DEFINED ASSET FUNDS MUNICIPAL INVT TR FD MULTISTATE SER 81, 487, 1995-02-01

DEFINED ASSET FUNDS MUNICIPAL INVT TR FD MULTISTATE SER 81
487, 1995-02-01

Previous: FERRELLGAS L P, 10-Q/A, 1995-02-01

Next: NUVEEN TAX EXEMPT UNIT TRUST SERIES 782, 497, 1995-02-01

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 1, 1995
REGISTRATION NO. 33-57175

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

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

MULTISTATE SERIES - 81

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 SMITH BARNEY INC.
INCORPORATED 388 GREENWICH STREET--23RD FLOOR
DEFINED ASSET FUNDS NEW YORK, N.Y. 10013
P.O. BOX 9051
PRINCETON, N.J. 08543-9051

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

D. NAMES AND COMPLETE ADDRESSES OF AGENTS FOR SERVICE:

TERESA KONCICK, ESQ. THOMAS D. HARMAN, ESQ. LEE B. SPENCER, JR.
P.O. BOX 9051 388 GREENWICH STREET ONE SEAPORT PLAZA
PRINCETON, N.J. 8543-9051 NEW YORK, NY 10013 199 WATER STREET
NEW YORK, N.Y. 10292
COPIES TO:
DOUGLAS LOWE, ESQ. ROBERT E. HOLLEY PIERRE DE SAINT PHALLE,
130 LIBERTY STREET--29TH 1200 HARBOR BLVD. ESQ.
FLOOR WEEHAWKEN, N.J. 07087 450 LEXINGTON AVENUE
NEW YORK, N.Y. 10019 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)

H. APPROXIMATE DATE OF PROPOSED SALE TO PUBLIC:

As soon as practicable after the effective date of the registration statement.

/ x / Check box if it is proposed that this filing will become effective at 9:30
a.m. on February 1, 1995 pursuant to Rule 487.

- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
<PAGE>
Defined
Asset FundsSM

MUNICIPAL INVESTMENT This Defined Fund consists of separate underlying
TRUST FUND Trusts, each of which is a portfolio of
- ------------------------------preselected securities issued by or on behalf of
MULTISTATE SERIES - 81 the State for which the Trust is named and
(UNIT INVESTMENT TRUSTS) political subdivisions and public authorities
CALIFORNIA TRUST (INSURED) thereof or certain United States territories or
5.88% possessions. The Fund is formed for the purpose of
ESTIMATED CURRENT RETURN providing interest income which in the opinion of
5.94% counsel is, with certain exceptions, exempt from
ESTIMATED LONG TERM RETURN regular Federal income taxes and from certain
NEW JERSEY TRUST (INSURED) state and local personal income taxes in the State
5.78% for which each Trust is named but may be subject
ESTIMATED CURRENT RETURN to other state and local taxes. In addition, the
5.82% Debt Obligations included in each Trust are
ESTIMATED LONG TERM RETURN insured. This insurance guarantees the timely
NEW YORK TRUST (INSURED) payment of principal and interest on but does not
5.87% guarantee the market value of the Debt Obligations
ESTIMATED CURRENT RETURN or the value of the Units. As a result of this
5.92% insurance, Units of each Trust are rated AAA by
ESTIMATED LONG TERM RETURN Standard & Poor's Ratings Group, a division of
AS OF JANUARY 31, 1995 McGraw Hill, Inc. ('Standard & Poor's'). The value
of the Units of each Trust will fluctuate with the
value of the Portfolio of underlying Debt
Obligations in the Trust.
The Estimated Current Return and Estimated Long
Term Return figures shown give different
information about the return to investors.
Estimated Current Return on a Unit shows a net
annual current cash return based on the initial
Public Offering Price and the maximum applicable
sales charge and is computed by multiplying the
estimated net annual interest rate per Unit by
$1,000 and dividing the result by the Public
Offering Price per Unit (including the sales
charge but not including accrued interest).
Estimated Long Term Return shows a net annual
long-term return to investors holding to maturity
based on the yield on the individual bonds in the
Portfolio, weighted to reflect the time to
maturity (or in certain cases to an earlier call
date) and market value of each bond in the
Portfolio, adjusted to reflect the Public Offering
Price (including the sales charge) and estimated
expenses. Unlike Estimated Current Return,
Estimated Long Term Return takes into account
maturities of the underlying Securities and
discounts and premiums. Distributions of income on
Units are generally subject to certain delays; if
the Estimated Long Term Return figure shown above
took these delays into account, it would be lower.
Both Estimated Current Return and Estimated Long
Term Return are subject to fluctuations with
changes in Portfolio composition (including the
redemption, sale or other disposition of
Securities in the Portfolio), changes in the
market value of the underlying Securities and
changes in fees and expenses. Estimated cash flows
are available upon request from the Sponsors at no
charge.
Minimum purchase: 1 Unit.

----------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED
OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY
SPONSORS: REPRESENTATION
Merrill Lynch, TO THE CONTRARY IS A CRIMINAL OFFENSE.
Pierce, Fenner & Smith Incorporated INQUIRIES SHOULD BE DIRECTED TO THE
Smith Barney Inc. TRUSTEE AT 1-800-323-1508.
PaineWebber Incorporated PROSPECTUS DATED FEBRUARY 1, 1995.
Prudential Securities Incorporated READ AND RETAIN THIS PROSPECTUS FOR
Dean Witter Reynolds Inc. FUTURE REFERENCE.

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

DEFINED ASSET FUNDSSM is America's oldest and largest family of unit investment
trusts with over $90 billion sponsored since 1970. Each Defined Fund is a
portfolio of preselected securities. The portfolio is divided into 'units'
representing equal shares of the underlying assets. Each unit receives an equal
share of income and principal distributions.
With Defined Asset Funds you know in advance what you are investing in and that
changes in the portfolio are limited. Most defined bond funds pay interest
monthly and repay principal as bonds are called, redeemed, sold or as they
mature. Defined equity funds offer preselected stock portfolios with defined
termination dates.
Your financial advisor can help you select a Defined Fund to meet your personal
investment objectives. Our size and market presence enable us to offer a wide
variety of investments. Defined Funds are available in the following types of
securities: municipal bonds, corporate bonds, government bonds, utility stocks,
growth stocks, even international securities denominated in foreign currencies.
Termination dates are as short as one year or as long as 30 years. Special funds
are available for investors seeking extra features: insured funds, double and
triple tax-free funds, and funds with 'laddered maturities' to help protect
against rising interest rates. Defined Funds are offered by prospectus only.
- --------------------------------------------------------------------------------
CONTENTS

Investment Summary.......................................... A-3
Tax-Free vs. Taxable Income................................. A-5
Underwriting Account........................................ A-7
Fee Table................................................... A-8
Report of Independent Accountants........................... A-9
Statements of Condition..................................... A-10
Portfolios.................................................. A-11
Description of Fund Investments............................. 1
Risk Factors................................................ 2
How To Buy.................................................. 17
How To Sell................................................. 18
Income and Distributions.................................... 19
Exchange Option............................................. 21
Taxes....................................................... 22
Administration of the Fund.................................. 24
Trust Indenture............................................. 25
Miscellaneous............................................... 25
Appendix A.................................................. A-1
Appendix B.................................................. B-1
Appendix C.................................................. C-1
Appendix D:
The California Trust........................................ D-1

The New Jersey Trust........................................ D-12
The New York Trust.......................................... D-15

A-2

<PAGE>

INVESTMENT SUMMARY AS OF JANUARY 31, 1995 (THE BUSINESS DAY PRIOR TO THE INITIAL
DATE OF DEPOSIT)(a)

CALIFORNIA NEW JERSEY NEW YORK
TRUST TRUST TRUST
-------------- -------------- --------------
ESTIMATED CURRENT RETURN(b)
(based on Public Offering
Price)--...................... 5.88% 5.78% 5.87%
ESTIMATED LONG TERM RETURN(b)
(based on Public Offering
Price)--...................... 5.94% 5.82% 5.92%
PUBLIC OFFERING PRICE PER UNIT
(including a 4.50% sales
charge).......................$ 1,013.86(c)$ 1,008.42(c)$ 1,003.86(c)
FACE AMOUNT OF DEBT
OBLIGATIONS...................$ 3,500,000 $ 3,250,000 $ 5,000,000
INITIAL NUMBER OF UNITS(d)...... 3,500 3,250 5,000
FRACTIONAL UNDIVIDED INTEREST IN
TRUST REPRESENTED BY EACH
UNIT.......................... 1/3,500th 1/3,250th 1/5,000th
MONTHLY INCOME DISTRIBUTIONS
First distribution to be paid
on the 25th of April, May
and May 1995 to Holders of
record on the 10th of April,
May and May 1995 for the
California, New Jersey and
New York Trusts,
respectively................$ 1.86 $ 5.77 $ 5.72
Calculation of second and
following distributions:
Estimated net annual interest
rate per Unit times
$1,000....................$ 59.64 $ 58.32 $ 58.92
Divided by 12.................$ 4.97 $ 4.86 $ 4.91
SPONSORS' REPURCHASE PRICE AND
REDEMPTION PRICE PER UNIT(e)
(based on bid side
evaluation)...................$ 964.24(c)$ 959.04(c)$ 954.69(c)
REDEMPTION PRICE PER UNIT LESS
THAN:
Public Offering Price by....$ 49.62 $ 49.38 $ 49.17
Sponsors' Initial Repurchase
Price by....................$ 4.00 $ 4.00 $ 4.00
CALCULATION OF PUBLIC OFFERING
PRICE
Aggregate offer side
evaluation of Debt
Obligations.................$ 3,388,822.80 $ 3,129,874.05 $ 4,793,427.00
-------------- -------------- --------------
Divided by Number of
Units.....................$ 968.24 $ 963.04 $ 958.69
Plus sales charge of 4.50%
of Public Offering Price
(4.712% of net amount
invested)(f).............. 45.62 45.38 45.17
-------------- -------------- --------------
Public Offering Price per
Unit........................$ 1,013.86 $ 1,008.42 $ 1,003.86
Plus accrued interest(g).... 1.15 1.13 1.14
-------------- -------------- --------------
Total.....................$ 1,015.01 $ 1,009.55 $ 1,005.00
-------------- -------------- --------------
-------------- -------------- --------------
CALCULATION OF ESTIMATED NET
ANNUAL INTEREST RATE PER UNIT
(based on face amount of
$1,000 per Unit)
Annual interest rate per
Unit........................ 6.185% 6.056% 6.087%
Less estimated annual
expenses per Unit
expressed as a
percentage................ .221% .224% .195%
-------------- -------------- --------------
Estimated net annual
interest rate per
Unit.................... 5.964% 5.832% 5.892%
-------------- -------------- --------------
-------------- -------------- --------------
DAILY RATE AT WHICH ESTIMATED
NET INTEREST ACCRUES PER
UNIT.......................... .0165% .0162% .0163%
SPONSORS' PROFIT (LOSS) ON
DEPOSIT.......................$ 37,524.30 $ 48,906.05 $ 93,453.00
TRUSTEE'S ANNUAL FEE AND
EXPENSES........................$ 2.21(h)$ 2.24(i)$ 1.95(h)
Per Unit commencing
February, March and
February 1995 for the
California, New Jersey and
New York Trusts,
respectively.
- ------------------
(a) The Indentures were signed and the initial deposits were 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
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 a Trust's distribution of income. Estimated Current
Return shows current annual cash return to investors while Estimated Long Term
Return shows the return on Units held to maturity, reflecting maturities,
discounts and premiums on underlying Debt Obligations. Each figure will vary
with purchase price including sales charge, changes in the net interest income
and the redemptions, sale, or other disposition of Debt Obligations in the
Portfolio.
(c) Plus accrued interest.
(d) The Sponsors may create additional Units during the offering period of
the Fund.
(e) During the initial offering period, the Sponsors intend to offer to
purchase Units at prices based on the offer side value of the underlying
Securities. Thereafter, the Sponsors intend to maintain such a market based on
the bid side value of the underlying Securities which will be equal to the
Redemption Price. (See How To Sell.)
(f) The sales charge during the initial offering period and in the secondary
market will be reduced on a graduated scale in the case of purchases of 250 or
more Units; the secondary market sales charge will also vary depending on the
maturities of the underlying Securities (see Appendix B). Any resulting
reduction in the Public Offering Price will increase the effective current and
long term returns on a Unit.
(g) 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).
(h) In the event that any Debt Obligations have a delayed delivery, the
Trustee's Annual Fee and Expenses will be reduced over a period in the amount of
interest that would have accrued on the Debt Obligations between the date of
settlement for the Units and the actual date of delivery of the Debt
Obligations. The Trustee will be reimbursed for this reduction (see Income and
Distributions--Income).
(i) During the first year this amount will be reduced by $0.20. Estimated
annual interest income per Unit (estimated annual interest rate per Unit times
$1,000) during the first year will be $60.36 and estimated annual expenses per
Unit will be $2.04. Estimated net annual interest income per Unit for the Trust
will remain the same (see Income and Distributions-- Income).

A-3

<PAGE>

INVESTMENT SUMMARY AS OF JANUARY 31, 1995 (CONTINUED)

CALIFORNIA NEW JERSEY NEW YORK
TRUST TRUST TRUST
------------- ------------- -------------
NUMBER OF ISSUES IN PORTFOLIO-- 7 8 12
NUMBER OF ISSUES BY SOURCE OF
REVENUE(a):
Housing-- 1 -- 1
Industrial Development Revenue-- -- 1 1
Municipal Water/Sewer Utilities-- 1 2 --
Lease Rental-- 1 2 3
General Obligation-- 1 2 1
Hospitals/Healthcare Facilities-- 1 -- 2
Universities/Colleges-- 2 1 1
State/Local Municipal Electric
Utilities-- -- -- 1
Moral Obligations-- -- -- 1
Transit Authority-- -- -- 1
NUMBER OF ISSUES RATED BY
STANDARD &
POOR'S/RATING: -- AAA-- 7(b) 8(b) 12(b)
RANGE OF FIXED FINAL MATURITY DATES
OF DEBT OBLIGATIONS.............. 2015-2026 2015-2033 2014-2034
TYPE OF ISSUE EXPRESSED AS A
PERCENTAGE OF THE AGGREGATE FACE
AMOUNT OF PORTFOLIO:
General Obligation Issues........ 15% 20% 4%
Issues Payable from Income of
Specific Project or
Authority...................... 85% 80% 96%
Debt Obligations Issued at an
'Original Issue Discount'(c)... 56% 69% 72%
Obligations Insured by certain
Insurance Companies:(d)
AMBAC.......................... 70% 15% 42%
Financial Guaranty............. -- 5% 4%
MBIA........................... 30% 80% 39%
CAPMAC......................... -- -- 6%
CGIC........................... -- -- 9%
CONCENTRATIONS(a) EXPRESSED AS A
PERCENTAGE OF THE AGGREGATE FACE
AMOUNT OF PORTFOLIO(e):
Universities/Colleges.......... 28% -- --
Municipal Water/Sewer
Utilities...................... -- 29% --
PREMIUM AND DISCOUNT ISSUES IN
PORTFOLIO
Face amount of Debt Obligations
with offer side
evaluation: over par-- 28% 40% 36%
at par-- 42% 14% --
at a discount from par-- 30% 46% 64%
PERCENTAGE OF PORTFOLIO ACQUIRED
FROM UNDERWRITING SYNDICATE IN
WHICH CERTAIN SPONSORS
PARTICIPATED AS SOLE UNDERWRITER,
MANAGING UNDERWRITER OR MEMBER... -- -- --
PERCENTAGE OF PORTFOLIOS SUBJECT TO
OPTIONAL
REDEMPTIONS BUT NOT PRIOR TO 2002
(AT PRICES INITIALLY AT LEAST
100% OF PAR)(f).................. 86% 100% 90%

- ------------------
(a) See Risk Factors for a brief summary of certain investment risks relating
to certain of these issues.
(b) All of the Debt Obligations in this Trust are insured as to scheduled
payments of principal and interest as a result of which the Units of the Trust
are rated AAA by Standard & Poor's (See 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>
Def ined
Asset Funds

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

This page may not be distributed unless included in a current prospectus.
Investors should refer to the prospectus for further information.

<PAGE>
TAX-FREE VS. TAXABLE INCOME
A COMPARISON OF TAXABLE AND TAX-FREE YIELDS

FOR CALIFORNIA RESIDENTS
<TABLE><CAPTION>
COMBINED
TAXABLE INCOME 1995* EFFECTIVE
TAX RATE
A TAX-FREE YIELD OF
%
SINGLE RETURN JOINT RETURN 4% 4.5% 5% 5.5% 6% 6.5% 7%
IS EQUIVALENT TO A TAXABLE YIELD OF
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0-39,000 20.10 5.01 5.63 6.26 6.88 7.51 8.14 8.76
- --------------------------------------------------------------------------------------------------------------------------------
$0-23,350 20.10 5.01 5.63 6.26 6.88 7.51 8.14 8.76
- --------------------------------------------------------------------------------------------------------------------------------
$39,900-94,250 34.70 6.13 6.89 7.66 8.42 9.19 9.95 10.72
- --------------------------------------------------------------------------------------------------------------------------------
$23,350-56,550 34.70 6.13 6.89 7.66 8.42 9.19 9.95 10.72
- --------------------------------------------------------------------------------------------------------------------------------
$94,250-143,600 37.42 6.39 7.19 7.99 8.79 9.59 10.39 11.19
- --------------------------------------------------------------------------------------------------------------------------------
$56,550-117,950 37.90 6.44 7.25 8.05 8.86 9.66 10.47 11.27
- --------------------------------------------------------------------------------------------------------------------------------
$143,600-256,500 42.40 6.94 7.81 8.68 9.55 10.42 11.28 12.15
- --------------------------------------------------------------------------------------------------------------------------------
$117,950-256,500 43.04 7.02 7.90 8.78 9.66 10.53 11.41 12.29
- --------------------------------------------------------------------------------------------------------------------------------
OVER $256,500 46.24 7.44 8.37 9.30 10.23 11.16 12.09 13.02
- --------------------------------------------------------------------------------------------------------------------------------
OVER $256,500 46.24 7.44 8.37 9.30 10.23 11.16 12.09 13.02
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>

TAXABLE INCOME 1995*

SINGLE RETURN 7.5% 8%

- ----------------
9.39 10.01
- ----------------
$0-23,350 9.39 10.01
- ----------------
11.48 12.25
- ----------------
$23,350-56,550 11.48 12.25
- ----------------
11.98 12.78
- ----------------
$56,550-117,950 12.08 12.88
- ----------------
13.02 13.89
- ----------------
$117,950-256,500 13.17 14.04
- ----------------
13.95 14.88
- ----------------
OVER $256,500 13.95 14.88
- ----------------

FOR NEW JERSEY RESIDENTS

COMBINED
TAXABLE INCOME 1995* EFFECTIVE
TAX RATE
TAX-FREE YIELD OF
%
SINGLE RETURN JOINT RETURN 4% 4.5% 5% 5.5% 6% 6.5% 7%
IS EQUIVALENT TO A TAXABLE YIELD OF
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0-39,000 16.81 4.81 5.41 6.01 6.61 7.21 7.81 8.41
- ------------------------------------------------------------------------------------------------------------------------------
$0-23,350 16.81 4.81 5.41 6.01 6.61 7.21 7.81 8.41
- ------------------------------------------------------------------------------------------------------------------------------
$39,000-94,250 32.33 5.91 6.65 7.39 8.13 8.87 9.61 10.34
- ------------------------------------------------------------------------------------------------------------------------------
$23,350-56,550 32.33 5.91 6.65 7.39 8.13 8.87 9.61 10.34
- ------------------------------------------------------------------------------------------------------------------------------
$94,250-143,600 35.15 6.17 6.94 7.71 8.48 9.25 10.02 10.79
- ------------------------------------------------------------------------------------------------------------------------------
$56,550-117,950 35.54 6.21 6.98 7.76 8.53 9.31 10.08 10.86
- ------------------------------------------------------------------------------------------------------------------------------
$143,600-256,500 40.21 6.69 7.53 8.36 9.20 10.04 10.87 11.71
- ------------------------------------------------------------------------------------------------------------------------------
$117,950-256,500 40.21 6.69 7.53 8.36 9.20 10.04 10.87 11.71
- ------------------------------------------------------------------------------------------------------------------------------
OVER $256,500 43.57 7.09 7.98 8.86 9.75 10.63 11.52 12.41
- ------------------------------------------------------------------------------------------------------------------------------
OVER $256,500 43.57 7.09 7.98 8.86 9.75 10.63 11.52 12.41
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>

TAXABLE INCOME 1995*

SINGLE RETURN 7.5% 8%

- ----------------
9.02 9.62
- ----------------
$0-23,350 9.02 9.62
- ----------------
11.08 11.82
- ----------------
$23,350-56,550 11.08 11.82
- ----------------
11.56 12.34
- ----------------
$56,550-117,950 11.64 12.41
- ----------------
12.54 13.38
- ----------------
$117,950-256,500 12.54 13.38
- ----------------
13.29 14.18
- ----------------
OVER $256,500 13.29 14.18
- ----------------

<TABLE><CAPTION>
FOR NEW YORK CITY RESIDENTS

COMBINED
TAXABLE INCOME 1995* EFFECTIVE
TAX RATE
TAX-FREE YIELD OF
%
SINGLE RETURN JOINT RETURN 4% 4.5% 5% 5.5% 6% 6.5% 7%
IS EQUIVALENT TO A TAXABLE YIELD OF
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0-39,000 24.26 5.28 5.94 6.60 7.26 7.92 8.58 9.24
- ------------------------------------------------------------------------------------------------------------------------------
$0-23,350 24.26 5.28 5.94 6.60 7.26 7.92 8.58 9.24
- ------------------------------------------------------------------------------------------------------------------------------
$39,000-94,250 35.88 6.24 7.02 7.80 8.58 9.36 10.14 10.92
- ------------------------------------------------------------------------------------------------------------------------------
$23,350-56,550 35.88 6.24 7.02 7.80 8.58 9.36 10.14 10.92
- ------------------------------------------------------------------------------------------------------------------------------
$94,250-143,600 38.59 6.51 7.33 8.14 8.96 9.77 10.58 11.40
- ------------------------------------------------------------------------------------------------------------------------------
$56,550-117,950 38.59 6.51 7.33 8.14 8.96 9.77 10.58 11.40
- ------------------------------------------------------------------------------------------------------------------------------
$143,600-256,500 43.04 7.02 7.90 8.78 9.66 10.53 11.41 12.29
- ------------------------------------------------------------------------------------------------------------------------------
$117,950-256,500 43.04 7.02 7.90 8.78 9.66 10.53 11.41 12.29
- ------------------------------------------------------------------------------------------------------------------------------
OVER $256,500 46.24 7.44 8.37 9.30 10.23 11.16 12.09 13.02
- ------------------------------------------------------------------------------------------------------------------------------
OVER $256,500 46.24 7.44 8.37 9.30 10.23 11.16 12.09 13.02
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>

TAXABLE INCOME 1995*

SINGLE RETURN 7.5% 8%

- ----------------
9.90 10.56
- ----------------
$0-23,350 9.90 10.56
- ----------------
11.70 12.48
- ----------------
$23,350-56,550 11.70 12.48
- ----------------
12.21 13.03
- ----------------
$56,550-117,950 12.21 13.03
- ----------------
13.17 14.04
- ----------------
$117,950-256,500 13.17 14.04
- ----------------
13.95 14.88
- ----------------
OVER $256,500 13.95 14.88
- ----------------

<TABLE><CAPTION>
FOR NEW YORK STATE RESIDENTS

COMBINED
TAXABLE INCOME 1995* EFFECTIVE
TAX RATE
TAX-FREE YIELD OF
%
SINGLE RETURN JOINT RETURN 4% 4.5% 5% 5.5% 6% 6.5% 7%
IS EQUIVALENT TO A TAXABLE YIELD OF
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0-39,000 21.45 5.09 5.73 6.37 7.00 7.64 8.28 8.91
- ------------------------------------------------------------------------------------------------------------------------------
$0-23,350 21.45 5.09 5.73 6.37 7.00 7.64 8.28 8.91
- ------------------------------------------------------------------------------------------------------------------------------
$39,000-94,250 33.47 6.01 6.76 7.52 8.27 9.02 9.77 10.52
- ------------------------------------------------------------------------------------------------------------------------------
$23,350-56,550 33.47 6.01 6.76 7.52 8.27 9.02 9.77 10.52
- ------------------------------------------------------------------------------------------------------------------------------
$94,250-143,600 36.24 6.27 7.06 7.84 8.63 9.41 10.19 10.98
- ------------------------------------------------------------------------------------------------------------------------------
$56,550-117,950 36.24 6.27 7.06 7.84 8.63 9.41 10.19 10.98
- ------------------------------------------------------------------------------------------------------------------------------
$143,600-256,500 40.86 6.76 7.61 8.45 9.30 10.15 10.99 11.84
- ------------------------------------------------------------------------------------------------------------------------------
$117,950-256,500 40.86 6.76 7.61 8.45 9.30 10.15 10.99 11.84
- ------------------------------------------------------------------------------------------------------------------------------
OVER $256,500 44.19 7.17 8.06 8.96 9.85 10.75 11.65 12.54
- ------------------------------------------------------------------------------------------------------------------------------
OVER $256,500 44.19 7.17 8.06 8.96 9.85 10.75 11.65 12.54
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>

TAXABLE INCOME 1995*

SINGLE RETURN 7.5% 8%

- ----------------
9.55 10.19
- ----------------
$0-23,350 9.55 10.19
- ----------------
11.27 12.02
- ----------------
$23,350-56,550 11.27 12.02
- ----------------
11.76 12.55
- ----------------
$56,550-117,950 11.76 12.55
- ----------------
12.68 13,53
- ----------------
$117,950-256,500 12.68 13,53
- ----------------
13.44 14.33
- ----------------
OVER $256,500 13.44 14.33
- ----------------

To compare the yield of a taxable security with the yield of a tax-free security
find your taxable income and read across. These tables incorporate projected
1995 Federal and applicable State (and City) income tax rates and assume that
all income would otherwise be taxable at the investor's highest tax rates. Yield
figures are for example only.

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

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

A-5
<PAGE>
MUNICIPAL INVESTMENT TRUST FUND
MULTISTATE SERIES
DEFINED ASSET FUNDS
I want to learn more about automatic reinvestment in the Investment Accumulation
Program. Please send me information about participation in the Municipal Fund
Accumulation Program, Inc. and a current Prospectus.
My name (please
print) _________________________________________________________________________
My address (please print):
Street and Apt.
No. ____________________________________________________________________________
City, State, Zip
Code ___________________________________________________________________________
This page is a self-mailer. Please complete the information above, cut along the
dotted line, fold along the lines on the reverse side, tape, and mail with the
Trustee's address displayed on the outside.
12345678

<PAGE>

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

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

- --------------------------------------------------------------------------------
(Fold along this line.)
<PAGE>

INVESTMENT SUMMARY FOR EACH TRUST AS OF JANUARY 31, 1995 (CONTINUED)

RECORD DAY
The 10th day of each month
DISTRIBUTION DAY
The 25th day of each month
MINIMUM CAPITAL DISTRIBUTION
No distribution need be made from Capital Account of any Trust if balance
is less than $5.00 per Unit outstanding.
EVALUATION TIME
3:30 P.M. New York Time
ANNUAL PORTFOLIO SUPERVISION FEE(a)
Maximum of $0.35 per $1,000 face amount of underlying Debt Obligations (see
Income and Distributions--Fund Expenses)
EVALUATOR'S FEE FOR EACH PORTFOLIO
Minimum of $5.00 (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.

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

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 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 offer 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 set forth on page A-3.)(b) For secondary market
sales charges see Appendix B. 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 Prices 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 the Trust shows the return based on the Initial Public
Offering Price and the maximum applicable sales charge (as set forth on page
A-3) and is computed by multiplying the estimated net annual interest rate per
Unit (which shows the return per Unit based on $1,000 face amount per Unit) by
$1,000 and dividing the result by the Public Offering Price per Unit (not
including accrued interest). Estimated Long Term Return on a Unit of the Trust
shows a net annual long-term return to investors holding to maturity based on
the individual Debt Obligations in the Portfolio weighted to reflect the time to
maturity (or in certain cases to an earlier call date) and market value of each
Debt Obligation in the Portfolio, adjusted to reflect the Public Offering Price
(including the maximum applicable sales charge) 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 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
offer 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).

- ---------------
(a) 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.
(b) 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 Appendix B).

A-6

<PAGE>

INVESTMENT SUMMARY FOR EACH TRUST AS OF JANUARY 31, 1995 (CONTINUED)

MONTHLY DISTRIBUTIONS--Monthly distributions of interest and any principal
or premium received by a Trust will be made in cash on or shortly after the 25th
day of each month to Holders of record of Units of the Trust on the 10th day of
such month commencing with the first distribution on the date indicated above
(see Income and Distributions). Alternatively, Holders may elect to have their
monthly distributions reinvested in the Municipal Fund Accumulation Program,
Inc. Further information about the program, including a current prospectus, may
be obtained by returning the enclosed form (see 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 and exempt from certain state and
local personal income taxes of the State for which the Trust is named (except in
certain circumstances depending on the Holder), but may be subject to other
state and local taxes. Any gain on the disposition of a Holder's pro rata
portion of a Debt Obligation will be subject to tax. (See Taxes.)

MARKET FOR UNITS--The Sponsors, though not obligated to do so, intend to
maintain a secondary market for Units based on the aggregate bid side evaluation
of the underlying Securities. 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. There is no fee for
selling Units. Market conditions may cause the prices available in the market
maintained by the Sponsors or available upon exercise of redemption rights to be
more or less than the total of the amount paid for Units plus accrued interest.
(See How To Buy; How To Sell.)

UNDERWRITING ACCOUNT

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

<TABLE>
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith Incorporated P.O. Box 9051, Princeton, N.J. 08543-9051 43.83%
Smith Barney Inc. 388 Greenwich Street--23rd Floor, New York, N.Y. 10013 17.02
PaineWebber Incorporated 1285 Avenue of the Americas, New York, N.Y. 10019 19.58
Prudential Securities Incorporated 1 Seaport Plaza, 199 Water Street, New York, N.Y. 10292 8.51
Dean Witter Reynolds Inc. Two World Trade Center--59th Floor, New York, N.Y.
10048 11.06
----------
100.00%
----------
----------

</TABLE>
A-7

<PAGE>

INVESTMENT SUMMARY AS OF JANUARY 31, 1995 (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.

UNITHOLDER TRANSACTION EXPENSES
<S> <C>
Maximum Sales Charge Imposed on Purchases during the Initial Offering Period (as a
percentage of Public Offering Price)..................................................... 4.50%
Maximum Sales Charge Imposed on Purchases during the Secondary Offering Period (as a
percentage of Public Offering Price)..................................................... 5.50%
--------
</TABLE>
<TABLE><CAPTION>

ESTIMATED ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS1)
CALIFORNIA NEW JERSEY NEW YORK
TRUST TRUST TRUST
------------ -------------- -------------
<S> <C> <C> <C>
Trustee's Fee....................................................................... .072% .073% .073%
Portfolio Supervision, Bookkeeping and Administrative Fees.......................... .047% .047% .047%
Other Operating Expenses............................................................ .110% .113% .084%
------------ -------------- -------------
Total............................................................................ .229% .233% .204%
------------ -------------- -------------
------------ -------------- -------------
</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
----------- ------------- -------------
<S> <C> <C> <C>
California Trust (.229%)................................................ $ 47 $ 52 $ 57
New Jersey Trust (.233%)................................................ 47 52 58
New York Trust (.204%).................................................. 47 51 56
</TABLE>
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
return on the investment throughout the periods:
<TABLE><CAPTION>
10 YEARS
-------------
<S> <C>
California Trust (.229%)................................................ $ 73
New Jersey Trust (.233%)................................................ 73
New York Trust (.204%).................................................. 70

</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 $4.00 per Unit for each Trust. 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-8

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

The Sponsors, Trustee and Holders of Municipal Investment Trust Fund,
Multistate Series - 81, Defined Asset Funds (California, New Jersey and New York
Trusts):

We have audited the accompanying statements of condition, including the
portfolios, of Municipal Investment Trust Fund, Multistate Series - 81, Defined
Asset Funds (California, New Jersey and New York Trusts) as of February 1, 1995.
These financial statements are the responsibility of the Trustee. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. The deposit on February
1, 1995 of securities and an irrevocable letter or letters of credit for the
purchase of securities, as described in the statements of condition, was
confirmed to us by The Chase Manhattan Bank, N.A., the Trustee. An audit also
includes assessing the accounting principles used and significant estimates made
by the Trustee, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Municipal Investment Trust
Fund, Multistate Series - 81, Defined Asset Funds (California, New Jersey and
New York Trusts) at February 1, 1995 in conformity with generally accepted
accounting principles.

DELOITTE & TOUCHE LLP
New York, N.Y.
February 1, 1995

A-9
<PAGE>

MUNICIPAL INVESTMENT TRUST FUND
MULTISTATE SERIES - 81
DEFINED ASSET FUNDS
STATEMENTS OF CONDITION AS OF INITIAL DATE OF DEPOSIT, FEBRUARY 1, 1995

CALIFORNIA NEW JERSEY NEW YORK
TRUST TRUST TRUST
-------------- -------------- --------------
FUND PROPERTY
Investment in Debt
Obligations(1)
Debt Obligations Deposited
in the Trust.................. $ 3,375,209.50
Contracts to purchase
Debt Obligations.........$ 3,388,822.80 $ 3,129,874.05 1,418,217.50
Accrued interest to Initial Date
of Deposit on underlying Debt
Obligations................... 38,164.58 23,130.96 71,553.13
-------------- -------------- --------------
Total...............$ 3,426,987.38 $ 3,153,005.01 $ 4,864,980.13
-------------- -------------- --------------
-------------- -------------- --------------
LIABILITY AND INTEREST OF
HOLDERS
Liability--Accrued interest to
Initial Date of Deposit on
underlying Debt
Obligations(2)................$ 38,164.58 $ 23,130.96 $ 71,553.13
-------------- -------------- --------------
Interest of Holders--
Units of fractional undivided
interest outstanding
(California Trust--3,500;
New Jersey Trust--3,250;
New York Trust--5,000)
Cost to investors(3).......$ 3,548,492.80 $ 3,277,359.05 $ 5,019,277.00
Gross underwriting
commissions(4)............. (159,670.00) (147,485.00) (225,850.00)
-------------- -------------- --------------
Net amount applicable to
investors.................. 3,388,822.80 3,129,874.05 4,793,427.00
-------------- -------------- --------------
Total...............$ 3,426,987.38 $ 3,153,005.01 $ 4,864,980.13
-------------- -------------- --------------
-------------- -------------- --------------
- ------------------
(1) Aggregate cost to each Trust of the Debt Obligations is based on the offer
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 $7,918,678.44 has been deposited with the Trustee. The amount of
such letter or letters of credit includes $7,838,155.00 (equal to the
aggregate purchase price to the Sponsors) for the purchase of $8,200,000
face amount of Debt Obligations in connection with contracts to purchase
Debt Obligations, plus $80,523.44 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 Hypobank, 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 offer side evaluation of the underlying Debt Obligations as of
the Evaluation Time on the Business Day prior to the Initial Date of
Deposit.

(4) Assumes sales charge of 4.50% on all Units computed on the basis set forth
under How To Buy.

A-10
<PAGE>

MUNICIPAL INVESTMENT TRUST FUND, MULTISTATE SERIES - 81
ON THE INITIAL DATE OF DEPOSIT,
DEFINED ASSET FUNDS FEBRUARY 1, 1995
PORTFOLIO OF THE CALIFORNIA TRUST (INSURED)
<TABLE><CAPTION>

OPTIONAL
PORTFOLIO NO. AND TITLE OF RATINGS OF FACE REFUNDING
DEBT OBLIGATIONS CONTRACTED FOR ISSUES (1) AMOUNT COUPON MATURITIES REDEMPTIONS (2)
---------------------------------------------- ----------- ------------- ----------- ----------- -------------------
<S> <C> <C> <C> <C> <C>
1. California Hsg. Fin. Agy., Home Mtge. Rev. AAA $ 500,000 6.55% 8/1/26 8/1/04 @ 102
Bonds, 1994 Ser. A (MBIA Ins.)
2. State Pub. Wks. Bd. of the State of AAA 500,000 6.40 12/1/16 12/1/02 @ 102
California, Lse. Rev. Bonds (The Regents of
the Univ. of California), 1992 Ser. A
(Various Univ. of California Proj.) (AMBAC
Ins.)
3. California Statewide Communities Dev. Auth., AAA 500,000 6.50 7/1/15 7/1/04 @ 102
Certificates of Part., St. Joseph Hlth. Sys.
Oblig. Group (AMBAC Ins.)
4. Peralta Comm. College Dist. (Alameda Cnty., AAA 465,000 6.40 8/1/17 8/1/03 @ 102
CA), G.O. Bonds, Election of 1992, Ser. B
(AMBAC Ins.)
5. Saugus Unified Sch. Dist., Los Angeles Cnty., AAA 535,000 5.70 9/1/18 9/1/03 @ 102
CA, 1993 G.O. Bonds, Ser. A (MBIA Ins.)
6. Stockton, CA, Cert. of Part., East Wtr. Dist. AAA 500,000 6.40 4/1/22 4/1/02 @ 102
(1990 Proj.), Series 1992 A (AMBAC Ins.)
7. Sacramento, CA, City Fin. Auth. Lse. Rev. AAA 500,000 5.40 11/1/20 --
Rfdg. Bonds, 1993 Ser. A (AMBAC Ins.)
-------------
$ 3,500,000
-------------
-------------
</TABLE>

SINKING COST OF YIELD TO MATURITY
FUND DEBT OBLIGATIONS ON INITIAL DATE OF
REDEMPTIONS (2) TO TRUST (3) DEPOSIT (3)
--------------- ----------------- -------------------
1. 2/1/24 $ 500,000.00 6.550%

2. 12/1/10 501,750.00 6.350+

3. 7/1/09 503,970.00 6.400+

4. -- 465,000.00 6.400

5. 9/1/12 483,682.80 6.500

6. 4/1/06 500,000.00 6.399

7. 11/15/15 434,420.00 6.450

-----------------
$ 3,388,822.80
-----------------
-----------------

A-11
<PAGE>
- ------------

NOTES

(1) All ratings are by Standard & Poor's. Any rating followed by a 'p' is
provisional and assumes the successful completion of the project being
financed. (See Appendix A.)

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

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

Sinking fund redemptions are all at par and generally redeem only part of an
issue. Some of the Debt Obligations have mandatory sinking funds which
contain optional provisions permitting the issuer to increase the principal
amount of Debt Obligations called on a mandatory redemption date. The
sinking fund redemptions with optional provisions may, and optional
refunding redemptions generally will, occur at times when the redeemed Debt
Obligations have an offer 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 offer 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). The
aggregate value based on the bid side evaluation at the Evaluation Time on
the business day prior to the Initial Date of Deposit was $3,374,822.80,
which is $14,000.00 (.40% of the aggregate face amount) lower than the
aggregate Cost of Debt Obligations to Trust based on the offer side
evaluation.
Yield to Maturity on the Initial Date of Deposit of Debt Obligations was
computed on the basis of the offer 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 Distributions--Returns for a description of the computation of
yield price.)

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

All Debt Obligations are represented entirely by contracts to purchase such
Debt Obligations, which were entered into by the Sponsors during the period
of January 26, 1995 to January 31, 1995.

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

+ See Footnote (3).

A-12
<PAGE>

MUNICIPAL INVESTMENT TRUST FUND, MULTISTATE SERIES - 81
ON THE INITIAL DATE OF DEPOSIT,
DEFINED ASSET FUNDS FEBRUARY 1, 1995
PORTFOLIO OF THE NEW JERSEY TRUST (INSURED)
<TABLE><CAPTION>

2. Gloucester Cnty. Util. Auth. (Gloucester, NJ), AAA 450,000 6.25 1/1/24 1/1/04 @ 102
Swr. Rev. Bonds, Ser. 1994 (MBIA Ins.)

3. County of Hudson, NJ, Correctional Fac. Rfdg. AAA 135,000 6.60 12/1/21 6/1/02 @ 101.5
Certs. of Part., Ser. 1992 (MBIA Ins.)

4. The Mercer Cnty. Imp. Auth., NJ, Rev. Bonds AAA 500,000 6.40 5/15/17 5/15/02 @ 102
(Ewing Bd. of Educ. Lse. Proj., Ser. 1992)
(MBIA Ins.)

5. The Pollution Ctl. Fin. Auth. of Salem Cnty., AAA 500,000 5.55 11/1/33 11/1/03 @ 102
NJ, Poll. Ctl. Rev. Rfdg. Bonds, 1993 Ser. C
(Pub. Svc. Elec. and Gas Co. Proj.) (MBIA
Ins.)

6. The Evesham Mun. Util. Auth. (Burlington AAA 500,000 5.60 7/1/15 7/1/03 @ 102
Cnty., NJ), 1993 Ser. A (MBIA Ins.)

7. The Board of Educ. of the Borough of Highland AAA 500,000 6.55 2/15/22 2/15/05 @ 102
Park in the County of Middlesex, NJ, School
Bonds (MBIA Ins.)

8. The Board of Educ. of the Twp. of South AAA 165,000 6.40 8/1/20 8/1/05 @ 100
Brunswick in the County of Middlesex, NJ,
G.O. School Bonds (Financial Guaranty Ins.)
-------------
$ 3,250,000
-------------
-------------
</TABLE>

SINKING COST OF YIELD TO MATURITY
FUND DEBT OBLIGATIONS ON INITIAL DATE OF
REDEMPTIONS (2) TO TRUST (3) DEPOSIT (3)
--------------- ----------------- -------------------
1. 7/1/14 $ 463,805.00 6.300%

2. 1/1/15 450,000.00 6.250

3. 6/1/12 138,026.70 6.300+

4. 5/15/12 505,165.00 6.250+

5. -- 436,135.00 6.450

6. 7/1/13 460,070.00 6.300

7. -- 510,420.00 6.300+

8. -- 166,252.35 6.300+

-----------------
$ 3,129,874.05
-----------------
-----------------

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

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

(3) Evaluation of Debt Obligations by the Evaluator is made on the basis of
current offer 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). The
aggregate value based on the bid side evaluation at the Evaluation Time on
the business day prior to the Initial Date of Deposit was $3,116,874.05,
which is $13,000.00 (.40% of the aggregate face amount) lower than the
aggregate Cost of Debt Obligations to Trust based on the offer side
evaluation.
Yield to Maturity on the Initial Date of Deposit of Debt Obligations was
computed on the basis of the offer 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 Distributions--Returns for a description of the computation of
yield price.)

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

All Debt Obligations are represented entirely by contracts to purchase such
Debt Obligations, which were entered into by the Sponsors during the period
of January 17, 1995 to January 31, 1995. All contracts are expected to be
settled by the initial settlement date for purchase of Units, except for the
Debt Obligations in Portfolio Number 7 (approximately 15% of the aggregate
face amount of the Portfolio) which have been purchased on a when, as and if
issued basis, or have a delayed delivery, and are expected to be settled 7
days after the settlement date for purchase of Units.

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

+ See Footnote (3).

A-14
<PAGE>

MUNICIPAL INVESTMENT TRUST FUND, MULTISTATE SERIES - 81
ON THE INITIAL DATE OF DEPOSIT,
DEFINED ASSET FUNDS FEBRUARY 1, 1995
PORTFOLIO OF THE NEW YORK TRUST (INSURED)

<TABLE><CAPTION>
OPTIONAL
PORTFOLIO NO. AND TITLE OF RATINGS OF FACE REFUNDING
DEBT OBLIGATIONS CONTRACTED FOR ISSUES (1) AMOUNT COUPON MATURITIES REDEMPTIONS (2)
------------------------------------------------- ----------- ------------ ----------- ---------- ------------------
<S> <C> <C> <C> <C> <C>
1. Dormitory Auth. of the State of New York, City AAA $ 450,000 5.75% 7/1/18 --
Univ. Sys. Consol. Second Gen. Resolution Rev.
Bonds, Ser. 1993 A (CGIC Ins.)
2. Dormitory Auth. of the State of New York, City AAA 300,000 6.30 7/1/24 7/1/04 @ 102
Univ. Sys. Consol. Third Gen. Resolution Rev.
Bonds, 1994 Ser. I (AMBAC Ins.)
3. New York State Energy Research and Dev. Auth., AAA 750,000 6.05 4/1/34 4/1/04 @ 102
Poll. Ctl. Rfdg. Dev. Bonds (New York State
Elec. & Gas Corp. Proj.), 1994 Ser. A (MBIA
Ins.)
4. New York City Hlth. and Hosp. Corp., NY, Hlth. AAA 300,000 5.75 2/15/22 2/15/03 @ 102
Sys. Bonds, 1993 Ser. A (AMBAC Ins.)
5. New York State Med. Care Fac. Fin. Agy., Mental AAA 450,000 5.80 8/15/22 2/15/03 @ 102
Hlth. Svcs. Fac. Imp. Rev. Bonds, Ser. A (AMBAC
Ins.)
6. New York State Med. Care Fac. Fin. Agy., New York AAA 700,000 6.90 8/15/34 2/15/05 @ 102
Hosp. FHA-Ins. Mtge. Rev. Bonds, 1994 Ser. A
(AMBAC Ins.)
7. New York State Hsg. Fin. Agy., Svc. Contract AAA 300,000 5.875 9/15/14 9/15/03 @ 102
Oblig. Rev. Bonds, 1993 Ser. C Rfdg. (CAPMAC
Ins.)
8. State of New York Mtge. Agy., Homeowner Mtge. AAA 360,000 6.45 10/1/17 9/1/04 @ 102
Rev. Bonds, Ser. 43 (MBIA Ins.)
9. New York State Urban Dev. Corp., Correctional AAA 340,000 5.25 1/1/18 1/1/03 @ 102
Fac. Rev. Bonds, 1993 Rfdg. Ser. (AMBAC Ins.)
10. Power Auth. of the State of NY, Gen. Purpose AAA 100,000 5.25 1/1/18 1/1/03 @ 102
Bonds, Ser. CC (MBIA Ins.)
11. County of Suffolk, NY, Gen. Oblig. Pub. Imp. AAA 200,000 5.40 7/15/14 7/15/02 @ 102
Rfdg. Bonds, 1993 Ser. F (Financial Guaranty
Ins.)
12. Metropolitan Transit Authority, NY, Transit Fac. AAA 750,000 6.375 7/1/20 7/1/04 @ 101.5
Rev. Bonds, Ser. O (MBIA Ins.)
------------
$ 5,000,000
------------
------------
</TABLE>

SINKING COST OF YIELD TO MATURITY
FUND DEBT OBLIGATIONS ON INITIAL DATE OF
REDEMPTIONS (2) TO TRUST (3) DEPOSIT (3)
--------------- ---------------- -------------------
1. 7/1/14 $ 414,720.00 6.400%

2. 7/1/21 297,990.00 6.350

3. -- 712,380.00 6.400

4. 2/15/21 275,067.00 6.400

5. 2/15/15 415,237.50 6.400

6. 2/15/24 723,100.00 6.500+

7. 9/15/11 282,513.00 6.400

8. 4/1/10 361,429.20 6.400+

9. 1/1/16 293,307.80 6.400

10. 1/1/15 86,267.00 6.400

11. -- 179,968.00 6.300

12. 7/1/15 751,447.50 6.350+

----------------
$ 4,793,427.00
----------------
----------------

A-15
<PAGE>
- ------------
NOTES

(3) Evaluation of Debt Obligations by the Evaluator is made on the basis of
current offer 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). 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 $4,773,427.00,
which is $20,000.00 (.40% of the aggregate face amount) lower than the
aggregate Cost of Debt Obligations to Trust based on the offer side
evaluation.
Yield to Maturity on the Initial Date of Deposit of Debt Obligations was
computed on the basis of the offer 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 Distributions--Returns for a description of the computation of
yield price.)

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

The Debt Obligations in Portfolio Numbers 1, 3, 4, 5, 6, 8, 9 and 11 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 on January 31, 1995.

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

+ See Footnote (3).

A-16
<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.

With the deposit of the Securities in the Fund on the Initial Date of
Deposit, the Sponsors established a proportionate relationship among the face
amounts of each Security in the Portfolio. During the 90-day period following
the Initial Date of Deposit, the Sponsors may deposit additional Securities
('Additional Securities'), contracts to purchase Additional Securities or cash
(or a bank letter of credit in lieu of cash) with instructions to purchase
Additional Securities, in order to create new Units, maintaining to the extent
practicable the original proportionate relationship (the 'Original Proportionate
Relationship') among the face amounts of each Security in the Portfolio. It may
not be possible to maintain the exact Original Proportionate Relationship among
the Securities deposited on the Initial Date of Deposit because of, among other
reasons, purchase requirements, changes in prices, or unavailability of
Securities. Replacement Securities may be acquired under specified conditions
when Securities originally deposited are unavailable (see Portfolio Supervision
below). Units may be continuously offered to the public by means of this
Prospectus, resulting in a potential increase in the number of Units
outstanding.

1
<PAGE>
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 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.

The Sponsors are authorized to increase the size and number of Units of the
Fund by the deposit of Additional Securities, contracts to purchase Additional
Securities or cash or a letter of credit with instructions to purchase
Additional Securities in exchange for the corresponding number of additional
Units during the 90-day period subsequent to the Initial Date of Deposit,
provided that the Original Proportionate Relationship is maintained to the
extent practicable. Deposits of Additional Securities subsequent to the 90-day
period following the Initial Date of Deposit must replicate exactly the original
proportionate relationship among the face amounts of Securities comprising the
Portfolio at the end of the initial 90-day period, subject to certain events.

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

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

2
<PAGE>
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.

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.

3
<PAGE>
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.

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

4
<PAGE>
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 and disallowances 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 and the impact of deregulation.

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 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 and
additional factors including (a) the effects of inflation upon the costs of
operation and construction, (b) uncertainties in predicting future load
requirements, (c) increased financing requirements coupled with limited
availability of capital, (d) exposure to cancellation and penalty charges on new
generating units under construction, (e) problems of cost and availability of
fuel, (f) litigation and proposed legislation designed to delay or prevent
construction of generating and other facilities, (g) the uncertain effects of
conservation on the use of electric energy and (h) increased competition as a
result of the availability of other energy sources and state deregulation
efforts. 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 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

5
<PAGE>
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 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.

6
<PAGE>
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.

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.

7
<PAGE>
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.

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.

8
<PAGE>
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 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

9
<PAGE>
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.

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.

10
<PAGE>
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 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

11
<PAGE>
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 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

12
<PAGE>
('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 $2,150,000,000 and
policyholders' surplus of approximately $779,000,000 as of September 30, 1994.
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. After an initial public offering
completed in February 1992 and the sale by Merrill Lynch & Co. of its stake,
EFSG is 49.8%-owned by the public, 29.9% by US West Financial Services, 14.1% by
Manufacturers Life Insurance Co. and 6.2% by senior management. Both ERC and
Asset Guaranty are rated 'AAA' for claims paying ability by Duff & Phelps, ERC
is rated triple-A for claims-paying-ability for both S&P and Moody's. Asset
Guaranty received a 'AA' claims-paying-ability rating from S&P during August
1993, but remains unrated by Moody's. As of September 30, 1994 Asset Guaranty
had admitted assets of approximately $152,000,000 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 Investments, Inc., an affiliate of Baltimore Gas & Electric,
Fleet/Norstar Financial Group, Inc., Safeco Corporation, Sibag Finance
Corporation, an affiliate of Siemens AG, USF&G, the eighth largest
property/casualty company in the U.S. as measured by net premiums written, and
CGC management. As of September 30, 1994, CGIC had total admitted assets of
approximately $293,000,000 and policyholders' surplus of approximately
$166,000,000.

13
<PAGE>
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
September 30, 1994 CAPMAC's admitted assets were approximately $198,000,000 and
its policyholders' surplus was approximately $139,000,000.

Connie Lee is a wholly owned subsidiary of College Construction Loan
Insurance Association ('CCLIA'), a government-sponsored enterprise established
by Congress to provide American academic institutions with greater access to
low-cost capital through credit enhancement. Connie Lee, the operating insurance
company, was incorporated in 1987 and began business as a reinsurer of
tax-exempt bonds of colleges, universities, and teaching hospitals with a
concentration on the hospital sector. During the fourth quarter of 1991 Connie
Lee began underwriting primary bond insurance which will focus largely on the
college and university sector. CCLIA's founding shareholders are the U.S.
Department of Education, which owns 36% of CCLIA, and the Student Loan Marketing
Association ('Sallie Mae'), which owns 14%. The other principal owners are:
Pennsylvania Public School Employees' Retirement System, Metropolitan Life
Insurance Company, Kemper Financial Services, Johnson family funds and trusts,
Northwestern University, Rockefeller & Co., Inc. administered trusts and funds,
and Stanford University. Connie Lee is domiciled in the state of Wisconsin and
has licenses to do business in 47 states and the District of Columbia. As of
September 30, 1994, its total admitted assets were approximately $193,000,000
and policyholders' surplus was approximately $106,000,000.

Financial Guaranty, a New York stock insurance company, is a wholly-owned
subsidiary of FGIC Corporation, which is wholly owned by General Electric
Capital Corporation. The investors in the FGIC Corporation are not obligated to
pay the debts of or the claims against Financial Guaranty. Financial Guaranty
commenced its business of providing insurance and financial guarantees for a
variety of investment instruments in January 1984 and is currently authorized to
provide insurance in 49 states and the District of Columbia. It files reports
with state regulatory agencies and is subject to audit and review by those
authorities. As of September 30, 1994, its total admitted assets were
approximately $2,092,000,000 and its policyholders' surplus was approximately
$872,000,000.

FSA is a monoline property and casualty insurance company incorporated in
New York in 1984. It is a wholly-owned subsidiary of Financial Security
Assurance Holdings Ltd., which was acquired in December 1989 by US West, Inc.,
the regional Bell Telephone Company serving the Rocky Mountain and Pacific
Northwestern states. U.S. West is currently seeking to sell FSA. FSA is licensed
to engage in the surety business in 42 states and the District of Columbia. FSA
is engaged exclusively in the business of writing financial guaranty insurance,
on both tax-exempt and non-municipal securities. As of September 30, 1994, FSA
had policyholders' surplus of approximately $369,000,000 and total admitted
assets of approximately $776,000,000.

MBIA is the principal operating subsidiary of MBIA Inc. The principal
shareholders of MBIA Inc. were originally Aetna Casualty and Surety Company, The
Fund American Companies, Inc., subsidiaries of CIGNA Corporation and Credit
Local de France, CAECL, S.A. These principal shareholders now own approximately
13% of the outstanding common stock of MBIA Inc. following a series of four
public equity offerings over a five-year period. As of September 30, 1994, MBIA
had admitted assets of approximately $3,314,000,000 and policyholders' surplus
of approximately $1,083,000,000.

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,

14
<PAGE>
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 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

15
<PAGE>
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

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.

16
<PAGE>
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 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).

17
<PAGE>
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.

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

18
<PAGE>
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
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).

19
<PAGE>
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
weighting each Debt Obligation's yield by its market value and the time
remaining to the call or maturity date depending on how the Debt Obligation is
priced. The average Portfolio yield is then 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. No return estimate can be predictive of an investor's actual
return because an investor's actual return will depend on many factors,
including the value of the underlying Debt Obligations when the investor
purchases and sells Units of the Fund and the period of time the investor holds
the Units. Therefore, Estimated Current Return and Estimated Long Term Return
are designed to be comparative rather than predictive. A yield calculation which
is more comparable to an individual bond may be higher or lower than Estimated
Current Return or Estimated Long Term Return which are more comparable to return
calculations used by other investment products.

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 held in the Capital Account
subject to distribution on the second following Distribution Day. The first

20
<PAGE>
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 face amount of Debt
Obligations in the Fund on the Initial Date of Deposit and on the first business
day of each calendar year thereafter, except that if in any calendar year
Additional Securities are deposited, the fee for the balance of the year will be
based on the face amounts on each Record Day. 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.

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

21
<PAGE>
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.

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.)

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.

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.

22
<PAGE>
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 amortization 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 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.

23
<PAGE>
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 specifically constructed, reconstructed
or acquired. 'Related persons' are defined to include certain related natural
persons, affiliated corporations, partners and partnerships.

24
<PAGE>
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

25
<PAGE>
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 and its address are named on the back cover of the Prospectus.
The Trustee is subject to supervision by the FDIC, the Board of Governors of the
Federal Reserve System and either the Comptroller of the Currency or state
banking authorities.

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.

AUDITORS

The Statement of Condition in Part A was audited by Deloitte & Touche LLP,
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.

SPONSORS

Each Sponsor is a Delaware corporation and is engaged in the underwriting,
securities and commodities brokerage business and is a member of the New York
Stock Exchange, Inc., other major securities exchanges and commodity exchanges,
and the National Association of Securities Dealers, Inc. Merrill Lynch, Pierce,
Fenner & Smith Incorporated, a subsidiary of Merrill Lynch & Co., Inc., is
engaged in the investment advisory business. Smith Barney Inc., an investment
banking and securities broker-dealer firm, is an indirect wholly-owned
subsidiary of The Travelers Inc. Prudential Securities Incorporated, a
wholly-owned subsidiary of Prudential Securities Group Inc. and an indirectly
wholly-owned subsidiary of the Prudential Insurance Company of America, is
engaged in the investment advisory business. Dean Witter Reynolds Inc., a
principal operating subsidiary of Dean Witter, Discover & Co., is engaged in the
investment advisory business. PaineWebber Incorporated is engaged in the
investment advisory business and is a wholly-owned subsidiary of PaineWebber
Group Inc. Each Sponsor, or one of its predecessor corporations, has acted as
Sponsor of a number of series of unit investment trusts. Each Sponsor has acted
as principal underwriter and managing underwriter of other investment companies.
The Sponsors, in addition to participating as members of various selling groups
or as agents of other investment companies, execute orders on behalf of
investment companies for the purchase and sale of securities of these companies
and sell securities to these companies in their capacities as brokers or dealers
in securities.

PUBLIC DISTRIBUTION

On the Initial Date of Deposit, the Sponsors, acting as managers for the
underwriters ('Underwriters') named under Underwriting Account, deposited the
Debt Obligations listed under Portfolio (or purchase contracts

26
<PAGE>
for these Securities together with a letter of credit to complete the purchase),
in exchange for Units representing the entire ownership of the Fund.

During the initial offering period Units will be distributed to the public
at the Public Offering Price through the Underwriting Account and dealers. The
initial offering period is 30 days or less if all Units are sold. If some Units
initially offered have not been sold, the Sponsors may extend the initial
offering period for up to four additional successive 30-day periods. Upon the
completion of the initial offering, Units which remain unsold or were
repurchased may be offered by this Prospectus at the secondary market Public
Offering Price.

The Sponsors intend to qualify Units for sale in all states in which
qualification is deemed necessary through the Underwriting Account and by
dealers who are members of the National Association of Securities Dealers, Inc.;
however, Units of a State Trust will be offered for sale only in the State for
which the Trust is named, except that Units of a New Jersey Trust will also be
offered in Connecticut, and Units of a New York Trust will also be offered in
Connecticut, Florida and Puerto Rico. The Sponsors do not intend to qualify
Units for sale in any foreign countries and this Prospectus does not constitute
an offer to sell Units in any country where Units cannot lawfully be sold. Sales
to dealers and to introducing dealers, if any, will initially be made at prices
which represent a concession of the applicable rate specified in Appendix B, but
the Agent for the Sponsors reserves the right to change the rate of the
concession to dealers and the concession to introducing dealers from time to
time. Any dealer or introducing dealer may reallow a concession up to the
concession to dealers.

UNDERWRITERS' AND SPONSORS' PROFITS

Upon sale of the Units, the Underwriters will receive sales charges at the
rates listed in Appendix B. The Sponsors also realized the profit or loss on
deposit of the Securities stated in Investment Summary. This is the difference
between the cost of the Securities to the Fund (based on the offer side
evaluation of the Securities on the Initial Date of Deposit) and the Sponsors'
cost of the Securities. The amount of any additional fees received in connection
with the direct placement of certain Debt Obligations deposited in the Portfolio
is also stated in Investment Summary. In addition, a Sponsor or Underwriter may
realize profits or sustain losses on Debt Obligations it deposits in the Fund
which were acquired from underwriting syndicates of which it was a member.
During the initial offering period the Underwriting Account also may realize
profits or sustain losses as a result of fluctuations after the Initial Date of
Deposit in the Public Offering Price of the Units (see Investment Summary). In
maintaining a secondary market for Units (see Market for Units), the Sponsors
will also realize profits or sustain losses in the amount of any difference
between the prices at which they buy Units and the prices at which they resell
these Units (which include the sales charge) or the prices at which they redeem
the Units. Cash, if any, made available by buyers of Units to the Sponsors prior
to a settlement date for the purchase of Units may be used in the Sponsors'
businesses to the extent permitted by Rule 15c3-3 under the Securities Exchange
Act of 1934 and may be of benefit to the Sponsors.

DEFINED ASSET FUNDS

Each Sponsor (or a predecessor) has acted as Sponsor of various series of
Defined Asset Funds. A subsidiary of Merrill Lynch, Pierce, Fenner & Smith
Incorporated succeeded in 1970 to the business of Goodbody & Co., which had been
a co-Sponsor of Defined Asset Funds since 1964. That subsidiary resigned as
Sponsor of each of the Goodbody series in 1971. Merrill Lynch, Pierce, Fenner &
Smith Incorporated has been co-Sponsor and the Agent for the Sponsors of each
series of Defined Asset Funds created since 1971. Shearson Lehman Brothers Inc.
('Shearson') and certain of its predecessors were underwriters beginning in 1962
and co-Sponsors from 1965 to 1967 and from 1980 to 1993 of various Defined Asset
Funds. As a result of the acquisition of certain of Shearson's assets by Smith
Barney, Harris Upham & Co. Incorporated and The Travelers Inc. (formerly
Primerica Corporation), Smith Barney Inc. now serves as co-Sponsor of various
Defined Asset Funds. Prudential Securities Incorporated and its predecessors
have been underwriters of Defined Asset Funds since 1961 and co-Sponsors since
1964, in which year its predecessor became successor co-Sponsor to the original
Sponsor. Dean Witter Reynolds Inc. and its predecessors have been underwriters
of various Defined Asset Funds since 1964 and co-Sponsors since 1974.
PaineWebber Incorporated and its predecessor have co-Sponsored certain Defined
Asset Funds since 1983.

The Sponsors have maintained secondary markets in Defined Asset Funds for
over 20 years. For decades informed investors have purchased unit investment
trusts for dependability and professional selection of investments. Defined
Asset Funds offers an array of simple and convenient investment choices, suited
to fit a wide variety of personal financial goals--a buy and hold strategy for
capital accumulation, such as for children's

27
<PAGE>
education or a nest egg for retirement, or attractive, regular current income
consistent with relative protection of capital. There are Defined Funds to meet
the needs of just about any investor. Unit investment trusts are particularly
suited for the many investors who prefer to seek long-term profits by purchasing
sound investments and holding them, rather than through active trading. Few
individuals have the knowledge, resources or capital to buy and hold a
diversified portfolio on their own; it would generally take a considerable sum
of money to obtain the breadth and diversity offered by Defined Funds. Sometimes
it takes a combination of Defined Funds to plan for your objectives.

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

The following chart shows the average annual compounded rate of return of
selected asset classes over the 10-year and 20-year periods ending December 31,
1994, compared to the rate of inflation over the same periods. Of course, this
chart represents past performance of these investment categories and there is no
guarantee of future results, either of these categories or of Defined Funds.
Defined Funds also have sales charges and expenses, which are not reflected in
the chart.

Stocks (S&P 500)
20 yr 15.09%
10 yr 14.60%
Small-company stocks
20 yr 20.31%
10 yr 10.84%
Long-term corporate bonds
20 yr 10.42%
10 yr 12.43%
U.S. Treasury bills (short-term)
20 yr 7.31%
10 yr 5.89%
Consumer Price Index
20 yr 5.56%
10 yr 3.60%
0 2 4 6 8 10
12 14 16 18 20 22%

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

Defined Asset Funds offers a variety of fund types. The tax exemption for
municipal bonds, which makes them attractive to high-bracket taxpayers, is
offered by Defined Municipal Investment Trust Funds. Defined Municipal
Investment Trust Funds have provided investors with tax-free income for more
than 30 years. Municipal Defined Funds offer a simple and convenient way for
investors to earn monthly income free from regular Federal income tax. Defined
Corporate Income Funds, with higher current returns than municipal or government
funds, are suitable for Individual Retirement Accounts and other tax-advantaged
accounts and

28
<PAGE>
provide investors a simple and convenient way to earn monthly income. Defined
Government Securities Income Funds provide a way to participate in markets for
U.S. government securities while earning an attractive current return. Defined
International Bond Funds, invested in bonds payable in foreign currencies, offer
a potential to profit from changes in currency values and possibly from interest
rates higher than paid on comparable U.S. bonds, but investors incur a higher
risk for these potentially greater returns. Historically, stocks have offered
growth of capital, and thus some protection against inflation, over the long
term. Defined Equity Income Funds offer participation in the stock market,
providing current income as well as the possibility of capital appreciation. The
S&P Index Trusts offer a convenient and inexpensive way to participate in broad
market movements. Concept Series seek to capitalize on selected anticipated
economic, political or business trends. Utility Stock Series, consisting of
stocks of issuers with established reputations for regular cash dividends, seek
to benefit from dividend increases. Select Ten Portfolios seek total return by
investing for one year in the ten highest yielding stocks on a designated stock
index.

29
<PAGE>
APPENDIX A

DESCRIPTION OF RATINGS (AS DESCRIBED BY THE RATING COMPANIES THEMSELVES)

STANDARD & POOR'S RATINGS GROUP, A DIVISION OF MCGRAW-HILL, INC.

AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.

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

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

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

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

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

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

NR--Indicates that no rating has been requested, that there is insufficient
information on which to base a rating or that Standard & Poor's does not rate a
particular type of obligation as a matter of policy.

MOODY'S INVESTORS SERVICE, INC.

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

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

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

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

a-1
<PAGE>
Ba--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

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

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

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

NR--Should no rating be assigned, the reason may be one of the following:
(a) an application for rating was not received or accepted; (b) the issue or
issuer belongs to a group of securities that are not rated as a matter of
policy; (c) there is a lack of essential data pertaining to the issue or issuer
or (d) the issue was privately placed, in which case the rating is not published
in Moody's publications.

FITCH INVESTORS SERVICE, INC.

AAA--These bonds are considered to be investment grade and of the highest
quality. The obligor has an extraordinary ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.

AA--These bonds are considered to be investment grade and of high quality.
The obligor's ability to pay interest and repay principal, while very strong, is
somewhat less than for AAA rated securities or more subject to possible change
over the term of the issue.

A--These bonds are considered to be investment grade and of good quality.
The obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.

BBB--These bonds are considered to be investment grade and of satisfactory
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however are more likely to weaken this ability than bonds with higher ratings.

A '+' or a '-' sign after a rating symbol indicates relative standing in
its rating.

DUFF & PHELPS CREDIT RATING CO.

AAA--Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.

AA--High credit quality. Protection factors are strong. Risk is modest but
may vary slightly from time to time because of economic condtions.

A--Protection factors are average but adequate. However, risk factors are
more variable and greater in periods of economic stress.

A '+' or a '-' sign after a rating symbol indicates relative standing in
its rating.

a-2
<PAGE>
APPENDIX B
INITIAL OFFERING SALES CHARGE SCHEDULE
<TABLE><CAPTION>

SALES CHARGE
(GROSS UNDERWRITING PROFIT)
----------------------------------
AS PERCENT OF AS PERCENT OF DEALER CONCESSION AS PRIMARY MARKET
OFFER SIDE PUBLIC NET AMOUNT PERCENT OF PUBLIC CONCESSION TO
NUMBER OF UNITS OFFERING PRICE INVESTED OFFERING PRICE INTRODUCING DEALERS
- ----------------------------------- ------------------- ------------- --------------------- -------------------

MONTHLY PAYMENT SERIES, MULTISTATE SERIES, INSURED SERIES
<S> <C> <C> <C> <C>
Less than 250...................... 4.50% 4.712% 2.925% $ 32.40
250 - 499.......................... 3.50 3.627 2.275 25.20
500 - 749.......................... 3.00 3.093 1.950 21.60
750 - 999.......................... 2.50 2.564 1.625 18.00
1,000 or more...................... 2.00 2.041 1.300 14.40

INTERMEDIATE SERIES (TEN YEAR MATURITIES)

Less than 250...................... 4.00% 4.167% 2.600% $ 28.80
250 - 499.......................... 3.00 3.093 1.950 21.60
500 - 749.......................... 2.50 2.564 1.625 18.00
750 - 999.......................... 2.00 2.040 1.300 14.40
1,000 or more...................... 1.50 1.523 0.975 10.00

INTERMEDIATE SERIES (SHORT INTERMEDIATE MATURITIES)

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

SECONDARY MARKET SALES CHARGE SCHEDULE
</TABLE>

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

EFFECTIVE SALES CHARGE

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

For this purpose, a Security will be considered to mature on its stated
maturity date unless it has been called for redemption or funds or securities
have been placed in escrow to redeem it on an earlier date, or is subject to a
mandatory tender, in which case the earlier date will be considered the maturity
date.

b-1
<PAGE>
APPENDIX C
EXCHANGE FUNDS
<TABLE><CAPTION>

REDUCED
MAXIMUM SALES CHARGE
NAME OF APPLICABLE FOR SECONDARY INVESTMENT
EXCHANGE FUND SALES CHARGE(A) MARKET(B) CHARACTERISTICS
- --------------------------------------- --------------- ---------------------- --------------------------------------------------
<S> <C> <C> <C>
DEFINED ASSET FUNDS-- MUNICIPAL
INVESTMENT TRUST FUND
Monthly Payment, State and 5.50%(c) $15 per unit long-term, fixed rate, tax-exempt income
Multistate Series
Intermediate Term Series 4.50%(c) $15 per unit intermediate-term, fixed rate, tax-exempt income
Insured Series 5.50%(c) $15 per unit long-term, fixed rate, tax-exempt income,
underlying securities insured by insurance
companies
AMT Monthly Payment Series 5.50%(c) $15 per unit long-term, fixed rate, income exempt from regular
federal income tax but partially subject to AMT
DEFINED ASSET FUNDS-- MUNICIPAL INCOME
FUND
Insured Discount Series 5.50%(c) $15 per unit long-term, fixed rate, insured, tax-exempt current
income, taxable capital gains
DEFINED ASSET FUNDS-- INTERNATIONAL
BOND FUND
Multi-Currency Series 3.75% $15 per unit intermediate-term, fixed rate, payable in foreign
currencies, taxable income
Australian and New Zealand Dollar 3.75% $15 per unit intermediate-term, fixed rate, payable in
Bond Series Australian and New Zealand dollars, taxable income
Australian Dollar Bonds Series 3.75% $15 per unit intermediate-term, fixed rate, payable in
Australian dollars, taxable income
Canadian Dollar Bonds Series 3.75% $15 per unit short intermediate-term, fixed rate, payable in
Canadian dollars, taxable income

DEFINED ASSET FUNDS-- CORPORATE INCOME
FUND
Monthly Payment Series 5.50% $15 per unit long-term, fixed rate, taxable income
Intermediate Term Series 4.75% $15 per unit intermediate-term, fixed rate, taxable income
Cash or Accretion Bond Series and 3.50% $15 per 1,000 units intermediate-term, fixed rate, underlying
SELECT Series securities are collateralized compound interest
obligations, taxable income, appropriate for IRA's
or tax-deferred retirement plans
Insured Series 5.50% $15 per unit long-term, fixed rate, taxable income, underlying
securities are insured
DEFINED ASSET FUNDS-- GOVERNMENT
SECURITIES INCOME FUND
GNMA Series (other than those 4.25% $15 per unit long-term, fixed rate, taxable income, underlying
below) securities backed by the full faith and credit of
the United States
GNMA Series E or other GNMA Series 4.25% $15 per 1,000 units long-term, fixed rate, taxable income, underlying
having units with an initial face securities backed by the full faith and credit of
value of $1.00 the United States, appropriate for IRA's or
tax-deferred retirement plans
Freddie Mac Series 3.75% $15 per 1,000 units intermediate term, fixed rate, taxable income,
underlying securities are backed by Federal Home
Loan Mortgage Corporation but not by U.S.
Government.
</TABLE>

- ---------------
(a) As described in the prospectuses relating to certain Exchange Funds, this
sales charge for secondary market sales may be reduced on a graduated scale
in the case of quantity purchases.

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

(d) The reduced sales charge for the Sixth Utility Common Stock Series of Equity
Income Fund is $15 per 2,000 units and for prior Utility Common Stock Series
is $7.50 per unit.

c-1
<PAGE>

</TABLE>

c-2
<PAGE>
APPENDIX D

THE CALIFORNIA TRUST

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

RISK FACTORS--Economic Factors. The Governor's 1993-1994 Budget, introduced
on January 8, 1993, proposed general fund expenditures of $37.3 billion, with
projected revenues of $39.9 billion. To balance the budget in the face of
declining revenues, the Governor proposed a series of revenue shifts from local
government, reliance on increased federal aid, and reductions in state spending.

The Department of Finance of the State of California's May Revision of
General Fund Revenues and Expenditures (the 'May Revision'), released on May 20,
1993, projected the State would have an accumulated deficit of about $2.75
billion by June 30, 1993 essentially unchanged from the prior year. The Governor
proposed to eliminate this deficit over an 18-month period. Unlike previous
years, the Governor's Budget and May Revision did not calculate a 'gap' to be
closed, but rather set forth revenue and expenditure forecasts and proposals
designed to produce a balanced budget.

The 1993-1994 budget act (the '1993-94 Budget Act') was signed by the
Governor on June 30, 1993, along with implementing legislation. The Governor
vetoed about $71 million in spending.

The 1993-94 Budget Act is predicated on general fund revenues and transfers
estimated at $40.6 billion, $400 million below 1992-93 (and the second
consecutive year of actual decline). The principal reasons for declining revenue
are the continued weak economy and the expiration (or repeal) of three fiscal
steps taken in 1991--a half cent temporary sales tax, a deferral of operating
loss carryforwards, and repeal by initiative of a sales tax on candy and snack
foods.

The 1993-94 Budget Act also assumes special fund revenues of $11.9 billion,
an increase of 2.9 percent over 1992-93.

The 1993-94 Budget Act includes general fund expenditures of $38.5 billion
(a 6.3 percent reduction from projected 1992-93 expenditures of $41.1 billion),
in order to keep a balanced budget within the available revenues. The 1993-94
Budget Act also includes special fund expenditures of $12.1 billion, a 4.2
percent increase. The 1993-94 Budget Act reflects the following major
adjustments:

1. Changes in local government financing to shift about $2.6 billion in
property taxes from cities, counties, special districts and redevelopment
agencies to school and community college districts, thereby reducing
general fund support by an equal amount. About $2.5 billion would be
permanent, reflecting termination of the State's 'bailout' of local
governments following the property tax cuts of Proposition 13 in 1978 (See
'Constitutional, Legislative and Other Factors' below).

The property tax revenue losses for cities and counties are offset in
part by additional sales tax revenues and mandate relief. The temporary 0.5
percent sales tax has been extended through December 31, 1993, for
allocation to counties for public safety programs. The voters approved
Proposition 172 in November 1993 and the 0.5 percent sales tax was extended
permanently for public safety purposes.

Legislation also has been enacted to eliminate state mandates in order
to provide local governments flexibility in making their programs
responsive to local needs. Legislation provides mandate relief for local
justice systems which affect county audit requirements, court reporter
fees, and court consolidation; health and welfare relief involving advisory
boards, family planning, state audits and realignment maintenance efforts;
and relief in areas such as county welfare department self-evaluations,
noise guidelines and recycling requirements.

2. The 1993-94 Budget Act projected K-12 Proposition 98 funding on a
cash basis at the same per-pupil level as 1992-93 by providing schools a
$609 million loan payable from future years' Proposition 98 funds.

d-1
<PAGE>

3. The 1993-94 Budget Act assumed receipt of about $692 million of aid
to the State from the federal government to offset health and welfare costs
associated with foreign immigrants living in the State, which would reduce
a like amount of General Fund expenditures. About $411 million of this
amount was one-time funding. Congress ultimately appropriated only $450
million.

4. Reductions of $600 million in health and welfare programs and $400
million in support for higher education (partly offset by fee increases at
all three units of higher education) and various miscellaneous cuts
(totalling approximately $150 million) in State government services in many
agencies, up to 15 percent.

5. A 2-year suspension of the renters' tax credit ($390 million
expenditure reduction in 1993-94).

6. Miscellaneous one-time items, including deferral of payment to the
Public Employees Retirement Fund ($339 million) and a change in accounting
for debt service from accrual to cash basis, saving $107 million.

The 1993-94 Budget Act contains no general fund tax/revenue increases other
than a two year suspension of the renters' tax credit. The 1993-94 Budget Act
suspended the 4 percent automatic budget reduction trigger, as was done in
1992-93 so cuts could be focused.

Administration reports during the course of the 1993-94 Fiscal Year have
indicated that while economic recovery appears to have started in the second
half of the fiscal year, recessionary conditions continued longer than had been
anticipated when the 1993-94 Budget Act was adopted. Overall, revenues for the
1993-94 Fiscal Year were about $800 million lower than original projections, and
expenditures were about $780 million higher, primarily because of higher health
and welfare caseloads, lower property taxes which require greater State support
for K-14 education to make up the shortfall, and lower than anticipated federal
government payments for immigration-related costs. The reports, in May and June,
1994, indicated that revenues in the second half of the 1993-94 Fiscal Year have
been very close to the projections made on the Governor's Budget of January 10,
1994, which is consistent with a slow turnaround in the economy.

The Department of Finance's July 1994 Bulletin, including the final June
receipts, reported that June revenues were $114 million (2.5 percent) above
projection, with final end-of-year results at $377 million (about 1 percent)
above the May Revision projections. Part of this results was due to end-of-year
adjustments and reconcilitations. Personal income tax and sales tax continued to
track projections very well. The largest factor in the higher than anticipated
revenues was from bank and corporation taxes, which were $140 million (18.4
percent) above projection in June. While the higher June receipts are reflected
in the actual 1993-94 Fiscal Year cash flow results, and help the starting cash
balance for the 1994-95 Fiscal Year, the Department of Finance has not adjusted
any of its revenue projections for the 1994-95 or 1995-96 Fiscal Years.

During the 1993-94 Fiscal Year, the State implemented the deficit
retirement plan, which was part of the 1993-94 Budget Act, by issuing $1.2
billion of revenue anticipation warrants in February 1994 maturing December 21,
1994. This borrowing reduced the cash deficit at the end of the 1993-94 Fiscal
Year. Nevertheless, because of the $1.5 billion variance from the original
1993-94 Budget Act assumptions. the General Fund ended the fiscal year at June
30, 1994 carrying forward an accumulated deficit of approximately $2 billion.

Because of the revenue shortfall and the State's reduced internal
borrowable cash resources, in addition to the $1.2 billion of revenue
anticipation warrants issued as part of the deficit retirement plan, the State
issued an additional $2.0 billion of revenue anticipation warrants, maturing
July 26, 1994, which were needed to fund the State's obligations and expenses
through the end of the 1993-94 Fiscal Year.

On January 17, 1994, a major earthquake measuring an estimated 6.8 on the
Richter Scale struck Los Angeles. Significant property damage to private and
public facilities occurred in a four-county area including northern Los Angeles
County, Ventura County, and parts of Orange and San Bernardino Counties, which
were declared as State and federal disaster areas by January 18. Current
estimates of total property damage (private and public) are in the range of $20
billion but these estimates are still subject to change.

Despite such damage, on the whole, the vast majority of structures in the
areas, including large manufacturing and commercial buildings and all modern
high-rise offices, survived the earthquake with minimal or no damage, validating
the cumulative effect of strict building codes and thorough preparation for such
an emergency by the State and local agencies.

d-2
<PAGE>

State-owned facilities including transportation corridors and facilities
such as Interstate Highways 5 and 10 and State Highways 14, 118 and 210
sustained some damage. Most of the major highways (Interstate 5 and 10) have now
been reopened.

The campus of California State University of Northridge (very near the
epicenter) suffered an estimated $350 million damage, resulting in temporary
closure of the campus. I has reopened using borrowed facilities elsewhere in the
area and many temporary structures. There was also some damage to the University
of California at Los Angeles and to an office building in Van Nuys (now open
after a temporary closure). Overall, except for the temporary road and bridge
closures, and CSU-Northridge, the earthquake did not and is not expected to
significantly State government operations.

The State in conjunction with the federal government is committed to
providing assistance to local governments, individuals and businesses suffering
damage as a result of the earthquake assistance.

The President immediately allocated some available disaster fund, and
Congress has approved additional funds for a total of at least $9.5 billion of
federal funds for earthquake relief, including assistance to homeowners and
small businesses, and costs for repair of damaged public facilities. The
Governor originally proposed that the State will have to pay about $1.9 billion
for earthquake relief costs, including a 10 percent match to some of the federal
funds, and costs for some programs not covered by the federal aid. The Governor
proposed to cover $1.05 billion of these costs from a general obligation bond
issue which as on the June, 1994 ballot, but it was not approved by the voters.
The Governor subsequently announced that the State's share for transportation
projects would come from existing Department of Transportation funds (thereby
delaying other, non-earthquake related projects), that the State's share for
certain other costs (including local school building repairs) would come from
reallocating existing bond funds, and that a proposed program for homeowner and
small business aid supplements to federal aid would have to be abandoned. Some
other costs will be borrowed from the federal government in a manner similar to
that wused by the State of Florida after Hurricane Andrew; pursuant to Senate
Bill 2382, repayment will have to be addressed in 1995-96 or beyond.

The 1994-95 Fiscal Year represents the fourth consecutive year the Governor
and Legislature will be faced with a very different budget environment to
produce a balanced budget. Many program cuts and budgetary adjustments have
already been made in the last three years. The Governor's Budget proposal, as
updated in May and June, 1994, recognized that the accumulated deficit could not
be repaid in one year, and proposed a two-year solution. The budget proposal
sets forth revenue and expenditure forecasts and revenue and expenditure
proposals which result in operating surpluses for the budget for both 1994-95
and 1995-96, and lead to the elimination of the accumulated budget deficit,
estimated at about $2.0 billion at June 30, 1994, by June 30, 1996.

The 1994-95 Budget Act, signed by the Governor on July 8, 1994, projects
revenues and transfers of $41.9 billion, $2.1 billion higher than revenues in
1993-94. This reflects the Administration's forecast of an improving economy.
Also included in this figure is a projected receipt of about $360 million from
the Federal Government to reimburse the State's cost of incarcerating
undocumented immigration. The State will not know how much the Federal
Government will actually provide until the Federal FY 1995 Budget is completed.
Completion of the Federal Busdget is expected by October 1994. The Legislature
took no action on a proposal in the January Governor's Budget to undertake an
expansion of the transfer of the transfer of certain programs to counties, which
would also have transferred to counties 0.5% of the State's current sales tax.

The Budget act projects Special Fund revenues of $12.1 billion, a decrease
of 2.4% from 1993-94 estimated revenues.

The 1994-95 Budget Act projects General Fund expenditures of $40.9 billion,
an increase of $1.6 billion over 1993-94. The Budget Act also projects Special
Fund expenditures of $13.7 billion, a 5.4% increase over 1993-94 estimated
expenditures. The principal features of the Budget Act were the following:

1. Receipt of additional federal aid in 1994-95 of about $400 million
for costs of refugee assistance and medical care for undocumented
immigrants, thereby offsetting a similar General Fund cost. The State will
now know how much of these funds it will receive until the Federal FY 1995
Budget is passed.

2. Reductions of approximately $1.1 billion in health and welfare costs.
A 2.3 percent reduction in Aid to Family with Dependent Children payments
(equal to about $56 million for the entire fiscal year) has been suspended
by court order.

d-3
<PAGE>
3. A General Fund increase of approximately $38 million in support for
the University of California and $65 million for California State
University. It is anticipated that student fees for both the U.C. and
C.S.U. will increase uo to 10%.

4. Proposition 98 funding for K-14 schools is increased by $526 million
from 1993-94 levels, representing an increase for enrollment growth and
inflation. Consistent with previous budget agreements, Proposition 98
funding provides approximately $4.217 per student for K-12 schools, equal
to the level in the past three years.

5. Legislation enacted with the Budget clarifies laws passed in 1992 and
1993 which require counties and other local agencies to transfer funds to
local school districts, thereby reducing State aid. Some counties had
implemented a method of making such transfers which provided less money for
schools if there were redevelopment agency projects. The new legislation
bans this method of transfer. If all counties had implemented this method,
General Fund aid to K-12 schools would have been $300 million higher in
each of the 1994-95 and 1995-96 Fiscal Years.

6. The 1994-95 Budget Act provides funding for anticipated growth in the
State's prison inmate population, including provisions for implementing
recent legislation (the so-called 'Three Strikes' law) which requires
mandatory life prison terms for certain third-time felony offenders.

7. Additional miscellaneous cuts ($500 million) and fund transfers ($255
million) totalling in the aggregate approximately $755 million.

The 1994-95 Budget Act contains no tax increases. Under legislation enacted
for the 1993-94 Budget, the renters' tax credit was suspended for two years
(1993 and 1994). A ballot proposition to permanently restore the renders' tax
credit after this year failed at the June, 1994 election. The Legislature
enacted a further one-year suspension of the renters' tax credit, for 1995,
saving about $390 million in the 1995-96 Fiscal Year.

The 1994-95 Budget assumes that the State will use a cash flow borrowing
program in 1994-95 which combines one-year notes and two-year warrants, which
have now been issued. Issuance of warrants allows the State to defer repayment
of approximately $1.0 billion of its accumulated budget deficit into the 1995-96
Fiscal Year.

The State's cas flow management plan for the 1994-95 fiscal year included
the issuance of $4.0 billion of revenue anticipation warrants on July 26, 1994,
to mature on April 25, 1996, as part of a two-year plan to retire the
accumulated State budget deficit.

Because preparation of cash flow estimates for the 1995-96 Fiscal Year is
necessarily more imprecise than for the current year and entails greater risks
of variance from assumptions, and because the Governor's two-year budget plan
assumes receipt of a large amount of federal aid in the 1995-96 Fiscal Year for
immigration-related costs which is uncertain, the Legislature enacted a backup
budget adjustment mechansim to mitigate possible deviations from projected
revenues, expenditures or internal borrowable resources which might reduce
available cash resources during the two-year plan, so as to assure repayment of
the warrants.

Pursuant to Section 12467 of the California Government Code, enacted by
Chapter 135, Statutes of 1994 (the 'Budget Adjustment Law'), the State
Controller was required to make a report by November 15, 1994 on whether the
projected cash resources for the General Fund as of June 30, 1995 will decrease
more than $430 million from the amount projected by the State in its Official
Statement in July, 1994 for the sale of $4,000,000,000 of Revenue Anticipation
Warrants. On November 15, 1994, the State Controller issued the report on the
State's cash position required by the Budget Adjustment Law. The report idicated
that the cash position of the General Fund on June 30, 1995 would be $581
million better than was estimated in the July, 1994 cash flow projections and
therefore, no budget adjustment procedures will be invoked for the 1994-95
Fiscal Year. As explained earlier, the Law would only be implemented if the
State Controller estimated that borrowable resources on June 30, 1995 would be
at least $430 million lower than projected.

The State Controller's report identified a number of factors which have led
to the improved cash position of the State. Estimated revenues and transfers for
the 1994-95 Fiscal Year other than federal reimbursement for immigration costs
were up about $650 million. The largest portion of this was in higher bank and
corporation tax receipts, but all major tax sources were above original
projections. However, most of the federal immigration aid revenues projected in
connection with the 1994-95 Budget Act and in the July, 1994 cash flows will not
be received, as indicated above, leaving a net increase in revenues of $322
million.

d-4
<PAGE>
On the expenditure side, the State Controller reported that estimated
reduced caseload growth in health and welfare programs, reduced school
enrollment growth, and an accounting adjustment reducing a transfer from the
General Fund to the Special Fund for Economic Uncertainties resulted in overall
General Fund expenditure reductions (again before adjusting for federal aid) of
$672 million. However, the July, 1994 cash flows projected that General Fund
health and welfare and education expenditures would be offset by the anticipated
receipt of $407 million in federal aid for illegal immigrant costs. The State
Controller now estimates that none of these funds will be received, so the net
reduction in General Fund expenditures is $265 million.

Finally, the State Controller indicated that a review of balances in
special funds available for internal borrowing resulted in an estimated
reduction of such borrowable resources of $6 million. The combination of these
factors results in the estimated improvement of the General Fund's cash position
of $581 million. The State Controller's revised cash flow projections for
1994-95 have allocated this improvement in two line items: an increase from $0
to $427 million in the estimated ending cash balance of the General Fund on June
30, 1995, and an increase in unused borrowable resources of $154 million.

The State Controller's report indicated that there was no anticipated cash
impact in the 1994-95 Fiscal Year for recent initiatives on 'three strikes'
criminal penalties and illegal immigration which were approved by voters on
November 8, 1994. At a hearing before a committee of the Legislature on November
15, 1994, both the Legislative Analyst and the Department of Finance concurred
in the reasonableness of the State Controller's report. (The Legislative Analyst
had issued a preliminary analysis on November 1, 1994 which reached a conclusion
very close to that of the State Controller). The State Controller's report makes
no projections about whether the Law may have to be implemented in 1995-96.
However, both the State Controller and the Legislative Analyst in the November
15 hearing noted that the July, 1994 cash flows for the 1995-96 Fiscal Year
place continued reliance on large amounts of federal assistance for immigration
costs, which did not materalize this year, indicating significant budget
pressures for next year. The Department of Finance indicated that the budgetary
issues identified in the hearing would be addressed in the Governor's Budget
proposal for the 1995-96 Fiscal Year, which will be released in early January,
1995.

The Director of Finance is required to include updated cash-flow statements
for the 1994-95 and 1995-96 Fiscal Years in the May revision to the 1995-96
Fiscal Year budget proposal. By June 1, 1995, the State Controller must concur
with these updated statements or provide a revised estimate of the cash
condition of the General Fund for the 1994-95 and the 1995-96 Fiscal Years. For
the 1995-96 Fiscal Year, Chapter 135 prohibits any external borrowing as of June
30, 1996, thereby requiring the State to rely solely on internal borrowable
resources, expenditure reductions or revenue increases to eliminate any
projected cash flow shortfall.

Commencing on October 15, 1995, the State Controller will, in conjunction
with the Legislative Analyst's Office, review the estimated cash condition of
the General Fund for the 1995-96 Fiscal Year. The '1996 cash shortfall' shall be
the amount necessary to bring the balance of unused borrowable resources on June
30, 1996 to zero. On or before December 1, 1995, legislation must be enacted
providing for sufficient General Fund expenditure reductions, revenue increases,
or both, to offset any such 1996 cash shortfall identified by the State
Controller. If such legislation is not enacted, within five days thereafter the
Director of Finance must reduce all General Fund appropriations for the 1995-96
Fiscal Year, except the Required Appropriations, by the percentage equal to the
ratio of said 1996 cash shortfall to total remaining General Fund appropriations
for the 1995-96 Fiscal Year, excluding the Required Appropriations.

On December 6, 1994, Orange County, California and its Investment Pool (the
'Pool') filed for bankruptcy under Chapter 9 of the United States Bankruptcy
Code. Approximately 187 California public entities, substantially all of which
are public agencies within the County, are investors in the Pool. Many of the
agencies have various bonds, notes or other forms of indebtedness outstanding,
in some instances the proceeds of which have been invested in the Pool. Such
agencies also have additional funds invested in the Pool. Since the filing,
investor access to monies in the Pool has been by Court order only and severely
limited. Various representatives of the County have indicated that the Pool
expects to lose a substantial amount of its original principal invested. The
County has employed various investment advisors to restructure the Pool. Such
restructuring has resulted in the sale of a significant amount of the Pool's
portfolio resulting in losses estimated to be in excess of $2 billion. The
County has indicated that further losses could be incurred as restructuring
continues. It is anticipated that such losses may result in delays or failures
of the County as well as investors in the Pool to make scheduled debt service
payments. Further, the County expects substantial budget deficits to occur in
Fiscal Year 1995 with possibly similar effects upon operations of investors in
the Pool. The County failed to make certain deposits to a fund for repayment of
$169,000,000 aggregate principal amount of its short term indebtedness resulting
in a technical default under its note resolution. There has been no default in
payment to noteholders. Principal and

d-5
<PAGE>
interest on such notes is due on June 30, 1995. Additionally, the County has
defaulted in its obligation to accept tenders of its $110,200,000 aggregate
principal amount of its Taxable Pension Obligation Bonds, Series B used to
finance County pension obligations. Interest at a rate set pursuant to the bond
documents has been timely paid on such Pension Bonds. Principal and interest
payments on other indebtedness of the County and the investors will come due at
various times and amounts throughout 1995. Both Standard & Poors and Moody's
Investors Service have suspended or downgraded ratings on various debt
securities of the County and certain of the investors in the Pool. Such
suspensions or downgradings could affect both price and liquidity of such
securities. The Fund is unable to predict when funds may be released from the
Pool to investors, the amount of such funds, if any, whether additional
technical and payment defaults by the County and/or investors in the Pool and
the financial impact upon the value of securities of the County and the
investors in the Pool.

Constitutional, Legislative and Other Factors. Certain California
constitutional amendments, legislative measures, executive orders,
administrative regulations and voter initiatives could result in the adverse
effects described below. The following information constitutes only a brief
summary, does not purport to be a complete description, and is based on
information drawn from official statements and prospectuses relating to
securities offerings of the State of California and various local agencies in
California, available as of the date of this Prospectus. While the Sponsors have
not independently verified such information, they have no reason to believe that
such information is not correct in all material respects.

Certain Debt Obligations in the Portfolio may be obligations of issuers
which rely in whole or in part on California State revenues for payment of these
obligations. Property tax revenues and a portion of the State's general fund
surplus are distributed to counties, cities and their various taxing entities
and the State assumes certain obligations theretofore paid out of local funds.
Whether and to what extent a portion of the State's general fund will be
distributed in the future to counties, cities and their various entities, is
unclear.

In 1988, California enacted legislation providing for a water's-edge
combined reporting method if an election fee was paid and other conditions met.
On October 6, 1993, California Governor Pete Wilson signed Senate Bill 671
(Alquist) which modifies the unitary tax law by deleting the requirements that a
taxpayer electing to determine its income on a water's-edge basis pay a fee and
file a domestic disclosure spreadsheet and instead requiring an annual
information return. Significantly, the Franchise Tax Board can no longer
disregard a taxpayer's election. The Franchise Tax Board is reported to have
estimated state revenue losses from the Legislation as growing from $27 million
in 1993-94 to $616 million in 1999-2000, but others, including Assembly Speaker
Willie Brown, disagree with that estimate and assert that more revenue will be
generated for California, rather than less, because of an anticipated increase
in economic activity and additional revenue generated by the incentives in the
Legislation.

Certain of the Debt Obligations may be obligations of issuers who rely in
whole or in part on ad valorem real property taxes as a source of revenue. On
June 6, 1978, California voters approved an amendment to the California
Constitution known as Proposition 13, which added Article XIIIA to the
California Constitution. The effect of Article XIIIA is to limit ad valorem
taxes on real property and to restrict the ability of taxing entities to
increase real property tax revenues. On November 7, 1978, California voters
approved Proposition 8, and on June 3, 1986, California voters approved
Proposition 46, both of which amended Article XIIIA.

Section 1 of Article XIIIA limits the maximum ad valorem tax on real
property to 1% of full cash value (as defined in Section 2), to be collected by
the counties and apportioned according to law; provided that the 1% limitation
does not apply to ad valorem taxes or special assessments to pay the interest
and redemption charges on (i) any indebtedness approved by the voters prior to
July 1, 1978, or (ii) any bonded indebtedness for the acquisition or improvement
of real property approved on or after July 1, 1978, by two-thirds of the votes
cast by the voters voting on the proposition. Section 2 of Article XIIIA defines
'full cash value' to mean 'the County Assessor's valuation of real property as
shown on the 1975/76 tax bill under 'full cash value' or, thereafter, the
appraised value of real property when purchased, newly constructed, or a change
in ownership has occurred after the 1975 assessment.' The full cash value may be
adjusted annually to reflect inflation at a rate not to exceed 2% per year, or
reduction in the consumer price index or comparable local data, or reduced in
the event of declining property value caused by damage, destruction or other
factors. The California State Board of Equalization has adopted regulations,
binding on county assessors, interpreting the meaning of 'change in ownership'
and 'new construction' for purposes of determining full cash value of property
under Article XIIIA.

Legislation enacted by the California Legislature to implement Article
XIIIA (Statutes of 1978, Chapter 292, as amended) provides that notwithstanding
any other law, local agencies may not levy any ad valorem property tax except to
pay debt service on indebtedness approved by the voters prior to July 1, 1978,
and that each county

d-6
<PAGE>
will levy the maximum tax permitted by Article XIIIA of $4.00 per $100 assessed
valuation (based on the former practice of using 25%, instead of 100%, of full
cash value as the assessed value for tax purposes). The legislation further
provided that, for the 1978/79 fiscal year only, the tax levied by each county
was to be apportioned among all taxing agencies within the county in proportion
to their average share of taxes levied in certain previous years. The
apportionment of property taxes for fiscal years after 1978/79 has been revised
pursuant to Statutes of 1979, Chapter 282 which provides relief funds from State
moneys beginning in fiscal year 1979/80 and is designed to provide a permanent
system for sharing State taxes and budget funds with local agencies. Under
Chapter 282, cities and counties receive more of the remaining property tax
revenues collected under Proposition 13 instead of direct State aid. School
districts receive a correspondingly reduced amount of property taxes, but
receive compensation directly from the State and are given additional relief.
Chapter 282 does not affect the derivation of the base levy ($4.00 per $100
assessed valuation) and the bonded debt tax rate.

On November 6, 1979, an initiative known as 'Proposition 4' or the 'Gann
Initiative' was approved by the California voters, which added Article XIIIB to
the California Constitution. Under Article XIIIB, State and local governmental
entities have an annual 'appropriations limit' and are not allowed to spend
certain moneys called 'appropriations subject to limitation' in an amount higher
than the 'appropriations limit.' Article XIIIB does not affect the appropriation
of moneys which are excluded from the definition of 'appropriations subject to
limitation,' including debt service on indebtedness existing or authorized as of
January 1, 1979, or bonded indebtedness subsequently approved by the voters. In
general terms, the 'appropriations limit' is required to be based on certain
1978/79 expenditures, and is to be adjusted annually to reflect changes in
consumer prices, population, and certain services provided by these entities.
Article XIIIB also provides that if these entities' revenues in any year exceed
the amounts permitted to be spent, the excess is to be returned by revising tax
rates or fee schedules over the subsequent two years.

At the November 8, 1988 general election, California voters approved an
initiative known as Proposition 98. This initiative amends Article XIIIB to
require that (i) the California Legislature establish a prudent state reserve
fund in an amount as it shall deem reasonable and necessary and (ii) revenues in
excess of amounts permitted to be spent and which would otherwise be returned
pursuant to Article XIIIB by revision of tax rates or fee schedules, be
transferred and allocated (up to a maximum of 4%) to the State School Fund and
be expended solely for purposes of instructional improvement and accountability.
No such transfer or allocation of funds will be required if certain designated
state officials determine that annual student expenditures and class size meet
certain criteria as set forth in Proposition 98. Any funds allocated to the
State School Fund shall cause the appropriation limits established in Article
XIIIB to be annually increased for any such allocation made in the prior year.

Proposition 98 also amends Article XVI to require that the State of
California provide a minimum level of funding for public schools and community
colleges. Commencing with the 1988-89 fiscal year, state monies to support
school districts and community college districts shall equal or exceed the
lesser of (i) an amount equalling the percentage of state general revenue bonds
for school and community college districts in fiscal year 1986-87, or (ii) an
amount equal to the prior year's state general fund proceeds of taxes
appropriated under Article XIIIB plus allocated proceeds of local taxes, after
adjustment under Article XIIIB. The initiative permits the enactment of
legislation, by a two-thirds vote, to suspend the minimum funding requirement
for one year.

On June 30, 1989, the California Legislature enacted Senate Constitutional
Amendment 1, a proposed modification of the California Constitution to alter the
spending limit and the education funding provisions of Proposition 98. Senate
Constitutional Amendment 1, on the June 5, 1990 ballot as Proposition 111, was
approved by the voters and took effect on July 1, 1990. Among a number of
important provisions, Proposition 111 recalculates spending limits for the State
and for local governments, allows greater annual increases in the limits, allows
the averaging of two years' tax revenues before requiring action regarding
excess tax revenues, reduces the amount of the funding guarantee in recession
years for school districts and community college districts (but with a floor of
40.9 percent of State general fund tax revenues), removes the provision of
Proposition 98 which included excess moneys transferred to school districts and
community college districts in the base calculation for the next year, limits
the amount of State tax revenue over the limit which would be transferred to
school districts and community college districts, and exempts increased gasoline
taxes and truck weight fees from the State appropriations limit. Additionally,
Proposition 111 exempts from the State appropriations limit funding for capital
outlays.

Article XIIIB, like Article XIIIA, may require further interpretation by
both the Legislature and the courts to determine its applicability to specific
situations involving the State and local taxing authorities. Depending upon

d-7
<PAGE>
the interpretation, Article XIIIB may limit significantly a governmental
entity's ability to budget sufficient funds to meet debt service on bonds and
other obligations.

On November 4, 1986, California voters approved an initiative statute known
as Proposition 62. This initiative (i) requires that any tax for general
governmental purposes imposed by local governments be approved by resolution or
ordinance adopted by a two-thirds vote of the governmental entity's legislative
body and by a majority vote of the electorate of the governmental entity, (ii)
requires that any special tax (defined as taxes levied for other than general
governmental purposes) imposed by a local governmental entity be approved by a
two-thirds vote of the voters within that jurisdiction, (iii) restricts the use
of revenues from a special tax to the purposes or for the service for which the
special tax was imposed, (iv) prohibits the imposition of ad valorem taxes on
real property by local governmental entities except as permitted by Article
XIIIA, (v) prohibits the imposition of transaction taxes and sales taxes on the
sale of real property by local governments, (vi) requires that any tax imposed
by a local government on or after August 1, 1985 be ratified by a majority vote
of the electorate within two years of the adoption of the initiative or be
terminated by November 15, 1988, (vii) requires that, in the event a local
government fails to comply with the provisions of this measure, a reduction in
the amount of property tax revenue allocated to such local government occurs in
an amount equal to the revenues received by such entity attributable to the tax
levied in violation of the initiative, and (viii) permits these provisions to be
amended exclusively by the voters of the State of California.

In September 1988, the California Court of Appeal in City of Westminster v.
County of Orange, 204 Cal. App. 3d 623, 215 Cal. Rptr. 511 (Cal. Ct. App. 1988),
held that Proposition 62 is unconstitutional to the extent that it requires a
general tax by a general law city, enacted on or after August 1, 1985 and prior
to the effective date of Proposition 62, to be subject to approval by a majority
of voters. The Court held that the California Constitution prohibits the
imposition of a requirement that local tax measures be submitted to the
electorate by either referendum or initiative. It is not possible to predict the
impact of this decision on charter cities, on special taxes or on new taxes
imposed after the effective date of Proposition 62.

On November 8, 1988, California voters approved Proposition 87. Proposition
87 amended Article XVI, Section 16, of the California Constitution by
authorizing the California Legislature to prohibit redevelopment agencies from
receiving any of the property tax revenue raised by increased property tax rates
levied to repay bonded indebtedness of local governments which is approved by
voters on or after January 1, 1989. It is not possible to predict whether the
California Legislature will enact such a prohibition nor is it possible to
predict the impact of Proposition 87 on redevelopment agencies and their ability
to make payments on outstanding debt obligations.

Certain Debt Obligations in the Portfolio may be obligations which are
payable solely from the revenues of health care institutions. Certain provisions
under California law may adversely affect these revenues and, consequently,
payment on those Debt Obligations.

The Federally sponsored Medicaid program for health care services to
eligible welfare beneficiaries in California is known as the Medi-Cal program.
Historically, the Medi-Cal Program has provided for a cost-based system of
reimbursement for inpatient care furnished to Medi-Cal beneficiaries by any
hospital wanting to participate in the Medi-Cal program, provided such hospital
met applicable requirements for participation. California law now provides that
the State of California shall selectively contract with hospitals to provide
acute inpatient services to Medi-Cal patients. Medi-Cal contracts currently
apply only to acute inpatient services. Generally, such selective contracting is
made on a flat per diem payment basis for all services to Medi-Cal
beneficiaries, and generally such payment has not increased in relation to
inflation, costs or other factors. Other reductions or limitations may be
imposed on payment for services rendered to Medi-Cal beneficiaries in the
future.

Under this approach, in most geographical areas of California, only those
hospitals which enter into a Medi-Cal contract with the State of California will
be paid for non-emergency acute inpatient services rendered to Medi-Cal
beneficiaries. The State may also terminate these contracts without notice under
certain circumstances and is obligated to make contractual payments only to the
extent the California legislature appropriates adequate funding therefor.

In February 1987, the Governor of the State of California announced that
payments to Medi-Cal providers for certain services (not including hospital
acute inpatient services) would be decreased by ten percent through June 1987.
However, a federal district court issued a preliminary injunction preventing
application of any cuts until a trial on the merits can be held. If the
injunction is deemed to have been granted improperly, the State of

d-8
<PAGE>
California would be entitled to recapture the payment differential for the
intended reduction period. It is not possible to predict at this time whether
any decreases will ultimately be implemented.

California enacted legislation in 1982 that authorizes private health plans
and insurers to contract directly with hospitals for services to beneficiaries
on negotiated terms. Some insurers have introduced plans known as 'preferred
provider organizations' ('PPOs'), which offer financial incentives for
subscribers who use only the hospitals which contract with the plan. Under an
exclusive provider plan, which includes most health maintenance organizations
('HMOs'), private payors limit coverage to those services provided by selected
hospitals. Discounts offered to HMOs and PPOs may result in payment to the
contracting hospital of less than actual cost and the volume of patients
directed to a hospital under an HMO or PPO contract may vary significantly from
projections. Often, HMO or PPO contracts are enforceable for a stated term,
regardless of provider losses or of bankruptcy of the respective HMO or PPO. It
is expected that failure to execute and maintain such PPO and HMO contracts
would reduce a hospital's patient base or gross revenues. Conversely,
participation may maintain or increase the patient base, but may result in
reduced payment and lower net income to the contracting hospitals.

These Debt Obligations may also be insured by the State of California
pursuant to an insurance program implemented by the Office of Statewide Health
Planning and Development for health facility construction loans. If a default
occurs on insured Debt Obligations, the State Treasurer will issue debentures
payable out of a reserve fund established under the insurance program or will
pay principal and interest on an unaccelerated basis from unappropriated State
funds. At the request of the Office of Statewide Health Planning and
Development, Arthur D. Little, Inc. prepared a study in December, 1983, to
evaluate the adequacy of the reserve fund established under the insurance
program and based on certain formulations and assumptions found the reserve fund
substantially underfunded. In September of 1986, Arthur D. Little, Inc. prepared
an update of the study and concluded that an additional 10% reserve be
established for 'multi-level' facilities. For the balance of the reserve fund,
the update recommended maintaining the current reserve calculation method. In
March of 1990, Arthur D. Little, Inc. prepared a further review of the study and
recommended that separate reserves continue to be established for 'multi-level'
facilities at a reserve level consistent with those that would be required by an
insurance company.

Certain Debt Obligations in the Portfolio may be obligations which are
secured in whole or in part by a mortgage or deed of trust on real property.
California has five principal statutory provisions which limit the remedies of a
creditor secured by a mortgage or deed of trust. Two limit the creditor's right
to obtain a deficiency judgment, one limitation being based on the method of
foreclosure and the other on the type of debt secured. Under the former, a
deficiency judgment is barred when the foreclosure is accomplished by means of a
nonjudicial trustee's sale. Under the latter, a deficiency judgment is barred
when the foreclosed mortgage or deed of trust secures certain purchase money
obligations. Another California statute, commonly known as the 'one form of
action' rule, requires creditors secured by real property to exhaust their real
property security by foreclosure before bringing a personal action against the
debtor. The fourth statutory provision limits any deficiency judgment obtained
by a creditor secured by real property following a judicial sale of such
property to the excess of the outstanding debt over the fair value of the
property at the time of the sale, thus preventing the creditor from obtaining a
large deficiency judgment against the debtor as the result of low bids at a
judicial sale. The fifth statutory provision gives the debtor the right to
redeem the real property from any judicial foreclosure sale as to which a
deficiency judgment may be ordered against the debtor.

Upon the default of a mortgage or deed of trust with respect to California
real property, the creditor's nonjudicial foreclosure rights under the power of
sale contained in the mortgage or deed of trust are subject to the constraints
imposed by California law upon transfers of title to real property by private
power of sale. During the three-month period beginning with the filing of a
formal notice of default, the debtor is entitled to reinstate the mortgage by
making any overdue payments. Under standard loan servicing procedures, the
filing of the formal notice of default does not occur unless at least three full
monthly payments have become due and remain unpaid. The power of sale is
exercised by posting and publishing a notice of sale for at least 20 days after
expiration of the three-month reinstatement period. Therefore, the effective
minimum period for foreclosing on a mortgage could be in excess of seven months
after the initial default. Such time delays in collections could disrupt the
flow of revenues available to an issuer for the payment of debt service on the
outstanding obligations if such defaults occur with respect to a substantial
number of mortgages or deeds of trust securing an issuer's obligations.

In addition, a court could find that there is sufficient involvement of the
issuer in the nonjudicial sale of property securing a mortgage for such private
sale to constitute 'state action,' and could hold that the private-

d-9
<PAGE>
right-of-sale proceedings violate the due process requirements of the Federal or
State Constitutions, consequently preventing an issuer from using the
nonjudicial foreclosure remedy described above.

Certain Debt Obligations in a Portfolio may be obligations which finance
the acquisition of single family home mortgages for low and moderate income
mortgagors. These obligations may be payable solely from revenues derived from
the home mortgages, and are subject to California's statutory limitations
described above applicable to obligations secured by real property. Under
California antideficiency legislation, there is no personal recourse against a
mortgagor of a single family residence purchased with the loan secured by the
mortgage, regardless of whether the creditor chooses judicial or nonjudicial
foreclosure.

Under California law, mortgage loans secured by single-family
owner-occupied dwellings may be prepaid at any time. Prepayment charges on such
mortgage loans may be imposed only with respect to voluntary prepayments made
during the first five years during the term of the mortgage loan, and cannot in
any event exceed six months' advance interest on the amount prepaid in excess of
20%of the original principal amount of the mortgage loan. This limitation could
affect the flow of revenues available to an issuer for debt service on the
outstanding debt obligations which financed such home mortgages.

CALIFORNIA TAXES

In the opinion of O'Melveny & Myers, Los Angeles, California, special
counsel on California tax matters, under existing California law:

The Trust Fund is not an association taxable as a corporation for
California tax purposes. Each Holder will be considered the owner of a pro
rata portion of the Trust Fund and will be deemed to receive his pro rata
portion of the income therefrom. To the extent interest on the Debt
Obligations is exempt from California personal income taxes, said interest
is similarly exempt from California personal income taxes in the hands of
the Holders, except to the extent such Holders are banks or corporations
subject to the California franchise tax. Holders will be subject to
California income tax on any gain on the disposition of all or part of his
pro rata portion of a Debt Obligation in the Trust Fund. A Holder will 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. A Holder
will also be considered to have disposed of all or part of his pro rata
portion of a Debt Obligation when all or part of the Debt Obligation is
sold by the Trust Fund or is redeemed or paid at maturity. The Debt
Obligations and the Units are not taxable under the California personal
property tax law.

THE NEW JERSEY TRUST

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

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

The State's 1995 Fiscal Year budget became law on June 30, 1994.

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

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

d-10
<PAGE>

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

Reflecting the downturn, the rate of unemployment in the State rose from a
low of 3.6 percent during the first quarter of 1989 to a recessionary peak of
9.3% during 1992. Since then, the unemployment rate fell to 6.7% during the
fourth quarter of 1993. The jobless rate averaged 7.1% during the first nine
months of 1994, but this estimate is not comparable to those prior to January
because of major changes in the federal survey from which these statistics are
obtained.

In the first nine months of 1994, relative to the same period a year ago,
job growth took place in services (3.5%) and construction (5.7%), more moderate
growth took place in trade (1.9%), transportation and utilities (1.2%) and
finance/insurance/real estate (1.4%), while manufacturing and government
declined (by 1.5% and 0.1%, respectively). The net result was a 1.6% increase in
average employment during the first nine months of 1994 compared to the first
nine months of 1993.

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

One of the major reasons for cautious optimism is found in the construction
industry. Total construction contracts awarded in New Jersey have turned around,
rising by 8.6% in 1993 compared with 1992. By far, the largest boost came from
residential construction awards which increased by 37.7% in 1993 compared with
1992. In addition, non-residential building construction awards have turned
around, posting a 6.9% gain.

Nonbuilding construction awards increased approximately 4% in the first
eight months of 1994 compared with the same period in 1993.

Finally, even in the labor market there are signs of recovery. Thanks to a
reduced layoff rate and the reappearance of job opportunities in some parts of
the economy, unemployment in the State has been receding since July 1992, when
it peaked at 9.6% according to U.S. Bureau of Labor Statistics estimates based
on the federal government's monthly household survey. The same survey showed
joblessness dropped to an average of 6.7% in the fourth quarter of 1993. The
unemployment rate registered an average of 7.8% in the first quarter of 1994,
but this rate cannot be compared with prior date due to the changes in the U.S.
Department of Labor procedures for determining the unemployment rate that went
into effect in January 1994.

For Fiscal Year 1995, the Governor has recommended appropriations of $103.5
million for principal and interest payments for general obligation bonds. Of the
$15,291.0 million appropriated in Fiscal Year 1995 from the General Fund, the
Property Tax Relief Fund, the Gubernatorial Elections Fund, the Casino Control
Fund and the Casino Revenue Fund and the Gubernatorial Elections Fund, $5,782.2
million (37.8%) was appropriated for State Aid to Local Governments, $3,761.6
million (24.6%) is appropriated for Grants-in-Aid, $5,203.1 million (34.0%) for
Direct State Services, $103.5 million (0.7%) for Debt Service on State general
obligation bonds and $440.6 million (2.9%) for Capital Construction.

State Aid to Local Governments was the largest portion of Fiscal Year 1995
appropriations. In Fiscal Year 1995, $5,782.2 million of the State's
appropriations consisted of funds which are distributed to municipalities,
counties and school districts. The largest State Aid appropriation, in the
amount of $3,900.1 million, is provided for local elementary and secondary
education programs. Of this amount, $2,431.6 million was provided as foundation
aid to school districts by formula based upon the number of students and the
ability of a school district to raise taxes from its own base. In addition, the
State provides $582.5 million for special education

d-11
<PAGE>

programs for children with disabilities. A $293.0 million program was also
funded for pupils at risk of educational failure, including basic skills
improvement. The State appropriated $474.8 million on behalf of school districts
as the employer share of the teachers' pension and benefits programs, $263.8
million to pay for the cost of pupil transportation and $57.4 million for
transition aid, which guaranteed school districts a 6.5% increase over the aid
received in Fiscal Year 1991 and is being phased out over six years.

Appropriations to the State Department of Community Affairs total $635.1
million in State Aid monies for Fiscal Year 1995. The principal programs funded
were the Supplemental Municipal Property Tax Act ($314.1 million); the Municipal
Revitalization Program ($165.0 million); municipal aid to urban communities to
maintain and upgrade municipal services ($40.7 million); and the Safe and Clean
Neighborhoods Program ($58.9 million). Appropriations to the State Department of
the Treasury totalled $321.3 million in State Aid monies for Fiscal Year 1995.
The principal programs funded by these appropriations were payments under the
Business Personal Property Tax Replacement Programs ($158.7 million); the cost
of senior citizens, disabled and veterans property tax deductions and exemptions
($41.7 million); aid to densely populated municipalities ($25.0 million);
Municipal Purposes Tax Assistance ($30.0 million); and payments to
municipalities for services to state owned property ($34.9 million).

Other appropriations of State Aid in Fiscal Year 1995 include welfare
programs ($499.1 million); aid to county colleges ($123.2 million); and aid to
county mental hospitals ($79.4 million).

The second largest portion of appropriations in Fiscal Year 1995 is applied
to Direct State Services: the operation of State government's 17 departments,
the Executive Office, several commissions, the State Legislature and the
Judiciary. In Fiscal Year 1995, appropriations for Direct State Services
aggregate to $5,203.1 million. Some of the major appropriations for Direct State
Services during Fiscal Year 1995 are detailed below.

$595.3 million was appropriated for programs administered by the State
Department of Human Services. Of that amount, $445.3 million was appropriated
for mental health and mental retardation programs, including the operation of
seven psychiatric institutions and nine schools for the retarded.

$27.7 million is appropriated for administration of the Medicaid and
pharmaceutical assistance to the aged and disabled programs; $14.9 million for
administration of the various income maintenance programs, including Aid to
Families with Dependent Children (AFDC); $69.3 million for the Division of Youth
and Family Services, which protects the children of the State from abuse and
neglect and $15.0 million for juvenile community programs which serves juveniles
who have violated the laws of the State and have been committed to the Juvenile
Services Division.

The State Department of Labor is appropriated $49.3 million for the
administration of programs for workers' compensation, unemployment and
disability insurance, manpower development, and health safety inspection.

The State Department of Health is appropriated $32.3 million for the
prevention and treatment of diseases, alcohol and drug abuse programs,
regulation of health care facilities and the uncompensated care program.

$689.3 million is appropriated to the State Department of Higher Education
for the support of nine State colleges, Rutgers University, the New Jersey
Institute of Technology, and the University of Medicine and Dentistry.

$932.5 million is appropriated to the State Department of Law and Public
Safety and the State Department of Corrections. Among the programs funded by
this appropriation are the administration of the State's correctional facilities
and parole activities, the registration and regulation of motor vehicles and
licensed drivers and the investigative and enforcement activities of the State
Police.

$92.3 million is appropriated to the State Department of Transportation for
the various programs it administers, such as the maintenance and improvement of
the State highway system.

$176.6 million is appropriated to the State Department of Environmental
Protection for the protection of air, land, water, forest, wildlife and
shellfish resources and for the provision of outdoor recreational facilities.

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

d-12
<PAGE>

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

In addition to payment from bond proceeds, capital construction can also be
funded by appropriation of current revenues on a pay-as-you-go basis. This
amount represents 2.9 percent of the total budget for Fiscal Year 1995.

The aggregate outstanding general obligation bonded indebtedness of the
State as of June 30, 1993 was $3,594.7 billion. The debt service obligation for
outstanding indebtedness is $103.5 million for Fiscal Year 1995.

On January 18, 1994, Christine Todd-Whitman replaced James Florio as
Governor of the State. As a matter of public record, Governor Whitman, during
her campaign, publicized her intention to reduce taxes in the State. Effective
January 1, 1994, the State's personal income tax rates were reduced by 5% for
all taxpayers. Effective January 1, 1995, the State's personal income tax rates
will be reduced. The effect of the tax reductions cannot be evaluated at this
time.

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

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

Other lawsuits, that could materially affect revenue or expenditures
include a suit by a number of taxpayers seeking refunds of taxes paid to the
Spill Compensation Fund pursuant to NJSA 58:10-23.11, a suit alleging that
unreasonably low Medicaid payment rates have been implemented for long-term care
facilities in New Jersey, a suit alleging unfair taxation on interstate
commerce, a suit by Essex County seeking to invalidate the State's method of
funding the judicial system and a suit seeking return of moneys paid by various
counties for maintenance of Medicaid or Medicare eligible residents of
institutions and facilities for the developmentally disabled and a suit
challenging the imposition of premium tax surcharges on insurers doing business
in New Jersey, and assessments upon property and casualty liability insurers
pursuant to the Fair Automobile Insurance Reform Act and a suit challenging
amendments to the pension laws enacted on June 30, 1994 concerning the funding
of the Teachers Pension and Annuity Fund (TPAF). The Public Employee's
Retirement System (PERS), the Police and Firemen's Retirement System (PFRS), the
State Police Retirement System (SPRS) and the Judiciary Retirement System (JRS).

Bond Ratings--Citing a developing pattern of reliance on non-recurring
measures to achieve budgetary balance, four years of financial operations marked
by revenue shortfalls and operating deficits, and the likelihood that financial
pressures will persist, on August 24, 1992 Moody's lowered from Aaa to Aa1 the
rating assigned to New Jersey general obligation bonds. The downgrade reflects
Moody's concern that the state's chronic budgetary problems detract from
bondholder security. The Aa-1 rating from Moody's is equivalent to Standard &
Poor's AA rating. On August 1, 1994, Standard & Poor's affirmed its AAI ratings
on New Jersey's general obligation and various lease and appropriation backed
debt, its ratings outlook was revised to stable.

NEW JERSEY TAXES

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

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

d-13
<PAGE>

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

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

THE NEW YORK TRUST

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

RISK FACTORS--Prospective investors should consider the financial
difficulties and pressures which the State of New York and several of its public
authorities and municipal subdivisions have undergone. The following briefly
summarizes some of these difficulties and the current financial situation, based
principally on certain official statements currently available; copies may be
obtained without charge from the issuing entity, or through the Agent for the
Sponsors upon payment of a nominal fee. While the Sponsors have not
independently verified this information, they have no reason to believe that it
is not correct in all material respects.

New York State. In recent fiscal years, there have been extended delays in
adopting the State's budget, repeated revisions of budget projections,
significant revenue shortfalls (as well as increased expenses) and year-end
borrowing to finance deficits. These developments reflect faster long-term
growth in State spending than revenues and that the State was earlier and more
severely affected by the recent economic recession than most of the rest of the
country, as well as its substantial reliance on non-recurring revenue sources.
The State's general fund incurred cash basis deficits of $775 million, $1,081
million and $575 million, respectively, for the 1990-1992 fiscal years. Measures
to deal with deteriorating financial conditions included transfers from reserve
funds, recalculating the State's pension fund obligations (subsequently ruled
illegal), hiring freezes and layoffs, reduced aid to localities, sales of State
property to State authorities, and additional borrowings (including issuance of
additional short-term tax and revenue anticipation notes payable out of
impounded revenues in the next fiscal year). The general fund realized a $671
million surplus for the fiscal year ended March 31, 1993, and a $1.54 billion
surplus for the fiscal year ended March 31, 1994.

Approximately $5.4 billion of State general obligation debt was outstanding
at March 31, 1994. The State's net tax-supported debt (restated to reflect
LGAC's assumption of certain obligations previously funded through issuance of
short-term debt) was $27.5 billion at March 31, 1994, up from $11.7 billion in
1984. A proposed constitutional amendment passed by the Legislature would limit
additional lease-purchase and contractual obligation financing for State
facilities, but would authorize the State without voter referendum to issue
revenue bonds within a formula-based cap, secured solely by a pledge of certain
State tax receipts. It would also restrict State debt to capital projects
included in a multi-year capital financing plan. The proposal is subject to
approval by the current legislature and by voters. Standard & Poor's reduced its
rating of the State's general obligation bonds on January 13, 1992 to A-(its
lowest rating for any state). Moody's reduced its ratings of State general
obligation bonds from A1 to A on June 6, 1990 and to Baa1, its rating of $14.2
billion of appropriation-backed debt of the State and State agencies (over
two-thirds of the total debt) on January 6, 1992.

In May 1991 (nearly 2 months after the beginning of the 1992 fiscal year),
the State Legislature adopted a budget to close a projected $6.5 billion gap
(including repayment of $905 million of fiscal 1991 deficit notes). Measures
included $1.2 billion in new taxes and fees, $0.9 billion in non-recurring
measures and about $4.5 billion of reduced spending by State agencies (including
layoffs), reduced aid to localities and school districts, and Medicaid cost
containment measures. After the Governor vetoed $0.9 billion in spending, the
State adopted $0.7 billion in additional spending, together with various
measures including a $100 million increase in personal income taxes and $180
million of additional non-recurring measures. Due primarily to declining
revenues and

d-14
<PAGE>

escalating Medicaid and social service expenditures, $0.4 billion of
administrative actions, $531 million of year-end short-term borrowing and a $44
million withdrawal from the Tax Stabilization Reserve Fund were required to meet
the State's cash flow needs.

The State budget to close a projected $4.8 billion gap for the State's 1993
fiscal year (including repayment of the fiscal 1992 short-term borrowing)
contained a combination of $3.5 billion of spending reductions (including
measures to reduce Medicaid and social service spending, as well as further
employee layoffs, reduced aid to municipalities and schools and reduced support
for capital programs), deferral of scheduled tax reductions, and some new and
increased fees. Nonrecurring measures aggregated $1.18 billion. The City and its
Board of Education sued the Governor and various other State officials in March
1993, claiming that the State's formula for allocating aid to education
discriminated against City schools by at least $274 million in the 1993 fiscal
year.

To close a projected budget gap of nearly $3 billion for the fiscal year
ended March 31, 1994, the State budget contained various measures including
further deferral of scheduled income tax reductions, some tax increases, $1.6
billion in spending cuts, especially for Medicaid, and further reduction of the
State's work force. The budget increased aid to schools, and included a formula
to channel more aid to districts with lower-income students and high property
tax burdens. State legislation requires deposit of receipts from the petroleum
business tax and certain other transportation-related taxes into funds dedicated
to transportation purposes. Nevertheless, $516 million of these monies were
retained in the general fund during this fiscal year. The Division of the Budget
has estimated that non-recurring income items other than the $671 million
surplus from the 1993 fiscal year aggregated $318 million. $89 million savings
from bond refinancings was deposited in a contingency reserve fund to pay
litigation settlements, particularly to repay monies received under the State's
abandoned property law, which the State will be required to give up as described
below.

The budget for the fiscal year that began April 1, 1994 increases spending
by 3.8% (greater than inflation for the first time in six years). Tax revenue
projections are based on assumed modest growth in the State economy. It provides
a tax credit for low income families and increases aid to education, especially
in the poorer districts. The litigation fund will be increased and then paid out
during the year. The State is reducing coverage and placing additional
restrictions on certain health care services. Over $1 billion results from
postponement of scheduled reductions in personal income taxes for a fifth year
and in taxes on hospital income; another $1 billion comes from rolling over the
surplus from the previous fiscal year. Other non-recurring measures would be
reduced to $78 million. The State Legislature passed legislation to implement a
budget agreement more than two months after the beginning of the year. Taxes
(principally business taxes) would be reduced by $475 million in the current
fiscal year and by $1.6 billion annually after fully phased in. In November 1993
the State's Court of Appeals ruled unconstitutional 1990 legislation which
postponed employee pension contributions by the State and localities (other than
New York City). The amounts to be made up, estimated to aggregate $4 billion
(half from the State), would be repaid in increasing amounts over 12-20 years
under a plan proposed by the State Comptroller, trustee of the State pension
system, and previous contribution levels will not be exceeded until 1999. The
State's new Governor estimates a deficit of at least $300 million for the fiscal
year ending March 31, 1995 and at least $5 billion for the next fiscal year. He
ordered a partial hiring freeze and reductions in non-essential expenditures.
Although the new Governor's budget for the 1996 fiscal year will not be
announced until February 1, it has been reported that he will seek significant
reductions in expenditures for health care and socal services. However, closing
the deficit for that and future years will be more difficult in view of the
Governor's plan to reduce personal income taxes by 25% during his four-year term
and because of potential decreases in Federal aid. State and other estimates are
subject to uncertainties including the effects of Federal tax legislation and
economic developments. The State in October 1994 cautioned that its estimates
were subject to the risk that further increases in interest rates could impede
economic growth.

The State normally adjusts its cash basis balance by deferring until the
first quarter of the succeeding fiscal year substantial amounts of tax refunds
and other disbursements. For many years, it also paid in that quarter more than
40% of its annual assistance to local governments. Payment of these annual
deferred obligations and the State's accumulated deficit was substantially
financed by issuance of short-term tax and revenue anticipation notes shortly
after the beginning of each fiscal year. The New York Local Government
Assistance Corporation ('LGAC') was established in 1990 to issue long-term bonds
over several years, payable from a portion of the State sales tax, to fund
certain payments to local governments traditionally funded through the State's
annual seasonal borrowing. The legislation will normally limit the State's
short-term borrowing, together with net proceeds of LGAC bonds ($3.9 billion to
date), to a total of $4.7 billion. The State's last seasonal borrowing, in May
1993, was $850 million.

d-15
<PAGE>

Generally accepted accounting principles ('GAAP') for municipal entities
apply modified accrual accounting and give no effect to payment deferrals. On an
audited GAAP basis, the State's government funds group recorded operating
deficits of $1.2 billion and $1.4 billion for the 1990 and 1991 fiscal years.
For the same periods the general fund recorded deficits (net of transfers from
other funds) of $0.7 billion and $1.0 billion. Reflecting $1.6 billion, $881
million and $875 million of payments by LGAC to local governments out of
proceeds from bond sales, the general fund realized surpluses of $1.7 billion,
$2.1 billion and $0.9 billion for the 1992, 1993 and 1994 fiscal years,
respectively, leaving an accumulated deficit of $1.6 billion. A $0.7 billion
deficit has been projected for the fiscal year ending March 31, 1995.

For decades, the State's economy has grown more slowly than that of the
rest of the nation as a whole. Part of the reason for this decline has been
attributed to the combined State and local tax burden, which is among the
highest in the nation (over 60% above the national average). The State's
dependence on Federal funds and sensitivity to changes in economic cycles, as
well as the high level of taxes, may continue to make it difficult to balance
State and local budgets in the future. The total employment growth rate in the
State has been below the national average since 1984. The State lost 524,000
jobs in 1990-1992. It regained approximately 134,000 jobs between November 1992
and July 1994, but has experienced a slight decline since then.

New York City (the 'City'). The City is the State's major political
subdivision. In 1975, the City encountered severe financial difficulties,
including inability to refinance $6 billion of short-term debt incurred to meet
prior annual operating deficits. The City lost access to the public credit
markets for several years and depended on a variety of fiscal rescue measures
including commitments by certain institutions to postpone demands for payment, a
moratorium on note payment (later declared unconstitutional), seasonal loans
from the Federal government under emergency congressional legislation, Federal
guarantees of certain City bonds, and sales and exchanges of bonds by The
Municipal Assistance Corporation for the City of New York ('MAC') to fund the
City's debt.

MAC has no taxing power and pays its obligations out of sales taxes imposed
within the City and per capita State aid to the City. The State has no legal
obligation to back the MAC bonds, although it has a 'moral obligation' to do so.
MAC is now authorized to issue bonds only for refunding outstanding issues and
up to $1.5 billion should the City fail to fund specified transit and school
capital programs. The State also established the Financial Control Board ('FCB')
to review the City's budget, four-year financial plans, borrowings and major
contracts. These were subject to FCB approval until 1986 when the City satisfied
statutory conditions for termination of such review. The FCB is required to
reimpose the review and approval process in the future if the City were to
experience certain adverse financial circumstances. The City's fiscal condition
is also monitored by a Deputy State Comptroller.

The City projects that it is emerging from four years of economic
recession. From 1989 through 1993, the gross city product declined by 10.1% and
employment, by almost 11%, while the public assistance caseload grew by over
25%. Unemployment averaged 10.8% in 1992 and 10.1% in 1993, peaking at 13.4% in
January 1993, the highest level in 25 years. While the City's unemployment rate
has declined substantially since then, it is still above the rest of the State
and the nation as a whole. The number of persons on welfare exceeds 1.1 million,
the highest level since 1972, and one in seven residents is currently receiving
some form of public assistance.

While the City, as required by State law, has balanced its budgets in
accordance with GAAP since 1981, this has required exceptional measures in
recent years. The FCB has commented that City expenditures have grown faster
than revenues each year since 1986, masked in part by a large number of
non-recurring gap closing actions. To eliminate potential budget gaps of $1-$3
billion each year since 1988 the City has taken a wide variety of measures. In
addition to increased taxes and productivity increases, these have included
hiring freezes and layoffs, reductions in services, reduced pension
contributions, and a number of nonrecurring measures such as bond refundings,
transfers of surplus funds from MAC, sales of City property and tax receivables.
The FCB concluded that the City has neither the economy nor the revenues to do
everything its citizens have been accustomed to expect.

The City closed a budget gap for the 1993 fiscal year (estimated at $1.2
billion) through actions including service reductions, productivity initiatives,
transfer of $0.5 billion surplus from the 1992 fiscal year and $100 million from
MAC. A November 1992 revision offset an additional $561 million in projected
expenditures through measures including a refunding to reduce current debt
service costs, reduction in the reserve and an additional $81 million of gap
closing measures. Over half of the City's actions to eliminate the gap were non-
recurring.

d-16
<PAGE>

The Financial Plan for the City's 1994 fiscal year relied on increases in
State and Federal aid, as well as the 1993 $280 million surplus and a partial
hiring freeze, to close a gap resulting primarily from labor settlements and
decline in property tax revenues. The Plan contained over $1.3 billion of
one-time revenue measures including bond refundings, sale of various City assets
and borrowing against future property tax receipts. On July 2, 1993, the
previous Mayor ordered spending reductions of about $130 million for the 1994
fiscal year and $400 million for the 1995 fiscal year. A new Mayor and City
Comptroller assumed office in January 1994. Various fiscal monitors criticized
reliance on non-recurring revenues, with attendant increases in the gaps for
future years. The new Mayor initiated a program to reduce non-personnel costs by
up to $150 million. The FCB reported that although a $98 million surplus was
projected for the year (the surplus was actually $81 million ), a $312 million
shortfall in budgeted revenues and $904 million of unanticipated expenses
(including an unbudgeted increase of over 3,300 employees and a record level of
overtime), net of certain increased revenues and other savings, resulted in
depleting prior years' surpluses by $326 million. The new City Comptroller
critized retention of a proposal to sell delinquent property tax receivables.

The City's Financial Plan for the current fiscal year (that began July 1,
1994) proposed both to eliminate a projected $2.3 billion budget gap and to
stabilize overall spending while beginning to reduce some business and other
taxes. It calls for a reduction of 15,000 in the City work-force by June 1995
unless equivalent productivity savings are negotiated with unions; with the aid
of $200 million from MAC, the City induced 11,500 workers to accept voluntary
severance, and union leaders accepted transfer of remaining employees between
agencies. The Plan projects about $560 million of increased State and Federal
aid, some of which has not been approved. Non-recurring measures include $225
million from refinancing outstanding bonds (which the FCB estimates will cancel
almost 10% of the debt service savings anticipated from the recent capital plan
reduction), extension of the repayment schedule of a debt to City pension funds,
revision of actuarial assumptions to reduce contribution levels, and sale of a
City-owned hotel. A proposal for City employees to bear $200 million of their
health care costs must be negotiated with the unions, which have announced their
opposition.

Since the current year's Financial Plan was adopted, the City has
experienced lower than anticipated tax collections, higher than budgeted costs
(particularly overtime and liability claims) and increased likelihood that
various revenue measures, including certain anticipated Federal and State aid,
will not occur. In July 1994 the Mayor ordered expenditure reductions of $250
million during the next six months and a contingency plan for another $200
million. In late October, the Mayor proposed an additional $900 million of
spending cuts to address a projected $1.1 billion remaining budget gap. Another
$190 million represents proposed transfers of excess reserves in employee health
care plans, a non-recurring measure, and he would reduce the City's subsidy to
the TA by the $113 million surplus it expects to realize for 1994. Maintenance
of City infrastructure would be reduced, which could lead to higher expenses in
future years. The City Council rejected the Mayor's proposals and adopted its
own plan, overriding the Mayor's veto and sued the Mayor in State Supreme Court
to enforce that plan. Following the Mayor's withdrawal of his October proposals
and dismissal of the suit, the Mayor impounded $790 million of funds for
previously authorized expenditures. In January 1995 the Mayor ordered
preparation of contingency plans to address a further shortfall of at least $650
million. The City effected a second bond refinancing in January 1995 as an
alternative to about $120 million of additional reductions in subsidies to the
Board of Education.

The Mayor is exploring the possibility of privatizing some of the City's
services. The City Council passed legislation which authorize the Council to
hold hearings on any significant privatization and require submission of a
cost-benefit analysis. The City has awarded or is in the process of awarding
contracts to private companies to run more than twenty separate services.
Responding to an impasse in negotiations to increase the Port Authority rent
paid to the City for Kennedy and LaGuardia airports, the City is studying how
the airports might be privatized. The Mayor has also been seeking greater
control over spending by independent authorities and agencies such as the Board
of Education, the Health and Hospital Corporation and the TA. The Mayor's
efforts to reduce expenditures by the Board of Education, including appointment
of another fiscal monitor, reduction in City funding of capital projects and
rejection of a tentative labor contract, have strained relations with the
Schools Chancellor at a time of rising enrollments. In March 1994 the Mayor
reduced cash incentives to landlords renting apartments to the homeless. A
program to require able-bodied welfare recipients to render commumity service
started being phased in January 1995. It has been reported that the Mayor is
considering proposals including eliminating City financing of a program that
creates housing for single homeless people, charging shelter occupants who
refuse offers of treatment or training a modest rent for use of the shelter, and
replacing some of the subsidies to day care centers with a voucher system. A
plan to fingerprint welfare recipients in the City could be subject to legal
challenge. Budget gaps of $1.0 billion, $1.5 billion and $2.0 billion were
projected for the 1996 through 1998 fiscal years, respectively, in the Mayor's
October 1994 proposal, and the City now projects a budget

d-17
<PAGE>

gap of about $2.5 billion for the fiscal year commencing July 1, 1995,
attributed to tax revenue shortfalls, reductions in State and Federal aid,
higher Medicaid and agency spending, failure to negotiate increased lease
payments for City airports, additional funding for pensions and State failure to
adopt a tort reform measure. In December 1994 the Budget Director ordered
preparation of proposals to reduce City expenditures on welfare, and
particularly Medicaid, for that 1996 fiscal year. The fiscal monitors have
suggested that these gaps could reach $2-4 billion annually. The State
Comptroller cited principally growing Medicaid, employee health insurance and
debt service costs. Even after recent capital plan reductions, the City
Comptroller recently projected that debt service will consume 19.5% of tax
revenue by the 1998 fiscal year.

A major uncertainty is the City's labor costs, which represent about 50% of
its total expenditures. The City's workforce grew by 34% during the 1980s. A
January 1993 agreement covering approximately 44% of City workers followed
negotiations lasting nearly two years. Workers will receive wage and benefit
raises totalling 8.25% over 39 months ending March 1995. An agreement announced
in August 1993 provides wage increases for City teachers averaging 9% over the
48 1/2 months ending October 1995. The City is seeking to negotiate workforce
productivity initiatives, savings from which would be shared with the workers
involved. Under a contract reached in September 1994, while sanitation workers
would receive an overall increase of 8.25% in wages and benefits over 39 months,
routes would be lengthened by an average of 20%. The Financial Plan assumes no
further wage increases after the 1995 fiscal year. Also, costs of some previous
wage increases were offset by reduced contributions to pension funds; if fund
performance is less than the 9% annual earnings projected (as is expected in the
current fiscal year), the City could incur increased expenses in future years.
Although an actuarial audit has not been completed, the January 1995 budget
estimate for the 1996 fiscal year anticipates that the City will need to
contribute an additional $300 million in that year.

Budget balance may also be adversely affected by the effect of the economy
on economically sensitive taxes. Reflecting the downturn in real estate prices
and increasing defaults, estimates of property tax revenues have been reduced.
If this trend continues, the City's ability to issue additional general
obligation bonds could be limited by the 1998 fiscal year. The City also faces
uncertainty in its dependence on State aid as the State grapples with its own
projected budget gap. The new Governor withdrew his pledge not to reduce State
aid to local governments and schools. Other uncertainties include additional
expenditures to combat deterioration in the City's infrastructure (such as
bridges, schools and water supply), costs of developing alternatives to ocean
dumping of sewage sludge (which the City expects to defray through increased
water and sewer charges), cost of the AIDS epidemic and problems of drug
addiction and homelessness. For example, the City may be ordered to spend up to
$8 billion to construct water filtration facilities if it is not successful in
implementing measures to prevent pollution of its watershed upstate. In December
1994 the City submitted for State approval proposed new pervasive regulations of
activities in the area which can cause pollution. Elimination of any additional
budget gaps will require various actions, including by the State, a number of
which are beyond the City's control. Staten Island voters in 1993 approved a
proposed charter under which Staten Island would secede from the City. Secession
will require enabling legislation by the State Legislature; it would also be
subject to legal challenge by the City. The effects of secession on the City
cannot be determined at this time, but questions include responsibility for
outstanding debt, a diminished tax base, and continued use of the Fresh Kills
landfill, the City's only remaining garbage dump. A similar measure with respect
to Queens was approved by the New York State Senate.

In December 1993, a report commissioned by the City was released,
describing the nature of the City's structural deficit. It projects that the
City will need to identify and implement $5 billion in annual gap closing
measures by 1998. The report suggests a variety of possible measures for City
consideration. While the new Mayor rejected out of hand many of the proposals
such as tax increases, the State Comptroller urged him to reconsider the report.

The City sold $1.4 billion, $1.8 billion and $2.2 billion of short-term
notes, respectively, during the 1993, 1994 and current fiscal years. At
September 30, 1994, there were outstanding $21.7 billion of City bonds (not
including City debt held by MAC), $4.1 billion of MAC bonds and $0.8 billion of
City-related public benefit corporation indebtedness, each net of assets held
for debt service. Standard & Poor's and Moody's during the 1975-80 period either
withdrew or reduced their ratings of the City's bonds. Standard & Poor's
currently rates the City's debt A-while Moody's rates City bonds Baa1. Following
announcement of the second bond refinancing, in January 1995 S&P put the City's
debt rating on CreditWatch for possible downgrading. In the wake of the City's
current budget difficulties, it has been reported that the City had to pay
higher interest rates on its January 1995 bond sale than other comparably rated
bonds (nearly 0.5% above an average of 30-year bonds). City-related debt almost
doubled since 1987, although total debt declined as a percentage of estimated
full value of real property.

d-18
<PAGE>

The City's financing program projects long-term financing during fiscal years
1995-1998 to aggregate $15.3 billion. An additional $2.7 billion is to be
derived from other sources, principally use of restricted cash balances and
advances from the general fund in anticipation of bond issuances. The City's
latest Ten Year Capital Strategy plans capital expenditures of $45.6 billion
during 1994-2003 (93% to be City funded).

Other New York Localities. In 1992, other localities had an aggregate of
approximately $15.7 billion of indebtedness outstanding. In recent years,
several experienced financial difficulties. A March 1993 report by Moody's
Investors Service concluded that the decline in ratings of most of the State's
largest cities in recent years resulted from the decline in the State's
manufacturing economy. Seventeen localities had outstanding indebtedness for
deficit financing at the close of their respective 1992 fiscal years. Any
reductions in State aid to localities may cause additional localities to
experience difficulty in achieving balanced budgets. If special local assistance
were needed from the State in the future, this could adversely affect the
State's as well as the localities' financial condition. Most localities depend
on substantial annual State appropriations. Legal actions by utilities to reduce
the valuation of their municipal franchises, if successful, could result in
localities becoming liable for substantial tax refunds.

State Public Authorities. In 1975, after the Urban Development Corporation
('UDC'), with $1 billion of outstanding debt, defaulted on certain short-term
notes, it and several other State authorities became unable to market their
securities. Since 1975 the State has provided substantial direct and indirect
financial assistance to UDC, the Housing Finance Agency ('HFA'), the
Environmental Facilities Corporation and other authorities. Practical and legal
limitations on these agencies' ability to pass on rising costs through rents and
fees could require further State appropriations. 18 State authorities had an
aggregate of $63.5 billion of debt outstanding at September 30, 1993. At March
31, 1994, approximately $0.4 billion of State public authority obligations was
State-guaranteed, $7.3 billion was moral obligation debt (including $4.8 billion
of MAC debt) and $16.6 billion was financed under lease-purchase or contractual
obligation financing arrangements with the State. Various authorities continue
to depend on State appropriations or special legislation to meet their budgets.

The Metropolitan Transportation Authority ('MTA'), which oversees operation
of the City's subway and bus system by the City Transit Authority (the 'TA') and
operates certain commuter rail lines, has required substantial State and City
subsidies, as well as assistance from several special State taxes. Measures to
balance the TA's 1993 budget included increased funding by the City, increased
bridge and tunnel tolls and allocation of part of the revenues from the
Petroleum Business Tax. While the TA projects a budget surplus for 1994 (the
City's Mayor has proposed to reduce City subsidies to the TA by the amount of
this surplus), cash basis gaps of $300-800 million are projected for each of the
1995 through 1998 years. Measures proposed to close these gaps include various
additional State aid (which is unlikely) and possible fare increases. An
agreement with TA workers reached in July 1994, which provides 10.4% wage
increases over 39 months, will cost the MTA $337 million. The MTA Chairman
stated that this cost would be partly offset by savings from work rule changes
and that money for the settlement is available in the TA's budget. An earlier
settlement with Long Island Railroad workers is expected to cost the MTA $14
million over 26 months. The MTA in December 1994 proposed to change various TA
fares in mid 1995, but failed to reflect the City's proposed reduction of its
subsidy by the amount of the 1994 surplus and its subsidy for reduced fares for
school children and various other uncertainties. Later that month, it postponed
adoption of the 1995 operating budget to allow time for consultation with the
State's new Governor. In January 1995 a State Supreme Court justice ruled that
the Mayor is authorized to withhold the City subsidy for transit police ($320
million a year), following which the MTA Chairman dropped his opposition to
merger of the TA police with the City's police.

Substantial claims have been made against the TA and the City for damages
from a 1990 subway fire and a 1991 derailment. The MTA infrastructure,
especially in the City, needs substantial rehabilitation. In December 1993, a
$9.5 billion MTA Capital Plan was finally approved for 1992-1996; however, $500
million was contingent on increased contributions from the City which it has
declined to approve. The City is seeking State and MAC approval to defer $245
million of capital contributions to the TA from the current fiscal year until
1998. It is anticipated that the MTA and the TA will continue to require
significant State and City support. Moody's reduced its rating of certain MTA
obligations to Baa on April 14, 1992.

Litigation. The State and the City are defendants in numerous legal
proceedings, including challenges to the constitutionality and effectiveness of
various welfare programs, alleged torts and breaches of contract, condemnation
proceedings and other alleged violations of laws. Adverse judgments in these
matters could require substantial financing not currently budgeted. For example,
in addition to real estate certiorari proceedings, claims in excess of $286
billion were outstanding against the City at June 30, 1994, for which it
estimated its potential future liability at $2.6 billion. Another action seeks a
judgment that, as a result of an overestimate by the State

d-19
<PAGE>

Board of Equalization and Assessment, the City's 1992 real estate tax levy
exceeded constitutional limits. In March 1993, the U.S. Supreme Court ruled that
if the last known address of a beneficial owner of accounts held by banks and
brokerage firms cannot be ascertained, unclaimed funds therein belong to the
state of the broker's incorporation rather than where its principal office is
located. New York has obtained about $350 million of abandoned funds that could
have to be paid to other States. It has agreed to pay Delaware $200 million over
a five-year period. The case has been remanded to a special master to determine
disposition of these monies.

Final adverse decisions in any of these cases could require extraordinary
appropriations at either the State or City level or both.

NEW YORK TAXES

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

Under the income tax laws of the State and City of New York, the Trust
is not an association taxable as a corporation and income received by the
Trust will be treated as the income of the Holders in the same manner as
for Federal income tax purposes. Accordingly, 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
Trust. In the opinion of bond counsel delivered on the date of issuance of
the Debt Obligation, such interest will be exempt from New York State and
City personal income taxes except where such interest is subject to Federal
income taxes (see Taxes). A noncorporate Holder of Units of the Trust who
is a New York State (and City) resident will be subject to New York State
(and City) personal income taxes on any gain recognized when he disposes of
all or part of his pro rata portion of a Debt Obligation. A noncorporate
Holder who is not a New York State resident will not be subject to New York
State or City personal income taxes on any such gain unless such Units are
attributable to a business, trade, profession or occupation carried on in
New York. A New York State (and City) resident should determine his tax
basis for his pro rata portion of each Debt Obligation for New York State
(and City) income tax purposes in the same manner as for Federal income tax
purposes. Interest income on, as well as any gain recognized on the
disposition of, a Holder's pro rata portion of the Debt Obligations is
generally not excludable from income in computing New York State and City
corporate franchise taxes.

d-20
<PAGE>

Defined
Asset FundsSM

SPONSORS: MUNICIPAL INVESTMENT
Merrill Lynch, TRUST FUND
Pierce, Fenner & Smith Incorporated Multistate Series - 81
Defined Asset Funds (Unit Investment Trusts)
P.O. Box 9051 PROSPECTUS
Princeton, N.J. 08543-9051 This Prospectus does not contain all of
(609) 282-8500 the information with respect to the
Smith Barney Inc. investment company set forth in its
Unit Trust Department registration statement and exhibits
388 Greenwich Street--23rd Floor relating thereto which have been filed
New York, N.Y. 10013 with the Securities and Exchange
1-800-223-2532 Commission, Washington, D.C. under the
PaineWebber Incorporated Securities Act of 1933 and the
1200 Harbor Blvd. Investment Company Act of 1940, and to
Weehawken, N.J. 07087 which reference is hereby made.
(201) 902-3000 No person is authorized to give any
Prudential Securities Incorporated information or to make any
One Seaport Plaza representations with respect to this
199 Water Street investment company not contained in this
New York, N.Y. 10292 Prospectus; and any information or
(212) 776-1000 representation not contained herein must
Dean Witter Reynolds Inc. not be relied upon as having been
Two World Trade Center--59th Floor authorized. This Prospectus does not
New York, N.Y. 10048 constitute an offer to sell, or a
(212) 392-2222 solicitation of an offer to buy,
EVALUATOR: securities in any state to any person to
Kenny Information Systems, whom it is not lawful to make such offer
a Division of J. J. Kenny Co., Inc. in such state.
65 Broadway
New York, N.Y. 10006-2511
INDEPENDENT ACCOUNTANTS:
Deloitte & Touche LLP
2 World Financial Center
9th Floor
New York, N.Y. 10281-1414
TRUSTEE:
The Chase Manhattan Bank, N.A.
Unit Trust Department
Box 2051
New York, N.Y. 10081
1-800-323-1508
15046--2/95

<PAGE>
PART II
ADDITIONAL INFORMATION NOT INCLUDED IN THE PROSPECTUS

A. The following information relating to the Depositors is incorporated by
reference to the SEC filings
indicated and made a part of this Registration Statement.

SEC FILE OR
IDENTIFICATION
NUMBER
--------------------
I. Bonding Arrangements and Date of Organization of the
Depositors filed pursuant to Items A and B of
Part II of the Registration Statement on Form
S-6 under the Securities Act of 1933:

Merrill Lynch, Pierce, Fenner & Smith
Incorporated.................................... 2-52691
Smith Barney Inc................................ 33-29106
PaineWebber Incorporated........................ 2-87965
Prudential Securities Incorporated.............. 2-61418
Dean Witter Reynolds Inc........................ 2-60599

II. Information as to Officers and Directors of the
Depositors filed pursuant to Schedules A and D
of Form BD under Rules 15b1-1 and 15b3-1 of the
Securities Exchange Act of 1934:

Merrill Lynch, Pierce, Fenner & Smith
Incorporated.................................... 8-7221
Smith Barney Inc................................ 8-8177
PaineWebber Incorporated........................ 8-16267
Prudential Securities Incorporated.............. 8-27154
Dean Witter Reynolds Inc........................ 8-14172

III. Charter documents of the Depositors filed as
Exhibits to the Registration Statement on Form
S-6 under the Securities Act of 1933 (Charter,
By-Laws):

Merrill Lynch, Pierce, Fenner & Smith
Incorporated.................................... 2-73866, 2-77549
Smith Barney Inc................................ 33-20499
PaineWebber Incorporated........................ 2-87965, 2-87965
Prudential Securities Incorporated.............. 2-86941, 2-86941
Dean Witter Reynolds Inc........................ 2-60599, 2-86941

B. The Internal Revenue Service Employer Identification
Numbers of the Sponsors and Trustee are as
follows:

Merrill Lynch, Pierce, Fenner & Smith
Incorporated.................................... 13-5674085
Smith Barney Inc................................ 13-1912900
PaineWebber Incorporated........................ 13-2638166
Prudential Securities Incorporated.............. 22-2347336
Dean Witter Reynolds Inc........................ 94-1671384

The Chase Manhattan Bank, N.A., Trustee......... 13-2633612

UNDERTAKING
The Sponsors undertake that they will not instruct the Trustee to accept from
(i) Asset Guaranty Reinsurance Company, Municipal Bond Investors Assurance
Corporation or any other insurance company affiliated with any of the Sponsors,
in settlement of any claim, less than an amount sufficient to pay any principal
or interest (and, in the case of a taxability redemption, premium) then due on
any Security in accordance with the municipal bond guaranty insurance policy
attached to such Security or (ii) any affiliate of the Sponsors who has any
obligation with respect to any Security, less than the full amount due pursuant
to the obligation, unless such instructions have been approved by the Securities
and Exchange Commission pursuant to Rule 17d-1 under the Investment Company Act
of 1940.

II-1
<PAGE>
SERIES OF MUNICIPAL INVESTMENT TRUST FUND
DESIGNATED PURSUANT TO RULE 487 UNDER THE SECURITIES ACT OF 1933

SEC
SERIES FILE NUMBER
- --------------------------------------------------------------------------------
Thirty-Third Intermediate Term Series....................... 2-82126
Four Hundred Thirty-Eighth Monthly Payment Series........... 33-16561
Multistate Series 6E........................................ 33-29412
Thirty-Eighth Insured Series................................ 2-96953
Multistate Series--48....................................... 33-50247

CONTENTS OF REGISTRATION STATEMENT
The Registration Statement on Form S-6 comprises the following papers and
documents:

The facing sheet of Form S-6.

The Cross-Reference Sheet (incorporated by reference to the Cross-Reference
Sheet to the Registration Statement of Municipal Investment Trust Fund,
Forty-Fourth Intermediate Term Series D, 1933 Act File No. 2-88251).

The Prospectus.

Additional Information not included in the Prospectus (Part II).

Consent of independent accountants.

The following exhibits:

1.1 --Form of Trust Indenture (incorporated by reference to
Exhibit 1.1 to the Registration Statement of Municipal
Investment Trust Fund, Multistate Series-48, 1933 Act File
No. 33-50247).
1.1.1 --Form of Standard Terms and Conditions of Trust Effective
October 21, 1993 (incorporated by reference to Exhibit
1.1.1 to the Registration Statement of Municipal
Investment Trust Fund, Multistate Series-48, 1933 Act File
No. 33-50247).
1.2 --Form of Master Agreement Among Underwriters (incorporated
by reference to Exhibit 1.2 to the Registration Statement
of The Corporate Income Fund, One Hundred Ninety-Fourth
Monthly Payment Series, 1933 Act File No. 2-90925).
2.1 --Form of Certificate of Beneficial Interest (included in
Exhibit 1.1.1).

3.1 --Opinion of counsel as to the legality of the securities
being issued including their consent to the use of their
names under the headings 'Taxes', 'New York Taxes, The New
York Trust' and 'Miscellaneous--Legal Opinion' in the
Prospectus.

4.1.1 --Consent of the Evaluator.
4.1.2 --Consent of the Rating Agency as to Insured Trusts.

R-1
<PAGE>
SIGNATURES

The registrant hereby identifies the series numbers of Municipal Investment
Trust Fund listed on page R-1 for the purposes of the representations required
by Rule 487 and represents the following:

1) That the portfolio securities deposited in the series as to which this
registration statement is being filed do not differ materially in type
or quality from those deposited in such previous series;

2) That, except to the extent necessary to identify the specific portfolio
securities deposited in, and to provide essential information for, the
series with respect to which this registration statement is being filed,
this registration statement does not contain disclosures that differ in
any material respect from those contained in the registration statements
for such previous series as to which the effective date was determined
by the Commission or the staff; and

3) That it has complied with Rule 460 under the Securities Act of 1933.

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT OR AMENDMENT TO THE REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY
AUTHORIZED IN THE CITY OF NEW YORK AND STATE OF NEW YORK ON THE 1ST DAY OF
FEBRUARY, 1995.

SIGNATURES APPEAR ON PAGES R-3, R-4, R-5, R-6 AND R-7.

A majority of the members of the Board of Directors of Merrill Lynch,
Pierce, Fenner & Smith Incorporated has signed this Registration Statement or
Amendment to the Registration Statement pursuant to Powers of Attorney
authorizing the person signing this Registration Statement or Amendment to the
Registration Statement to do so on behalf of such members.

A majority of the members of the Board of Directors of Smith Barney Inc.
has signed this Registration Statement or Amendment to the Registration
Statement pursuant to Powers of Attorney authorizing the person signing this
Registration Statement or Amendment to the Registration Statement to do so on
behalf of such members.

A majority of the members of the Executive Committee of the Board of
Directors of PaineWebber Incorporated has signed this Registration Statement or
Amendment to the Registration Statement pursuant to Powers of Attorney
authorizing the person signing this Registration Statement or Amendment to the
Registration Statement to do so on behalf of such members.

A majority of the members of the Board of Directors of Prudential
Securities Incorporated has signed this Registration Statement or Amendment to
the Registration Statement pursuant to Powers of Attorney authorizing the person
signing this Registration Statement or Amendment to the Registration Statement
to do so on behalf of such members.

A majority of the members of the Board of Directors of Dean Witter Reynolds
Inc. has signed this Registration Statement or Amendment to the Registration
Statement pursuant to Powers of Attorney authorizing the person signing this
Registration Statement or Amendment to the Registration Statement to do so on
behalf of such members.

R-2
<PAGE>
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
DEPOSITOR

By the following persons, who constitute Powers of Attorney have been filed
a majority of under
the Board of Directors of Merrill Form SE and the following 1933 Act
Lynch, Pierce, File
Fenner & Smith Incorporated: Number: 33-43466 and 33-51607

HERBERT M. ALLISON, JR.
BARRY S. FREIDBERG
EDWARD L. GOLDBERG
STEPHEN L. HAMMERMAN
JEROME P. KENNEY
DAVID H. KOMANSKY
DANIEL T. NAPOLI
THOMAS H. PATRICK
JOHN L. STEFFENS
DANIEL P. TULLY
ROGER M. VASEY
ARTHUR H. ZEIKEL

By
ERNEST V. FABIO
(As authorized signatory for
Merrill Lynch, Pierce, Fenner & Smith Incorporated
and Attorney-in-fact for the persons listed above)

R-3
<PAGE>
SMITH BARNEY INC.
DEPOSITOR

By the following persons, who constitute Powers of Attorney have been filed
a majority of under
the Board of Directors of Smith Barney the following 1933 Act File
Inc.: Numbers: 33-56722 and 33-51999

STEVEN D. BLACK
JAMES BOSHART III
ROBERT A. CASE
JAMES DIMON
ROBERT DRUSKIN
ROBERT F. GREENHILL
JEFFREY LANE
ROBERT H. LESSIN
JACK L. RIVKIN

By GINA LEMON
(As authorized signatory for
Smith Barney Inc. and
Attorney-in-fact for the persons listed above)

R-4
<PAGE>
PAINEWEBBER INCORPORATED
DEPOSITOR

By the following persons, who constitute Powers of Attorney have been filed
a majority of under
the Executive Committee of the Board the following 1933 Act File
of Directors Number: 33-55073
of PaineWebber Incorporated:

LEE FENSTERSTOCK
JOSEPH J. GRANO, JR.
PAUL B. GUENTHER
DONALD B. MARRON
By
ROBERT E. HOLLEY
(As authorized signatory for PaineWebber Incorporated
and Attorney-in-fact for the persons listed above)

R-5
<PAGE>
PRUDENTIAL SECURITIES INCORPORATED
DEPOSITOR

By the following persons, who constitute Powers of Attorney have been filed
a majority of the under Form SE and the following
Board of Directors of Prudential 1933 Act File Number: 33-41631
Securities Incorporated:

ALAN D. HOGAN
HOWARD A. KNIGHT
GEORGE A. MURRAY
LELAND B. PATON
HARDWICK SIMMONS

By
WILLIAM W. HUESTIS
(As authorized signatory for Prudential Securities
Incorporated and Attorney-in-fact for the persons
listed above)

R-6
<PAGE>
DEAN WITTER REYNOLDS INC.
DEPOSITOR

By the following persons, who constitute Powers of Attorney have been filed
a majority of under Form SE and the following 1933
the Board of Directors of Dean Witter Act File Number: 33-17085
Reynolds Inc.:

NANCY DONOVAN
CHARLES A. FIUMEFREDDO
JAMES F. HIGGINS
STEPHEN R. MILLER
PHILIP J. PURCELL
THOMAS C. SCHNEIDER
WILLIAM B. SMITH
By
MICHAEL D. BROWNE
(As authorized signatory for Dean Witter Reynolds Inc.
and Attorney-in-fact for the persons listed above)

R-7
<PAGE>

CONSENT OF INDEPENDENT ACCOUNTANTS
The Sponsors and Trustee of Municipal Investment Trust Fund, Multistate
Series - 81,
Defined Asset Funds (California, New Jersey and New York Trusts):

We hereby consent to the use in this Registration Statement No. 33-57175 of our
opinion dated February 1, 1995, relating to the Statements of Condition of
Municipal Investment Trust Fund, Multistate Series - 81, Defined Asset Funds
(California, New Jersey and New York Trusts) and to the reference to us under
the heading 'Auditors' in the Prospectus which is a part of this Registration
Statement.

DELOITTE & TOUCHE LLP
New York, N.Y.
February 1, 1995

R-8

<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> CALIFORNIA TRUST
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> FEB-01-1995
<INVESTMENTS-AT-COST> 3,388,823
<INVESTMENTS-AT-VALUE> 3,388,823
<RECEIVABLES> 38,165
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,426,988
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 38,165
<TOTAL-LIABILITIES> 38,165
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,388,823
<SHARES-COMMON-STOCK> 3,500
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 3,388,823
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,500
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> NEW JERSEY TRUST
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> FEB-01-1995
<INVESTMENTS-AT-COST> 3,129,874
<INVESTMENTS-AT-VALUE> 3,129,874
<RECEIVABLES> 23,131
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,153,005
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 23,131
<TOTAL-LIABILITIES> 23,131
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,129,874
<SHARES-COMMON-STOCK> 3,250
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 3,129,874
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,250
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> NEW YORK TRUST
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> FEB-01-1995
<INVESTMENTS-AT-COST> 4,793,427
<INVESTMENTS-AT-VALUE> 4,793,427
<RECEIVABLES> 71,553
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4,864,980
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 71,553
<TOTAL-LIABILITIES> 71,553
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,793,427
<SHARES-COMMON-STOCK> 5,000
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 4,793,427
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,000
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

EXHIBIT 3.1
DAVIS POLK & WARDWELL
450 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
(212) 450-4000
FEBRUARY 1, 1995

Municipal Investment Trust Fund,
Multistate Series - 81
Defined Asset Funds

Merrill Lynch, Pierce, Fenner & Smith Incorporated
Smith Barney Inc.
PaineWebber Incorporated
Prudential Securities Incorporated
Dean Witter Reynolds Inc.
c/o Merrill Lynch, Pierce, Fenner & Smith Incorporated
Defined Asset Funds
P.O. Box 9051
Princeton, NJ 08543-9051

Dear Sirs:

We have acted as special counsel for you, as sponsors (the 'Sponsors') of
Multistate Series - 81 of Municipal Investment Trust Fund, Defined Asset Funds
(the 'Fund'), in connection with the issuance of units of fractional undivided
interest in the Fund (the 'Units') in accordance with the Trust Indentures
relating to the Fund (the 'Indentures').

We have examined and are familiar with originals or copies, certified or
otherwise identified to our satisfaction, of such documents and instruments as
we have deemed necessary or advisable for the purpose of this opinion.

Based upon the foregoing, we are of the opinion that (i) the execution and
delivery of the Indentures and the issuance of the Units have been duly
authorized by the Sponsors and (ii) the Units, when duly issued and delivered by
the Sponsors and the Trustee in accordance with the applicable Indentures, will
be legally issued, fully paid and non-assessable.

We hereby consent to the use of this opinion as Exhibit 3.1 to the
Registration Statement relating to the Units filed under the Securities Act of
1933 and to the use of our name in such Registration Statement and in the
related prospectus under the headings 'Taxes', 'New York Taxes, The New York
Trust' and 'Miscellaneous--Legal Opinion'.

Very truly yours,

DAVIS POLK & WARDWELL

EXHIBIT 4.1.1

KENNY INFORMATION SYSTEMS,
A Division of J. J. Kenny Co., Inc.
65 Broadway
New York, New York 10006
Telephone: 212/770-4405
Fax: 212/797-8681
John R. Fitzgerald
Vice President

February 1, 1995

Merrill Lynch Pierce Fenner & Smith
Incorporated
Defined Asset Funds
P.O. Box 9051
Princeton, NJ 08543-9051

The Chase Manhattan Bank, N.A.
Unit Trust Department
Box 2051
New York, N.Y. 10081

Re: Municipal Investment Trust Fund, Multistate Series - 81, Defined Asset Funds

Gentlemen:

We have examined the Registration Statement File No. 33-57175 for the
above-captioned fund. We hereby acknowledge that Kenny Information Systems, a
Division of J. J. Kenny Co., Inc. is currently acting as the evaluator for the
fund. We hereby consent to the use in the Registration Statement of the
reference to Kenny Information Systems, a Division of J. J. Kenny Co., Inc. as
evaluator.

In addition, we hereby confirm that the ratings indicated in the
Registration Statement for the respective bonds comprising the trust portfolio
are the ratings indicated in our KENNYBASE database as of the date of the
Evaluation Report.

You are hereby authorized to file a copy of this letter with the Securities
and Exchange Commission.

Sincerely,

JOHN R. FITZGERALD
VICE PRESIDENT

EXHIBIT 4.1.2
STANDARD & POOR'S RATINGS GROUP
BOND INSURANCE ADMINISTRATION
25 BROADWAY
NEW YORK, NEW YORK 10004
TELEPHONE (212) 208-1061
February 1, 1995

Merrill Lynch Pierce The Chase Manhattan Bank, N.A.
Fenner & Smith Incorporated Unit Trust Department
Defined Asset Funds Box 2051
P.O. Box 9051 New York, N.Y. 10081
Princeton, NJ 08543-9051

Re: Municipal Investment Trust Fund, Multistate Series - 81
Defined Asset Funds (California, New Jersey and New York Trusts)

Gentlemen:

Pursuant to your request for a Standard & Poor's rating on the units of the
above-captioned trusts, SEC No. 33-57175, we have reviewed the information
presented to us and have assigned a 'AAA' rating to the units of the trusts and
a 'AAA' rating to the securities contained in the trusts. The ratings are direct
reflections, of the portfolios of the trusts, which will be composed solely of
securities covered by bond insurance policies that insure against default in the
payment of principal and interest on the securities so long as they remain
outstanding. Since such policies have been issued by one or more insurance
companies which have been assigned 'AAA' claims paying ability ratings by S&P,
S&P has assigned a 'AAA' rating to the units of the trusts and to the securities
contained in the trusts.

You have permission to use the name of Standard & Poor's Corporation and
the above-assigned ratings in connection with your dissemination of information
relating to these units, provided that it is understood that the ratings are not
'market' ratings nor recommendations to buy, hold, or sell the units of the
trusts or the securities contained in the trusts. Further, it should be
understood the rating on the units does not take into account the extent to
which trust expenses or portfolio asset sales for less than the trust's purchase
price will reduce payment to the unit holders of the interest and principal
required to be paid on the portfolio assets. S&P reserves the right to advise
its own clients, subscribers, and the public of the ratings. S&P relies on the
sponsor and its counsel, accountants, and other experts for the accuracy and
completeness of the information submitted in connection with the ratings. S&P
does not independently verify the truth or accuracy of any such information.

This letter evidences our consent to the use of the name of Standard &
Poor's Corporation in connection with the rating assigned to the units in the
registration statement or prospectus relating to the units or the trusts.
However, this letter should not be construed as a consent by us, within the
meaning of Section 7 of the Securities Act of 1933, to the use of the name of
Standard & Poor's Corporation in connection with the ratings assigned to the
securities contained in the trusts. You are hereby authorized to file a copy of
this letter with the Securities and Exchange Commission.

Please be certain to send us three copies of your final prospectus as soon
as it becomes available. Should we not receive them within a reasonable time
after the closing or should they not conform to the representations made to us,
we reserve the right to withdraw the rating.

We are pleased to have had the opportunity to be of service to you. If we
can be of further help, please do not hesitate to call upon us.

Very truly yours,

VINCENT S. ORGO
Standard & Poor's Corporation