligible Collateral consistent with the standards described under The Portfolio
below. Eligible Collateral is to be valued no less often than quarterly. If on
any valuation date it is determined that the aggregate market value of the
Eligible Collateral does not satisfy the applicable Collateral Requirements,
additional Eligible Collateral must be delivered. Eligible Collateral may be
withdrawn or substituted at any time, provided that the remaining or substituted
Eligible Collateral meets the applicable Collateral Requirements. Although the
Sponsors believe that the Collateral Requirements are sufficient to provide a
high degree of protection against loss on the Debt Obligations backed by
collateralized letters of credit or guarantees, investors in the Units should be
aware that if liquidation of the collateral is required and proves insufficient
to provide for payment in full of the principal and accrued interest on such
Debt Obligations, then the full principal amount of their investment could not
be returned.

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OBLIGATIONS BACKED BY INSURANCE

Certain Debt Obligations (the 'Insured Debt Obligations') may be insured or
guaranteed by AMBAC Indemnity Corporation ('AMBAC'), Asset Guaranty Reinsurance
Co. ('Asset Guaranty'), Capital Guaranty Insurance Company ('CGIC'), Capital
Markets Assurance Corp. ('CAPMAC'), Connie Lee Insurance Company ('Connie Lee'),
Continental Casualty Company ('Continental'), Financial Guaranty Insurance
Company ('Financial Guaranty'), Financial Security Assurance Inc. ('FSA'),
Firemen's Insurance Company of Newark, New Jersey ('Firemen's'), Municipal Bond
Investors Assurance Corporation ('MBIA') or National Union Fire Insurance
Company of Pittsburgh, Pa. ('National Union') (collectively, the 'Insurance
Companies'). The claims-paying ability of each of these companies, unless
otherwise indicated, is rated AAA by Standard & Poor's or another acceptable
national rating agency. The ratings are subject to change at any time at the
discretion of the rating agencies. In determining whether to insure bonds, the
Insurance Companies severally apply their own standards. The cost of this
insurance is borne either by the issuers or previous owners of the bonds or by
the Sponsors. The insurance policies are non-cancellable and will continue in
force so long as the Insured Debt Obligations are outstanding and the insurers
remain in business. The insurance policies guarantee the timely payment of
principal and interest on but do not guarantee the market value of the Insured
Debt Obligations or the value of the Units. The insurance policies generally do
not provide for accelerated payments of principal or cover redemptions resulting
from events of taxability. If the issuer of any Insured Debt Obligation should
fail to make an interest or principal payment, the insurance policies generally
provide that the Trustee or its agent shall give notice of nonpayment to the
Insurance Company or its agent and provide evidence of the Trustee's right to
receive payment. The Insurance Company is then required to disburse the amount
of the failed payment to the Trustee or its agent and is thereafter subrogated
to the Trustee's right to receive payment from the issuer.

The following are brief descriptions of certain of the insurance companies
that may insure or guarantee certain Debt Obligations. It should be noted that
the financial information which is referred to as having been determined on a
statutory basis is unaudited.

AMBAC is a Wisconsin-domiciled stock insurance company, regulated by the
Insurance Department of the State of Wisconsin, and licensed to do business in
various states, with admitted assets of approximately $1,936,000,000 and
policyholders' surplus of approximately $728,000,000 as of September 30, 1993.
AMBAC is a wholly-owned subsidiary of AMBAC Inc., a financial holding company
which is publicly owned following a complete divestiture by Citibank during the
first quarter of 1992.

Asset Guaranty is a New York State insurance company licensed to write
financial guarantee, credit, residual value and surety insurance. Asset Guaranty
commenced operations in mid-1988 by providing reinsurance to several major
monoline insurers. The parent holding company of Asset Guaranty, Asset Guarantee
Inc. (AGI), merged with Enhance Financial Services (EFS) in June, 1990 to form
Enhance Financial Services Group Inc. (EFSG). The two main, 100%-owned
subsidiaries of EFSG, Asset Guaranty and Enhance Reinsurance Company, share
common management and physical resources. EFSG is 14% owned by Merrill Lynch &
Co. Inc. and its affiliates. Both EFSG and Asset Guaranty are rated 'AAA' for
claims paying ability by Duff & Phelps but are not

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rated by Standard & Poor's. As of September 30, 1993 Asset Guaranty had admitted
assets of approximately $130,000,000 and policyholders' surplus of approximately
$72,000,000.

CGIC, a monoline bond insuror headquartered in San Francisco, California,
was established in November 1986 to assume the financial guaranty business of
United States Fidelity and Guaranty Company ('USF&G'). It is a wholly-owned
subsidiary of Capital Guaranty Corporation ('CGC') whose stock is owned by:
Constellation Investments, Inc., an affiliate of Baltimore Gas & Electric,
Fleet/Norstar Financial Group, Inc., Safeco Corporation, Sibag Finance
Corporation, an affiliate of Siemens AG, USF&G, the eighth largest
property/casualty company in the U.S. as measured by net premiums written, and
CGC management. As of September 30, 1993, CGIC had total admitted assets of
approximately $270,000,000 and policyholders' surplus of approximately
$160,000,000.

CAPMAC commenced operations in December 1987, as the second mono-line
financial guaranty insurance company (after FSA) organized solely to insure
non-municipal obligations. CAPMAC, a New York corporation, is a wholly-owned
subsidiary of CAPMAC Holdings, Inc. (CHI), which was sold in 1992 by Citibank
(New York State) to a group of 12 investors led by the following: Dillon Read's
Saratoga Partners II; L.P. (Saratoga), an acquisition fund; Caprock Management,
Inc., representing Rockefeller family interests; Citigrowth Fund, a Citicorp
venture capital group; and CAPMAC senior management and staff. These groups
control approximately 70% of the stock of CHI. CAPMAC had traditionally
specialized in guaranteeing consumer loan and trade receivable asset-backed
securities. Under the new ownership group CAPMAC intends to become involved in
the municipal bond insurance business, as well as their traditional
non-municipal business. As of September 30, 1993 CAPMAC's admitted assets were
approximately $182,000,000 and its policyholders' surplus was approximately
$146,000,000.

Connie Lee is a wholly owned subsidiary of College Construction Loan
Insurance Association ('CCLIA'), a government-sponsored enterprise established
by Congress to provide American academic institutions with greater access to
low-cost capital through credit enhancement. Connie Lee, the operating insurance
company, was incorporated in 1987 and began business as a reinsurer of
tax-exempt bonds of colleges, universities, and teaching hospitals with a
concentration on the hospital sector. During the fourth quarter of 1991 Connie
Lee began underwriting primary bond insurance which will focus largely on the
college and university sector. CCLIA's founding shareholders are the U.S.
Department of Education, which owns 36% of CCLIA, and the Student Loan Marketing
Association ('Sallie Mae'), which owns 14%. The other principal owners are:
Pennsylvania Public School Employees' Retirement System, Metropolitan Life
Insurance Company, Kemper Financial Services, Johnson family funds and trusts,
Northwestern University, Rockefeller & Co., Inc. administered trusts and funds,
and Stanford University. Connie Lee is domiciled in the state of Wisconsin and
has licenses to do business in 47 states and the District of Columbia. As of
September 30, 1993, its total admitted assets were approximately $173,000,000
and policyholders' surplus was approximately $104,000,000.

Continental is a wholly-owned subsidiary of CNA Financial Corp. and was
incorporated under the laws of Illinois in 1948. As of September 30, 1993,
Continental had policyholders' surplus of approximately $2,969,000,000 and
admitted assets of approximately $18,567,000,000. Continental is the lead
property-casualty

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company of a fleet of carriers nationally known and marketed as 'CNA Insurance
Companies'. CNA is rated AAI by Standard & Poor's.

Financial Guaranty, a New York stock insurance company, is a wholly-owned
subsidiary of FGIC Corporation, which is wholly owned by General Electric
Capital Corporation. The investors in the FGIC Corporation are not obligated to
pay the debts of or the claims against Financial Guaranty. Financial Guaranty
commenced its business of providing insurance and financial guarantees for a
variety of investment instruments in January 1984 and is currently authorized to
provide insurance in 49 states and the District of Columbia. It files reports
with state regulatory agencies and is subject to audit and review by those
authorities. As of September 30, 1993, its total admitted assets were
approximately $1,889,000,000 and its policyholders' surplus was approximately
$745,000,000.

FSA is a monoline property and casualty insurance company incorporated in
New York in 1984. It is a wholly-owned subsidiary of Financial Security
Assurance Holdings Ltd., which was acquired in December 1989 by US West, Inc.,
the regional Bell Telephone Company serving the Rocky Mountain and Pacific
Northwestern states. U.S. West is currently seeking to sell FSA. FSA is licensed
to engage in the surety business in 42 states and the District of Columbia. FSA
is engaged exclusively in the business of writing financial guaranty insurance,
on both tax-exempt and non-municipal securities. As of September 30, 1993, FSA
had policyholders' surplus of approximately $412,000,000 and total admitted
assets of approximately $799,000,000.

Firemen's, which was incorporated in New Jersey in 1855, is a wholly-owned
subsidiary of The Continental Corporation and a member of The Continental
Insurance Companies, a group of property and casualty insurance companies the
claims paying ability of which is rated AA-by Standard & Poor's. It provides
unconditional and non-cancellable insurance on industrial development revenue
bonds. As of September 30, 1993, the total admitted assets of Firemen's were
approximately $2,227,000,000 and its policyholders' surplus was approximately
$496,000,000.

MBIA is the principal operating subsidiary of MBIA Inc. The principal
shareholders of MBIA Inc. were originally Aetna Casualty and Surety Company, The
Fund American Companies, Inc., subsidiaries of CIGNA Corporation and Credit
Local de France, CAECL, S.A. These principal shareholders now own approximately
13% of the outstanding common stock of MBIA Inc. following a series of four
public equity offerings over a five-year period. As of September 30, 1993, MBIA
had admitted assets of approximately $3,000,000,000 and policyholders' surplus
of approximately $951,000,000.

National Union is a stock insurance company incorporated in Pennsylvania
and a wholly-owned subsidiary of American International Group, Inc. National
Union was organized in 1901 and is currently licensed to provide insurance in 50
states and the District of Columbia. It files reports with state insurance
regulatory agencies and is subject to regulation, audit and review by those
authorities including the State of New York Insurance Department. As of
September 30, 1993, the total admitted assets and policyholders' surplus of
National Union were approximately $7,907,000,000 and approximately
$1,408,000,000, respectively.

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<PAGE>
Insurance companies are subject to regulation and supervision in the
jurisdictions in which they do business under statutes which delegate
regulatory, supervisory and administrative powers to state insurance
commissioners. This regulation, supervision and administration relate, among
other things, to: the standards of solvency which must be met and maintained;
the licensing of insurers and their agents; the nature of and limitations on
investments; deposits of securities for the benefit of policyholders; approval
of policy forms and premium rates; periodic examinations of the affairs of
insurance companies; annual and other reports required to be filed on the
financial condition of insurers or for other purposes; and requirements
regarding reserves for unearned premiums, losses and other matters. Regulatory
agencies require that premium rates not be excessive, inadequate or unfairly
discriminatory. Insurance regulation in many states also includes 'assigned
risk' plans, reinsurance facilities, and joint underwriting associations, under
which all insurers writing particular lines of insurance within the jurisdiction
must accept, for one or more of those lines, risks unable to secure coverage in
voluntary markets. A significant portion of the assets of insurance companies is
required by law to be held in reserve against potential claims on policies and
is not available to general creditors.

Although the Federal government does not regulate the business of
insurance, Federal initiatives can significantly impact the insurance business.
Current and proposed Federal measures which may significantly affect the
insurance business include pension regulation (ERISA), controls on medical care
costs, minimum standards for no-fault automobile insurance, national health
insurance, personal privacy protection, tax law changes affecting life insurance
companies or the relative desirability of various personal investment vehicles
and repeal of the current antitrust exemption for the insurance business. (If
this exemption is eliminated, it will substantially affect the way premium rates
are set by all property-liability insurers.) In addition, the Federal government
operates in some cases as a co-insurer with the private sector insurance
companies.

Insurance companies are also affected by a variety of state and Federal
regulatory measures and judicial decisions that define and extend the risks and
benefits for which insurance is sought and provided. These include judicial
redefinitions of risk exposure in areas such as products liability and state and
Federal extension and protection of employee benefits, including pension,
workers' compensation, and disability benefits. These developments may result in
short-term adverse effects on the profitability of various lines of insurance.
Longer-term adverse effects can often be minimized through prompt repricing of
coverages and revision of policy terms. In some instances these developments may
create new opportunities for business growth. All insurance companies write
policies and set premiums based on actuarial assumptions about mortality,
injury, the occurrence of accidents and other insured events. These assumptions,
while well supported by past experience, necessarily do not take account of
future events. The occurrence in the future of unforeseen circumstances could
affect the financial condition of one or more insurance companies. The insurance
business is highly competitive and with the deregulation of financial service
businesses, it should become more competitive. In addition, insurance companies
may expand into non-traditional lines of business which may involve different
types of risks.

The above financial information relating to the Insurance Companies has
been obtained from publicly available information. No representation is made as
to the accuracy or adequacy of the information or as to the absence of material
adverse changes since the information was made available to the public.

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Standard & Poor's has rated the Units of any Insured Trust AAA because the
Insurance Companies have insured the Debt Obligations. The assignment of such
AAA ratings is due to Standard & Poor's assessment of the creditworthiness of
the Insurance Companies and of their ability to pay claims on their policies of
insurance. In the event that Standard & Poor's reassesses the creditworthiness
of any Insurance Company which would result in the rating of an Insured Trust
being reduced, the Sponsors are authorized to direct the Trustee to obtain other
insurance (see Expenses and Charges).

LITIGATION AND LEGISLATION

To the best knowledge of the Sponsors, there is no litigation pending as of
the Initial Date of Deposit in respect of any Debt Obligations which might
reasonably be expected to have a material adverse effect upon the Trusts
comprising the Fund. At any time after the Initial Date of Deposit, litigation
may be initiated on a variety of grounds with respect to Debt Obligations in any
Trust. Litigation, for example, challenging the issuance of pollution control
revenue bonds under environmental protection statutes may affect the validity of
Debt Obligations or the tax-free nature of their interest. While the outcome of
litigation of this nature can never be entirely predicted, opinions of bond
counsel are delivered on the date of issuance of each Debt Obligation to the
effect that the Debt Obligation has been validly issued and that the interest
thereon is exempt from Federal income tax. In addition, other factors may arise
from time to time which potentially may impair the ability of issuers to make
payments due on Debt Obligations.

Under the Federal Bankruptcy Act, a political subdivision or public agency
or instrumentality of any state, including municipalities, may proceed to
restructure or otherwise alter the terms of its obligations, including those of
the type comprising the Portfolios. The Sponsors are unable to predict what
effect, if any, this legislation will have on the Trusts.

From time to time Congress considers proposals to tax the interest on State
and local obligations, such as the Debt Obligations. The Supreme Court clarified
in South Carolina v. Baker (decided April 20, 1988) that the U.S. Constitution
does not prohibit Congress from passing a non-discriminatory tax on interest on
State and local obligations. This type of legislation, if enacted into law,
could adversely affect an investment in Units. Holders are urged to consult
their own tax advisers.

PAYMENT OF THE DEBT OBLIGATIONS AND LIFE OF THE FUND

Because certain of the Debt Obligations from time to time may be redeemed
or prepaid or will mature in accordance with their terms or may be sold under
certain circumstances described herein, no assurance can be given that any Trust
will retain for any length of time its present size and composition (see
Redemption). Many of the Debt Obligations may be subject to redemption prior to
their stated maturity dates pursuant to optional refunding or sinking fund
redemption provisions or otherwise. In general, optional refunding redemption
provisions are more likely to be exercised when the offering side evaluation is
at a premium over par than when it is at a discount from par. Generally, the
offering side evaluation of Debt Obligations will be at a premium over par when
market interest rates fall below the coupon rate on the Debt Obligations. The
percentage of the face amount of Debt Obligations in each Portfolio which were
acquired on the Date of Deposit at an offering side evaluation in

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excess of par is set forth under Investment Summary. Certain Debt Obligations in
the Portfolios may be subject to sinking fund provisions early in the life of
the Trusts. These provisions are designed to redeem a significant portion of an
issue gradually over the life of the issue; obligations to be redeemed are
generally chosen by lot. The Portfolios contain a listing of the sinking fund
and optional redemption provisions with respect to the Debt Obligations.
Additionally, the size and composition of the Fund will be affected by the level
of redemptions of Units that may occur from time to time and the consequent sale
of Debt Obligations (see Redemption). Principally, this will depend upon the
number of Holders seeking to sell or redeem their Units and whether or not the
Sponsors continue to reoffer Units acquired by them in the secondary market.
Factors that the Sponsors will consider in the future in determining to cease
offering Units acquired in the secondary market include, among other things, the
diversity of the portfolio remaining at that time, the size of the Fund relative
to its original size, the ratio of Fund expenses to income, the Fund's current
and long-term returns and the degree to which Units may be selling at a premium
over par relative to other funds sponsored by the Sponsors, and the cost of
maintaining a current prospectus for the Fund. These factors may also lead the
Sponsors to seek to terminate the Fund earlier than would otherwise be the case
(see Administration of the Fund--Amendment and Termination).

TAX EXEMPTION

In the opinion of bond counsel rendered on the date of issuance of each
Debt Obligation, the interest on each Debt Obligation is excludable from gross
income under existing law for regular Federal income tax purposes (except in
certain circumstances depending on the Holder) but may be subject to state and
local taxes. As discussed under Taxes below, interest on some or all of the Debt
Obligations may become subject to regular Federal income tax, perhaps
retroactively to their date of issuance, as a result of changes in Federal law
or as a result of the failure of issuers (or other users of the proceeds of the
Debt Obligations) to comply with certain ongoing requirements.

Moreover, the Internal Revenue Service announced on June 14, 1993 that it
will be expanding its examination program with respect to tax-exempt bonds. The
expanded examination program will consist of, among other measures, increased
enforcement against abusive transactions, broader audit coverage (including the
expected issuance of audit guidelines) and expanded compliance achieved by means
of expected revisions to the tax-exempt bond information return forms. At this
time, it is uncertain whether the tax-exempt status of any of the Debt
Obligations would be affected by such proceedings, or whether such effect, if
any, would be retroactive.

In certain cases, a Debt Obligation may provide that if the interest on the
Debt Obligation should ultimately be determined to be taxable, the Debt
Obligation would become due and payable by its issuer, and, in addition, may
provide that any related letter of credit or other security could be called upon
if the issuer failed to satisfy all or part of its obligation. In other cases,
however, a Debt Obligation may not provide for the acceleration or redemption of
the Debt Obligation or a call upon the related letter of credit or other
security upon a determination of taxability. In those cases in which a Debt
Obligation does not provide for acceleration or redemption or in which both the
issuer and the bank or other entity issuing the letter of credit or other
security are unable to meet their obligations to pay the amounts due on the Debt
Obligation as a result of a determination of taxability, the

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Trustee would be obligated to sell the Debt Obligation and, since it would be
sold as a taxable security, it is expected that it would have to be sold at a
substantial discount from current market price. In addition, as mentioned above,
under certain circumstances Holders could be required to pay income tax on
interest received prior to the date on which the interest is determined to be
taxable.

STATE RISK FACTORS

Investors should consult the Appendix to this Prospectus for information on
specific States.

DESCRIPTION OF THE FUND

THE PORTFOLIOS

The Portfolio of each Trust contains different issues of debt obligations
with fixed final maturity dates. See Investment Summary for a summary of
particular matters relating to the Portfolio.

Each security and issuer must be approved by Defined Asset Funds research
analysts. Since 1970, the Sponsors have purchased more than $90 billion of
securities for Defined Asset Funds. Experienced professional buyers and research
analysts for Defined Asset Funds, with access to thousands of different issues
and extensive information, who are in close contact with the markets for
suitable securities, select securities for deposit in the Trusts considering the
following factors, among others: (i) whether the Debt Obligations were rated in
the category A or better by either Standard & Poor's or Moody's (or had, in the
opinion of Defined Asset Funds research analysts, comparable credit
characteristics) or, for an Insured Trust, whether the Debt Obligations (as
insured) were rated AAA by Standard & Poor's (see Description of Ratings); (ii)
the yield and price of the Debt Obligations relative to other comparable debt
securities; and (iii) the diversification of the Portfolio of each Trust as to
purpose of issue, taking into account the availability in the market of issues
that meet the Fund's criteria. Subsequent to the Initial Date of Deposit, a Debt
Obligation may cease to be rated or its rating may be reduced. Neither event
requires an elimination of that Debt Obligation from the Portfolio of a Trust,
but may be considered in the Sponsors' determination to direct the disposal of
the Debt Obligation (see Administration of the Fund--Portfolio Supervision).
There is no leverage or borrowing to increase risk, nor is the Portfolio
modified with other kinds of securities to enhance yields.

The yields on debt obligations of the type deposited in the Trusts are
dependent on a variety of factors, including general money market conditions,
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 debt
obligations that they undertake to rate. It should be emphasized, however, that
ratings are general and are not absolute standards of quality. Consequently,
debt obligations with the same maturity, coupon and rating may have different
yields, while debt obligations of the same maturity and coupon with different
ratings may have the same yield.

Each Trust consists of the Securities (or contracts to purchase the
Securities) listed under its Portfolio (including any replacement debt
obligations and Additional Securities deposited in the Trust in connection with
the sale

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<PAGE>
of additional Units to the public as described below) as long as they may
continue to be held from time to time in the Trust, together with accrued and
undistributed interest thereon and undistributed and uninvested cash realized
from the disposition or redemption of Securities (see Administration of the
Fund--Portfolio Supervision).

The Indenture authorizes the Sponsors to increase the size and the number
of Units of each Trust by the deposit of Additional Securities and the issue of
a corresponding number of additional Units subsequent to the Initial Date of
Deposit provided that the original relationship among the face amounts of
Securities of specified interest rates and maturities is maintained subject to
certain events (Sections 3.07, 3.08 and 3.10). Also, Securities may be sold
under certain circumstances. (See Redemption; Administration of the
Fund--Portfolio Supervision). As a result, the aggregate face amount of the
Securities in the Portfolio will vary over time.

Each portfolio is divided into Units, representing equal shares of
underlying assets. On the Initial Date of Deposit each Unit represented the
fractional undivided interest in a Trust set forth under Investment Summary.
Thereafter, if any Units are redeemed by the Trustee the face amount of
Securities in the Trust will be reduced by amounts allocable to redeemed Units,
and the fractional undivided interest represented by each Unit in the balance
will be increased. However, if additional Units are issued by the Trust, the
aggregate value of Securities in the Trust will be increased by amounts
allocable to additional Units and the fractional undivided interest represented
by each Unit in the balance will be decreased. Units will remain outstanding
until redeemed upon tender to the Trustee by any Holder (which may include the
Sponsors) or until the termination of the Indenture (see Redemption;
Administration of the Fund--Amendment and Termination).

Neither the Sponsors nor the Trustee shall be liable in any way for any
default, failure or defect in any Security. In the event of a failure to deliver
any Debt Obligation that has been purchased for the Trust under a contract
deposited hereunder ('Failed Debt Obligation'), including any Debt Obligation
purchased on a when, as and if issued basis, the Sponsors are authorized under
the Indenture to direct the Trustee to acquire replacement obligations
substantially similar to those originally contracted for and not delivered to
make up the original Portfolio of the Trust. If replacement obligations are not
acquired, the Sponsors will, on or before the next following Distribution Day,
cause to be refunded the attributable sales charge, plus the attributable Cost
of Debt Obligations to Trust listed under Portfolio, plus interest attributable
to the Failed Debt Obligations. (See Administration of the Fund--Portfolio
Supervision.)

INCOME; ESTIMATED CURRENT RETURN; ESTIMATED LONG TERM RETURN

Generally. Each Unit receives an equal share of monthly distributions of
interest income and of any principal distributions as bonds mature or are
called, redeemed or sold. The estimated net annual interest rate per Unit of
each Trust on the business day prior to the date of this Prospectus is set forth
under Investment Summary. This rate shows the percentage return based on $1,000
face amount per Unit, after deducting estimated annual fees and expenses
expressed as a percentage. This rate will change as Securities mature, are
exchanged, redeemed, paid or sold as replacement obligations are purchased, as
Additional Securities are deposited and, as the expenses of the

24
<PAGE>
Trust change. Because the Portfolio is not actively managed, the Fund's income
distributions would not necessarily be affected by changes in interest rates.
Depending on the financial condition of the issuers, the amount of tax-free
monthly income from fixed income obligations in the Portfolio would be
substantially maintained as long as the Portfolio remains unchanged. However,
optional bond redemptions or other Portfolio changes may occur more frequently
when interest rates decline, which would result in early return of principal.

The Sponsors deliver to the Trustee on the Initial Date of Deposit and on
each subsequent date of deposit a letter or letters of credit in the amount of
the cost (plus accrued interest) of Securities to be acquired pursuant to
contracts deposited in the Trusts. The Trustee may draw down on this letter of
credit at any time and deposit the cash so drawn in a non-interest bearing
account for the Trusts. The Trustee has the use of these funds, on which it pays
no interest, for the period prior to its purchase of when-issued and
delayed-delivery Securities. The use of these funds compensates the Trustee for
the reduction of the Trustee's Annual Fee and Expenses.

Interest on the Securities in each Trust, less estimated fees of the
Trustee and Sponsors and certain other expenses, is expected to accrue at the
daily rate (based on a 360-day year) shown under Investment Summary. The actual
daily rate will vary as Securities are exchanged, redeemed, paid or sold or as
the expenses of the Fund change.

The Estimated Current Return and the Estimated Long Term Return on the
business day prior to the date of this Prospectus are set forth under Investment
Summary and give different information about the return to investors. Estimated
Current Return on a Unit represents annual cash receipts from coupon-bearing
debt obligations in the Trust's Portfolio (after estimated annual expenses)
divided by the Public Offering Price (including the sales charge). A table of
projected cash flows on each Trust will be made available on request to the
Agent for the Sponsors.

Unlike Estimated Current Return, Estimated Long Term Return is a measure of
the estimated return to the investor earned over the estimated life of the
Trust. The Estimated Long Term Return represents an average of the yields to
maturity (or earliest call date for obligations trading at prices above the
particular call price) of the Debt Obligations in the Portfolio, calculated in
accordance with accepted bond practice and adjusted to reflect expenses and
sales charges. Under accepted bond practice, bonds are customarily offered to
investors on a 'yield price' basis, which involves computation of yield to
maturity (or earlier call date), and which takes into account not only the
interest payable on the bonds but also the amortization or accretion to a
specified date of any premium over or discount from the par (maturity) value in
the bond's purchase price. In calculating Estimated Long Term Return, the
average yield for the Portfolio is derived by weighting each Debt Obligation's
yield by the market value of the Debt Obligation and by the amount of time
remaining to the date to which the Debt Obligation is priced. Once the average
Portfolio yield is computed, this figure is then adjusted for estimated expenses
and the effect of the maximum sales charge paid by investors. The Estimated Long
Term Return calculation does not take into account certain delays in
distributions of income and the timing of other receipts and distributions on
Units and may, depending on maturities, over or understate the impact of sales
charges. Both of these factors may result in a lower figure.

25
<PAGE>
While relatively fixed at the time of purchase, both Estimated Current
Return and Estimated Long Term Return are subject to fluctuation with changes in
Portfolio composition, (including the redemption, sale or other disposition of
Debt Obligations in the Portfolio), changes in market value of the underlying
Debt Obligations and changes in fees and expenses, including sales charges, and
therefore can be materially different than the figures set forth herein. The
size of any difference between Estimated Current Return and Estimated Long Term
Return can also be expected to fluctuate at least as frequently. In addition,
both return figures may not be directly comparable to yield figures used to
measure other investments, and since the return figures are based on certain
assumptions and variables the actual returns received by a Unitholder may be
higher or lower.

Sales charges on Defined Asset Funds range from under 1.0% to 5.5%. This
may be less than you might pay to buy a comparable mutual fund. These Funds have
no 12b-1 or back-end load fees. While sales charges on certain Defined Funds are
deferred, only the previously accrued but unpaid portion of the sales charge is
deducted from sales proceeds. Defined Funds can be a cost-effective way to
purchase and hold investments. Annual operating expenses are generally lower
than for managed funds. Because Defined Funds have no management fees, limited
transaction costs and no ongoing marketing expenses, operating expenses are
generally less than 0.25% per year. When compounded annually, small differences
in expense ratios can make a big difference in earnings.

Accrued Interest. In addition to the Public Offering Price, the price of a
Unit of a Trust includes accrued interest on the Securities from the Initial
Date of Deposit. The accrued interest that is added to the Public Offering Price
represents the amount of accrued interest on the Securities from the Initial
Date of Deposit to, but not including, the settlement date for Units. However,
Securities deposited in a Trust also include accrued but unpaid interest up to
the Initial Date of Deposit. To avoid having Holders pay this additional accrued
interest (which earns no return) when they purchase Units, the Trustee is
responsible for the payment of accrued interest on the Debt Obligations to the
Initial Date of Deposit and then recovers this amount from the earliest interest
payments received by the Trust. Thus, the Sponsors can sell the Units at a price
that includes interest from the Initial Date of Deposit to the settlement date
for the Units.

Additionally, interest on the Debt Obligations in a Trust is paid on a
semi-annual (or less frequently, annual) basis. Therefore, it may take several
months after the Initial Date of Deposit for the Trustee to receive sufficient
interest payments on the Securities to begin distributions to Holders (see
Investment Summary for estimates of the amounts of the first and following
Monthly Income Distributions). Further, because interest on the Securities is
not received by a Trust at a constant rate throughout the year, any Monthly
Income Distribution may be more or less than the interest actually received by
the Trust. In order to eliminate fluctuations, the Trustee is required to
advance the amounts necessary to provide approximately equal Monthly Income
Distributions. The Trustee will be reimbursed, without interest, for these
advances from interest received on the Securities. Therefore, to account for
those factors, accrued interest is always added to the value of the Units. And,
because of the varying interest payment dates of the Securities, accrued
interest at any time will be greater than the amount of interest actually
received by the Trust and distributed to Holders. If a Holder sells all or a
portion of his Units, he will receive his proportionate share of the accrued
interest from the purchaser of his Units. Similarly, if a Holder redeems all or
a portion of his Units, the Redemption Price per Unit will include accrued
interest on the Securities.

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<PAGE>
And if a Security is sold, redeemed or otherwise disposed of, accrued interest
will be received by the Trust and will be distributed periodically to Holders.

Certain Debt Obligations may have been purchased on a when, as and if
issued basis or may have a delayed delivery (see Investment Summary). Holders of
Units will be 'at risk' with respect to these Debt Obligations (i.e., may derive
either gain or loss from fluctuations in the offering side evaluation of the
Debt Obligations) from the date they commit for Units. Since interest on
when-issued and delayed-delivery Debt Obligations does not begin accruing to the
benefit of Holders until their respective dates of delivery, in order to provide
tax exempt income to the Holders for this non-accrual period, the Trustee's
Annual Fee and Expenses (set forth under Investment Summary) will be reduced by
an amount equal to the amount of interest that would have accrued on these Debt
Obligations between the date of settlement for the Units and the dates of
delivery of the Debt Obligations. The reduction of the Trustee's Annual Fee and
Expenses eliminates the necessity of reducing Monthly Income Distributions until
when-issued or delayed-delivery Debt Obligations are delivered and sufficient
interest payments are received to begin distributions to Holders. Should
when-issued Debt Obligations be issued later than the expected date of issue,
the amount of the reduction will be equal to the amount of interest which would
have accrued on the Debt Obligations between the expected date of issue and the
actual date of issue. If the amount of the Trustee's Annual Fee and Expenses is
inadequate to cover the additional accrued interest, the Sponsors will treat the
contracts as failed contracts.

TAXES

The following discussion addresses only the tax consequences of Units held
as capital assets and does not address the tax consequences of Units held by
dealers, financial institutions or insurance companies.

In the opinion of Davis Polk & Wardwell, special counsel for the Sponsors,
under existing law:

The Trusts are not associations taxable as corporations for Federal
income tax purposes, and income received by the Trusts will be treated as
the income of the Holders in the manner set forth below.

Each Holder of Units of a Trust will be considered the owner of a pro
rata portion of each Debt Obligation in the Trust under the grantor trust
rules of Sections 671-679 of the Internal Revenue Code of 1986, as amended
(the 'Code'). In order to determine the face amount of a Holder's pro rata
portion of each Debt Obligation on the Initial Date of Deposit, see Face
Amount under Portfolio. The total cost to a Holder of his Units, including
sales charges, is allocated to his pro rata portion of each Debt
Obligation, in proportion to the fair market values thereof on the date the
Holder purchases his Units, in order to determine his tax basis for his pro
rata portion of each Debt Obligation. In order for a Holder who purchases
his Units on the Initial Date of Deposit to determine the fair market value
of his pro rata portion of each Debt Obligation on such date, see Cost of
Debt Obligations to Trust under Portfolio.

Each Holder of Units of a Trust will be considered to have received the
interest on his pro rata portion of each Debt Obligation when interest on
the Debt Obligation is received by the Trust. In the opinion of bond
counsel (delivered on the date of issuance of each Debt Obligation), such
interest will be excludable from

27
<PAGE>
gross income for regular Federal income tax purposes (except in certain
limited circumstances referred to below). Amounts received by a Trust
pursuant to a bank letter of credit, guarantee or insurance policy with
respect to payments of principal, premium or interest on a Debt Obligation
in the Trust will be treated for Federal income tax purposes in the same
manner as if such amounts were paid by the issuer of the Debt Obligation.

The Trusts may contain Debt Obligations which were originally issued at
a discount ('original issue discount'). The following principles will apply
to each Holder's pro rata portion of any Debt Obligation originally issued
at a discount. In general, original issue discount is defined as the
difference between the price at which a debt obligation was issued and its
stated redemption price at maturity. Original issue discount on a
tax-exempt obligation issued after September 3, 1982, is deemed to accrue
as tax-exempt interest over the life of the obligation under a formula
based on the compounding of interest. Original issue discount on a tax-
exempt obligation issued before July 2, 1982 is deemed to accrue as
tax-exempt interest ratably over the life of the obligation. Original issue
discount on any tax-exempt obligation issued during the period beginning
July 2, 1982 and ending September 3, 1982 is also deemed to accrue as
tax-exempt interest over the life of the obligation, although it is not
clear whether such accrual is ratable or is determined under a formula
based on the compounding of interest. If a Holder's tax basis for his pro
rata portion of a Debt Obligation issued with original issue discount is
greater than its 'adjusted issue price' but less than its stated redemption
price at maturity (as may be adjusted for certain payments), the Holder
will be considered to have purchased his pro rata portion of the Debt
Obligation at an 'acquisition premium.' A Holder's adjusted tax basis for
his pro rata portion of the Debt Obligation issued with original issue
discount will include original issue discount accrued during the period
such Holder held his Units. Such increases to the Holder's tax basis in his
pro rata portion of the Debt Obligation resulting from the accrual of
original issue discount, however, will be reduced by the amount of any such
acquisition premium.

If a Holder's tax basis for his pro rata portion of a Debt Obligation in
the Holder's Trust exceeds the redemption price at maturity thereof
(subject to certain adjustments), the Holder will be considered to have
purchased his pro rata portion of the Debt Obligation with 'amortizable
bond premium'. The Holder is required to amortize such premium over the
term of the Debt Obligation. Such amortization is only a reduction of basis
for his pro rata portion of the Debt Obligation and does not result in any
deduction against the Holder's income. Therefore, under some circumstances,
a Holder may recognize taxable gain when his pro rata portion of a Debt
Obligation is disposed of for an amount equal to or less than his original
tax basis therefor.

A Holder will recognize taxable gain or loss when all or part of his pro
rata portion of a Debt Obligation in his Trust is disposed of by the Trust
for an amount greater or less than his adjusted tax basis. Any such taxable
gain or loss will be capital gain or loss, except that any gain from the
disposition of a Holder's pro rata portion of a Debt Obligation acquired by
the Holder at a 'market discount' (i.e., where the Holder's original tax
basis for his pro rata portion of the Debt Obligation (plus any original
issue discount which will accrue thereon until its maturity) is less than
its stated redemption price at maturity) would be treated as ordinary
income to the extent the gain does not exceed the accrued market discount.
Capital gains are generally taxed at the same rate as ordinary income.
However, the excess of net long-term capital gains over net

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<PAGE>
short-term capital losses may be taxed at a lower rate than ordinary income
for certain noncorporate taxpayers. A capital gain or loss is long-term if
the asset is held for more than one year and short-term if held for one
year or less. The deduction of capital losses is subject to limitations. A
Holder will also be considered to have disposed of all or part of his pro
rata portion of each Debt Obligation when he sells or redeems all or some
of his Units.

Under Section 265 of the Code, a Holder (except a corporate Holder) is
not entitled to a deduction for his pro rata share of fees and expenses of
a Trust because the fees and expenses are incurred in connection with the
production of tax-exempt income. Further, if borrowed funds are used by a
Holder to purchase or carry Units of any Trust, interest on such
indebtedness will not be deductible for Federal income tax purposes. In
addition, under rules used by the Internal Revenue Service, the purchase of
Units may be considered to have been made with borrowed funds even though
the borrowed funds are not directly traceable to the purchase of Units.
Similar rules may be applicable for state tax purposes.

Under the income tax laws of the State and City of New York, the Trusts
are not associations taxable as a corporation and income received by the
Trusts will be treated as the income of the Holders in the same manner as
for Federal income tax purposes, but will not necessarily be tax-exempt.

Holders will be taxed in the manner described above regardless of
whether distributions from the Trusts are actually received by the Holders
or are automatically reinvested in the Municipal Fund Accumulation Program,
Inc.

From time to time proposals are introduced in Congress and state
legislatures which, if enacted into law, could have an adverse impact on
the tax-exempt status of the Debt Obligations. It is impossible to predict
whether any legislation in respect of the tax status of interest on such
obligations may be proposed and eventually enacted at the Federal or state
level.

The foregoing discussion relates only to Federal and certain aspects of
New York State and City income taxes. For information about certain state
taxes of the states for which the Trusts are named, investors should
consult the Appendix to this Prospectus. Holders may be subject to state
and local taxation in such states or in other jurisdictions, and should
consult their own tax advisers in this regard.

* * * * *

Interest on certain tax-exempt bonds issued after August 7, 1986 will be a
preference item for purposes of the alternative minimum tax ('AMT'). The
Sponsors believe that interest (including any original issue discount) on the
Debt Obligations should not be subject to the AMT for individuals or
corporations under this rule. A corporate Holder should be aware, however, that
the accrual or receipt of tax-exempt interest not subject to the AMT may give
rise to an alternative minimum tax liability (or increase an existing liability)
because the interest income will be included in the corporation's 'adjusted
current earnings' for purposes of the adjustment to alternative minimum taxable
income required by Section 56(g) of the Code, and will be taken into account for
purposes of the environmental tax on corporations under Section 59A of the Code,
which is based on alternative minimum taxable income. In addition, interest on
the Debt Obligations must be taken into consideration in computing the

29
<PAGE>
portion, if any, of social security benefits that will be included in an
individual's gross income and subject to Federal income tax. Holders are urged
to consult their own tax advisers concerning an investment in Units.

At the time of issuance of each Debt Obligation in each Trust, an opinion
relating to the validity of the Debt Obligation and to the exemption of interest
thereon from regular Federal income taxes and personal income taxes of the State
for which the Trust is named was or will be rendered by bond counsel. Neither
the Sponsors, Davis Polk & Wardwell nor any of the special counsel for state tax
matters have made or will make any review of the proceedings relating to the
issuance of the Debt Obligations or the basis for these opinions. The tax
exemption is dependent upon the issuer's (and other users') compliance with
certain ongoing requirements, and the opinion of bond counsel assumes that these
requirements will be complied with. However, there can be no assurance that the
issuer (and other users) will comply with these requirements, in which event the
interest on the Debt Obligation could be determined to be taxable retroactively
from the date of issuance.

In the case of certain of the Debt Obligations, the opinions of bond
counsel indicate that interest on such Debt Obligations received by a
'substantial user' of the facilities being financed with the proceeds of such
Debt Obligations, or persons related thereto, for periods while such Debt
Obligations are held by such a user or related person, will not be exempt from
regular Federal income taxes, although interest on such Debt Obligations
received by others would be exempt from regular Federal income taxes.
'Substantial user' is defined under U.S. Treasury Regulations to include only a
person whose gross revenue derived with respect to the facilities financed by
the issuance of bonds is more than 5% of the total revenue derived by all users
of such facilities, or who occupies more than 5% of the usable area of such
facilities or for whom such facilities or a part thereof were specifically
constructed, reconstructed or acquired. 'Related persons' are defined to include
certain related natural persons, affiliated corporations, partners and
partnerships. Similar rules may be applicable for state tax purposes.

After the end of each calendar year, the Trustee will furnish to each
Holder an annual statement containing information relating to the interest
received by the Trust on the Debt Obligations, the gross proceeds received by
the Trust from the disposition of any Debt Obligation (resulting from redemption
or payment at maturity of any Debt Obligation or the sale by the Trust of any
Debt Obligation), and the fees and expenses paid by the Trust. The Trustee will
also furnish annual information returns to each Holder and to the Internal
Revenue Service. Holders are required to report to the Internal Revenue Service
the amount of tax-exempt interest received during the year.

PUBLIC SALE OF UNITS

PUBLIC OFFERING PRICE

INITIAL OFFERING PERIOD

The Public Offering Price of the Units of a Trust during the initial
offering period and any offering of additional Units is computed by dividing the
offering side evaluation of the Securities in the Trust (as determined by the
Evaluator) by the number of Units of the Trust outstanding and adding thereto
the sales charge at the applicable percentage stated below of the offering side
evaluation per Unit (the net amount invested). The Public Offering Price of the
Units of a Trust on the date of this Prospectus or on any subsequent date will
vary from the Public

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<PAGE>
Offering Price of the Trust on the business day prior to the date of this
Prospectus (set forth under Investment Summary) in accordance with fluctuations
in the evaluations of the underlying Securities.

The following table sets forth the applicable percentage of sales charge,
the concession to dealers and the concession to introducing dealers (i.e.,
dealers that buy and clear directly through a Sponsor or an Underwriter who is
an affiliate of a Sponsor). These amounts are reduced on a graduated scale for
sales to any purchaser of at least 250 Units and will be applied on whichever
basis is more favorable to the purchaser. To qualify for the reduced sales
charge and concession applicable to quantity purchases, the dealer must confirm
that the sale is to a single purchaser as defined below or is purchased for its
own account and not for distribution. Sales charges and dealer concessions are
as follows:

SALES CHARGE
(GROSS UNDERWRITING PROFIT)
-------------------------------- DEALER
AS PERCENT OF CONCESSION AS PRIMARY MARKET
OFFER SIDE AS PERCENT OF PERCENT OF CONCESSION TO
OF PUBLIC NET AMOUNT PUBLIC INTRODUCING
UNITS OFFERING PRICE INVESTED OFFERING PRICE DEALERS
- --------------------------------------------------------------------------------
Less than 250... 4.5% 4.712% 2.925% $ 32.40
250 - 499....... 3.5 3.627 2.275 25.20
500 - 749....... 3.0 3.093 1.950 21.60
750 - 999....... 2.5 2.564 1.625 18.00
1,000 or more... 2.0 2.041 1.300 14.40

The above graduated sales charges will apply on all purchases of Units of a
Trust on any one day during the initial offering period by the same purchaser of
Units only in the amounts stated. These purchases will not be aggregated with
concurrent purchases of any other unit trusts sponsored by the Sponsors. Units
held in the name of the spouse of the purchaser or in the name of a child of the
purchaser under 21 years of age are deemed to be registered in the name of the
purchaser. The graduated sales charges are also applicable to a trustee or other
fiduciary purchasing securities for a single trust estate or single fiduciary
account.

On any subsequent purchase of Units of a Trust during its initial offering
period, the sales charge on that purchase will be determined based on the
aggregate number of Units purchased on that and any previous purchase date. To
be eligible for this right of accumulation, the purchaser or his securities
dealer must notify the Sponsors at the time of purchase that such purchase
qualifies for this right of accumulation and supply sufficient information to
permit confirmation of qualification. Acceptance of the purchase order is
subject to such confirmation. This right of accumulation may be amended or
terminated at any time without notice.

SECONDARY MARKET

The Public Offering Price in the secondary market reflects sales charges
which may be at different rates depending on the maturities of the various bonds
in the Portfolio. The Public Offering Price per Unit will be computed by adding
to the Evaluator's determination of the bid side evaluation of each Security, a
sales charge at a

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<PAGE>
rate based on the time to maturity of that Security as described below, and
dividing the sum of these calculations for all Securities in the Portfolio by
the number of Units outstanding. For this purpose, 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 used; or (b) the
Security is subject to a mandatory tender, in which case the mandatory tender
date will be used.
SALES CHARGE

(AS PERCENT (AS PERCENT
TIME TO OF BID SIDE OF PUBLIC
MATURITY EVALUATION) OFFERING PRICE)
- --------------------------------------------------------------------------------
Less than six months 0% 0%
Six months to 1 year 0.756% 0.75%
Over 1 year to 2 years 1.523% 1.50%
Over 2 years to 4 years 2.564% 2.50%
Over 4 years to 8 years 3.627% 3.50%
Over 8 years to 15 years 4.712% 4.50%
Over 15 years 5.820% 5.50%

The total sales charge per Unit, as a percent of the Public Offering Price,
is referred to below as the 'Effective Sales Charge'. For example, a Fund
consisting entirely of Securities maturing in more than 8 but no more than 15
years would have an Effective Sales Charge of 4.50% of the Public Offering Price
(4.712% of the net amount invested) while a Fund consisting entirely of
Securities maturing in more than 15 years would have an Effective Sales Charge
of 5.50% of the Public Offering Price (5.820% of the net amount invested) and so
forth. A Fund consisting of Securities in each of these maturity ranges would
have an Effective Sales Charge between these rates.

The sales charge per Unit will be reduced on a graduated scale for sales to
any single purchaser, as described above, on a single day of specified numbers
of Units set forth below. The number of units of other series sponsored by the
Sponsors (or an equivalent number in case of units originally offered at about
$1, $10 or $100 each), purchased in the secondary market on the same day will be
added in determining eligibility for this reduction, provided that only units of
series with Effective Sales Charges within a range of 0.5% of their public
offering prices will be eligible. For example, if an investor purchases units of
three series of Municipal Investment Trust Fund in the secondary market on the
same day--200 units with an Effective Sales Charge of 3.4%, 200 units with an
Effective Sales Charge of 3.6% and 100 units with an Effective Sales Charge of
3.9%, he would be entitled to a 40% reduction on each sales charge (an actual
sales charge of 60% of each Effective Sales Charge based on

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<PAGE>
purchase of 500 units). If the lowest sales charge was 3.3%, the purchaser would
only be entitled to a 20% reduction on two of those purchases (actual sales
charge of 80% of Effective Sales Charge based on purchase of more than 249
units). The reduction will be applied on whichever basis is more favorable for
the purchaser.

ACTUAL SALES CHARGE DEALER CONCESSION AS
AS % OF EFFECTIVE % OF EFFECTIVE SALES
SALES CHARGE CHARGE DETERMINED
NUMBER OF UNITS DETERMINED ABOVE ABOVE
- --------------------------------------------------------------------------------
1-249 100% 65%
250-499 80% 52%
500-749 60% 39%
750-999 45% 29.25%
1,000 or more 35% 22.75%

To qualify for the reduced sales charge and concession applicable to quantity
purchases, the selling dealer must confirm that the sale is to a single
purchaser, as described above, or is purchased for its own account and not for
distribution.

PRICE PAID BY PURCHASERS

In both the initial offering period and the secondary market, a
proportionate share of any cash held by the Fund in the Capital Account not
allocated to the purchase of specific Securities and net accrued and
undistributed interest on the Securities to the date of delivery of the Units to
the purchaser is added to the Public Offering Price.

Employees of certain of the Sponsors and their affiliates and non-employee
directors of Merrill Lynch & Co., Inc. may purchase Units of this Fund at prices
based on a reduced sales charge of not less than $5.00 per Unit.

Evaluations of the Securities are determined by the Evaluator taking into
account the same factors referred to under Redemption--Computation of Redemption
Price per Unit. The determinations are made each business day as of the
Evaluation Time set forth under Investment Summary, effective for all sales made
since the last of these evaluations (Section 4.01). With respect to the
evaluation of Debt Obligations during their initial syndicate offering period,
the 'current offering price', as determined by the Evaluator, will normally be
equal to the syndicate offering price as of the Evaluation Time, unless the
Evaluator determines that a material event has occurred which it believes may
result in the syndicate offering price not accurately reflecting the market
value of the Debt Obligations, in which case the Evaluator, in making its
determination, will consider not only the syndicate offering price but also the
factors described in (b) and (c) in the description of how the bid side
evaluation of the Securities is determined for purposes of redemption of Units
(see Redemption--Computation of Redemption Price per Unit). The term 'business
day', as used herein and under 'Redemption', shall exclude Saturdays, Sundays
and the following holidays as observed by the New York Stock Exchange: New
Year's Day, Washington's Birthday, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving and Christmas.

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<PAGE>
COMPARISON OF PUBLIC OFFERING PRICE, SPONSORS' INITIAL REPURCHASE PRICE,
SECONDARY MARKET REPURCHASE PRICE AND REDEMPTION PRICE

On the business day prior to the Initial Date of Deposit with respect to
each Trust the Public Offering Price per Unit (which includes the sales charge)
and the Sponsors' Initial Repurchase Price per Unit (each based on the offering
side evaluation of the Securities in the Fund--see above) exceeded the
Redemption Price per Unit (based on the bid side evaluation thereof--see
Redemption) by the amounts set forth under Investment Summary.

The initial Public Offering Price per Unit of the Trust and the initial
Repurchase Price are based on the offering side evaluations of the Securities.
The secondary market Public Offering Price and the Sponsors' Repurchase Price in
the secondary market are based on bid side evaluations of the Securities. In the
past, the bid prices of publicly offered tax-exempt issues have been lower than
the offering prices by as much as 3 1/2% or more of face amount in the case of
inactively traded issues and as little as 1/2 of 1% in the case of actively
traded issues, but the difference between the offering and bid prices has
averaged between 1 and 2% of face amount; the amount of this difference as of
the Evaluation Time on the business day prior to the Initial Date of Deposit, as
determined by the Evaluator, is set forth under the Portfolio of each Trust. For
this and other reasons (including fluctuations in the market prices of the
Securities and the fact that the Public Offering Price includes the sales
charge), the amount realized by a Holder upon any sale or redemption of Units
may be less than the price paid by him for the Units.

PUBLIC DISTRIBUTION

During the initial offering period Units of the Trusts will be distributed
to the public at the Public Offering Price through the Underwriting Account set
forth under Investment Summary and dealers. The initial offering period is 30
days or less if all Units are sold. So long as all Units initially offered have
not been sold, the Sponsors may extend the initial offering period for up to
four additional successive 30-day periods. Upon the completion of the initial
offering, Units which remain unsold or which may be acquired in the secondary
market (see Market for Units) may be offered directly to the public by this
Prospectus at the secondary market Public Offering Price determined in the
manner described above.

The Sponsors intend to qualify Units of each Trust for sale in the State
for which the Trust is named and in selected other states, through the
Underwriting Account and by dealers who are members of the National Association
of Securities Dealers, Inc. Only a Virginia Trust will be registered and offered
for sale in Virginia. The Sponsors do not intend to qualify Units for sale in
any foreign countries and this Prospectus does not constitute an offer to sell
Units in any country where Units cannot lawfully be sold. Sales to dealers and
to introducing dealers, if any, will initially be made at prices which represent
a concession of the applicable rate specified in the table above, but Merrill
Lynch, Pierce, Fenner & Smith Incorporated, as agent for the Sponsors ('Agent
for the Sponsors') reserves the right to change the rate of the concession to
dealers and the concession to introducing dealers from time to time. Any dealer
or introducing dealer may reallow a concession not in excess of the concession
to dealers.

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UNDERWRITERS' AND SPONSORS' PROFITS

Upon sale of the Units, the Underwriters named under Underwriting Account,
including the Sponsors, will receive sales charges at the rates set forth in the
table above. The Sponsors also realized a profit or loss on deposit of the
Securities in the Trusts in the amounts set forth under Investment Summary. This
is the difference between the cost of the Securities to the Trust (which is
based on the offering side evaluation of the Securities on the Initial Date of
Deposit) and the cost of the Securities to the Sponsors. The amounts of any
additional fees received in connection with the direct placement of certain Debt
Obligations deposited in the Portfolios are also set forth under Investment
Summary. On each subsequent deposit in connection with the creation of
additional Units, the Sponsors may also realize a profit or loss. In addition,
any Sponsor or Underwriter may realize profits or sustain losses in respect of
Debt Obligations deposited in the Trusts which were acquired by the Sponsor or
Underwriter from underwriting syndicates of which the Sponsor or Underwriter was
a member. During the offering period the Underwriting Account also may realize
profits or sustain losses as a result of fluctuations after the Initial Date of
Deposit in the Public Offering Price of the Units (see Investment Summary).
Cash, if any, made available by buyers of Units to the Sponsors prior to a
settlement date for the purchase of Units may be used in the Sponsors'
businesses subject to the limitations of Rule 15c3-3 under the Securities
Exchange Act of 1934 and may be of benefit to the Sponsors.

In maintaining a market for the Units (see Market for Units), the Sponsors
will also realize profits or sustain losses in the amount of any difference
between the prices at which they buy Units (based on the bid side evaluation of
the Securities) and the prices at which they resell these Units (which include
the sales charge) or the prices at which they redeem the Units (based on the bid
side evaluation of the Securities), as the case may be.

MARKET FOR UNITS

During the initial offering period the Sponsors intend to offer to purchase
Units of this Series at prices based upon the offering side evaluation of the
Securities. Thereafter, while the Sponsors are not obligated to do so, it is
their intention to maintain a secondary market for Units of each Trust of this
Series and continuously to offer to purchase Units of each Trust of this Series
at prices, subject to change at any time, which will be computed based on the
bid side of the market, taking into account the same factors referred to in
determining the bid side evaluation of Securities for purposes of redemption
(see Redemption). This secondary market provides Holders with a fully liquid
investment. They can cash in units at any time without a fee. The Sponsors may
discontinue purchases of Units of any Trust at prices based on the bid side
evaluation of the Securities should the supply of Units exceed demand or for
other business reasons. In this event the Sponsors may nonetheless under certain
circumstances purchase Units, as a service to Holders, at prices based on the
current redemption prices for those Units (see Redemption). The Sponsors, of
course, do not in any way guarantee the enforceability, marketability or price
of any Securities in the Trusts or of the Units. Prospectuses relating to
certain other unit trusts indicate an intention, subject to change on the part
of the respective sponsors of such trusts, to purchase units of those trusts on
the basis of a price higher than the bid prices of the bonds in the trusts.
Consequently, depending upon the prices actually paid, the repurchase price of
other sponsors for units of their trusts may be computed on a somewhat more
favorable basis than the repurchase price offered by the Sponsors for Units of
this Series in secondary

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market transactions. As in this Series, the purchase price per unit of such unit
trusts will depend primarily on the value of the bonds in the portfolio of the
trust.

The Sponsors may redeem any Units they have purchased in the secondary
market or through the Trustee in accordance with the procedures described below
if they determine it is undesirable to continue to hold these Units in their
inventories. Factors which the Sponsors will consider in making this
determination will include the number of units of all series of all funds which
they hold in their inventories, the saleability of the units and their estimate
of the time required to sell the units and general market conditions. For a
description of certain consequences of any redemption for remaining Holders, see
Redemption.

A Holder who wishes to dispose of his Units should inquire of his bank or
broker as to current market prices in order to determine if there exist
over-the-counter prices in excess of the repurchase price.

REDEMPTION

While it is anticipated that Units in most cases can be sold in the
over-the-counter market for an amount equal to the Redemption Price per Unit
(see Market for Units), Units may be redeemed at the office of the Trustee set
forth on the back cover of this Prospectus, upon tender on any business day, as
defined under Public Sale of Units-- Public Offering Price, of Certificates or,
in the case of uncertificated Units, delivery of a request for redemption, and
payment of any relevant tax, without any other fee (Section 5.02). Certificates
to be redeemed must be properly endorsed or accompanied by a written instrument
or instruments of transfer. Holders must sign exactly as their names appear on
the face of the Certificate with the signatures guaranteed by an eligible
guarantor institution, or in some other manner acceptable to the Trustee. In
certain instances the Trustee may require additional documents including, but
not limited to, trust instruments, certificates of death, appointments as
executor or administrator or certificates of corporate authority.

On the seventh calendar day following the tender (or if the seventh
calendar day is not a business day on the first business day prior thereto), the
Holder will be entitled to receive the proceeds of the redemption in an amount
per Unit equal to the Redemption Price per Unit (see below) as determined as of
the Evaluation Time next following the tender. The price received upon
redemption may be more or less than the amount paid by the Holder depending on
the value of the Securities in the Portfolio at the time of redemption.
Principal is normally distributed as bonds mature, or are called, redeemed, or
sold. Except for sales of Securities (which would be at then current market
prices) and subject to the bond issuers paying the amounts due, return of
principal to Holders who retain their Units until termination of the Trust
should be relatively unaffected by changes in interest rates. Of course, a gain
or loss could be recognized if Units are sold before then. So long as the
Sponsors are maintaining a market at prices not less than the Redemption Price
per Unit, the Sponsors will repurchase any Units tendered for redemption no
later than the close of business on the second business day following the tender
(see Market for Units). The Trustee is authorized in its discretion, if the
Sponsors do not elect to repurchase any Units tendered for redemption or if a
Sponsor tenders Units for redemption, to sell the Units in the over-the-counter
market at prices which will return to the Holder a net amount in cash equal to
or in excess of the Redemption Price per Unit for the Units (Section 5.02).

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Securities are to be sold in order to make funds available for redemption
of Units of that Trust (Section 5.02) if funds are not otherwise available in
the Capital and Income Accounts (see Administration of the Fund--Accounts and
Distributions). The Securities to be sold will be selected by the Sponsors in
accordance with procedures specified in the Indenture on the basis of market and
credit factors as they may determine are in the best interests of the Trust.
Provision is made under the Indenture for the Sponsors to specify minimum face
amounts in which blocks of Securities are to be sold in order to obtain the best
price for the Trust.

To the extent that Securities in a Trust are sold, the size and diversity
of the Trust will be reduced. Sales will usually be required at a time when
Securities would not otherwise be sold and may result in lower prices to the
Trust than might otherwise be realized.

The right of redemption may be suspended and payment postponed (1) for any
period during which the New York Stock Exchange, Inc. is closed other than for
customary weekend and holiday closings, or (2) for any period during which, as
determined by the SEC, (i) trading on that Exchange is restricted or (ii) an
emergency exists as a result of which disposal or evaluation of the Securities
is not reasonably practicable, or (3) for any other periods which the SEC may by
order permit (Section 5.02).

COMPUTATION OF REDEMPTION PRICE PER UNIT

Redemption Price per Unit of a Trust is computed by the Trustee, as of the
Evaluation Time, on each June 30 and December 31 (or the last business day prior
thereto), on any business day as of the Evaluation Time next following the
tender of any Unit for redemption, and on any other business day desired by the
Trustee or the Sponsors, by adding (a) the aggregate bid side evaluation of the
Securities in the Trust, (b) cash on hand in the Trust (other than cash covering
contracts to purchase Securities or credited to a reserve account), (c) accrued
but unpaid interest on the Securities up to but not including the date of
redemption (less amounts beneficially owned by the Trustee resulting from
unreimbursed advances) and (d) the aggregate value of all other assets of the
Trust; deducting therefrom the sum of (v) taxes or other governmental charges
against the Trust not previously deducted, (w) accrued but unpaid expenses of
the Trust, (x) amounts payable for reimbursement of Trustee advances, (y) cash
held for redemption of units for distribution to Holders of record as of a date
prior to the evaluation and (z) the aggregate value of all other liabilities of
the Trust; and dividing the result by the number of Units outstanding as of the
date of computation (Section 5.01).

The aggregate current bid or offering side evaluation of the Securities is
determined by the Evaluator in the following manner: if the Securities are
traded on the over-the-counter market, this evaluation is generally based on the
closing sale prices on the over-the-counter market (unless the Evaluator deems
these prices inappropriate as a basis for evaluation). If closing sale prices
are unavailable, the evaluation is generally determined (a) on the basis of
current bid or offering prices for the Securities, (b) if bid or offering prices
are not available for any Securities, on the basis of current bid or offering
prices for comparable securities, (c) by appraising the value of the Securities
on the bid or offering side of the market or (d) by any combination of the
above.

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The value of any insurance is reflected in the market value of any Insured
Debt Obligations. It is the position of the Sponsors that this is a fair method
of valuing the Insured Debt Obligations and the insurance and reflects a proper
valuation method in accordance with the provisions of the Investment Company Act
of 1940.

EXPENSES AND CHARGES

INITIAL EXPENSES

All expenses incurred in establishing the Trusts, including the cost of the
initial preparation and printing of documents relating to the Fund, cost of the
initial evaluations, the initial fees and expenses of the Trustee, legal
expenses, advertising and selling expenses and any other out-of-pocket expenses,
will be paid from the Underwriting Account at no charge to the Trusts.

FEES

An estimate of the total annual expenses of each Trust is set forth under
Investment Summary. The Trustee (or Co-Trustees, in the case of Investors Bank &
Trust Company and The First National Bank of Chicago) receives for its services
as Trustee and for reimbursement of expenses incurred on behalf of a Trust,
payable in monthly installments, the amount per Unit set forth under Investment
Summary as Trustee's Annual Fee and Expenses. Of this amount, the Trustee
receives annually for its services as Trustee $0.70 per $1,000 face amount of
Debt Obligations. The Trustee's Annual Fee and Expenses also includes the
Evaluator's fee, the estimated Portfolio Supervision Fee, estimated reimbursable
bookkeeping or other administrative expenses paid to the Sponsors and certain
mailing and printing expenses. Expenses in excess of this amount will be borne
by the Fund. The Trustee also receives benefits to the extent that it holds
funds on deposit in the various non-interest bearing accounts created under the
Indenture. The Portfolio Supervision Fee with respect to a Trust is based on the
face amount of Debt Obligations in the Trust on the Initial Date of Deposit and
on the first business day of each calendar year thereafter, except that if in
any calendar year Additional Securities are deposited, the fee for the balance
of the year will be based on the face amounts on each Record Day. This fee,
which is not to exceed the maximum amount set forth under Investment Summary,
may exceed the actual costs of providing portfolio supervisory services for a
Trust, but at no time will the total amount the Sponsors receive for portfolio
supervisory services rendered to all series of Municipal Investment Trust Fund
in any calendar year exceed the aggregate cost to them of supplying these
services in that year (Section 7.05). In addition, the Sponsors may also be
reimbursed for bookkeeping or other administrative services provided to the Fund
in amounts not exceeding their costs of providing these services (Section 7.06).
The foregoing fees may be adjusted for inflation in accordance with the terms of
the Indenture without approval of Holders (Sections 3.04, 4.03 and 8.05).

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OTHER CHARGES

Other charges include with respect to a Trust: (a) fees of the Trustee for
extraordinary services (Section 8.05), (b) certain expenses of the Trustee
(including legal and auditing expenses) and of counsel designated by the
Sponsors (Sections 3.04, 3.09, 7.05(b), 8.01 and 8.05), (c) various governmental
charges (Sections 3.03 and 8.01 h]), (d) expenses and costs of action taken to
protect the Trust (Section 8.01 d]), (e) indemnification of the Trustee for any
losses, liabilities and expenses incurred without gross negligence, bad faith or
willful misconduct on its part (Section 8.05), (f) indemnification of the
Sponsors for any losses, liabilities and expenses incurred without gross
negligence, bad faith, wilful misconduct or reckless disregard of their duties
(Section 7.05b]), (g) expenditures incurred in contacting Holders upon
termination of the Trust (Section 9.02) and (h) premiums for extra insurance
necessary to maintain the rating of an Insured Trust. The amounts of these
charges and fees are secured by a lien on the Trust and, if the balances in the
Income and Capital Accounts (see below) are insufficient, the Trustee has the
power to sell Securities to pay these amounts (Section 8.05).

ADMINISTRATION OF THE FUND

RECORDS

The Trustee keeps a register of the names, addresses and holdings of all
Holders of each Trust. The Trustee also keeps records of the transactions of
each Trust, including a current list of the Securities and a copy of the
Indenture, which are available to Holders for inspection at the office of the
Trustee at reasonable times during business hours (Sections 6.01, 8.02 and
8.04).

ACCOUNTS AND DISTRIBUTIONS

Interest received by each Trust is credited to an Income Account for the
Trust and other receipts to a Capital Account for the Trust (Sections 3.01 and
3.02). The Monthly Income Distribution for each Holder as of each Record Day
will be made on the following Distribution Day or shortly thereafter and shall
consist of an amount substantially equal to the Holder's pro rata share of the
estimated net income accrued during the month preceding the Record Day, after
deducting estimated expenses. Estimates of the amounts of the first and
subsequent Monthly Income Distributions are set forth under Investment Summary.
The amount of the Monthly Income Distributions will change as Securities are
redeemed, paid or sold. At the same time the Trustee will distribute the
Holder's pro rata share of the distributable cash balance of the Capital Account
of the Trust computed as of the close of business on the preceding Record Day
(if at least equal to the Minimum Capital Distribution set forth under
Investment Summary). Principal proceeds received from the disposition, payment
or prepayment of any of the Securities subsequent to a Record Day and prior to
the succeeding Distribution Day will be held in the Capital Account to be
distributed on the second succeeding Distribution Day. The first distribution
for persons who purchase Units between a Record Day and a Distribution Day will
be made on the second Distribution Day following their purchase of Units. A
Reserve Account may be created by the Trustee by withdrawing from the Income or
Capital Accounts, from time to time, amounts deemed necessary to reserve for any
material amount that

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may be payable out of the Trust (Section 3.03). Funds held by the Trustee in the
various accounts created under the Indenture do not bear interest (Section
8.01).

INVESTMENT ACCUMULATION PROGRAM

Monthly Income Distributions of interest and any principal or premium
received by the Trusts will be paid in cash. However, a Holder may elect to have
these monthly distributions reinvested without sales charge in the Municipal
Fund Accumulation Program, Inc. (the 'Program'). The Program is an open-end
management investment company whose primary investment objective is to obtain
income that is exempt from regular Federal income tax through investment in a
diversified portfolio consisting primarily of state, municipal and public
authority debt obligations with credit characteristics comparable to those of
securities in this Series of Municipal Investment Trust Fund. Most or all of the
securities in the portfolio of the Program, however, will not be insured.
Reinvesting compounds the earnings Federally tax-free. Holders participating in
the Program will be taxed on their reinvested distributions in the manner
described in Taxes even though distributions are reinvested in the Program. For
more complete information about the Program, including charges and expenses,
return the enclosed form for a prospectus. Read it carefully before you decide
to participate. Notice of election to participate must be received by the
Trustee in writing at least ten days before the Record Day for the first
distribution to which the notice is to apply.

PORTFOLIO SUPERVISION

The Fund is a unit investment trust which normally follows a buy and hold
investment strategy and is not actively managed. Traditional methods of
investment management for a managed fund (such as a mutual fund) typically
involve frequent changes in a portfolio of securities on the basis of economic,
financial and market analyses. The Portfolios of the Trusts comprising this
Series, however, will not be actively managed and therefore the adverse
financial condition of an issuer will not necessarily require the sale of its
Securities from a Portfolio. Defined Asset Funds investment professionals are
dedicated exclusively to selecting and then monitoring securities held by the
various Defined Funds. On an ongoing basis, experienced financial analysts
regularly review the Portfolios and may direct the disposition of Securities
under any of the following circumstances: (i) a default in payment of amounts
due on any Security, (ii) institution of certain legal proceedings, (iii)
existence of any other legal questions or impediments affecting a Security or
the payment of amounts due on the Security, (iv) default under certain documents
adversely affecting debt service or default in payment of amounts due on other
securities of the same issuer or guarantor, (v) decline in projected income
pledged for debt service on revenue bond issues, (vi) decline in price of the
Security or the occurrence of other market or credit factors, including advance
refunding (i.e., the issuance of refunding bonds and the deposit of the proceeds
thereof in trust or escrow to retire the refunded Securities on their respective
redemption dates), that in the opinion of the Sponsors would make the retention
of the Security detrimental to the interests of the Holders, (vii) if a Security
is not consistent with the investment objective of the Fund or (viii) if the
Trustee has a right to sell or redeem a Security pursuant to any applicable
guarantee or other credit support. If a default in the payment of amounts due on
any Security occurs and if the Agent for the Sponsors fails to give instructions
to sell or hold the Security, the Indenture provides that the Trustee, within 30
days of the failure shall sell the Security (Section 3.08).

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The Sponsors are required to instruct the Trustee to reject any offer made
by an issuer of any of the Debt Obligations to issue new Debt Obligations in
exchange or substitution for any Debt Obligations pursuant to a refunding or
refinancing plan, except that the Sponsors may instruct the Trustee to accept or
reject any offer or to take any other action with respect thereto as the
Sponsors may deem proper if (a) the issuer is in default with respect to these
Debt Obligations or (b) in the written opinion of the Sponsors the issuer will
probably default with respect to these Debt Obligations in the reasonably
foreseeable future. Any Debt 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 Debt Obligations originally deposited thereunder (Section
3.11). Within five days after the deposit of Debt Obligations in exchange or
substitution for existing Debt Obligations, the Trustee is required to give
notice thereof to each Holder, identifying the Debt Obligations removed from the
Portfolio and the Debt Obligations substituted therefor (Section 3.07).

The Sponsors are authorized to direct the Trustee to deposit replacement
securities ('Replacement Securities') into the Portfolio to replace any Failed
Debt Obligations or, in connection with the deposit of Additional Securities,
when Securities of an issue originally deposited are unavailable at the time of
subsequent deposit as described more fully below. Replacement Securities that
are replacing Failed Debt Obligations will be deposited into a Trust within 110
days of the date of deposit of the contracts which have failed, at a purchase
price that does not exceed the amount of funds reserved for the purchase of
Failed Debt Obligations and that results in a yield to maturity and in a current
return, in each case as of that date of deposit, that are equivalent (taking
into consideration then current market conditions and the relative
creditworthiness of the underlying obligation) to the yield to maturity and
current return of the Failed Debt Obligations. The Replacement Securities shall
(i) be tax-exempt bonds issued by the state for which the Trust is named or its
political subdivisions or by the Government of Puerto Rico or by its authority
or by the Government of Guam or by its authority; (ii) have fixed maturity dates
substantially the same as those of the Failed Debt Obligations; (iii) be rated
in the category A or better by either Standard & Poor's or Moody's (or have, in
the opinion of the Agent for the Sponsors, comparable credit characteristics, if
not actually rated) or if the Trust is an Insured Trust, be insured by an
Insurance Company and have the benefits of such insurance under terms equivalent
to the insurance of the Insurance Company with respect to the Failed Debt
Obligations and not cause the Units of the Fund to cease to be rated AAA by
Standard & Poor's; and (iv) not be when, as and if issued obligations.
Replacement Securities shall be selected by the Sponsors from a list of
Securities maintained by them and updated from time to time. The Securities on
the current list from which Replacement Securities are to be selected are set
forth under Investment Summary. Whenever a Replacement Security has been
acquired for a Trust, the Trustee shall, on the next monthly distribution date
that is more than 30 days thereafter, make a pro rata distribution of the
amount, if any, by which the cost to the Trust of the Failed Debt Obligation
exceeded the cost of the Replacement Security plus accrued interest. If
Replacement Securities are not acquired, the Sponsors will, on or before the
next following Distribution Day, cause to be refunded to Holders the
attributable sales charge, plus the attributable Cost of Debt Obligations to
Trust listed under Portfolio, plus interest attributable to the Failed Debt
Obligation. The portion of interest paid to a Holder that accrued after the
expected date of settlement for purchase of his Units will be paid by the
Sponsors and accordingly will not be treated as tax exempt income.

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The Indenture also authorizes the Sponsors to increase the size and number
of Units of a Trust by the deposit of Additional Securities, contracts to
purchase Additional Securities or cash or a letter of credit with instructions
to purchase Additional Securities in exchange for the corresponding number of
additional Units during the 90-day period subsequent to the Initial Date of
Deposit, provided that the original proportionate relationship among the face
amounts of each Security established on the Initial Date of Deposit (the
'Original Proportionate Relationship') is maintained to the extent practicable.
Deposits of Additional Securities subsequent to the 90-day period following the
Initial Date of Deposit must replicate exactly the original proportionate
relationship among the face amounts of Securities comprising the Portfolio at
the end of the initial 90-day period, subject to certain events (Sections 3.07,
3.08 and 3.10).

With respect to deposits of Additional Securities in connection with
creating additional Units of the Trust during the 90-day period following the
Initial Date of Deposit, the Sponsors may specify minimum face amounts in which
Additional Securities will be deposited or purchased. If a deposit is not
sufficient to acquire minimum amounts of each Security, Additional Securities
may be acquired in the order of the Security most under-represented immediately
before the deposit when compared to the Original Proportionate Relationship. If
Securities of an issue originally deposited are unavailable at the time of
subsequent deposit or cannot be purchased at reasonable prices or their purchase
is prohibited or restricted by law, regulation or policies applicable to the
Trust or any of the Sponsors, the Sponsors may (1) deposit cash or a letter of
credit with instructions to purchase the Security when it becomes available
(provided that it becomes available within 110 days after the Initial Date of
Deposit), or (2) deposit (or instruct the Trustee to purchase) (i) Securities of
one or more other issues originally deposited or (ii) a Replacement Security
which will meet the conditions described above except that it must have a rating
at least equal to that of the Security it replaces (or, in the opinion of the
Sponsors, have comparable credit characteristics, if not rated). Any funds held
to acquire Additional or Replacement Securities which have not been used to
purchase Securities at the end of the 90-day period beginning with the Initial
Date of Deposit, shall be used to purchase Securities as described above or
shall be distributed to Holders together with the attributable sales charge.

REPORTS TO HOLDERS

With each distribution, the Trustee will furnish Holders with a statement
of the amounts of interest and other receipts, if any, that are being
distributed, expressed in each case as a dollar amount per Unit. After the end
of each calendar year during which a Monthly Income Distribution was made to
Holders, the Trustee will furnish to each person who at any time during the
calendar year was a Holder of record a statement (i) summarizing transactions
for that year in the Income and Capital Accounts of the Trust, (ii) listing the
Securities held and the number of Units outstanding at the end of that calendar
year, (iii) stating the Redemption Price per Unit based upon the computation
thereof made at the end of that calendar year and (iv) specifying the amounts
distributed during that calendar year from the Income and Capital Accounts
(Section 3.07). The accounts of each Trust shall be audited at least annually by
independent certified public accountants designated by the Sponsors and the
report of the accountants shall be furnished by the Trustee to Holders upon
request (Section 8.01 h]).

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In order to enable them to comply with Federal and state tax reporting
requirements, Holders will be furnished upon request to the Trustee with
evaluations of Securities furnished to it by the Evaluator (Section 4.02).

CERTIFICATES

Each purchaser is entitled to receive, upon request, a registered
Certificate for his Units. Certain of the Sponsors may collect charges for
registering and shipping Certificates to purchasers. These Certificates are
transferable or interchangeable upon presentation at the office of the Trustee,
with a payment of $2.00 if required by the Trustee (or other amounts specified
by the Trustee and approved by the Sponsors) for each new Certificate and any
sums payable for taxes or other governmental charges imposed upon the
transaction (Section 6.01) and compliance with the formalities necessary to
redeem Certificates (see Redemption). Mutilated, destroyed, stolen or lost
Certificates will be replaced upon delivery of satisfactory indemnity and
payment of expenses incurred (Section 6.02).

AMENDMENT AND TERMINATION

The Sponsors and Trustee may amend the Indenture for a Trust, without the
consent of the Holders, (a) to cure any ambiguity or to correct or supplement
any provision thereof which may be defective or inconsistent, (b) to change any
provision thereof as may be required by the SEC or any successor governmental
agency or (c) to make any other provisions which do not materially adversely
affect the interest of the Holders (as determined in good faith by the
Sponsors). The Indentures may also be amended in any respect by the Sponsors and
the Trustee, or any of the provisions thereof may be waived, with the consent of
the Holders of 51% of the Units of a Trust, provided that none of these
amendments or waivers will reduce the interest in the Trust of any Holder
without the consent of the Holder or reduce the percentage of Units required to
consent to any of these amendments or waivers without the consent of all Holders
(Section 10.01).

Each Trust will terminate and each Trust will be liquidated upon the
maturity, sale, redemption or other disposition of the last Security held
thereunder, but in no event is it to continue beyond the mandatory termination
date set forth under Investment Summary. A Trust may be terminated by the
Sponsors if the value of a Trust is less than the minimum value set forth under
Investment Summary, and may be terminated at any time by written instrument
executed by the Sponsors and consented to by Holders of 51% of the then
outstanding Units (Sections 8.01 g] and 9.01). The Trustee will deliver written
notice of any termination to each Holder within a reasonable period of time
prior to the termination, specifying the times at which the Holders may
surrender their Certificates for cancellation. Within a reasonable period of
time after the termination, the Trustee must sell all of the Securities then
held and distribute to each Holder, upon surrender for cancellation of his
Certificates and after deductions for accrued but unpaid fees, taxes and
governmental and other charges, the Holder's interest in the Income and Capital
Accounts (Section 9.01). This distribution will normally be made by mailing a
check in the amount of each Holder's interest in these accounts to the address
of the Holder appearing on the record books of the Trustee.

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RESIGNATION, REMOVAL AND LIMITATIONS ON LIABILITY

TRUSTEE

The Trustee or any successor may resign upon notice to the Sponsors. The
Trustee may be removed upon the direction of the Holders of 51% of the Units at
any time or by the Sponsors without the consent of any of the Holders if the
Trustee becomes incapable of acting or becomes bankrupt or its affairs are taken
over by public authorities, or if for any reason the Sponsors determine in good
faith that the replacement of the Trustee is in the best interest of the
Holders. The resignation or removal shall become effective upon the acceptance
of appointment by the successor which may, in the case of a resigning or removed
Co-Trustee, be one or more of the remaining Co-Trustees. The Sponsors are to use
their best efforts to appoint a successor promptly and if upon resignation of
the Trustee no successor has accepted appointment within thirty days after
notification, the Trustee may apply to a court of competent jurisdiction for the
appointment of a successor (Section 8.06). The Trustee shall be under no
liability for any action taken in good faith in reliance on prima facie properly
executed documents or for the disposition of monies or Securities under the
Indenture. This provision, however, shall not protect the Trustee in cases of
wilful misfeasance, bad faith, negligence or reckless disregard of its
obligations and duties. In the event of the failure of the Sponsors to act, the
Trustee may act under the Indenture and shall not be liable for any of these
actions taken in good faith. The Trustee shall not be personally liable for any
taxes or other governmental charges imposed upon or in respect of the Securities
or upon the interest thereon. In addition, the Indenture contains other
customary provisions limiting the liability of the Trustee (Sections 8.01 and
8.05).

EVALUATOR

The Evaluator may resign or may be removed, effective upon the acceptance
of appointment by its successor, by the Sponsors, who are to use their best
efforts to appoint a successor promptly. If upon resignation of the Evaluator no
successor has accepted appointment within thirty days after notification, the
Evaluator may apply to a court of competent jurisdiction for the appointment of
a successor (Section 4.05). 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 Sponsors or the Holders for errors in judgment. This provision,
however, shall not protect the Evaluator in cases of wilful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations and duties
(Section 4.04). The Trustee, the Sponsors and the Holders may rely on any
evaluation furnished by the Evaluator and shall have no responsibility for the
accuracy thereof.

SPONSORS

Each Sponsor 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. Merrill Lynch, Pierce,
Fenner & Smith Incorporated and Merrill Lynch Asset Management, a Delaware
corporation, each of which is a subsidiary of Merrill Lynch & Co., Inc., are
engaged in the investment advisory business. Smith Barney Shearson Inc., an
investment banking and securities broker-dealer firm, is an indirect
wholly-owned subsidiary of The Travelers 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. PaineWebber
Incorporated is engaged in the investment advisory business and is a wholly-
owned subsidiary of PaineWebber Group Inc. Dean Witter Reynolds Inc., a
principal operating subsidiary of Dean Witter, Discover & Co., is engaged in the
investment advisory business. Each Sponsor has acted as principal underwriter
and managing underwriter of other investment companies. The Sponsors, in
addition to participating as members of various selling groups or as agents of
other investment companies, execute orders on behalf of investment companies for
the purchase and sale of securities of these companies and sell securities to
these companies in their capacities as brokers or dealers in securities.

Each Sponsor (or a predecessor) has acted as Sponsor of various series of
Defined Asset Funds. A subsidiary of Merrill Lynch, Pierce, Fenner & Smith
Incorporated succeeded in 1970 to the business of Goodbody & Co., which had been
a co-Sponsor of Defined Asset Funds since 1964. That subsidiary resigned as
Sponsor of each of the Goodbody series in 1971. Merrill Lynch, Pierce, Fenner &
Smith Incorporated has been co-Sponsor and the Agent for the Sponsors of each
series of Defined Asset Funds created since 1971. Shearson Lehman Brothers Inc.
('Shearson') and certain of its predecessors were underwriters beginning in 1962
and co-Sponsors from 1965 to 1967 and from 1980 to 1993 of various Defined Asset
Funds. As a result of the acquisition of certain of Shearson's assets by Smith
Barney, Harris Upham & Co. Incorporated and Primerica Corporation (now The
Travelers

46
<PAGE>
Inc.), Smith Barney Shearson Inc. now serves as co-Sponsor of various Defined
Asset Funds. Prudential Securities Incorporated and its predecessors have been
underwriters of Defined Asset Funds since 1961 and co-Sponsors since 1964, in
which year its predecessor became successor co-Sponsor to the original Sponsor.
Dean Witter Reynolds Inc. and its predecessors have been underwriters of various
Defined Asset Funds since 1964 and co-Sponsors since 1974. PaineWebber
Incorporated and its predecessor have co-Sponsored certain Defined Asset Funds
since 1983.

The Sponsors have maintained secondary markets in Defined Asset Funds for
over 20 years. For decades informed investors have purchased unit investment
trusts for dependability and professional selection of investments. Defined
Asset Funds offers an array of simple and convenient investment choices, suited
to fit a wide variety of personal financial goals--a buy and hold strategy for
capital accumulation, such as for children's education or a nest egg for
retirement, or attractive, regular current income consistent with relative
protection of capital. There are Defined Funds to meet the needs of just about
any investor. Unit investment trusts are particularly suited for the many
investors who prefer to seek long-term profits by purchasing sound investments
and holding them, rather than through active trading. Few individuals have the
knowledge, resources, capital or time to buy and hold a diversified portfolio on
their own; it would generally take a considerable sum of money to obtain the
breadth and diversity offered by Defined Funds. Sometimes it takes a combination
of Defined Funds to plan for your objectives.

One of the most important decisions an investor faces may be how to
allocate his investments among asset classes. Diversification among different
kinds of investments can balance the risks and rewards of each one. Most
investment experts recommend stocks for long-term capital growth. Long-term
corporate bonds offer relatively high rates of interest income. By purchasing
both defined equity and defined bond funds, investors can receive attractive
current income as well as growth potential, offering some protection against
inflation.

The following chart shows the average annual compounded rate of return of
selected asset classes over the 10-year and 20-year periods ending December 31,
1992, compared to the rate of inflation over the same periods.

47
<PAGE>
Of course, this chart represents past performance of these investment categories
and there is no guarantee of future results, either of these categories or of
Defined Funds. Defined Funds also have sales charges and expenses, which are not
reflected in the chart.

Stocks (S&P 500)
20 yr 11.33%
10 yr 16.19%
Small-company stocks
20 yr 15.54%
10 yr 11.55%
Long-term corporate bonds
20 yr 9.54%
10 yr 13.14%
U.S. Treasury bills (short-term)
20 yr 7.70%
10 yr 6.95%
Consumer Price Index
20 yr 6.21%
10 yr 3.81%
0 2 4 6 8 10 12%

Source: Ibbotson Associates (Chicago).
Used with permission. All rights reserved.

Instead of having to select individual securities on their own, purchasers
of Defined Funds benefit from the expertise of Defined Asset Funds' experienced
buyers and research analysts. In addition, they gain the advantage of
diversification by investing in Units of a Defined Fund holding securities of
several different issuers. Such diversification can reduce risk, but does not
eliminate it. While the portfolio of a managed fund, such as a mutual fund,
continually changes, defined bond funds offer a defined portfolio and a schedule
of income distributions identified in the prospectus. Investors know, generally,
when they buy, the issuers, maturities, call dates and ratings of the securities
in the portfolio. Of course, the portfolio may change somewhat over time as
additional securities are deposited, as securities mature or are called or
redeemed or as they are sold to meet redemptions and in certain other limited
circumstances. Investors buy bonds for dependability--they know what they can
expect to earn and that principle is distributed as the bonds mature. Investors
also know at the time of purchase their estimated income and current and
long-term returns, subject to credit and market risks and to changes in the
portfolio or the fund's expenses.

48
<PAGE>
Defined Asset Funds offers a variety of fund types. The tax exemption of
municipal securities, which makes them attractive to high-bracket taxpayers, is
offered by Defined Municipal Investment Trust Funds. Municipal Defined Funds
offer a simple and convenient way for investors to earn monthly income free from
regular Federal income tax. Defined Municipal Investment Trust Funds have
provided investors with tax-free income for more than 30 years. Defined
Corporate Income Funds, with higher current returns than municipal or government
funds, are suitable for Individual Retirement Accounts and other tax-advantaged
accounts and provide monthly income. Defined Government Securities Income Funds
provide a way to participate in markets for U.S. government securities while
earning an attractive current return. Defined International Bond Funds, invested
in bonds payable in foreign currencies, offer the potential to profit from
changes in currency values and possibly from interest rates higher than paid on
comparable U.S. bonds, but investors incur a higher risk for these potentially
greater returns. Historically, stocks have offered growth of capital, and thus
some protection against inflation, over the long term. Defined Equity Income
Funds offer participation in the stock market, providing current income as well
as the possibility of capital appreciation. The S&P Index Trusts offer a
convenient and inexpensive way to participate in broad market movements. Concept
Series seek to capitalize on selected anticipated economic, political or
business trends. Utility Stock Series, consisting of stocks of issuers with
established reputations for regular cash dividends, seek to benefit from
dividend increases. Select Ten Portfolios seek total return by investing for one
year in the ten highest yielding stocks on a designated stock index.

DESCRIPTION OF RATINGS (as described by the rating company itself).

STANDARD & POOR'S CORPORATION

A Standard & Poor's rating on the units of an investment trust (hereinafter
referred to collectively as 'units' and 'funds') is a current assessment of
creditworthiness with respect to the investments held by the fund. This
assessment takes into consideration the financial capacity of the issuers and of
any guarantors, insurers, lessees, or mortgagors with respect to such
investments. The assessment, however, does not take into acount the extent to
which fund expenses will reduce payment to the unit holder of the interest and
principal required to be paid on portfolio assets. In addition, the rating is
not a recommendation to purchase, sell, or hold units, as the rating does not
comment as to market price of the units or suitability for a particular
investor.

AAA--Units rated AAA represent interests in funds composed exclusively of
securities that, together with their credit support, are rated AAA by Standard &
Poor's and/or certain short-term investments. This AAA rating is the highest
rating assigned by Standard & Poor's to a security. Capacity to pay interest and
repay principal is extremely strong.

AA--Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.

A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.

49
<PAGE>
BBB--Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.

BB, B, CCC, CC--Debt rated BB, B, CCC and CC is regarded, on balance, as
predominately speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.

The ratings may be modified by the addition of a plus or minus sign to show
relative standing within the major rating categories.

A provisional rating, indicated by 'p' following a rating, assumes the
successful completion of the project being financed by the issuance of the debt
being rated and indicates that payment of debt service requirements is largely
or entirely dependent upon the successful and timely completion of the project.
This rating, however, while addressing credit quality subsequent to completion
of the project, makes no comment on the likelihood of, or the risk of default
upon failure of, such completion.

MOODY'S INVESTORS SERVICE

Aaa--Bonds which are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred to as
'gilt edge'. Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.

A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.

Baa--Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

50
<PAGE>
Ba--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

Rating symbols may include numerical modifiers 1, 2 or 3. The numerical
modifier 1 indicates that the security ranks at the high end, 2 in the
mid-range, and 3 nearer the low end, of the generic category. These modifiers
are to give investors a more precise indication of relative debt quality in each
of the historically defined categories.

Conditional ratings, indicated by 'Con.', are sometimes given when the
security for the bond depends upon the completion of some act or the fulfillment
of some condition. Such bonds are given a conditional rating that denotes their
probable credit stature upon completion of that act or fulfillment of that
condition.

EXCHANGE OPTION

ELECTION

Holders may elect to exchange any or all of their Units of a Trust for
units of one or more of the series of Funds listed in the table set forth below
(the 'Exchange Funds'), which normally are sold in the secondary market at
prices which include the sales charge indicated in the table. Certain series of
the Funds listed have lower maximum applicable sales charges than those stated
in the table; also the rates of sales charges may be changed from time to time.
No series with a maximum applicable sales charge of less than 3.50% of the
public offering price is eligible to be acquired under the Exchange Option, with
the following exceptions: (1) Freddie Mac Series may be acquired by exchange
during the initial offering period from any of the Exchange Funds listed in the
table and (2) Units of any Select Ten Portfolio, if available, may be acquired
during their initial offering period or thereafter by exchange from any Exchange
Fund Series; units of Select Ten Portfolios may be exchanged only for units of
another Select Ten Series, if available. Units of the Exchange Funds may be
acquired at prices which include the reduced sales charge for Exchange Fund
units listed in the table, subject, however, to these important limitations:

First, there must be a secondary market maintained by the Sponsors in
units of the series being exchanged and a primary or secondary market in
units of the series being acquired and there must be units of the
applicable Exchange Fund lawfully available for sale in the state in which
the Holder is resident. There is no legal obligation on the part of the
Sponsors to maintain a market for any units or to maintain the legal
qualification for sale of any of these units in any state or states.
Therefore, there is no assurance that a market for units will in fact exist
or that any units will be lawfully available for sale on any given date at
which a

51
<PAGE>
Holder wishes to sell his Units of this Series and thus there is no
assurance that the Exchange Option will be available to any Holder.

Second, 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 set forth in the table below 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.

Third, 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 Holder will be permitted to add
cash in an amount to round up to the next highest number of whole units.

Fourth, the Sponsors reserve the right to modify, suspend or terminate
the Exchange Option at any time without further notice to Holders. In the
event the Exchange Option is not available to a Holder at the time he
wishes to exercise it, the Holder will be immediately notified and no
action will be taken with respect to his Units without further instruction
from the Holder.

PROCEDURES

To exercise the Exchange Option, a Holder should notify one of the Sponsors
of his desire to use the proceeds from the sale of his Units of this Series to
purchase units of one or more of the Exchange Funds. If units of the applicable
outstanding series of the Exchange Fund are at that time available for sale, the
Holder may select the series or group of series for which he desires his Units
to be exchanged. Of course, the Holder will be provided with a current
prospectus or prospectuses relating to each series in which he indicates
interest. The exchange transaction will operate in a manner essentially
identical to any secondary market transaction, i.e., Units will be repurchased
at a price equal to the aggregate bid side evaluation per Unit of the Securities
in the Portfolio plus accrued interest. Units of the Exchange Fund will be sold
to the Holder at a price equal to the bid side evaluation per unit of the
underlying securities in the Portfolio plus interest plus the applicable sales
charge listed in the table below. Units of Equity Income Fund are sold, and will
be repurchased, at a price normally based on the closing sale prices on the New
York Stock Exchange, Inc. of the underlying securities in the Portfolio. The
maximum applicable sales charges for units of the Exchange Funds are also listed
in the table. Excess proceeds not used to acquire whole Exchange Fund units will
be paid to the exchanging Holder.

CONVERSION OPTION

Owners of units of any registered unit investment trust sponsored by others
which was initially offered at a maximum applicable sales charge of at least
3.0% ('Conversion Trust') may elect to apply the cash proceeds of sale or
redemption of those units directly to acquire available units of any Exchange
Fund at the reduced sales charge, subject to the terms and conditions applicable
to the Exchange Option (except that no secondary market is required in
Conversion Trust units). 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 broker must sell or redeem
the units of the Conversion Trust. Any broker other than a Sponsor must certify
to the Sponsors that

52
<PAGE>
the purchase of units of the Exchange Fund is being made pursuant to and is
eligible for this conversion option. The broker will be entitled to two thirds
of the applicable reduced sales charge. The Sponsors reserve the right to
modify, suspend or terminate the conversion option at any time without further
notice, including the right to increase the reduced sales charge applicable to
this option (but not in excess of $5 more per unit than the corresponding fee
then charged for the Exchange Option).

THE EXCHANGE FUNDS

The current return from taxable fixed income securities is normally higher
than that available from tax exempt fixed income securities. Certain of the
Exchange Funds do not provide for periodic payments of interest and are best
suited for purchase by IRA's, Keogh plans, pension funds or other tax-deferred
retirement plans. Consequently, some of the Exchange Funds may be inappropriate
investments for some Holders and therefore may be inappropriate exchanges for
Units of this Series. The table below indicates certain characteristics of each
of the Exchange Funds which a Holder should consider in determining whether each
Exchange Fund would be an appropriate investment vehicle and an appropriate
exchange for Units of this Series.

TAX CONSEQUENCES

An exchange of Units pursuant to the Exchange or Conversion Option for
units of a series of another Fund should constitute a 'taxable event' under the
Code, requiring a Holder to recognize a tax gain or loss, subject to the
following limitation. The Internal Revenue Service may seek to disallow a loss
(or a pro rata portion thereof) on an exchange of units if the units received by
a Holder in connection with such an exchange represent securities that are not
materially different from the securities that his previous units represented
(e.g., both Funds contain securities issued by the same obligor that have the
same material terms). Holders are urged to consult their own tax advisers as to
the tax consequences to them of exchanging units in particular cases.

EXAMPLE

Assume that a Holder, who has three units of a fund with a 5.50% sales
charge in the secondary market and a current price (based on bid side evaluation
plus accrued interest) of $1,100 per unit, sells his units and exchanges the
proceeds for units of a series of an Exchange Fund with a current price of $950
per unit and the same sales charge. The proceeds from the Holder's units will
aggregate $3,300. Since only whole units of an Exchange Fund may be purchased
under the Exchange Option, the Holder would be able to acquire four units in the
Exchange Fund 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 Holder to
acquire the same number of units at the same time in the regular secondary
market maintained by the Sponsors, the price would be $4,021.16 ($3,800 for the
units and $221.16 for the 5.50% sales charge).

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<PAGE>
<TABLE><CAPTION>
MAXIMUM REDUCED
NAME OF APPLICABLE SALES CHARGE FOR INVESTMENT
EXCHANGE FUND SALES CHARGE* SECONDARY MARKET** CHARACTERISTICS
- --------------------------------------------- --------------- ----------------------- ---------------------------------------
<S> <C> <C> <C>
DEFINED ASSET FUNDS-- GOVERNMENT SECURITIES
INCOME FUND
GNMA Series (other than those below) 4.25% $15 per unit long-term, fixed rate, taxable income,
underlying securities backed by the
full faith and credit of the United
States
GNMA Series E or other GNMA Series having 4.25% $15 per 1,000 units long-term, fixed rate, taxable income,
units with an initial face value of underlying securities backed by the
$1.00 full faith and credit of the United
States, appropriate for IRA's or
tax-deferred retirement plans
Freddie Mac Series 3.50% $15 per 1,000 units intermediate term, fixed rate, taxable
income, underlying securities are
backed by Federal Home Loan Mortgage
Corporation but not by U.S. Government
DEFINED ASSET FUNDS-- INTERNATIONAL BOND FUND
Multi-Currency Series 5.50% $15 per unit intermediate-term, fixed rate, payable
in foreign currencies, taxable income
Australian and New Zealand Dollar Bonds 3.75% $15 per unit intermediate-term, fixed rate, payable
Series in Australian and New Zealand dollars,
taxable income
Australian Dollar Bonds Series 3.75% $15 per unit intermediate-term, fixed rate, payable
in Australian dollars, taxable income
Canadian Dollar Bonds Series 3.75% $15 per unit short intermediate term, fixed rate,
payable in Canadian dollars, taxable
income
DEFINED ASSET FUNDS--MUNICIPAL INVESTMENT
TRUST FUND
Monthly Payment, State and Multistate 5.50%+ $15 per unit long-term, fixed-rate, tax-exempt in-
Series come
Intermediate Term Series 4.75%+ $15 per unit intermediate-term, fixed rate, tax-ex-
empt income
Insured Series 5.50%+ $15 per unit long-term, fixed-rate, tax-exempt cur-
rent income, underlying securities in-
sured by insurance companies
AMT Monthly Payment Series 5.50%+ $15 per unit long-term, fixed rate, income exempt
from regular federal income tax but
partially subject to Alternative
Minimum Tax.
DEFINED ASSET FUNDS--MUNICIPAL INCOME FUND
Insured Discount Series 5.50%+ $15 per unit long-term, fixed rate, tax-exempt cur-
rent income, taxable capital gains
</TABLE>

- ---------------
* As described in the prospectuses relating to certain Exchange Funds, this
sales charge for secondary market sales may be reduced on a graduated scale
in the case of quantity purchases.
** The reduced sales charge for Units acquired during their initial offering
period is: $20 per unit for Series for which the Reduced Sales Charge for
Secondary Market (above) is $15 per unit; $20 per 1,000 units for Series
for which the Reduced Sales Charge for Secondary Market (above) is $15 per
1,000 units.

54
<PAGE>

<TABLE><CAPTION>
MAXIMUM REDUCED
NAME OF APPLICABLE SALES CHARGE FOR INVESTMENT
EXCHANGE FUND SALES CHARGE* SECONDARY MARKET** CHARACTERISTICS
- --------------------------------------------- --------------- ----------------------- ---------------------------------------
<S> <C> <C> <C>
DEFINED ASSET FUNDS--CORPORATE INCOME FUND
Monthly Payment Series 5.50% $15 per unit long-term, fixed rate, taxable income
Intermediate Term Series 4.75% $15 per unit intermediate-term, fixed rate, taxable
income
Cash or Accretion Bond Series and SELECT 3.50% $15 per 1,000 units intermediate-term, fixed rate,
Series underlying securities composed of
compound interest obligations
principally secured by collateral
backed by the full faith and credit of
the United States, taxable return,
appropriate for IRA's or tax-deferred
retirement plans
Insured Series 5.50% $15 per unit long-term, fixed rate, taxable income,
underlying securities are insured
DEFINED ASSET FUNDS--EQUITY INCOME FUND
Utility Common Stock Series 4.50% $15 per 1,000 units++ dividends, taxable income, underlying
securities are common stocks of public
utilities
Concept Series 4.00% $15 per 100 units underlying securities constitute a
professionally selected portfolio of
common stocks consistent with an
investment idea or concept
Select Ten Portfolios 2.75% $17.50 per 1,000 units 10 highest dividend yielding stocks in
(both domestic and international) a specified securities Index; seeks
higher total return than that Index;
terminates after one year
</TABLE>

** The reduced sales charge for Units acquired during their initial offering
period is: $20 per unit for Series for which the Reduced Sales Charge for
Secondary Market (above) is $15 per unit; $20 per 100 units for Series for
which the Reduced Sales Charge for Secondary Market is $15 per 100 units;
and $20 per 1,000 units for Series for which the Reduced Sales Charge for
Secondary Market is $15 per 1,000 units.

+ Subject to reduction depending on the maturities of the underlying
Securities.

++ The reduced sales charge for Utility Common Stock Series 6 is $15 per 2,000
units and for prior Utility Common Stock Series is $7.50 per unit.

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<PAGE>
APPENDIX

THE FLORIDA TRUST

The Portfolio of the Florida Trust contains different issues of debt
obligations issued by or on behalf of the State of Florida (the 'State') and
counties, municipalities and other political subdivisions and other public
authorities thereof or by the Government of Puerto Rico or the Government of
Guam or by their respective authorities, all rated in the category A or better
by at least one national rating organization (see Investment Summary).
Investment in the Florida Trust should be made with an understanding that the
value of the underlying Portfolio may decline with increases in interest rates.

RISK FACTORS--The State Economy. In 1980 Florida ranked seventh among the
fifty states with a population of 9.7 million people. The State has grown
dramatically since then and now ranks fourth with an estimated population of
13.4 million, an increase of approximately 41.5% since 1980. Since 1982
migration has been fairly steady with an average of 252,000 new residents each
year. 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%. Non-farm employment has
grown by approximately 57.9% since 1980. The service sector is Florida's largest
employment sector presently accounting for 31.7% of total non-farm employment.
Manufacturing jobs in Florida are concentrated in the area of high-tech and
value added sectors, such as electrical and electronic equipment as well as
printing and publishing. Job gains in Florida's manufacturing sector have
exceeded national averages increasing by 8.4% between 1980 and 1992. Foreign
Trade has contributed significantly to Florida's employment growth. Florida's
dependence on highly cyclical construction and construction related
manufacturing has declined. Total contract construction employment as a share of
total non-farm employment has fallen from 10% in 1973, to 7% in 1980 to 5% in
1992. Although the job creation rate for the State of Florida since 1980 is over
two times the rate for the nation as a whole, since 1989 the unemployment rate
for the State has risen faster than the national average. The average rate of
unemployment for Florida since 1980 is 6.5%, while the national average is 7.1%.
Because Florida has a proportionately greater retirement age population,
property income (dividends, interest and rent) and transfer payments (social
security and pension benefits) are a relatively more important source of income.
In 1992, Florida employment income represented 61% of total personal income
while nationally, employment income represented 72% of total personal income.

On August 24, 1992, Hurricane Andrew passed through South Florida. Property
damage is estimated to be between $20 and $30 billion. The office of the
Governor has estimated that the costs to State and local governments for
emergency services and damage to public facilities and infrastructure are
approximately $1 billion. The Governor's office has estimated lost State revenue
to be between $21.5 million and $38.5 million including utilities taxes, lottery
revenues, tolls and State Park fees. For the local governments in Dade County
and the Dade County School Board lost revenues are estimated to be between
$155.9 million and $258.6 million as a result of reduction in property values.

The U.S. Congress has passed a disaster aid package which will provide
$10.6 billion in aid to South Florida. This includes Federal Emergency
Management Agency ('FEMA') payments to State and local governments for repair to
facilities owned by local governments, schools and universities, additional
costs for debris removal and public safety services related to the hurricane and
grants to State local governments to make up for lost revenue. Also included is
funding for grants and loans to individuals for small business assistance,
economic development, housing allowance and repairs. The State will be required
to match the FEMA funding for those grants and loans with $32.5 million of State
and local money. FEMA also has an Individual and Family Grants Program which is
available to uninsured and under-insured households through which up to $11,500
per household is available to help cover losses. The State will be required to
match this program 25% to the FEMA's 75%. At this time, the State estimates its
matching requirement will not exceed $100 million.

The Florida Revenue Estimating Conference has estimated additional
non-recurring General Revenues as a result of the hurricane totalling $501.3
million during fiscal years 1992-93 and 1993-94. In a special session of the
Legislature held December 9 to December 11, 1992, the Legislature enacted a law
that sets aside an estimated $488.9 million of the $501.3 million to be used by
State and local government agencies to defray a wide array of expeditures
related to Hurricane Andrew.

The ability of the State and its local units of government to satisfy the
Debt Obligations may be affected by numerous factors which impact on the
economic vitality of the State in general and the particular region of the

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State in which the issuer of the Debt Obligation is located. South Florida is
particularly susceptible to international trade and currency imbalances and to
economic dislocations in Central and South America, due to its geographical
location and its involvement with foreign trade, tourism and investment capital.
The central and northern portions of the State are impacted by problems in the
agricultural sector, particularly with regard to the citrus and sugar
industries. Short-term adverse economic conditions may be created in these
areas, and in the State as a whole, due to crop failures, severe weather
conditions or other agriculture-related problems. The State economy also has
historically been somewhat dependent on the phosphate industry and the tourism
and construction industries and is sensitive to trends in those sectors.

The State Budget. The State operates under a biennial budget which is
formulated in even numbered years and presented for approval to the Legislature
in odd numbered years. A supplemental budget request process is utilized in the
even numbered years for refining and modifying the primary budget. Under the
State Constitution and applicable statutes, the State budget as a whole, and
each separate fund within the State budget, must be kept in balance from
currently available revenues during each State fiscal year. (The State's fiscal
year runs from July 1 through June 30). The Governor and the Comptroller of the
State are charged with the responsibility of ensuring that sufficient revenues
are collected to meet appropriations and that no deficit occurs in any State
fund.

The financial operations of the State covering all receipts and
expenditures are maintained through the use of three types of funds: the General
Revenue Fund, Trust Funds and Working Capital Fund. The majority of the State's
tax revenues are deposited in the General Revenue Fund and moneys in the General
Revenue Fund are expended pursuant to appropriations acts. In fiscal year
1990-91 expenditures for education, health and welfare and public safety
represented approximately 53%, 30% and 13.3% respectively, of expenditures from
the General Revenue Fund. The Trust Funds consist of moneys received by the
State which under law or trust agreement are segregated for a purpose authorized
by law. Revenues in the General Revenue Fund which are in excess of the amount
needed to meet appropriations may be transferred to the Working Capital Fund.

State Revenues. Estimated revenues of $12,004.1 million for 1992-93
(excluding Hurricane Andrew related revenues and expenses) represent an increase
of 10.1% over revenues for 1991-92. Effective appropriations for 1992-93 of
$11,852.92 million, would result in unencumbered reserves at fiscal year end of
$439.9 million. Estimated Revenue for 1993-94 of $13,010 million (excluding
Hurricane Andrew impacts) plus the impacts of Revenue Producing Positions and
Revenue Bills enacted by the 1993 Legislature represent an increase of 8.4% over
1992-1993.

In fiscal year 1991-1992, the State derived approximately 64%of its total
direct revenues for deposit in the General Revenue Fund, Trust Funds and Working
Capital Fund from State taxes. Federal grants and other special revenues
accounted for the remaining revenues. The greatest single source of tax receipts
in the State is the 6% sales and use tax. For the fiscal year ended June 30,
1992, receipts from the sales and use tax totaled $8,375.5 million, an increase
of approximately 2.7% over fiscal year 1990-91. The second largest source of
State tax receipts is the tax on motor fuels including the tax receipts
distributed to local governments. Receipts from the taxes on motor fuels are
almost entirely dedicated to trust funds for specific purposes or transferred to
local governments and are not included in the General Revenue Fund. For the
fiscal year ended June 30, 1992, collections of this tax totaled $1,475.5
million.

The State currently does not impose a personal income tax. However, the
State does impose a corporate income tax on the net income of corporations,
organizations, associations and other artificial entities for the privilege of
conducting business, deriving income or existing within the State. For the
fiscal year ended June 30, 1992, receipts from the corporate income tax totaled
$801.3 million, an increase of approximately 14.2% from fiscal year 1990-91. The
Documentary Stamp Tax collections totalled $472.4 million during fiscal year
1991-92, or approximately 0.5% over fiscal year 1990-91. The Alcoholic Beverage
Tax, an excise tax on beer, wine and liquor totaled $435.2 million in 1991-92, a
decrease of $10.2 million from fiscal year 1990-91. The Florida lottery produced
sales of $2.19 billion of which $835.4 million was used for education in fiscal
year 1991-92.

While the State does not levy ad valorem taxes on real property or tangible
personal property, counties, municipalities and school districts are authorized
by law, and special districts may be authorized by law, to levy ad valorem
taxes. Under the State Constitution, ad valorem taxes may not be levied by
counties, municipalities, school districts and water management districts in
excess of the following respective millages upon the assessed value of real
estate and tangible personal property: for all county purposes, ten mills; for
all municipal purposes, ten mills; for all school purposes, ten mills; and for
water management purposes, either 0.05 mill or 1.0 mill, depending upon
geographic location. These millage limitations do not apply to taxes levied for
payment of bonds

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and taxes levied for periods not longer than two years when authorized by a vote
of the electors. (Note: one mill equals one-tenth of one cent).

The State Constitution and statutes provide for the exemption of homesteads
from certain taxes. The homestead exemption is an exemption from all taxation,
except for assessments for special benefits, up to a specific amount of the
assessed valuation of the homestead. This exemption is available to every person
who has the legal or equitable title to real estate and maintains thereon his or
her permanent home. All permanent residents of the State are currently entitled
to a $25,000 homestead exemption from levies by all taxing authorities, however,
such exemption is subject to change upon voter approval.

On November 3, 1992, the voters of the State of Florida passed an amendment
to the Florida Constitution establishing a limitation on the annual increase in
assessed valuation of homestead property commencing January 1, 1994, of the
lesser of 3% or the increase in the Consumer Price Index during the relevant
year, except in the event of a sale thereof during such year, and except as to
improvements thereto during such year. The amendment did not alter any of the
millage rates described above.

Since municipalities, counties, school districts and other special purpose
units of local governments with power to issue general obligation bonds have
authority to increase the milage levy for voter approved general obligation debt
to the amount necessary to satisfy the related debt service requirements, the
amendment is not expected to adversely affect the ability of these entities to
pay the principal of or interest on such general obligation bonds. However, in
periods of high inflation, those local government units whose operating millage
levies are approaching the constitutional cap and whose tax base consists
largely of residential real estate, may, as a result of the above-described
amendment, need to place greater reliance on non-advalorem revenue sources to
meet their operating budget needs.

State General Obligation Bonds and State Revenue Bonds. The State
Constitution does not permit the State to issue debt obligations to fund
governmental operations. Generally, the State Constitution authorizes State
bonds pledging the full faith and credit of the State only to finance or
refinance the cost of State fixed capital outlay projects, upon approval by a
vote of the electors, and provided that the total outstanding principal amount
of such bonds does not exceed 50% of the total tax revenues of the State for the
two preceding fiscal years. Revenue bonds may be issued by the State or its
agencies without a vote of the electors only to finance or refinance the cost of
State fixed capital outlay projects which are payable solely from funds derived
directly from sources other than State tax revenues.

Exceptions to the general provisions regarding the full faith and credit
pledge of the State are contained in specific provisions of the State
Constitution which authorize the pledge of the full faith and credit of the
State, without electorate approval, but subject to specific coverage
requirements, for: certain road projects, county education projects, State
higher education projects, State system of Public Education and, construction of
air and water pollution control and abatement facilities, solid waste disposal
facilities and certain other water facilities.

Local Bonds. The State Constitution provides that counties, school
districts, municipalities, special districts and local governmental bodies with
taxing powers may issue debt obligations payable from ad valorem taxation and
maturing more than 12 months after issuance, only (i) to finance or refinance
capital projects authorized by law, provided that electorate approval is
obtained; or (ii) to refund outstanding debt obligations and interest and
redemption premium thereon at a lower net average interest cost rate.

Counties, municipalities and special districts are authorized to issue
revenue bonds to finance a variety of self-liquidating projects pursuant to the
laws of the State, such revenue bonds to be secured by and payable from the
rates, fees, tolls, rentals and other charges for the services and facilities
furnished by the financed projects. Under State law, counties and municipalities
are permitted to issue bonds payable from special tax sources for a variety of
purposes, and municipalities and special districts may issue special assessment
bonds.

Bond Ratings. General obligation bonds of the State are currently rated Aa
by Moody's and AA by Standard & Poor's.

Litigation. Due to its size and its broad range of activities, the State
(and its officers and employees) are involved in numerous routine lawsuits. The
managers of the departments of the State involved in such routine lawsuits
believe that the results of such pending litigation would not materially affect
the State's financial position. In addition to the routine litigation pending
against the State, its officers and employees, the following lawsuits and claims
are also pending: (i) claims for refunds of taxes paid to the State by
manufacturers and distributors of alcoholic beverages. The United States Supreme
Court upheld the unconstitutionality of the tax and required that

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the State either refund the taxes paid by the plaintiffs or retroactively
increase the taxes of taxpayers who benefitted by the unconstitutional tax. The
State chose to seek recovery of taxes from those who benefitted by the tax
preferences. On March 4, 1993, the State's proposed remedy was found to be
unconstitutional by the Circuit Court. The State has appealed the decision. If
refunds are made, the liability is estimated at $335 million; (ii) claims for
refunds of a tax on insurance premiums paid to the State by out of state
insurance companies. The Second Circuit Court of the State of Florida held the
tax to be unconstitutional. The Florida Supreme Court reversed the trial court
in favor of the State and plaintiffs have petitioned for certiorari to the U.S.
Supreme Court. If refunds are made, the liability is estimated at $200 million;
(iii) a class action suit brought against the Department of Corrections,
alleging race discrimination in hiring and employment practices. The Department
prevailed except for partial summary judgment relating to a plaintiff sub-class,
which order, as to the sub-class, was subsequently vacated by the Appeals Court
and upheld by U.S. Supreme Court. Several successor lawsuits were consolidated
and final judgment entered in favor of the State. This judgment has been
appealed to the Court of Appeals. The liability of the State, if plaintiffs
prevail could amount to $41.5 million; (iv) challenges to the constitutionality
of the state intangibles tax seeking $25 million; (v) a claim by plaintiffs that
the Florida Highway Patrol is in violation of a consent decree regarding
employment discrimination based on race and sex. If the Department of Justice
determines to reopen the litigation the potential liability is estimated to
exceed $30 million; (vi) inverse condemnation claim by a petroleum company that
legislative action affecting its leases constitutes a taking of property without
compensation. The state believes that the likelihood of plaintiff's recovery is
very small and that even if the state is held liable the plaintiff cannot prove
damages; (vii) damages sought in the amount of $88.5 million against an employee
of the Florida Parole Commission as a result of a clemency death-row
investigation conducted by the Commission. The Magistrate assigned by the trial
court has filed a report recommending the case be dismissed and the matter is
awaiting an order and final judgment; (viii) action for declaration that the
state legislature's recision of a 3% pay raise of certain State employees was
unconstitutional. The Circuit Court found for the plaintiffs and the State has
appealed. If the plaintiff is successful an amount approximating $54 million for
each year (commencing 1992), plus interest for each year until the litigation is
concluded will have to be appropriated by the Legislature; (ix) inverse
condemnation by regulatory taking of property without compensation relating to
certain environmentally sensitive land. The costs at condemnation proceedings,
if successful, are estimated to be $30 million plus interest from 1975; (x)
challenge to constitutionality of $295 fee imposed on each previously titled
vehicle registered in the state. The potential refund exposure is currently
unknown; (xi) shareholder's derivative claims for civil rights violations, fraud
and conspiracy against the Florida Department of Citrus. Federal district court
dismissed the case and shareholder plaintiff has appealed. Complaint seeks $200
million in damages; and (xii) complaint for declaratory relief by a county
requests finding that Florida law does not permit the State Department of
Revenue to deduct unrelated administrative expenses from the County's gas tax
collected by the State and seeks a refund of all moneys unlawfully withheld. The
plaintiff seeks $45 million in refunds.

Summary. Many factors including national, economic, social and
environmental policies and conditions, most of which are not within the control
of the State or its local units of government, could affect or could have an
adverse impact on the financial condition of the State. Additionally, the
limitations placed by the State Constitution on the State and its local units of
government with respect to income taxation, ad valorem taxation, bond
indebtedness and other matters discussed above, as well as other applicable
statutory limitations, may constrain the revenue-generating capacity of the
State and its local units of government and, therefore, the ability of the
issuers of the Debt Obligations to satisfy their obligations thereunder.

The Sponsors believe that the information summarized above describes some
of the more significant matters relating to the Florida Trust. For a discussion
of the particular risks with each of the Debt Obligations, and other factors to
be considered in connection therewith, reference should be made to the Official
Statements and other offering materials relating to each of the Debt Obligations
included in the portfolio of the Florida Trust. The foregoing information
regarding the State, its political subdivisions and its agencies and authorities
constitutes a brief summary, does not purport to be a complete description of
the matters covered and is based solely upon information drawn from official
statements relating to offerings of general obligation bonds of the State. The
Sponsors and their counsel have not independently verified this information and
the Sponsors have no reason to believe that such information is incorrect in any
material respect. None of the information presented in this summary is relevant
to Puerto Rico or Guam Debt Obligations which may be included in the Florida
Trust.

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For a general description of the risks associated with the various types of
Debt Obligations comprising the Florida Trust, see the discussion under 'Risk
Factors', above.

FLORIDA TAXES

In the opinion of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel,
P.A., Miami, Florida, special counsel on Florida tax matters, under existing
Florida law:

1. The Florida Trust will not be subject to income, franchise or other
taxes of a similar nature imposed by the State of Florida or its
subdivisions, agencies or instrumentalities.

2. Because Florida does not impose a personal income tax, non-corporate
Holders of Units of the Florida Trust will not be subject to any Florida
income taxes with respect to (i) amounts received by the Florida Trust on
the Debt Obligations it holds; (ii) amounts which are distributed by the
Florida Trust to non-corporate Holders of Units of the Florida Trust; or
(iii) any gain realized on the sale or redemption of Debt Obligations by
the Florida Trust or of a Unit of the Florida Trust by a non-corporate
Holder. However, corporations as defined in Chapter 220, Florida Statutes
(1991), which are otherwise subject to Florida income taxation will be
subject to tax on their respective share of any income and gain realized by
the Florida Trust and on any gain realized by a corporate Holder on the
sale or redemption of Units of the Florida Trust by the corporate Holder.

3. The Units will be subject to Florida estate taxes only if held by
Florida residents, or if held by non-residents deemed to have business
situs in Florida. The Florida estate tax is limited to the amount of the
credit for state death taxes provided for in Section 2011 of the Internal
Revenue Code of 1986, as amended.

4. Bonds issued by the State of Florida or its political subdivisions
are exempt from Florida intangible personal property taxation under Chapter
199, Florida Statutes (1991), as amended. Bonds issued by the Government of
Puerto Rico or by the Government of Guam, or by their authority, are exempt
by Federal statute from taxes such as the Florida intangible personal
property tax. Thus, the Florida Trust will not be subject to Florida
intangible personal property tax on any Debt Obligations in the Florida
Trust issued by the State of Florida or its political subdivisions, by the
Government of Puerto Rico or by its authority or by the Government of Guam
or by its authority. In addition, the Units of the Florida Trust will not
be subject to the Florida intangible personal property tax if the Florida
Trust invests solely in such Florida, Puerto Rico or Guam debt obligations.

THE MASSACHUSETTS TRUST

The Portfolio of the Massachusetts Trust contains different issues of
long-term debt obligations issued by or on behalf of the Commonwealth of
Massachusetts (the 'Commonwealth') and counties, municipalities and other
political subdivisions and other public authorities thereof or by the Government
of Puerto Rico or the Government of Guam or by their respective authorities, all
rated in the category A or better by at least one national rating organization
(see Investment Summary). Investment in the Massachusetts Trust should be made
with an understanding that the value of the underlying Portfolio may decline
with increases in interest rates.

RISK FACTORS--The Commonwealth of Massachusetts and certain of its cities
and towns have at certain times in the recent past undergone serious financial
difficulties which have adversely affected and, to some degree, continue to
adversely affect their credit standing. These financial difficulties could
adversely affect the market values and marketability of, or result in default in
payment on, outstanding bonds issued by the Commonwealth or its public
authorities or municipalities, including the Debt Obligations deposited in the
Trust. The following description highlights some of the more significant
financial problems of the Commonwealth and the steps taken to strengthen its
financial condition.

The effect of the factors discussed below upon the ability of Massachusetts
issuers to pay interest and principal on their obligations remains unclear and
in any event may depend on whether the obligation is a general or revenue
obligation bond (revenue obligation bonds being payable from specific sources
and therefore generally less affected by such factors) and on what type of
security is provided for the bond. In order to constrain future debt service
costs, the Executive Office for Administration and Finance established in
November, 1988 an annual fiscal year limit on capital spending of $925 million,
effective fiscal 1990. In January, 1990, legislation was enacted to impose a
limit on debt service in Commonwealth budgets beginning in fiscal 1991. The law
provides that no more than 10% of the total appropriations in any fiscal year
may be expended for payment of interest and principal on general obligation debt
of the Commonwealth (excluding the Fiscal Recovery Bonds discussed below). It
should also be noted that Chapter 62F of the Massachusetts General Laws
establishes a state tax revenue growth limit and does not exclude principal and
interest due on Massachusetts debt obligations from the scope of

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the limit. It is possible that other measures affecting the taxing or spending
authority of Massachusetts or its political subdivisions may be approved or
enacted in the future.

The Commonwealth has waived its sovereign immunity and consented to be sued
under contractual obligations including bonds and notes issued by it. However,
the property of the Commonwealth is not subject to attachment or levy to pay a
judgment, and the satisfaction of any judgment generally requires legislative
appropriation. Enforcement of a claim for payment of principal of or interest on
bonds and notes of the Commonwealth may also be subject to provisions of federal
or Commonwealth statutes, if any, hereafter enacted extending the time for
payment or imposing other constraints upon enforcement, insofar as the same may
be constitutionally applied. The United States Bankruptcy Code is not applicable
to states.

Cities and Towns. During recent years limitations were placed on the
taxing authority of certain Massachusetts governmental entities that may impair
the ability of the issuers of some of the Debt Obligations in the Massachusetts
Trust to maintain debt service on their obligations. Proposition 2 1/2, passed
by the voters in 1980, led to large reductions in property taxes, the major
source of income for cities and towns. As a result, between fiscal 1981 and
fiscal 1989, the aggregate property tax levy declined in real terms by 15.6%.

Since Proposition 2 1/2 did not provide for any new state or local taxes to
replace the lost revenues, in lieu of substantial cuts in local services the
Commonwealth began to increase local aid expenditures. In 1981 constant dollars,
total direct local aid expenditures increased by 58.5% between fiscal years 1981
and 1989, or 5.9%per year. During the same period, the total of all other local
revenue sources declined by 5.87% or 0.75% per year. Despite the substantial
increases in local aid from fiscal 1981 to fiscal 1989, local spending increased
at an average rate of 1% per year in real terms. Direct local aid for fiscal
1987, 1988, and 1989 was $2.601 billion, $2.769 billion, and $2.961 billion,
respectively. Direct local aid declined in the three subsequent years to $2.937
billion in fiscal 1990, $2.608 billion in 1991 and $2.328 billion in 1992 and
increased to $2.547 billion in 1993. It is estimated that fiscal 1994
expenditures for direct local aid will be $2.737 billion, which is an increase
of approximately 7.5% above the fiscal 1993 level. The additional amount of
indirect local aid provided over and above the direct local aid is estimated to
have been $1.313 billion in fiscal 1991, $1.265 billion in fiscal 1992 and
$1.712 billion in fiscal 1993 and is estimated to be approximately $1.717
billion in fiscal 1994.

Many communities have responded to the limitations imposed by Proposition
2 1/2 through statutorily permitted overrides and exclusions. Override activity
peaked in fiscal 1991, when 182 communities attempted votes on one of the three
types of referenda questions (override of levy limit, exclusion of debt service,
or exclusion of capital expenditures) and 100 passed at least one question,
adding $58.5 million to their levy limits. In fiscal 1992, 67 of 143 communities
had successful votes totalling $31.0 million. In fiscal 1993, 83 communities
attempted a vote; two-thirds of them (56) passed questions aggregating $16.4
million.

A statewide voter initiative petition which would effectively mandate that,
commencing with fiscal 1992, no less than 40% of receipts from personal income
taxes, sales and use taxes, corporate excise taxes and lottery fund proceeds be
distributed to certain cities and towns in local aid was approved in the general
election held November 6, 1990. Pursuant to this petition, the local aid
distribution to each city or town was to equal no less than 100% of the total
local aid received for fiscal 1989. Distributions in excess of fiscal 1989
levels were to be based on new formulas that would replace the current local
aide distribution formulas. If implemented in accordance with its terms
(including appropriation of the necessary funds), the petition as approved would
shift several hundred million dollars to direct local aid. However, local aid
payments explicitly remain subject to annual appropriation, and fiscal 1992 and
fiscal 1993 appropriations for local aid did not meet, and fiscal 1994
appropriations for local aid do not meet, the levels set forth in the initiative
law.

Pension Liabilities. The Commonwealth had funded its two pension systems
on essentially a pay-as-you-go basis. The funding schedule is based on actuarial
valuations of the two pension systems as of January 1, 1990, at which time the
unfunded accrued liability for such systems operated by the Commonwealth (and
including provision for Boston teachers) totalled $8.865 billion. The unfunded
liability for the Commonwealth related to cost of living increases for local
retirement systems was estimated to be an additional $2.004 billion as of
January 1, 1990. An actuarial valuation as of January 1, 1992 shows that, as of
such date, the total unfunded actuarial liability for such systems, including
cost-of-living allowances, was approximately $8.485 billion representing a
reduction of approximately $2.383 billion from January 1, 1990.

The amount in the Commonwealth's pension reserve, established to address
the unfunded liabilities of the two state systems, has increased significantly
in recent years due to substantial appropriations and changes in law relating to
investment of retirement system assets. Total appropriations and transfers to
the reserve in fiscal years 1985, 1986, 1987 and 1988 amounted to approximately
$680 million. Comprehensive pension legislation approved in January 1988
committed the Commonwealth, beginning in fiscal 1989, to normal cost funding of
its pension obligations and to a 40-year amortization schedule for its unfunded
pension liabilities. Total pension costs increased from $659.7 million in fiscal
1987 to $868.7 million in fiscal 1993. Pension funding is estimated

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to be $951.0 million in fiscal year 1994. As of June 30, 1993, the
Commonwealth's pension reserves had grown to approximately $3.877 billion.

State Budget and Revenues. The Commonwealth's Constitution requires, in
effect, that its budget be balanced each year. The Commonwealth's fiscal year
ends June 30. The General Fund is the Commonwealth's primary operating fund; it
also functions as a residuary fund to receive otherwise unallocated revenues and
to provide monies for transfers to other funds as required. The condition of the
General Fund is generally regarded as the principal indication of whether the
Commonwealth's operating revenues and expenses are in balance; the other
principal operating funds (the Local Aid Fund and the Highway Fund) are
customarily funded to at least a zero balance.

Limitations on Commonwealth tax revenues have been established by enacted
legislation and by public approval of an initiative petition which has become
law. The two measures are inconsistent in several respects, including the
methods of calculating the limits and the exclusions from the limits. The
initiative petition does not exclude debt service on the Commonwealth's notes
and bonds from the limits. State tax revenues in fiscal 1988 through fiscal 1993
were lower than the limits. The Executive Office for Administration and Finance
currently estimates that state tax revenues will not reach the limit imposed by
either the initiative petition or the legislative enactment in fiscal 1994.

Budgeted expenditures for fiscal 1989 totalled approximately $12.643
billion. Budgeted revenues totalled approximately $11.970 billion, approximately
$672.5 million less than total expenditures. Under the budgetary basis of
accounting, after taking account of certain fund balances, fiscal 1989 ended
with a deficit of $319.3 million. Under the GAAP basis of accounting, excluding
fiduciary accounts and enterprise funds, the Commonwealth ended fiscal 1989 with
a deficit of $946.2 million. This deficit reflected an operating gain in the
capital projects funds due to additional borrowings to reduce prior year
deficits. If the capital project funds are excluded, the Comptroller calculated
a GAAP deficit of $1.002 billion in fiscal 1989.

Fiscal 1989 tax revenues were adversely affected by the economic slowdown
that began in mid-1988. In June, 1988, the fiscal 1989 tax revenue estimate was
for 10.9% growth over fiscal 1988. Fiscal 1989 ended with actual tax revenue
growth of 6.5%.

The fiscal 1989 budgetary deficit caused a cash deficit in the Commonwealth
operating accounts on June 30, 1989 in the amount of approximately $450 million.
The State Treasurer was forced to defer until early July certain fiscal 1989
expenditures including the payment of approximately $305 million in local aid
due June 30, and with legislative authorization, issued temporary notes in July
in the amount of $1.1 billion to pay fiscal 1989 and fiscal 1990 costs.

Fiscal year 1990 resulted in total expenditures of approximately $13.260
billion. Budgeted revenues and other services for fiscal 1990 were approximately
$12.008 billion. Tax revenues for fiscal 1990 were approximately $8.517 billion,
a decrease of approximately $314 million or 3.6% from fiscal 1989. The
Commonwealth suffered an operating loss of approximately $1.25 billion and ended
fiscal 1990 with a budgetary deficit of $1.104 billion. The Commonwealth had a
cash surplus of $99.2 million on June 30, 1990 as a result of deferring until
fiscal 1991 the payment of approximately $1.26 billion of local aid due June 30,
1990.

On July 28, 1990, the legislature enacted Chapter 151 which provides, among
other matters, for the Commonwealth Fiscal Recovery Loan Act of 1990 and grants
authorization for the Commonwealth to issue bonds in an aggregate amount up to
$1.42 billion for purposes of funding the Commonwealth's fiscal 1990 deficit and
certain prior year Medicaid reimbursement payments. Chapter 151 also provides
for the establishment of the Commonwealth Fiscal Recovery Fund, deposits for
which are derived from a portion of the Commonwealth's personal income tax
receipts, are dedicated for this purpose and are to be deposited in trust and
pledged to pay the debt service on these bonds. Under Chapter 151, the
Commonwealth issued $1.363 billion of Dedicated Income Tax Bonds to cover the
anticipated fiscal 1990 deficit.

Total expenditures for fiscal 1991 are estimated to have been $13.659
billion. Total revenues for fiscal 1991 are estimated to have been $13.634
billion, resulting in an estimated $21.2 million operating loss. Application of
the adjusted fiscal 1990 fund balances of $258.3 million resulted in a final
fiscal 1991 budgetary surplus of $237.1 million. State finance law required that
approximately $59.2 million of the fiscal year surplus be placed in the
Stabilization Fund described above. Amounts credited to the Stabilization Fund
are not generally available to defray current year expenses without subsequent
specific legislative authorization.

After payment in full of the local aid distribution of $1.018 billion due
on June 28, 1991, retirement of all of the Commonwealth's outstanding commercial
paper and repayment of certain other short-term borrowings, as of the end of
fiscal 1991, the Commonwealth had a cash balance of $182.3 million. The fiscal
1991 year-end cash position compared favorably to the Commonwealth's cash
position at the end of the prior fiscal year, June 30,

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1990, when the Commonwealth's cash short-fall would have exceeded $1.1 billion
had payment of local aid not been postponed.

Upon taking office in January 1991, the new Governor undertook a
comprehensive review of the Commonwealth's budget. Based on projected spending
of $14.105 billion, it was then estimated that $850 million in budget balancing
measures would be needed prior to the close of fiscal 1991. At that time,
estimated tax revenues were revised to $8.845 billion, $903 million less than
was estimated at the time the fiscal 1991 budget was adopted. The Governor
proposed a series of legislative and administrative actions, designed to
eliminate the projected deficit. The legislature adopted a number of the
Governor's recommendations and the Governor took certain other administrative
actions, not requiring legislative approval, including $65 million in savings
from the adoption of a state employee furlough program. It is estimated that
spending reductions achieved through savings incentives and withholding of
allotments totalled $484.3 million in the aggregate for fiscal 1991.

In addition to recommending spending reductions to close the projected
budget deficit, the administration, in May 1991, filed an amendment to its
Medicaid state plan that enabled it to claim 50% Federal reimbursement on
uncompensated care payments provided to certain hospitals in the Commonwealth.

In fiscal 1992, Medicaid accounted for more than half of the Commonwealth's
appropriations for health care. It is the largest item in the Commonwealth's
budget. It has also been one of the fastest growing budget items. During fiscal
years 1989, 1990 and 1991, Medicaid expenditures were $1.83 billion, $2.12
billion and $2.77 billion, respectively. A substantial amount of expenditures in
recent years was provided through supplemental appropriations, repeating the
experience that Medicaid expenditures have exceeded initial appropriation
amounts. These annual amounts, however, do not take account of the practice of
retroactive settlement of many provider payments after audit review and
certification by the Rate Setting Commission. In fiscal 1990, payments of
approximately $488 million were made to hospitals and nursing homes for rate
settlements dating back as far as 1980, through the Medical Assistance Liability
Fund established to fund certain Medicaid liabilities incurred, but not
certified for payment, in prior years. This amount is not factored into the
annual totals for Medicaid expenditures listed above. Including retroactive
provider settlements, Medicaid expenditures for fiscal 1992 were $2.818 billion
and for fiscal 1993 were $3.151 billion. The Executive Office for Administration
and Finance estimates that fiscal 1994 Medicaid expenditures will be
approximately $3.252 billion, an increase of 3.9% over fiscal 1993 expenditures.
For fiscal 1994, no supplemental Medicaid appropriations are currently expected
to be necessary. The Governor had proposed a managed care program to be
implemented commencing in January, 1992 in order to address the considerable
annual cost increases in the Medicaid program. Medicaid is presently 50% funded
by federal reimbursements.

In fiscal 1992 total revenues and other sources of the budgeted operating
funds totalled $13.728 billion, an increase over fiscal 1991 revenues of .7%.
(Actual fiscal 1992 tax revenues exceeded original estimates and totalled $9.484
billion, an increase over fiscal 1991 collections of 5.4%). Fiscal 1992
expenditures and other uses of budgeted operating funds totalled approximately
$13.420 billion, a decrease from fiscal 1991 expenditures by 1.7%. Fiscal year
1992 revenues and expenditures resulted in an operating gain of $312.3 million.
Through the use of the prior year ending fund balances of $312.3 million, fiscal
1992 budgetary fund balances totalled $549.4 million. Total fiscal 1992 spending
authority continued into fiscal 1993 is $231.0 million.

After payment in full of the quarterly local aid distribution of $514
million due on June 30, 1992, retirement of the Commonwealth's outstanding
commercial paper (except for approximately $50 million of bond anticipation
notes) and certain other short-term borrowings, as of June 30, 1992, the
Commonwealth showed a year-end cash position of approximately $731 million for
fiscal year 1992. The ending balance compares favorably with the cash balance of
$182.3 million at the end of fiscal 1991. As of June 1993, the Commonwealth
showed a year-end cash position of $622.2 million for fiscal year 1993. As of
January 19, 1994, the Commonwealth estimates a 1994 year-end cash position of
approximately $725.4 million.

The budgeted operating funds of the Commonwealth ended fiscal 1993 with a
surplus of revenues and other sources over expenditures and other uses of $13.1
million and aggregate ending fund balances in the budgeted operating funds of
the Commonwealth of approximately $562.5 million. Budgeted revenues and other
sources for fiscal 1993 totalled approximately $14.710 billion, including tax
revenues of $9.930 billion. Total revenues and other sources increased by
approximately 6.9% from fiscal 1992 to fiscal 1993, while tax revenues increased
by 4.7% for the same period. In July, 1992, tax revenues had been estimated to
be approximately $9.685 billion for fiscal 1993. This amount was subsequently
revised during fiscal 1993 to $9.940 billion.

Commonwealth budgeted expenditures and other uses in fiscal 1993 totalled
approximately $14.696 billion, which is $1.280 billion or approximately 9.6%
higher than fiscal 1992 expenditures and other uses. Fiscal 1993 budgeted
expenditures were $23 million lower than the initial July 1992 estimates of
fiscal 1993 budget expenditures.

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As of June 30, 1993, after payment of all local aid and retirement of
short-term debt, the Commonwealth showed a year-end cash position of
approximately $622.2 million, as compared to a projected position of $485.1
million.

On July 19, 1993, the Governor signed into law the budget for fiscal 1994,
totalling $15.463 billion. This represented a $694 million increase over the
then estimated budgeted expenditures of $14.976 billion for fiscal 1993. On
January 14, 1994, the Governor signed into law supplemental appropriations
totalling approximately $157.9 million. Including an additional $8.1 million in
fiscal 1994 supplemental appropriation recommendations that the Governor plans
to file, and an approximate $100 million contingency reserve in fiscal 1994 for
possible additional spending, fiscal 1994 budgeted expenditures are currently
estimated to be approximately $15.716 billion. Budgeted revenues and other
sources to be collected in fiscal 1994 are estimated to be approximately $15.535
billion, which includes tax revenues of approximately $10.694 billion (as
compared to $9.930 billion in fiscal 1993). This budget includes $175 million as
part of an education reform bill passed by the legislature. The fiscal 1994
budget is based on numerous spending and revenue estimates, the achievement of
which cannot be assured. As of January 10, 1994, the Legislature had overridden
$21.0 million of the Governor's vetoes relating to the fiscal 1994 budget.
Commonwealth expenditures and other uses in fiscal 1994 are currently estimated
to be approximately $15.500 billion, which is $788 million or approximately
5.36% higher than those of fiscal 1993. Based on currently estimated revenues
and expenditures, the Executive Office for Administration and Finance projects a
fiscal 1994 ending balance of approximately $382.0 million, of which
approximately $315.5 million will be in the Stabilization Fund.

On July 19, 1993, a 60-day hiring freeze on all executive branch agencies
was instituted to help ensure that agency expenditures remain within their
fiscal 1994 budget authorizations. On August 16, 1993, the Commonwealth
announced that approximately 1,280 state employees would be laid off in the near
future, in addition to approximately 350 employees already laid off in fiscal
1994.

On January 21, 1994, the Governor presented his Budget Submission for
fiscal year 1995 providing for expenditures of $16.14 billion, a $424 million,
or 2.7%, increase over current fiscal year 1994 projections. These proposed
expenditures for fiscal year 1995 include direct local aid of $2.997 billion.
This budget is based on total anticipated revenues of $16.144 billion, which
represents a $609 million, or 3.9%, increase over fiscal year 1994 estimates.
The Governor's budget recommendation is based on a tax revenue estimate of
$11.226 billion, an increase of approximately 5.0%, as compared to currently
estimated fiscal 1994 tax revenues of $10.694 billion.

The liabilities of the Commonwealth with respect to outstanding bonds and
notes payable as of January 1, 1994 totalled $12.555 billion. These liabilities
consisted of $8.430 billion of general obligation debt, $1.036 billion of
dedicated income tax debt (the Fiscal Recovery Bonds), $104 million of special
obligation debt, $2.742 billion of supported debt, and $243 million of
guaranteed debt.

Capital spending by the Commonwealth was approximately $595 million in
fiscal 1987, $632 million in fiscal 1988 and $971 million in fiscal 1989. In
November 1988, the Executive Office for Administration and Finance established
an administrative limit on state financed capital spending in the Capital
Projects Funds of $925.0 million per fiscal year. Capital expenditures decreased
to $936 million, $847 million, $694.1 million and $575.9 million in fiscal 1990,
1991, 1992 and fiscal 1993, respectively. Capital expenditures are projected to
increase to $886.0 million in fiscal 1994. The growth in capital spending
accounts for a significant rise in debt service during the period. Payments for
the debt service on Commonwealth general obligation bonds and notes have risen
at an average annual rate of 20.4% from $649.8 million in fiscal 1989 to $942.3
million in fiscal 1991. Debt Service payments in fiscal 1992 were $398.3
million, representing a 4.7% decrease from fiscal 1991. This decrease resulted
from a $261 million one-time reduction achieved through the issuance of
refunding bonds in September and October of 1991. Debt service expenditures were
$1.1 billion for fiscal 1993 and are projected to be $1.220 billion for fiscal
1994. These amounts represent debt service payments on direct Commonwealth debt
and do not include debt service on notes issued to finance the fiscal 1989
deficit and certain Medicaid-related liabilities, which were paid in full from
non-budgeted funds. Also excluded are debt service contract assistance to
certain state agencies and the municipal school building assistance program
projected return of $359.7 million in the aggregate in fiscal 1994. In addition
to debt service on bonds issued for capital purposes, the Commonwealth is
obligated to pay the principal of and interest on the Fiscal Recovery Bonds
described above. The estimated debt service on such Bonds currently outstanding
(a portion of which were issued as variable rate bonds) ranges from
approximately $279 million (interest only) in fiscal 1994 through fiscal 1997
and approximately $130 million in fiscal 1998, at which time the entire amount
of the Fiscal Recovery Bonds will be retired.

In January, 1990 legislation was enacted to impose a limit on debt service
in Commonwealth budgets beginning in fiscal 1991. The law provides that no more
than 10% of the total appropriations in any fiscal year may be expended for
payment of interest and principal on general obligation debt (excluding the
Fiscal Recovery Bonds) of the Commonwealth. This law may be amended or appealed
by the legislature or may be superseded in the

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General Appropriation Act for any year. From fiscal year 1987 through fiscal
year 1994 estimated, this percentage has been substantially below the limited
established by this law.

Legislation enacted in December, 1989 imposes a limit on the amount of
outstanding direct bonds of the Commonwealth. The limit for fiscal 1994 is
$7.872 billion. The law provides that the limit for each subsequent fiscal year
shall be 105% of the previous fiscal year's limit. The Fiscal Recovery Bonds
will not be included in computing the amount of bonds subject to this limit.

In August, 1991, the Governor announced a five-year capital spending plan.
The plan, which represents the Commonwealth's first centralized multi-year
capital plan, sets forth, by agency, specific projects to receive capital
spending allocations over the next five fiscal years and annual capital spending
limits. Capital spending by the Commonwealth, which exceeded $900 million
annually in fiscal 1989, 1990 and 1991, declined to $694.1 million in fiscal
1992 and $575.9 in fiscal 1993. For fiscal 1994 through 1998, the plan forecasts
annual capital spending for the Commonwealth of between $813 million and $886
million per year, exclusive of spending by the Massachusetts Bay Transit
Authority. Total expenditures are forecast at $4.25 billion, an amount less than
the total amount of agency capital spending requests for the same period.
Planned spending is also significantly below legislatively authorized spending
levels.

Unemployment. From 1980 to 1989, the Massachusetts unemployment rate was
significantly lower than the national average. The Massachusetts unemployment
rate averaged 9.0%, 8.5% and 6.9% in calendar 1991, 1992 and 1993, respectively.
The Massachusetts unemployment rate in December, 1993 was 6.3% as compared to
6.6% for November, 1993 and 8.6% for December of 1992, although the rate has
been volatile throughout this period.

The balance in the Massachusetts Unemployment Compensation Trust Fund had
been exhausted as of September 1991 due to the continued high levels of
unemployment. As of December 31, 1992, the Massachusetts Unemployment
Compensation Trust Fund balance was in deficit by $377 million. As of November
30, 1993, the Fund was in deficit by $163 million. The deficit is now expected
to be approximately $120 million by the end of calendar 1993. Benefit payments
in excess of contributions are being financed by use of repayable advances from
the federal unemployment loan account. Legislation enacted in May 1992 increased
employer contributions in order to reduce advances from the federal loan
account. The additional increases in contributions provided by the new
legislation should result in a positive balance in the Unemployment Compensation
Trust Fund by the end of December 1994 and rebuild reserves in the system to
over $1 billion by the end of 1996.

Litigation. The Attorney General of the Commonwealth is not aware of any
cases involving the Commonwealth which in his opinion would affect materially
its financial condition. However, certain cases exist containing substantial
claims, among which are the following.

The United States has brought an action on behalf of the U.S. Environmental
Protection Agency alleging violations of the Clean Water Act and seeking to
enforce the clean-up of Boston Harbor. The Massachusetts Water Resources
Authority (the 'MWRA') has assumed primary responsibility for developing and
implementing a court approved plan and time table for the construction of the
treatment facilities necessary to achieve compliance with the federal
requirements. The MWRA curently projects the total cost of construction of the
waste water facilities required under the court's order as approximately $3.5
billion in current dollars. Under the Clean Water Act, the Commonwealth may be
liable for any costs of complying with any judgment in this case to the extent
that the MWRA or a municipality is prevented by state law from raising revenues
necessary to comply with such a judgment.

In a recent suit filed against the Department of Public Welfare, plaintiffs
allege that the Department has unlawfully denied personal care attendant
services to severely disabled Medicaid recipients. The Court has denied
plaintiffs' motion for a preliminary injunction and has not yet acted on
plaintiffs' motion for reconsideration of that decision. If plaintiffs prevail
on their claims, the suit could cost the Commonwealth as much as $200 million.

In a suit filed against the Commissioner of Revenue, plaintiffs challenge
the inclusion of income from tax exempt obligations in the measure of the bank
excise tax. The Appellate Tax Board issued a finding of fact and report in favor
of the Commissioner of Revenue on September 30, 1993. An appeal has been filed.
Approximately $400 million is at issue.

There are also several tax matters in litigation which may result in an
aggregate liability in excess of $195 million.

Ratings. Beginning on May 17, 1989, Standard & Poor's downgraded its
ratings on Massachusetts general obligation bonds and certain agency issues from
AAI to AA. The ratings were downgraded three additional times to a low of BBB on
December 31, 1989. On July 14, 1989, Standard & Poor's also downgraded its
rating on temporary general obligation notes and various agency notes from SP-1I
to SP-1 and on general obligation short-

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term notes and on short-term agency debt from SP-1 to SP-2. Bonds rated BBB may
have speculative characteristics. The rating remained at BBB until September 9,
1992 when Standard & Poor's raised its rating to A. At this same time, such
bonds were removed from CreditWatch. On October 14, 1993, Standard & Poor's
raised its rating from A to AI.

On June 21, 1989, Moody's Investors Service downgraded its rating on
Massachusetts general obligation bonds from Aa to A. The ratings were further
reduced on two occasions to a low on March 19, 1990 of Baa where it remained
until September 10, 1992 when Moody's increased its rating to A.

Fitch Investors Service, Inc. lowered its rating on the Commonwealth's
bonds from AA to A on September 29, 1989. As of December 5, 1991, its
qualification of the bonds changed from Uncertain Trends to Stabilizing Credit
Trend. On October 13, 1993, Fitch Investors raised its rating from A to AI.

Ratings may be changed at any time and no assurance can be given that they
will not be revised or withdrawn by the rating agencies, if in their respective
judgments, circumstances should warrant such action. Any downward revision or
withdrawal of a rating could have an adverse effect on market prices of the
bonds.

MASSACHUSETTS TAXES

In the opinion of Wayne, Lazares & Chappell, Boston, Massachusetts, special
counsel on Massachusetts tax matters, under existing Massachusetts law and
regulations:

1. For Massachusetts income tax purposes, the Massachusetts Trust will
be classified as a fixed investment trust, as that term is defined in
Section 62.8.1 of Title 830 of the Code of Massachusetts Regulations and,
therefore, will not be subject as an entity to Massachusetts income
taxation.

2. Holders who are subject to Massachusetts income taxation under
Chapter 62 of the Massachusetts General Laws will not be required to
include their share of the earnings of the Massachusetts Trust in their
Massachusetts gross income to the extent that such earnings represent
interest received by the Massachusetts Trust on obligations issued by
Massachusetts, its political subdivisions or their agencies or
instrumentalities the interest on which is exempt from taxation under
Massachusetts law, and on obligations issued by the Government of Puerto
Rico or by the Government of Guam.

3. The Massachusetts Trust's gains and losses to the extent included in
the Federal gross income of Holders who are subject to Massachusetts income
taxation under Chapter 62 of the Massachusetts General Laws, will be
included as gains and losses in the Holders' Massachusetts gross income,
except those gains specifically exempted from Massachusetts income taxation
under the statutes authorizing issuance of the obligations held by the
Massachusetts Trust. However, in some cases losses will not be allowed in
the determination of a Holder's Massachusetts gross income when such losses
are realized by the Massachusetts Trust on the sale of obligations issued
pursuant to statutes specifically exempting gains from Massachusetts income
taxation. No judgment can be made in the abstract.

4. Gains and losses realized upon sale or redemption of Units of the
Massachusetts Trust by Holders who are subject to Massachusetts income
taxation under Chapter 62 to the extent included in the Federal gross
income of such Holders will be included as gains and losses in the Holders'
Massachusetts gross income, except those gains attributable to obligations
held by the Massachusetts Trust which are issued pursuant to statutes
specifically exempting gains from Massachusetts income taxation. However,
in some cases, losses will not be allowed in the determination of a
Holder's Massachusetts gross income when such losses are attributable to
obligations issued pursuant to statutes specifically exempting gains from
Massachusetts income taxation. No judgment can be made in the abstract.

5. Distributions to Holders who are subject to Massachusetts income
taxation under Chapter 62 of the Massachusetts General Laws will be subject
to tax only to the extent provided in paragraphs 2, 3 and 4 above.

The opinions expressed above apply only to Holders who are individuals. In
addition, these opinions are subject to the opinion of Davis Polk & Wardwell
that the Massachusetts Trust is not an association taxable as a corporation for
Federal income tax purposes and will be treated as a grantor trust for Federal
income tax purposes.

THE NEW JERSEY TRUST

The Portfolio of the New Jersey Trust contains different issues of
long-term debt obligations issued by or on behalf of the State of New Jersey
(the 'State') and counties, municipalities and other political subdivisions and
other public authorities thereof or by the Government of Puerto Rico or the
Government of Guam or by their

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respective authorities, all rated in the category A or better by at least one
national rating organization (see Investment Summary). Investment in the New
Jersey Trust should be made with an understanding that the value of the
underlying Portfolio may decline with increases in interest rates.

The information set forth below is derived from official statements
prepared in connection with the issuance of New Jersey municipal bonds and other
sources that are generally available to investors. The Trust does not
independently verify this information.

RISK FACTORS--Prospective investors should consider the recent financial
difficulties and pressures which the State of New Jersey and certain of its
public authorities have undergone.

The State's 1994 Fiscal Year budget became law on June 30, 1993.

The New Jersey State Constitution prohibits the legislature from making
appropriations in any fiscal year in excess of the total revenue on hand and
anticipated, as certified by the Governor. It additionally prohibits a debt or
liability that exceeds 1% of total appropriations for the year, unless it is in
connection with a refinancing to produce a debt service savings or it is
approved at a general election. Such debt must be authorized by law and applied
to a single specified object or work. Laws authorizing such debt provide the
ways and means, exclusive of loans, to pay as it becomes due and the principal
within 35 years from the time the debt is contracted. These laws may not be
repealed until the principal and interest are fully paid. These Constitutional
provisions do not apply to debt incurred because of war, insurrection or
emergencies caused by disaster.

Pursuant to Article VIII, Section II, par. 2 of the New Jersey
Constitution, no monies may be drawn from the State Treasury except for
appropriations made by law. In addition, the monies for the support of State
government and all State purposes, as far as can be ascertained, must be
provided for in one general appropriation law covering one and the same fiscal
year. The State operates on a fiscal year beginning July 1 and ending June 30.
For example, 'fiscal 1994' refers to the year ended June 30, 1994.

In addition to the Constitutional provisions, the New Jersey statutes
contain provisions concerning the budget and appropriation system. Under these
provisions, each unit of the State requests an appropriation from the Director
of the Division of Budget and Accounting, who reviews the budget requests and
forwards them with his recommendations to the Governor. The Governor then
transmits his recommended expenditures and sources of anticipated revenue to the
legislature, which reviews the Governor's Budget Message and submits an
appropriations bill to the Governor for his signature by July 1 of each year. At
the time of signing the bill, the Governor may revise appropriations or
anticipated revenues. That action can be reversed by a two-thirds vote of each
House. No supplemental appropriation may be enacted after adoption of the act,
except where there are sufficient revenues on hand or anticipated, as certified
by the Governor, to meet the appropriation. Finally, the Governor may, during
the course of the year, prevent the expenditure of various appropriations when
revenues are below those anticipated or when he determines that such expenditure
is not in the best interest of the State.

By the beginning of the national recession, construction activity had
already been declining in New Jersey for nearly two years. As the rapid
acceleration of real estate prices forced many would-be homeowners out of the
market and high non-residential vacancy rates reduced new commitments for
offices and commercial facilities, construction employment began to decline;
also growth had tapered off markedly in the service sectors and the long-term
downtrend of factory employment had accelerated, partly because of a leveling
off of industrial demand nationally. The onset of recession caused an
acceleration of New Jersey's job losses in construction and manufacturing, as
well as an employment downturn in such previously growing sectors as wholesale
trade, retail trade, finance, utilities and trucking and warehousing.

The economic recovery is likely to be slow and uneven in both New Jersey
and the nation. Some sectors, like commercial and industrial construction, will
undoubtedly lag because of continued excess capacity. Also, employers in
rebounding sectors can be expected to remain cautious about hiring until they
become convinced that improved business will be sustained. Other firms will
continue to merge or downsize to increase profitability. As a result, job gains
will probably come grudgingly and unemployment will recede at a correspondingly
slow pace.

The State has made appropriations for principal and interest payments for
general obligation bonds for Fiscal Years 1990 through 1993 in the amounts of
$372.1 million and $388.5 million and $410.6 million and $444.3 million,
respectively. For Fiscal Year 1994, the State has made appropriations of $119.9
million for principal and interest payments for general obligation bonds. Of the
$15,490.0 million appropriated in Fiscal Year 1994 from the General Fund, the
Property Tax Relief Fund, the Gubernatorial Elections Fund, the Casino Control
Fund and the Casino Revenue Fund, $6,562.0 million (42.3%) was appropriated for
State Aid to Local Governments,

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$3,789.6 million (24.5%) is appropriated for Grants-in-Aid, $4,574.6 million
(29.6%) for Direct State Services, $119.9 million (0.7%) for Debt Service on
State general obligation bonds and $443.9 million (2.9%) for Capital
Construction.

State Aid to Local Governments was the largest portion of Fiscal Year 1994
appropriations. In Fiscal Year 1994, $6,562 million of the State's
appropriations consisted of funds which are distributed to municipalities,
counties and school districts. The largest State Aid appropriation, in the
amount of $4,824.1 million, is provided for local elementary and secondary
education programs. Of this amount, $2,538.2 million was provided as foundation
aid to school districts by formula based upon the number of students and the
ability of a school district to raise taxes from its own base. In addition, the
State provided $582.5 million for special education programs for children with
disabilities. A $293.0 million program was also funded for pupils at risk of
educational failure, including basic skills improvement. The State appropriated
$767.2 million on behalf of school districts as the employer share of the
teachers' pension and benefits programs, $263.8 million to pay for the cost of
pupil transportation and $57.4 million for transition aid, which guaranteed
school districts a 6.5% increase over the aid received in Fiscal Year 1991 and
is being phased out over four years.

Appropriations to the Department of Community Affairs totalled $650.4
million in State Aid monies for Fiscal Year 1994. The principal programs funded
were the Supplemental Municipal Property Tax Act ($365.7 million); the Municipal
Revitalization Program ($165.0 million); municipal aid to urban communities to
maintain and upgrade municipal services ($40.4 million); and the Safe and Clean
Neighborhoods Program ($58.9 million). Appropriations to the State Department of
the Treasury totalled $312.5 million in State Aid monies for Fiscal Year 1994.
The principal programs funded by these appropriations were payments under the
Business Personal Property Tax Replacement Programs ($158.7 million); the cost
of senior citizens, disabled and veterans property tax deductions and exemptions
($41.7 million); aid to densely populated municipalities ($33.0 million);
Municipal Purposes Tax Assistance ($30.0 million); and payments to
municipalities for services to state owned property ($34.9 million).

Other appropriations of State Aid in Fiscal Year 1994 include welfare
programs ($477.4 million); aid to county colleges ($114.6 million); and aid to
county mental hospitals ($88.8 million).

The second largest portion of appropriations in Fiscal Year 1994 is applied
to Direct State Services: the operation of State government's 19 departments,
the Executive Office, several commissions, the State Legislature and the
Judiciary. In Fiscal Year 1994, appropriations for Direct State Services
aggregated $4,574.6 million. Some of the major appropriations for Direct State
Services during Fiscal Year 1994 are detailed below.

$602.3 million was appropriated for programs administered by the Department
of Human Services. Of that amount, $448.2 million was appropriated for mental
health and mental retardation programs, including the operation of seven
psychiatric institutions and nine schools for the retarded.

The Department of Labor is appropriated $51.4 million for the
administration of programs for workers' compensation, unemployment and
disability insurance, manpower development, and health safety inspection.

The Department of Health is appropriated $37.6 million for the prevention
and treatment of diseases, alcohol and drug abuse programs, regulation of health
care facilities, and the uncompensated care program.

$673.0 million is appropriated to the Department of Higher Education for
the support of eight State colleges, Rutgers University, the New Jersey
Institute of Technology, and the University of Medicine and Dentistry.

$932.6 million is appropriated to the Department of Law and Public Safety
and the Department of Corrections. Among the programs funded by this
appropriation were the administration of the State's correctional facilities and
parole activities, the registration and regulation of motor vehicles and
licensed drivers and the investigative and enforcement activities of the State
Police.

$99.8 million is appropriated to the Department of Transportation for the
various programs it administers, such as the maintenance and improvement of the
State highway system and subsidies for railroads and bus companies.

$156.4 million is appropriated to the Department of Environmental
Protection for the protection of air, land, water, forest, wildlife and
shellfish resources and for the provision of outdoor recreational facilities.

The primary method for State financing of capital projects is through the
sale of the general obligation bonds of the State. These bonds are backed by the
full faith and credit of the State. tax revenues and certain other fees are
pledged to meet the principal and interest payments required to pay the debt
fully. No general obligation debt can be issued by the State without prior voter
approval, except that no voter approval is required for any law

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authorizing the creation of a debt for the purpose of refinancing all or a
portion of outstanding debt of the State, so long as such law requires that the
refinancing provide a debt service savings.

In addition to payment from bond proceeds, capital construction can also be
funded by appropriation of current revenues on a pay-as-you-go basis. This
amount represents 2.9 percent of the total budget. In fiscal 1994, the amount is
$166.4 million for transportation projects.

The aggregate outstanding general obligation bonded indebtedness of the
State as of June 30, 1993 was $3,549.7 billion. The debt service obligation for
outstanding indebtedness is $119.9 million for fiscal year 1994.

All appropriations for capital projects and all proposals for State bond
authorizations are subject to the review and recommendation of the New Jersey
Commission on Capital Budgeting and Planning. This permanent commission was
established in November, 1975, and is charged with the preparation of the State
Capital Improvement Plan, which contains proposals for State spending for
capital projects.

At any given time, there are various numbers of claims and cases pending
against the State, State agencies and employees, seeking recovery of monetary
damages that are primarily paid out of the fund created pursuant to the Tort
Claims Act N.J.S.A. 59:1-1 et seq. In addition, at any given time there are
various contract claims against the State and State agencies seeking recovery of
monetary damages. The State is unable to estimate its exposure for these claims
and cases. An independent study estimated an aggregate potential exposure of $50
million for tort claims pending, as of January 1, 1982. It is estimated that
were a similar study made of claims currently pending the amount of estimated
exposure would be higher. Moreover, New Jersey is involved in a number of other
lawsuits in which adverse decisions could materially affect revenue or
expenditures. Such cases include challenges to its system of educational
funding, the methods by which the State Department of Human Services shares with
county governments the maintenance recoveries and costs for residents in state
psychiatric hospitals and residential facilities for the developmentally
disabled.

Other lawsuits, that could materially affect revenue or expenditures
include a suit by a number of taxpayers seeking refunds of taxes paid to the
Spill Compensation Fund pursuant to NJSA 58:10-23.11, a suit alleging that
unreasonably low Medicaid payment rates have been implemented for long-term care
facilities in New Jersey, a suit alleging unfair taxation on interstate
commerce, a suit by Essex County seeking to invalidate the State's method of
funding the judicial system and a suit seeking return of moneys paid by various
counties for maintenance of Medicaid or Medicare eligible residents of
institutions and facilities for the developmentally disabled and a suit
challenging the imposition of premium tax surcharges on insurers doing business
in New Jersey, and assessments upon property and casualty liability insurers
pursuant to the Fair Automobile Insurance Reform Act.

Legislation enacted June 30, 1992, called for revaluation of several public
employee pension funds, authorized an adjustment to the assumed rate of return
on investment and refunds $773 million in public employer contributions to the
State from various pension funds, reflected as a revenue source for Fiscal Year
1992 and $226 million in Fiscal Year 1993 and each fiscal year thereafter.
Several labor unions filed suit seeking a judgment directing the State Treasurer
to refund all monies transferred from the pension funds and paid into the
General Fund. An adverse determination would have a significant impact on Fiscal
Years 1992 and 1993 revenue estimates.

Bond Ratings--Citing a developing pattern of reliance on non-recurring
measures to achieve budgetary balance, four years of financial operations marked
by revenue shortfalls and operating deficits, and the likelihood that financial
pressures will persist, on August 24, 1992 Moody's lowered from Aaa to Aa1 the
rating assigned to New Jersey general obligation bonds. On July 6, 1992,
Standard & Poor's affirmed its AAI ratings on New Jersey's general obligation
and various lease and appropriation backed debt, but its ratings outlook was
revised to negative for the longer term horizon (beyond four months) for
resolution of two items cited in the Credit Watch listing: (i) the Federal
Health Care Facilities Administration ruling concerning retroactive medicaid
hospital reimbursements and (ii) the state's uncompensated health care funding
system, which is under review by the United States Supreme Court. On August 25,
1992, Moody's lowered its rating from Aaa to Aa-1 on the state's general
obligation bonds. The downgrade reflects Moody's concern that the state's
chronic budgetary problems detract from bondholder security. The Aa-1 rating
from Moody's is equivalent to Standard & Poor's AA rating.

NEW JERSEY TAXES

In the opinion of Shanley & Fisher, P.C., Morristown, New Jersey, special
counsel on New Jersey tax matters, under existing New Jersey law:

1. The proposed activities of the New Jersey Trust will not cause it to
be subject to the New Jersey Corporation Business Tax Act.

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2. The income of the New Jersey Trust will be treated as the income of
individuals, estates and trusts who are the Holders of Units of the New
Jersey Trust for purposes of the New Jersey Gross Income Tax Act, and
interest which is exempt from tax under the New Jersey Gross Income Tax Act
when received by the New Jersey Trust will retain its status as tax exempt
in the hands of such Unit Holders. Gains arising from the sale or
redemption by a Holder of his Units or from the sale or redemption by the
New Jersey Trust of any Debt Obligation are exempt from taxation under the
New Jersey Gross Income Tax Act, as enacted and construed on the date
hereof, to the extent such gains are attributable to Debt Obligations the
interest on which is exempt from tax under the New Jersey Gross Income Tax
Act.

3. Units of the New Jersey Trust may be subject, in the estates of New
Jersey residents, to taxation under the Transfer Inheritance Tax Law of the
State of New Jersey.

THE PENNSYLVANIA TRUST

The Portfolio of the Pennsylvania Trust contains different issues of
long-term debt obligations issued by or on behalf of the Commonwealth of
Pennsylvania (the 'Commonwealth') and counties, municipalities and other
political subdivisions and other public authorities thereof or by the Government
of Puerto Rico or the Government of Guam or by their respective authorities, all
rated in the category A or better by at least one national rating organization
(see Investment Summary). Investment in the Pennsylvania Trust should be made
with an understanding that the value of the underlying Portfolio may decline
with increases in interest rates.

RISK FACTORS--Prospective investors should consider the financial
difficulties and pressures which the Commonwealth of Pennsylvania and certain of
its municipal subdivisions have undergone. Both the Commonwealth and the City of
Philadelphia are experiencing significant revenue shortfalls. There can be no
assurance that the Commonwealth will not experience a further decline in
economic conditions or that portions of the municipal obligations contained in
the Portfolio of the Pennsylvania Trust will not be affected by such a decline.
Without intending to be complete, the following briefly summarizes some of these
difficulties and the current financial situation, as well as some of the complex
factors affecting the financial situation in the Commonwealth. It is derived
from sources that are generally available to investors and is based in part on
information obtained from various agencies in Pennsylvania. No independent
verification has been made of the following information.

STATE ECONOMY. Pennsylvania has been historically identified as a heavy
industry state although that reputation has changed recently as the industrial
composition of the Commonwealth diversified when the coal, steel and railroad
industries began to decline. The major new sources of growth in Pennsylvania are
in the service sector, including trade, medical and the health services,
education and financial institutions. Pennsylvania's agricultural industries are
also an important component of the Commonwealth's economic structure, accounting
for more than $3.6 billion in crop and livestock products annually while
agribusiness and food related industries support $38 billion in economic
activity annually.

Non-agricultural employment in the Commonwealth declined by 5.1 percent
during the recessionary period from 1980 to 1983. In 1984, the declining trend
was reversed as employment grew by 2.9 percent over 1983 levels. Since 1984,
non-agricultural employment has continued to grow each year. The growth in
employment experienced in Pennsylvania is comparable to the nationwide growth in
employment which has occurred during this period. As a percentage of total
non-agricultural employment within the Commonwealth, non-manufacturing
employment has increased steadily since 1980 to its 1992 level of 81.3 percent
of total employment. Consequently, manufacturing employment constitutes a
diminished share of total employment within the Commonwealth. In 1992,
manufacturing employment represented 18.7 percent of all non-agricultural
employment in the Commonwealth while the services sector accounted for 29.3
percent and the trade sector accounted for 22.7 percent.

The Commonwealth is currently facing a slowdown in its economy. Moreover,
economic strengths and weaknesses vary in different parts of the Commonwealth.
In general, heavy industry and manufacturing have been facing increasing
competition from foreign producers. During 1992, the annual average unemployment
rate in Pennsylvania was 7.5 percent compared to 7.4 percent for the United
States. For November 1993 the unadjusted unemployment rate was 6.7 percent in
Pennsylvania and 6.1 percent in the United States, while the seasonally adjusted
unemployment rate for the Commonwealth was 7.2 percent and for the United States
was 6.4 percent.

STATE BUDGET. The Commonwealth operates under an annual budget which is
formulated and submitted for legislative approval by the Governor each February.
The Pennsylvania Constitution requires that the Governor's budget proposal
consist of three parts: (i) a balanced operating budget setting forth proposed
expenditures and estimated revenues from all sources and, if estimated revenues
and available surplus are less than proposed expenditures, recommending specific
additional sources of revenue sufficient to pay the deficiency; (ii) a capital
budget setting forth proposed expenditures to be financed from the proceeds of
obligations of the Commonwealth

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or its agencies or from operating funds; and (iii) a financial plan for not less
than the succeeding five fiscal years, which includes for each year projected
operating expenditures and estimated revenues and projected expenditures for
capital projects. The General Assembly may add, change or delete any items in
the budget prepared by the Governor, but the Governor retains veto power over
the individual appropriations passed by the legislature. The Commonwealth's
fiscal year begins on July 1 and ends on June 30.

All funds received by the Commonwealth are subject to appropriation in
specific amounts by the General Assembly or by executive authorization by the
Governor. Total appropriations enacted by the General Assembly may not exceed
the ensuing year's estimated revenues, plus (less) the unappropriated fund
balance (deficit) of the preceding year, except for constitutionally authorized
debt service payments. Appropriations from the principal operating funds of the
Commonwealth (the General Fund, the Motor License Fund and the State Lottery
Fund) are generally made for one fiscal year and are returned to the
unappropriated surplus of the fund if not spent or encumbered by the end of the
fiscal year. The Constitution specifies that a surplus of operating funds at the
end of a fiscal year must be appropriated for the ensuing year.

Pennsylvania uses the 'Fund' method of accounting for receipts and
disbursements. For purposes of government accounting, a 'fund' is an independent
fiscal and accounting entity with a self-balancing set of accounts, recording
cash and/or other resources together with all related liabilities and equities.
In the Commonwealth, over 120 funds have been established by legislative
enactment or in certain cases by administrative action for the purpose of
recording the receipt and disbursement of moneys received by the Commonwealth.
Annual budgets are adopted each fiscal year for the principal operating funds of
the Commonwealth and several other special revenue funds. Expenditures and
encumbrances against these funds may only be made pursuant to appropriation
measures enacted by the General Assembly and approved by the Governor. The
General Fund, the Commonwealth's largest fund, receives all tax revenues,
non-tax revenues and federal grants and entitlements that are not specified by
law to be deposited elsewhere. The majority of the Commonwealth's operating and
administrative expenses are payable from the General Fund. Debt service on all
bond indebtedness of the Commonwealth, except that issued for highway purposes
or for the benefit of other special revenue funds, is payable from the General
Fund.

Financial information for the principal operating funds of the Commonwealth
is maintained on a budgetary basis of accounting, which is used for the purpose
of insuring compliance with the enacted operating budget. The Commonwealth also
prepares annual financial statements in accordance with generally accepted
accounting principles ('GAAP'). Budgetary basis financial reports are based on a
modified cash basis of accounting as opposed to a modified accrual basis of
accounting prescribed by GAAP. Financial information is adjusted at fiscal year-
end to reflect appropriate accruals for financial reporting in conformity with
GAAP.

RECENT FINANCIAL RESULTS. From fiscal 1984, when the Commonwealth first
prepared its financial statements on a GAAP basis, through fiscal 1989, the
Commonwealth reported a positive unreserved-undesignated fund balance for its
government fund types (General Fund, Special Revenue Fund and Capital Projects
Fund) at the fiscal year end. At the end of fiscal 1990 and fiscal 1991, the
unreserved-undesignated fund balance was a negative $205.8 million and a
negative $1,189.2 million, respectively, a drop of $579.6 million and $983.4
million, respectively, from the year-earlier amounts. The decline in the fiscal
1990 unreserved-undesignated fund balance for government fund types was largely
the result of a $718.2 million operating deficit in the General Fund which
caused the total fund balance of the General Fund to fall to a negative $119.8
million at June 30, 1990. The decline in the fiscal 1991 unreserved-undesignated
fund balance was principally the result of operating deficits of $1,076.6
million and $66.2 million, respectively, in the General Fund and the State
Lottery Fund.

Rising demands on state programs caused by the economic recession,
particularly for medical assistance and cash assistance programs, and the
increased costs of special education programs and correction facilities and
programs, contributed to increased expenditures in fiscal 1991 while tax
revenues for the 1991 fiscal year were severely affected by the economic
recession. Total corporation tax receipts and sales and use tax receipts during
fiscal 1991 were, respectively, 7.3 percent and 0.9 percent below amounts
collected during fiscal 1990. Personal income tax receipts also were affected by
the recession but not to the extent of the other major General Fund taxes,
increasing only 2.0 percent over fiscal 1990 collections.

The Commonwealth experienced a $454 million general fund deficit as of the
end of its 1991 fiscal year. The deficit reflected below-estimate economic
activity and growth rates of economic indicators and total tax revenue
shortfalls of $817 million (4.1 percent) below those assumed in the enacted
budget. Economic conditions also affected expenditure trends during the 1991
fiscal year, with expenditures for medical assistance costs and other human
service programs running $512 million above estimates assumed in the 1991
budget. In January 1991, the Commonwealth initiated a number of cost-saving
measures, including the firing of 2,000 state employees, deferral

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of paychecks and reduction of funds to state universities, which resulted in
approximately $871 million in cost savings.

Total general fund revenues for fiscal 1992 were $14,516.8 million which is
approximately 22 percent higher than fiscal 1991 revenues of $11,877.3 million
due in large part to tax increases. The increased revenues funded substantial
increases in education, social services and corrections programs. As a result of
tax increases and certain appropriation lapses, fiscal 1992 ended with an $8.8
million surplus after having started the year with an unappropriated balance
deficit of $453.6 million.

FISCAL 1993 BUDGET. On June 30, 1992 the Pennsylvania legislature
presented the Governor with a $14.126 billion general fund budget for the 1993
fiscal year, which began on July 1, 1992. Before signing the budget, the
Governor deleted approximately $73 million in certain state expenditures such as
aid to county courts and district justices. As a result, the budget for the 1993
fiscal year was approximately $14.046 billion, which is approximately $105
million more than the fiscal 1992 budget. On February 9, 1993, the Governor
announced that he anticipated that the fiscal 1993 budget would be in balance at
the end of the fiscal year.

FISCAL 1994 BUDGET. On May 28, 1993, the Governor signed a $15 billion
general fund budget, an increase of approximately five percent from the fiscal
1993 budget. A substantial amount of the increase is targeted for medical
assistance programs and prisons.

DEBT LIMITS AND OUTSTANDING DEBT. The Constitution of Pennsylvania permits
the issuance of the following types of debt: (i) debt to surpress insurrection
or rehabilitate areas affected by disaster; (ii) electorate approved debt; (iii)
debt for capital projects subject to an aggregate debt limit of 1.75 times the
annual average tax revenues of the preceding five fiscal years; and (iv) tax
anticipation notes payable in the fiscal year of issuance.

Under the Pennsylvania Fiscal Code, the Auditor General is required
annually to certify to the Governor and the General Assembly certain information
regarding the Commonwealth's indebtedness. According to the most recent Auditor
General certificate, the average annual tax revenues deposited in all funds in
the five fiscal years ended June 30, 1993 was $14.5 billion, and, therefore, the
net debt limitation for the 1994 fiscal year is $27.1 billion. Outstanding net
debt totaled $4.0 billion at June 30, 1993, a decrease of $42.2 million from
June 30, 1992. At September 1, 1993, the amount of debt authorized by law to be
issued, but not yet incurred was $15.1 billion.

DEBT RATINGS. All outstanding general obligation bonds of the Commonwealth
are rated AA-by S&P and A1 by Moody's.

CITY OF PHILADELPHIA. The City of Philadelphia experienced a series of
general fund deficits for fiscal years 1988 through 1992, which have culminated
in the City's present serious financial difficulties. In its 1992 Comprehensive
Annual Financial Report, Philadelphia reported a cumulative general fund deficit
of $71.4 million for fiscal year 1992.

In June 1991, the Governor of Pennsylvania signed into law legislation
establishing the Pennsylvania Inter-Governmental Cooperation Authority ('PICA'),
a five-member board which would oversee the fiscal affairs of the City of
Philadelphia. The legislation empowers PICA to issue notes and bonds on behalf
of Philadelphia and also authorizes Philadelphia to levy a one-percent sales tax
the proceeds of which would be used to pay off the bonds. In return for PICA's
fiscal assistance, Philadelphia was required, among other things, to establish a
five-year financial plan that includes balanced annual budgets. Under the
legislation, if Philadelphia does not comply with such requirements. PICA may
withhold bond revenues and certain state funding.

In May 1992, the City Council of Philadelphia approved the Mayor's
five-year plan and adopted a fiscal 1993 budget. On June 5, 1992, PICA sold
approximately $480 million in bonds at yields ranging from 5.25 percent to 6.88
percent. The proceeds of the bonds will be used to cover shortfalls accumulated
over the last four fiscal years, projected deficits for fiscal year 1992 and
fiscal year 1993, construction projects and other capital expenditures. In
accordance with the enabling legislation, the authority has been guaranteed a
percentage of the wage tax revenue expected to be collected from Philadelphia
residents to permit repayment of the bonds. In connection with PICA's issuance
of the bonds, S&P raised the rating on Philadelphia's general obligation bonds
to 'BB.' Moody's rating is currently 'Ba.'

In January 1993, Philadelphia anticipated a cumulative general fund budget
deficit of $57 million for the 1993 fiscal year. In response to the anticipated
deficit, the Mayor unveiled a financial plan eliminating the budget deficit for
the 1993 fiscal year through significant service cuts that included a plan to
privatize certain city provided services. Due to an upsurge in tax receipts,
cost-cutting and privatization of city provided services and additional PICA
borrowings Philadelphia ended the 1993 fiscal year with a balanced general fund
budget.

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In January 1994, the Mayor proposed a $2.3 billion city general fund budget
that includes no tax increases, no significant service cuts and a series of
modest health and welfare program increases. At that time, the Mayor also
unveiled a $2.2 billion program ('Philadelphia Economic Stimulus Program') to
stimulate Philadelphia's economy and stop the loss of 1,000 jobs a month.
However, the success of the Philadelphia Economic Stimulus Program is
predicated, in part, upon several contingencies including, among others, $250
million in revenues from riverboat gambling over the next three years, which
must first be approved by the state legislature and $100 million in federal
'empowerment zone' subsidies, which Philadelphia may or may not receive.
Currently, the 1994 Philadelphia general fund budget is running at a deficit of
approximately $10 million.

LITIGATION. The Commonwealth is a party to numerous lawsuits in which an
adverse final decision could materially affect the Commonwealth's governmental
operations and consequently its ability to pay debt service on its obligations.
The Commonwealth also faces tort claims made possible by the limited waiver of
sovereign immunity effected by Act 152, approved September 28, 1978.

PENNSYLVANIA TAXES

The following summarizes the opinion of Dechert Price & Rhoads,
Philadelphia, Pennsylvania, special counsel on Pennsylvania tax matters, under
existing law:

1. The Pennsylvania Trust will be recognized as a trust and will not be
taxable as a corporation for Pennsylvania state and local tax purposes.

2. Units of the Pennsylvania Trust are not subject to any of the
personal property taxes presently in effect in Pennsylvania to the extent
of that proportion of the Trust represented by Debt Obligations issued by
the Commonwealth of Pennsylvania, its agencies and instrumentalities, or by
any county, city, borough, town, township, school district, municipality or
local housing or parking authority in the Commonwealth of Pennsylvania
('Pennsylvania Obligations'). The taxes referred to above include the
County Personal Property Tax, the additional personal property taxes
imposed on Pittsburgh residents by the School District of Pittsburgh and by
the City of Pittsburgh. Fund Units may be taxable under the Pennsylvania
inheritance and estate taxes.

3. The proportion of interest income representing interest income from
Pennsylvania Obligations distributable to Holders of the Pennsylvania Trust
is not taxable under the Pennsylvania Personal Income Tax or under the
Corporate Net Income Tax imposed on corporations by Article IV of the
Pennsylvania Tax Reform Code, nor will such interest be taxable under the
Philadelphia School District Investment Income Tax imposed on Philadelphia
resident individuals.

4. Although there is no published authority on the subject, counsel is
of the opinion that any insurance proceeds paid in lieu of interest on
defaulted tax-exempt debt obligations will be exempt from the Pennsylvania
Personal Income Tax either as payment in lieu of tax-exempt interest or as
payments of insurance proceeds which are not included in any of the classes
of income specified as taxable under the Pennsylvania Personal Income Tax
Law. Further, because such insurance proceeds are excluded from the Federal
income tax base, such proceeds will not be subject to the Pennsylvania
Corporate Net Income Tax. Proceeds from insurance policies are expressly
excluded from the Philadelphia School District Investment Income Tax and,
accordingly, insurance proceeds paid to replace defaulted payments under
any Debt Obligations will not be subject to this tax.

5. The disposition by the Pennsylvania Trust of a Pennsylvania
Obligation (whether by sale, exchange, redemption or payment at maturity)
will not constitute a taxable event to a Holder under the Pennsylvania
Personal Income Tax if the Pennsylvania Obligation was issued prior to
February 1, 1994. Further, although there is no published authority on the
subject, counsel is of the opinion that (i) a Holder of the Pennsylvania
Trust will not have a taxable event under the Pennsylvania state and local
income taxes referred to in the preceding paragraph upon the redemption or
sale of his Unit to the extent that the Trust is then comprised of
Pennsylvania Obligations issued prior to February 1, 1994 and (ii) the
disposition by the Trust of a Pennsylvania Obligation (whether by sale,
exchange, redemption or payment at maturity) will not constitute a taxable
event to a Holder under the Corporate Net Income Tax or the Philadelphia
School District Investment Income Tax if the Pennsylvania Obligation was
issued prior to February 1, 1984. (The School District tax has no
application to gain on the disposition of property held by the taxpayer for
more than six months.) Gains on the sale, exchange, redemption, or payment
at maturity of a Pennsylvania Obligation issued on or after February 1,
1994, will be taxable under all of these taxes, as will gains on the
redemption or sale of a unit to the extent that the Trust is comprised of
Pennsylvania Obligations issued on or after February 1, 1994.

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6. To the extent the value of Units is represented by obligations of
the Commonwealth of Puerto Rico or obligations of the territory of Guam,
such value will not be subject to Pennsylvania personal property taxes to
the extent required by Federal statutes. The proportion of income received
by Holders derived from interest on such obligations is not taxable under
any of the Pennsylvania State and local income taxes referred to above.
Although Federal law does not expressly exclude from taxation gain realized
on the disposition of obligations of Puerto Rico or of Guam, because
interest is exempt on such obligations, Pennsylvania does not tax gain from
the disposition of such obligations under the Personal Income Tax.

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<PAGE>

Def ined
Asset FundsSM

SPONSORS: MUNICIPAL INVESTMENT
Merrill Lynch, TRUST FUND
Pierce, Fenner & Smith Inc. Multistate Series - 54
Unit Investment Trusts (Unit Investment Trusts)
P.O. Box 9051 PROSPECTUS
Princeton, N.J. 08543-9051 This Prospectus does not contain all of
(609) 282-8500 the information with respect to the
Smith Barney Shearson Inc. investment company set forth in its
Unit Trust Department registration statement and exhibits
Two World Trade Center--101st Floor relating thereto which have been filed
New York, N.Y. 10048 with the Securities and Exchange
1-800-298-UNIT Commission, Washington, D.C. under the
PaineWebber Incorporated Securities Act of 1933 and the
1200 Harbor Blvd. Investment Company Act of 1940, and to
Weehawken, N.J. 07087 which reference is hereby made.
(201) 902-3000 No person is authorized to give any
Prudential Securities Incorporated information or to make any
One Seaport Plaza representations with respect to this
199 Water Street investment company not contained in this
New York, N.Y. 10292 Prospectus; and any information or
(212) 776-1000 representation not contained herein must
Dean Witter Reynolds Inc. not be relied upon as having been
Two World Trade Center--59th Floor authorized. This Prospectus does not
New York, N.Y. 10048 constitute an offer to sell, or a
(212) 392-2222 solicitation of an offer to buy,
EVALUATOR: securities in any state to any person to
Kenny S&P Evaluation Services whom it is not lawful to make such offer
65 Broadway in such state.
New York, N.Y. 10006
INDEPENDENT ACCOUNTANTS:
Deloitte & Touche
1633 Broadway
3rd Floor
New York, N.Y. 10019
TRUSTEE:
The Chase Manhattan Bank, N.A.
Unit Trust Department
Box 2051
New York, N.Y. 10081
1-800-323-1508

14692--2/94