DEFINED ASSET FUNDSSM
- --------------------------------------------------------------------------------
NEW YORK INSURED 5.84% ESTIMATED CURRENT RETURN shows the estimated
SERIES annual cash to be received from interest-bearing
(A UNIT INVESTMENT bonds in the Portfolio (net of estimated annual
TRUST) expenses) divided by the Public Offering Price
- ------------------------------(including the maximum sales charge).
/ / DESIGNED FOR 6.03% ESTIMATED LONG TERM RETURN is a measure of
TAX-FREE INCOME the estimated return over the estimated life of
/ / DEFINED PORTFOLIO OF the Fund. This represents an average of the yields
INSURED MUNICIPAL BONDS to maturity (or in certain cases, to an earlier
/ / MONTHLY INCOME call date) of the individual bonds in the
/ / AAA-RATED Portfolio, adjusted to reflect the maximum sales
5.84% charge and estimated expenses. The average yield
ESTIMATED CURRENT RETURN for the Portfolio is derived by weighting each
AS OF JANUARY 25, 1995 bond's yield by its market value and the time
6.03% remaining to the call or maturity date, depending
ESTIMATED LONG TERM RETURN on how the bond is priced. Unlike Estimated
AS OF JANUARY 25, 1995 Current Return, Estimated Long Term Return takes
into account maturities, discounts and premiums of
the underlying bonds.
No return estimate can be predictive of your
actual return because returns will vary with
purchase price (including sales charges), how long
units are held, changes in Portfolio composition,
changes in interest income and changes in fees and
expenses. 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.
-------------------------------------------------
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
SPONSORS: OF THIS DOCUMENT. ANY REPRESENTATION TO THE
Merrill Lynch, Pierce, Fenner CONTRARY IS A CRIMINAL OFFENSE.
& Inquiries should be directed to the Trustee at
Smith Incorporated 1-800-323-1508.
PaineWebber Incorporated Prospectus Part A dated January 26, 1995.
Prudential Securities INVESTORS SHOULD READ THIS PROSPECTUS CAREFULLY
Incorporated AND RETAIN IT FOR FUTURE REFERENCE.
<PAGE>
- --------------------------------------------------------------------------------
Def ined Asset FundsSM
Defined Asset Funds is America's oldest and largest family of unit investment
trusts, with over $90 billion sponsored since 1970. Each Defined Asset 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.
Defined Asset Funds offer several defined 'distinctives'. You know in advance
what you are investing in and that changes in the portfolio are limited - a
defined portfolio. Most defined bond funds pay interest monthly - defined
income. The portfolio offers a convenient and simple way to invest - simplicity
defined.
Your financial professional can help you select a Defined Asset Fund to meet
your personal investment objectives. Our size and market presence enable us to
offer a wide variety of investments. The Defined Asset Funds family offers:
o Municipal portfolios
o Corporate portfolios
o Government portfolios
o Equity portfolios
o International portfolios
Termination dates are as short as one year or as long as 30 years. Special
defined funds are available including: insured funds, double and triple tax-free
funds and funds with 'laddered maturities' to help protect against changing
interest rates. Defined Asset Funds are offered by prospectus only. A complete
prospectus consists of this Part A and a Part B.
- ----------------------------------------------------------------
Defined New York Insured Series
- ----------------------------------------------------------------
Our defined portfolio of municipal bonds offers you a simple and convenient way
to earn tax-free monthly income. And by purchasing Defined Asset Funds, you not
only receive professional selection but also gain the advantage of reduced risk
by investing in insured bonds of several different issuers.
INVESTMENT OBJECTIVE
To provide interest income exempt from regular federal income taxes through
investment in a fixed portfolio consisting primarily of insured long-term bonds
issued by or on behalf of the State of New York and its local governments and
authorities. Units may also be exempt from certain state and local taxes in the
State of New York.
DIVERSIFICATION
The Portfolio contains 9 New York bond issues. Spreading your investment among
different issuers reduces your risk, but does not eliminate it, especially since
the Portfolio contains only New York bonds. Because of maturities, sales or
other dispositions of bonds, the size, composition and return of the Portfolio
will change over time.
- ----------------------------------------------------------------
Defining Your Portfolio
- ----------------------------------------------------------------
PROFESSIONAL SELECTION AND SUPERVISION
The Portfolio contains a variety of bonds selected by experienced buyers and
research analysts. The Fund is not actively managed; however, it is regularly
reviewed and a bond can be sold if retaining it is considered detrimental to
investors' interests.
TYPES OF BONDS
The Portfolio consists of $12,000,000 face amount of municipal revenue bonds
which are payable from the income generated by a specific project or authority:
SOURCE OF REVENUE
/ / General Obligations 7%
/ / Hospitals/Health Care Facilities 30%
/ / Lease Rental Appropriation 24%
/ / Municipal Water/Sewer Utilities 2%
/ / Industrial Development Revenue 15%
/ / Housing 12%
/ / Moral Obligations 10%
AAA-RATED AND INSURED
The bonds included in the Portfolio are insured. This insurance guarantees the
timely payment of principal and interest of the bonds, but does not guarantee
the value of the bonds or the Fund units. As a result of the insurance, the
units of the Fund are AAA-rated by Standard & Poor's Ratings Group. Insurance
does not cover accelerated payments of principal or any increase in interest
payments or premiums payable on mandatory redemptions, including if interest on
a bond is determined to be taxable. The percentage of the aggregate face amount
insured by each insurance company is:
PORTFOLIO
INSURANCE COMPANY PERCENTAGE
Financial Guaranty Insurance Company 7%
Municipal Bond Investors Assurance Corporation 29%
AMBAC Indemnity Corporation 49%
Capital Guaranty Insurance Company 15%
BOND CALL FEATURES
It is possible that during periods of falling interest rates, a bond with a
coupon higher than current market rates will be prepaid or 'called', at the
option of the bond issuer, before its expected maturity. When bonds are
initially callable, the price is usually at a premium to par which then declines
to par over time. Bonds may also be subject to a mandatory sinking fund or have
extraordinary redemption provisions. For example, if the bond's proceeds are not
able to be used as intended the bond may be redeemed. This redemption and the
sinking fund are often at par.
2
<PAGE>
- --------------------------------------------------------------------------------
Defined Portfolio
- --------------------------------------------------------------------------------
<TABLE><CAPTION>
New York Insured Series January 25, 1995
OPTIONAL SINKING
RATING REFUNDING FUND COST
PORTFOLIO TITLE OF ISSUES (1) REDEMPTIONS (2) REDEMPTIONS (2) TO FUND (3)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1. $1,800,000 Dormitory Auth. of
the State of New York, City Univ.
Sys. Consol. Second Gen. Resolution
Rev. Bonds, Ser. 1993A, 5.75%,
7/1/18 (CGIC Ins.) AAA -- 7/1/14 $ 1,628,604.00
2. $1,800,000 New York State Energy
Research and Dev. Auth., Poll. Ctl.
Rfdg. Rev. Bonds (New York State
Elec. & Gas Corp. Proj.), 1994 Ser.
A, 6.05%, 4/1/34 (MBIA Ins.) AAA 4/1/04 @ 102 -- 1,673,370.00
3. $1,800,000 New York State Med.
Care Fac. Fin. Agy., New York Hosp.
FHA-Ins. Mtge. Rev. Bonds, 1994
Ser. A, 6.90%, 8/15/34 (AMBAC Ins.)
(4) AAA 2/15/05 @ 102 2/15/24 1,844,316.00
4. $1,800,000 New York State Med.
Care Fac. Fin. Agy., Mental Hlth.
Serv. Fac. Imp. Rev. Bonds, 1993
Ser. A, 5.80%, 8/15/22 (AMBAC Ins.) AAA 2/15/03 @ 102 2/15/15 1,618,182.00
5. $1,440,000 State of New York
Mtge. Agy., Homeowner Mtge. Rev.
Bonds, Ser. 43, 6.45%, 10/1/17
(MBIA Ins.) AAA 9/1/04 @ 102 4/1/10 1,422,936.00
6. $1,100,000 New York State Urban
Dev. Corp., Correctional Fac. Rev.
Bonds, 1993 Rfdg. Ser., 5.25%,
1/1/18 (AMBAC Ins.) AAA 1/1/03 @ 102 1/1/16 931,414.00
7. $800,000 County of Suffolk, NY,
Gen. Oblig. Rfdg. Bonds, Pub. Imp.
Rfdg. Bonds, 1993 Ser. F, 5.40%,
7/15/14 (Financial Guaranty Ins.) AAA 7/15/02 @ 102 -- 707,576.00
8. $1,200,000 New York City Hlth.
and Hosp. Corp., NY, Hlth. Sys.
Bonds, 1993 Ser. A, 5.75%, 2/15/22
(AMBAC Ins.) AAA 2/15/03 @ 102 2/15/21 1,072,068.00
9. $260,000 New York City Muni.
Wtr. Finance Auth., NY, Wtr. and
Swr. Sys. Rev. Bonds, Fixed Rate
Fiscal 1994 Ser. F, 5.75%, 6/15/20
(MBIA Ins.) AAA 6/15/04 @ 101.5 -- 234,405.60
------------------
$ 11,132,871.60
------------------
------------------
</TABLE>
- ------------------------------------
(1) All ratings are by Standard & Poor's Ratings Group. (See Appendix A to
Prospectus Part B.)
(2) Bonds are first subject to optional redemptions (which may be exercised in
whole or in part) on the dates and at the prices indicated under the Optional
Refunding Redemptions column. In subsequent years, bonds are redeemable at
declining prices, but typically not below par value. Some issues may be subject
to sinking fund redemption or extraordinary redemption with premium prior to the
dates shown.
(3) Evaluation of the bonds by the Evaluator is made on the basis of current
offer side evaluation. On this basis, 15% of the bonds were purchased at a
premium and 85% at a discount from par.
(4) It is anticipated that the interest on $604,742.00 face amount of this bond
will be applied to the payment of the Fund's deferred sales charge and,
therefore, this amount has not been included in the Fund's calculation of
Estimated Current Return and Estimated Long Term Return.
3
<PAGE>
CALL PROTECTION
Although each of the bonds is subject to optional refunding or call provisions,
we have selected bonds with call protection. This call protection means that any
bond in the Portfolio generally cannot be called for a number of years and
thereafter at a declining premium over par.
TAX INFORMATION
Based on the opinion of bond counsel, income from the bonds held by this Fund is
generally 100% exempt under existing laws from regular federal income tax and
certain state and local personal income taxes for New York residents. Any gain
on a disposition of the underlying bonds or units will be subject to tax.
- ----------------------------------------------------------------
Defining Your Investment
- ----------------------------------------------------------------
PUBLIC OFFERING PRICE PER UNIT $1,000.00
The Public Offering Price as of January 25, 1995, the business day prior to the
Initial Date of Deposit is based on the aggregate offer side value of the
underlying bonds in the Fund ($11,132,871.60), the price at which they can be
directly purchased by the public assuming they were available, plus cash
($133,128.40), divided by the number of units outstanding (11,266). Units
offered on the Initial Date of Deposit will also be priced at $1,000 although
the offer side value of the bonds, cash amount and number of units may vary. The
Public Offering Price on any subsequent date will vary. An amount equal to net
accrued but undistributed interest on the unit is added to the Public Offering
Price for sales made after the Initial Date of Deposit. The underlying bonds are
evaluated by an independent evaluator at 1:00 p.m. Eastern time on the business
day prior to the Initial Date of Deposit, and at 3:30 p.m. Eastern time on every
business day thereafter.
LOW MINIMUM INVESTMENT
You can get started with a minimum purchase of $1,000.
REINVESTMENT OPTION
You can elect to automatically reinvest your distributions into a separate
portfolio of federally tax-exempt bonds. Most or all of the bonds in that
portfolio, however, will not be insured or exempt from New York state and local
taxes. Reinvesting helps to compound your income tax-free.
PRINCIPAL DISTRIBUTIONS
Principal from sales, redemptions and maturities of bonds in the Fund not needed
to pay the deferred sales charge will be distributed to investors periodically
when the amount to be distributed is more than $5.00 per unit.
TERMINATION DATE
The Fund will generally terminate following the maturity date of the last
maturing bond listed in the Portfolio. The Fund may be terminated if the value
is less than 40% of the face amount of bonds deposited.
SPONSORS' PROFIT OR LOSS
The Sponsors' profit or loss associated with the Fund will include the receipt
of applicable sales charges, any fees for underwriting or placing bonds,
fluctuations in the Public Offering Price or secondary market price of units and
a gain of $64,399.00 on the deposit of the bonds.
<TABLE><CAPTION>
- --------------------------------------------------------------------------------
TAX-FREE VS. TAXABLE INCOME: A COMPARISON OF TAXABLE AND TAX-FREE YIELDS
TAXABLE INCOME 1995* EFFECTIVE TAX-FREE YIELD OF
SINGLE RETURN JOINT RETURN TAX RATE 4% 4.5% 5% 5.5% 6% 6.5% 7%
IS EQUIVALENT TO A TAXABLE YIELD OF
- --------------------------------------------------------------------------------
FOR NEW YORK STATE RESIDENTS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0- 23,350 $ 0- 39,000 21.45 5.09 5.73 6.37 7.00 7.64 8.28 8.91
$ 23,350- 56,550 $ 39,000- 94,250 33.47 6.01 6.76 7.52 8.27 9.02 9.77 10.52
$ 56,550-117,950 $ 94,250-143,600 36.24 6.27 7.06 7.84 8.63 9.41 10.19 10.98
$117,950-256,500 $143,600-256,500 40.86 6.76 7.61 8.45 9.30 10.15 10.99 11.84
OVER $256,500 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%
0- 23,350 9.55 10.19
$ 23,350- 56,550 11.27 12.02
$ 56,550-117,950 11.76 12.55
$117,950-256,500 12.68 13.53
OVER $256,500 13.44 14.33
<TABLE><CAPTION>
- --------------------------------------------------------------------------------
FOR NEW YORK CITY RESIDENTS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0- 23,350 $ 0- 39,000 24.26 5.28 5.94 6.60 7.26 7.92 8.58 9.24
$ 23,350- 56,550 $ 39,000- 94,250 35.88 6.24 7.02 7.80 8.58 9.36 10.14 10.92
$ 56,550-117,950 $ 94,250-143,600 38.59 6.51 7.33 8.14 8.96 9.77 10.58 11.40
$ 117,950-256,500 $ 143,600-256,500 43.04 7.02 7.90 8.78 9.66 10.53 11.41 12.29
OVER $256,500 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%
0- 23,35 9.90 10.56
$ 23,350- 56,55 11.70 12.48
$ 56,550-117,95 12.21 13.03
$ 117,950-256,50 13.17 14.04
OVER $256,500 13.95 14.88
To compare the yield of a taxable security with the yield of a tax-free
security, find your taxable income and read across. The table incorporates
projected 1995 federal and applicable State and City income tax rates and
assumes that all income would otherwise be taxed at the investor's highest tax
rate. Yield figures are for example only.
*Based upon net amount subject to federal income tax after deductions and
exemptions. This table does not reflect the possible effect of other tax
factors, such as alternative minimum tax, personal exemptions, the phase out of
exemptions, itemized deductions or the possible partial disallowance of
deductions. Consequently, holders are urged to consult their own tax advisers in
this regard.
4
<PAGE>
- -----------------------------------------------------------------
Defining Your Costs
- -----------------------------------------------------------------
NO UP-FRONT SALES CHARGE
The Fund does not have an up-front sales charge during the first year of the
Fund. In the first five years of owning the Fund you will pay $11 per Unit each
year ($2.75 quarterly), a total of $55. This sales charge will be paid from
interest on $55 of bonds notionally reserved for that purpose and the periodic
sale of bonds. Interest on the reserved bonds accrues to you and is not included
in the Fund's return figures. Although the Fund is a unit investment trust
rather than a mutual fund, the following information is presented to permit a
comparison of fees and an understanding of the direct or indirect costs and
expenses that you pay.
As a Percentage
of Initial Public Amount per
Offering Price $1,000 Invested
------------------- ---------------
Maximum Sales Charges 5.5% $ 55.00
ESTIMATED ANNUAL FUND OPERATING EXPENSES
Trustee's Fee .075% $ 0.75
Maximum Portfolio Supervision,
Bookkeeping and
Administrative Fees .042% $ 0.42
Evaluator's Fee .011% $ 0.11
Other Operating Expenses .039% $ 0.39
----------------- ---------------
TOTAL .167% $ 1.67
COSTS OVER TIME
You would pay the following cumulative expenses on a $1,000 investment, assuming
a 5% annual return on the investment throughout the indicated periods and
redemption at the end of the period:
1 Year 3 Years 5 Years 10 Years
$38 $48 $64 $76
No redemption at the end of the period:
$13 $38 $64 $76
The example assumes reinvestment of all distributions into additional units of
the Fund (a reinvestment option different from that offered by this Fund) and
uses a 5% annual rate of return as mandated by Securities and Exchange
Commission regulations applicable to mutual funds. The Costs Over Time above
reflect both sales charges and operating expenses on an increasing investment
(because the net annual return is reinvested). 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 the
example.
SELLING YOUR INVESTMENT
You may sell your units at any time. Your price is based on the Fund's then
current net asset value (based on the offer side evaluation of the bonds during
the initial public offering period for at least the first three months and the
lower, bid side evaluation thereafter, as determined by an independent
evaluator, plus accrued interest). The bid side redemption and secondary market
repurchase price as of January 25, 1995 was $995.74 ($4.26 less than the Public
Offering Price). If you sell your units before the fourth anniversary of the
Fund, you will pay a contingent deferred sales charge of $25 per unit if sold in
the first year, $15 per unit if sold in the second year, $10 per unit if sold in
the third year and $5 per unit if sold in the fourth year.
- -----------------------------------------------------------------
Defining Your Income
- -----------------------------------------------------------------
MONTHLY FEDERALLY TAX-FREE INTEREST INCOME
The Fund pays monthly income, even though the bonds generally pay interest
semi-annually.
WHAT YOU MAY EXPECT
(PAYABLE ON THE 25TH DAY OF THE MONTH TO HOLDERS OF RECORD ON THE 10TH DAY OF
THE MONTH):
First Distribution
(February 25, 1995): $ 1.29
Regular Monthly Income
(Beginning on March 25, 1995): $ 4.86
Annual Income: $ 58.33
These figures are estimates determined as of the Initial Date of Deposit and
actual payments may vary.
Estimated cash flows are available upon request from the Sponsors.
- ----------------------------------------------------------------
Defining Your Risks
- ----------------------------------------------------------------
RISK FACTORS
Unit price fluctuates and could be adversely affected by increasing interest
rates as well as the financial condition of the issuers of the bonds and any
insurance companies backing the bonds. Because of the possible maturity, sale or
other disposition of securities, the size, composition and return of the
portfolio may change at any time. Because of the sales charges, returns of
principal and fluctuations in unit price, among other reasons, the sale price
will generally be less than the cost of your units. Unit prices could also be
adversely affected if a limited trading market exists in any security to be
sold. There is no guarantee that the Fund will achieve its investment objective.
The Fund is concentrated in Hospital/Health Care Facilities bonds and is
therefore dependent to a significant degree on revenues generated from those
particular activities. In addition, the Fund is concentrated in bonds of New
York issuers and is subject to additional risk from decreased diversification as
well as factors that may be particular to New York, including large amounts of
outstanding debt, high tax rates, tax structures particularly sensitive to
economic weakness, long-term structural imbalances between revenues and
expenditures and reliance on federal aid and extraordinary measures to close
resulting budget gaps. Reflecting these conditions, uninsured State and New York
City bonds and bonds issued by other political subdivisions and agencies are
rated at the low end of investment grade. (See Risk Factors in Part B).
5
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Sponsors, Trustee and Holders of Defined Asset Funds, New York Insured
Series (the 'Fund'):
We have audited the accompanying statement of condition and the related
portfolio included in the prospectus of the Fund as of January 25, 1995. This
financial statement is the responsibility of the Trustee. Our responsibility is
to express an opinion on this financial statement based on our audit.
We conducted our audit 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 statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. Our procedures included
confirmation of securities and the irrevocable letters of credit deposited for
the purchase of securities, as described in the statement of condition, with 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the financial position of the Fund as of January 25, 1995
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, N.Y.
January 25, 1995
STATEMENT OF CONDITION AS OF JANUARY 25, 1995
TRUST PROPERTY
Investments--Bonds and Contracts to purchase Bonds(1) $ 11,132,871.60
Cash 133,128.40
Accrued interest to Initial Date of Deposit on underlying
Bonds 190,681.39
--------------------
Total $ 11,456,681.39
--------------------
--------------------
LIABILITY AND INTEREST OF HOLDERS
Liability--Advance by Trustee for accrued interest(2) $ 190,681.39
Interest of Holders of 11,266 Units of fractional
undivided interest outstanding(3);
Cost to investors(4)(5) 11,266,000.00
--------------------
Total $ 11,456,681.39
--------------------
--------------------
COST TO INVESTORS PER UNIT $ 1,000.00
--------------------
--------------------
- ---------------
(1) AGGREGATE COST TO THE FUND OF THE BONDS LISTED UNDER DEFINED
PORTFOLIO IS BASED UPON THE OFFER SIDE EVALUATION DETERMINED BY THE EVALUATOR AT
THE EVALUATION TIME ON THE BUSINESS DAY PRIOR TO THE INITIAL DATE OF DEPOSIT
(1:00 P.M., EASTERN TIME). THE CONTRACTS TO PURCHASE THE BONDS ARE
COLLATERALIZED BY IRREVOCABLE LETTERS OF CREDIT WHICH HAVE BEEN ISSUED BY DBS
BANK, NEW YORK AGENCY, IN THE AMOUNT OF $6,614,005.47 AND DEPOSITED WITH THE
TRUSTEE. THE AMOUNT OF LETTERS OF CREDIT INCLUDES $6,522,490.60 FOR THE PURCHASE
OF $7,160,000 FACE AMOUNT OF THE BONDS, PLUS $91,514.87 FOR ACCRUED INTEREST.
(2) REPRESENTING A SPECIAL DISTRIBUTION BY THE TRUSTEE OF AN AMOUNT
EQUAL TO THE ACCRUED INTEREST ON THE BONDS AS OF THE INITIAL DATE OF DEPOSIT.
(3) BECAUSE THE VALUE OF BONDS BASED ON THE EVALUATION TIME ON THE
INITIAL DATE OF DEPOSIT MAY DIFFER FROM THE AMOUNTS SHOWN IN THIS STATEMENT OF
CONDITION, THE UNITS OFFERED ON THE INITIAL DATE OF DEPOSIT WILL BE ADJUSTED
FROM THE INITIAL NUMBER OF UNITS TO MAINTAIN THE INITIAL $1,000.00 PER UNIT
OFFERING PRICE.
(4) AGGREGATE PUBLIC OFFERING PRICE (EXCLUSIVE OF INTEREST) COMPUTED
ON THE BASIS OF THE OFFER SIDE EVALUATION OF THE UNDERLYING BONDS AS OF THE
EVALUATION TIME ON THE BUSINESS DAY PRIOR TO THE INITIAL DATE OF DEPOSIT (1:00
P.M., EASTERN TIME).
(5) A DEFERRED SALES CHARGE OF $2.75 PER UNIT WILL BE PAID QUARTERLY
BY THE TRUSTEE ON BEHALF OF THE INVESTORS UP TO AN AGGREGATE OF $55.00 PER UNIT
OVER A FIVE YEAR PERIOD. SHOULD AN INVESTOR REDEEM UNITS PRIOR TO THE END OF THE
FOURTH ANNIVERSARY OF THE FUND, A CONTINGENT DEFERRED SALES CHARGE (INITIALLY
$25.00 PER UNIT) WILL BE DEDUCTED FROM REDEMPTION PROCEEDS AND PAID TO THE
SPONSORS.
15045A--1/95
6
<PAGE>
UNDERWRITING ACCOUNT
None of the Sponsors has participated as sole underwriter, managing underwriter
or member of an underwriting syndicate from which any of the bonds in the
Portfolio were acquired.
SPONSORS
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
P.O. Box 9051,
Princeton, NJ 08543-9051 87.50%
PAINEWEBBER INCORPORATED
1285 Avenue of the Americas,
New York, NY 10019 8.33%
PRUDENTIAL SECURITIES INCORPORATED
One Seaport Plaza--199 Water Street,
New York, NY 10292 4.17%
------------------
100.00%
------------------
DEFINED ASSET FUNDS--
NEW YORK INSURED SERIES
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.
NAME
ADDRESS
CITY
STATE ZIP
PHONE
1 2 3 4 5 6 7 8
This card is a self-mailer.
Please remove along perforation and mail.
<PAGE>
EVALUATOR:
Kenny S&P Evaluation Services,
a division of J. J. Kenny Co., Inc.
65 Broadway, New York, NY 10019
TRUSTEE:
The Chase Manhattan Bank, N.A.
(a National Banking Association)
Defined Asset Funds
Box 2051, New York, NY 10081
1-800-323-1508
Units of this Fund may no longer be available and therefore information
contained herein may be subject to amendment. A registration statement relating
to securities of a future series has been filed with the Securities and Exchange
Commission. These securities may not be sold nor may offers to buy be accepted
prior to the time the registration statement becomes effective. This document
shall not constitute an offer to sell or the solicitation of an offer to buy nor
shall there be any sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of any such State.
FOR MORE COMPLETE INFORMATION ABOUT THE FUND, INCLUDING ADDITIONAL INFORMATION
ON CHARGES AND EXPENSES, PLEASE CALL OR WRITE FOR PART B OF THE PROSPECTUS. READ
BOTH PARTS A AND B BEFORE YOU INVEST OR SEND MONEY.
<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
DEFINED ASSET FUNDS
BOX 2051
NEW YORK, NY 10081
<PAGE>
DEFINED ASSET FUNDSSM
PROSPECTUS--PART B
MUNICIPAL SERIES
THIS PART B OF THE PROSPECTUS MAY NOT BE DISTRIBUTED UNLESS ACCOMPANIED OR
PRECEDED BY PART A.
FURTHER DETAIL REGARDING ANY OF THE INFORMATION PROVIDED IN THE PROSPECTUS MAY
BE OBTAINED
WITHIN FIVE DAYS OF WRITTEN OR TELEPHONIC REQUEST TO THE TRUSTEE, THE ADDRESS
AND
TELEPHONE NUMBER OF WHICH ARE SET FORTH IN PART A OF THIS PROSPECTUS.
Index
PAGE
---------
Fund Description...................................... 1
Risk Factors.......................................... 2
How to Buy Units...................................... 7
How to Sell Units..................................... 8
Income, Distributions and Reinvestment................ 8
Fund Expenses......................................... 9
Fund Performance...................................... 10
Taxes................................................. 10
PAGE
---------
Records and Reports................................... 11
Trust Indenture....................................... 11
Miscellaneous......................................... 12
Supplemental Information.............................. 13
Appendix A--Description of Ratings.................... a-1
Appendix B--Sales Charge Schedules.................... b-1
Appendix C--New York Disclosure....................... c-1
FUND DESCRIPTION
DEFINED ASSET FUNDS
Defined Asset Funds is the oldest and largest family of unit investment
trusts. For decades informed investors have purchased unit investment trusts for
dependability and professional selection of investments. Defined Asset Funds'
philosophy is to allow investors to 'buy with knowledge' (because, unlike
managed funds, the portfolio of municipal bonds and the return are relatively
fixed) and 'hold with confidence' (because the portfolio is professionally
selected and regularly reviewed). Defined Asset Funds offers an array of simple
and convenient investment choices, suited to fit a wide variety of personal
financial goals--a buy and hold strategy for capital accumulation, such as for
children's education or retirement, or attractive, regular current income
consistent with the preservation of principal. Tax-exempt income can help
investors keep more today for a more secure financial future. It can also be
important in planning because tax brackets may increase with higher earnings or
changes in tax laws. Unit investment trusts are particularly suited for the many
investors who prefer to seek long-term income 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 that Defined Asset Funds offer. One's investment objectives may
call for a combination of Defined Asset Funds.
BOND PORTFOLIO SELECTION
Professional buyers and research analysts for Defined Asset Funds, with
access to extensive research, selected the Bonds for the Portfolio after
considering the Fund's investment objective as well as the quality of the Bonds
(all Bonds in the Portfolio are initially rated in the category A or better by
at least one nationally recognized rating organization or have comparable credit
characteristics), the yield and price of the Bonds compared to similar
securities, the maturities of the Bonds and the diversification of the
Portfolio. Only issues meeting these stringent criteria of the Defined Asset
Funds team of dedicated research analysts are included in the Portfolio. No
leverage or borrowing is used nor does the Portfolio contain other kinds of
securities to enhance yield. A summary of the Bonds in the Portfolio appears
under Defined Portfolio in Part A of the Prospectus.
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Yields on bonds depend on many factors including general conditions of the
bond markets, the size of a particular offering and the maturity and quality
rating of the particular issues. Yields can vary among bonds with similar
maturities, coupons and ratings. Ratings represent opinions of the rating
organizations as to the quality of the bonds rated, based on the credit of the
issuer or any guarantor, insurer or other credit provider, but these ratings are
general standards of quality (see Appendix A).
The Sponsors and the Trustee are not liable for any default or defect in a
Bond. If a contract to purchase any Bond fails, the Sponsors may generally
deposit a replacement bond so long as it is a tax-exempt bond, has a fixed
maturity or disposition date substantially similar to the failed Bond and is
rated A or better by at least one nationally recognized rating organization or
has comparable credit characteristics. A replacement bond must be deposited
within 110 days after deposit of the failed contract, at a cost that does not
exceed the funds reserved for purchasing the failed Bond and at a yield to
maturity and current return substantially equivalent (considering then current
market conditions and relative creditworthiness) to those of the failed Bond, as
of the date the failed contract was deposited.
Because each Defined Asset Fund is a preselected portfolio of bonds,
purchasers know the securities, maturities, call dates and ratings before they
invest. Of course, the Portfolio will change somewhat over time, as Bonds
mature, are redeemed or are sold to meet Unit redemptions or in other limited
circumstances. Because the Portfolio is not actively managed and principal is
returned as the bonds are disposed of, this principal should be relatively
unaffected by changes in interest rates.
BOND PORTFOLIO SUPERVISION
The Fund follows a buy and hold investment strategy in contrast to the
frequent portfolio changes of a managed fund based on economic, financial and
market analyses. The Fund may retain an issuer's bonds despite adverse financial
developments. Experienced financial analysts regularly review the Portfolio and
a Bond may be sold in certain circumstances including the occurrence of a
default in payment or other default on the Bond, a decline in the projected
income pledged for debt service on a revenue bond, institution of certain legal
proceedings, if the Bond becomes taxable or is otherwise inconsistent with the
Fund's investment objectives, a decline in the price of the Bond or the
occurrence of other market or credit factors (including advance refunding) that,
in the opinion of Defined Asset Funds research analysts, makes retention of the
Bond detrimental to the interests of investors. The Trustee must generally
reject any offer by an issuer of a Bond to exchange another security pursuant to
a refunding or refinancing plan.
RISK FACTORS
An investment in the Fund entails certain risks, including the risk that
the value of your investment will decline with increases in interest rates.
Generally speaking, bonds with longer maturities will fluctuate in value more
than bonds with shorter maturities. In recent years there have been wide
fluctuations in interest rates and in the value of fixed-rate bonds generally.
The Sponsors cannot predict the direction or scope of any future fluctuations.
Certain of the Bonds may have been deposited at a market discount or
premium principally because their interest rates are lower or higher than
prevailing rates on comparable debt securities. The current returns of market
discount bonds are lower than comparably rated bonds selling at par because
discount bonds tend to increase in market value as they approach maturity. The
current returns of market premium bonds are higher than comparably rated bonds
selling at par because premium bonds tend to decrease in market value as they
approach maturity. Because part of the purchase price is returned through
current income payments and not at maturity, an early redemption at par of a
premium bond will result in a reduction in yield to the Fund. Market premium or
discount attributable to interest rate changes does not indicate market
confidence or lack of confidence in the issue.
The Fund generally is 'at risk' for Bonds purchased on a when-issued or
delayed delivery basis because the purchase price is determined prior to
purchase and either a gain or loss may result from fluctuations in the value of
the Bonds from the date the price is determined. Additionally, if the value of
the bonds reserved for payment of the periodic deferred sales charge, together
with the interest thereon, were to become insufficient to pay these charges,
additional bonds would be required to be sold.
The Fund may be concentrated in one or more of types of Bonds.
Concentration in a State may involve additional risk because of the decreased
diversification of economic, political, financial and market risks. Set forth
below is a brief description of certain risks associated with bonds which may be
held by the Fund. Additional information is contained in the Information
Supplement which is available from the Trustee at no charge to the investor.
GENERAL OBLIGATION BONDS
Certain of the Bonds may be general obligations of a governmental 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 its credit will
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depend on many factors, including an erosion of the tax base resulting from
population declines, natural disasters, declines in the state's industrial base
or an 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. In addition, political restrictions on the ability to tax and
budgetary constraints affecting state governmental aid may have an adverse
impact on the creditworthiness of cities, counties, school districts and other
local governmental units.
As a result of the recent recession's adverse impact upon both revenues 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 spending
reductions in order to restore budgetary balance. The failure to implement these
actions on a timely basis could force these issuers to issue additional debt to
finance deficits or cash flow needs and could lead to a reduction of their bond
ratings and the value of their outstanding bonds.
MORAL OBLIGATION BONDS
The Portfolio may 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 local
government in question. Even though the state or local government 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 or local legislature and does not constitute a
legally enforceable obligation or debt of the state or local government. The
agencies or authorities generally have no taxing power.
REFUNDED BONDS
Refunded Bonds 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.
MUNICIPAL REVENUE BONDS
Municipal revenue bonds are tax-exempt securities issued by states,
municipalities, public authorities or similar entities to finance the cost of
acquiring, constructing or improving various projects. Municipal revenue bonds
are not general obligations of governmental entities backed by their taxing
power and payment is generally solely dependent upon the creditworthiness of the
public issuer or the financed project or state appropriations. Examples of
municipal revenue bonds are:
Municipal utility bonds, including electrical, water and sewer revenue
bonds, whose payments are dependent on various factors, including the rates
the utilities may charge, the demand for their services and their operating
costs, including expenses to comply with environmental legislation and
other energy and licensing laws and regulations. Utilities are particularly
sensitive to, among other things, the effects of inflation on operating and
construction costs, the unpredictability of future usage requirements, the
costs and availability of fuel and, with certain electric utilities, the
risks associated with the nuclear industry;
Lease rental bonds which are generally issued by governmental financing
authorities with no direct taxing power for the purchase of equipment or
construction of buildings that will be used by a state or local government.
Lease rental bonds are generally subject to an annual risk that the lessee
government might not appropriate funds for the leasing rental payments to
service the bonds and may also be subject to the risk that rental
obligations may terminate in the event of damage to or destruction or
condemnation of the equipment or building;
Multi-family housing revenue bonds and single family mortgage revenue
bonds which are issued to provide financing for various housing projects
and which are payable primarily from the revenues derived from mortgage
loans to housing projects for low to moderate income families or notes
secured by mortgages on residences; repayment of this type of bonds is
therefore dependent upon, among other things, occupancy levels, rental
income, the rate of default on underlying mortgage loans, the ability of
mortgage insurers to pay claims, the continued availability of federal,
state or local housing subsidy programs, economic conditions in local
markets, construction costs, taxes, utility costs and other operating
expenses and the managerial ability of project managers. Housing bonds are
generally prepayable at any time and therefore their average life will
ordinarily be less than their stated maturities;
Hospital and health care facility bonds whose payments are dependent
upon revenues of hospitals and other health care facilities. These revenues
come from private third-party payors and government programs, including
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the Medicare and Medicaid programs, which have generally undertaken cost
containment measures to limit payments to health care facilities. Hospitals
and health care facilities are subject to various legal claims by patients
and others and are adversely affected by increasing costs of insurance;
Airport, port, highway and transit authority revenue bonds which are
dependent for payment on revenues from the financed projects, including
user fees from ports and airports, tolls on turnpikes and bridges, rents
from buildings, transit fare revenues and additional financial resources
including federal and state subsidies, lease rentals paid by state or local
governments or a pledge of a special tax such as a sales tax or a property
tax. In the case of the air travel industry, airport income is largely
affected by the airlines' ability to meet their obligations under use
agreements which in turn is affected by increased competition among
airlines, excess capacity and increased fuel costs, among other factors.
Solid waste disposal bonds which are generally payable from dumping and
user fees and from revenues that may be earned by the facility on the sale
of electrical energy generated in the combustion of waste products and
which are therefore dependent upon the ability of municipalities to fully
utilize the facilities, sufficient supply of waste for disposal, economic
or population growth, the level of construction and maintenance costs, the
existence of lower-cost alternative modes of waste processing and
increasing environmental regulation. A recent decision of the U.S. Supreme
Court limiting a municipality's ability to require use of its facilities
may have an adverse affect on the credit quality of various issues of these
bonds;
Special tax bonds which are not secured by general tax revenues but are
only payable from and secured by the revenues derived by a municipality
from a particular tax--for example, 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 and may therefore be adversely affected by a
reduction in revenues resulting from a decline in the local economy or
population or a decline in the consumption, use or cost of the goods and
services that are subject to taxation;
University and college bonds, the payments on which are dependent upon
various factors, including the size and diversity of their sources of
revenues, enrollment, reputation, the availability of endowments and other
funds 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; and
Tax increment and tax allocation bonds, which are secured by ad valorem
taxes imposed on the incremental increase of taxable assessed valuation of
property within a jurisdiction above an established base of assessed value.
The issuers of these bonds do not have general taxing authority and the tax
assessments on which the taxes used to service the bonds are based may be
subject to devaluation due to market price declines or governmental action.
Puerto Rico. Certain Bonds may be affected by general economic conditions
in the Commonwealth of Puerto Rico. Puerto Rico's economy is largely dependent
for its development on federal programs and current federal budgetary policies
suggest that an expansion of its programs is unlikely. Reductions in federal tax
benefits or incentives or curtailment of spending programs could adversely
affect the Puerto Rican economy.
Industrial Development Revenue Bonds. Industrial development revenue bonds
are municipal obligations issued to finance various privately operated projects
including pollution control and manufacturing facilities. Payment is generally
solely dependent upon the creditworthiness of the corporate operator of the
project and, in certain cases, an affiliated or third party guarantor and may be
affected by economic factors relating to the particular industry as well as
varying degrees of governmental regulation. In many cases industrial revenue
bonds do not have the benefit of covenants which would prevent the corporations
from engaging in capital restructurings or borrowing transactions which could
reduce their ability to meet their obligations and result in a reduction in the
value of the Portfolio.
BONDS BACKED BY LETTERS OF CREDIT OR INSURANCE
Certain Bonds may be secured by letters of credit issued by commercial
banks or savings banks, savings and loan associations and similar thrift
institutions or are direct obligations of banks or thrifts. The letter of credit
may be drawn upon, and the Bonds redeemed, if an issuer fails to pay amounts due
on the Bonds or, in certain cases, if the interest on the Bond becomes taxable.
Letters of credit are irrevocable obligations of the issuing institutions. The
profitability of a financial institution is largely dependent upon the credit
quality of its loan portfolio which, in turn, is affected by the institution's
underwriting criteria, concentrations within the portfolio and specific industry
and general economic conditions. The operating performance of financial
institutions is also impacted by changes in interest rates, the availability and
cost of funds, the intensity of competition and the degree of governmental
regulation.
Certain Bonds may be insured or guaranteed by insurance companies listed
below. The claims-paying ability of each of these companies, unless otherwise
indicated, was rated AAA by Standard & Poor's or another nationally recognized
rating organization at the time the insured Bonds were purchased by the Fund.
The ratings are subject to
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change at any time at the discretion of the rating agencies. In the event that
the rating of an Insured Fund is reduced, the Sponsors are authorized to direct
the Trustee to obtain other insurance on behalf of the Fund. The insurance
policies guarantee the timely payment of principal and interest on the Bonds but
do not guarantee their market value 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.
The following summary information relating to the listed insurance
companies has been obtained from publicly available information:
<TABLE><CAPTION>
FINANCIAL INFORMATION
AS OF SEPTEMBER 30, 1994
(IN MILLIONS OF DOLLARS)
-------------------------------------
POLICY HOLDER
NAME DATE ESTABLISHED ADMITTED ASSETS SURPLUS
- ----------------------------------------------------- ----------------- --------------- --------------------
<S> <C> <C> <C>
AMBAC Indemnity Corporation.......................... 1970 $ 2,150 $ 779
Asset Guaranty Insurance Co. (AA by S&P)............. 1988 152 73
Capital Guaranty Insurance Company................... 1986 293 166
Capital Markets Assurance Corp....................... 1987 198 139
Connie Lee Insurance Company......................... 1987 193 106
Financial Guaranty Insurance Company................. 1984 2,092 872
Financial Security Assurance Inc..................... 1984 776 369
Municipal Bond Investors Assurance Corporation....... 1986 3,314 1,083
</TABLE>
Insurance companies are subject to extensive regulation and supervision
where they do business by state insurance commissioners who regulate the
standards of solvency which must be maintained, the nature of and limitations on
investments, reports of financial condition, and requirements regarding reserves
for unearned premiums, losses and other matters. A significant portion of the
assets of insurance companies are 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 including pension regulation, controls on medical care costs,
minimum standards for no-fault automobile insurance, national health insurance,
tax law changes affecting life insurance companies and repeal of the antitrust
exemption for the insurance business can significantly impact the insurance
business.
STATE RISK FACTORS
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. A
brief description of the factors which may affect the financial condition of the
applicable State for any State Trust, together with a summary of tax
considerations relating to that State, appear in Appendix C to this Part B and
further information is contained in the Information Supplement.
LITIGATION AND LEGISLATION
The Sponsors do not know of any pending litigation as of the Initial Date
of Deposit 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, affecting the
Bonds in the Fund. Litigation, for example, challenging the issuance of
pollution control revenue bonds under environmental protection statutes may
affect the validity of certain Bonds 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 Bond to
the effect that it has been validly issued and that the interest thereon is
exempt from federal income tax. Also, certain proposals, in the form of state
legislative proposals or voter initiatives, seeking to limit 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 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. In addition, other factors may arise from time to time which
potentially may impair the ability of issuers to make payments due on the Bonds.
Under the Federal Bankruptcy Code, for example, municipal bond issuers, as well
as any underlying corporate obligors or guarantors, may proceed to restructure
or otherwise alter the terms of their obligations.
From time to time Congress considers proposals to prospectively and
retroactively tax the interest on state and local obligations, such as the
Bonds. The Supreme Court clarified in South Carolina v. Baker (decided on 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 require investors to pay income tax on
interest from the Bonds and could adversely affect an investment in Units. See
Taxes.
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PAYMENT OF THE BONDS AND LIFE OF THE FUND
The size and composition of the Portfolio will change over time. Most of
the Bonds are subject to redemption prior to their stated maturity dates
pursuant to optional refunding or sinking fund redemption provisions or
otherwise. In general, optional refunding redemption provisions are more likely
to be exercised when the value of a Bond is at a premium over par than when it
is at a discount from par. Some Bonds may be subject to sinking fund and
extraordinary redemption provisions which may commence early in the life of the
Fund. 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. Principally,
this will depend upon the number of investors seeking to sell or redeem their
Units and whether or not the Sponsors are able to sell the Units acquired by
them in the secondary market. As a result, Units offered in the secondary market
may not represent the same face amount of Bonds as on the Initial Date of
Deposit. Factors that the Sponsors will consider in determining whether or not
to sell Units acquired in the secondary market include the diversity of the
Portfolio, 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 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 its mandatory termination date.
FUND TERMINATION
The Fund will be terminated no later than the mandatory termination date
specified under Defining Your Investment in Part A of the Prospectus. It will
terminate earlier upon the disposition of the last Bond or upon the consent of
investors holding 51% of the Units. The Fund may also be terminated earlier by
the Sponsors once the total assets of the Fund have fallen below the minimum
value specified under Defining Your Investment in Part A of the Prospectus. A
decision by the Sponsors to terminate the Fund early will be based on factors
similar to those considered by the Sponsors in determining whether to continue
the sale of Units in the secondary market.
Notice of impending termination will be provided to investors and
thereafter units will no longer be redeemable. On or shortly before termination,
the Fund will seek to dispose of any Bonds remaining in the Portfolio although
any Bond unable to be sold at a reasonable price may continue to be held by the
Trustee in a liquidating trust pending its final disposition. A proportional
share of the expenses associated with termination, including brokerage costs in
disposing of Bonds, will be borne by investors remaining at that time. This may
have the effect of reducing the amount of proceeds those investors are to
receive in any final distribution.
LIQUIDITY
Up to 40% of the value of the Portfolio may be attributable to guarantees
or similar security provided by corporate entities. These guarantees or other
security may constitute restricted securities that cannot be sold publicly by
the Trustee without registration under the Securities Act of 1933, as amended.
The Sponsors nevertheless believe that, should a sale of the Bonds guaranteed or
secured be necessary in order to meet redemption of Units, the Trustee should be
able to consummate a sale with institutional investors.
The principal trading market for the Bonds will generally be in the
over-the-counter market and the existence of a liquid trading market for the
Bonds may depend on whether dealers will make a market in them. There can be no
assurance that a liquid trading market will exist for any of the Bonds,
especially since the Fund may be restricted under the Investment Company Act of
1940 from selling Bonds to any Sponsor. The value of the Portfolio will be
adversely affected if trading markets for the Bonds are limited or absent.
HOW TO BUY UNITS
Units are available from any of the Sponsors, Underwriters and other
broker-dealers at the Public Offering Price plus accrued interest on the Units
and (after the Fund's first anniversary) an up-front sales charge at time of
purchase. The Public Offering Price varies each Business Day with changes in the
value of the Portfolio and other assets and liabilities of the Fund. To allow
Units to be priced at $1,000, the Units outstanding as of the Evaluation Time on
the Initial Date of Deposit (all of which are held by the Sponsors) will be
split (or split in reverse).
PUBLIC OFFERING PRICE
During the initial offering period for at least the first three months of
the Fund, the Public Offering Price (and the Initial Repurchase Price) is based
on the higher, offer side evaluation of the Bonds at the next Evaluation Time
after the order is received. In the secondary market (after the initial offering
period), the Public Offering Price (and the Sponsors' Repurchase Price and the
Redemption Price) is based on the lower, bid side evaluation of the Bonds. 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.
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Investors will be subject to differing types and amounts of sales charge
depending upon the timing of their purchases and redemptions of Units. A
periodic deferred sales charge in the amount of $2.75 per Unit will be payable
quarterly through about the fifth anniversary of the Fund from a portion of the
interest on and principal of Bonds reserved for that purpose. Commencing on the
first anniversary of the Fund, the Public Offering Price will also include an
up-front sales charge applied to the value of the Bonds in the Portfolio.
Lastly, investors redeeming their Units prior to the fourth anniversary of the
Fund will be charged a contingent deferred sales charge payable out of the
redemption proceeds of their Units. These charges may be less than you would pay
to buy and hold a comparable managed fund. A complete schedule of sales charges
payable during the first two years of the Fund appears in Appendix B. The
Sponsors have received an opinion of their counsel that the deferred sales
charge described in this Prospectus is consistent with an exemptive order
received from the SEC.
Because accrued interest on the Bonds 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 by the Fund. To eliminate
fluctuations in the monthly income distribution, a portion of the Public
Offering Price consists of an advance to the Trustee of an amount necessary to
provide approximately equal distributions. Upon the sale or redemption of Units,
investors will receive their proportionate share of the Trustee advance. In
addition, if a Bond is sold, redeemed or otherwise disposed of, the Fund will
periodically distribute the portion of the Trustee advance that is attributable
to the Bond to investors.
The regular monthly income distribution stated under Defining Your Income
in Part A of the Prospectus is based on the financial data on the Initial Date
of Deposit, after deducting estimated Fund expenses, and will change as the
composition of the Portfolio changes over time.
EVALUATIONS
Evaluations are determined by the independent Evaluator on each Business
Day. This excludes Saturdays, Sundays and the following holidays as observed by
the New York Stock Exchange: New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas. Bond
evaluations are based on closing sales prices (unless the Evaluator deems these
prices inappropriate). If closing sales prices are not available, the evaluation
is generally determined on the basis of current bid or offer prices for the
Bonds or comparable securities or by appraisal or by any combination of these
methods. Neither the Sponsors, the Trustee or the Evaluator will be liable for
errors in the Evaluator's judgment. The fees of the Evaluator will be borne by
the Fund.
CERTIFICATES
Certificates for Units are issued upon request and may be transferred by
paying any taxes or governmental charges and by complying 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.
HOW TO SELL UNITS
SPONSORS' MARKET FOR UNITS
You can sell your Units at any time without a fee. The Sponsors (although
not obligated to do so) will normally buy any Units offered for sale at the
repurchase price next computed after receipt of the order. The Sponsors have
maintained secondary markets in Defined Asset Funds for over 20 years. Primarily
because of the sales charge and fluctuations in the market value of the Bonds,
the sale price may be less than the cost of your Units. You should consult your
financial professional for current market prices to determine if other
broker-dealers or banks are offering higher prices for 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. The Sponsors may reoffer or redeem Units repurchased.
TRUSTEE'S REDEMPTION OF UNITS
You may redeem your Units by sending the Trustee a redemption request
together with any certificates you hold. Certificates must be properly endorsed
or accompanied by a written transfer instrument with signatures guaranteed by an
eligible institution. 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 above. If they 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 a higher net price for the redeeming Holder.
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By the seventh calendar day after tender you will be mailed an amount equal
to the Redemption Price per Unit. Because of market movements or changes in the
Portfolio, this price may be more or less than the cost of your Units. The
Redemption Price per Unit is computed each Business Day by adding the value of
the Bonds (evaluated on the offer side during the initial offering period for at
least the first three months of the Fund (even in the secondary market) and on
the bid side thereafter), net accrued interest, cash and the value of any other
Fund assets; deducting unpaid taxes or other governmental charges, accrued but
unpaid Fund expenses, unreimbursed Trustee advances, cash held to redeem Units
or for distribution to investors and the value of any other Fund liabilities;
and dividing the result by the number of outstanding Units.
If cash is not available in the Fund's Income and Capital Accounts to pay
redemptions, the Trustee may sell Bonds selected by the Agent for the Sponsors
based on market and credit factors determined to be in the best interest of the
Fund. These sales are often made at times when the Bonds would not otherwise be
sold and may result in lower prices than might be realized otherwise and will
also reduce the size and diversity of the Fund.
Redemptions may be suspended or payment postponed if the New York Stock
Exchange is closed other than for customary weekend and holiday closings, if the
SEC determines that trading on that Exchange is restricted or that an emergency
exists making disposal or evaluation of the Bonds not reasonably practicable, or
for any other period permitted by the SEC.
INCOME, DISTRIBUTIONS AND REINVESTMENT
INCOME
Some of the Bonds may have been purchased on a when-issued basis or may
have a delayed delivery. Since interest on these Bonds does not begin to accrue
until the date of their delivery to the Fund, the Trustee's annual fee and
expenses may be reduced to provide tax-exempt income to investors for this
non-accrual period. If a when-issued Bond is not delivered until later than
expected and 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 Bonds. The Trustee is compensated for its fee reduction by drawing on
the letter of credit deposited by the Sponsors before the settlement date for
these Bonds and depositing the proceeds in a non-interest bearing account for
the Fund.
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
and Capital Accounts amounts considered appropriate by the Trustee to reserve
for any material amount that may be payable out of the Fund.
DISTRIBUTIONS
Each Unit receives an equal share of monthly distributions of interest
income net of estimated expenses. Interest on the Bonds is generally received by
the Fund on a semi-annual or annual basis. Because interest on the Bonds is not
received 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 interest distributions; it will
be reimbursed, without interest, from interest received on the Bonds, but the
Trustee is compensated, in part, by holding the Fund's cash balances in
non-interest bearing accounts. Along with the Monthly Income Distributions, the
Trustee will distribute the investor's pro rata share of principal received from
any disposition of a Bond to the extent available for distribution. In addition,
distributions of amounts necessary to pay the deferred portion of the sales
charge will be made from the Capital and Income Accounts to an account
maintained by the Trustee for purposes of satisfying investors' sales charge
obligations.
The initial estimated annual income per Unit, after deducting estimated
annual Fund expenses and the portion of the deferred sales charge payable from
interest income, as stated in Defining Your Income in Part A of the Prospectus
will change as Bonds mature, are called or sold or otherwise disposed of, as
replacement bonds are deposited and as Fund expenses change. Because the
Portfolio is not actively managed, income distributions will generally not be
affected by changes in interest rates. Depending on the financial conditions of
the issuers of the Bonds, 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 returns of principal and possibly
earlier termination of the Fund.
REINVESTMENT
Distributions will be paid in cash unless the investor elects to have
distributions reinvested without sales charge in the Municipal Fund Accumulation
Program, Inc. The Program is an open-end management investment company
8
<PAGE>
whose investment objective is to obtain income exempt from regular federal
income taxes by investing in a diversified portfolio of state, municipal and
public authority bonds 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 card enclosed in Part A of the Prospectus for the Program's prospectus. Read
it carefully before you decide to participate. Written notice of election to
participate must be received by the Trustee at least ten days before the Record
Day for the first distribution to which the election is to apply.
FUND EXPENSES
Estimated annual Fund expenses are listed under Defining Your Costs in Part
A of the Prospectus; if actual expenses exceed the estimate, the excess will be
borne by the Fund. The Trustee's annual fee is 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,
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 Bonds for
this purpose if cash is not available. The Sponsors receive an annual fee of a
maximum of $0.35 per $1,000 face amount to reimburse them for the cost of
providing Portfolio supervisory services to the Fund. While the fee may exceed
their costs of providing these services to the Fund, the total supervision fees
from all Defined Asset Funds 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, currently estimated at $0.10 per Unit. The Trustee's, Sponsors' and
Evaluator's fees may be adjusted for inflation without investors' approval.
All expenses in establishing the Fund 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 and hold a
comparable managed fund. Defined Asset Funds can be a cost-effective way to
purchase and hold investments. Annual operating expenses are generally lower
than for managed funds. Because Defined Asset 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 your investment
results.
FUND PERFORMANCE
Information on the performance of the Fund for various periods, on the
basis of changes in Unit price plus the amount of income and principal
distributions reinvested, may be included from time to time in advertisements,
sales literature, reports and other information furnished to current or
prospective investors. Total return figures are not averaged, and may not
reflect deduction of the sales charge, which would decrease the return. Average
annualized return figures reflect deduction of the maximum sales charge. No
provision is made for any income taxes payable.
Past performance may not be indicative of future results. The Fund is not
actively managed. Unit price and return fluctuate with the value of the Bonds in
the Portfolio, so there may be a gain or loss when Units are sold.
Fund performance may be compared to performance on the same basis (with
distributions reinvested) of Moody's Municipal Bond Averages or performance data
from publications such as Lipper Analytical Services, Inc., Morningstar
Publications, Inc., Money Magazine, The New York Times, U.S. News and World
Report, Barron's Business Week, CDA Investment Technology, Inc., Forbes Magazine
or Fortune Magazine. As with other performance data, performance comparisons
should not be considered representative of the Fund's relative performance for
any future period.
TAXES
The following discussion addresses only the U.S. federal and certain New
York State and City income tax consequences under current law of Units held as
capital assets and does not address the tax consequences of Units held by
dealers, financial institutions or insurance companies or other investors with
special circumstances.
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. Each investor will be considered the owner of a pro
rata portion of each Bond in the Fund under the grantor trust rules of
Sections 671-679 of the Internal Revenue Code of 1986, as amended (the
'Internal Revenue Code'). Each investor will be considered to have received
the interest and accrued the original issue discount, if any, on his pro
rata portion
9
<PAGE>
of each Bond when interest on the Bond is received or original issue
discount is accrued by the Fund. The investor's basis in his Units will be
equal to the cost of his Units, including any up-front sales charge.
When an investor pays for accrued interest, the investor's confirmation
of purchase will report to him the amount of accrued interest for which he
paid. These investors will receive the accrued interest amount as part of
their first monthly distribution. Accordingly, these investors should
reduce their tax basis by the accrued interest amount after the first
monthly distribution.
An investor will recognize taxable gain or loss when all or part of his
pro rata portion of a Bond is disposed of by the Fund. An investor will
also be considered to have disposed of all or a portion of his pro rata
portion of each Bond when he sells or redeems all or some of his Units. An
investor who is treated as having acquired his pro rata portion of a Bond
at a premium will be required to amortize the premium over the term of the
Bond. The amortization is only a reduction of basis for the investor's pro
rata portion of the Bond and does not result in any deduction against the
investor's income. Therefore, under some circumstances, an investor may
recognize taxable gain when his pro rata portion of a Bond is disposed of
for an amount equal to or less than his original tax basis therefor.
Under Section 265 of the Internal Revenue Code, a non-corporate investor
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
an investor 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 investors in the same manner as for
federal income tax purposes, but will not necessarily be tax-exempt.
The foregoing discussion relates only to U.S. federal and certain
aspects of New York State and City income taxes. Depending on their state
of residence, investors may be subject to state and local taxation and
should consult their own tax advisers in this regard.
* * *
In the opinion of bond counsel rendered on the date of issuance of each
Bond, the interest on each Bond is excludable from gross income under existing
law for regular federal income tax purposes (except in certain circumstances
depending on the investor) but may be subject to state and local taxes, and
interest on some or all of the Bonds 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 Bonds) to comply with certain ongoing requirements. If
the interest on a Bond should be determined to be taxable, the Bond would
generally have to be sold at a substantial discount. In addition, investors
could be required to pay income tax on interest received prior to the date on
which the interest is determined to be taxable.
Neither the Sponsors nor Davis Polk & Wardwell have made or will make any
review of the proceedings relating to the issuance of the Bonds or the basis for
these opinions and there can be no assurance that the issuer (and other users)
will comply with any ongoing requirements necessary for a Bond to maintain its
tax-exempt character.
RECORDS AND REPORTS
The Trustee keeps a register of the names, addresses and holdings of all
investors. The Trustee also keeps records of the transactions of the Fund,
including a current list of the Bonds and a copy of the Indenture, and
supplemental information on the operations of the Fund and the risks associated
with the Bonds held by the Fund, which may be inspected by investors at
reasonable times during business hours.
With each distribution, the Trustee includes a statement of the interest
and any other receipts being distributed. Within five days after deposit of
Bonds in exchange or substitution for Bonds (or contracts) previously deposited,
the Trustee will send a notice to each investor, identifying both the Bonds
removed and the replacement bonds deposited. The Trustee sends each investor of
record an annual report summarizing transactions in the Fund's accounts and
amounts distributed during the year and Bonds held, the number of Units
outstanding and the Redemption Price at year end, the interest received by the
Fund on the Bonds, the gross proceeds received by the Fund from the disposition
of any Bond (resulting from redemption or payment at maturity or sale of any
Bond), and the fees and expenses paid by the Fund, among other matters. The
Trustee will also furnish annual information returns to each investor and to the
Internal Revenue Service. Investors are required to report to the Internal
Revenue Service the amount of tax-exempt interest received during the year.
Investors may obtain copies of Bond 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 from the Trustee on request.
10
<PAGE>
TRUST INDENTURE
The Fund is a 'unit investment trust' created under New York law by a Trust
Indenture among the Sponsors, the Trustee and the Evaluator. This Prospectus
summarizes various provisions of the Indenture, but each statement is qualified
in its entirety by reference to the Indenture.
The Indenture may be amended by the Sponsors and the Trustee without
consent by investors to cure ambiguities or to correct or supplement any
defective or inconsistent provision, to make any amendment required by the SEC
or other governmental agency or to make any other change not materially adverse
to the interest of investors (as determined in good faith by the Sponsors). The
Indenture may also generally be amended upon consent of investors holding 51% of
the Units. No amendment may reduce the interest of any investor in the Fund
without the investor's consent or reduce the percentage of Units required to
consent to any amendment without unanimous consent of investors. Investors will
be notified on the substance of any amendment.
The Trustee may resign upon notice to the Sponsors. It may be removed by
investors holding 51% of the Units at any time or by the Sponsors without the
consent of investors if it becomes incapable of acting or bankrupt, its affairs
are taken over by public authorities, or if under certain conditions the
Sponsors determine in good faith that its replacement is in the best interest of
the investors. The Evaluator may resign or be removed by the Sponsors and the
Trustee without the investors' consent. The resignation or removal of either
becomes effective upon acceptance of appointment by a successor; in this case,
the Sponsors will use their best efforts to appoint a successor promptly;
however, if upon resignation no successor has accepted 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 so long as one Sponsor with a net worth of
$2,000,000 remains 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 appoint a successor Sponsor at reasonable
rates of compensation, terminate the Indenture and liquidate the Fund or
continue to act as Trustee without a Sponsor. Merrill Lynch, Pierce, Fenner &
Smith Incorporated has been appointed as Agent for the Sponsors by the other
Sponsors.
The Sponsors, the Trustee and the Evaluator are not liable to investors or
any other party 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 the Evaluator) or reckless disregard of duty. The Indenture
contains customary provisions limiting the liability of the Trustee.
MISCELLANEOUS
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 of the Prospectus 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.
TRUSTEE
The Trustee and its address are stated in Part A of the Prospectus. The
Trustee is subject to supervision by the Federal Deposit Insurance Corporation,
the Board of Governors of the Federal Reserve System and either the Comptroller
of the Currency or state banking authorities.
SPONSORS
Each Sponsor is a Delaware corporation and is engaged directly or
indirectly in the investment advisory business, and 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 is a wholly-owned subsidiary of Merrill Lynch Co.
Inc. Prudential Securities Incorporated is an indirect wholly-owned subsidiary
of the Prudential Insurance Company of America. PaineWebber Incorporated 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.
11
<PAGE>
PUBLIC DISTRIBUTION
In the initial offering period Units will be distributed to the public
through the Underwriting Account and dealers who are members of the National
Association of Securities Dealers, Inc. 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.
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, Units of a Florida trust will also be offered in New
York 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 from the Public Offering Price, but the Agent for the Sponsors
reserves the right to change the rate of any concession 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 be entitled to receive sales
charges. The Sponsors also realize a profit or loss on deposit of the Bonds
equal to the difference between the cost of the Bonds to the Fund (based on the
offer side evaluation on the Initial Date of Deposit) and the Sponsors' cost of
the Bonds. In addition, a Sponsor or Underwriter may realize profits or sustain
losses on Bonds 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. In maintaining a secondary 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.
SUPPLEMENTAL INFORMATION
Upon written or telephonic request to the Trustee shown in Part A of this
Prospectus, investors will receive at no cost to the investor supplemental
information about the Fund, which has been filed with the SEC and is hereby
incorporated by reference. The supplemental information includes more detailed
risk factor disclosure about the types of Bonds that may be part of the Fund's
Portfolio, general risk disclosure concerning any letters of credit or insurance
securing certain Bonds, and general information about the structure and
operation of the Fund.
12
<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.
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.
a-1
<PAGE>
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
SALES CHARGE SCHEDULES
DEFERRED SALES CHARGES. Units purchased during the first year of the Fund
will be subject to periodic deferred and contingent deferred sales charges.
Units purchased in the second year will be subject to an up-front sales charge
as well as periodic deferred and contingent deferred sales charges. During the
first five years of the Fund, a fixed periodic deferred sales charge of $2.75
per Unit is payable on 20 quarterly payment dates occurring on the 10th day of
February, May, August and November, commencing no earlier than 45 days after the
Initial Date of Deposit. Investors purchasing Units on the Initial Date of
Deposit and holding for at least five years, for example, would incur total
periodic deferred sales charges of $55.00 per Unit. Because of the time value of
money, however, as of the Initial Date of Deposit this periodic deferred sales
charge obligation would, at current interest rates, equate to an up-front sales
charge of approximately 4.75%.
On the Fund's initial offering date, the Public Offering Price per Unit
will be $1,000. Subsequently, the Public Offering Price per Unit will fluctuate.
As the periodic deferred sales charge is a fixed dollar amount irrespective of
the Public Offering Price, it will represent a varying percentage of the Public
Offering Price Price. An up-front sales charge will be imposed on all unit
purchases after the first year of the Fund. The following table illustrates the
combined maximum up-front and periodic deferred sales charges that would be
incurred by an investor purchasing Units at the beginning of each of the first
two years of the Fund (based on a constant Unit price) and holds them through
the fifth year of the Fund:
<TABLE><CAPTION>
TOTAL
--------------------
UP-FRONT AND
UP-FRONT SALES CHARGE MAXIMUM PERIODIC
AMOUNT DEFERRED SALES
DEFERRED PER CHARGES
$1,000 INVESTED PER $1,000 INVESTED
----------------------------------------------------------- --------------- --------------------
YEAR OF UNIT AS PERCENT OF PUBLIC AS PERCENT OF NET AMOUNT PER
PURCHASE OFFERING PRICE AMOUNT INVESTED $1,000 INVESTED
- ----------------- --------------------- ------------------- ---------------
<S> <C> <C> <C> <C> <C>
1 None None None $ 55.00 $ 55.00
2 1.10% 1.11% $ 11.00 44.00 55.00
CONTINGENT DEFERRED SALES CHARGE. Units redeemed or repurchased within 4
years after the Fund's Initial Date of Deposit will not only incur the periodic
deferred sales charge until the quarter of redemption or repurchase but will
also be subject to a contingent deferred sales charge:
</TABLE>
YEAR SINCE FUND'S CONTINGENT DEFERRED
INITIAL DATE OF SALES CHARGE PER
DEPOSIT UNIT
- -------------------- --------------------
1 $ 25.00
2 15.00
3 10.00
4 5.00
5 and thereafter None
The contingent deferred sales charge is waived on any redemption or
repurchase of Units after the death (including the death of a single joint
tenant with rights of survivorship) or disability (as defined in the Internal
Revenue Code) of an investor, provided the redemption or repurchase is requested
within one year of the death or initial determination of disability. The
Sponsors may require receipt of satisfactory proof of disability before
releasing the portion of the proceeds representing the amount of the contingent
deferred sales charge waived.
To assist investors in understanding the total costs of purchasing units
during the first two years of the Fund and disposing of those units by the fifth
year, the following tables set forth the maximum combined up-front, periodic and
contingent deferred sales charges that would be incurred (assuming a constant
Unit price) by an investor:
<TABLE><CAPTION>
UNITS PURCHASED ON INITIAL OFFERING DATE
YEAR OF UNIT DEFERRED SALES CONTINGENT DEFERRED
DISPOSITION UP-FRONT SALES CHARGE CHARGE SALES CHARGE TOTAL SALES CHARGES
- ------------------- --------------------- ---------------- ------------------- -------------------
<S> <C> <C> <C> <C>
1 None $ 11.00 $ 25.00 $ 36.00
2 None 22.00 15.00 37.00
3 None 33.00 10.00 43.00
4 None 44.00 5.00 49.00
5 None 55.00 0.00 55.00
UNITS PURCHASED ON FIRST ANNIVERSARY OF FUND
YEAR OF UNIT DEFERRED SALES CONTINGENT DEFERRED
DISPOSITION UP-FRONT SALES CHARGE CHARGE SALES CHARGE TOTAL SALES CHARGES
- ----------------- --------------------- ---------------- ------------------- -------------------
2 $ 11.00 $ 11.00 $ 15.00 $ 37.00
3 11.00 22.00 10.00 43.00
4 11.00 33.00 5.00 49.00
5 11.00 44.00 0.00 55.00
</TABLE>
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APPENDIX C
NEW YORK DISCLOSURE
NEW YORK RISK FACTORS
The State of New York and several of its public authorities and
municipalities including, in particular, New York City, continue to face
financial difficulties. For many years, the State accumulated deficits by
extraordinary borrowing, which have been paid off by the issuance of long-term
bonds under legislation limiting future borrowing for deficits. The State
currently projects a $300 million budget gap for the current fiscal year and a
$5 billion budget gap for the fiscal year beginning April 1, 1995. Closing the
deficit for future years will be more difficult because of plans proposed by the
State's new Governor to reduce personal income taxes by 25% during his four-year
term. The State's general obligation debt is rated A-by S&P and A by Moody's; at
March 31, 1994, approximately $5.4 billion face amount was outstanding. 18 State
authorities had an aggregate of $63.5 billion of debt outstanding at September
30, 1993, of which approximately $24 billion was State supported.
New York City, despite over $3 billion of gap-closing measures already
adopted, faces an estimated remaining budget gap for the current fiscal year of
about $650 million, and a $2 billion budget gap is projected for the fiscal year
beginning July 1, 1995. New York City bonds are rated A-by S&P and Baa1 by
Moody's. At September 30, 1994, approximately $21.7 billion of New York City
bonds (excluding City debt held by The Municipal Assitance Corporation for the
City of New York (MAC)) and approximately $4.1 billion of MAC bonds were
outstanding. Other localities in the State had an aggregate of approximately
$15.7 billion of indebtedness outstanding in 1992.
For decades, the State's economy has grown more slowly than that of the
rest of the nation as a whole. This low growth rate has been attributed, in
part, to the combined State and New York City tax burden which is among the
highest in the U.S. Because their tax structures are particularly sensitive to
economic cycles, both the State and New York City are prone to substantial
budget gaps during periods of economic weakness. Each has suffered a decline in
population and in manufacturing jobs over many years, and has become
particularly dependent on the financial services industry. Unemployment rates,
especially in New York City, have been above the national average for several
years.
Both the State and New York City suffer from long-term structural
imbalances between revenues and expenditures, which historically have been
narrowed through extensive use of non-recurring measures such as bond
refinancings, depletion of reserves, sales of assets, cost-cuts and layoffs.
Except for property taxes, changes in New York City revenue measures require
State approval. Based on the City's current debt and proposed issuances, the
City Comptroller has estimated that by fiscal 1998 debt service will consume
19.5% of New York City's tax revenue. The City is also particularly subject to
unanticipated increases in labor costs, resulting primarily from expiring union
contracts and overtime expense. Both the State and New York City also face
substantial replacement costs for infrastructure (such as roads, bridges and
other public facilities) which has suffered from reduced maintenance
expenditures during various economic declines.
Various municipalities and State and local authorities in New York
(particularly, the Metropolitan Transportation Authority) are dependent to
varying degrees on State and federal aid, and could be adversely affected by the
State's and federal government's actions to balance their budgets. The State's
dependence on federal aid and sensitivity to economic cycles, as well as high
levels of taxes and unemployment, may continue to make it difficult to balance
State and local budgets in the future.
NEW YORK TAXES
In the opinion of Davis Polk and 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 Fund is
not an association taxable as a corporation and income received by the Fund
will be treated as the income of the investors in the same manner as for
federal income tax purposes. Accordingly, each investor will be considered
to have received the interest on his pro rata portion of each Bond when
interest on the Bond is received by the Trust. In the opinion of bond
counsel delivered on the date of issuance of the Bonds, 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 investor in 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 Bond. A noncorporate investor 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 Bond 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, an investor's pro rata portion
of the Bonds are generally not excludable from income in computing New York
State and City corporate franchise taxes.
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PROSPECTUS PARTS A AND B
A prospectus for Defined Asset Funds Municipal Series consists of a Part A
and Part B. The Prospectus does not contain all of the information with respect
to the investment company set forth in its registration statement and exhibits
relating thereto which have been filed with the Securities and Exchange
Commission, Washington, D.C. under the Securities Act of 1933 and the Investment
Company Act of 1940, and to which reference is hereby made.
No person is authorized to give any information or to make any
representations with respect to this investment company not contained in the
Prospectus; and any information or representation not contained herein must not
be relied upon as having been authorized. The Prospectus does not constitute an
offer to sell, or a solicitation of an offer to buy, securities in any state to
any person to whom it is not lawful to make such offer in such state.
15045B--1/95
