MUNICIPAL INVT TR FD INTERM TERM SER 235 DEFINED ASSET FDS, 487, 1994-08-05

MUNICIPAL INVT TR FD INTERM TERM SER 235 DEFINED ASSET FDS
487, 1994-08-05

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 5, 1994

REGISTRATION NO. 33-54255

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

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549
------------------------------------------

AMENDMENT NO. 1
TO
FORM S-6

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

FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT
TRUSTS REGISTERED ON FORM N-8B-2

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

A. EXACT NAME OF TRUST:

MUNICIPAL INVESTMENT TRUST FUND
INTERMEDIATE TERM SERIES--235
(TARGETED MATURITIES)
DEFINED ASSET FUNDS

B. NAMES OF DEPOSITORS:

MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
SMITH BARNEY INC.
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
DEAN WITTER REYNOLDS INC.

C. COMPLETE ADDRESSES OF DEPOSITORS' PRINCIPAL EXECUTIVE OFFICES:

MERRILL LYNCH, PIERCE,
FENNER & SMITH
INCORPORATED
UNIT INVESTMENT TRUST
DIVISION
P.O. BOX 9051
PRINCETON, N.J. 08543-9051 SMITH BARNEY INC.
TWO WORLD TRADE CENTER
101ST FLOOR
NEW YORK, N. Y. 10048

PRUDENTIAL SECURITIES DEAN WITTER REYNOLDS INC. PAINEWEBBER INCORPORATED
INCORPORATED TWO WORLD TRADE 1285 AVENUE OF THE
ONE SEAPORT PLAZA CENTER--59TH FLOOR AMERICAS
199 WATER STREET NEW YORK, N.Y. 10048 NEW YORK, N.Y. 10019
NEW YORK, N. Y. 10292

D. NAMES AND COMPLETE ADDRESSES OF AGENTS FOR SERVICE:

TERESA KONCICK, ESQ. THOMAS D. HARMAN, ESQ. ROBERT E. HOLLEY
P.O. BOX 9051 388 GREENWICH STREET 1200 HARBOR BOULEVARD
PRINCETON, N.J. 08543-9051 NEW YORK, N. Y. 10013 WEEHAWKEN, N.J. 07087

COPIES TO:
LEE B. SPENCER, JR. DOUGLAS LOWE, ESQ. PIERRE DE SAINT PHALLE,
ONE SEAPORT PLAZA 130 LIBERTY STREET--29TH ESQ.
199 WATER STREET FLOOR 450 LEXINGTON AVENUE
NEW YORK, N. Y. 10292 NEW YORK, N.Y. 10006 NEW YORK, N. Y. 10017

E. TITLE AND AMOUNT OF SECURITIES BEING REGISTERED:

An indefinite number of Units of Beneficial Interest pursuant to Rule 24f-2
promulgated under the Investment Company Act of 1940, as amended.

F. PROPOSED MAXIMUM OFFERING PRICE TO THE PUBLIC OF THE SECURITIES BEING
REGISTERED:

Indefinite

G. AMOUNT OF FILING FEE:

$500 (as required by Rule 24f-2)

/ x / Check box if it is proposed that this filing will become effective at 9:30
a.m. on August 5, 1994 pursuant to Rule 487.

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<PAGE>
Def ined

Asset FundsSM

MUNICIPAL INVESTMENT This Fund consists of three separate underlying
TRUST FUND Trusts, each of which is a defined portfolio of
- ------------------------------preselected securities targeted to a certain range
of maturity or disposition dates. The Fund is
Intermediate Term Series--235 formed for the purpose of providing interest
(Targeted Maturities) income which in the opinion of counsel is, with
Unit Investment Trusts certain exceptions, exempt from regular Federal
/ / Tax Free income taxes under existing law through investment
/ / Monthly Income in fixed portfolios of fixed rate Debt Obligations
/ / Professional Selection with targeted maturity or disposition dates. These
TRUST A (1997-1998) obligations are issued primarily by states,
4.78% municipalities, public authorities and similar
ESTIMATED CURRENT RETURN entities and are either rated A or better by a
4.93% national rating agency or are backed by third
ESTIMATED LONG TERM RETURN party obligations including letters of credit,
TRUST B (1999-2000) guarantees or insurance. Although interest on
5.12% certain of the Debt Obligations in the Trusts may
ESTIMATED CURRENT RETURN be a preference item for purposes of Alternative
5.17% Minimum Tax, the yield on these obligations is
ESTIMATED LONG TERM RETURN generally higher than on obligations of comparable
TRUST C (2001-2002) quality that are not subject to AMT. The value of
5.25% the Units of each Trust will fluctuate with the
ESTIMATED CURRENT RETURN value of the Portfolio of underlying Securities.
5.38% The Estimated Current Return and Estimated Long
ESTIMATED LONG TERM RETURN Term Return figures shown give different
AS OF AUGUST 4, 1994 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 figures shown took
these delays into account, they 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 set forth in this Prospectus.
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
SPONSORS: ACCURACY
Merrill Lynch, OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
Pierce, Fenner & Smith Inc. TO THE CONTRARY IS A CRIMINAL OFFENSE
Smith Barney Inc. INQUIRIES SHOULD BE DIRECTED TO THE TRUSTEE AT
PaineWebber Incorporated 1-800-735-7777
Prudential Securities PROSPECTUS DATED AUGUST 5, 1994
Incorporated READ AND RETAIN THIS PROSPECTUS FOR FUTURE
Dean Witter Reynolds Inc. REFERENCE

<PAGE>
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DEFINED ASSET FUNDSSM are America's oldest and largest family of unit investment
trusts with over $90 billion sponsored since 1970. Each fund is a defined
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.

Defined Asset Funds offer several attractive features. You know in advance what
you're 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 Defined Asset Funds to meet your
personal investment objectives. Our size and market presence enable us to offer
a wide variety of investments. Different Defined Asset Funds invest in a variety
of different 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 Asset Funds are offered by prospectus
only.

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CONTENTS

Investment Summary.......................................... A-3
Tax-Free vs. Taxable Income................................. A-5
Underwriting Account........................................ A-8
Fee Table................................................... A-9
Report of Independent Accountants........................... A-10
Statements of Condition..................................... A-11
Portfolios.................................................. A-12
Cash Flows to Holders....................................... A-18
Description of Fund Investments............................. 1
Risk Factors................................................ 2
How To Buy.................................................. 16
How To Sell................................................. 18
Income and Distributions.................................... 19
Exchange Option............................................. 21
Taxes....................................................... 22
Administration of the Fund.................................. 24
Trust Indenture............................................. 24
Miscellaneous............................................... 25
Appendix A.................................................. A-1
Appendix B.................................................. B-1
Appendix C.................................................. C-1

A-2

<PAGE>

INVESTMENT SUMMARY AS OF AUGUST 4, 1994 (THE BUSINESS DAY PRIOR TO THE INITIAL
DATE OF DEPOSIT)(a)

TRUST A TRUST B TRUST C
(1997-1998) (1999-2000) (2001-2002)
-------------- -------------- --------------
ESTIMATED CURRENT RETURN(b)
(based on Public Offering
Price)--...................... 4.78% 5.12% 5.25%
ESTIMATED LONG TERM RETURN(b)
(based on Public Offering
Price)--...................... 4.93% 5.17% 5.38%
PUBLIC OFFERING PRICE PER UNIT
(including sales charge of
2.00%, 2.75% and 3.25%,
respectively).................$ 1,014.24(c)$ 1,025.20(c) $1,020.38(c)
FACE AMOUNT OF DEBT
OBLIGATIONS...................$ 12,005,000 $ 12,000,000 $ 12,000,000
INITIAL NUMBER OF UNITS......... 12,005 12,000 12,000
FRACTIONAL UNDIVIDED INTEREST IN
TRUST REPRESENTED BY EACH
UNIT.......................... 1/12,005th 1/12,000th 1/12,000th
MONTHLY INCOME DISTRIBUTIONS
First distribution to be paid
on 25th day of October, 1994
to Holders of record on 10th
day of October, 1994........$ 1.35 $ 1.47 $ 1.40
Calculation of second and
following distributions:
Estimated net annual interest
rate per Unit times
$1,000....................$ 48.48 $ 52.44 $ 53.52
Divided by 12.................$ 4.04 $ 4.37 $ 4.46
SPONSORS' REPURCHASE PRICE AND
REDEMPTION PRICE PER UNIT(d)
(based on bid side
evaluation)...................$ 990.95(c)$ 993.00(c) $982.22(c)
REDEMPTION PRICE PER UNIT LESS
THAN:
Public Offering Price by....$ 23.29 $ 32.20 $ 38.16
Sponsors' Initial Repurchase
Price by....................$ 3.00 $ 4.00 $ 5.00
CALCULATION OF PUBLIC OFFERING
PRICE
Aggregate offering side
evaluation of Debt
Obligations.................$11,932,410.95 $11,964,031.50 $11,846,605.60
-------------- -------------- --------------
Divided by Number of
Units.....................$ 993.95 $ 997.00 $ 987.22
Plus sales charge of 2.00%,
2.75% and 3.25%,
respectively, of Public
Offering Price (2.041%,
2.828% and 3.359%,
respectively, of net
amount invested in Debt
Obligations)(e)........... 20.29 28.20 33.16
-------------- -------------- --------------
Public Offering Price per
Unit........................$ 1,014.24 $ 1,025.20 $ 1,020.38
Plus accrued interest(f).... 0.94 1.01 1.04
-------------- -------------- --------------
Total.....................$ 1,015.18 $ 1,026.21 $ 1,021.42
-------------- -------------- --------------
-------------- -------------- --------------
CALCULATION OF ESTIMATED NET
ANNUAL INTEREST RATE
PER UNIT (based on face amount
of $1,000 per Unit)
Annual interest rate per
Unit........................ 5.014% 5.415% 5.524%
Less estimated annual
expenses per Unit
expressed
as a percentage........... .166% .171% .172%
-------------- -------------- --------------
Estimated net annual
interest rate per
Unit.................... 4.848% 5.244% 5.352%
-------------- -------------- --------------
-------------- -------------- --------------
DAILY RATE AT WHICH ESTIMATED
NET INTEREST ACCRUES PER
UNIT.......................... .0134% .0145% .0148%
SPONSORS' PROFIT (LOSS) ON
DEPOSIT.......................$ 30,791.90 $ 39,294.85 $ 49,192.95
TRUSTEE'S ANNUAL FEE AND
EXPENSES........................$ 1.66(g)$ 1.71(g) $ 1.72(g)
Per Unit commencing February
1995, April 1995, and
February 1995, for Trusts
A, B and C, respectively.

- ------------------
(a) The Indenture was signed and the deposit was made on the date of this
Prospectus.
(b) Estimated Current Return represents annual interest income after
estimated annual expenses divided by the maximum public offering price including
the maximum applicable 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 the Fund'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 redemption, sale or other disposition of Debt
Obligations in the Portfolio.
(c) Plus accrued interest.

(d) During the initial offering period, the Fund's 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 How To Sell.)
(e) The sales charge during the initial offering period will be reduced for
quantity purchases (see Initial Sales Charge on p. A-7). The sales charge in the
secondary market will also be reduced on a graduated scale for quantity
purchases and will also vary depending on the maturities of the underlying
Securities (see Appendix B). Any resulting reduction in the Public Offering
Price will increase the effective current and long term returns on a Unit.
(f) 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 How To Buy--Accrued Interest).
(g) Of this amount the Trustee receives annually for its services as Trustee
$0.70 per $1,000 face amount of Debt Obligations. During the first year the
Trustee's Annual Fee and Expenses will be reduced by $0.75, $1.00 and $0.81 for
Trusts A, B and C, respectively. Estimated annual interest income per Unit
(estimated annual interest rate per Unit times $1,000) will be $49.39, $53.15
and $54.43 and estimated expenses per Unit will be $0.91, $0.71 and $0.91 for
Trusts A, B and C, respectively. Estimated net annual interest income per Unit
will remain the same. (See Income and Distributions--Fund Expenses.) The
Trustee's Annual Fee and Expenses also includes the Portfolio Supervision Fee
and Evaluator's Fee set forth herein (see Income and Distributions--Fund
Expenses).

A-3
<PAGE>

INVESTMENT SUMMARY AS OF AUGUST 4, 1994 (CONTINUED)

TRUST A TRUST B TRUST C
(1997-1998) (1999-2000) (2001-2002)
------------- ------------- -------------
NUMBER OF ISSUES IN PORTFOLIO-- 14 13 17
NUMBER OF ISSUES BY SOURCE OF
REVENUE(a):
Transportation-- -- -- 1
Financial Institutions-- 3 2 2
General Obligations-- 1 1 2
Industrial Development Revenue-- 2 2 4
Lease Rental-- 3 3 2
Hospital/Health Care Facility-- 4 4 6
Special Tax Issues-- 1 -- --
Universities/Colleges-- -- 1 --
NUMBER OF ISSUES RATED BY
STANDARD &
POOR'S/RATING(b)-- AAA-- 1 2 3
AA-- 1 -- 1
A-- 6 8 8
MOODY'S INVESTORS
SERVICE/RATING-- A-- -- -- 2
Aa-- 1 1 1
Aaa-- 2 1 1
NUMBER OF ISSUES NOT RATED(b).... 3 1 1
RANGE OF FIXED FINAL MATURITY OR
DISPOSITION DATES OF
DEBT OBLIGATIONS................. 1997-1998 1999-2000 2001-2002
TYPE OF ISSUE EXPRESSED AS A
PERCENTAGE OF THE AGGREGATE FACE
AMOUNT OF PORTFOLIO
General Obligation Issues........ 17% 15% 18%
Issues Payable from Income of
Specific Project or
Authority...................... 83% 85% 82%
Debt Obligations Issued at an
'Original Issue Discount'(c)... 36% 48% 66%
Obligations Subject to
Alternative Minimum Tax(c)......... 34% 41% 32%
Obligations Insured by certain
Insurance
Companies(d)................... 7% 19% 11%
CONCENTRATIONS(a) EXPRESSED AS A
PERCENTAGE OF THE AGGREGATE FACE
AMOUNT OF PORTFOLIO(e)
Hospital/Health Care
Facilities....................... -- 27% --
PREMIUM AND DISCOUNT ISSUES IN
PORTFOLIO
Face amount of Debt Obligations
with offering side
evaluation: over
par-- 30% 31% 32%
at par-- 25% 23% 8%
at a discount from par-- 45% 46% 60%
PERCENTAGE OF PORTFOLIO ACQUIRED
FROM ONE
OR MORE SPONSORS AS SOLE
UNDERWRITER, MANAGING
UNDERWRITER OR MEMBER OF
UNDERWRITING SYNDICATE........... 17% 8% 5%
PERCENTAGE OF PORTFOLIOS NOT
SUBJECT TO OPTIONAL
REDEMPTIONS(f)................... 100% 100% 94%

- ------------------
(a) See Risk Factors for a brief summary of certain investment risks
relating to certain of these issues.
(b) A Moody's or Duff & Phelps rating is included only if Standard &
Poor's has not rated an issue. The ratings assigned by the rating agencies may
change from time to time. Certain ratings may be provisional or conditional (See
Appendix A).
(c) See Taxes.
(d) See Risk Factors--Obligations Backed by Insurance.
(e) A Trust is considered to be 'concentrated' in these categories when
they constitute 25% or more of the aggregate face amount of the Portfolio.
(f) See Footnote (2) to Portfolios.

A-4

<PAGE>
Defined
Asset Funds

INVESTOR'S GUIDE DEFINED MUNICIPAL INVESTMENT TRUST FUNDS
MUNICIPAL INVESTMENT Our defined portfolios of municipal bonds offer investors
TRUST FUND a simple and convenient way to earn monthly income. And by
- -------------------- purchasing municipal bond funds, investors not only avoid
INTERMEDIATE TERM the problem of selecting municipal bonds by themselves,
SERIES but also gain the advantage of a higher degree of safety
(TARGETED by investing in bonds of several different issuers.
MATURITIES) MONTHLY TAX-FREE INTEREST INCOME
The Trusts in this Fund pay 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, except AMT. The portfolios
contain AMT municipal bonds which generally offer higher
rates than other types of municipals for investors not
subject to AMT. Depending on where you live, some of the
income also may be exempt from certain state and local
personal income taxes. Any gain on disposition of the
underlying bonds will be subject to tax.
INTERMEDIATE MATURITIES
The bonds in these Trusts are targeted to mature or be
resold by the Fund on the dates indicated. These
maturities give investors an opportunity to take advantage
of current intermediate-term rates.
ENHANCED PROTECTION
To further protect your investment, certain of the bonds
in the Trusts may be secured by letters of credit,
guarantees or other third party obligations. The remaining
bonds are either rated at least A by Moody's or Standard &
Poor's or, in the opinion of Defined Asset Funds research
analysts, have comparable credit characteristics. Of
course, the market value of the underlying bonds and the
value of the units, will fluctuate with changes in
interest rates and other factors.
PROFESSIONAL SELECTION AND SUPERVISION
The portfolios contain a variety of securities selected by
experienced buyers and market analysts. The fund is not
actively managed. However, each portfolio is regularly
reviewed and a security can be sold if retaining it would
be detrimental to investors' interest.

A LIQUID INVESTMENT
Although not legally required to do so, the Sponsors have
maintained a secondary market for their funds for over 20
years. You can cash in your units at any time. Your price
is based on the market value of the fund's securities at
that time as determined by an independent evaluator. There
is never a fee for cashing in your investments.
REINVESTMENT OPTION
You can elect to automatically reinvest your distributions
into a separate portfolio of tax-exempt bonds. Reinvesting
helps to compound your income federally tax-free.
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

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

<CAPTION>
TAXABLE INCOME 1994*
SINGLE RETURN 6% 6.5% 7%

<S> <C> <C> <C>
- ------------------
7.06 7.65 8.24
- ------------------
$0-22,100 7.06 7.65 8.24
- ------------------
8.33 9.03 9.72
- ------------------
$22,100-53,500 8.33 9.03 9.72
- ------------------
8.70 9.42 10.14
- ------------------
$53,500-115,000 8.70 9.42 10.14
- ------------------
9.38 10.16 10.94
- ------------------
$115,000-250,000 9.38 10.16 10.94
- ------------------
9.93 10.76 11.59
- ------------------
OVER $250,000 9.93 10.76 11.59
- ------------------

</TABLE>

To compare the yield of a taxable security with the yield of a tax-free
security, find your taxable income and read across. The table incorporates
current Federal income tax rates and assumes that all income would otherwise be
taxed at the investor's highest tax rate. Yield figures are for example only.

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

MUNICIPAL BONDS AND
THE ALTERNATIVE MINIMUM TAX

INCOME+ MUNICIPAL BOND 'PREFERENCE'
INTEREST INCOME*
(STATE INCOME TAX RATES)
SINGLE ++ JOINT ++ 0% 7% 11%
- --------------------------------------------------
$50,000 $25,000 $20,000 $17,000
- --------------------------------------------------
$30,000 $22,000 $18,000 $16,000
- --------------------------------------------------
$100,000 $29,000 $20,000 $15,000
- --------------------------------------------------
$55,000 $24,000 $18,000 $15,000
- --------------------------------------------------
$225,000 $36,000 $18,000 $9,000
- --------------------------------------------------
$205,000 $33,000 $17,000 $9,000
- --------------------------------------------------

Notes:
* Assuming no 'preference' or similar items
except for municipal bond 'preference'
interest income and state income taxes.

+ Regular taxable income plus state income
taxes and personal exemptions.

++ Assuming no dependents.

Under the tax law, interest income on certain municipal bonds, although
exempt from regular federal income tax, is treated as a 'preference' item for
purposes of the alternative minimum tax (the 'AMT').

The table above shows amounts of such municipal bond 'preference' interest
income that individual taxpayers could receive in 1994 without becoming subject
to the AMT. The table gives information for single and joint returns of
individuals having no dependents. The table provides three income levels and
three hypothetical state income tax rates.

The table assumes that the taxpayer has no 'preference' or similar items
which must be added to 'regular' taxable income in computing the alternative
minimum taxable income, other than the stated amount of municipal bond
'preference' interest income and state income taxes. The table does not reflect
the phase out of the tax benefit of personal exemptions, the possible
disallowance of deductions. The table further assumes that the stated amount of
municipal bond 'preference' interest income is subject to state income taxes. If
the taxpayer has any other 'preference' or similar items (e.g., real estate
taxes, appreciation on charitable contributions of property, accelerated
depreciation, losses from passive activities and certain interest deductions)
then the amount of municipal bond 'preference' interest income that the taxpayer
could have before being subject to the AMT would be less. Home mortgage
interest, charitable contributions and certain other items are deductible from
adjusted gross income in computing 'regular' taxable income and are not added
back in computing alternative minimum taxable income. Holders are urged to
consult their own tax advisers.

A-5
<PAGE>
MUNICIPAL INVESTMENT TRUST FUND
INTERMEDIATE TERM 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.
<PAGE>

BUSINESS REPLY MAIL NO POSTAGE
FIRST CLASS PERMIT NO. 6665 NEW YORK, NY NECESSARY
IF MAILED
POSTAGE WILL BE PAID BY ADDRESSEE IN THE
BANKERS TRUST COMPANY UNITED STATES
UNIT INVESTMENT TRUST
FOUR ALBANY STREET
7TH FLOOR
NEW YORK, NY 10015

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

<PAGE>

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 $0.35 per $1,000 face amount of underlying Debt Obligations (see
Income and Distributions-- Fund Expenses)
EVALUATOR'S FEE FOR EACH SERIES
Minimum of $13.00 (see Income and Distributions--Fund Expenses)
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.
AGENT FOR SPONSORS
Merrill Lynch, Pierce, Fenner & Smith Incorporated

OBJECTIVE--To provide higher tax-exempt interest income for investors who
are not subject to Alternative Minimum Tax ('AMT') through investment in debt
obligations targeted to fixed maturity or disposition dates and issued by or on
behalf of states, political subdivisions and public authorities or certain
United States territories or possessions. All debt obligations in the Trusts are
either rated investment grade or backed by third-party obligations that are
rated investment grade. 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
or of individual banks or other third-party obligors to meet their obligations
under their letters of credit or other third-party obligations, as well as to
investors not being subject to Alternative Minimum Tax. 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.

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, intermediate 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 the applicable sales charge* as a percentage of the offering
side evaluation per Unit (the net amount invested); this results in a sales
charge (set forth on page A-3)* as a percentage 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 How To Buy; How To Sell)

ESTIMATED CURRENT RETURN; ESTIMATED LONG TERM RETURN--Estimated Current
Return on a Unit of a Trust shows the 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 (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 a 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*) and estimated expenses. The net annual interest rate
per Unit and the net annual long-term return to investors will vary with changes
in the fees and expenses of the Trustee and Sponsors and the fees of the
Evaluator which

- ---------------
+ 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 Initial Sales Charge on page A-7 and Appendix B).

A-6

<PAGE>

INVESTMENT SUMMARY FOR EACH TRUST AS OF AUGUST 4, 1994 (CONTINUED)

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 Income
and Distributions--Returns).

INITIAL SALES CHARGE--The following Initial Offering Sales Charge Schedule
will apply to Trusts A, B and C of this Fund (rather than the Initial Offering
Sales Charge Schedules set forth in Appendix B).
<TABLE><CAPTION>
INITIAL OFFERING SALES CHARGE SCHEDULE

SALES CHARGE
(GROSS UNDERWRITING PROFIT)
--------------------------------------------------------
DEALER CONCESSION PRIMARY MARKET
AS PERCENT OF AS PERCENT OF AS CONCESSION TO
OFFER SIDE PUBLIC NET AMOUNT PERCENT OF PUBLIC INTRODUCING
NUMBER OF UNITS OFFERING PRICE INVESTED OFFERING PRICE DEALERS
- ------------------------------------- ------------------------------------- -----------------
<S> <C> <C> <C> <C>
Trust A
(1997-1998)
Less than 250....... 2.00% 2.041% 1.300% $ 14.40
250-499............. 1.75 1.781 1.138 12.60
500-749............. 1.50 1.523 0.975 10.80
750-999............. 1.25 1.266 0.813 9.00
1,000 or more....... 1.00 1.010 0.650 7.20
<CAPTION>
Trust B
(1999-2000)
<S> <C> <C> <C> <C>
Less than 250....... 2.75% 2.828% 1.788% $ 19.80
250-499............. 2.25 2.302 1.463 16.20
500-749............. 1.75 1.781 1.138 12.60
750-999............. 1.25 1.266 0.813 9.00
1,000 or more....... 1.00 1.010 0.650 7.20
<CAPTION>
Trust C
(2001-2002)
<S> <C> <C> <C> <C>
Less than 250....... 3.25% 3.359% 2.113% $ 23.40
250-499............. 2.75 2.828 1.788 19.80
500-749............. 2.00 2.041 1.300 14.40
750-999............. 1.25 1.266 0.813 9.00
1,000 or more....... 1.00 1.010 0.650 7.20

</TABLE>
The above graduated sales charges will apply on all purchases of a Trust on
any one day during the initial offering period by the same purchaser of Units
only in the amounts stated. A purchaser of at least 250 Units of one or more
Trusts of this Series in any combination thereof will receive the reduced sales
charge applicable to each Trust as if he had purchased 250 or more Units of any
one Trust. For example a purchaser of 10 Units of each of Trusts A, B, and C
would pay a sales charge on 100 Units of each Trust, at the percentage
applicable to 250 Units of each Trust. These purchases will not be aggregated
with concurrent purchases of any other unit trusts sponsored by the Sponsors.

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.
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 Income and Distributions--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 (except in certain circumstances
depending on the Holder), but may be subject to state and local taxes. In
addition, interest on certain Debt Obligations (in the percentage of the
aggregate face amount of each Portfolio set forth under Investment Summary) will
be a preference item for purposes of Alternative Minimum Tax (see Portfolios).
Capital gains, if any, are 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. 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. 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. (See How To Buy; How to
Sell)

A-7

<PAGE>

INVESTMENT SUMMARY FOR EACH TRUST AS OF AUGUST 4, 1994 (CONTINUED)

EXCHANGE OPTION--Units of the Trusts in this Fund are not eligible for the
Exchange Option described on page 21 and in Appendix C.

FUND PERFORMANCE--Information on the performance of the Fund for various
periods, on the basis of changes in Unit price plus the amount of income and
principal distributions reinvested, may be included from time to time in
advertisements, sales literature, reports and other information furnished to
current or prospective investors. Total return figures are not averaged, and may
not reflect deduction of the sales charge, which would decrease the return.
Average annualized return figures reflect deduction of the maximum sales charge.
No provision is made for any income taxes payable.

Past performance may not be indicative of future results. The Fund is not
actively managed. Unit price and return fluctuate with the value of the Bonds in
the Portfolio, so there may be a gain or loss when Units are sold.

Fund performance may be compared to performance on the same basis (with
distributions reinvested) of Moody's Municipal Bond Averages or performance data
from publications such as Lipper Analytical Services, Inc., Morningstar
Publications, Inc., Money Magazine, The New York Times, U.S. News and World
Report, Barron's Business Week, CDA Investment Technology, Inc., Forbes Magazine
or Fortune Magazine. As with other performance data, performance comparisons
should not be considered representative of the Fund's relative performance for
any future period.

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 60.09%
Smith Barney Inc. Two World Trade Center--101st Floor
New York, N.Y. 10048 8.33
PaineWebber Incorporated 1285 Avenue of the Americas, New York, N.Y. 10019 15.00
Prudential Securities Incorporated One Seaport Plaza--199 Water Street, New York, N.Y.
10292 7.41
Dean Witter Reynolds Inc. Two World Trade Center--69th Floor
New York, N.Y. 10048 8.33
Gruntal & Co. Inc. 14 Wall Street, New York, N.Y. 10005 0.42
Oppenheimer & Co. Inc. One World Financial Center--8th Floor
New York, N.Y. 10281 0.42
----------
100.00%
----------
----------
</TABLE>

A-8

<PAGE>

INVESTMENT SUMMARY AS OF AUGUST 4, 1994 (CONTINUED)

FEE TABLE

THIS FEE TABLE IS INTENDED TO ASSIST INVESTORS IN UNDERSTANDING THE COSTS
AND EXPENSES THAT AN INVESTOR IN A TRUST WILL BEAR DIRECTLY OR INDIRECTLY. SEE
HOW TO BUY AND INCOME AND DISTRIBUTIONS--FUND EXPENSES. ALTHOUGH A TRUST IS A
UNIT INVESTMENT TRUST RATHER THAN A MUTUAL FUND, THIS INFORMATION IS PRESENTED
TO PERMIT A COMPARISON OF FEES.

<TABLE><CAPTION>
TRUST A TRUST B
----------- -----------

<S> <C> <C>
UNITHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases during the Initial Offering Period (as a percentage
of Public Offering Price).................................................................. 2.00% 2.75%
Maximum Sales Charge Imposed on Purchases during the Secondary Offering Period (as a
percentage of Public Offering Price)............................................................ 2.50% 3.50%
----------- -----------
<CAPTION>
TRUST C
-----------
<S> <C>
UNITHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases during the Initial Offering Period (as a percentage
of Public Offering Price).................................................................. 3.25%
Maximum Sales Charge Imposed on Purchases during the Secondary Offering Period (as a
percentage of Public Offering Price)............................................................ 3.50%
-----------

ESTIMATED ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS1)
TRUST A TRUST B
----------- -----------
<S> <C> <C>
Trustee's Fee................................................................................. .071% .071%
Portfolio Supervision, Bookkeeping and Administrative Fees.................................... .040% .040%
Other Operating Expenses...................................................................... .056% .061%
----------- -----------
Total...................................................................................... .167% .172%
----------- -----------
----------- -----------
<CAPTION>
ESTIMATED ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS1)
TRUST C
-----------
<S> <C>
Trustee's Fee................................................................................. .071%
Portfolio Supervision, Bookkeeping and Administrative Fees.................................... .041%
Other Operating Expenses...................................................................... .063%
-----------
Total...................................................................................... .175%
-----------
-----------

</TABLE>

- ------------------
1Based on the mean of the bid and offer side evaluations; these figures may
differ from those set forth as estimated annual expenses per unit expressed as a
percentage on page A-3.

<TABLE><CAPTION>
EXAMPLE
- ------------------------------------------------------------------------------------------------------------------------------

An investor would pay the following expenses on a $1,000 investment,
assuming the Trust's estimated operating expense ratio as described in
parentheses below and a 5% annual CUMULATIVE EXPENSES PAID FOR PERIOD OF:
return on the investment throughout the periods:
------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Trust A (.167%)........................................................ $ 21.74 $ 25.46 $ 29.55 $ 41.63
Trust B (.172%)........................................................ 29.24 32.96 37.05 49.13
Trust C (.175%)........................................................ 34.23 37.96 42.05 54.13

</TABLE>
The Example assumes reinvestment of all distributions into additional Units of a
Trust (a reinvestment option different from that offered by this Fund--see
Income and Distributions--Investment Accumulation Program) and utilizes a 5%
annual rate of return as mandated by Securities and Exchange Commission
regulations applicable to mutual funds. Cumulative expenses above reflect both
sales charges and operating expenses on an increasing investment (because the
net annual return is reinvested). In addition to the charges described above, a
Holder selling or redeeming his Units in the secondary market (before a Trust
terminates) will receive a price based on the then-current bid side evaluation
of the underlying securities. The difference between this bid side evaluation
and the offer side evaluation (the basis for the Public Offering Price), as of
the day before the Initial Date of Deposit, is $3.00, $4.00 and $5.00 for Trusts
A, B and C, respectively. Of course, this difference may change over time. The
Example should not be considered a representation of past or future expenses or
annual rate of return; the actual expenses and annual rate of return may be more
or less than those assumed for purposes of the Example.

A-9

<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

The Sponsors, Trustee and Holders of Municipal Investment Trust Fund,
Intermediate Term Series - 235 (Targeted Maturities) Defined Asset Funds (Trusts
A, B and C):

We have audited the accompanying statements of condition, including the
portfolios, of Municipal Investment Trust Fund, Intermediate Term Series - 235
(Targeted Maturities) Defined Asset Funds (Trusts A, B and C), as of August 5,
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 August
5, 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 Bankers Trust Company, 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, Intermediate Term Series - 235 (Targeted Maturities), Defined Asset Funds
(Trusts A, B and C), at August 5, 1994 in conformity with generally accepted
accounting principles.

DELOITTE & TOUCHE
New York, N.Y.
August 5, 1994

A-10

<PAGE>
MUNICIPAL INVESTMENT TRUST FUND

INTERMEDIATE-TERM SERIES - 235
(TARGETED MATURITIES)
DEFINED ASSET FUNDS

Statements of Condition as of Initial Date of Deposit, August 5, 1994

TRUST A TRUST B TRUST C
(1997-1998) (1999-2000) (2001-2002)
-------------- -------------- --------------
FUND PROPERTY

Investment in Debt
Obligations(1)
Debt Obligations deposited
in Trust......................$ 1,332,427.00 $ 477,760.00 $ 2,256,691.20
Contracts to purchase Debt
Obligations................ 10,609,983.95 11,486,271.50 9,589,914.40
Accrued interest to Initial Date
of Deposit on underlying Debt
Obligations................... 41,638.29 28,410.87 55,399.61
-------------- -------------- --------------
Total...............$11,974,049.24 $11,992,442.37 $11,902,005.21
-------------- -------------- --------------
-------------- -------------- --------------

LIABILITY AND INTEREST OF
HOLDERS

Liability--Accrued interest to
Initial Date of Deposit on
underlying Debt
Obligations(2)................$ 41,638.29 $ 28,410.87 $ 55,399.61
-------------- -------------- --------------

Interest of Holders--
Units of fractional undivided
interest outstanding
Trust A--12,005;
Trust B--12,000;
Trust C--12,000;
Cost to investors(3)....... 12,175,992.40 12,302,431.50 12,244,525.60
Gross underwriting
commissions(4)............. (243,581.45) (338,400.00) (397,920.00)
-------------- -------------- --------------
Net amount applicable to
investors.................. 11,932,410.95 11,964,031.50 11,846,605.60
-------------- -------------- --------------
Total...............$11,974,049.24 $11,992,442.37 $11,902,005.21
-------------- -------------- --------------
-------------- -------------- --------------

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

(1) Aggregate cost to each Trust of the Debt Obligations listed under Portfolios
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 How To Buy. 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 $31,705,094.70 has been deposited with the
Trustee. The amount of such letter or letters of credit includes
$31,588,401.95 (equal to the aggregate purchase price to the Sponsors) for
the purchase of $31,860,000 face amount of Debt Obligations in connection
with contracts to purchase Debt Obligations, plus $116,692.75 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 Hypo Bank, New York Branch,
BNA, New York Branch, Banca DiRoma, New York Branch, San Paolo Bank, New
York Branch and Banca Popolare DiMilano, New York Branch.

(2) Representing, as set forth under How To Buy--Accrued Interest, 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 the maximum sales charge of 2.00%, 2.75% and 3.25%, respectively, on
all Units computed on the basis set forth under How To Buy.

A-11

<PAGE>

MUNICIPAL INVESTMENT TRUST FUND,
ON THE INITIAL DATE OF DEPOSIT,
AUGUST 5, 1994
INTERMEDIATE TERM SERIES - 235 (TARGETED MATURITIES) DEFINED ASSET FUNDS
PORTFOLIO OF TRUST A (1997-1998)

2. The City of Los Angeles, CA, Rfdg. A+ 1,080,000 5.00 8/1/98 --
Certs. of Part. (Real Property
Acquisition Prog. T-Piper Technical
Ctr.)

3. Tahoe Forest, CA, Hosp. Dist. Ins. A 125,000 4.85 8/1/97 --
Hlth. Fac. Rev. Bonds, Series 1994 415,000 5.10 8/1/98 --

4. Development Auth. of Gwinnett Cnty., Aa3(m) 315,000 5.20 8/1/97 --
GA, Indl. Dev. Rev. Bonds (New 320,000 5.40 8/1/98 --
Hermes, Inc. Proj.), Series 1994
(Chemical Bank-Letter of Credit)++
5. City of Dubuque, IA, Hosp. Rev. Bonds A- 460,000 4.40 1/1/97 --
(Custodial Receipts for Finley 480,000 4.40 1/1/98 --
Hosp.), Series 1993
6. Michigan Strategic Fund Indl. Dev. Rev. A* 300,000 5.40 8/1/97 --
Bonds (Quality Wood Treating Co., 300,000 5.60 8/1/98 --
Inc.) (Firstar Bank-Letter of
Credit)++
7. New Hampshire Higher Educl. and Hlth. AAA 415,000 4.90 1/1/97 --
Fac. Auth. Hosp. Rev. Bonds, St. 455,000 5.05 1/1/98 --
Joseph Hosp. Iss., Series 1994
(Connie Lee Ins.)

8. New Mexico Educl. Assist. Foundation, Aaa(m) 900,000 4.40 12/1/98 --
Stud. Loan Rev. Bonds, Senior Series
1994 2-A++

<CAPTION>
SINKING COST OF YIELD TO MATURITY
FUND DEBT OBLIGATIONS ON INITIAL DATE
REDEMPTIONS (2) TO TRUST (3) OF DEPOSIT (3)
--------------- ------------------ -----------------
<S> <C> <C> <C>
1. -- $ 290,000 5.150%
-- 295,000 5.150
-- 315,000 5.400
2. -- 1,074,211.20 5.150

3. -- 124,141.25 5.100
-- 412,045.20 5.300
4. -- 315,859.95 5.100
-- 321,132.80 5.300

5. -- 452,258.20 5.150
-- 465,940.80 5.350

6. -- 300,816.00 5.301
-- 301,059.00 5.500

7. -- 415,444.05 4.850
-- 455,682.50 5.000

8. -- 872,370.00 5.200

</TABLE>

(continued on following page)

A-12
<PAGE>
MUNICIPAL INVESTMENT TRUST FUND, ON THE INITIAL DATE OF DEPOSIT,
AUGUST 5, 1994
INTERMEDIATE TERM SERIES - 235 (TARGETED MATURITIES) DEFINED ASSET FUNDS

PORTFOLIO OF TRUST A (1997-1998) (continued)

<TABLE><CAPTION>
MATURITY OR OPTIONAL
PORTFOLIO NO. AND TITLE OF RATINGS OF FACE DISPOSITION REFUNDING
DEBT OBLIGATIONS CONTRACTED FOR ISSUES (1) AMOUNT COUPON DATES REDEMPTIONS (2)
--------------------------------------- ----------- -------------- ----------- ---------------- -------------------
<S> <C> <C> <C> <C> <C>
9. New Mexico Educl. Assistance Aaa(m) $ 1,000,000 5.250% 12/1/98 --
Foundation, Stud. Loan Rev. Bonds,
Senior Series 1994 3-A++
10. New Jersey Hlth. Care Fac. Fin. Auth. *** 400,000 5.80 7/1/97 --
Rev. Bonds (Raritan Bay Med. Ctr.
Iss.), Series 1994
11. New York City, NY, Gen. Oblig. Bonds, A- 2,100,000 5.00 8/1/98 --
Series 1995 A
12. Military Dept. of the State of *** 215,000 5.50 9/1/97 --
Oklahoma, Certs. of Part., Series 225,000 5.65 9/1/98 --
1994
13. Student Loan Fin. Corp., SD, Student A+ 1,000,000 5.50 8/1/98 --
Loan Rev. Bonds, Series 1994 A++
14. State of Wisconsin, Trans. Rev. Bonds, AA- 600,000 3.75 7/1/98 --
Series 1993 A
--------------
$ 12,005,000
--------------
--------------

10. -- 404,228.00 5.400

11. -- 2,100,000.00 5.000

12. -- 215,591.25 5.400
-- 225,798.75 5.550

13. -- 1,003,540.00 5.400

14. -- 568,542.00 5.250

------------------
$ 11,932,410.95
------------------
------------------

</TABLE>

A-13
<PAGE>
- ------------

NOTES

(1) These ratings are (i) ratings of the issues themselves by Standard & Poor's
or, if followed by '(m)', by Moody's or by '(dp)', by Duff & Phelps; except
that, (ii) '*' following a rating indicates that it is a rating of the
letter of credit securing the Debt Obligation, (iii) '**' indicates that it
is a rating of the outstanding debt obligations of the institution
providing the letter of credit or guarantee (or a rating of the
claims-paying ability of the insurance company insuring the issue), and
(iv) '***' indicates that while there is no such available rating, in the
opinion of the Agent for the Sponsors, the issue has credit characteristics
comparable to debt obligations rated A or better. (See Appendix A.)

(2) The Debt Obligations are first subject to optional redemptions (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, the project
is condemned or sold, the project is destroyed and insurance proceeds are
used to redeem the Debt Obligations, interest on the Debt Obligations
becomes subject to taxation 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 find 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 How To
Sell--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 $11,896,395.95, which is $36,015.00 (30% 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
Income and Distribution--Returns for a description of the computation of
yield price.)

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

Debt Obligations in Portfolio Numbers 5 and 10 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 July 21, 1994 to August 4, 1994. All contracts are
expected to be settled by the initial settlement date for purchase of Units,
except the Debt Obligations in Portfolio Numbers 1, 2, 4, 6, 7 and 9
(approximately 42% 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 26 days after the settlement date for
purchase of Units.

+ See Footnote (3).

++ Subject to AMT (see Investment Summary--Taxation; Taxes).

A-14
<PAGE>

MUNICIPAL INVESTMENT TRUST FUND,
ON THE INITIAL DATE OF DEPOSIT,
INTERMEDIATE TERM SERIES - 235 (TARGETED MATURITIES) DEFINED ASSET FUNDS
AUGUST 5, 1994
PORTFOLIO OF TRUST B (1999-2000)

2. Tahoe Forest, CA, Hosp. Dist. Ins. A 540,000 5.40 8/1/00 --
Hlth. Fac. Rev. Bonds, Series 1994

3. The City of Los Angeles, CA, Rfdg. A+ 1,250,000 5.40 8/1/00 --
Certs. of Part. (Real Property
Acquisition Prog. T-Piper Technical
Ctr.)

4. Development Auth. of Gwinnett Cnty., Aa3(m) 325,000 5.60 8/1/99 --
GA, Indl. Dev. Rev. Bonds (New 330,000 5.75 8/1/00 --
Hermes, Inc. Proj.), Series 1994
(Chemical Bank-Letter of Credit)++

5. City of Dubuque, IA, Hosp. Rev. Bonds, A- 500,000 4.40 1/1/99 --
Custodial Receipts for Finley Hosp.,
Series 1993

6. Michigan Strategic Fund Indl. Dev. A 300,000 5.80 8/1/99 --
Rev. Bonds (Quality Wood Treating 300,000 5.90 8/1/00 --
Co.) (Firstar Bank-Letter of
Credit)++

7. Washoe Cnty., NV, Hosp. Rfdg. Rev. AAA 870,000 5.15 6/1/00 --
Bonds (Washoe Med. Ctr., Inc. --
Proj.), Series 1994 A (AMBAC Ins.)

8. New Hampshire Higher Educl. and Hlth. AAA 495,000 5.15 1/1/99 --
Fac. Auth., Hosp. Rev. Bonds, St. 890,000 5.30 1/1/00 --
Joseph Hosp. Iss., Series 1994
(Connie Lee Ins.)
<CAPTION>
SINKING COST OF YIELD TO MATURITY
FUND DEBT OBLIGATIONS ON INITIAL DATE
REDEMPTIONS (2) TO TRUST (3) OF DEPOSIT (3)
--------------- ------------------ -----------------
<S> <C> <C> <C>
1. -- $ 325,000.00 5.600%
-- 330,000.00 5.600
-- 340,000.00 5.800
2. -- 533,212.20 5.650

3. -- 1,243,675.00 5.500

4. -- 326,397.50 5.500
-- 331,653.30 5.650

5. -- 477,760.00 5.550

6. -- 301,284.00 5.700
-- 301,497.00 5.800

7. -- 865,615.20 5.250
--

8. -- 494,010.00 5.200
-- 887,881.80 5.350

</TABLE>

A-15
<PAGE>
MUNICIPAL INVESTMENT TRUST FUND, ON THE INITIAL DATE OF DEPOSIT,
AUGUST 5, 1994
INTERMEDIATE TERM SERIES - 235 (TARGETED MATURITIES) DEFINED ASSET FUNDS

PORTFOLIO OF TRUST B (1999-2000) (continued)

10. -- 990,030.00 5.400

11. -- 1,760,000.00 5.400

12. -- 236,010.50 5.700
-- 251,247.50 5.850

13. -- 753,217.50 5.600
-- 211,050.00 5.750
------------------
$ 11,964,031.50
------------------
------------------

</TABLE>
(see footnotes on following page)

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

NOTES

(2) Debt Obligations are first subject to optional redemptions (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.

(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 How To
Sell--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 $11,916,031.50, which is $48,000.00 (.40% of the aggregate face
amount) lower than the aggregate Cost of Debt Obligations to Trust based on
the offering side evaluation.

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

The Debt Obligations in Portfolio Number 5 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 July 21, 1994 to August 4, 1994. All contracts are
expected to be settled by the initial settlement date for purchase of Units,
except the Debt Obligations in Portfolio Numbers 1, 3, 4, 6, 7, 8 and 9
(approximately 56% 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 26 days after the settlement date for
purchase of Units.

+ See Footnote (3).

++ Subject to AMT (see Investment Summary--Taxation; Taxes).

A-17
<PAGE>

MUNICIPAL INVESTMENT TRUST FUND,
ON THE INITIAL DATE OF DEPOSIT,
AUGUST 5, 1994
INTERMEDIATE TERM SERIES - 235 (TARGETED MATURITIES) DEFINED ASSET FUNDS
PORTFOLIO OF TRUST C (2001-2002)

<TABLE><CAPTION>
MATURITY OR OPTIONAL
PORTFOLIO NO. AND TITLE OF RATINGS OF FACE DISPOSITION REFUNDING
DEBT OBLIGATIONS CONTRACTED FOR ISSUES (1) AMOUNT COUPON DATES REDEMPTIONS (2)
-------------------------------------- ----------- -------------- ----------- ---------------- -------------------
<S> <C> <C> <C> <C> <C>
1. Kern Cnty., CA, Office of the A- $ 360,000 5.95% 2/1/01 --
Superintendent of Schools, Certs. of 375,000 5.95 8/1/01 --
Part., Series 1994 A
2. Tahoe Forest, CA, Hosp. Dist. Ins. A 125,000 5.50 8/1/01 --
Hlth. Fac. Rev. Bonds, Series 1994 500,000 5.65 8/1/02 --
3. The City of Los Angeles, CA, Muni. A+(p) 500,000 5.20 6/1/01 --
Imp. Corp., Certs. of Part. (Equip.
and Real Prop. Acquisition Prog. S)
4. The City of Los Angeles , CA, Rfdg. A+ 1,000,000 5.60 8/1/02 --
Certs. of Part. (Real Property
Acquisition Prog. T-Piper Technical
Ctr.)
5. District of Columbia (Washington, AAA 2,000,000 4.65 6/1/02 --
D.C.), Gen. Oblig. Rfdg. Bonds,
Series 1994 A-2 (AMBAC Ins.)
6. Development Auth. of Gwinnet Cnty., Aa3(m) 85,000 5.85 8/1/01 8/1/00 @ 103
GA, Indl. Dev. Rev. Bonds (New 90,000 5.95 8/1/02 8/1/00 @ 103
Hermes, Inc. Proj.), Series 1994
(Chemical Bank-Letter of Credit)++
7. Illinois Hlth. Fac. Auth. Rev. Bonds A+ 500,000 5.40 11/15/02 --
(OSF Healthcare Sys.), Series 1993
8. Hospital Auth. of Elkhart, IN, Hosp. A1(m) 500,000 6.30 7/1/02 --
Rev. Bonds (Elkhart Gen. Hosp.),
Series 1992

SINKING COST OF YIELD TO MATURITY
FUND DEBT OBLIGATIONS ON INITIAL DATE
REDEMPTIONS (2) TO TRUST (3) OF DEPOSIT (3)
--------------- ------------------ -----------------
<S> <C> <C> <C>
1. -- $ 360,000.00 5.950%
-- 375,000.00 5.950

2. -- 123,220.00 5.750
-- 493,685.00 5.850
3. -- 487,360.00 5.650

4. -- 993,640.00 5.700

5. -- 1,874,760.00 5.650

6. -- 85,482.80 5.750
-- 90,567.00 5.850

7. -- 488,550.00 5.750

8. -- 520,465.00 5.650

</TABLE>

(continued on following page)

A-18
<PAGE>
MUNICIPAL INVESTMENT TRUST FUND, ON THE INITIAL DATE OF DEPOSIT,
AUGUST 5, 1994
INTERMEDIATE TERM SERIES - 235 (TARGETED MATURITIES) DEFINED ASSET FUNDS

PORTFOLIO OF TRUST C (2001-2002) (continued)

10. Washoe Cnty., NV, Hosp. Rfdg. Rev. AAA 95,000 5.35 6/1/02 --
Bonds (Washoe Med. Ctr., Inc.
Proj.), Series 1994 A (AMBAC Ins.)
11. New Mexico Educl. Assist. Foundation, AAA(m) 650,000 5.80 12/1/02 --
Stud. Loan Rev. Bonds, Senior Series
1994 3-A++
12. New Hampshire Higher Educl. and Hlth. AAA 735,000 5.40 1/1/01 --
Fac. Auth. Hosp. Rev. Bonds, St. 485,000 5.45 1/1/02 --
Joseph Hosp. Iss., Series 1994
(Connie Lee Ins.)
13. New York City, NY, Gen. Oblig. Bonds, A- 200,000 5.625 8/1/01 --
Series 1995 A
14. New York City, Indl. Dev. Agy. Spec. A 1,195,000 5.40 1/1/01 --
Fac. Rev. Bonds, Series 1994
(Terminal One Group Assoc., L.P.
Proj.)++
15. Military Dept. of the State of *** 265,000 6.10 9/1/01 --
Oklahoma, Certs. of Part., Series 280,000 6.20 9/1/02 --
1994
16. Rhode Island Hlth. and Educl. Bldg. AA 110,000 4.90 10/1/01 --
Corp. Rev. Bonds, Landmark Med. Ctr.
(Asset Guaranty Ins.)
17. Student Loan Fin. Corp., SD, Stud. A+ 1,350,000 5.95 8/1/01 --
Loan Rev. Bonds, Series 1994 A++
--------------
$ 12,000,000
--------------
--------------
<CAPTION>

10. -- 94,392.95 5.450

11. -- 654,199.00 5.700

12. -- 732,993.45 5.450
-- 482,056.05 5.550

13. -- 200,000.00 5.625

14. -- 1,175,903.90 5.700

15. -- 266,491.95 6.000
-- 281,747.20 6.100

16. -- 104,877.30 5.700

17. -- 1,357,641.00 5.850

------------------
$ 11,846,605.60
------------------
------------------

</TABLE>

A-19
<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 How To
Sell--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 $11,786,605.60, which is $60,000.00 (.50% of the aggregate face
amount) lower than the aggregate Cost of Debt Obligations to Trust based on
the offering side evaluation.

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

The Debt Obligations in Portfolio Numbers 3, 7, 14 and 16 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 July 21, 1994 to August 4, 1994. All contracts
are expected to be settled by the initial settlement date for purchase of
Units, except the Debt Obligations in Portfolio Numbers 1, 4, 5, 6, 9, 10, 11
and 12 (approximately 59% 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 26 days after the
settlement date for purchase of Units.

+ See Footnote (3).

++ Subject to AMT (see Investment Summary--Taxation; Taxes).

A-20
<PAGE>

MUNICIPAL INVESTMENT TRUST FUND
INTERMEDIATE TERM SERIES--235
(TARGETED MATURITIES)
DEFINED ASSET FUNDS
ESTIMATED CASH FLOWS TO HOLDERS
The tables below set forth the per Unit estimated monthly distributions of
principal and interest to Holders of Trusts A through C. The table assumes no
changes in expenses, no changes in current interest rates and no exchanges,
redemptions, sales or prepayments of the underlying Securities prior to maturity
or disposition dates and the receipt of principal upon maturity (or, for a
Security, if any, that was trading on the Initial Date of Deposit at or above an
earlier call price, receipt of principal on the respective call date or pursuant
to mandatory sinking fund redemptions) and therefore actual distributions may
vary. All fractions have been rounded.
TRUST A (1997-1998)

DATE AMOUNT
- ------------------------------
October 1993 $ 1.35
November
1993-December 1996 4.04
January 1997 77.43
February 1997 28.10
March 1997-June 1997 3.65
July 1997 37.26
August 1997 90.37
September 1997 21.17
DATE AMOUNT
- ------------------------------
October
1997-December 1997 $ 3.04
January 1998 81.46
February 1998-June
1998 2.73
July 1998 52.99
August 1998 466.74
September 1998 19.49
October
1998-November 1998 0.50
December 1998 159.90

TRUST B (1999-2000)

DATE AMOUNT
- ------------------------------
October 1994 $ 1.47
November
1994-December 1998 4.37
January 1999 87.87
February 1999 31.35
March 1999-July 1999 3.91
August 1999 147.19
September 1999 22.99
October
1999-November 1999 3.15
DATE AMOUNT
- ------------------------------
December 1999 $ 87.15
January 2000 77.52
February 2000 31.02
March 2000-May 2000 2.30
June 2000 159.33
July 2000 1.63
August 2000 370.43
September 2000 20.98

TRUST C (2001-2002)

DATE AMOUNT
- ------------------------------
October 1994 $ 1.40
November
1994-December 2000 4.46
January 2001 166.59
February 2001 34.00
March 2001-May 2001 3.59
June 2001 45.58
July 2001 3.41
August 2001 208.12
September 2001 24.69
October 2001 11.53
DATE AMOUNT
- ------------------------------
November
2001-December 2001 $ 2.26
January 2002 43.01
February 2002-May
2002 2.08
June 2002 177.88
July 2002 43.45
August 2002 160.02
September 2002 23.98
October
2002-November 2002 0.31
December 2002 96.95

A-21

<PAGE>

MUNICIPAL INVESTMENT TRUST FUND
DEFINED ASSET FUNDS
PROSPECTUS PART B
AMT SERIES
INSURED SERIES
INTERMEDIATE TERM SERIES
MONTHLY PAYMENT SERIES
STATE SERIES

DESCRIPTION OF FUND INVESTMENTS

PORTFOLIO SELECTION

Experienced professional buyers and research analysts for Defined Asset
Funds, with information on the markets for suitable securities and on thousands
of issues, selected securities for the Fund's portfolio (the 'Portfolio'),
considering its investment objective and other factors including: (1) the
quality of the Debt Obligations, as evidenced by a rating in the category A or
better by at least one recognized rating organization (see Appendix A) or
comparable credit enhancement or (in the opinion of Defined Asset Funds
research) credit characteristics; (2) yield and price relative to comparable
securities; (3) diversification as to purpose and location of issuer, subject to
availability of suitable debt obligations; and (4) maturities (including call
protection). There is no leverage or borrowing to increase the risk to the Fund,
nor does the Portfolio contain other kinds of securities to enhance yield.

Composition of the Portfolio is summarized under Investment Summary and the
names and certain characteristics of the debt obligations in the Portfolio (the
'Debt Obligations' or the 'Securities') are listed in the financial statements.

Yields on debt obligations depend on factors including general conditions
of the municipal bond market and the general bond markets, size of a particular
offering, and the maturity and rating of the particular issue. Ratings represent
opinions of the rating organizations as to the quality of securities rated, but
these are general (not absolute) standards of quality. Yields can vary among
obligations with similar maturities, coupons and ratings.

Neither the Sponsors nor the Trustee are liable for any default, failure or
defect in a Security. If a contract to purchase any Debt Obligation fails (a
'Failed Debt Obligation'), the Sponsors are authorized to deposit Replacement
Securities which (i) are tax-exempt bonds issued by a state or political
subdivision or a U.S. territory or possession; (ii) have a fixed maturity or
disposition date substantially similar to the Failed Debt Obligation; (iii) are
rated A or better by at least one recognized rating organization or have
comparable credit characteristics; and (iv) are not when, as and if issued.
Replacement Securities must be deposited within 110 days after deposit of the
failed contract, at a cost not exceeding funds reserved for purchasing the
Failed Debt Obligation and at a yield to maturity and current return, as of the
date the failed contract was deposited, substantially equivalent (considering
then current market conditions and relative creditworthiness) to those of the
Failed Debt Obligation.

Because each Defined Fund is a portfolio of preselected securities,
purchasers know in advance what they are investing in. The Portfolio is listed
in the prospectus so that generally the securities, maturities, call dates and
ratings are known when they buy. Of course, the Portfolio changes somewhat over
time as additional Securities are deposited, as Securities are called or
redeemed, or as they are sold to meet redemptions and in the limited
circumstances described below.

PORTFOLIO SUPERVISION

The Fund is a unit investment trust which follows a buy and hold investment
strategy. Traditional methods of investment management for mutual funds
typically involve frequent changes in fund holdings based on economic, financial
and market analyses. Because the Fund is not actively managed, it may retain an
issuer's securities despite adverse financial developments. However, Defined
Asset Funds' experienced financial analysts regularly review the Portfolio, and
the Sponsors may instruct the Trustee to sell securities in the following
circumstances: (i) default in payment of amounts due on the security; (ii)
institution of certain legal proceedings; (iii) other legal questions or
impediments affecting the security or payments thereon; (iv) default under
certain

1
<PAGE>
documents adversely affecting debt service or in payments on other securities of
the same issuer or guarantor; (v) decline in projected income pledged for debt
service on a revenue bond; (vi) if a security becomes taxable or otherwise
inconsistent with the Fund's investment objectives; (vii) a right to sell or
redeem the security pursuant to a guarantee or other credit support; or (viii)
decline in security price or other market or credit factors (including advance
refunding) that, in the opinion of Defined Asset Funds research, makes retention
of the security detrimental to the interests of Holders. If there is a payment
default on any Security and the Agent for the Sponsors fails to instruct the
Trustee within 30 days after notice of the default, the Trustee will sell the
Security.

The Trustee must reject any offer by an issuer of a Debt Obligation to
exchange another security pursuant to a refunding or refinancing plan unless (a)
the Debt Obligation is in default or (b) in the written opinion of Defined Asset
Funds research analysts, a default is probable in the reasonably foreseeable
future, and the Sponsors instruct the Trustee to accept the offer or take any
other action with respect to the offer as the Sponsors consider appropriate.

RISK FACTORS

An investment in units of beneficial interest in the Fund ('Units') should
be made with an understanding of the risks which an investment in fixed-rate
debt obligations may entail, including the risk that the value of the Portfolio
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.

Certain of the Securities in the Fund may have been deposited 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 the Fund may have been deposited 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 to the Fund. 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.

2
<PAGE>
Holders of Units will be 'at risk' with respect to Securities purchased on
a when, as and if issued basis or for delayed delivery (i.e., either a gain or
loss may result from fluctuations in the offering side evaluation of the
Securities) from the date they commit for Units.

As set forth under Investment Summary and Portfolio, the Fund may contain
or be concentrated in one or more of the types of Debt Obligations discussed
below. An investment in the Fund should be made with an understanding of the
risks that these securities may entail, certain of which are described below. In
addition, investment in a single State Trust, as opposed to a Fund 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 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 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 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 recession's adverse impact upon both revenue and
expenditures, as well as other factors, many state and local governments have
confronted deficits which were 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 issue additional debt to
finance deficits or cash flow needs.

In addition, certain of the Debt Obligations in the Fund 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 condition 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

The Fund 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, however, bonds which were thought to be escrowed to
maturity have been called for redemption prior to maturity.

3
<PAGE>
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
projects, including pollution control facilities and certain manufacturing
facilities. These projects are usually operated by corporations. 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 from receipts or
revenues under arrangements between the issuer and the corporate operator of the
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 to the issuer by
the corporate operator of the 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 an affiliated company. Regardless of the structure, payment of
IDRs is solely dependent upon the creditworthiness of the corporate operator of
the project, corporate guarantor and credit enhancer. 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 Portfolio 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.

STATE AND LOCAL MUNICIPAL UTILITY OBLIGATIONS

The ability of utilities to meet their obligations under revenue bonds
issued on their behalf is dependent on various factors, including the rates they
may charge their customers, the demand for their services and the cost of
providing those services. Utilities, in particular investor-owned utilities, are
subject to extensive 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 affected by its cost of capital, the
availability and cost of fuel and other factors. 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 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

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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 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. California, Michigan, New Mexico and Ohio have instituted
investigations into the possible introduction of retail wheeling within their
respective states, which could foster competition among the utilities. Retail
wheeling might result in the issue of stranded investment (investment in assets
not being recovered in base rates), thus hampering a utility's ability to meet
its obligations.

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 presented to Congress by the end of 1995 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 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

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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. Since there have been very few nuclear plants
decommissioned to date, these estimates may be unrealistic.

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, Oregon 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 and 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
reletting 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.

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.

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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). 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 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 these 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. Furthermore, 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.
Certain special revenue obligations (i.e., Medicare or Medicaid revenues) may be
payable subject to appropriations by state legislatures. 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 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.

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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 revenues unless replacement patients were found.

Certain hospital bonds may provide for redemption at par 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 be legally required because of the bonds to perform
procedures against specified religious principles or to disclose information
that is considered 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 severely reduce 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), bridges, marine
terminals, 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 increased competition, excess capacity, increased aviation
fuel, deregulation, traffic constraints 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
Midway Airlines, Inc., Eastern Airlines, Inc. and Pan American Corporation have
been liquidated. However, 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. Furthermore, proposed legislation would provide the U.S. Secretary of
Transportation with the temporary authority to freeze airport fees upon the
occurrence of disputes between a particular airport facility and the airlines
utilizing that facility.

Similarly, payment on bonds related to other facilities is dependent on
revenues from the projects, such as use fees from ports, 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.

SOLID WASTE DISPOSAL BONDS

Bonds issued for solid waste disposal facilities are generally payable from
dumping 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

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by a failure 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).

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.

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.

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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.

The Puerto Rican economy is affected by a number of Commonwealth and
Federal investment incentive programs. For example, Section 936 of 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
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 of 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 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 savings banks, savings and loan associations and similar
institutions ('thrifts') or are 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, if an issuer fails to pay amounts due on
the Debt Obligation or defaults under its reimbursement agreement with the
issuer of the letter of credit or, in certain cases, if the interest on the Debt
Obligation is 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.

The profitability of financial institutions (and therefore their ability to
honor letters of credit or guarantees) is largely dependent upon the
availability and cost of funds for the purpose of financing lending operations
under

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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. In the late 1980's and early
1990's the credit ratings of U.S. banks and bank holding companies were 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
construction and commercial real estate loans. These problem loans have been
largely addressed. During the early 1990's the credit ratings of many foreign
banks have also been subject to significant downgrades due to a deterioration in
asset quality which has negatively impacted earnings and capital adequacy. The
decline in asset quality of major foreign banks has been brought about largely
by recessionary conditions in their local economies. The Federal Deposit
Insurance Corporation ('FDIC') indicated that in 1990, 168 federally insured
banks with an aggregate total of $45.7 billion in assets failed and that in
1991, 124 federally insured banks with an aggregate total of $64.3 billion in
assets failed. During 1992, the FDIC resolved 120 failed banks with combined
assets of $44.2 billion. In 1993, a total of 41 banks with combined assets of
$3.5 billion were closed. The 1993 total was the lowest level in twelve years.
Bank holding companies and other financial institutions may not be as highly
regulated as banks, and may be more able to expand into other non-financial and
non-traditional businesses.

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.

Recent legislation, including the Financial Institutions Reform, Recovery
and Enforcement Act of 1989, the Federal Deposit Insurance Corporation
Improvement Act of 1991 ('FDICIA') and the Resolution Trust Corporation
Refinancing, Restructuring, and Improvement Act of 1991 have significantly
altered the legal rules and regulations governing banks and thrifts and mandated
early and aggressive regulatory intervention for unhealthy institutions. For
those thrifts that have failed, either the FDIC or the Resolution Trust
Corporation ('RTC') will be appointed as receiver or conservator. Periodic
efforts by recent Administrations to introduce legislation broadening the
ability of banks and thrifts to compete with new products generally 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. Legislation to liberalize interstate branching for
banks has been stalled in Congress, but may be more successful this year.
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 these and
similar rules may result in increased volatility in the reported health of the
industry and mandated regulatory intervention to correct such problems.

Investors should realize that should the FDIC or the RTC make payment under
a letter of credit prior to the scheduled maturity or disposition dates of the
related Debt Obligation their investment will be returned sooner than originally
anticipated. The possibility of such early payment has been increased
significantly by the enactment of FDICIA, which requires federal regulators of
insured banks, savings banks, and thrifts to act more quickly to address the
problems of undercapitalized institutions than previously, and specifies in more
detail the actions they must take. One such requirement virtually compels the
appointment of a receiver or conservator for any institution when its ratio of
tangible equity to total assets declines to two percent. Others force aggressive
intervention in the business of an institution at even earlier stages of
deterioration.

Certain letters of credit or guarantees backing Debt Obligations may have
been issued by a foreign bank or corporation or similar entity (a 'Foreign
Guarantee'). On the basis of information available to the Sponsors at the
present time no Foreign Guarantee is subject to exchange control restrictions
under existing law which would materially interfere with payments to the Fund
under the Foreign Guarantee. However, there can be no assurance that exchange
control regulations might not be adopted in the future which might affect
adversely the payment to the Fund. Nor are there any withholding taxes under
existing law applicable to payments made on any Foreign Guarantee. While there
can be no assurance that withholding taxes might not be imposed in the future,
provision

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is made in the instruments governing any Foreign Guarantee that, in substance,
to the extent permitted by applicable law, additional payments will be made by
the guarantor so that the total amount paid, after deduction of any applicable
tax, will not be less than the amount then due and payable on the Foreign
Guarantee. The adoption of exchange control regulations and other legal
restrictions could have an adverse impact on the marketability of any Debt
Obligations backed by a Foreign Guarantee and on the ability of the Fund to
satisfy its obligation to redeem Units tendered to the Trustee for redemption
(see How to Sell).

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.

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. Standard
& Poor's has rated the Units of any Insured Fund 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 Fund being
reduced, the Sponsors are authorized to direct the Trustee to obtain other
insurance.

The following are brief descriptions of certain Insurance Companies. The
financial information presented for each company has been determined on a
statutory basis and 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 $1,956,000,000 and
policyholders' surplus of approximately $737,000,000 as of December 31, 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 rated by Standard & Poor's.
As of December 31, 1993 Asset Guaranty had admitted assets of approximately
$138,000,000 and policyholders' surplus of approximately $73,000,000.

CGIC, a monoline bond insurer 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

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<PAGE>
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 December
31, 1993, CGIC had total admitted assets of approximately $285,000,000 and
policyholders' surplus of approximately $168,000,000.

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., 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
December 31, 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
December 31, 1993, its total admitted assets were approximately $182,000,000 and
policyholders' surplus was approximately $105,000,000.

Continental is a wholly-owned subsidiary of CNA Financial Corp. and was
incorporated under the laws of Illinois in 1948. As of December 31, 1993,
Continental had policyholders' surplus of approximately $3,598,000,000 and
admitted assets of approximately $23,849,000,000. Continental is the lead
property-casualty company of a fleet of carriers nationally known and marketed
as 'CNA Insurance Companies'. CNA is rated AA+ 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 December 31, 1993, its total admitted assets were
approximately $1,947,000,000 and its policyholders' surplus was approximately
$777,000,000.

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 December 31, 1993, FSA
had policyholders' surplus of approximately $357,000,000 and total admitted
assets of approximately $748,000,000.

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 December 31, 1993, the total admitted assets of Firemen's were
approximately $2,253,000,000 and its policyholders' surplus was approximately
$503,000,000.

<PAGE>
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 December 31, 1993, MBIA
had admitted assets of approximately $3,051,000,000 and policyholders' surplus
of approximately $978,000,000.

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 December
31, 1993, the total admitted assets and policyholders' surplus of National Union
were approximately $7,993,000,000 and approximately $1,401,000,000,
respectively.

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 that are otherwise
uninsurable. 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.

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 Fund. At any
time after the Initial Date of Deposit, litigation may be initiated on a variety
of grounds, or legislation may be enacted, with respect to Debt Obligations in
the Fund. 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

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<PAGE>
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 Fund's Portfolio. The Sponsors are unable to predict
what effect, if any, this type of legislation might have on the Fund.

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 nondiscriminatory 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 the Fund
will retain for any length of time its present size and composition. 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 (see Portfolio in Part A). In general, optional refunding redemption
provisions are more likely to be exercised when the offer side evaluation is at
a premium over par than when it is at a discount from par. Generally, the offer
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 which were acquired on the
Date of Deposit at an offer side evaluation in excess of par is set forth under
Investment Summary. Certain Debt Obligations in the Portfolio may be subject to
sinking fund provisions early in the life of the Fund. 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. 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 How to Sell--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, 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 Trust Indenture).

LIQUIDITY

Certain of the Debt Obligations may have been guaranteed or similarly
secured by insurance companies or other corporations or entities. The guarantee
or similar commitment may constitute a security (a 'Restricted Security') that
cannot, in the opinion of counsel, be sold publicly by the Trustee without
registration under the Securities Act of 1933, as amended, or similar provisions
of law subsequently enacted. The Sponsors nevertheless believe that, should a
sale of these Debt Obligations be necessary in order to meet redemption, the
Trustee should be able to consummate a sale with institutional investors. Up to
40% of the Portfolio may consist of Debt Obligations purchased from various
banks and thrifts and other Debt Obligations with guarantees which may
constitute Restricted Securities.

The Portfolio may contain certain Debt Obligations purchased directly from
issuers. These Debt Obligations are generally issued under bond resolutions or
trust indentures providing for the issuance of bonds in publicly saleable
denominations (usually $100,000), may be sold free of the registration
requirements of the Securities Act of 1933 and are otherwise structured in
contemplation of ready marketability. In addition, the Sponsors generally obtain
letters of intention to repurchase or to use best efforts to remarket these Debt
Obligations from the issuers, the placement agents acting in connection with
their sale or the entities providing the additional credit support, if any.
These letters do not express legal obligations; however, in the opinion of the
Sponsors, these Debt Obligations should be readily marketable.

TAX EXEMPTION

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<PAGE>
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 and may be a preference item for purposes of the Alternative Minimum
Tax (see Portfolio in Part A; Taxes below). 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 has announced an expansion of 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 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.

HOW TO BUY

Units are available from any of the Underwriters and other broker-dealers
at the Public Offering Price (including the applicable sales charge) plus a
proportionate share of any cash held by the Fund in the Capital Account (unless
allocated to the purchase of specific securities) and net accrued and
undistributed interest. Because both the value of Securities and accrued
interest change, the Public Offering Price varies each Business Day.

PUBLIC OFFERING PRICE

In the initial offering period, the Public Offering Price is based on the
next offer side evaluation of the Securities, and includes a sales charge based
on the number of Units of a single Fund or Trust purchased on the same or any
preceding day by a single purchaser. See Initial Offering Sales Charge Schedule
in Appendix B. The purchaser or his dealer must notify the Sponsors at the time
of purchase of any previous purchase to be aggregated and supply sufficient
information to permit confirmation of eligibility; acceptance of the purchase
order is subject to such confirmation. Purchases of Fund Units may not be
aggregated with purchases of any other unit trust. This procedure may be amended
or terminated at any time without notice.

In the secondary market (after the initial offering period), the Public
Offering Price is based on the next bid side evaluation of the Securities, and
includes a sales charge based (a) on the number of Units of the Fund and any
other Series of Municipal Investment Trust Fund purchased in the secondary
market on the same day by a single purchaser (see Secondary Market Sales Charge
Schedule in Appendix B) and (b) the maturities of the underlying Securities (see
Effective Sales Charge in Appendix B). To qualify for a reduced sales charge,
the dealer must confirm that the sale is to a single purchaser or is purchased
for its own account and not for distribution. For these purposes, Units held in
the name of the purchaser's spouse or child under 21 years of age are deemed to
be purchased by a single purchaser. A trustee or other fiduciary purchasing
securities for a single trust estate or single fiduciary account is also
considered a single purchaser.

In the secondary market, the Public Offering Price is further reduced
depending on the maturities of the various bonds in the Portfolio, by
determining a sales charge percentage for each bond, as stated in Effective
Sales Charge in Appendix B. The sales charges so determined, multiplied by the
bid side evaluation of the Securities, are aggregated and the total divided by
the number of Units outstanding to determine the Effective Sales Charge. On any
purchase, the Effective Sales Charge is multiplied by the applicable secondary
market sales charge

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<PAGE>
percentage (depending on the number of Units purchased) in order to determine
the sales charge component of the Public Offering Price.

Employees of certain Sponsors and Sponsor affiliates and non-employee
directors of Merrill Lynch & Co. Inc. may purchase Units at any time at prices
including a sales charge of not less than $5 per Unit.

SECURITIES EVALUATIONS

The Public Offering Price is based on the evaluation of Securities in the
Fund, at the offer or bid side as described above, at the Evaluation Time next
following receipt of the order. Evaluations are determined by the Evaluator as
described under Redemption on each Business Day (this excludes 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).

ACCRUED INTEREST

Net accrued interest is added to the Public Offering Price, the Sponsors'
Repurchase Price and the Redemption Price per Unit. This represents the interest
accrued on the Securities, net of Fund expenses, from the Initial Date of
Deposit to, but not including, the settlement date for Units (less any prior
distributions of interest income to Holders). Securities deposited also carry
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 advances and distributes this amount to the
Sponsors; it recovers this advance from interest received on the Debt
Obligations. Because of varying interest payment dates on the Securities,
accrued interest at any time will exceed the interest actually received by the
Fund.

CERTIFICATES

Certificates for Units are issued upon request, and are transferable upon
payment of any taxes or governmental charges and compliance with the
requirements for redeeming Certificates (see Redemption). Certain Sponsors
collect additional charges for registering and shipping Certificates to
purchasers. Lost or mutilated Certificates can be replaced upon delivery of
satisfactory indemnity and payment of costs.

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 the Public
Offering Price per Unit (which includes the sales charge) and the Sponsors'
Initial Repurchase Price per Unit (each based on the offer side evaluation of
the Securities in the Fund--see above) exceeded the Sponsors' Repurchase Price
and the Redemption Price per Unit (each based on the bid side evaluation
thereof--see How to Sell--Redemption) by the amounts set forth under the
Investment Summary.

The initial Public Offering Price per Unit of the Trust and the Initial
Repurchase Price are based on the offer 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 offer 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 offer and bid prices has averaged
between 1 and 2% of face amount; the difference on the day before the date of
this Prospectus is stated in a note to the Portfolio.

HOW TO SELL

SPONSORS' MARKET FOR UNITS

Holders can cash in Units at any time without a fee. The Sponsors (although
not obligated to do so) normally repurchase any Units offered for sale, at the
repurchase price next computed after receipt of the order. Because of the sales
charge and fluctuations in the market value of the Securities (among other
reasons) the repurchase price may be less than the investor's cost for the
Units. Holders disposing of Units should consult their financial professional as
to current market prices to determine if other broker-dealers or banks offer
higher prices for those Units.

The Sponsors may discontinue this market without prior notice if the supply
of Units exceeds demand or for other business reasons; in that event, the
Sponsors may still purchase Units at the redemption price as a service to
Holders. Although the Sponsors may reoffer Units repurchased, alternatively they
may redeem those Units; see Redemption for a description of certain consequences
of redemptions to remaining Holders.

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REDEMPTION

Holders may redeem Units by tendering to the Trustee Certificates (if
issued) or a request for redemption. Certificates must be properly endorsed or
accompanied by a written transfer instrument. Each Holder must sign the
Certificate, transfer instrument or request exactly as the name appears on the
face of the Certificate; signatures must be guaranteed by an eligible guarantor
institution or in another manner acceptable to the Trustee. In certain
instances, additional documents may be required such as a certificate of death,
trust instrument, certificate of corporate authority or appointment as executor,
administrator or guardian. If the Sponsors are maintaining a market for Units,
they will purchase any Units tendered at the price described in the preceding
section. If the Sponsors do not purchase Units tendered, the Trustee is
authorized in its discretion to sell Units in the over-the-counter market if it
believes it will obtain for the redeeming Holder a higher net price.

Redemptions may be suspended or payment postponed in limited circumstances:
(1) if the New York Stock Exchange is closed other than for customary weekend
and holiday closings; (2) if the SEC determines that trading on that Exchange is
restricted or an emergency exists making disposal or evaluation of the
Securities not reasonably practicable; or (3) for any other period which the SEC
by order permits.

On the seventh calendar day after tender (the preceding Business Day if the
seventh day is not a Business Day), the Holder will be mailed an amount per Unit
equal to the Redemption Price Per Unit at the Evaluation Time next following
receipt of the tender. As noted above, this price may be more or less than the
cost of those Units.

Redemption Price per Unit is computed each Business Day by adding (a) the
aggregate bid side evaluation of the Securities, (b) cash in the Fund (excluding
cash held to pay contracts to purchase Securities or in a reserve account), (c)
accrued but unpaid interest on the Securities up to but not including the
payment date and (d) the aggregate value of any other Fund assets; deducting (v)
unpaid taxes or other governmental charges, (w) accrued but unpaid Fund
expenses, (x) unreimbursed Trustee advances, (y) cash held to redeem Units or
for distribution to Holders and (z) the aggregate value of any other Fund
liabilities; and dividing the result by the Units outstanding as of the
computation. Evaluations of Securities are determined by the Evaluator as
follows: During the initial syndicate offering period for any Debt Obligation,
its evaluation will be at the syndicate offer price unless the Evaluator
determines that this price does not accurately reflect the market value. For
Securities traded over-the-counter, the evaluation is generally based on the
closing sales prices on that market (unless the Evaluator deems these prices
inappropriate for valuation). If closing sales prices are not available, the
evaluation is generally determined on the basis of current bid or offer prices
for the Securities or (if not available) for comparable securities or by
appraising the value or any combination of these methods.

The value of any insurance is reflected in the market value of any Insured
Debt Obligation. The Sponsors believe that this is a fair method of valuing the
Insured Debt Obligations and the insurance.

If cash is not available in the Fund's Income and Capital Accounts to pay
redemptions, the Trustee is authorized to sell Securities. Securities to be sold
will be selected by the Agent for the Sponsors in accordance with procedures
specified in the Indenture, based on market and credit factors that they
determine are in the best interests of the Fund. The Sponsors are authorized to
specify minimum face amounts in which Securities are sold, to obtain a better
price for the Fund. When Securities are sold (or mature or are called), the size
and diversity of the Fund is reduced. Sales to meet redemptions are often made
at times when Securities would not otherwise be sold, and may result in lower
prices than might be realized otherwise.

INCOME AND DISTRIBUTIONS

INCOME

Income is received by the Fund upon semi-annual payments of interest on the
Debt Obligations held in the Portfolio. Some of the Debt Obligations may be
purchased on a when, as and if issued basis or may have a delayed delivery (see
Portfolio). Since interest on these Debt Obligations does not begin to accrue
until the date of delivery to the Fund, in order to provide tax-exempt income to
the Holders for this non-accrual period, the Trustee's Annual Fee and Expenses
is reduced by the interest that would have accrued on these Debt Obligations
between the initial settlement date for Units and the delivery dates of the Debt
Obligations. This eliminates reduction in Monthly Income Distributions. Should
when-issued Debt Obligations be issued later than expected, the fee reduction
will be increased correspondingly. If the amount of the Trustee's Annual Fee and
Expenses is insufficient to cover the additional accrued interest, the Sponsors
will treat the contracts as Failed Debt Obligations. As the Trustee is
authorized to draw on the letter of credit deposited by the Sponsors before the

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settlement date for these Debt Obligations and deposit the proceeds in an
account for the Fund on which it pays no interest, its use of these funds
compensates the Trustee for the reduction described above.

RETURNS

Estimated Current Return represents annual cash to be received from
interest-bearing Debt Obligations in the Portfolio (net of estimated annual
expenses) divided by the Public Offering Price (including sales charge).

Estimated Long-Term Return is a measure of the estimated return earned over
the estimated life of the Fund. This represents an average of the yields to
maturity (or earliest call date for obligations trading at a premium over the
call price) of the Debt Obligations in the Portfolio, calculated in accordance
with accepted bond practice and adjusted to reflect expenses and sales charges.
Bonds are customarily offered on a 'yield price' basis, which reflects
computation of yield to maturity (or call date) and not only the interest
payable but amortization or accretion to a specified date of any premium over or
discount from par (maturity) value in the bond's purchase price. In calculating
Estimated Long Term Return, the average yield for the Portfolio is derived by
weighing each Debt Obligation's yield by its market value and the time remaining
to the date to which the Debt Obligation is priced. The average Portfolio yield
so computed is adjusted to reflect estimated expenses and the maximum sales
charge. This calculation does not reflect certain delays in distributing income
nor the timing of other receipts and distributions on Units; depending on
maturities, it may therefore overstate or understate the impact of sales
charges. Both of these factors may result in a lower figure.

Both Estimated Current Return and Estimated Long Term Return can fluctuate
with changes in Portfolio composition, in market value of the Debt Obligations,
in Fund expenses and sales charges; these returns therefore can vary materially
from the figures at the time of purchase. Any difference between Estimated
Current Return and Estimated Long Term Return will probably fluctuate at least
as frequently. These figures may not be directly comparable to yield figures
used to measure other investments, and since the estimated returns are based on
various assumptions and variables, returns received by Holders may be higher or
lower.

FUND ACCOUNTS

Interest received is credited to an Income Account and other receipts to a
Capital Account. A Reserve Account may be created by withdrawing from the Income
or Capital Accounts amounts considered appropriate by the Trustee to reserve for
any material amount that may be payable out of the Fund. Monies held by the
Trustee in the various accounts for the Fund do not bear interest.

DISTRIBUTIONS

The initial estimated net annual interest rate per Unit is stated in
Investment Summary. This is based on $1,000 face amount per Unit, after
deducting estimated annual Fund expenses. The rate will change as Securities
mature, are called or sold or otherwise disposed of, as Replacement Securities
are deposited and as Fund expenses change. Because the Portfolio is not actively
managed, income distributions may not be affected by changes in interest rates.
Subject to the financial conditions of the issuers of the Securities, the amount
of income should 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.

Each Unit receives an equal share of monthly distributions of interest
income and any principal distributed, substantially equal to the proportionate
income during the month preceding the Record Day less estimated expenses.
Interest on the Debt Obligations is received by the Fund on a semi-annual or
annual basis. Therefore, it takes 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 first and following Monthly Income Distributions. When a
Security is sold, redeemed or otherwise disposed of, accrued interest is
received by the Fund. Further, because interest on the Securities is not
received by the Fund at a constant rate throughout the year, any Monthly Income
Distribution may be more or less than the interest actually received. To
eliminate fluctuations in the Monthly Income Distribution, the Trustee will
advance amounts necessary to provide approximately equal distributions; it will
be reimbursed, without interest, from interest received on the Securities.
However, the amount of Monthly Income Distributions will change over time as
described above.

Along with the Monthly Income Distributions, the Trustee will distribute
the Holder's pro rata share of the distributable cash balance of the Capital
Account, computed as of the close of business on the preceding Record Day (if at
least equal to the Minimum Capital Distribution stated in Investment Summary).
Principal proceeds received from disposition of any Security after a Record Day
and prior to the related Distribution Day will be

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held in the Capital Account subject to distribution on the second following
Distribution Day. The first distribution for a purchaser of Units between a
Record Day and the related Distribution Day will be made on the second following
Distribution Day.

Any funds held to acquire Replacement Securities which have not been used
to purchase Securities within 90 days after the initial deposit, unless promptly
used to purchase Replacement Securities, will be distributed to Holders together
with the attributable sales charge and interest attributable to those funds.
This interest will not be exempt from tax.

INVESTMENT ACCUMULATION PROGRAM

Distributions of interest and any principal or premium received by the Fund
will be paid in cash unless the Holder elects to have these distributions
reinvested without sales charge in the Municipal Fund Accumulation Program, Inc.
(the 'Program'). The Program is an open-end management investment company whose
investment objective is to obtain income that is exempt from regular Federal
income taxes through investment in a diversified portfolio consisting primarily
of state, municipal and public authority debt obligations rated A or better or
with comparable credit characteristics. Reinvesting compounds earnings free from
Federal tax. Holders participating in the Program will be subject to State and
local income taxes to the same extent as if the distributions had been received
in cash, and most of the income on the Program is subject to State and local
income taxes. 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.

FUND EXPENSES

See Trustee's Annual Fee and Expenses under Investment Summary for
estimated annual Fund expenses; if actual expenses exceed the estimate, the
excess will be borne by the Fund. The annual fee solely for the Trustee's
services is $0.70 per $1,000 face amount of Debt Obligations, payable in monthly
installments. The Trustee also benefits when it holds cash for the Fund in
non-interest bearing accounts. Possible additional charges include Trustee fees
and expenses for extraordinary services, costs of indemnifying the Trustee and
the Sponsors to the extent permitted by law and the Indenture, costs of action
taken to protect the Fund and other legal fees and expenses, Fund termination
expenses and any governmental charges. The Trustee has a lien on Fund assets to
secure reimbursement of these amounts, and may sell Securities for this purpose.
The Sponsors receive an annual fee for Portfolio supervisory services at the
maximum stated under Investment Summary, based on the initial face amount in any
calendar year. While this may exceed their costs of providing these services to
the Fund, the total supervision fees from all Municipal Investment Trust Fund
Series will not exceed their costs for these services to all of those Series
during any calendar year. The Sponsors may also be reimbursed for their costs of
providing bookkeeping and administrative services to the Fund. The Trustees's,
Sponsors' and Evaluators fees may be adjusted for inflation without Holders'
approval.

LOW COSTS

All expenses in establishing the Fund, including the cost of the initial
preparation and printing of documents relating to the Fund, cost of the initial
evaluation, 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 Fund.

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. Defined Asset
Funds have no 12b-1 or back-end load fees. These 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% a year. When compounded annually, small
differences in expense ratios can make a big difference in expenses.

EXCHANGE OPTION

Holders may exchange Units (except of Short Intermediate Series) at a
reduced sales charge for units of one or more series of the types listed in
Appendix C ('Exchange Funds'). This includes the current maximum sales charge
and exchange fee for each type of Exchange Fund. (If units held less than five
months are exchanged for a series with a higher regular sales charge, the Holder
will pay the difference between the sales charges paid on the units exchanged
and the regular sales charge for the units acquired, if greater than the
exchange fee.)

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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. Appendix C lists certain characteristics of each
type of Exchange Fund which a Holder should consider in determining whether it
would be an appropriate investment and therefore an appropriate exchange for
Units of the Fund.

Holders of Exchange Funds can similarly exchange units of those funds for
Units of the Fund. However, units of series offered at a maximum applicable
sales charge below 3.50% of the public offering price (including certain series
of Exchange Funds listed in Appendix C) are not eligible for exchange except
that Holders may exchange Units of the Fund for Freddie Mac or Select Ten Series
during their initial offering periods. Holders of other registered unit
investment trusts originally offered at a maximum applicable sales charge of at
least 3.0% ('Conversion Trusts') may similarly acquire Units at the exchange
fee.

To make an exchange, a Holder should contact his financial professional to
find out what suitable Exchange Funds are available and to obtain a prospectus.
The Holder may only acquire units of an Exchange Fund in which the Sponsors
maintain a secondary market and which are lawfully available for sale in the
state where the Holder resides. Except for the sales charge, an exchange is like
any other purchase and sale of units in the secondary market. An exchange is a
taxable event normally requiring recognition of any gain or loss on the units
exchanged. However, the Internal Revenue Service may seek to disallow a loss if
the portfolio of the units acquired is not materially different from the
portfolio of the units exchanged; Holders should consult their own tax advisers.
If the proceeds of units exchanged is insufficient to acquire a whole number of
Exchange Fund units, the Holder may pay the difference in cash (not exceeding
the price of a single unit acquired).

As the Sponsors are not obligated to maintain a secondary market in any
series, there can be no assurance that units of a desired series will be
available for exchange. The Exchange Option may be amended or terminated by the
Sponsors at any time, without notice to Holders.

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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 Fund is not an association taxable as a corporation for Federal
income tax purposes, and income received by the Fund will be treated as the
income of the Holders in the manner set forth below.

Each Holder will be considered the owner of a pro rata portion of each
Debt Obligation in the Fund 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 Fund under Portfolio.

Each Holder 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 Fund. In the opinion of bond counsel (delivered on the
date of issuance of the Debt Obligation), such interest will be excludable
from gross income for regular Federal income tax purposes (except in
certain limited circumstances referred to below). Amounts received by the
Fund pursuant to a bank letter of credit, guarantee or insurance policy
with respect to payments of principal, premium or interest on a Debt
Obligation 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 Fund 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
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 is disposed of by the Fund 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

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rate as ordinary income. However, the excess of net long-term capital gains
over net 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
the Fund, 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 the Fund, interest on this
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.

Under the income tax laws of the State and City of New York, the Fund is
not an association taxable as a corporation and income received by the Fund
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 the distributions from the Fund 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 the
Debt 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. Depending on their state of
residence, Holders may be subject to state and local taxation and should
consult their own tax advisers in this regard.

* * *

The Fund may include Debt Obligations issued after August 7, 1986 (see
Investment Summary--Taxation and Portfolio in Part A). Interest (including any
original issue discount) on certain of these Debt Obligations will be a
preference item for purposes of the alternative minimum tax ('AMT'). In
addition, a corporate Holder should be aware 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 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, an opinion relating to the
validity of the Debt Obligation and to the exemption of interest thereon from
regular Federal income taxes was or will be rendered by bond counsel. Neither
the Sponsors nor Davis Polk & Wardwell 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 Debt Obligations, the opinions of bond counsel
indicate that interest on these 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 these facilities,
or who occupies more than 5% of the usable area of these facilities or for whom
these facilities or a part thereof were

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specifically constructed, reconstructed or acquired. 'Related persons' are
defined to include certain related natural persons, affiliated corporations,
partners and partnerships.

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 Fund on the Debt Obligations, the gross proceeds received by the
Fund from the disposition of any Debt Obligation (resulting from redemption or
payment at maturity of any Debt Obligation or the sale by the Fund of any Debt
Obligation), and the fees and expenses paid by the Fund. 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.

ADMINISTRATION OF THE FUND

RECORDS

The Trustee keeps a register of the names, addresses and holdings of all
Holders. The Trustee also keeps records of the transactions of the Fund,
including a current list of the Securities and a copy of the Indenture, which
may be inspected by Holders at reasonable times during business hours.

REPORTS TO HOLDERS

With each distribution, the Trustee includes a statement of the interest
and any other receipts being distributed. Within five days after deposit of Debt
Obligations in exchange or substitution for Debt Obligations (or contracts)
previously deposited, the Trustee will send a notice to each Holder, identifying
both the Debt Obligations removed and the Replacement Securities deposited. The
Trustee sends each record Holder an annual report summarizing transactions in
the Fund's accounts and amounts distributed during the year and Securities held,
number of Units outstanding and Redemption Price at year end, among other
matters. Holders may obtain copies of Securities evaluations from the Trustee to
enable them to comply with Federal and state tax reporting requirements. Fund
accounts are audited annually by independent accountants selected by the
Sponsors; audited financial statements are available on request.

TRUST INDENTURE

The Fund is a 'unit investment trust' created under New York law by a Trust
Indenture (the 'Indenture') among the Sponsors, the Trustee and the Evaluator.
This Prospectus summarizes various provisions of the Indenture, but each
statement herein is qualified in its entirety by reference to the Indenture.

The Indenture may be amended by the Sponsors and the Trustee, without
consent by Holders: (a) to cure ambiguities or to correct or supplement any
defective or inconsistent provision, (b) to make any amendment required by the
SEC or other governmental agency, or (c) to make any other change not materially
adverse to the interest of Holders (as determined in good faith by the
Sponsors). The Indenture may also be amended upon consent of Holders of 51% of
the Units. No amendment may reduce the interest of any Holder in the Fund
without the Holder's consent or reduce the percentage of Units required to
consent to any amendment without unanimous consent of Holders. Holders will be
notified on the substance of any amendment.

The Fund will be terminated, and any remaining Securities sold, no later
than the mandatory termination date specified in Investment Summary. It will
terminate earlier upon the disposition of the last Security, upon direction of
the Sponsors if total assets are below the minimum value specified in Investment
Summary or upon consent of Holders of 51% of the Units. The Trustee will notify
each Holder in writing within a reasonable time before termination, specifying
when Certificates should be surrendered. After termination, the Trustee will
sell any remaining Securities and distribute (by check mailed to the Holder)
each Holder's pro rata interest in the Fund, net of any unpaid fees, taxes,
governmental and other charges and subject to surrender of any outstanding
Certificate by the Holder.

Merrill Lynch, Pierce, Fenner & Smith Incorporated has been appointed as
Agent for the Sponsors by the other Sponsors.

The Trustee may resign upon notice to the Sponsors; it may be removed by
direction of Holders of 51% of the Units at any time or by the Sponsors without
consent of Holders if it becomes incapable of acting or bankrupt, its affairs
are taken over by public authorities, or if for any reason the Sponsors
determine in good faith that its replacement is in the best interest of the
Holders. The Evaluator may resign or be removed by the Sponsors and the Trustee
without consent of Holders. The resignation or removal of either becomes
effective upon acceptance of appointment by a successor; in this case, the
Sponsors (and the Trustee in the case of a successor Evaluator) will use their
best efforts to appoint a successor promptly; however, if upon resignation no
successor has accepted

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appointment within 30 days after notification, the resigning Trustee or
Evaluator may apply to a court of competent jurisdiction to appoint a successor.

Any Sponsor may resign if one remaining Sponsor maintains a net worth of
$2,000,000 and is agreeable to the resignation. A new Sponsor may be appointed
by the remaining Sponsors and the Trustee to assume the duties of the resigning
Sponsor. If there is only one Sponsor and it fails to perform its duties or
becomes incapable of acting or bankrupt or its affairs are taken over by public
authorities, the Trustee may (a) appoint a successor Sponsor at rates of
compensation deemed by the Trustee to be reasonable and not exceeding amounts
prescribed by the SEC, or (b) terminate the Indenture and liquidate the Fund or
(c) continue to act as Trustee without terminating the Indenture.

The Sponsors, the Trustee and the Evaluator are not liable to any other
party (including Holders) for any act or omission in the conduct of their
responsibilities absent bad faith, willful misfeasance, negligence (gross
negligence in the case of a Sponsor) or reckless disregard of duty. The Trustee
will not be personally liable for taxes or other governmental charges with
respect to the Securities or interest thereon. The Indenture contains other
customary provisions limiting liability of the Trustee.

MISCELLANEOUS

TRUSTEE

The Trustee is named on the back cover of the Prospectus and is either
Bankers Trust Company, a New York banking corporation with its corporate trust
office at 4 Albany Street, 7th Floor, New York, New York 10015 (which is subject
to supervision by the New York Superintendent of Banks, the FDIC and the Board
of Governors of the Federal Reserve System ('Federal Reserve')); The Chase
Manhattan Bank, N.A., a national banking association with its Unit Trust
Department at 1 Chase Manhattan Plaza--3B, New York, New York 10081 (which is
subject to supervision by the Comptroller of the Currency, the FDIC and the
Federal Reserve); or (acting as Co-Trustees) Investors Bank & Trust Company, a
Massachusetts trust company with its unit investment trust servicing group at
One Lincoln Plaza, Boston, Massachusetts 02111 (which is subject to supervision
by the Massachusetts Commissioner of Banks, the FDIC and the Federal Reserve)
and The First National Bank of Chicago, a national banking association with its
corporate trust office at One First National Plaza, Suite 0126, Chicago,
Illinois 60670-0126 (which is subject to supervision by the Comptroller of the
Currency, the FDIC and the Federal Reserve). Unless otherwise indicated, when
Investors Bank & Trust and The First National Bank of Chicago act as
Co-Trustees, the term 'Trustee' in this Prospectus refers to these banks as
co-trustee.

LEGAL OPINION

The legality of the Units has been passed upon by Davis Polk & Wardwell,
450 Lexington Avenue, New York, New York 10017, as special counsel for the
Sponsors. Bingham, Dana & Gould, 150 Federal Street, Boston, Massachusetts
02110, act as counsel for The First National Bank of Chicago and Investors Bank
& Trust Company, as Co-Trustees. Hawkins, Delafield & Wood, 67 Wall Street, New
York, New York 10005, act as counsel for Bankers Trust Company, as Trustee.

AUDITORS

The Statement of Condition in Part A was audited by Deloitte & Touche,
independent accountants, as stated in their opinion. It is included in reliance
upon that opinion given on the authority of that firm as experts in accounting
and auditing.