As filed with the Securities and Exchange Commission on April 18, 1995
Registration No. 2-62336
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 16
To
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT
TRUSTS REGISTERED ON FORM N-8B-2
A. Exact name of trust: A CORPORATE TRUST, SERIES 1
B. Name of depositor: BEAR, STEARNS & CO. INC.
C. Complete address of depositor's principal executive office:
245 Park Avenue
New York, NY 10167
D. Name and complete address of agent for service:
PETER J. DeMARCO Copy of comments to:
Managing Director MICHAEL R. ROSELLA, ESQ.
Bear, Stearns & Co. Inc. Battle Fowler LLP
245 Park Avenue 75 East 55th Street
New York, NY 10167 New York, NY 10022
(212) 856-6858
It is proposed that this filing become effective (check appropriate box)
/ / immediately upon filing pursuant to paragraph (b) of Rule 485
/x / on April 28, 1995 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)
/ / on ( date ) pursuant to paragraph (a) of Rule 485
174419.1
<PAGE>
A CORPORATE TRUST
SERIES 1
CROSS-REFERENCE SHEET
Pursuant to Rule 404 of Regulation C
under the Securities Act of 1933
(Form N-8B-2 Items required by Instruction as
to the Prospectus in Form S-6)
Form N-8B-2 Form S-6
Item Number Heading in Prospectus
I. Organization and General Information
1. (a)Name of trust...................Front Cover of Prospectus
(b)Title of securities issued...... "
2. Name and address of each depositor.The Sponsor
3. Name and address of trustee........The Trustee
4. Name and address of principal
underwriters......................The Sponsor
5. State of organization of trust.....Organization
6. Execution and termination of
trust agreement...................Trust Agreement, Amendment and
Termination
7. Changes of name....................Not Applicable
8. Fiscal year......................... "
9. Litigation.........................None
II. General Description of the Trust and Securities of the Trust
10. (a) Registered or bearer
securities......................Certificates
(b) Cumulative or distributive
securities......................Interest and Principal Distributions
(c) Redemption.....................Trustee Redemption
(d) Conversion, transfer, etc......Certificates, Sponsor Repurchase,
Trustee Redemption, Exchange
Privilege and Conversion Offer
(e) Periodic payment plan..........Not Applicable
(f) Voting rights..................Trust Agreement, Amendment and
Termination
(g)Notice to certificateholders....Records, Portfolio, Trust Agreement,
Amendment and Termination, The
Sponsor, The Trustee
(h)Consents required...............Trust Agreement, Amendment and
Termination
(i)Other provisions................Tax Status
11. Type of securities
comprising units..................Objectives, Portfolio, Description
of Portfolio
12. Certain information regarding
periodic payment certificates.....Not Applicable
13. (a)Load, fees, expenses, etc.......Summary of Essential Information,
Offering Price, Volume and Other
Discounts, Sponsor's and
Underwriters' Profits, Total
Reinvestment Plan, Trust Expenses
and Charges
-i-
261630.1
<PAGE>
Form N-8B-2 Form S-6
Item Number Heading in Prospectus
(b)Certain information regarding
periodic payment certificates...Not Applicable
(c)Certain percentages.............Summary of Essential Information,
Offering Price, Total Reinvestment
Plan
(d)Price differences...............Volume and Other Discounts
(e)Other loads, fees, expenses.....Certificates
(f)Certain profits receivable
by depositors, principal
underwriters, trustee or
affiliated persons..............Sponsor's and Underwriters' Profits
(g)Ratio of annual charges
to income.......................Not Applicable
14. Issuance of trust's securities.....Organization, Certificates
15. Receipt and handling of payments
from purchasers...................Organization
16. Acquisition and disposition of
underlying securities.............Organization, Objectives, Portfolio,
Portfolio Supervision
17. Withdrawal or redemption...........Comparison of Public Offering Price,
Sponsor's Repurchase Price and
Redemption Price, Sponsor Repurchase,
Trustee Redemption
18. (a)Receipt, custody and
disposition of income...........Distribution Elections, Interest and
Principal Distributions, Records,
Total Reinvestment Plan
(b)Reinvestment of distributions...Total Reinvestment Plan
(c)Reserves or special funds.......Interest and Principal Distributions
(d)Schedule of distributions.......Not Applicable
19. Records, accounts and reports......Records, Total Reinvestment Plan
20. Certain miscellaneous provisions
of trust agreement................Trust Agreement, Amendment and
Termination
(a)Amendment....................... "
(b)Termination..................... "
(c)and (d) Trustee, removal and
successor.......................The Trustee
(e)and (f) Depositor, removal
and successor...................The Sponsor
21. Loans to security holders..........Not Applicable
22. Limitations on liability...........The Sponsor, The Trustee,
The Evaluator
23. Bonding arrangements...............Part II--Item A
24. Other material provisions
of trust agreement................Not Applicable
III. Organization, Personnel and Affiliated Persons of Depositor
25. Organization of depositor..........The Sponsor
26. Fees received by depositor.........Not Applicable
27. Business of depositor..............The Sponsor
28. Certain information as to
officials and affiliated
persons of depositor..............Part II--Item C
29. Voting securities of depositor.....Not Applicable
30. Persons controlling depositor....... "
31. Payments by depositor for certain
services rendered to trust........ "
-ii-
261630.1
<PAGE>
Form N-8B-2 Form S-6
Item Number Heading in Prospectus
32. Payment by depositor for certain
other services rendered to trust.. "
33. Remuneration of employees of
depositor for certain services
rendered to trust................... "
34. Remuneration of other persons for
certain services rendered to trust.. "
IV. Distribution and Redemption of Securities
35. Distribution of trust's
securities by states..............Distribution of Units
36. Suspension of sales of
trust's securities................Not Applicable
37. Revocation of authority
to distribute..................... "
38. (a)Method of distribution..........Distribution of Units, Total
Reinvestment Plan
(b)Underwriting agreements......... "
(c)Selling agreements.............. "
39. (a)Organization of principal
underwriters....................The Sponsor
(b)N.A.S.D. membership of
principal underwriters.......... "
40. Certain fees received by
principal underwriters............Not Applicable
41. (a)Business of principal
underwriters....................The Sponsor
(b)Branch offices of principal
underwriters....................Not Applicable
(c)Salesmen of principal
underwriters.................... "
42. Ownership of trust's
securities by certain persons..... "
43. Certain brokerage commissions
received by principal
underwriters...................... "
44. (a)Method of valuation.............Summary of Essential Information,
Offering Price, Accrued Interest,
Volume and Other Discounts,
Total Reinvestment Plan,
Distribution of Units
(b)Schedule as to offering price...Not Applicable
(c)Variation in offering price
to certain persons..............Distribution of Units, Total
Reinvestment Plan, Volume and
Other Discounts
45. Suspension of redemption rights....Trustee Redemption
46. (a)Redemption valuation............Comparison of Public Offering Price,
Sponsor's Repurchase Price and
Redemption Price, Trustee
Redemption
(b)Schedule as to
redemption price................Not Applicable
47. Maintenance of position in
underlying securities.............Comparison of Public Offering Price,
Sponsor's Repurchase Price and
Redemption Price, Sponsor
Repurchase, Trustee Redemption
-iii-
261630.1
<PAGE>
Form N-8B-2 Form S-6
Item Number Heading in Prospectus
V. Information Concerning the Trustee or Custodian
48. Organization and regulation
of trustee........................The Trustee
49. Fees and expenses of trustee.......Trust Expenses and Charges
50. Trustee's lien...................... "
VI. Information Concerning Insurance of Holders of Securities
51. Insurance of holders of
trust's securities................Not Applicable
VII. Policy of Registrant
52. (a)Provisions of trust agreement
with respect to selection or
elimination of underlying
securities......................Objectives, Portfolio, Portfolio
Supervision
(b)Transactions involving
elimination of underlying
securities......................Not Applicable
(c)Policy regarding substitution
or elimination of underlying
securities......................Objectives, Portfolio, Portfolio
Supervision, Substitution of Bonds
(d)Fundamental policy not
otherwise covered...............Not Applicable
53. Tax status of trust................Tax Status
VIII. Financial and Statistical Information
54. Trust's securities during
last ten years....................Not Applicable
55. Hypothetical account for issuers
of periodic payment plans......... "
56. Certain information regarding
periodic payment certificates..... "
57. Certain information regarding
periodic payment plans............ "
58. Certain other information
regarding periodic payment plans.. "
59. Financial Statements
(Instruction 1(c) to Form S-6).....Statement of Financial Condition
-iv-
261630.1
<PAGE>
Note: Part A of This Prospectus May Not Be
Distributed Unless Accompanied by Part B.
A CORPORATE TRUST
SERIES 1
The Trust is a unit investment trust with an underlying portfolio of
taxable long-term corporate and government debt obligations (the "Debt
Obligations"). The principal objectives of the Trust are the preservation of
capital and the return of a high level of interest income relative to
prevailing interest rates on other similar investments on the Date of Deposit.
All of the Debt Obligations in the Trust were rated "A" or better by Standard
& Poor's Corporation, Moody's Investors Service, Inc. or Fitch Investors
Service, Inc. at the time originally deposited in the Trust. The Sponsor is
Bear, Stearns & Co. Inc. The value of the Units of the Trust will fluctuate
with the value of the underlying Bonds. Minimum purchase: 1 Unit.
This Prospectus consists of two parts. Part A contains a Summary of
Essential Information as of December 31, 1994 (the "Evaluation Date"), a
summary of certain specific information regarding the Trust and audited
financial statements of the Trust, including the related Portfolio, as of the
Evaluation Date. Part B of this Prospectus contains a general summary of the
Trust.
Investors should retain both parts of this
Prospectus for future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Prospectus Part A Dated April 28, 1995
112161.1
<PAGE>
THE TRUST The Trust consists of a diversified portfolio of $500,000
principal amount of long-term Debt Obligations which, on the Date of Deposit,
were rated "A" or better by Standard & Poor's Corporation, Moody's Investors
Service, Inc. or Fitch Investors Service, Inc. or possessed, in the opinion of
the Sponsor, similar credit characteristics. For a discussion of the
significance of such ratings, see "Description of Bond Ratings" in Part B. The
principal objectives of the Trust are the return of a high level of current
income and the preservation of capital. The Sponsor, under certain
circumstances consistent with the Trust's objectives, may direct the Trustees
to sell certain of the Debt Obligations and reinvest the proceeds in
substitute Debt Obligations (see "Portfolio Supervision" in Part B). The
payment of interest and the preservation of capital are dependent upon the
continuing ability of the issuers of the Debt Obligations to meet their
obligations, and thus there can be no assurance that the Trust's investment
objectives will be achieved. Each Unit in the Trust represents a 1/3233rd
undivided interest in the principal and net income of the Trust in the ratio
of one Unit for each $1,000 principal amount of Debt Obligations deposited in
the Trust. (See "The Trust--Organization" in Part B of this Prospectus.) The
Units being offered hereby are issued and outstanding Units which have been
purchased by the Sponsor in the secondary market.
PUBLIC OFFERING PRICE The Public Offering Price of each Unit is equal to
the aggregate bid price of the Debt Obligations in the Trust divided by the
number of Units outstanding, plus a sales charge of 4.5% of the Public
Offering Price or 4.712% of the net amount invested in Debt Obligations per
Unit. In addition, accrued interest to the expected date of settlement is
added to the Public Offering Price. If Units had been purchased on the
Evaluation Date, the Public Offering Price per Unit would have been $168.80
plus accrued interest of $19.37 under the monthly distribution plan and $19.66
under the semi-annual distribution plan for a total of $188.17 and $188.46,
respectively. The Public Offering Price per Unit can vary on a daily basis in
accordance with fluctuations in the prices of the Debt Obligations. (See
"Public Offering" on page 11.)
ESTIMATED LONG TERM RETURN AND ESTIMATED CURRENT RETURN. The rate of
return on an investment in Units of the Trust is measured in terms of
"Estimated Current Return" and "Estimated Long Term Return".
Estimated Long Term Return is calculated by: (1) computing the yield to
maturity or to an earlier call date (whichever results in a lower yield) for
each Debt Obligation in the Trust's portfolio in accordance with accepted debt
obligation practices, which practices take into account not only the interest
payable on the Debt Obligation but also the amortization of premiums or
accretion of discounts, if any; (2) calculating the average of the yields for
the Debt Obligations in the Trust's portfolio by weighing each Debt
Obligation's yield by the market value of the Debt Obligation and by the
amount of time remaining to the date to which the Debt Obligation is priced
(thus creating an average yield for the portfolio of the Trust); and (3)
reducing the average yield for the portfolio of the Trust in order to reflect
estimated fees and expenses of the Trust and the maximum sales charge paid by
investors. The resulting Estimated Long Term Return represents a measure of
the return to investors earned over the estimated life of the Trust. (For the
Estimated Long Term Return to Certificateholders under the monthly,
semi-annual and annual distribution plans, see "Summary of Essential
Information".)
Estimated Current Return is a measure of the Trust's cash flow. Estimated
Current Return is computed by dividing the Estimated Net Annual Interest
Income per Unit by the Public Offering Price per Unit. In contrast to the
Estimated Long Term Return, the Estimated Current Return does not take into
account the amortization of premium or accretion of discount, if any, on
A-2
112161.1
<PAGE>
the Debt Obligations in the portfolio of the Trust. Moreover, because
interest rates on Debt Obligations purchased at a premium are generally higher
than current interest rates on newly issued bonds of a similar type with
comparable rating, the Estimated Current Return per Unit may be affected
adversely if such Debt Obligations are redeemed prior to their maturity.
The Estimated Net Annual Interest Income per Unit of the Trust will vary
with changes in the fees and expenses of the Trustee and the Evaluator
applicable to the Trust and with the redemption, maturity, sale or other
disposition of the Debt Obligations in the Trust. The Public Offering Price
will vary with changes in the bid prices of the Debt Obligations. Therefore,
there is no assurance that the present Estimated Current Return or Estimated
Long Term Return will be realized in the future. (For the Estimated Current
Return to Certificateholders under the monthly, semi-annual and annual
distribution plans, see "Summary of Essential Information". See "Estimated
Long Term Return and Estimated Current Return" in Part B of this Prospectus.)
A schedule of cash flow projections is available from the Sponsor upon
request.
DISTRIBUTIONS Distributions of interest income, less expenses, will be
made by the Trust either monthly or semi-annually depending upon the plan of
distribution applicable to the Unit purchased. A purchaser of a Unit will
initially receive distributions in accordance with the plan selected by the
prior owner and may thereafter change the plan as provided in "Interest and
Principal Distributions" in Part B. Distributions of principal, if any, will
be made semi-annually on June 15 and December 15 of each year. For estimated
monthly and semi-annual distributions, see "Summary of Essential Information".
MARKET FOR UNITS The Sponsor, although not obligated to do so, presently
maintains and intends to continue to maintain a market for the Units at prices
based upon the aggregate bid price of the Debt Obligations in the portfolio of
the Trust. The reoffer price is based on the aggregate bid price of the Bonds
plus a sales charge of 4.5% (4.712% of the net amount invested) plus net
accrued interest. If such a market is not maintained, a Certificateholder will
be able to redeem his Units with the Trustee at a price based upon the
aggregate bid price of the Debt Obligations. (See "Sponsor Repurchase" and
"Public Offering--Offering Price" in Part B.)
TOTAL REINVESTMENT PLAN Certificateholders under the semi-annual plan of
distribution have the opportunity to have their regular semi-annual interest
distributions and principal distributions, if any, reinvested in available
series of "A Corporate Trust." (See "Total Reinvestment Plan" in Part B.
Residents of Texas see "Total Reinvestment Plan for Texas Residents" in Part
B.) The Plan is not designed to be a complete investment program.
A-3
112161.1
<PAGE>
A CORPORATE TRUST
SERIES 1
SUMMARY OF ESSENTIAL INFORMATION AS OF DECEMBER 31, 1994
Date of Deposit: October 20, 1978 Evaluation Time: 4:00 p.m.
Principal Amount of Bonds ... $500,000 New York Time.
Number of Units ............. 3,050 Minimum Principal Distribution:
Fractional Undivided Inter- $1.00 per Unit.
est in Trust per Unit ..... 1/3050 Weighted Average Life to Maturity:
Principal Amount of 3.6 years.
Bonds per Unit ............ $163.93 Minimum Value of Trust:
Secondary Market Public Trust may be terminated if
Offering Price** value of Trust is less than
Aggregate Bid Price $2,400,000 in principal
of Bonds in Trust ....... $491,655+++ amount of Bonds.
Divided by 3,050 Units .... $161.20 Mandatory Termination Date:
Plus Sales Charge of 4.5% The earlier of the expiration
of Public Offering Price $7.60 of 20 years after the death
Public Offering Price of the last survivor of 6
per Unit ................ $168.80+ persons named in the Trust
Redemption and Sponsor's Agreement or the disposition
Repurchase Price of the last Debt Obligation
per Unit .................. $161.20+ in the Trust.
+++ Trustee***: The Bank of New York.
++++ Trustee's Annual Fee: Monthly
Excess of Secondary Market plan $1.08 per $1,000; semi-
Public Offering Price annual plan $.60 per $1,000.
over Redemption and Evaluator: Interactive Data
Sponsor's Repurchase Services, Inc.
Price per Unit ............ $7.60++++ Evaluator's Fee for Each
Difference between Public Evaluation: Minimum of $35
Offering Price per Unit plus $.25 per each issue of
and Principal Amount per Bonds in excess of 50 issues
Unit Premium/(Discount) ... $4.87 (treating separate maturities
as separate issues).
Sponsor: Bear, Stearns & Co. Inc.
PER UNIT INFORMATION BASED UPON INTEREST DISTRIBUTION PLAN
Monthly Semi-Annual
Option Option
Gross annual interest income# ......... $12.50 $12.50
Less estimated annual fees and
expenses ............................ 3.06 2.85
Estimated net annual interest _____ _____
income (cash)# ...................... $ 9.44 9.65
Estimated interest distribution# ...... .78 4.82
Estimated daily interest accrual# ..... .0262 .0268
Estimated current return#++ ........... 5.59% 5.72%
Estimated long term return++ .......... 6.01% 6.13%
Record dates .......................... 1st of Dec. 1 and
each month June 1
Interest distribution dates ........... 15th of Dec. 15 and
each month June 15
A-4
112161.1
<PAGE>
* The Date of Deposit is the date on which the Trust Agreement was signed
and the deposit of debt obligations with the Trustees made.
** For information regarding offering price per unit and applicable sales
charge under the Total Reinvestment Plan, see "Total Reinvestment Plan"
in Part B.
*** The Trustee maintains its corporate trust office at 101 Barclay Street,
New York, New York 10286 (tel no.: 1-800-431-8002). For information
regarding redemption by the Trustee, see "Trustee Redemption" in Part B
of this Prospectus.
+ Plus accrued interest to the expected date of settlement (approximately
five business days after purchase) of $19.37 monthly and $19.66 semi-
annually.
++ The estimated current return and estimated long term return are
increased for transactions entitled to a discount (see "Employee
Discounts"), and are higher under the semi-annual option due to lower
Trustee's fees and expenses.
+++ Based solely upon the bid side evaluation of the underlying Debt
Obligations (including, where applicable, undistributed cash in the
principal account). Upon tender for redemption, the price to be paid
will be calculated as described under "Trustee Redemption" in Part B of
this Prospectus.
++++ See "Comparison of Public Offering Price, Sponsor's Repurchase Price and
Redemption Price" in Part B of this Prospectus.
A-5
112161.1
<PAGE>
INFORMATION REGARDING THE TRUST
AS OF DECEMBER 31, 1994
Description of Portfolio
The portfolio of the Trust consists of 2 issues of Debt Obligations of 2
issuers. Approximately 46% of the Debt Obligations are secured and
approximately 54% are unsecured. All of the unsecured Debt Obligations
represent senior unsecured indebtedness. One issue, representing approximately
46% of the aggregate principal amount of Debt Obligations is issued by an
electric and gas utility. None are securities of foreign issuers. As of the
Evaluation Date, $270,000 of the Debt Obligations are long-term corporate debt
obligations. The Sponsor has not participated as a sole underwriter, manager,
co-manager, member of an underwriting syndicate or agent in private placements
from which any of the Debt Obligations were acquired. For an explanation of
the significance of these factors, see "The Trust Portfolio" in Part B. None
of the Bonds have any equity or conversion features.
A-6
112161.1
<PAGE>
FINANCIAL AND STATISTICAL INFORMATION
Selected data for each Unit outstanding for the periods listed below:
Distribu-
Distributions of tions of
Interest During the Principal
Period (per Unit) During
Net Asset* Semi- the
Units Out- Value Monthly Annual Period
Period Ended standing Per Unit Option Option (Per Unit)
December 31, 1992 3,416 $460.99 $46.30 $46.88 $385.25
December 31, 1993 3,233 171.71 19.01 19.33 284.56
December 31, 1994 3,050 163.59 9.43 9.69 -0-
- --------
* Net Asset Value per Unit is calculated by dividing net assets as disclosed
in the "Statement of Net Assets" by the number of Units outstanding as of
the date of the Statement of Net Assets. See Note 5 of Notes to Financial
Statements for a description of the components of Net Assets.
A-7
112161.1
<PAGE>
Independent Auditors' Report
The Sponsor, Trustee and Certificateholders
A Corporate Trust, Series 1:
We have audited the accompanying statement of net assets, including the
portfolio, of A Corporate Trust, Series 1 as of December 31, 1994, and the
related statements of operations, and changes in net assets for each of the
years in the three year period then ended. These financial statements are the
responsibility of the Trustee (see note 2). Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1994,
by correspondence 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of A Corporate Trust, Series 1
as of December 31, 1994, and the results of its operations and the changes in
its net assets for each of the years in the three year period then ended in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
New York, New York
March 31, 1995
<PAGE>
Statement of Net Assets
December 31, 1994
Investments in marketable securities,
at market value (costs $422,412) $ 490,896
Excess of other assets over other liabilities 8,052
--------
Net assets (3,050 units of fractional undivided
interest outstanding, $163.59 per unit) $ 498,948
========
See accompanying notes to financial statements.
<PAGE>
<TABLE>
Statements of Operations
<CAPTION>
Years ended December 31,
---------- --- ---------- --- ----------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Investment income - interest $ 39,366 66,971 163,744
---------- ---------- ----------
Expenses:
Trustee's fees 12,920 8,619 12,748
Evaluator's fees 5,499 5,278 5,930
---------- ---------- ----------
Total expenses 18,419 13,897 18,678
---------- ---------- ----------
Investment income, net 20,947 53,074 145,066
---------- ---------- ----------
Realized and unrealized gain
(loss) on investments:
Net realized gain
on bonds sold or called 3,225 147,294 64,318
Unrealized depreciation
for the year (17,081) (150,437) (46,921)
---------- ---------- ----------
Net (loss) gain
on investments (13,856) (3,143) 17,397
---------- ---------- ----------
Net increase in net
assets resulting
from operations $ 7,091 49,931 162,463
========== ========== ==========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
Years ended December 31,
---------- --- ------------- --- ------------
1994 1993 1992
---------- ------------- ------------
<S> <C> <C> <C>
Operations:
Investment income, net $ 20,947 53,074 145,066
Net realized gain
on bonds sold or called 3,225 147,294 64,318
Unrealized depreciation
for the year (17,081) (150,437) (46,921)
---------- ------------- ------------
Net increase in net
assets resulting
from operations 7,091 49,931 162,463
---------- ------------- ------------
Distributions to Cerficateholders:
Investment income 29,792 63,244 161,985
Principal - 934,645 1,347,342
Redemptions:
Interest 3,623 3,855 3,939
Principal 29,851 67,791 105,619
---------- ------------- ------------
Total distributions
and redemptions 63,266 1,069,535 1,618,885
---------- ------------- ------------
Total decrease (56,175) (1,019,604) (1,456,422)
Net assets at beginning of year 555,123 1,574,727 3,031,149
---------- ------------- ------------
Net assets at end of year (including
undistributed net investment
income of$7,293, $19,761
and $33,786, respectively) $ 498,948 555,123 1,574,727
========== ============= ============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
A CORPORATE TRUST, SERIES 1
Notes to Financial Statements
December 31, 1994, 1993 and 1992
(1) Organization
A Corporate Trust, Series 1 (Trust) was organized on October 20, 1978
by Bear, Stearns & Co. Inc. (Sponsor) under the laws of the State of
New York by a Trust Indenture and Agreement, and is registered under
the Investment Company Act of 1940.
(2) Summary of Significant Accounting Policies
The Bank of New York (Trustee) has custody of and responsibility for
the accounting records and financial statements of the Trust and is
responsible for establishing and maintaining a system of internal
control related thereto.
The Trustee is also responsible for all estimates of expenses and
accruals reflected in the Trust's financial statements. The
accompanying financial statements have been adjusted to record the
unrealized appreciation (depreciation) of investments and to record
interest income and expenses on the accrual basis.
Investments are carried at market value which is determined by Kenny
S&P Evaluation Services (Evaluator) as discussed in Footnotes to
Portfolio. The market value of the investments is based upon the bid
prices for the bonds at the end of the year, except that the market
value on the date of deposit represents the cost to each state Trust
based on the offering prices for investments at that date. The
difference between cost and market value is reflected as unrealized
appreciation (depreciation) of investments. Securities transactions
are recorded on the trade date. Realized gains (losses) from
securities transactions are determined on the basis of average cost
of the securities sold or redeemed.
(3) Income Taxes
The Trust is not subject to Federal income taxes as provided for by
the Internal Revenue Code.
(4) Trust Administration
The fees and expenses of the Trust are incurred and paid on the basis
set forth under "Trust Expenses and Charges" in Part B of this
Prospectus.
The Trust Indenture and Agreement provides for interest distributions
as often as monthly (depending upon the distribution plan elected by
the Certificateholders).
The Trust Indenture and Agreement further requires that principal
received from the disposition of bonds, other than those bonds sold
in connection with the redemption of units, be distributed to
Certificateholders.
See "Financial and Statistical Information" in Part A of this
Prospectus for the amounts of per unit distributions during the years
ended December 31, 1994, 1993 and 1992.
The Trust Indenture and Agreement also requires the Trust to redeem
units tendered. 183, 183 and 167 units were redeemed during the years
ended December 31, 1994, 1993 and 1992, respectively.
(5) Net Assets
At December 31, 1994, the net assets of the Trust represented the interest of
Certificateholders as follows:
Original cost to Certificateholders $ 6,163,655
Less initial gross underwriting commission (277,380)
5,886,275
Cost of securities sold or called (5,463,863)
Net unrealized appreciation 68,484
Undistributed net investment income 7,293
Undistributed proceeds from bonds sold or called 759
Total $ 498,948
The original cost to Certificateholders, less the initial gross
underwriting commission, represents the aggregate initial public offering
price net of the applicable sales charge on 6,000 units of fractional
undivided interest of the Trust as of the date of deposit.
<PAGE>
<TABLE>
A CORPORATE TRUST, SERIES 1
<CAPTION>
Portfolio
December 31, 1994
Port- Aggregate Coupon Rate/ Redemption Feature
folio Principal Name of Issuer Ratings Date(s) of S.F.--Sinking Fund Market
no. Amount and Title of Bonds (1) Maturity(2) Ref.-- Refunding (2) (7) Value(3)
- ---- ------- --------------------- ---- ----------- ---------------------- -------
<S> <C> <C> <C> <C> <C> <C>
1 $ 270,000 NCNB Corporation, A 8.375% Currently @ 100 S.F. $ 270,181
Sinking Fund 3/01/1999 1/29/95 @ 100 Ref.
Debentures
2 230,000 Ohio Power Company, A- 6.750 Currently @ 101.09 220,715
First Mortgage Bonds 3/01/1998 S.F. None
------- -------
$ 500,000 $ 490,896
======= =======
See accompanying footnotes to portfolio and notes to financial statements.
</TABLE>
<PAGE>
A CORPORATE TRUST, SERIES 1
Footnotes to Portfolio
December 31, 1994
(1) All ratings are by Kenny S&P Evaluation Services. A brief description
of the ratings symbols and their meanings is set forth under
"Description of Bond Ratings" in Part B of this Prospectus.
(2) See "The Trust - Portfolio" in Part B of this Prospectus for an
explanation of redemption features. See "Tax Status" in Part B of
this Prospectus for a statement of the Federal tax consequences to a
Certificateholder upon the sale, redemption or maturity of a bond.
(3) At December 31, 1994, the net unrealized appreciation of all the bonds
was comprised of gross unrealized appreciation of $68,484.
(4) The annual interest income, based upon units held at December 31, 1994,
to the Trust is $38,138.
(5) The Bonds may also be subject to other calls, which may be permitted or
required by events which cannot be predicted (such as destruction,
condemnation, termination of a contract, or receipt of excess or
unanticipated revenues).
<PAGE>
Note: Part B of This Prospectus May Not Be Distributed
Unless Accompanied by Part A.
Please Read and Retain Both Parts of
this Prospectus for Future Reference
A CORPORATE TRUST
Prospectus Part B
Dated: April 28, 1995
THE TRUST
Organization
"A Corporate Trust" (the "Trust") is a "unit investment trust"
created under the laws of the Commonwealth of Massachusetts pursuant to a
Trust Indenture and Agreement* (the "Trust Agreement"), dated the Date of
Deposit, among Bear, Stearns & Co. Inc., as Sponsor, The Bank of New York,
Wall Street Trust Division, as Trustee, and Interactive Data Services, Inc.,
as Evaluator.
On the Date of Deposit the Sponsor deposited with the Trustee
long-term corporate and government debt obligations, including delivery
statements relating to contracts for the purchase of certain such obligations
(the "Debt Obligations") and cash or an irrevocable letter of credit issued by
a major commercial bank in the amount required for such purchases.
Thereafter, the Trustee, in exchange for the Debt Obligations so deposited,
delivered to the Sponsor the Certificates evidencing the ownership of all
Units of the Trust.
Each "Unit" outstanding on the Evaluation Date represented an
undivided interest or pro rata share in the principal and interest of the
Trust in the ratio of one Unit for each $1,000 principal amount of Debt
Obligations deposited in the Trust. To the extent that any Units are redeemed
by the Trustee, the fractional undivided interest or pro rata share in the
Trust represented by each unredeemed Unit will increase, although the actual
interest in the Trust represented by such fraction will remain unchanged.
Units will remain outstanding until redeemed upon tender to the Trustee by
Certificateholders, which may include the Sponsor, or until the termination of
the Trust Agreement.
Objectives
The Trust offers investors the opportunity to participate in a
portfolio of long-term taxable Debt Obligations with a greater diversification
than they might be able to acquire themselves. The principal objectives of
the Trust are preservation of capital and a high level of interest income
relative to prevailing interest rates on other similar investments on the Date
of Deposit. Investors should be aware that there is no assurance the Trust's
objectives will be achieved as these objectives are dependent on the
continuing ability of the issuers of the Debt Obligations to meet their
interest and principal payment requirements, and on the market value of the
- --------
* References in this Prospectus to the Trust Agreement are qualified in
their entirety by the Trust Indenture and Agreement which is
incorporated herein by reference.
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<PAGE>
Debt Obligations, which can be affected by fluctuations in interest rates and
other factors.
Since disposition of Units prior to final liquidation of the Trust
may result in an investor receiving less than the amount paid for such Units
(see "Comparison of Public Offering Price and Redemption Price"), the purchase
of a Unit should be looked upon as a long-term investment. The Trust is not
designed to be a complete investment program.
Portfolio
All of the Debt Obligations in the Trust were rated "A" or better
by Standard & Poor's Corporation or Moody's Investors Service, Inc. at the
time originally deposited in the Trust. For a list of the ratings of each
Bond on the Evaluation Date, see "Portfolio" in Part A.
For information regarding (i) the number of issues in the Trust,
(ii) the range of fixed maturities of the Debt Obligations, (iii) the number
of issues payable from the income of a specific project or authority and
(iv) the number of issues constituting general obligations of a government
entity, see "Information Regarding the Trust" and "Description of Portfolio"
in Part A of this Prospectus.
When selecting Debt Obligations for the Trust, the following
factors, among others, were considered by the Sponsor on the Date of Deposit:
(a) the quality of the Debt Obligations and whether such Debt Obligations were
rated "A" or better by either Standard & Poor's Corporation, Moody's Investors
Service, Inc., or Fitch Investors Service, Inc., or had, in the opinion of the
Sponsor, similar credit characteristics, (b) the yield and price of the Debt
Obligations relative to other debt securities of comparable quality and
maturity, (c) income to the Certificateholders of the Trust and (d) the
diversification of the Trust Portfolio, taking into account the availability
in the market of issues in various industry classifications which meet the
Trust's quality, rating, yield and price criteria. Subsequent to the
Evaluation Date, a Debt Obligation may cease to be rated or its rating may be
reduced below that specified above. Neither event requires an elimination of
such Debt Obligation from the Trust but may be considered in the Sponsor's
determination to direct the Trustees to dispose of the Debt Obligation. For
an interpretation of the Debt Obligation ratings see "Description of Debt
Obligation Ratings." See "Portfolio Supervision" for a summary of the factors
considered in selecting substitute Debt Obligations.
Corporate debt obligations generally consist of bonds, debentures,
notes or other straight debt obligations with fixed final maturity dates and,
as used in this Prospectus, include taxable obligations issued or guaranteed
by the United States or foreign governments, or political subdivisions
thereof. These obligations represent a liability of the issuer with respect
to the payment of both interest and principal. Corporate debt obligations
enjoy a seniority in right of payment over all equity securities of the
issuer, although certain debt obligations may be subordinated in right of
payment to other debt obligations of the same issuer. In addition, such debt
obligations may be secured or unsecured and may be entitled to the benefits of
a sinking fund.
RISK CONSIDERATIONS
Utility Issues. Some of the Trust's Portfolio may be comprised of
issues of the gas and electric public utility industry. General problems of
the gas and electric public utility industry include: difficulty in obtaining
timely and adequate rate increases; changes in the tax laws which adversely
affect a utility's ability to operate profitably; rising costs of
transportation to transport fossil fuels; the uncertainty of transmission
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<PAGE>
service costs for both intrastate and interstate transactions; difficulty in
financing large construction programs during an inflationary period; recent
reductions in estimates of future demand for electricity and gas in certain
areas of the country; restrictions on operations and increased cost and delays
attributable to environmental considerations (including those arising under
the Clean Air Act Amendments of 1977); uncertain availability and increased
cost of capital, unavailability of fuel for electric generation at reasonable
prices, including the steady rise in fuel costs and the costs associated with
conversion to alternate fuel sources such as coal; availability and the cost
of natural gas for resale, technical and cost factors and other problems
associated with construction, licensing, regulation and operations of nuclear
facilities for electric generation, including, among other considerations, the
problems associated with the use of radioactive materials and the disposal of
radioactive wastes, and the effect of energy conservation.
There is no assurance that regulatory authorities will in the
future grant rate increases or that any of these increases will be adequate to
cover even operating and other expenses and debt service requirements.
Recently enacted and possible future regulatory legislation may make it even
more difficult for these utilities to obtain adequate rate relief. In
addition, voters in many states have the ability to impose limits on rate
adjustments (for example, by initiative or referendums) and any unexpected
limitations could negatively affect the profitability of utilities whose
budgets are planned far in advance. Furthermore, changes in certain
accounting standards currently under consideration by the Financial Accounting
Standards Board (FASB-71) could cause significant writedowns of assets and
reductions in earnings for many investor-owned utilities. Certain of the
issuers of the Debt Obligations in the Trust own or operate nuclear generating
facilities. Federal, state and municipal government authorities may from time
to time review existing, and impose additional requirements governing the
licensing, construction and operation of nuclear power plants, which may
adversely affect the ability of such issuers to make payments of principal and
interest on the Debt Obligations.
Foreign Issues. Some of the Debt Obligations in the Portfolio may
be issues of foreign obligors, which may involve investment risks that are
different in some respects from an investment in a trust which invests only in
debt obligations of domestic issuers, including future political and economic
developments, the possible imposition of exchange controls, withholding taxes
on interest income payable on such Debt Obligations or other foreign
governmental restrictions (including expropriation, burdensome or confiscatory
taxation and moratoria) which might adversely affect the payment of principal
and interest on such Debt Obligations. In addition, it may be more difficult
to obtain and enforce a judgment against a foreign obligor, there may be less
publicly available information about a foreign obligor than about a domestic
issuer and foreign obligors generally operate in different regulatory
environments than comparable domestic issuers and are not generally subject to
uniform accounting, auditing and financial reporting standards, practices and
requirements comparable to those applicable to domestic issuers. Interest and
principal on all of the foreign issues in the Portfolio of the Trust are
payable in U.S. dollars. To the Sponsor's knowledge, there are no withholding
taxes applicable to such issues under existing law. However, there can be no
assurance that withholding taxes might not be imposed in the future.
Of the Debt Obligations in the Portfolio of the Trust, all are
subject to redemption prior to their stated maturity dates pursuant to sinking
fund or call provisions. A sinking fund is a reserve fund appropriated
specifically toward the retirement of a debt obligation. A callable debt
obligation is one which is subject to redemption or refunding prior to
maturity at the option of the issuer. A refunding is a method by which a debt
obligation is redeemed at or before maturity from the proceeds of a new issue
of debt obligations. In general, call provisions are more likely to be
-3-
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<PAGE>
exercised when the offering side evaluation of a debt obligation is at a
premium over par than when it is at a discount from par. A listing of the
sinking fund and call provisions, if any, with respect to each of the Debt
Obligations is contained under "Portfolio" in Part A. Certificateholders will
realize a gain or loss on the early redemption of such Debt Obligations,
depending on whether the price of such Debt Obligations is at a discount from
or at a premium over par at the time the Certificateholders purchase their
Units.
The Trust consists of the Debt Obligations listed under
"Portfolio" and any additional Debt Obligations acquired and held by the Trust
pursuant to the provisions of the Trust Agreement together with accrued and
undistributed interest thereon and undistributed and uninvested cash realized
from the sale, redemption, maturity or other disposition of the Debt
Obligations. Neither the Sponsor nor the Trustees shall be liable in any way
for any default, failure or defect in any of the Debt Obligations. Because
certain of the Debt Obligations from time to time may be redeemed or will
mature in accordance with their terms or may be sold under certain
circumstances, no assurance can be given that the Trust will retain for any
length of time its present size and composition. The Trust Agreement
authorizes, but does not require, the Sponsor to direct the Trustees to
reinvest the net proceeds of the sale of Debt Obligations in substitute Debt
Obligations to the extent that such proceeds do not represent capital gains
and are not required for the redemption of Units. See "Trust Administration."
PUBLIC OFFERING
Offering Price
The secondary market Public Offering Price per Unit is computed by
adding to the aggregate bid price of the Debt Obligations in the Trust divided
by the number of Units outstanding an amount equal to 4.5% of the Public
Offering Price, which is the same as 4.712% of the net amount invested in the
Debt Obligations per Unit times the aggregate bid price of the Debt
Obligations in the Trust. A proportionate share of accrued interest on the
Debt Obligations to the expected date of settlement for the Units is added to
the Public Offering Price. Accrued interest is the accumulated and unpaid
interest on a Debt Obligation from the last day on which interest was paid and
is accounted for daily by the Trust at the initial daily rate set forth under
"Summary of Essential Information" in Part A. This daily rate is net of
estimated fees and expenses. The secondary market Public Offering Price can
vary on a daily basis from the amount stated in Part A in accordance with
fluctuations in the prices of the Debt Obligations. The price to be paid by
each investor will be computed on the basis of an evaluation made on the day
the Units are purchased. The aggregate bid price evaluation of the Debt
Obligations is determined in the manner set forth under "Trustee Redemption."
The Evaluator may obtain current prices for the Debt Obligations
from investment dealers or brokers (including the Sponsor) that customarily
deal in corporate or government debt or from any other reporting service or
source of information which the Evaluator deems appropriate.
Accrued Interest
An amount of accrued interest which represents accumulated unpaid
or uncollected interest on a Debt Obligation from the last day on which
interest was paid thereon will be added to the Public Offering Price. Since
the Trust normally receives the interest on Debt Obligations twice a year and
the interest on the Debt Obligations in the Trust is accrued on a daily basis,
the Trust will always have an amount of interest earned but uncollected by, or
-4-
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<PAGE>
unpaid to, the Trustees. If a Certificateholder sells or redeems all or a
portion of his Units or if the Trust is terminated, he will receive at that
time his proportionate share of the accrued interest computed to the
settlement date in the case of sale or termination and to the date of tender
in the case of redemption.
Employee Discounts
Employees (and their immediate families) of Bear, Stearns & Co.
Inc. and of any underwriter of the Trust, pursuant to employee benefit
arrangements, may purchase Units of the Trust at a price equal to the bid side
evaluation of the underlying securities in the Trust divided by the number of
Units outstanding plus a reduced charge of $10.00 per Unit. Such arrangements
result in less selling effort and selling expenses than sales to employee
groups of other companies. Resales or transfers of Units purchased under the
employee benefit arrangements may only be made through the Sponsor's secondary
market, so long as it is being maintained.
Distribution of Units
The Sponsor has qualified and intends to continue to qualify the
Units for sale in ten States through dealers who are members of the National
Association of Securities Dealers, Inc. Units may be sold to dealers at
prices which represent a concession of $30 per Unit, subject to the Sponsor's
right to change the dealers' concession from time to time. Such Units may
then be distributed to the public by the dealers at the Public Offering Price
then in effect. The Sponsor reserves the right to reject, in whole or in
part, any order for the purchase of Units.
Sponsor's Profits
The Sponsor will receive a gross commission on all units sold in
the secondary market equal to the applicable sales charge on each transaction.
(See "Offering Price.") In addition, in maintaining a market for the Units
(see "Sponsor Repurchase"), the Sponsor will realize profits or sustain losses
in the amount of any difference between the price at which it buys Units and
the price at which it resells such Units.
Participants in the "Total Reinvestment Plan" can designate a
broker as the recipient of a dealer concession. See "Total Reinvestment
Plan."
Comparison of Public Offering Price and Redemption Price
The secondary market Public Offering Price of Units will be
determined on the basis of the bid prices of the Debt Obligations in the
Trust. The value at which Units may be redeemed will be determined on the
basis of the current bid prices of such Debt Obligations without any sales
charge. On the Evaluation Date, the Public Offering Price per Unit (based on
the bid side evaluation of the Debt Obligations in the Trust plus the sales
charge) exceeded the Redemption Price per Unit (based upon the bid side
evaluation of the Debt Obligations in the Trust) by the amount shown under
"Summary of Essential Information" in Part A of this Prospectus. For this
reason, among others (including fluctuations in the market prices of Debt
Obligations and the fact that the Public Offering Price includes the 4-1/2%
sales charge), the amount realized by a Certificateholder upon any redemption
of Units may be less than the price paid for such Units.
-5-
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<PAGE>
ESTIMATED LONG TERM RETURN AND ESTIMATED CURRENT RETURN
New York Risk Factors
This summary is included for the purpose of providing a general
description of New York State's (the "State") and New York City's (the "City")
credit and financial condition. The information set forth below is derived
from the official statements and/or preliminary drafts of official statements
prepared in connection with the issuance of State and City municipal bonds.
The Fund has not independently verified this information.
State Economic Trends. Over the long term, the State and the City
face serious potential economic problems. The City accounts for approximately
41% of the State's population and personal income, and the City's financial
health affects the State in numerous ways. The State historically has been
one of the wealthiest states in the nation. For decades, however, the State
has grown more slowly than the nation as a whole, gradually eroding its
relative economic affluence. Statewide, urban centers have experienced
significant changes involving migration of the more affluent to the suburbs
and an influx of generally less affluent residents. Regionally, the older
Northeast cities have suffered because of the relative success that the South
and the West have had in attracting people and business. The City has also
had to face greater competition as other major cities have developed financial
and business capabilities which make them less dependent on the specialized
services traditionally available almost exclusively in the City. In recent
years the State's economic position has improved in a manner consistent with
that for the Northeast as a whole. The State has for many years had a very
high State and local tax burden relative to other states. The State and its
localities have used these taxes to develop and maintain their transportation
networks, public schools and colleges, public health systems, other social
services and recreational facilities. Despite these benefits, the burden of
State and local taxation, in combination with the many other causes of
regional economic dislocation, has contributed to the decisions of some
businesses and individuals to relocate outside, or not locate within, the
State.
Notwithstanding the numerous initiatives that the State and its
localities may take to encourage economic growth and achieve balanced budgets,
reductions in Federal spending could materially and adversely affect the
financial condition and budget projections of the State and its localities.
New York City. The City, with a population of approximately 7.3
million, is an international center of business and culture. Its
non-manufacturing economy is broadly based, with the banking and securities,
life insurance, communications, publishing, fashion design, retailing and
construction industries accounting for a significant portion of the City's
total employment earnings. Additionally, the City is the nation's leading
tourist destination. The City's manufacturing activity is conducted primarily
in apparel and publishing.
The national economic downturn which began in July 1990 adversely
affected the local economy, which had been declining since late 1989. As a
result, the City experienced job losses in 1990 and 1991 and real Gross City
Product (GCP) fell in those two years. In order to achieve a balanced budget
as required by the laws of the State for the 1992 fiscal year, the City
increased taxes and reduced services during the 1991 fiscal year to close a
then projected gap of $3.3 billion in the 1992 fiscal year which resulted
from, among other things, lower than projected tax revenue of approximately
$1.4 billion, reduced State aid for the City and greater than projected
increases in legally mandated expenditures, including public assistance and
Medicaid expenditures. Beginning in calendar year 1992, the improvement in
the national economy helped stabilize conditions in the City. Employment
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<PAGE>
losses moderated toward year-end and real GCP increased, boosted by strong
wage gains. The City's current four-year financial plan assumes that, after
noticeable improvements in the City's economy during calendar year 1994,
economic growth will slow in calendar years 1995 and 1996 with local
employment increasing modestly. In December 1994, the City experienced
substantial shortfalls in payments of non-property tax revenues from those
forecasted. Through December 1994, collections of non-property taxes were
approximately $200 million lower than projected.
For each of the 1981 through 1994 fiscal years, the City achieved
balanced operating results as reported in accordance with generally accepted
accounting principles ("GAAP"), and the City's 1995 fiscal year results are
projected to be balanced in accordance with GAAP. The City was required to
close substantial budget gaps in recent years in order to maintain balanced
operating results. For fiscal year 1995, the City has adopted a budget which
has halted the trend in recent years of substantial increases in City spending
from one year to the next. There can be no assurance that the City will
continue to maintain a balanced budget as required by State law without
additional tax or other revenue increases or reductions in City services,
which could adversely affect the City's economic base.
Pursuant to the laws of the State, the City prepares an annual
four-year financial plan, which is reviewed and revised on a quarterly basis
and which includes the City's capital, revenue and expense projections and
outlines proposed gap-closing programs for years with projected budget gaps.
The City is required to submit its financial plans to review bodies, including
the New York State Financial Control Board ("Control Board"). If the City
were to experience certain adverse financial circumstances, including the
occurrence or the substantial likelihood and imminence of the occurrence of an
annual operating deficit of more than $100 million or the loss of access to
the public credit markets to satisfy the City's capital and seasonal financing
requirements, the Control Board would be required by State law to exercise
powers, among others, of prior approval of City financial plans, proposed
borrowings and certain contracts.
The City depends on the State for State aid both to enable the
City to balance its budget and to meet its cash requirements. There can be no
assurance that there will not be reductions in State aid to the City from
amounts currently projected or that State budgets in future fiscal years will
be adopted by the April 1 statutory deadline and that such reductions or
delays will not have adverse effects on the City's cash flow or expenditures.
The Mayor is responsible for preparing the City's four-year
financial plan, including the City's current financial plan for the 1995
through 1998 fiscal years (the "1995-1998 Financial Plan" or "Financial
Plan"). The City's projections set forth in the Financial Plan are based on
various assumptions and contingencies which are uncertain and which may not
materialize.
Changes in major assumptions could significantly affect the City's
ability to balance its budget as required by State law and to meet its annual
cash flow and financing requirements. Such assumptions and contingencies
include the condition of the regional and local economies, the impact on real
estate tax revenues of the real estate market, wage increases for City
employees consistent with those assumed in the Financial Plan, employment
growth, the results of a pending actuarial audit of the City's pension system
which is expected to significantly increase the City's annual pension costs,
the ability to implement proposed reductions in City personnel and other cost
reduction initiatives, which may require in certain cases the cooperation of
the City's municipal unions, revenue generating transactions and provision of
State and Federal aid and mandate relief.
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Implementation of the Financial Plan is also dependent upon the
City's ability to market its securities successfully in the public credit
markets. The City's financing program for fiscal years 1995 through 1998
contemplates the issuance of $10.7 billion of general obligation bonds
primarily to reconstruct and rehabilitate the City's infrastructure and
physical assets and to make other capital investments. In addition, the City
issues revenue and tax anticipation notes to finance its seasonal working
capital requirements. The success of projected public sales of City bonds and
notes will be subject to prevailing market conditions, and no assurance can be
given that such sales will be completed. If the City were unable to sell its
general obligation bonds and notes, it would be prevented from meeting its
planned capital and operating expenditures.
On October 25, 1994, the City published the Financial Plan for the
1995-1998 fiscal years, which is a proposed modification to a financial plan
submitted to the Control Board on July 8, 1994 (the "July Financial Plan") and
which relates to the City, the Board of Education ("BOE") and the City
University of New York.
The City's July Financial Plan set forth proposed actions for the
1995 fiscal year to close a previously projected gap of approximately $2.3
billion for the 1995 fiscal year, which included City actions aggregating $1.9
billion, a $288 million increase in State actions over the 1994 and 1995
fiscal years, and a $200 million increase in Federal assistance. The City
actions included proposed agency actions aggregating $1.1 billion, including
productivity savings; tax and fee enforcement initiatives; service reductions;
and savings for the restructuring of City services. City actions also
included savings of $45 million resulting from proposed tort reform, the
projected transfer to the 1995 fiscal year of $171 million of the projected
1994 fiscal year surplus, savings of $200 million for employee health care
costs, $51 million in reduced pension costs, savings of $225 million from
refinancing City bonds and $65 million from the proposed sale of certain City
assets.
The 1995-1998 Financial Plan published on October 25, 1994
reflects actual receipts and expenditures and changes in forecast revenues and
expenditures since the July Financial Plan and projects revenues and
expenditures for the 1995 fiscal year balanced in accordance with GAAP. For
the 1995 fiscal year, the Financial Plan includes actions to offset an
additional potential $1.1 billion budget gap, resulting principally from a
$104 million decrease in the $171 million projected surplus from the 1994
fiscal year to be transferred to the 1995 fiscal year, due primarily to lower
projected tax revenues for the 1994 fiscal year; reductions in projected tax
revenues for the 1995 fiscal year totaling $170 millon; $60 million of
increased City pension contributions resulting from lower than expected
earnings on pension fund assets for the 1994 fiscal year; a $166 million
shortfall in projected increased Federal assistance due primarily to the
failure to enact national health care reform; the failure of the State
Legislature to approve tort reform; the failure to achieve the projected
savings of $200 million for employee health care costs; a $165 million
increase in projected overtime expenditures; and additional agency spending
requirements, primarily for increased costs for foster care and homeless
services, and other decreased projected revenues.
The gap-closing measures for the 1995 fiscal year set forth in the
1995-1998 Financial Plan include additional proposed agency actions
aggregating $851 million, including $342 million of reduced personal services
costs resulting from a reduction in the number of city employees, additional
expenditure reductions and $42 million of greater than forecast miscellaneous
revenues. Additional proposed gap-closing actions include the availability of
$200 million, primarily from reserves held for unreported health insurance
claims. The $851 million of agency actions proposed in the Financial Plan for
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the 1995 fiscal year, together with the $1.1 billion of agency actions
proposed in the July Financial Plan, are substantial and difficult to
implement. Agency actions proposed in the Financial Plan for the 1995 fiscal
year include reduced expenditures for the Police Department totaling $67
million, a $107 million reduction in the City's subsidy to the New York City
Health and Hospital Corporation ("HHC"), reduced allocations to BOE totaling
$190 million, expenditure reductions totaling $102 million for the Human
Resources Administration, expenditure reduction totaling $32 million for the
Department of Corrections, a portion of which is subject to modification of a
court consent decree, and a $113 million reduction in the City's subsidy to
the Metropolitan Transportation Authority (the "MTA"). The Financial Plan is
subject to the ability of the City to implement proposed reductions in City
personnel and other cost reduction initiatives.
Based on currently available results, the Mayor's Office of
Management and Budget ("OMB") believes that developments since the publication
of the Financial Plan on October 25, 1994 have caused an additional $650
million budget gap in the 1995 fiscal year due to (i) projected tax revenue
shortfalls of $400 million, (ii) failure to renegotiate the terms of certain
Port Authority leases to increase revenues by $75 million, (iii) miscellaneous
revenue shortfalls of $25 million, and (iv) increases in certain agency
expenditures of $150 million. The projected tax revenue shortfalls for the
1995 fiscal year result from lower capital gains, bonuses and business
profits, the timing of certain payments and discounting by retailers. OMB has
also identified gap-closing actions totaling $650 million in the 1995 fiscal
year. Certain of these gap-closing actions will be subject to the ability of
the City to implement expenditure reduction initiatives and, in the case of
the social security refund, final approval by the Internal Revenue Service.
In the event these gap-closing actions cannot be fully implemented, the City
will be required to adopt additional gap-closing measures for the remainder of
the 1995 fiscal year, and there is no assurance that such measures will enable
the City to achieve a balanced budget for the 1995 fiscal year. Current
forecasts of revenues and expenditures for the fiscal year 1995, including the
gap-closing actions, could require the City to take actions within the 1995
fiscal year to meet its cash flow requirements.
The Financial Plan also sets forth projections to the 1996 through
1998 fiscal years and outlines a proposed gap-closing program to close
projected gaps of $1.0 billion, $1.5 billion and $2.0 billion for the 1996
through 1998 fiscal years, respectively, after successful implementation of
the $1.1 billion gap-closing program to the 1995 fiscal year.
OMB believes that developments since the publication of the
Financial Plan have caused the $1.0 billion gap projected in the Financial
Plan for the 1996 fiscal year to increase to $2.7 billion. The $1.5 billion
increase in the forecast budget gap for fiscal year 1996 is due to (i) a
projected tax revenue shortfall of approximately $400 million, reflecting the
impact of the recent shortfall in collections of non-property taxes described
above, (ii) an $80 million shortfall in projected property tax receipts due to
a lower than forecast increase in the tentative assessment role published by
the New York City Department of Finance, (iii) a reduction of $390 million in
the forecast receipts of State and Federal aid, (iv) a reduction of $75
million in forecast receipts of lease payments for New York City airports,
(v) higher costs of $260 million for Medicaid and agency spending, (vi)
additional pension funding costs of $300 million resulting from an ongoing
actuarial audit of the City pension systems and (vii) $45 million in
additional costs for unachieved tort reform.
In February the Mayor published a modification (the "February
Modification") to the Financial Plan for the City's 1995 through 1998 fiscal
years and a preliminary budget for the City's 1996 fiscal year. The February
Modification reflected changes since the Financial Plan including measures to
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be taken to assure balance in the 1995 fiscal year described above and the
City's program to address the currently forecast gap of approximately $2.7
billion in fiscal year 1996 which gap is projected to increase to $3.2 billion
and $3.8 billion in 1997 and 1998, respectively. The gap-closing program is
subject to change. However, the major components of the gap-closing program
for fiscal year 1996 are (i) a reduction in spending for entitlements of
approximately $1.2 billion, primarily affecting public assistance and Medicaid
payments by the City, (ii) $600 million in savings from municipal unions and
(iii) $500 million from the Board of Education. In addition, the City will
continue to seek mandate relief such as tort reform and other changes in City
procedures and use of resources through privatization and efficient
utilization of the City's assets.
The proposals contained in the February Modification to close the
projected budget gaps for the 1995 and 1996 fiscal years engendered
substantial public debate, and that the public debate relating to the 1996
fiscal year budget will most likely continue through the time the budget is
scheduled to be adopted in June 1995. On January 17, 1995, Standard & Poor's
placed the City's general obligation bonds on CreditWatch with negative
implications, in light of the refunding of debt contemplated by this offering
to provide $120 million of the $650 million in gap-closing actions required
for the 1995 fiscal year. Standard & Poor's stated that it will review the
February Modification for evidence of continued progress toward long-term
structural balance, and eventual elimination of certain types of budget
devices, as well as the next State budget proposal, to determine the extent of
the City's relief from State mandates in education, social services, and
health care expenditures. Standard & Poor's stated that, by April 1995,
financial plans which continue to incorporate budget devices, such as
refunding, or fail to reflect ongoing budget relief from the State, will
result in a lowering of the rating to the "BBB" category for New York City's
general obligation bonds.
In January 1993, the City announced a settlement with a coalition
of municipal unions, including Local 237 of the International Brotherhood of
Teamsters, District Council 37 of the American Federation of State, County and
Municipal Employees and other unions covering approximately 44% of the City's
workforce. The settlement, which has been ratified by the unions, includes a
total net expenditure increase of 8.25% over a 39 month period, ending March
31, 1995 for most of these employees. The City is presently bargaining with
the Correction Officers' Benevolent Association and the Sanitation Officers'
Association. In addition, the Transit Police Benevolent Association's
delegate body rejected a tentative settlement with the City. The contract
dispute is currently being arbitrated before the State's Public Employment
Relations Board. Moreover, a contract dispute between the City and the
Licensed Practical Nurses is currently in arbitration before the City's Office
of Collective Bargaining.
The Financial Plan provides no additional wage increases for City
employees after their contracts expire in the 1995-1996 fiscal years. Each 1%
wage increase for all employees commencing in the 1995 and 1996 fiscal years
would cost the City an additional $28 million for the 1995 fiscal year, $140
million for the 1996 fiscal year and $150 million each year thereafter above
the amounts provided for in the Financial Plan.
Various actions proposed in the Financial Plan, including the
proposed increase in State aid, are subject to approval by the Governor and
the State Legislature, and the proposed increase in Federal aid is subject to
approval by Congress and the President. State and Federal actions are
uncertain and no assurance can be given that such actions will in fact be
taken or that the savings that the City projects will result from these
actions will be realized. The State Legislature failed to approve a
substantial portion of the proposed State assumption of Medicaid costs in the
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last session. The Financial Plan assumes that these proposals will be
approved by the State Legislature during the 1995 fiscal year and that the
Federal government will increase its share of funding for the Medicaid
program. If these measures cannot be implemented, the City will be required
to take other actions to decrease expenditures or increase revenues to
maintain a balanced financial plan.
Although the City has maintained balanced budgets in each of its
last thirteen fiscal years, and is projected to achieve balanced operating
results for the 1995 fiscal year, there can be no assurance that the gap-
closing actions proposed by the Financial Plan can be successfully implemented
or that the City will maintain a balanced budget in future years without
additional State aid, revenue increases or expenditure reductions. Additional
tax increases and reductions in essential City services could adversely affect
the City's economic base.
The 1995-1998 Financial Plan is based on numerous assumptions,
including the continuing improvement in the City's and the region's economy
and a modest employment recovery during calendar year 1994 and the concomitant
receipt of the economically sensitive tax revenues in the amounts projected.
The 1995-1998 Financial Plan is subject to various other uncertainties and
contingencies relating to, among other factors, the extent, if any, to which
wage increases for City employees exceed the annual increases assumed for the
1995 through 1998 fiscal years; continuation of the 9% interest earnings
assumptions for pension fund assets and current assumptions with respect to
wages for City employees affecting the City's required pension fund
contributions; the willingness and ability of the State, in the context of the
State's current financial condition, to provide the aid contemplated by the
Financial Plan and to take various other actions to assist the City, including
the proposed State takeover of certain Medicaid costs and State mandate
relief; the ability of the Health and Hospitals Corporation ("HHC"), BOE and
other such agencies to maintain balanced budgets; the willingness of the
Federal government to provide Federal aid; approval of the proposed
continuation of the personal income tax surcharge; adoption of the City's
budgets by the City Council in substantially the forms submitted by the Mayor;
the ability of the City to implement proposed reductions in City personnel and
other cost reduction initiatives, which may require in certain cases the
cooperation of the City's municipal unions, and the success with which the
City controls expenditures; savings for health care costs for City employees
in the amounts projected in the Financial Plan; additional expenditures that
may be incurred due to the requirements of certain legislation requiring
minimum levels of funding for education; the impact on real estate tax
revenues of the current weakness in the real estate market; the City's ability
to market its securities successfully in the public credit markets; and
additional expenditures that may be incurred as a result of deterioration in
the condition of the City's infrastructure. Certain of these assumptions have
been questioned by the City Comptroller and other public officials.
The projections and assumptions contained in the 1995-1998
Financial Plan are subject to revision, which may involve substantial change,
and no assurance can be given that these estimates and projections, which
include actions which the City expects will be taken but which are not within
the City's control, will be realized.
From time to time, the Control Board staff, the City Comptroller
and others issue reports and make public statements regarding the City's
financial condition, commenting on, among other matters, the City's financial
plans, projected revenues and expenditures and actions by the City to
eliminate projected operating deficits. Some of these reports and statements
have warned that the City may have underestimated certain expenditures and
overestimated certain revenues and have suggested that the City may not have
adequately provided for future contingencies. Certain of these reports have
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analyzed the City's future economic and social conditions and have questioned
whether the City has the capacity to generate sufficient revenues in the
future to meet the costs of its expenditure increases and to provide necessary
services.
On January 17, 1995, the City Comptroller issued a report which
concluded that the risks for the 1995 fiscal year had increased from $453
million to $658 million, primarily as a result of the lower-than-projected tax
revenues totaling $400 million, partially offset by the anticipated receipt of
an additional $100 million of revenues from the refund by the Internal Revenue
Service of social security overpayments by the City in the 1995 fiscal year.
The report stated that the shortfall in tax revenue collections is explained
largely by weaknesses in the banking industry and securities sector, which
have been hurt by the tight monetary policies of the Federal Reserve Board
which have resulted in losses from bond trading operations, layoffs and lower
year-end bonuses. The report stated that this shortfall may increase if total
returns in the financial sector do not improve in the first half of the 1995
calendar year.
On December 27, 1994, the City Comptroller issued a report on the
City's economy which noted that the City's economic recovery had slowed in the
third quarter of the 1994 calendar year and concluded that the City's economy
is still very weak and the local recovery is fragile. The report noted that
the indications of weakness in the City's economy included slower growth in
payroll employment and retail sales in the third quarter, as well as softness
in the Manhattan commercial real estate market. The report also noted that
the tight monetary policies implemented by the Federal Reserve Bank since
February to curb inflationary pressures were particularly harmful to interest
rate sensitive and cyclical sectors, such as retailing, the securities
industry, banking and manufacturing and that the City's service driven economy
has not benefited from the national recovery, which was largely driven by
interest rate sensitive sectors of housing, capital goods and consumer durable
goods. The report noted that the slow-down in economic activity was expected
to continue in the fourth quarter of 1994, with more cutbacks in local
governments and additional layoffs in the financial sector, which will offset
new hiring in other areas and result in a slow growth in the 1995 calendar
year.
On November 30, 1994, OSDC issued a report reviewing the Financial
Plan. The report concluded that a projected budget gap of $252 million
existed for the 1995 fiscal year, due largely to higher social service costs
and uncertainties concerning the receipt of revenues from increased collection
efforts. The report identified additional substantial risks for the 1995
fiscal year totaling $351 million, including the proposed reduction in the
City subsidy to the Transit Authority, the receipt of revenues by the City as
a result of the refund of social security overpayments, the projected
subleasing of certain assets and possible additional expenditures for the BOE.
After taking into account possible reduced expenditures of $100 millon, OSDC
concluded that the City faces risks of approximately $500 million for the
remainder of the 1995 fiscal year.
With respect to the 1996 through 1998 fiscal years, the OSDC in
its March 21, 1995 report projects gaps of approximately $3 billion, $3.6
billion and $4.1 billion, respectively. According to the OSDC, the projected
gap could be greater than forecast by the City primarily because the City has
not yet secured $133 million in anticipated health insurance savings and
overtime costs from uniformed agencies are likely to be $80 million higher
than projected by the City. The report also identified a number of additional
risks which could raise the 1996 budget gap by another $400 millon (a net gap
of $232 million after accounting for possible savings from overestimating
prior year's expenses). These risks include (i) the expiration of the 14%
personal income tax surcharge which the Financial Plan assumes will be
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extended by the State, (ii) unfunded liabilities at the Board of Education and
(iii) potentially higher pension costs. Additionally, the 1996 gap-closing
program relies to a very large degree on cooperation from Federal and State
governments and municipal unions. In fact, the City has direct control of
less than $500 million of the total gap-closing measures. Therefore, no
assurance can be given that the 1996 measures will be successfully
implemented.
On December 8, 1994, the staff of the Control Board issued a
report on the Financial Plan. In its report the staff concluded that the City
faced risks of more than $513 million in the 1995 fiscal year. The staff
noted that tax receipts are stagnant, primarily because of a further
contraction in the property tax and sluggish growth in the non-property taxes,
related to erosion of profits in the securities industry, and that there are
substantial risks for the 1995 fiscal year with respect to possible increased
overtime and City Medicaid payments to HHC, shortfalls in parking fine
collections, the projected refund of social security payments, a proposed
asset sale, the renegotiation of certain Port Authority leases and possible
additional expenditures at BOE. In addition, the staff indicated that there
are risks of $2.0 billion, $2.6 billion and $3.1 billion for the 1996, 1997
and 1998 fiscal years, respectively. Risks for 1996 through 1998 fiscal years
include the potential for increased overtime and lower nonproperty tax
revenues, increased spending for City Medicaid payments to HHC, additional
expenditures at BOE, uncertainties concerning the proposed reduction in City
expenditures for health care costs, the anticipated revenues from
renegotiation of the terms of certain Port Authority leases, savings resulting
from the proposed tort reform to limit damage claims against the City, and
increased Federal aid for Medicaid. The report noted that the City faced
additional risks with respect to its assumptions regarding pension costs, a
reduced subsidy to the Transit Authority, social services savings and the cost
of wages. The staff noted that it is imperative that the City Council and the
Mayor work together to ensure that the actions taken for the 1995 fiscal year
are recurring and help reduce the over $2 billion gap for the 1996 fiscal year
and that a cooperative effort is necessary if the City is to solve its
structural budget problems and bring stability to the delivery of services to
its residents.
On March 17, 1995 the Control Board staff issued its report
commenting on the February Modification. The report notes that the February
Modification attempts to address the structural imbalances by dramatically
lowering expenditures in large budget areas while continuing the restructuring
of the City's finances. Their analysis does show a risk of at least $486
million in fiscal 1996, particularly because more than $2 billion in projected
budget relief is dependent upon the action of others. Both the Control Board
and the OSDC have noted that the City has not yet brought its long term
expenditures in line with recurring revenues; therefore, the City is likely to
face future budget gaps requiring it to reduce expenditures and/or increase
revenues.
A substantial portion of the capital improvements in the City are
financed by indebtedness issued by the Municipal Assistance Corporation for
the City of New York ("MAC"). MAC was organized in 1975 to provide financing
assistance for the City and also to exercise certain review functions with
respect to the City's finances. MAC bonds are payable out of certain State
sales and compensating use taxes imposed within the City, State stock transfer
taxes and per capita State aid to the City. Any balance from these sources
after meeting MAC debt service and reserve fund requirements and paying MAC's
operating expenses is remitted to the City or, in the case of the stock
transfer taxes, rebated to the taxpayers. The State is not, however,
obligated to continue the imposition of such taxes or to continue
appropriation of the revenues therefrom to MAC, nor is the State obligated to
continue to appropriate the State per capita aid to the City which would be
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required to pay the debt service on certain MAC obligations. MAC has no
taxing power and MAC bonds do not create an enforceable obligation of either
the State or the City. As of September 30, 1994, MAC had outstanding an
aggregate of approximately $4.885 billion of its bonds.
The City's general obligation bonds are rated Baa1 by Moody's.
Standard & Poor's has rated the City's general obligation bonds A-. Fitch
Investors Service, Inc. ("Fitch") has rated them A-. Such ratings reflect
only the view of Moody's, Standard & Poor's and Fitch, from which an
explanation of the significance of such ratings may be obtained. There is no
assurance that such ratings will continue for any given period of time or that
they will not be revised downward or withdrawn entirely. Any such downward
revision or withdrawal could have an adverse effect on the market prices of
the City's general obligation bonds.
New York State and its Authorities. The State's current fiscal
year commenced on April 1, 1995, and ends on March 31, 1996, and is referred
to herein as the State's 1995-96 fiscal year. The prior fiscal year, which
ended on March 31, 1995, is referred to herein as the State's 1994-95 fiscal
year. The State's budget for the 1994-95 fiscal year was enacted by the
Legislature on June 7, 1994, more than two months after the start of the
fiscal year. Prior to adoption of the budget, the Legislature enacted
appropriations for disbursements considered to be necessary for State
operations and other purposes, including all necessary appropriations for debt
service. The State Financial Plan for the 1994-95 fiscal year was formulated
on June 16, 1994 and is based on the State's budget as enacted by the
Legislature and signed into law by then Governor Cuomo. On February 1,
Governor Pataki presented his 1995-96 Executive Budget, containing his
recommendations for the upcoming fiscal year. The Governor's budget is
balanced on a cash basis in the General Fund (described below). However,
there can be no assurance that the Legislature will enact the proposed
Executive Budget into law, that the budget will be adopted in a more timely
manner than the prior year's budget, or that actual results will not differ
materially and adversely from the projections set forth below.
The economic and financial condition of the State may be affected
by various financial, social, economic and political factors. Those factors
can be very complex, may vary from fiscal year to fiscal year, and are
frequently the result of actions taken not only by the State and its agencies
and instrumentalities, but also by entities, such as the Federal government,
that are not under the control of the State.
The State Financial Plan is based upon forecasts of national and
State economic activity. Economic forecasts have frequently failed to predict
accurately the timing and magnitude of changes in the national and the State
economics. Many uncertainties exist in forecasts of both the national and
State economies, including consumer attitudes toward spending, Federal
financial and monetary policies, the availability of credit, and the condition
of the world economy, which could have an adverse effect on the State. There
can be no assurance that the State economy will not experience results in the
current fiscal year that are worse than predicted, with corresponding material
and adverse effects on the State's projections of receipts and disbursements.
The State Division of the Budget ("DOB") believes that its
projections of receipts and disbursements relating to the current State
Financial Plan, and the assumptions on which they are based, are reasonable.
Actual results, however, could differ materially and adversely from the
projections set forth below, and those projections may be changed materially
and adversely from time to time.
As noted above, the financial condition of the State is affected
by several factors, including the strength of the State and regional economy
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and actions of the Federal government, as well as State actions affecting the
level of receipts and disbursements. Owing to these and other factors, the
State may, in future years, face substantial potential budget gaps resulting
from a significant disparity between tax revenues projected from a lower
recurring receipts base and the future costs of maintaining State programs at
current levels. Any such recurring imbalance would be exacerbated if the
State were to use a significant amount of nonrecurring resources to balance
the budget in a particular fiscal year. To address a potential imbalance for
a given fiscal year, the State would be required to take actions to increase
receipts and/or reduce disbursements as it enacts the budget for that year,
and under the State Constitution the Governor is required to propose a
balanced budget each year. To correct recurring budgetary imbalances, the
State would need to take significant actions to align recurring receipts and
disbursements in future fiscal years. There can be no assurance, however,
that the State's actions will be sufficient to preserve budgetary balance in a
given fiscal year or to align recurring receipts and disbursements in future
fiscal years.
The General Fund is the general operating fund of the State and is
used to account for all financial transactions, except those required to be
accounted for in another fund. It is the State's largest fund and receives
almost all State taxes and other resources not dedicated to particular
purposes. In the State's 1994-95 fiscal year, the General Fund is expected to
account for approximately 52 percent of total governmental-fund receipts and
51 percent of total governmental-fund disbursements. General Fund moneys are
also transferred to other funds, primarily to support certain capital projects
and debt service payments in other fund types.
As a result of the national and regional economic recession, the
State's tax receipts for its 1991 and 1992 fiscal years were substantially
lower than projected, which resulted in reductions in State aid to localities
for the State's 1992 and 1993 fiscal years from amounts previously projected.
The State completed its 1993 fiscal year with a positive margin of $671
million in the General Fund, which was deposited into a tax refund reserve
account. The State's economy, as measured by employment, started to recover
near the start of the 1993 calendar year, continued into mid-1994 and then
virtually ceased and the State completed its 1994 fiscal year with a
cash-basis balanced budget in the State's General Fund (the major operating
fund of the State), after depositing $1.5 billion in various reserve funds.
The State's 1994-95 Financial Plan, which is based upon the
enacted State budget, projected a balanced General Fund. The State's 1994-95
Financial Plan provided the City with savings through various actions, which
include increased State education aid and State assumption of certain costs
previously paid by the City and restoration of certain prior year revenue
sharing reductions. However, the State Legislature failed to enact a
substantial portion of the proposed State assumption of local Medicaid costs,
other significant mandate relief items, and the proposed tort reform
legislation, which would have provided the City with additional savings. On
February 1, 1995, as part of his Executive Budget for the 1995-96 fiscal year,
the Governor submitted the third quarterly update to the State Financial Plan
for the 1994-95 fiscal year. This update reflects changes to receipts and
disbursements. The update revises the projected General Fund receipts and
disbursements contained in the 1994-95 State Financial Plan as revised by the
first and second quarterly updates issued on July 29, 1994 and October 28,
1994. The update reflected that estimates of General Fund receipts for the
1994-95 fiscal year have been reduced by $585 million, from the mid-year
update, and are down $1.058 billion from the budget enacted in June 1994 (of
which $227 million results from a post mid-year accounting restatement of the
State Financial Plan). Offsetting this projected loss in receipts, however,
are projected reductions of $312 million in disbursements from the mid-year
update, attributable to lower spending through the first nine months of the
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fiscal year, and to the use of greater than anticipated receipts from the
State lottery. The net result of the projected reductions in receipts and
disbursements is a negative margin of $273 million against the mid-year
update's projection of a $14 million surplus, producing a potential deficit of
$259 million for the 1994-95 fiscal year. The Governor has proposed to close
this deficit through a hiring freeze, a review of pending contracts, and
spending cuts in certain programs that were started or expanded in the 1994-95
budget. Governor Pataki submitted a proposed budget for the State's 1995-96
fiscal year on February 1, 1995. The Governor's budget for 1995-96 fiscal
year included significant savings from Medicaid cost containment measures and
welfare reform and substantial reductions in State aid to localities,
including the City.
The 1995-96 Executive Budget is the first to be submitted by the
Governor, who assumed office on January 1. It proposes actual reductions in
the year-over-year dollar levels of State spending from the General Fund for
the first time in over half a century with a proposed cut of 3.4 percent.
There are, however, risks and uncertainties concerning whether or not certain
tax and spending cuts proposed in the Executive Budget will be upheld in the
face of potential legal challenges. For example, there can be no assurance
that cuts in social-welfare entitlement programs will not be challenged in
court. Further, the Comptroller has indicated his intention to challenge in
Court the proposed use of certain pension reserves in the Executive Budget.
According to the Executive Budget, in the 1995-96 fiscal year, the
State Financial Plan would be out of balance by almost $4.7 billion, as a
result of three key factors: (1) the projected structural deficit resulting
from the ongoing disparity between sluggish growth in receipts, the effect of
prior-year tax changes, and the rapid acceleration of spending growth ($2.1
billion); (2) the impact of unfunded 1994-95 initiatives, including capital
projects such as sports and recreational facilities, an increase in revenue
sharing to local governments, further State takeover of local Medicaid costs,
more school aid, and increased tuition assistance ($1.1 billion); and (3) the
use of one-time solutions to fund recurring spending in the 1994-95 budget
($1.5 billion). Tax cuts proposed to spur economic growth and provide relief
for low and middle-income taxpayers add $240 million to the projected
imbalance or budget gap, bringing the total to approximately $5 billion.
The Executive Budget proposes to close the budget gap for the
1995-96 fiscal year through (1) $1.9 billion from cost containment savings in
social-welfare programs, particularly Medicaid cost-containment
recommendations ($1.277 billion), Income-Maintenance restructuring
recommendations ($340 million), and the consolidation of various child-care
programs into a Family Services Block Grant to counties and New York City; (2)
$2.5 billion in savings from State agency restructuring that is expected to
reduce spending on the State workforce, SUNY and CUNY, mental hygiene
programs, capital projects, the prison population, and public authorities; (3)
$350 million in savings from local assistance reforms, by freezing school aid,
revenue sharing and county costs of preschool special education at current
levels, while proposing program legislation to provide relief from certain
mandates that increase local spending; and (4) $200 million in new revenue
measures, primarily a new Quick Draw Lottery game and changes to tax-payment
schedules. The Executive Budget indicates that for years State revenues have
grown at a lower rate than State spending, producing an increasing structural
deficit, and that if the proposals in the Executive Budget are upheld
(particularly the spending cuts described above) the State will start to
eliminate the structural imbalance that has characterized the State's fiscal
record. There can, however, be no assurances that the tax and spending cuts
proposed in the Executive Budget will be upheld or enacted as proposed, or
that if enacted, will eliminate potential imbalances in future fiscal years.
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As expected, the Governor's proposals will engender substantial
public debate which will continue until the enactment of the budget by the
State legislature, which as expected did not occur before April 1, 1995.
However, no assurance can be given as to the amount of savings which the City
might realize from any such cost containment measures or welfare reform or the
size of any such reductions in State aid to the City. Depending upon the
amount of such savings or the size of any such reductions in State aid, the
City might be required to make substantial additional changes in the Financial
Plan.
In certain recent fiscal years, the State has failed to enact a
budget prior to the beginning of the State's fiscal year. The delay in the
adoption of the State's budget could delay the projected receipt by the City
of State aid, and there can be no assurance that State budgets in future
fiscal years will be adopted by the April 1 statutory deadline.
As a result of various uncertainties and other factors, including
consumer attitudes toward spending, Federal financial and monetary policies,
the availability of credit and the condition of the world economy, actual
results could differ materially and adversely from the State's current
projections and the State's projections could be materially and adversely
changed from time to time.
On January 13, 1992 Standard & Poor's Corporation ("Standard &
Poor's") reduced its ratings on the State's general obligation bonds from A to
A- and, in addition, reduced its ratings on the State's moral obligation,
lease purchase, guaranteed and contractual obligation debt. Standard & Poor's
also continued its negative rating outlook assessment on State general
obligation debt. On April 26, 1993, Standard & Poor's revised the rating
outlook assessment to stable. On February 14, 1994, Standard & Poor's raised
its outlook to positive and, on December 12, 1994, confirmed its A- rating.
On January 6, 1992, Moody's Investors Service, Inc. ("Moody's") reduced its
ratings on outstanding limited-liability State lease purchase and contractual
obligations from A to Baa1. On December 12, 1994, Moody's reconfirmed its A
rating on the State's general obligation long-term indebtedness.
The fiscal stability of the State is related to the fiscal
stability of its authorities, which generally have responsibility for
financing, constructing and operating revenue-producing public benefit
facilities. The authorities are not subject to the constitutional
restrictions on the incurrence of debt which apply to the State itself and may
issue bonds and notes within the amounts of, and as otherwise restricted by,
their legislative authorization. As of September 30, 1992, there were 18
authorities that had outstanding debt of $100 million or more. The aggregate
outstanding debt, including refunding bonds, of these 18 authorities was $63.5
billion as of September 30, 1993. As of March 31, 1994, aggregate public
authority debt outstanding as State-supported debt was $21.1 billion and as
State-related debt was $29.4 billion.
The authorities are generally supported by revenues generated by
the projects financed or operated, such as fares, user fees on bridges,
highway tolls and rentals for dormitory rooms and housing. In recent years,
however, the State has provided financial assistance through appropriations,
in some cases of a recurring nature, to certain of the 18 authorities for
operating and other expenses and, in fulfillment of its commitments on moral
obligation indebtedness or otherwise for debt service. This assistance is
expected to continue to be required in future years.
The MTA, a State agency, oversees the operation of the City's
subway and bus system (the "Transit Authority" or "TA") and commuter rail
lines serving the New York metropolitan area. Fare revenues from such
operations have been insufficient to meet expenditures, and the MTA depends
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heavily upon a system of State, local, Triborough Bridge and Tunnel Authority
("TBTA") and, to the extent available, Federal support. Over the past several
years, the State has enacted several taxes, including a surcharge on the
profits of banks, insurance corporations and general business corporations
doing business in the 12-county region served by the MTA and a special
one-quarter of 1% regional sales and use tax, that provide additional revenues
for mass transit purposes including assistance to the MTA. The surcharge,
which expires in November 1995, yielded $507 million in calendar year 1992, of
which the MTA was entitled to receive approximately 90% or approximately $456
million. For the 1994-95 State fiscal year, total State assistance to the MTA
is estimated at approximately $1.3 billion.
In 1993, State legislation authorized the funding of a five-year
$9.56 billion MTA capital plan for the five-year period, 1992 through 1996
(the "1992-1996 Capital Program"). The MTA has received approval of the
1992-96 Capital Program based on this legislation from the 1992-96 Capital
Program Review Board, as State law requires. This is the third five-year plan
since the Legislature authorized procedures for the adoption, approval and
amendment of a five-year plan in 1981 for a capital program designed to
upgrade the performance of the MTA's transportation systems and to supplement,
replace and rehabilitate facilities and equipment. The MTA, the TBTA and the
TA are collectively authorized to issue an aggregate of $3.1 billion of bonds
(net of certain statutory exclusions) to finance a portion of the 1992-96
Capital Program. The 1992-96 Capital Program is expected to be financed in
significant part through the dedication of State petroleum business taxes.
There can be no assurance that all the necessary governmental
actions for the Capital Program will be taken, that funding sources currently
identified will not be decreased or eliminated, or that the 1992-96 Capital
Program, or parts thereof, will not be delayed or reduced. Furthermore, the
power of the MTA to issue certain bonds expected to be supported by the
appropriation of State petroleum business taxes is currently the subject of
court challenge. If the Capital Program is delayed or reduced, ridership and
fare revenues may decline, which could, among other things, impair the MTA's
ability to meet its operating expenses without additional State assistance.
The State's experience has been that if an Authority suffers
serious financial difficulties, both the ability of the State and the
Authorities to obtain financing in the public credit markets and the market
price of the State's outstanding bonds and notes may be adversely affected.
The Housing Finance Agency ("HFA") and the Urban Development Corporation
("UDC") have in the past required substantial amounts of assistance from the
State to meet debt service costs or to pay operating expenses. Further
assistance, possibly in increasing amounts, may be required for these, or
other Authorities in the future. In addition, certain statutory arrangements
provide for State local assistance payments otherwise payable to localities to
be made under certain circumstances to certain Authorities. The State has no
obligation to provide additional assistance to localities whose local
assistance payments have been paid to Authorities under these arrangements.
However, in the event that such local assistance payments are so diverted, the
affected localities could seek additional State funds.
Litigation. A number of court actions have been brought involving
State finances. The court actions in which the State is a defendant generally
involve state programs and miscellaneous tort, real property, and contract
claims and the monetary damages sought are substantial. Adverse development
in these proceedings or the initiation of new proceedings could affect the
ability of the State to maintain a balanced State Financial Plan in the
current fiscal year or thereafter.
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In addition to the proceedings noted below, the State is party to
other claims and litigation which its legal counsel has advised are not
probable of adverse court decisions. Although the amounts of potential
losses, if any, are not presently determinable, it is the State's opinion that
its ultimate liability in these cases is not expected to have a material
adverse effect on the State's financial position in the current fiscal year or
thereafter.
On May 31, 1988, the United States Court took jurisdiction of a
claim of the State of Delaware that certain unclaimed dividends, interest and
other distributions made by issuers of securities and held by New York-based
brokers incorporated in Delaware for beneficial owners who cannot be
identified or located, had been, and were being, wrongfully taken by the State
of New York pursuant to New York's Abandoned Property Law (State of Delaware
v. State of New York, United States Supreme Court). All 50 states and the
District of Columbia moved to intervene, claiming a portion of such
distributions and similar property taken by the State of New York from New
York-based banks and depositories incorporated in Delaware. In a decision
dated March 30, 1993, the Court granted all pending motions of the states and
the District of Columbia to intervene and remanded the case to a Special
Master for further proceedings consistent with the Court's decision. The
Court determined that the abandoned property should be remitted first to the
state of the beneficial owner's last known address, if ascertainable and, if
not, then to the states of incorporation of the intermediary bank, broker or
depository. New York and Delaware have executed a settlement agreement which
provides for payment by New York to Delaware of $35 million in the State's
1993-94 fiscal year and five annual payments thereafter of $33 million. New
York and Massachusetts have executed a settlement agreement which provided for
aggregate payments by New York of $23 million, payable over consecutive years.
The claims of the other states and the District of Columbia remain.
Among the more significant of these claims still pending against
the State at various procedural stages, are those that challenge: (1) the
validity of agreements and treaties by which various Indian tribes transferred
title to the State of certain land in central New York; (2) certain aspects of
the State's Medicaid rates and regulations, including reimbursements to
providers of mandatory and optional Medicaid services; 3) contamination in the
Love Canal area of Niagara Falls; (4) an action against State and New York
City officials alleging that the present level of shelter allowance for public
assistance recipients is inadequate under statutory standards to maintain
proper housing; (5) challenges to the practice of reimbursing certain Office
of Mental Health patient care expenses from the client's Social Security
benefits; (6) a challenge to the methods by which the state reimburses
localities for the administrative costs of food stamp programs; (7) alleged
responsibility of State officials to assist in remedying racial segregation in
the City of Yonkers; (8) an action in which the State is a third party
defendant, for injunctive or other appropriate relief, concerning liability
for the maintenance of stone groins constructed along certain areas of Long
Island's shoreline; (9) an action challenging legislation enacted in 1990
which had the effect of deferring certain employer contributions to the State
Teachers' Retirement System and reducing State aid to school districts by a
like amount; (10) a challenge to the constitutionality of financing programs
of the Thruway Authority authorized by Chapters 166 and 410 of the Laws of
1991; (11) a challenge to the constitutionality of financing programs of the
MTA and the Thruway Authority authorized by Chapter 56 of the laws of 1993;
(12) challenges to the delay by the State Department of Social Services in
making two one-week Medicaid payments to the service providers; (13)
challenges to provisions of Section 2807-C of the Public Health Law, which
impose a 13% surcharge on inpatient hospital bills paid by commercial insurers
and employee welfare benefit plans and portions of Chapter 55 of The Laws of
1992 which require hospitals to impose and remit to the State an 11% surcharge
on hospital bills paid by commercial insurers; (14) challenges to the
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promulgation of the State's proposed procedure to determine the eligibility
for and nature of home care services for Medicaid recipients; (15) a challenge
to State implementation of a program which reduces Medicaid benefits to
certain home-relief recipients; (16) challenges to the rationality and
retroactive application of State regulations recalibrating nursing home
Medicaid rates; and (17) challenge by AT&T to New York Tax Law Section
186-a (2-a) as violative of the Commerce Clause of the U.S. Constitution.
The rate of return on an investment in Units of the Trust is
measured in terms of "Estimated Current Return" and "Estimated Long Term
Return".
Estimated Long Term Return is calculated by: (1) computing the
yield to maturity or to an earlier call date (whichever results in a lower
yield) for each Bond in a Trust's portfolio in accordance with accepted bond
practices, which practices take into account not only the interest payable on
the Bond but also the amortization of premiums or accretion of discounts, if
any; (2) calculating the average of the yields for the Bonds in each Trust's
portfolio by weighing each Bond's yield by the market value of the Bond and by
the amount of time remaining to the date to which the Bond is priced (thus
creating an average yield for the portfolio of each Trust); and (3) reducing
the average yield for the portfolio of each Trust in order to reflect
estimated fees and expenses of that Trust and the maximum sales charge paid by
Unitholders. The resulting Estimated Long Term Return represents a measure of
the return to Unitholders earned over the estimated life of each Trust. For
certain Trusts, the Estimated Long Term Return as of the day prior to the
Evaluation Date is stated for each Trust under "Summary of Essential
Information" in Part A.
Estimated Current Return is computed by dividing the Estimated Net
Annual Interest Income per Unit by the Public Offering Price per Unit. In
contrast to the Estimated Long Term Return, the Estimated Current Return does
not take into account the amortization of premium or accretion of discount, if
any, on the Bonds in the portfolios of the Trust. Moreover, because interest
rates on Bonds purchased at a premium are generally higher than current
interest rates on newly issued bonds of a similar type with comparable rating,
the Estimated Current Return per Unit may be affected adversely if such Bonds
are redeemed prior to their maturity. On the day prior to the Evaluation
Date, the Estimated Net Annual Interest Income per Unit divided by the Public
Offering Price resulted in the Estimated Current Return stated for the Trust
under "Summary of Essential Information" in Part A.
The Estimated Net Annual Interest Income per Unit of the Trust
will vary with changes in the fees and expenses of the Trustee and the
Evaluator applicable to the Trust and with the redemption, maturity, sale or
other disposition of the Bonds in the Trust. The Public Offering Price will
vary with changes in the offering prices (bid prices in the case of the
secondary market) of the Bonds. Therefore, there is no assurance that the
present Estimated Current Return or Estimated Long Term Return will be
realized in the future.
A schedule of cash flow projections is available from the Sponsor
upon request.
RIGHTS OF CERTIFICATEHOLDERS
Certificates
Ownership of Units of the Trust is evidenced by registered
Certificates executed by the Trustee and the Sponsor. Certificates may be
issued in denominations of one or more Units and will bear appropriate
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notations on their faces indicating which plan of distribution has been
selected by the Certificateholder. Certificates are transferable by
presentation and surrender to the Trustee properly endorsed and/or accompanied
by a written instrument or instruments of transfer. Although no such charge
is presently made or contemplated, the Trustee may require a Certificateholder
to pay $2.00 for each Certificate reissued or transferred and any governmental
charge that may be imposed in connection with each such transfer or
interchange. Mutilated, destroyed, stolen or lost Certificates will be
replaced upon delivery of satisfactory indemnity and payment of expenses
incurred.
Interest and Principal Distributions
Interest received by the Trust is credited by the Trustees to an
Interest Account. Proceeds received from the maturity, redemption, sale or
other disposition of the Debt Obligations are credited to a Principal Account.
Distributions to each Certificateholder from the Interest Account
are computed as of the close of business on each Record Date for distribution
on or shortly after the following Payment Date and consist of an amount
substantially equal to one-twelfth or one-half of such Certificateholder's pro
rata share of the Estimated Net Annual Interest Income in the Interest
Account, depending upon the applicable plan of distribution. Distributions
from the Principal Account will be computed as of each semi-annual Record
Date, and will be made to the Certificateholders on or shortly after the next
semi-annual Payment Date. Proceeds representing principal received from the
disposition of any of the Debt Obligations between a Record Date and a Payment
Date which are not used for redemptions of Units or to purchase substitute
Debt Obligations will be held in the Principal Account and not distributed
until the second succeeding semi-annual Payment Date. Persons who purchase
Units between a Record Date and a Payment Date will receive their first
distribution on the second Payment Date after such purchase.
Because interest payments are not received by the Trust at a
constant rate throughout the year, interest distributions may be more or less
than the amount credited to the Interest Account as of the Record Date. For
the purpose of minimizing fluctuations in the distributions from the Interest
Account, the Trustee will advance sufficient funds as may be necessary to
provide interest distributions of approximately equal amounts. The Trustee
shall be reimbursed, without interest, for these advances to the Interest
Account. Funds which are available for future distributions, payments of
expenses and redemptions are in accounts which are non-interest bearing to
Certificateholders and are available for use by the Trustee pursuant to normal
banking procedures.
As of the first day of each month, the Trustee will deduct from
the Interest Account and, to the extent funds are not sufficient therein, from
the Principal Account, amounts necessary to pay the expenses of the Trust (as
determined on the basis set forth under "Trust Expenses and Charges"). The
Trustees also may withdraw from said accounts such amounts, if any, as they
deem necessary to establish a reserve for any applicable taxes or other
governmental charges that may be payable out of the Trust. Amounts so
withdrawn shall not be considered a part of the Trust's assets until such time
as the Trustees shall return all or any part of such amounts to the
appropriate accounts. In addition, the Trustee may withdraw from the Interest
and Principal Accounts such amounts as may be necessary to cover redemptions
of Units.
The estimated monthly or semi-annual interest distribution per
Unit will be in the amount shown under "Summary of Essential Information" and
will change and may be reduced as Debt Obligations mature or are redeemed,
exchanged or sold, or as expenses of the Trust fluctuate. No distribution
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need be made from the Principal Account until the balance therein is an amount
sufficient to distribute $1.00 per Unit.
Distribution Elections
Interest is distributed monthly or semi-annually, depending upon
the distribution plan applicable to the Unit purchased. The Record Date for
monthly distributions is the first day of each month and the Record Date for
semi-annual distributions is the first day of each June and December. The
Payment Date will be the fifteenth day of each month following the respective
Record Dates.
Certificateholders purchasing Units in the secondary market will
initially receive distributions in accordance with the election of the prior
owner. Every October, the Trustee will furnish each Certificateholder with a
card to be returned to the Trustee on or before November 1 of such year. When
a Certificateholder who desires to change his current distribution plan
returns his card and Certificate to the Trustee, the change will take effect
December 2. If the card and Certificate are not returned to the Trustee, the
Certificateholder will be deemed to have elected to continue with the plan
previously selected for the following 12 months.
Records
The Trustee shall furnish Certificateholders in connection with
each distribution a statement of the amount of interest, if any, and the
amount of other receipts, if any, which are being distributed, expressed in
each case as a dollar amount per Unit. Within a reasonable time after the end
of each calendar year (normally prior to January 31 of the succeeding year),
the Trustee will furnish to each person who at any time during the calendar
year was a Certificateholder of record, a statement showing (a) as to the
Interest Account: interest received (including amounts representing interest
received upon any disposition of Debt Obligations), amounts reserved or paid
for purchases of Debt Obligations or redemptions of Units, if any, deductions
for fees and expenses of the Trust, and the balance remaining after such
distributions and deductions, expressed both as a total dollar amount and as a
dollar amount representing the pro rata share of each Unit outstanding on the
last business day of such calendar year; (b) as to the Principal Account: the
dates of disposition of any Debt Obligations and the net proceeds received
therefrom (excluding any portion representing accrued interest), deductions
for payments of applicable taxes and fees and expenses of the Trust, amounts
reserved or paid for purchases of Debt Obligations or paid for redemptions of
Units, if any, and the balance remaining after such distributions and
deductions, expressed both as a total dollar amount and as a dollar amount
representing the pro rata share of each Unit outstanding on the last business
day of such calendar year; (c) a list of the Debt Obligations held and the
number of Units outstanding on the last business day of such calendar year;
(d) a list of the Debt Obligations acquired or disposed of during such
calendar year, showing which are Restricted Securities; (e) the Redemption
Price per Unit based upon the last computation thereof made during such
calendar year; and (f) amounts actually distributed during such calendar year
from the Interest and Principal Accounts, separately stated, expressed both as
total dollar amounts and as dollar amounts representing the pro rata share of
each Unit outstanding.
The Trustee shall keep available for inspection by Certificate-
holders at all reasonable times during usual business hours, books of record
and account of its transactions as Trustee, including records of the names and
addresses of Certificateholders, Certificates issued or held, a current list
of Debt Obligations in the Portfolio and a copy of the Trust Agreement.
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TAX STATUS
The Trust has elected and intends to continue to qualify for the
tax treatment applicable to "regulated investment companies" under the
Internal Revenue Code of 1986, as amended (the "Code"). Although investment
companies are subject to regulation under the Investment Company Act of 1940,
the term "regulated investment company" involves no supervision or management
by any government agency. If the Trust qualifies as a "regulated investment
company" and distributes 98 percent of its ordinary income and 98 percent of
its net capital gain to Certificateholders, it will not be subject to federal
income tax or excise tax on such part of its net income or capital gains, if
any, distributed to Certificateholders. The Trust Agreement requires current
distribution to Certificateholders of the entire net income, net capital
gains, if any, and proceeds (exclusive of net capital gains) of maturities,
redemptions, sales or other dispositions of Debt Obligations (to the extent
proceeds received from dispositions are not used to redeem Units or to
purchase substitute Debt Obligations) of the Trust.
Distributions of net income attributable to interest and short-
term capital gains will be taxable to Certificateholders as ordinary portfolio
income. It is anticipated that none of the distributions to Certificate-
holders will be eligible for the dividends-received deduction for
corporations.
Distributions of long-term capital gains designated as such by the
Trust will generally be taxable to Certificateholders as long-term capital
gains except in the case of a dealer or financial institution. As a result of
the Tax Reform Act of 1986 (the "1986 Act"), long-term capital gains are
generally taxed at the same rates applicable to ordinary income, although in
certain circumstances an advantageous rate may apply to net capital gains
realized by individuals. Any gain from the disposition of a Debt Obligation
issued after July 18, 1984 and acquired at a "market discount" will result in
ordinary income, rather than capital gain, to the extent that the gain
realized does not exceed the amount of accrued market discount. If a Debt
Obligation is acquired at a price less than the issue price plus the original
issue discount includible in income by prior holders, market discount results.
A disposition of a Debt Obligation occurs when it is sold by the Trust,
redeemed or paid at maturity.
A Certificateholder will realize a taxable gain or loss when his
Units are sold or redeemed for an amount different from his original cost
after reduction for previous distributions that resulted in a reduction in the
Certificateholder's basis. Except in the case of a dealer or financial
institution, such gain or loss will constitute either a long-term or short-
term capital gain or loss depending upon the length of time the Certificate-
holder has held his Units. A capital asset acquired on or after January 1,
1988 must be held for more than one year to qualify for long-term capital gain
treatment. A Certificateholder who disposes of a Unit at a loss before having
held it for more than six months will experience a long-term capital loss,
despite his short-term holding period, to the extent of any long-term capital
gains previously distributed to him by the Trust during his holding period.
The 1986 Act added Section 67 of the Code, which disallows certain
miscellaneous itemized deductions in computing the taxable income of
individuals to the extent that the aggregate of such expenses does not exceed
2% of the individual's adjusted gross income. Expenses for the production of
income, such as investment advisory fees, are subject to this 2% floor. The
Revenue Reconciliation Act of 1989 permanently exempted shareholders of
publicly offered regulated investment companies from the application of the 2%
floor contained in Section 67(c). However, counsel has advised that the Trust
does not appear to qualify as a publicly offered regulated investment company
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within the meaning of Section 67(c), and therefore the expenses of the Trust
will be treated as paid or incurred by the Certificateholders for this
purpose, and will be subject to the disallowance required by Section 67.
The Code's requirements for the special tax treatment applicable
to "regulated investment companies" are highly technical. If the Trust fails
to meet these requirements, the Trust will be taxable in general as a
corporation and the Certificateholders will be taxable in general as its
shareholders.
The federal tax status of each year's distributions is reported to
Certificateholders. Each Certificateholder is advised to consult his own tax
adviser with respect to the foregoing and with respect to state and local
taxation of distributions by the Trust.
LIQUIDITY
Sponsor Repurchase
The Sponsor, although not obligated to do so, has maintained and
intends to continue to maintain a secondary market for the Units and
continuously to offer to repurchase the Units at prices, subject to change at
any time, based on the aggregate bid price of the Debt Obligations, as
determined by the Evaluator on a daily basis, and will be the same as the
redemption price. See "Trustee Redemption." Certificateholders who wish to
dispose of their Units should inquire of the Sponsor prior to making a tender
for redemption as described under "Offering Price." The Sponsor may
discontinue repurchases of Units if the supply of Units exceeds demand, or for
other business reasons. The date of repurchase is deemed to be the date on
which Certificates representing Units are physically received in proper form
by the Sponsor, Bear, Stearns & Co. Inc., 245 Park Avenue, New York, N.Y.
10167. Units received after 4 P.M., New York Time, will be deemed to have
been repurchased on the next business day. In the event a market is not
maintained for the Units a Certificateholder may be able to dispose of Units
only by tendering them to the Trustee for redemption.
Prospectuses relating to certain other bond trusts indicate an
intention by the Sponsor, subject to change, to repurchase units of those
funds on the basis of a price higher than the bid prices of the Debt
Obligations in the Trust. Consequently, depending upon the prices actually
paid, the secondary market repurchase price of other trusts may be computed on
a somewhat more favorable basis than the repurchase price offered by the
Sponsor for Units of the Trust, although in all bond trusts the purchase price
per unit depends primarily on the value of the bonds in the trust portfolio.
Units purchased by the Sponsor in the secondary market may be re-
offered for sale by the Sponsor at a price based on the aggregate bid price of
the Debt Obligations plus a 4-1/2% sales charge (4.712% of the net amount
invested) plus net accrued interest. Any Units that are purchased by the
Sponsor in the secondary market also may be redeemed by the Sponsor if it
determines such redemption to be in its best interest.
The Sponsor may, under certain circumstances, as a service to Cer-
tificateholders, elect to purchase any Units tendered to the Trustee for
redemption (see "Trustee Redemption," below). For example, if in order to
meet redemptions of Units the Trustee must dispose of Debt Obligations, and if
such disposition cannot be made by the redemption date (seven calendar days
after tender), the Sponsor may elect to purchase such Units. Such purchase
shall be made by payment to the Certificateholder not later than the close of
business on the settlement date of an amount equal to the Redemption Price on
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the date of tender. Any Units so purchased by the Sponsor will not be
reoffered in the secondary market.
Trustee Redemption
While it is anticipated that Units can be sold in the secondary
market for an amount in excess of the Redemption Price (see "Sponsor
Repurchase"), Units may also be tendered to the Trustee for redemption, upon
proper delivery of Certificates representing such Units and payment of any
relevant tax. At the present time there are no specific taxes related to the
redemption of Units. No redemption fee will be charged by the Sponsor or the
Trustee. Units redeemed by the Trustee will be cancelled.
Certificates representing Units to be redeemed must be delivered
to the Trustee and must be properly endorsed or accompanied by proper
instruments of transfer with signature guaranteed (or by providing
satisfactory indemnity, as in the case of lost, stolen or mutilated
Certificates). Thus, redemption of Units cannot be effected until
Certificates representing such Units have been delivered by the person seeking
redemption. (See "Certificates.") Certificateholders must sign exactly as
their names appear on the faces of their Certificates. In certain instances
the Trustee may require additional documents such as, but not limited to,
trust instruments, certificates of death, appointments as executor or
administrator or certificates of corporate authority.
On the seventh calendar day following a tender for redemption, or,
if such day is not a business day, on the first business day prior thereto,
the Certificateholder will be entitled to receive in cash an amount for each
Unit tendered equal to the Redemption Price per Unit computed as of the
Evaluation Time on the date of tender. The "date of tender" is deemed to be
the date on which Units are received by the Trustee, except that with respect
to Units received after the close of trading on the New York Stock Exchange,
the date of tender is the next day on which such Exchange is open for trading,
and such Units will be deemed to have been tendered to the Trustee on such day
for redemption at the Redemption Price computed on that day.
Accrued interest paid on redemption shall be withdrawn from the
Interest Account, or, if the balance therein is insufficient, from the
Principal Account. All other amounts paid on redemption shall be withdrawn
from the Principal Account. The Trustee is empowered to sell Debt Obligations
in order to make funds available for redemptions. Such sales, if required,
could result in a sale of Debt Obligations by the Trustee at a loss. To the
extent Debt Obligations are sold, the size and diversity of the Trust will be
reduced.
The Redemption Price per Unit is the pro rata share of each Unit
in the Trust determined by the Trustee on the basis of (i) the cash on hand in
the Trust or moneys in the process of being collected, (ii) the value of the
Debt Obligations in the Trust based on the bid prices of such Debt Obligations
and (iii) interest accrued thereon, less (a) amounts representing taxes or
other governmental charges payable out of the Trust, (b) the accrued expenses
of the Trust and (c) cash allocated for distribution to Certificateholders of
record as of the business day prior to the evaluation being made. The
Evaluator may determine the value of the Debt Obligations in the Trust for
purposes of redemption (1) on the basis of current bid prices of the Debt
Obligations obtained from dealers or brokers who customarily deal in bonds
comparable to those held by the Trust, (2) on the basis of bid prices for
bonds comparable to any Debt Obligations for which bid prices are not
available, (3) by determining the value of the Debt Obligations by appraisal,
or (4) by any combination of the above.
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The Trustee is irrevocably authorized in its discretion, if the
Sponsor does not elect to purchase any Unit tendered for redemption or if the
Sponsor tenders a Unit for redemption, in lieu of redeeming such Unit, to sell
such Unit in the over-the-counter market for the account of the tendering Cer-
tificateholder at a price which will return to the Certificateholder an amount
in cash, net after deducting brokerage commissions, transfer taxes and other
charges, equal to or in excess of the Redemption Price for such Unit. The
Trustee will pay the net proceeds of any such sale to the Certificateholder on
the day he would otherwise be entitled to receive payment of the Redemption
Price.
The Trustee reserves the right to suspend the right of redemption
and to postpone the date of payment of the Redemption Price per Unit for any
period during which the New York Stock Exchange is closed, other than
customary weekend and holiday closings, or trading on that Exchange is
restricted or during which (as determined by the Securities and Exchange
Commission) an emergency exists as a result of which disposal or evaluation of
the Debt Obligations is not reasonably practicable, or for such other periods
as the Securities and Exchange Commission may by order permit. The Trustee
and the Sponsor are not liable to any person or in any way for any loss or
damage which may result from any such suspension or postponement.
A Certificateholder who wishes to dispose of his Units should
inquire of his bank or broker in order to determine if there is a current
secondary market price in excess of the Redemption Price.
TOTAL REINVESTMENT PLAN
Certificateholders of the Trust (except Texas residents*) who
select the semi-annual distribution plan have the option to automatically
reinvest both interest income earned on Units in the Trust and principal, if
any, distributed in connection with the Trust. Under the Total Reinvestment
Plan (the "Plan"), a semi-annual Certificateholder may elect to have all
regular semi-annual interest and principal distributions with respect to his
Units reinvested either in units of various series of "A Corporate Trust"
which will have been created shortly before each semi-annual Payment Date (a
"Primary Series") or, if units of a Primary Series are not available, in units
of a previously formed series of the Trust which have been repurchased by the
Sponsor in the secondary market, including the units being offered hereby (a
"Secondary Series") (Primary Series and Secondary Series are hereafter
collectively referred to as "Available Series"). June 15 and December 15 of
each year are the "Plan Reinvestment Dates."
Under the Plan (subject to compliance with applicable blue sky
laws), fractional units ("Plan Units") will be purchased from the Sponsor at a
price equal to the aggregate offering price per Unit of the debt obligations
in the Available Series Portfolio plus a sales charge equal to 3.627% of the
net amount invested in such debt obligations or 3-1/2% of the Reinvestment
Price per Plan Unit, plus accrued interest, divided by one hundred (the
"Reinvestment Price per Plan Unit"). All Plan Units will be sold at this
reduced sales charge of 3-1/2% in comparison to the regular sales charge
levied on primary and secondary purchases of Units in any series of "A
Corporate Trust." Participants in the Plan will have the opportunity to
designate, in the Authorization Form for the Plan, the name of a broker to
whom the Sponsor will allocate a sales commission of $0.15 per Plan Unit,
- --------
* Texas residents may elect to participate in the "Total Reinvestment Plan
for Texas Residents" hereinafter described.
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payable out of the 3-1/2% sales charge. If no such designation is made, the
Sponsor will retain the sales commission.
Under the Plan, the entire amount of a participant's income and
principal distributions will be reinvested. For example, a Certificateholder
who is entitled to receive $130.50 interest income from the Trust would
acquire 13.05 Plan Units assuming that the Reinvestment Price per Plan Unit,
plus accrued interest, was $10 (Ten Dollars).
A semi-annual Certificateholder may join the Plan at the time he
invests in Units of the Trust or any time thereafter by delivering to the
Trustee an Authorization Form which is available from brokers or the Sponsor.
In order that distributions may be reinvested on a particular Plan
Reinvestment Date, the Authorization Form must be received by the Trustee not
later than the 15th day of the month preceding such Date. Authorization Forms
not received in time for a particular Plan Reinvestment Date will be valid
only for the second succeeding Plan Reinvestment Date. Similarly, a
participant may withdraw from the Plan at any time by notifying the Trustee
(see below). However, if written confirmation of withdrawal is not given to
the Trustee prior to a particular distribution, the participant will be deemed
to have elected to participate in the Plan with respect to that particular
semi-annual distribution and his withdrawal would become effective for the
next succeeding distribution.
Once delivered to the Trustee, an Authorization Form will
constitute a valid election to participate in the Plan with respect to Units
purchased in the Trust (and with respect to Plan Units purchased with the
distributions from the Units purchased in the Trust) for each subsequent
distribution as long as the Certificateholder continues to participate in the
Plan. However, if an Available Series should materially differ from the Trust
in the opinion of the Sponsor, the authorization will be voided and
participants will be provided with both a notice of the material change and a
new Authorization Form which would have to be returned to the Trustee before
the Certificateholder would again be able to participate in the Plan. The
Sponsor anticipates that a material difference which would result in a voided
authorization would include such facts as the inclusion of debt obligations in
the Available Series Portfolio which were not rated "A" or better by either
Standard & Poor's Corporation, Moody's Investors Service, Inc. or Fitch
Investors Service, Inc. or had, in the opinion of the Sponsor, similar credit
characteristics, on the date such debt obligations were initially deposited in
the Available Series Portfolio.
The Sponsor has the option at any time to use units of a Secondary
Series to fulfill the requirements of the Plan in the event units of a Primary
Series are not available either because a Primary Series is not then in
existence or because the registration statement relating thereto is not
declared effective in sufficient time to distribute final prospectuses to Plan
participants (see below). It should be noted that there is no assurance that
the quality and diversification of the Debt Obligations in any Available
Series or the estimated current return thereon will be similar to that of this
Trust.
It is the Sponsor's intention that Plan Units will be offered on
or about each semi-annual Record Date for determining who is eligible to
receive distributions on the related Payment Date. Such Record Dates are
June 1 and December 1 of each year. The Sponsor will send a current
Prospectus relating to the Available Series being offered for a particular
Plan Reinvestment Date along with a letter which reminds each participant that
Plan Units are being purchased for him as part of the Plan unless he notifies
the Trustee in writing by that Plan Reinvestment Date that he no longer wishes
to participate in the Plan. In the event a Primary Series has not been
declared effective in sufficient time to distribute a final Prospectus
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relating thereto and there is no Secondary Series as to which a registration
statement is currently effective, it is the Sponsor's intention to suspend the
Plan and distribute to each participant his regular semi-annual distribution.
If the Plan is so suspended, it will resume in effect with the next Plan
Reinvestment Date assuming units of an Available Series are then being
offered.
To aid a participant who might desire to withdraw either from the
Plan or from a particular distribution, the Trustee has established a toll
free number (see below) for participants to use for notification of
withdrawal, which must be confirmed in writing prior to the Plan Reinvestment
Date. Should the Trustee be so notified, it will make the appropriate cash
disbursement. Unless the withdrawing participant specifically indicates in
his written confirmation that (a) he wishes to withdraw from the Plan for that
particular distribution only, or (b) he wishes to withdraw from the Plan for
less than all units of each series of "A Corporate Trust" which he might then
own (and specifically identifies which series are to continue in the Plan), he
will be deemed to have withdrawn completely from the Plan in all respects.
Once a participant withdraws completely, he will only be allowed to again
participate in the Plan by submitting a new Authorization Form. A sale or
redemption of a portion of a participant's Plan Units will not constitute a
withdrawal from the Plan with respect to the remaining Plan Units owned by
such participant.
Unless a Certificateholder notifies the Trustee in writing to the
contrary, any Certificateholder who has acquired Plan Units will be deemed to
have elected the semi-annual plan of distribution and to participate in the
Plan with respect to distributions made in connection with such Plan Units. A
participant who subsequently desires to have distributions made with respect
to Plan Units delivered to him in cash may withdraw from the Plan with respect
to such Plan Units and remain in the Plan with respect to units acquired other
than through the Plan. Assuming a participant has his distributions made with
respect to Plan Units reinvested, all such distributions will be accumulated
with distributions generated from the Units of the Trust used to purchase such
additional Plan Units. However, distributions related to units in other
series of "A Corporate Trust" will not be accumulated with the foregoing
distributions for Plan purchases. Thus, if a person owns units in more than
one series of "A Corporate Trust" (which are not the result of purchases under
the Plan), distributions with respect thereto will not be aggregated for
purchases under the Plan.
Although not obligated to do so, the Sponsor has maintained and
intends to continue to maintain a market for the Plan Units and continuously
to offer to purchase Plan Units at prices based upon the aggregate offering
price of the Debt Obligations in the Available Series Portfolio during the
initial offering of the Available Series, or at the aggregate bid price of the
Debt Obligations in the Available Series if its initial offering has been
completed. The Sponsor may discontinue such purchases at any time. The
aggregate bid price of the underlying bonds may be expected to be less than
the aggregate offering prices. In the event that a market is not maintained
for Plan Units, a participant desiring to dispose of his Plan Units may be
able to do so only by tendering such Plan Units to the Trustee for redemption
at the Redemption Price of full units in the Available Series corresponding to
such Plan Units, which is based upon the aggregate bid price of the underlying
debt obligations as described in the "A Corporate Trust" Prospectus for the
Available Series in question. The aggregate bid price of the underlying debt
obligations may be expected to be less than the aggregate offering price. If
a participant wishes to dispose of his Plan Units, he should inquire of the
Sponsor as to current market prices prior to making a tender for redemption to
the Trustee.
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Any participant may tender his Plan Units for redemption to the
Available Series trust. Participants may redeem Plan Units by making a
written request to the Trustee, 101 Barclay Street, New York, New York 10286,
on the Redemption Form supplied by the Trustee. The redemption price per Plan
Unit will be determined as set forth in the "A Corporate Trust" Prospectus of
the Available Series from which such Plan Unit was purchased following receipt
of the request and adjusted to reflect the fact that it relates to a Plan
Unit. There is no charge for the redemption of Plan Units.
The Trust Agreement requires that the Trustee notify the Sponsor
of any tender of Plan Units for redemption. So long as the Sponsor is
maintaining a bid in the secondary market, the Sponsor will purchase any Plan
Units tendered to the Trustee for redemption by making payment therefor to the
Certificateholder in an amount not less than the redemption price for such
Plan Units on the date of tender not later than the day on which such Plan
Units would otherwise have been redeemed by the Trustee. Plan Units held by
the Sponsor may be tendered to the Trustee for redemption as any other Units,
provided that the Sponsor shall not receive for Plan Units purchased as set
forth above a higher price than it paid, plus accrued interest.
Participants in the Plan will not receive individual certificates
for their Plan Units unless the amount of Plan Units accumulated represents
$1,000 principal amount of debt obligations underlying such Units and, in such
case, a written request for certificates is made to the Trustee. All Plan
Units will be accounted for by the Trustee on a book entry system. Each time
Plan Units are purchased under the Plan, a participant will receive a
confirmation stating his cost, number of Units purchased and estimated current
return. Questions regarding a participant's statement should be directed to
the Trustee at 1-800-431-8002.
All expenses relating to the operation of the Plan are borne by
the Sponsor. Both the Sponsor and the Trustee reserve the right to suspend,
modify or terminate the Plan at any time for any reason, including the right
to suspend the Plan if the Sponsor is unable or unwilling to establish a
Primary Series or is unable to provide Secondary Series units. All
participants will receive notice of any such suspension, modification or
termination.
Total Reinvestment Plan for Texas Residents
Except as specifically provided under this Section, and unless the
context otherwise requires, all provisions and definitions contained under the
heading "Total Reinvestment Plan" shall be applicable to the Total
Reinvestment Plan for Texas Residents ("Texas Plan").
Semi-annual Certificateholders of the Trust who are residents of
Texas have the option prior to any semi-annual distribution to affirmatively
elect to reinvest that distribution, including both interest and principal, if
any, in an Available Series.
A resident of Texas who is a semi-annual Certificateholder may
join the Texas Plan for any particular semi-annual distribution by delivering
to the Trustee an Authorization Form For Texas Residents ("Texas Authorization
Form") specifically mentioning the date of the particular semi-annual
distribution he wishes to reinvest. Prior to each semi-annual distribution,
Texas Authorization Forms shall be sent by the Trustee to every Certificate-
holder who is a resident of Texas. In the event that the Sponsor suspends the
Plan or the Texas Plan, no Texas Authorization Forms shall be sent. In order
that distributions may be reinvested on a particular Plan Reinvestment Date,
the Texas Authorization Form must be received by the Trustee on or before such
Date. Texas Authorization Forms not received in time for the Plan
Reinvestment Date will be deemed void. A participant who delivers a Texas
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Authorization Form to the Trustee may thereafter withdraw said authorization
by notifying the Trustee at its toll free telephone number prior to a Plan
Reinvestment Date. Such notification of a withdrawal must be confirmed in
writing prior to the Plan Reinvestment Date. Under no circumstances shall a
Texas Authorization Form be provided or accepted by the Trustee which provides
for the reinvestment of distributions for more than one Plan Reinvestment
Date.
On or about each semi-annual Record Date, the Sponsor will send a
current Prospectus relating to the Available Series being offered on each Plan
Reinvestment Date along with a letter incorporating a Texas Authorization Form
which specifies the funds available for reinvestment, reminds each participant
that no Plan Units will be purchased for him unless the Texas Authorization
Form is received by the Trustee on or before that particular Plan Reinvestment
Date, and states that the Texas Authorization Form is valid only for that
particular semi-annual distribution. If the Available Series should
materially differ from the Trust, the participant will be provided with a
notice of the material change and a new Texas Authorization Form which would
have to be returned to the Trustee before the Certificateholder would again be
able to participate in the Plan.
Any Certificateholder who has acquired Plan Units will be deemed
to have elected the semi-annual plan of distribution with respect to such
Units, but such Certificateholder will not be deemed to participate in the
Plan for any particular semi-annual distribution until he delivers to the
Trustee a Texas Authorization Form pertaining to those Plan Units.
TRUST ADMINISTRATION
Portfolio Supervision
The Sponsor may direct the Trustees to dispose of Debt Obligations
upon default in payment of principal or interest, institution of certain legal
proceedings, default under other documents adversely affecting debt service,
default in payment of principal or interest on other obligations of the same
issuer or guarantor, or decline in price or the occurrence of other market or
credit factors which in the opinion of the Sponsor would make the retention of
such Debt Obligations in the Trust detrimental to the interest of the Certifi-
cateholders, or if the disposition of such Debt Obligations is necessary in
order to maintain the qualification of the Trust as a regulated investment
company under the Code. If a default in the payment of principal or interest
on any of the Debt Obligations occurs and if the Sponsor fails to instruct the
Trustees to sell or hold such Debt Obligations, the Trust Agreement provides
that the Trustees may sell such Debt Obligations.
The Sponsor is authorized by the Trust Agreement to direct the
Trustees to accept or reject certain plans for the refunding or refinancing of
any of the Debt Obligations. Any debt obligations received in exchange or
substitution will be held by the Trustees subject to the terms and conditions
of the Agreement to the same extent as the Debt Obligations originally
deposited. Within five days after such deposit, notice of such exchange and
deposit shall be given by the Trustee to each Certificateholder registered on
the books of the Trustee, including an identification of the Debt Obligations
eliminated and the Debt Obligations substituted therefor.
In order to maintain the sound investment character of the Trust,
the Sponsor is also authorized to instruct the Trustees to reinvest the
proceeds of the sale of any of the Debt Obligations (to the extent that such
proceeds do not represent capital gains and are not required for the purposes
of redemption of Units), as well as moneys held in the Trust to cover the
purchase of Debt Obligations pursuant to contracts which have failed, in
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substitute Debt Obligations which satisfy certain conditions specified in the
Trust Agreement including, among other conditions, requirements that the
substitute Debt Obligations (a) be long-term bonds, debentures or notes issued
primarily by corporations (whether secured or unsecured and whether senior or
subordinated to other indebtedness); (b) consist solely of straight debt
obligations without equity or other conversion features; (c) bear fixed
maturity dates not less than ten years after the date of purchase, having no
warrants or subscription privileges attached; (d) be payable in United States
currency; and (e) be rated "A" or better by either Standard & Poor's
Corporation, Moody's Investors Service, Inc. or Fitch Investors Service, Inc.
Such conditions also require that the purchase of the substitute Debt
Obligations will not (A) disqualify the Trust as a "regulated investment
company" under the Code, (B) result in more than 25% of the Portfolio of the
Trust consisting of securities of a single issuer (or of two or more issuers
which are "affiliated persons" as such term is defined in the Investment
Company Act of 1940), (C) result in the Trust owning more than 50% of any
single issue which has been registered under the Securities Act of 1933, or
(D) result in more than 25% of the Portfolio of the Trust consisting of
Restricted Securities. Certificateholders will be notified promptly after any
such substitution. Interest on, capital gains from and the proceeds of the
maturity or redemption of Debt Obligations may not be reinvested in substitute
Debt Obligations but must be paid out to Certificateholders in accordance with
the Trust Agreement.
TRUST AGREEMENT, AMENDMENT AND TERMINATION
The Trust Agreement may be amended by the Trustees, the Sponsor
and the Evaluator without the consent of any of the Certificateholders:
(1) to cure any ambiguity or to correct or supplement any provision which may
be defective or inconsistent; (2) to change any provision thereof as may be
required by the Securities and Exchange Commission or any successor
governmental agency; or (3) to make such other provisions in regard to matters
arising thereunder as shall not adversely affect the interests of the Certifi-
cateholders.
The Trust Agreement may also be amended in any respect, or
performance of any of the provisions thereof may be waived, with the consent
of the holders of Certificates evidencing 66-2/3% of the Units then
outstanding for the purpose of modifying the rights of Certificateholders;
provided that no such amendment or waiver shall reduce any Certificateholder's
interest in the Trust without his consent or reduce the percentage of Units
required to consent to any such amendment or waiver without the consent of the
holders of all Certificates. The Trust Agreement may not be amended, without
the consent of the holders of all Certificates then outstanding, to increase
the number of Units issuable or to permit the acquisition of any debt
obligations in addition to or in substitution for those initially deposited in
the Trust, except in accordance with the provisions of the Agreement. The
Trustee shall promptly notify Certificateholders, in writing, of the substance
of any such amendment.
The Agreement provides that the Trust shall terminate upon the
maturity, redemption or other disposition, as the case may be, of the last of
the Debt Obligations held in the Trust but in no event is it to continue
beyond the expiration of 20 years after the death of the last survivor of six
persons named in the Agreement. If the value of the Trust shall be less than
the minimum amount set forth in the "Summary of Essential Information", the
Trustee may, in its discretion, and shall when so directed by the Sponsor or
Co-Trustee, terminate the Trust. The Trust may also be terminated at any time
with the consent of the holders of Certificates representing 67% of the Units
then outstanding. In the event of termination, written notice thereof will be
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sent by the Trustee to all Certificateholders. Within a reasonable period
after termination, the Trustee must sell any Debt Obligations remaining in the
Trust, and, after paying all expenses and charges incurred by the Trust,
distribute to each Certificateholder, upon surrender for cancellation of his
Certificate for Units, his pro rata share of the Interest and Principal
Accounts.
The Sponsor
The Sponsor, Bear, Stearns & Co. Inc., a Delaware corporation, is
engaged in the underwriting, investment banking and brokerage business and is
a member of the National Association of Securities Dealers, Inc. and all
principal securities and commodities exchanges, including the New York Stock
Exchange, the American Stock Exchange, the Midwest Stock Exchange and the
Pacific Stock Exchange. Bear Stearns maintains its principal business offices
at 245 Park Avenue, New York, New York 10167 and, since its reorganization
from a partnership to a corporation in October, 1985 has been a wholly owned
subsidiary of The Bear Stearns Companies Inc. Bear Stearns, through its
predecessor entities, has been engaged in the investment banking and brokerage
business since 1923. Bear Stearns is the sponsor for numerous series of unit
investment trusts, including: New York Municipal Trust, Series 1 (and
Subsequent Series), Municipal Securities Trust, Series 1 (and Subsequent
Series), Municipal Securities Trust, lst Discount Series (and Subsequent
Series), Multi-State Series 1 (and Subsequent Series), Insured Municipal
Securities Trust, Series 1-4 (Multiplier Portfolio), Series 1 (and Subsequent
Series), 5th Discount Series (and Subsequent Series), Navigator Series (and
Subsequent Series); Mortgage Securities Trust, CMO Series 1 (and Subsequent
Series); and Equity Securities Trust, Series 1, Signature Series, Gabelli
Communications Income Trust (and Subsequent Series). The information included
herein is only for the purpose of informing investors as to the financial
responsibility of the Sponsor and its ability to carry out its contractual
obligations.
The Sponsor is liable for the performance of its obligations
arising from its responsibilities under the Trust Agreement, but will be under
no liability to Certificateholders for taking any action or refraining from
taking any action, in good faith pursuant to the Trust Agreement, or for
errors in judgment except in cases of its own willful misfeasance, bad faith,
gross negligence or reckless disregard of its obligations and duties.
The Sponsor may resign at any time by delivering to the Trustee an
instrument of resignation executed by the Sponsor and consented to by the
Trustee. Such resignation shall not become effective unless prior to or
concurrently with the delivery thereof the Trustee shall have appointed a
successor Sponsor to assume, with such compensation from the Trust as the
Trustee may deem reasonable under the circumstances, the duties and
obligations of the resigning Sponsor. Any such successor Sponsor shall be
satisfactory to the Trustee and, at the time of appointment, shall have a net
worth of at least $1,000,000.
If at any time the Sponsor shall fail to perform any of its duties
under the Trust Agreement or becomes incapable of acting or becomes bankrupt
or its affairs are taken over by public authorities, then the Trustee may
either (a) appoint a successor Sponsor; (b) act in the capacity of Sponsor and
receive additional compensation at rates determined in accordance with the
Trust Agreement; or (c) terminate the Trust Agreement and liquidate the Trust.
The Trustee
The Trustee is The Bank of New York, a trust company organized
under the laws of New York, having its offices at 101 Barclay Street, New
York, New York 10286 (1-800-431-8002). The Bank of New York is subject to
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supervision and examination by the Superintendent of Banks of the State of New
York and the Board of Governors of the Federal Reserve System, and its
deposits are insured by the Federal Deposit Insurance Corporation to the
extent permitted by law. The Trustee must be a banking corporation organized
under the laws of the United States or any state which is authorized under
such laws to exercise corporate trust powers and must have at all times an
aggregate capital, surplus and undivided profits of not less than $5,000,000.
The duties of the Trustee are primarily ministerial in nature. The Trustee
did not participate in the selection of Securities for the portfolio of the
Trust.
The Trustee shall not be liable or responsible in any way for
taking any action, or for refraining from taking any action, in good faith
pursuant to the Trust Agreement, or for errors in judgment; or for any
disposition of any moneys, Debt Obligations or Certificates in accordance with
the Trust Agreement, except in cases of their own willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations and duties;
provided, however, that the Trustee shall not in any event be liable or
responsible for any evaluation made by the Evaluator. In addition, the
Trustee shall not be liable for any taxes or other governmental charges
imposed upon or in respect of the Debt Obligations or the Trust which either
of them may be required to pay under current or future law of the United
States or any other taxing authority having jurisdiction. The Trustee shall
not be liable for depreciation or loss incurred by reason of the sale by the
Trustee of any of the Debt Obligations pursuant to the Trust Agreement.
For further information relating to the responsibilities of the
Trustee under the Trust Agreement, see "Rights of Certificateholders".
The Trustee may resign by executing an instrument in writing and
filing the same with the Sponsor, and mailing a copy of a notice of
resignation to all Certificateholders. In such an event the Sponsor is
obligated to appoint a successor Trustee as soon as possible. In addition, if
the Trustee becomes incapable of acting or becomes bankrupt or its affairs are
taken over by public authorities, the Sponsor may remove the Trustee and
appoint a successor as provided in the Trust Agreement. Notice of such
removal and appointment shall be mailed to each Certificateholder by the
Sponsor. If upon resignation of the Trustee no successor has been appointed
and has accepted the appointment within thirty days after notification, the
Trustee may apply to a court of competent jurisdiction for the appointment of
a successor. The resignation or removal of the Trustee becomes effective only
when the successor Trustee accepts its appointment as such or when a court of
competent jurisdiction appoints a successor Trustee. Upon execution of a
written acceptance of such appointment by such successor Trustee, all the
rights, powers, duties and obligations of the original Trustee shall vest in
the successor.
Any corporation into which the Trustee may be merged or with which
it may be consolidated, or any corporation resulting from any merger or
consolidation to which the Trustee shall be a party, shall be the successor
Trustee. The Trustee must always be a banking corporation organized under the
laws of the United States or any State and have at all times an aggregate
capital, surplus and undivided profits of not less than $2,500,000.
The Evaluator
The Evaluator is Interactive Data Services, Inc., a corporation
organized and existing under the laws of the State of New York, with its main
offices located at 99 Church Street, New York, New York 10007.
The Trustee, Sponsor and Certificateholders may rely on any
evaluation furnished by the Evaluator and shall have no responsibility for the
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accuracy thereof. Determinations by the Evaluator under the Trust Agreement
shall be made in good faith upon the basis of the best information available
to it, provided, however, that the Evaluator shall be under no liability to
the Trustee, the Sponsor, or Certificateholders for errors in judgment, except
in cases of its own willful misfeasance, bad faith, gross negligence or
reckless disregard of its obligations and duties.
The Evaluator may resign or may be removed by the Sponsor, and the
Sponsor is to use its best efforts to appoint a satisfactory successor. Such
resignation or removal shall become effective upon the acceptance of
appointment by the successor Evaluator. If upon resignation of the Evaluator
no successor has accepted appointment within thirty days after notice of
resignation, the Evaluator may apply to a court of competent jurisdiction for
the appointment of a successor.
TRUST EXPENSES AND CHARGES
At no cost to the Trust, the Sponsor has borne all the expenses of
creating and establishing the Trust, including the cost of initial preparation
and execution of the Trust Agreement, registration of the Trust under the
Investment Company Act of 1940 and the Units under the Securities Act of 1933,
preparation and printing of the Certificates, the fees of the Evaluator during
the initial public offering and of Fitch Investors Service, Inc. for rating
the Units of the Trust, legal expenses, advertising and selling expenses,
initial fees and expenses of the Trustee and other out-of-pocket expenses.
The Sponsor will not charge the Trust a fee for its services as
such. See "Sponsor's Profits".
The Trustee will receive for its ordinary recurring services to
the Trust an annual fee in the respective amounts set forth under "Summary of
Essential Information". For a discussion of the services performed by the
Trustee pursuant to its obligation under the Trust Agreement, see "Trust
Administration" and "Rights of Certificateholders."
The Evaluator will receive, for each evaluation of the Debt
Obligations in the Trust, a fee in the amount set forth under "Summary of
Essential Information."
The Trustee's and Evaluator's fees are payable monthly as of the
Record Date from the Interest Account to the extent funds are available and
then from the Principal Account. Both fees may be increased without approval
of the Certificateholders by amounts not exceeding proportionate increases in
consumer prices for services as measured by the United States Department of
Labor's Consumer Price Index entitled "All Services Less Rent."
The following additional charges are or may be incurred by the
Trust: all expenses (including counsel fees) of the Trustee incurred in
connection with their activities under the Trust Agreement, including the
expenses and costs of any action undertaken by the Trustee to protect the
Trust and the rights and interests of the Certificateholders; fees of the
Trustee for any extraordinary services performed under the Trust Agreement;
indemnification of the Trustee for any loss or liability accruing to them
without gross negligence, bad faith or willful misconduct on their part,
arising out of or in connection with their acceptance or administration of the
Trust; indemnification of the Sponsor for any loss, liabilities and expenses
incurred in acting as Sponsor of the Trust without gross negligence, bad faith
or willful misconduct on its part; and all taxes and other governmental
charges imposed upon the Debt Obligations or any part of the Trust (no such
taxes or charges are being levied, made or, to the knowledge of the Sponsor,
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contemplated). The above expenses, including the Trustee's fees, when paid by
or owing to the Trustee are secured by a first lien on the Trust. In
addition, the Trustee is empowered to sell Debt Obligations in order to make
funds available to pay all expenses.
EXCHANGE PRIVILEGE AND CONVERSION OFFER
Exchange Privilege
Certificateholders may elect to exchange any or all of their Units
of these Trusts for Units of one or more of any available series of Insured
Municipal Securities Trust, Municipal Securities Trust, New York Municipal
Trust, Mortgage Securities Trust, A Corporate Trust or Equity Securities Trust
(the "Exchange Trusts") at a reduced sales charge as set forth below. Under
the Exchange Privilege, the Sponsor's repurchase price of the Units being
surrendered and only after the initial offering period has been completed,
will be based on the aggregate bid price of the Bonds in the particular Trust
portfolio. Units in an Exchange Trust then will be sold to the
Certificateholder at a price based on the aggregate offer price of the Bonds
in the Exchange Trust portfolio during the initial public offering period of
the Exchange Trust (or for units of the Equity Securities Trust, based on the
Market Value of the underlying securities in the Equity Trust portfolio); or,
based on the aggregate bid price of the Bonds in the Exchange Trust portfolio
if its initial public offering has been completed, plus accrued interest (or
for units of the Equity Securities Trust, based on the Market Value of the
underlying securities in the Equity Trust portfolio) and a reduced sales
charge as set forth below.
Except for unitholders who wish to exercise the Exchange Privilege
within the first five months of their purchase of Units of Trust, the sales
charge applicable to the purchase of units of an Exchange Trust shall be 1.5%
per unit (or per 1,000 Units for the Mortgage Securities Trust or per 100
Units for the Equity Securities Trust) (approximately 1.5% of the price of
each Exchange Trust unit (or 1,000 Units for the Mortgage Securities Trust or
100 Units for the Equity Securities Trust)). For unitholders who wish to
exercise the Exchange Privilege within the first five months of their purchase
of Units of Trust, the sales charge applicable to the purchase of units of an
Exchange Trust shall be the greater of (i) 1.5% per unit (or per 1,000 Units
for the Mortgage Securities Trust or per 100 Units for the Equity Securities
Trust), or (ii) an amount which when coupled with the sales charge paid by the
unitholder upon his original purchase of Units of the Trust at least equals
the sales charge applicable in the direct purchase of units of an Exchange
Trust. The Exchange Privilege is subject to the following conditions:
(1) The Sponsor must be maintaining a secondary market in both
the Units of the Trust held by the Certificateholder and the Units of
the available Exchange Trust. While the Sponsor has indicated its
intention to maintain a market in the Units of all Trusts sponsored by
it, the Sponsor is under no obligation to continue to maintain a
secondary market and therefore there is no assurance that the Exchange
Privilege will be available to a Certificateholder at any specific time
in the future. At the time of the Certificateholder's election to
participate in the Exchange Privilege, there also must be Units of the
Exchange Trust available for sale, either under the initial primary
distribution or in the Sponsor's secondary market.
(2) Exchanges will be effected in whole units only. Any excess
proceeds from the Units surrendered for exchange will be remitted and
the selling Certificateholder will not be permitted to advance any new
funds in order to complete an exchange. Units of the Mortgage
Securities Trust may only be acquired in blocks of 1,000 Units. Units
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of the Equity Securities Trust may only be acquired in blocks of 100
Units.
(3) The Sponsor reserves the right to suspend, modify or
terminate the Exchange Privilege. The Sponsor will provide unitholders
of the Trust with 60 days' prior written notice of any termination or
material amendment to the Exchange Privilege, provided that, no notice
need be given if (i) the only material effect of an amendment is to
reduce or eliminate the sales charge payable at the time of the
exchange, to add one or more series of the Trust eligible for the
Exchange Privilege or to delete a series which has been terminated from
eligibility for the Exchange Privilege, (ii) there is a suspension of
the redemption of units of an Exchange Trust under Section 22(e) of the
Investment Company Act of 1940, or (iii) an Exchange Trust temporarily
delays or ceases the sale of its units because it is unable to invest
amounts effectively in accordance with its investment objectives,
policies and restrictions. During the 60 day notice period prior to the
termination or material amendment of the Exchange Privilege described
above, the Sponsor will continue to maintain a secondary market in the
units of all Exchange Trusts that could be acquired by the affected
unitholders. Unitholders may, during this 60 day period, exercise the
Exchange Privilege in accordance with its terms then in effect. In the
event the Exchange Privilege is not available to a Certificateholder at
the time he wishes to exercise it, the Certificateholder will
immediately be notified and no action will be taken with respect to his
Units without further instructions from the Certificateholder.
To exercise the Exchange Privilege, a Certificateholder should
notify the Sponsor of his desire to exercise his Exchange Privilege. If Units
of a designated, outstanding series of an Exchange Trust are at the time
available for sale and such Units may lawfully be sold in the state in which
the Certificateholder is a resident, the Certificateholder will be provided
with a current prospectus or prospectuses relating to each Exchange Trust in
which he indicates an interest. He may then select the Trust or Trusts into
which he desires to invest the proceeds from his sale of Units. The exchange
transaction will operate in a manner essentially identical to a secondary
market transaction except that units may be purchased at a reduced sales
charge.
Example: Assume that after the initial public offering has been
completed, a Certificateholder has five units of a Trust with a current value
of $700 per unit which he has held for more than 5 months and the Certificate-
holder wishes to exchange the proceeds for units of a secondary market
Exchange Trust with a current price of $725 per unit. The proceeds from the
Certificateholder's original units will aggregate $3,500. Since only whole
units of an Exchange Trust may be purchased under the Exchange Privilege, the
Certificateholder would be able to acquire four units (or 4,000 Units of the
Mortgage Securities Trust or 400 Units of the Equity Securities Trust) for a
total cost of $2,943.50 ($2,900 for unit and $43.50 for the sales charge).
The remaining $556.50 would be remitted to the Certificateholder in cash. If
the Certificateholder acquired the same number of units at the same time in a
regular secondary market transaction, the price would have been $3,059.50
($2,900 for units and $159.50 for the sales charge, assuming a 5 1/2% sales
charge times the public offering price).
The Conversion Offer
Unit owners of any registered unit investment trust for which
there is no active secondary market in the units of such trust (a "Redemption
Trust") may elect to redeem such units and apply the proceeds of the
redemption to the purchase of available Units of one or more series of A
Corporate Trust, Municipal Securities Trust, Insured Municipal Securities
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Trust, Mortgage Securities Trust, New York Municipal Trust or Equity
Securities Trust sponsored by Bear, Stearns & Co. Inc. or the Sponsor (the
"Conversion Trusts") at the Public Offering Price for units of the Conversion
Trust based on a reduced sales charge as set forth below. Under the
Conversion Offer, units of the Redemption Trust must be tendered to the
trustee of such trust for redemption at the redemption price, which is based
upon the aggregate bid side evaluation of the underlying bonds in such trust
and is generally about 1 1/2% to 2% lower than the offering price for such
bonds (or for units of Equity Securities Trust, based on the Market Value of
the underlying securities in the Equity Trust portfolio). The purchase price
of the units will be based on the aggregate offer price of the underlying
bonds in the Conversion Trust portfolio (or for units of the Equity Securities
Trust, based on the Market Value of the underlying securities in the Equity
Trust portfolio) during its initial offering period; or, at a price based on
the aggregate bid price of the underlying bonds if the initial public offering
of the Conversion Trust has been completed, plus accrued interest (or for
units of the Equity Securities Trust, based on the Market Value of the
underlying securities in the Equity Trust portfolio) and a sales charge as set
forth below.
Except for unitholders who wish to exercise the Conversion Offer
within the first five months of their purchase of units of a Redemption Trust,
the sales charge applicable to the purchase of Units of the Conversion Trust
shall be 1.5% per Unit (or per 1,000 Units for the Mortgage Securities Trust
or per 100 Units for the Equity Securities Trust). For unitholders who wish
to exercise the Conversion Offer within the first five months of their
purchase of units of a Redemption Trust, the sales charge applicable to the
purchase of Units of a Conversion Trust shall be the greater of (i) 1.5% per
Unit (or per 1,000 Units for the Mortgage Securities Trust or per 100 Units
for the Equity Securities Trust) or (ii) an amount which when coupled with the
sales charge paid by the unitholder upon his original purchase of units of the
Redemption Trust at least equals the sales charge applicable in the direct
purchase of Units of a Conversion Trust. The Conversion Offer is subject to
the following limitations:
(1) The Conversion Offer is limited only to unit owners of any
Redemption Trust, defined as a unit investment trust for which there is
no active secondary market at the time the Certificateholder elects to
participate in the Conversion Offer. At the time of the unit owner's
election to participate in the Conversion Offer, there also must be
available units of a Conversion Trust, either under a primary
distribution or in the Sponsor's secondary market.
(2) Exchanges under the Conversion Offer will be effected in
whole units only. Unit owners will not be permitted to advance any new
funds in order to complete an exchange under the Conversion Offer. Any
excess proceeds from units being redeemed will be returned to the unit
owner. Units of the Mortgage Securities Trust may only be acquired in
blocks of 1,000 units.
(3) The Sponsor reserves the right to modify, suspend or
terminate the Conversion Offer at any time without notice to unit owners
of Redemption Trusts. In the event the Conversion Offer is not
available to a unit owner at the time he wishes to exercise it, the unit
owner will be notified immediately and no action will be taken with
respect to his units without further instruction from the unit owner.
The Sponsor also reserves the right to raise the sales charge based on
actual increases in the Sponsor's costs and expenses in connection with
administering the program, up to a maximum sales charge of $20 per unit
(or per 1,000 units for the Mortgage Securities Trust or per 100 Units
for the Equity Securities Trust).
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<PAGE>
To exercise the Conversion Offer, a unit owner of a Redemption
Trust should notify his retail broker of his desire to redeem his Redemption
Trust Units and use the proceeds from the redemption to purchase Units of one
or more of the Conversion Trusts. If Units of a designated, outstanding
series of a Conversion Trust are at that time available for sale and if such
Units may lawfully be sold in the state in which the unit owner is a resident,
the unit owner will be provided with a current prospectus or prospectuses
relating to each Conversion Trust in which he indicates an interest. He then
may select the Trust or Trusts into which he decides to invest the proceeds
from the sale of his Units. The transaction will be handled entirely through
the unit owner's retail broker. The retail broker must tender the units to
the trustee of the Redemption Trust for redemption and then apply the proceeds
to the redemption toward the purchase of units of a Conversion Trust at a
price based on the aggregate offer or bid side evaluation per Unit of the
Conversion Trust, depending on which price is applicable, plus accrued
interest and the applicable sales charge. The certificates must be
surrendered to the broker at the time the redemption order is placed and the
broker must specify to the Sponsor that the purchase of Conversion Trust Units
is being made pursuant to the Conversion Offer. The unit owner's broker will
be entitled to retain $5 of the applicable sales charge.
Example: Assume a unit owner has five units of a Redemption Trust
which has held for more than 5 months with a current redemption price of $675
per unit based on the aggregate bid price of the underlying bonds and the unit
owner wishes to participate in the Conversion Offer and exchange the proceeds
for units of a secondary market Conversion Trust with a current price of $750
per Unit. The proceeds from the unit owner's redemption of units will
aggregate $3,375. Since only whole units of a Redemption Trust may be
purchased under the Conversion Offer, the unit owner will be able to acquire
four units of the Conversion Trust (or 4,000 units of the Mortgage Securities
Trust or 400 Units of the Equity Securities Trust) for a total cost of $3,045
($3,000 for units and $45 for the sales charge). The remaining $330 would be
remitted to the unit owner in cash. If the unit owner acquired the same
number of Conversion Trust units at the same time in a regular secondary
market transaction, the price would have been $3,165 ($3,000 for units and
$165 sales charge, assuming a 5 1/2% sales charge times the public offering
price).
Description of the Exchange Trusts
and the Conversion Trusts
A Corporate Trust may be an appropriate investment vehicle for an
investor who is more interested in a higher current return on his investment
(although taxable) than a tax-exempt return (resulting from the fact that the
current return from taxable fixed income securities is normally higher than
that available from tax-exempt fixed income securities). Municipal Securities
Trust and New York Municipal Trust may be appropriate investment vehicles for
an investor who is more interested in tax-exempt income. The interest income
from New York Municipal Trust is, in general, also exempt from New York State
and local New York income taxes, while the interest income from Municipal
Securities Trust is subject to applicable New York State and local taxes,
except for that portion of the income attributable to New York obligations in
the Trust Portfolio, if any. The interest income from each State Trust of the
Municipal Securities Trust, Multi-State Series is, in general, exempt from
state and local taxes when held by residents of the state where the issuers of
bonds in such State Trusts are located. The Insured Municipal Securities
Trust combines the advantages of providing interest income free from regular
federal income tax under existing law with the added safety of irrevocable
insurance on the underlying obligations. Insured Navigator Series further
combines the advantages of providing interest income free from regular federal
income tax and state and local taxes when held by residents of the state where
issuers of bonds in such State Trusts are located with the added safety of
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<PAGE>
irrevocable insurance on the underlying obligations. Mortgage Securities
Trust offers an investment vehicle for investors who are interested in
obtaining safety of capital and a high level of current distribution of
interest income through investment in a fixed portfolio of collateralized
mortgage obligations. Equity Securities Trust offers investors an opportunity
to achieve capital appreciation together with a high level of current income.
Tax Consequences of the Exchange
Privilege and the Conversion Offer
A surrender of units pursuant to the Exchange Privilege and the
Conversion Offer normally will constitute a "taxable event" to the Certifi-
cateholder under the Code. The Certificateholder will generally recognize a
tax gain or loss that will constitute either a long-term or short-term capital
gain or loss, depending on the length of time the units have been held and
other factors. Under present law, capital gains are generally taxed at the
same rates applicable to ordinary income, although a preferential rate is
available in certain circumstances. (See "Tax Status"). A Certificate-
holder's tax basis in the Units acquired pursuant to the Exchange Privilege or
Conversion Offer will be equal to the purchase price of such Units. (See "Tax
Status"). Investors should consult their own tax advisors as to the tax con-
sequences to them of exchanging or redeeming units and participating in the
Exchange Privilege or Conversion Offer.
OTHER MATTERS
Legal Opinions
The legality of the Units originally offered and certain matters
relating to federal tax law have been passed upon by Messrs. Battle Fowler
LLP, 75 East 55th Street, New York, New York 10022, as counsel for the
Sponsor. On the initial date of deposit, Messrs. Booth & Baron acted as
counsel for the Trustee.
Independent Auditors
The financial statements of the Trust included in Part A of this
Prospectus as of the date set forth in Part A have been examined by KPMG Peat
Marwick LLP, independent certified public accountants, for the periods
indicated in its reports appearing herein. The financial statements examined
by KPMG Peat Marwick have been so included in reliance on its reports given
upon the authority of said firm as experts in accounting and auditing.
DESCRIPTION OF DEBT OBLIGATION RATINGS*
Standard & Poor's Corporation
A brief description of the applicable Standard & Poor's
Corporation rating symbols and their meanings is as follows:
A Standard & Poor's corporate or municipal bond rating is a
current assessment of the creditworthiness of an obligor with respect to a
specific debt obligation. This assessment of creditworthiness may take into
consideration obligors such as guarantors, insurers, or lessees.
- --------
* As described by the rating agencies.
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The bond rating is not a recommendation to purchase or sell a
security, inasmuch as it does not comment as to market price.
The ratings are based on current information furnished to Standard
& Poor's by the issuer and obtained by Standard & Poor's from other sources it
considers reliable. The ratings may be changed, suspended or withdrawn as a
result of changes in, or unavailability of, such information.
The ratings are based, in varying degrees, on the following
considerations:
I. Likelihood of default--capacity and willingness of the
obligor as to the timely payment of interest and repayment of principal
in accordance with the terms of the obligation.
II. Nature of and provisions of the obligation.
III. Protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization or other
arrangement under the laws of bankruptcy and other laws affecting
creditors' rights.
AAA -- This is the highest rating assigned by Standard & Poor's
to a debt obligation and indicates an extremely strong capacity to pay
principal and interest.
AA -- Bonds rated AA also qualify as high-quality debt
obligations. Capacity to pay principal and interest is very strong, and they
differ from AAA issues only in small degrees.
A -- Bonds rated A have a strong capacity to pay principal and
interest, although they are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions.
BBB -- Bonds rated BBB are regarded as having an adequate
capacity to pay principal and interest. Whereas they normally exhibit
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay principal
and interest for bonds in this category than for bonds in the A category.
Plus (+) or Minus (-): To provide more detailed indications of
credit quality, the ratings from "AA" to "BB" may be modified by the addition
of a plus or minus sign to show relative standing within the major rating
categories.
P -- Provisional Ratings (Prov.) following a rating indicates the
rating is provisional which assumes the successful completion of the project
being financed by the issuance of the bonds being rated and indicates that
payment of debt service requirements is largely or entirely dependent upon the
successful and timely completion of the project. This rating, however, while
addressing credit quality subsequent to completion, makes no comment on the
likelihood of, or the risk of default upon failure of, such completion.
Accordingly, the investor should exercise his own judgment with respect to
such likelihood and risk.
Moody's Investors Service, Inc.
A brief description of the applicable Moody's Investors Service,
Inc.'s rating symbols and their meanings is as follows:
Aaa -- Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
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<PAGE>
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. The market value of the Baa-rated bonds is more sensitive to changes in
economic circumstances. Aside from occasional speculative factors and the
aforementioned economic circumstances applying to some bonds of this Class,
Baa market valuations move in parallel with Aaa, Aa and A obligations during
periods of economic normalcy, except in instances of oversupply.
Those bonds in the A and Baa group which Moody's believes possess
the strongest investment attributes are designated by the symbol A 1 and
Baa 1. Other A bonds comprise the balance of the group. These rankings (1)
designate the bonds which offer the maximum in security within their quality
group, (2) designate bonds which can be bought for possible upgrading in
quality and (3) additionally afford the investor an opportunity to gauge more
precisely the relative attractiveness of offerings in the marketplace.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic
rating classification from Aa through B in its corporate bond rating system.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.
Con-Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally. These
are debt obligations secured by (a) earnings of projects under construction,
(b) earnings of projects unseasoned in operating experience, (c) rentals which
begin when facilities are completed, or (d) payments to which some other
limiting condition attaches. Rating denotes probable credit stature upon
completion of construction or elimination of basis of condition.
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<PAGE>
==============================================================================
AUTHORIZATION FOR INVESTMENT IN A CORPORATE TRUST
TRP PLAN - TOTAL REINVESTMENT PLAN
I hereby elect to participate in the TRP Plan and am the owner of _____ units
of Series ___.
I hereby authorize The Bank of New York, Wall Street Trust Division, Trustee,
to pay all semi-annual distributions of interest and principal (if any) with
respect to such units to The Bank of New York, Wall Street Trust Division, as
TRP Plan Agent, who shall immediately invest the distributions in units of the
available series of A Corporate Trust.
The foregoing authorization is subject Date _______________ 19__
in all respects to the terms and condi-
tions of participation set forth in the
prospectus relating to such available
series.
- --------------------------------------- -----------------------------------
Registered Holder (print) Registered Holder (print)
- --------------------------------------- -----------------------------------
Registered Holder Signature Registered Holder Signature
(Two signatures if joint tenancy)
My Brokerage Firm's Name _____________________________________________________
Street Address _______________________________________________________________
City, State & Zip Code _______________________________________________________
Salesman's Name ___________________________ Salesman's No._________________
UNIT HOLDERS NEED ONLY DATE AND SIGN THIS FORM.
==============================================================================
MAIL TO YOUR BROKER
OR
THE BANK OF NEW YORK
101 BARCLAY STREET
NEW YORK, NEW YORK 10286
1650.1
<PAGE>
INDEX
Title Page
Summary of Essential Information . A-4 A CORPORATE TRUST, SERIES 1
Information Regarding the Trust. . A-6
Financial and Statistical Information A-7 (A Unit Investment Trust)
Audit and Financial Information
Report of Independent Auditors . F-1 Prospectus
Statement of Net Assets. . . . . F-2
Statement of Operations. . . . . F-3 Dated: April 28, 1995
Statement of Changes in Net Assets F-4
Notes to Financial Statements. . F-5 Sponsor:
Portfolio. . . . . . . . . . . . F-6
The Trust. . . . . . . . . . . . . . 1 Bear, Stearns & Co. Inc.
Risk Considerations. . . . . . . . 2 245 Park Avenue
Public Offering. . . . . . . . . . . 4 New York, N.Y. 10167
Estimated Long Term Return and 212-272-2500
Estimated Current Return . . . . . 5
Rights of Certificateholders . . . . 6
Tax Status . . . . . . . . . . . . . 8 Trustee:
Liquidity. . . . . . . . . . . . . . 10
Total Reinvestment Plan. . . . . . . 12 The Bank of New York
Trust Administration . . . . . . . . 16 101 Barclay Street
Trust Agreement, Amendment New York, N.Y. 10286
And Termination. . . . . . . . . . 17 1-800-431-8002
Trust Expenses and Charges . . . . . 20
Exchange Privilege and Conversion
Offer. . . . . . . . . . . . . . . 21
Other Matters. . . . . . . . . . . . 25
Description of Debt Obligation Evaluator:
Ratings. . . . . . . . . . . . . . 25
Interactive Data Services, Inc.
Parts A and B of this Prospectus do
not contain all of the information 99 Church Street
set forth in the registration New York, N.Y. 10007
statement and exhibits relating
thereto, filed with the Securities
and Exchange Commission, Washington,
D.C., under the Securities Act of
1933, and to which reference is made.
* * *
This Prospectus does not constitute an offer to sell,
or a solicitation of an offer to buy, securities in any state to
any person to whom it is not lawful to make such offer in such
state.
* * *
No person is authorized to give any information or to
make any representations not contained in Parts A and B of this
Prospectus; and any information or representation not contained
herein must not be relied upon as having been authorized by the
Trust, the Trustees, the Evaluator, or the Sponsor. The Trust is
registered as a unit investment trust under the Investment
Company Act of 1940. Such registration does not imply that the
Trust or any of its Units have been guaranteed, sponsored,
recommended or approved by the United States or any state or any
agency or officer thereof.
<PAGE>
PART II
ADDITIONAL INFORMATION NOT REQUIRED
IN PROSPECTUS
CONTENTS OF REGISTRATION STATEMENT
This Post-Effective Amendment to the Registration Statements on Form S-6
comprises the following papers and documents:
The facing sheet on Form S-6.
The Cross-Reference Sheet.
The Prospectus consisting of pages.
Signatures.
Consent of Independent Auditors.
Consent of Counsel (included in Exhibits 99.3.1 and 99.3.1.1).
Consent of the Evaluator (included in Exhibit 99.5.3).
The following exhibits:
99.1.1 -- Form of Reference Trust Agreement, as amended (filed as
Exhibit 1.1 to Amendment No. 2 to Form S-6 Registration
Statement No. 2-62336 of A Corporate Trust, Series 1 on
October 23, 1978 and incorporated herein by reference).
99.1.1.1 -- Trust Indenture and Agreement for A Corporate Trust, Series 1
(and Subsequent Series), as amended, dated November 1, 1986
(filed as Exhibit 1.1.1 to Post-Effective Amendment No. 8 to
Form S-6 Registration Statement No. 2-62336 of A Corporate
Trust, Series 1 on April 30, 1987 and incorporated herein by
reference).
99.1.3.4 -- Certificate of Incorporation of Bear, Stearns & Co. Inc., as
amended (filed as Exhibit 99.1.3.4 to Form S-6 Registration
Statement Nos. 33-50891 and 33-50901 of Insured Municipal
Securities Trust, New York Navigator Insured Series 15 and New
Jersey Navigator Insured Series 11; and Municipal Securities
Trust, Multi-State Series 44, respectively, on December 9, 1993
and incorporated herein by reference).
99.1.3.5 -- By-laws of Bear, Stearns & Co. Inc., as amended (filed as
Exhibit 99.1.3.5 to Form S-6 Registration Statement
Nos. 33-50891 and 33-50901 of Insured Municipal Securities
Trust, New York Navigator Insured Series 15 and New Jersey
Navigator Insured Series 11; and Municipal Securities Trust,
Multi-State Series 44, respectively, on December 9, 1993 and
incorporated herein by reference).
99.1.4 -- Form of Agreement Among Underwriters, as amended (filed as
Exhibit 1.4 to Amendment No. 2 to Registration Statement on
Form S-6 No. 2-62336 of A Corporate Trust, Series 1 on
October 23, 1978 and incorporated herein by reference).
99.2.1 -- Form of Certificate (filed as Exhibit 2.1 to Amendment No. 2 to
Registration Statement on Form S-6 No. 2-62336 of A Corporate
Trust, Series 1 on October 23, 1978 and incorporated herein by
reference).
II-1
174419.1
<PAGE>
99.3.1 -- Opinion of Battle Fowler LLP (formerly Battle, Fowler, Jaffin &
Kheel) as to the legality of the securities being registered,
including their consent to the delivery thereof and to the use
of their name under the headings "Tax Status" and "Legal
Opinions" in the Prospectus, and to the delivery of their
opinion regarding tax status of the Trust (filed as Exhibit 3.1
to Amendment No. 2 to Registration Statement on Form S-6
No. 2-62336 of A Corporate Trust, Series 1 on October 23, 1978
and incorporated herein by reference).
99.3.1.1 -- Opinion of Battle Fowler LLP (formerly Battle, Fowler, Jaffin &
Kheel) as to tax status of securities being registered (filed
as Exhibit 3.1.1 to Amendment No. 2 to Registration Statement
on Form S-6 No. 2-62336 of A Corporate Trust, Series 1 on
October 23, 1978 and incorporated herein by reference).
*99.5.3 -- Consent of Interactive Data Services, Inc.
99.6.0 -- Power of Attorney of Bear, Stearns & Co. Inc., the Depositor,
by its Officers and a majority of its Directors (filed as
Exhibit 6.0 to Post-Effective Amendment No. 8 to Form S-6
Registration Statements Nos. 2-92113, 2-92660, 2-93073, 2-93884
and 2-94545 of Municipal Securities Trust, Multi-State
Series 4, 5, 6, 7 and 8, respectively, on October 30, 1992 and
incorporated herein by reference).
- --------
* Being filed by this Amendment.
II-2
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant, A Corporate Trust, Series 1 certifies that it meets all of the
requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of
1933. The registrant has duly caused this Post-Effective Amendment to the
Registration Statement to be signed on its behalf by the undersigned, hereunto
duly authorized, in the City of New York and State of New York on the 17th day
of April, 1995.
A CORPORATE TRUST, SERIES 1
(Registrant)
BEAR, STEARNS & CO. INC.
(Depositor)
By: /s/PETER J. DeMARCO
Peter J. DeMarco
(Authorized Signatory)
Pursuant to the requirements of the Securities Act of 1933,
this Post-Effective Amendment to the Registration Statement has been signed
below by the following persons who constitute the principal officers and a
majority of the directors of Bear, Stearns & Co. Inc., the Depositor, in the
capacities and on the dates indicated.
Name Title Date
ALAN C. GREENBERG Chairman of the Board, Director and )
Senior Managing Director )
JAMES E. CAYNE President, Chief Executive Officer, ) April 17, 1995
Director and Senior Managing )
Director )
JOHN C. SITES, JR. Executive Vice President, Director )
and Senior Managing Director )By:PETER J.DeMARCO
MICHAEL L. TARNOPOL Executive Vice President, Director ) Attorney-in-Fact*
and Senior Managing Director )
VINCENT J. MATTONE Executive Vice President, Director )
and Senior Managing Director )
ALAN D. SCHWARTZ Executive Vice President, Director )
and Senior Managing Director )
DOUGLAS P.C. NATION Director and Senior Managing )
Director )
WILLIAM J. MONTGORIS Chief Operating Officer/Chief )
Financial Officer/Chief Operations )
Officer, Senior Vice )
President-Finance and Senior )
Managing Director )
KENNETH L. EDLOW Secretary and Senior Managing )
Director )
MICHAEL MINIKES Treasurer and Senior Managing )
Director )
MICHAEL J. ABATEMARCO Controller, Assistant Secretary and )
Senior Managing Director )
MARK E. LEHMAN Senior Vice President - General )
Counsel/Chief Legal Officer and )
Senior Managing Director )
FREDERICK B. CASEY Assistant Treasurer and Senior )
Managing Director )
- ---------------
* An executed power of attorney was filed as Exhibit 6.0 to Post-
Effective Amendment No. 8 to Registration Statements Nos. 2-92113,
2-92660, 2-93073, 2-93884 and 2-94545 on October 30, 1992.
II-3
174419.1
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in these Post-Effective Amendments to the Registration
Statements of our reports on the financial statements of A Corporate Trust,
Series 1 included herein and to the reference to our firm under the heading
"Independent Auditors" in the Prospectus which is part of this Registration
Statement.
KPMG PEAT MARWICK LLP
New York, New York
April 17, 1995
II-4
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<PAGE>
EXHIBIT INDEX
Exhibit Description Page No.
99.1.1 Form of Reference Trust Agreement, as
amended (filed as Exhibit 1.1 to Amendment
No. 2 to Form S-6 No. 2-62336 of A
Corporate Trust, Series 1 on October 23,
1978 and incorporated herein by
reference).
99.1.1.1 Trust Indenture and Agreement for A
Corporate Trust, Series 1 (and Subsequent
Series), as amended, dated November 1,
1986 (filed as Exhibit 1.1.1 to Post-
Effective Amendment No. 8 to Form S-6
Registration Statement No. 2-62336 of A
Corporate Trust, Series 1 on April 30,
1987 and incorporated herein by
reference).
99.1.3.4 Certificate of Incorporation of Bear,
Stearns & Co. Inc., as amended (filed as
Exhibit 99.1.3.4 to Form S-6 Registration
Statement Nos. 33-50891 and 33-50901 of
Insured Municipal Securities Trust, New
York Navigator Insured Series 15 and New
Jersey Navigator Insured Series 11; and
Municipal Securities Trust, Multi-State
Series 44, respectively, on December 9,
1993 and incorporated herein by
reference).
99.1.3.5 By-laws of Bear, Stearns & Co. Inc., as
amended (filed as Exhibit 99.1.3.5 to
Form S-6 Registration Statement
Nos. 33-50891 and 33-50901 of Insured
Municipal Securities Trust, New York
Navigator Insured Series 15 and New Jersey
Navigator Insured Series 11; and Municipal
Securities Trust, Multi-State Series 44,
respectively, on December 9, 1993 and
incorporated herein by reference).
99.1.4 Form of Agreement Among Underwriters, as
amended (filed as Exhibit 1.4 to Amendment
No. 2 to Registration Statement on
Form S-6 No. 2-62336 of A Corporate Trust,
Series 1 on October 23, 1978 and
incorporated herein by reference).
99.2.1 Form of Certificate (filed as Exhibit 2.1
to Amendment No. 2 to Registration
Statement on Form S-6 No. 2-62336 of A
Corporate Trust, Series 1 on October 23,
1978 and incorporated herein by
reference).
99.3.1 Opinion of Battle Fowler LLP (formerly
Battle, Fowler, Jaffin & Kheel) as to the
-1-
174419.1
<PAGE>
Exhibit Description Page No.
legality of the securities being
registered, including their consent to the
delivery thereof and to the use of their
name under the headings "Tax Status" and
"Legal Opinions" in the Prospectus, and to
the delivery of their opinion regarding
tax status of the Trust (filed as
Exhibit 3.1 to Amendment No. 2 to
Registration Statement on Form S-6
No. 2-62336 of A Corporate Trust, Series 1
on October 23, 1978 and incorporated
herein by reference).
99.3.1.1 Opinion of Battle Fowler LLP (formerly
Battle, Fowler, Jaffin & Kheel) as to tax
status of securities being registered
(filed as Exhibit 3.1.1 to Amendment No. 2
to Registration Statement on Form S-6
No. 2-62336 of A Corporate Trust, Series 1
on October 23, 1978 and incorporated
herein by reference).
99.5.3 Consent of Interactive Data Services, Inc.
99.6.0 Power of Attorney of Bear, Stearns & Co.
Inc., the Depositor, by its Officers and a
majority of its Directors (filed as
Exhibit 6.0 to Post-Effective Amendment
No. 8 to Form S-6 Registration Statements
Nos. 2-92113, 2-92660, 2-93073, 2-93884
and 2-94545 of Municipal Securities Trust,
Multi-State Series 4, 5, 6, 7 and 8,
respectively, on October 30, 1992 and
incorporated herein by reference).
-2-
174419.1
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
The schedule contains summary financial
information extracted from the financial
statements and supporting schedules as of the end
of the most current period and is qualified in its
entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000276464
<NAME> ACT-1
<SERIES>
<NUMBER> 1
<NAME> ACT SERIES 1
<S> <C>
<FISCAL-YEAR-END> Dec-31-1994
<PERIOD-START> Jan-01-1994
<PERIOD-END> Dec-31-1994
<PERIOD-TYPE> Year
<INVESTMENTS-AT-COST> 422412
<INVESTMENTS-AT-VALUE> 490896
<RECEIVABLES> 12713
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 503609
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4661
<TOTAL-LIABILITIES> 4661
<SENIOR-EQUITY> 498948
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 7293
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 30450
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 68484
<NET-ASSETS> 498948
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 39366
<OTHER-INCOME> 0
<EXPENSES-NET> 18419
<NET-INVESTMENT-INCOME> 20947
<REALIZED-GAINS-CURRENT> 3225
<APPREC-INCREASE-CURRENT> (17081)
<NET-CHANGE-FROM-OPS> 7091
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 29792
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 183
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (56175)
<ACCUMULATED-NII-PRIOR> 19761
<ACCUMULATED-GAINS-PRIOR> 160
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 171.71
<PER-SHARE-NII> 9.43
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 163.59
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
INTERACTIVE DATA
DB a company of
The Dun & Bradstreet Corporation 14 Wall Street
New York, NY 10005
April 28, 1995
Bear Stearns & Company, Inc.
245 Park Avenue
New York, New York 10167
RE: A Corporate Trust Series 1, (A Unit Investment Trust)
Units of Fractional Undivided Interest
Registered Under the Securities Act of 1933,
File No. 2-62336
Gentlemen:
We have examined the Registration Statement for the above captioned Fund.
We hereby consent to the reference to Interactive Data Services, Inc. in the
Prospectus contained in the Post-Effective Amendment No. 16 to the Registration
Statement for the above captioned Fund and to the use of the evaluations of the
Obligations prepared by us which are referred to in such Prospectus and
Registration Statement.
You are authorized to file copies of this letter with the Securities and
Exchange Commission.
Very truly yours,
James Perry
Vice President
