Rule 497(b)
Registration No. 33-11514
Note: Part A of this Prospectus May Not Be
Distributed Unless Accompanied by Part B.
MUNICIPAL SECURITIES TRUST
HIGH INCOME SERIES 11
The Trust is a unit investment trust designated High Income
Series 11 ("High Income Trust") with an underlying portfolio of long-term,
high risk tax-exempt bonds and was formed to provide a high level of
interest income (including, where applicable, earned original issue
discount) which, in the opinions of bond counsel to the respective
issuers, is, with certain exceptions, currently exempt from regular
federal income tax under existing law but may be subject to state and
local taxes and may be subject to the federal corporate alternative
minimum tax. Additionally, in the opinion of bond counsel to the
respective issuers, interest on private activity bonds held by the Trust
may be includible in computing the Federal individual alternative minimum
tax. Capital gains are subject to tax. (See "Tax Status" and "The
Trust--Portfolio" in Part B of this Prospectus.) The Sponsor is Bear,
Stearns & Co. Inc. The value of the Units of the Trust will fluctuate
with the value of the Bonds. Many of the Bonds are rated below investment
grade or are unrated. Such Bonds should be viewed as speculative and an
investor must be able to assume the risks associated with speculative
municipal bonds. Bonds such as those included in the Trust may be subject
to greater market fluctuations and risk of loss of income and principal
than are investments in lower yielding bonds. Moreover, some of the Bonds
in the Trust are, or may recently have been, in default and others may
have public information available which would indicate that a future
default is possible. The evaluation of such Bonds is highly speculative
and volatile. As such, these evaluations are very sensitive to the latest
available public information relating to developments concerning such
Bonds, such as information relating to the obligors under the Bonds, the
collateral underlying the Bonds or any restructurings or "workouts" with
respect to the Bonds. The disposition of these Bonds is also subject to
substantial uncertainty and limitations. A reduction in the credit rating
of a Bond or a general increase in interest rates would be expected to
reduce the value of the underlying portfolio. Minimum purchase: 1 Unit.
This Prospectus consists of two parts. Part A contains a Summary of
Essential Information as of December 31, 1993 (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 general
information about 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 29, 1994
<PAGE>
THE TRUST. The Trust is a unit investment trust formed to provide a
high level of interest income (including, where applicable, earned
original issue discount) which, in the opinions of bond counsel to the
respective issuers, is, with certain exceptions, currently exempt from
regular federal income tax under existing law through investment in a
fixed, diversified portfolio of long-term, high risk bonds (the "Bonds")
issued by or on behalf of states, municipalities and public authorities.
Although the Supreme Court has determined that Congress has the authority
to subject interest on bonds such as the Bonds in the Trust to regular
federal income taxation, existing law excludes such interest from regular
federal income tax. In addition, such interest income may be subject to
federal corporate alternative minimum tax and to state and local taxes.
Certain of the Bonds in the Trust may be private activity bonds and may
provide a higher rate of return than otherwise because the interest income
from such Bonds may be includable in computing the federal individual
alternative minimum tax. (See "Tax Status" in Part B of this Prospectus.)
The portfolio may also include bonds issued at an original issue discount.
Additionally, some of the Bonds in the portfolio may be "Zero Coupon
Bonds", which are original issue discount bonds that provide for payment
at maturity at par value, but do not provide for the payment of current
interest. The market value of Zero Coupon Bonds is affected by changes in
interest rates to a greater extent than the market value of bonds which
pay interest periodically. As a result of the Tax Reform Act of 1986,
capital gains based on the difference, if any, between the value of the
Bonds at maturity, redemption or sale and their original purchase price at
discount (plus the earned portion of original issue discount) are
generally taxed at the same rates applicable to ordinary income. Each
Unit in the Trust represents a 1/16481st undivided interest in the
principal and net income of the Trust. The principal amount of Bonds
deposited in the Trust per Unit is reflected in the Summary of Essential
Information. (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.
Some of the Bonds in the Trust have been issued with optional
refunding or refinancing provisions ("Refunded Bonds") whereby the issuer
of the Bond has the right to call such Bond prior to its stated maturity
date (other than pursuant to sinking fund provisions) and to issue new
bonds ("Refunding Bonds") in order to finance the redemption. Issuers
typically utilize refunding calls in order to take advantage of lower
interest rates in the marketplace. Some of these Refunded Bonds may be
pre-refunded ("Pre-Refunded Bonds"); that is, the proceeds from the issue
of the Refunding Bonds are typically invested in government securities and
held in escrow for the benefit of the holders of the Pre-Refunded Bonds
until the refunding call date. Usually, Pre-Refunded Bonds will bear a
triple-A rating because of this escrow. The issuers of Pre-Refunded Bonds
must call such bonds on their refunding call date. Therefore, as of such
date, the Trust will receive the call price for such bonds but will cease
receiving interest income with respect to them. For a list of those Bonds
which are Pre-Refunded Bonds as of the Evaluation Date, see "Notes to
Financial Statements" in this Part A.
Since the payment of interest and preservation of capital are, of
course, dependent upon the continuing ability of the issuers of the Bonds
to meet their obligations, there can be no assurance that the Trust's
objectives will be achieved. Investment in the Trust should therefore be
made with an understanding of the risks which an investment in long-term
fixed rate obligations may entail, including the risk that the value of
the underlying portfolio will decline with increases in interest rates,
and the specific risks associated with Speculative Bonds. See "High Yield
Bonds-Risk Factors" and "Special Factors Concerning The Trust Portfolio"
in this Part A.
As of March 24, 1994 (the "Rating Date") that percentage of Bonds
set forth in the "Description of the Portfolio" of this Part A were rated
BB or Ba or better by Standard & Poor's Corporation or Moody's Investors
Service, respectively. Other Bonds, as set forth in the "Description of
the Portfolio", were rated C through B by Standard & Poor's Corporation or
Moody's Investors Service, Inc., respectively. Bonds rated A have a
strong capacity to pay interest and to repay principal. Bonds rated B
through BBB or Baa have an adequate capacity to pay interest and to repay
principal, however, such Bonds may have certain speculative
characteristics as well. Bonds rated CC or Ca through CCC or Caa are in
poor standing and are highly speculative. In the event of adverse
conditions, such Bonds are not likely to have the capacity to pay interest
and/or to repay principal. Bonds rated C are regarded as having extremely
poor prospects of ever attaining any real investment standing. Bonds
rated D are in default in the payment of interest or repayment of
principal or are expected to be in such a default upon maturity or payment
date. For a discussion of the significance of these ratings see
"Description of Bond Ratings" in Part B of this Prospectus. For a
discussion concerning those Bonds which are in default, see "Special
Factors Concerning The Trust Portfolio" in this Part A.
The Trust also contains Bonds that are unrated. In the opinion of
the Sponsor, these unrated Bonds have, as of the Rating Date, credit
characteristics which are comparable to those ratings of Standard & Poor's
Corporation or Moody's Investors Service, Inc. as are set forth in the
"Description of the Portfolio" in this Part A. All unrated Bonds which
are in default as to the payment of interest or repayment of principal, or
which the Sponsor believes will be in such default in the future, or which
are issued by an issuer which is in bankruptcy, have been determined by
the Sponsor to have credit characteristics comparable to a D rating. As
of the Rating Date, approximately 37% of the aggregate principal amount of
the Bonds were rated D or determined by the Sponsor to have credit
characteristics comparable to a D rating. IT IS UNLIKELY THAT FUTURE
PAYMENTS OF PRINCIPAL OR INTEREST WILL BE MADE TO THE TRUST WITH RESPECT
TO THESE BONDS OTHER THAN AS A RESULT OF THE SALE OF THE BONDS OR THE
FORECLOSURE OR OTHER FORMS OF LIQUIDATION OF THE COLLATERAL UNDERLYING THE
BONDS. The Trust may incur additional expenses in pursuing its remedies
against issuers of Bonds which are in default. Such additional expenses
may result in a decrease of the net asset value of the Trust. (See "High
Yield Bonds--Risk Factors.")
PUBLIC OFFERING PRICE. The secondary market Public Offering Price
of each Unit is equal to the aggregate bid price of the Bonds in the Trust
divided by the number of Units outstanding, plus a sales charge of 5% of
the Public Offering Price, which is the same as 5.263% of the net amount
invested in Bonds 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 $847.87 plus accrued interest of $14.69 under the monthly
distribution plan, $19.93 under the semi-annual distribution plan and
$19.81 under the annual distribution plan, for a total of $862.56, $867.80
and $867.68, respectively. The Public Offering Price per Unit can vary on
a daily basis in accordance with fluctuations in the aggregate bid price
of the Bonds. (See "Public Offering--Offering Price" in Part B of this
Prospectus.)
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 Bond in the 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 the 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 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 the Bonds in the portfolio 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.
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 bid prices 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. (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 monthly, semi-annually or 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 of such Unit and may thereafter
change the plan as provided under "Interest and Principal Distributions"
in Part B of the Prospectus. Distributions of principal, if any, will be
made semi-annually on June 15 and December 15 of each year. For estimated
monthly, semi-annual and annual interest distributions, see "Summary of
Essential Information."
HIGH YIELD BONDS--RISK FACTORS. Bonds such as those included in the
Trust are subject to greater market fluctuations and risk of loss of
income and principal than are investments in lower yielding bonds. Such
fluctuations will affect the value of the Bonds and the value of the
Units. Some of the Bonds in the Trust are rated by Standard & Poor's
Corporation or Moody's Investors Service, Inc. (See "Description of
Portfolio" in Part A of this Prospectus for a summary of these ratings.)
Other Bonds in the Trust are unrated by any national rating organization
and the market for unrated bonds may not be as liquid as the market for
rated bonds, which may result in depressed prices for the Trust in the
disposal, if required, of such nonrated Bonds. There is no established
secondary market for many of these Bonds. The Sponsor cannot anticipate
whether these Bonds could be sold other than to institutional investors.
There is frequently no secondary market for the resale of those Bonds that
are in default. The limited market for these Bonds may affect the choice
of the particular Bond to be sold for purposes of redemption and the
amount actually realized by the Trust upon such sale. Such sale may
result in a loss to the Trust. In addition, because the Trust is a unit
investment trust, the Sponsor is prohibited from actively managing the
Trust portfolio. For example, except in a limited number of
circumstances, the acquisition of bonds other than the Bonds initially
deposited in the Trust portfolio is prohibited. The Sponsor is also
restricted in its ability to direct the Trustee to dispose of the Bonds in
the Trust. (See "Trust Administration--Portfolio Supervision" in Part B.)
These restrictions on portfolio management may limit the ability of the
Sponsor to minimize the negative impact of troubled Bonds on the Trust.
Investors should carefully review the objective of the Trust and consider
their ability to assume the risks involved before making an investment in
the Trust. There are certain risks involved in applying credit ratings as
a method of evaluating high yield bonds. For example, while credit rating
agencies evaluate the safety of principal and interest payments, they do
not evaluate the market risk of the Bonds and the Bonds may decrease in
value as a result of credit developments. See "Description of Bond
Ratings" in Part B for a comparison of investment grade and speculative
ratings issued by Standard & Poor's Corporation and Moody's Investors
Service, Inc.
In the opinions of bond counsel to the issuing governmental
authorities given at the time of original delivery of the Bonds, interest
(including, where applicable, original issue discount) on the Bonds is
exempt from regular federal income tax. However, the tax-exempt status of
the Bonds is subject to the Bonds continuing to satisfy certain
requirements. A default with respect to the Bonds and ensuing remedial
action may prevent interest from continuing to be tax-exempt. Some of the
Bonds are subject to a requirement that a certain amount of rehabilitation
expenditures be incurred with respect to the property financed by the
proceeds of such Bonds within two years of the later of the date on which
such property was acquired or the date on which such Bonds were issued
(the "rehabilitation expenditure requirement"). Additionally, some of the
Bonds are subject to a requirement that substantially all of the proceeds
of those Bonds be used in connection with certain exempt facilities or
other property functionally related to such facilities (the "substantially
all requirement").
If the rehabilitation expenditure requirement or the substantially
all requirement, as the case may be, is not satisfied with respect to a
Bond, then the interest (including, where applicable, original issue
discount) on such Bond from the date of issuance of the Bond will be
subject to regular federal income tax. See "Special Factors Concerning
The Trust Portfolio" in this Part A.
Lower rated and nonrated bonds tend to offer higher yields than
higher rated bonds with the same maturities because the creditworthiness
of the obligors of lower rated bonds may not have been as strong as that
of other issuers. Since there is a general perception that there are
greater risks associated with the lower-rated bonds in the Trust, the
yields and prices of such Bonds tend to fluctuate more with changes in the
perceived quality of the credit of their obligors. In addition, the
market value of high yield bonds may fluctuate more than the market value
of higher rated bonds since high yield bonds tend to reflect short-term
market developments to a greater extent than higher rated bonds, which
fluctuate primarily in response to the general level of interest rates,
assuming that there has been no change in the fundamental credit quality
of such bonds. The market value of Zero Coupon Bonds, however, is
affected by changes in interest rates to a greater extent than the market
value of bonds which pay interest periodically. High yield bonds are also
more sensitive to adverse economic changes and events affecting specific
issuers than are higher rated bonds. Periods of economic uncertainty can
be expected to result in increased market price volatility of the high
yield bonds. High yield bonds may also be directly and adversely affected
by variables such as interest rates, unemployment rates, inflation rates
and real growth in the economy and may be more susceptible to variables
such as adverse publicity and negative investor perception than are more
highly rated bonds, particularly in a limited secondary market. Lower
rated bonds generally involve greater risks of loss of income and
principal than higher rated bonds. The obligors of lower rated bonds
possess less creditworthy characteristics than the obligors of higher
rated bonds, as is evidenced by those Bonds that have experienced a
downgrading in rating or that are in default. Some of the Bonds in the
Trust are, or may recently have been, in default. The evaluation of the
price of such Bonds is highly speculative and volatile. As such, these
evaluations are very sensitive to the latest available public information
relating to developments concerning such Bonds, such as information
relating to the obligors of the Bonds, the collateral underlying the Bonds
or any restructurings or "workouts" with respect to the Bonds. When
pricing these Bonds, the Evaluator for the Trust considers this
information as it becomes available; however, there can be no assurance
that the Evaluator will have all the pertinent information about these
Bonds when each evaluation is made. Therefore, investors should expect
that the prices of these Bonds may fluctuate more suddenly and
dramatically than other Bonds in the Trust because information about them
may be delayed in its dissemination to the marketplace and the Evaluator.
The high yield bond market is a relatively new market whose growth
has paralleled the recent period of economic expansion. As such, the high
yield bond market has not experienced a period of economic recession.
Such an economic downturn or a substantial period of rising interest rates
could negatively affect the ability of the obligors of the Bonds to
continue to make debt service payments and to repay principal. An
economic downturn could also severely restrict the already limited
secondary market for the Bonds and diminish their value. Therefore,
investors should consider carefully the relative risks associated with
investment in bonds which carry lower ratings or are unrated.
Some of the Bonds in the Trust may be Refunded Bonds. Issuers
typically utilize refunding calls in order to take advantage of lower
interest rates in the marketplace. If an issuer exercises these
provisions, the Trust would lose the Refunded Bonds and their income
stream, resulting in a decreased return to Unitholders. The value of high
yield bonds will decrease in a rising interest rate market, as will the
value of the Trust's assets. If the net asset value of the Trust
decreases and the Trust experiences Unit redemptions, this may force the
Trust to sell Bonds at a loss, thereby decreasing the income and asset
base of the Trust which are used to pay Trust expenses and possibly
reducing the Trust's return to Unitholders. If the redemptions are great
enough, this could trigger a complete liquidation of the Trust before
maturity, resulting in unanticipated losses to Unitholders.
SPECIAL FACTORS CONCERNING THE TRUST PORTFOLIO. As of April 21,
1994, the Trust contains Bonds which have failed to make required payments
of principal or interest either in part or in full, and therefore, are
considered to be in "default". The Sponsor and other Bondholders have
pursued a variety of strategies to improve operations of projects which
secure such Bonds and to maximize Trust recoveries in cases where project
operations are unlikely to support the original interest payment schedule
in any significant way for the foreseeable future. The following
categories identify the status of Bonds which are not currently making
full scheduled interest payments. These categories reflect the variety of
remedial actions taken by the Sponsor and other Bondholders, as well as
countermeasures occasionally taken by project owners. Inherently, Bonds
where project operations do not fully support debt service are volatile.
The status of a Bond may change between categories as a consequence of
economic factors, court actions, and remedial or defensive measures taken
by the parties.
Status Indeterminate. For Bonds in this category, interest payments as
scheduled in the original Bond documents are not being made as required.
Pending review of the project's economics, the particular remedies
available to Bondholders under the terms of the original Bond documents,
and the value which current ownership or management of the project adds to
the situation, no determination has as yet been made as to the course of
action to be taken by the Bondholders and their representatives.
Occasionally Bonds are reassigned to this category if the Sponsor's
pursuit of a particular remedial strategy comes to a standstill and the
situation must be re-evaluated.
Portfolio Nos. 14, 15 & 16 - Mantachie Mississippi Natural Gas
System:
In November, 1991 the Sponsor reported that the District had failed
to make a full payment of interest due August 1, 1991 on the Bonds. The
District attributed this event to unseasonably warm winter weather which
has prevailed in the District's service area over the past three years,
resulting in lower than anticipated gas sales and revenue. In response to
the District's failure to make the full interest payment and its assertion
that its future capacity to make debt service payments on the Bonds would
depend upon weather conditions, the Sponsor stopped accruing interest on
the Bonds.
District operations have produced sufficient cash flow to make
partial interest payments to bondholders for the past few years.
Accordingly, in March 1992 the Sponsor began to accrue interest on the
Bonds at half the contractual interest rate (an accrual rate of 4.5% for
the 2008 and 2009 maturities and 4.4% for the 2003 maturity).
Recently the District approached the Sponsor to begin discussions
regarding the possible restructuring or refunding of the Bonds. The
Sponsor and the District are exploring the feasibility of both options.
Discussions on these matters are at a very early stage.
Portfolio Nos. 17a & 17b - Westbrooke Village West Apartment Project
and Pinetree Apartments Project:
The Trustee has notified the Sponsor that the borrowers failed to
pay the December 15, 1993 semi-annual interest payment on the bonds.
Payment of debt service on the bonds is supported by the combined
net revenues of the Pinetree, Westbrooke and Westbrooke Village West
Projects, after provision has been made for payment of debt service on
prior lien bonds issued for the three Projects. The borrower has
attributed the failure to make the December 15, 1993 interest payment on
the bonds to a substantial increase in property taxes assessed on the
three properties and the insufficiency of Project cash flows to meet both
this expense and interest obligations on the bonds. The borrower reports
that he has appealed the property tax increase.
The Trustee has stopped accruing interest on the bonds held in the
Trust pending resolution of the property tax issue and payment of December
1993 semi-annual interest on the bonds.
Portfolio No. 22 - Park Manor Senior Care Center, Inc.:
After emerging from bankruptcy in August 1990, Park Manor Senior
Care Center, Inc. made full debt service payments on the Bonds until March
1991. Beginning in March 1991, the borrower's monthly payments to the
Trustee dropped significantly, averaging approximately 44% of the required
amounts for the ten months of 1991 from March through December. On August
26, 1991 the Sponsor notified unit holders that the interest accrual rate
on the above captioned Bonds held in the Trust was being lowered to an
annual rate of 4.4%. This interest rate reduction reflected the inability
of the owner of Park Manor to generate sufficient operating income to meet
full debt service payments on the Bonds.
The Sponsor was informed that the owner of Park Manor was able to
make full monthly interest payments on a more regular basis in 1992 than
he was in 1991. As a result, the Sponsor increased the accrual rate on
Bonds held in the Trust to the full annual contractual rate of 11.00%.
Monthly payments continued to be paid through October 1993. Payments
were resumed in December 1993, but in February 1994 the borrower once
again failed to make a payment. The borrower has requested interest
rate relief from bondholders, and has presented unaudited financial
statements which indicate some deterioration in Park Manor's financial
operations in calendar year 1993. The bondholders are in the process
of evaluating the borrower's request.
In regard to the litigation pending against the guarantors, the
Sponsor has determined that anticipated recoveries from this source did
not justify the costs of pursuing the litigation. The Sponsor, however,
has not released the guarantors from any potential liability they may
have. The Sponsor has communicated to Park Manor's owner that it expects
debt service arrearages will be made current from Project operations in a
timely fashion.
Because the nursing home industry is vulnerable to changing health
care reimbursement regulations, and health care cost containment
initiatives and policy changes have become common in recent years at the
national, state, and local levels, there can be no assurance that Park
Manor Senior Care will continue to support full debt service payments on
the Bonds.
Portfolio No. 24 - Iberia Apartments Project:
The bonds were called for mandatory redemption on May 1, 1989 at a
redemption price equal to par value plus accrued interest to the date of
redemption. On that date, there were insufficient funds available to
redeem all of the bonds and available monies were applied to pay a portion
of the principal and interest due. On the redemption date, approximately
85% of the outstanding principal and interest on the bonds were paid. The
unpaid amount of the bonds continues to accrue interest. However,
insufficient monies are available to pay such interest. The Bond Trustee
has been enjoined by court order from taking action to cause a foreclosure
sale of the project until resolution of an action by the owner to rescind
the mortgage. On October 24, 1990, a judgment was entered against the
Bond Trustee. Among other things, the judgment states that the owner is
not liable under the mortgage. The Bond Trustee has appealed from the
judgment. In addition, the owner's leasehold interest in the property
securing the mortgage has been terminated. The Bond Trustee is seeking
reinstatement of the lease.
Debt Rescheduling. Projects which secure Bonds in this category are
capable of supporting some level of interest payments, but (i) at a lower
interest rate or a lower principal amount than agreed to in the original
Bond documents or (ii) after a temporary moratorium of interest payments
during which project cash flows must be used for operating expenses or
capital improvements. Negotiations are currently underway between the
Sponsor, other Bondholders and project owners to establish an agreed upon
interest payment schedule which balances the Bondholders' rights and the
project owner's interests with a view toward assuring long term project
viability and Bond value. As of April 14, 1993, none of the Bonds were in
this category.
Bankruptcy Reorganization. Projects which secure Bonds in this category
have entered into bankruptcy and are operated by either a debtor in
possession or a bankruptcy trustee. The outcome for the Trusts and
Unitholders will depend primarily upon terms established by the
Reorganization Plan proposed by the debtor, creditors, or other parties in
interest and approved by the Court. Typically, the principal amount of
the debt in question is reduced and the project is permitted to operate as
a going concern under the reduced interest payment schedule. As of April
21, 1994, none of the Bonds were in this category.
Collateral Liquidation. The trustee for the Bonds hoool the deeds on
properties securing Bonds in this category as a result of a foreclosure or
a settlement agreement with debtors. Such properties are being either
prepared or offered for sale. In most instances, they produce little or
no net cash flow and no further interest payments are expected.
Anticipated recoveries will come primarily from net sale proceeds.
Portfolio No. 1 - The Prattville Chemical Dependency Treatment
Facility:
On January 24, 1990, the owner of the projects, the Bradford Group,
Inc., filed a voluntary petition for relief under Chapter 11 of the United
States Bankruptcy Code. This bond issue is covered by Bradford's
bankruptcy filing. In March 1991, Bradford's plan of reorganization was
approved by creditors. The plan provided that bondholders of all five
facilities owned by Bradford would receive $12,000,000, certain
receivables and new securities representing rights in the Prattville
facility and another facility which has subsequently been sold. The Bond
Trustee for the Bradford facilities has received title to the Prattville
facility and has been marketing it to potential buyers. When the
Prattville facility is sold, all Bradford bondholders will receive
additional proceeds in the amount proportionate to their respective
interests in the Bradford bonds originally issued.
Portfolio No. 2 - FPI Project:
FPI Huntsville Partners 841, Ltd. failed to make monthly payments
under the Lease Agreement with Huntsville Historical Preservation Society.
As a result, the Bond Trustee was required to draw on a Letter of Credit
in order to have sufficient funds to make the interest payment on the bond
for March 1, 1988. Insufficient monies have been available since that
date to make interest payments on the bond and the Sponsor discontinued
posting accrued interest on the bond as of July 1988.
On January 4, 1994, the Bond Trustee sold the property securing the
bond. Consequently, the bond is no longer held in the Trust.
Portfolio No. 4 - The Kress Rehabilitation Project:
The developer of the project financed by the bonds failed to make
the monthly payments required under the Loan Agreement and, as a result,
the Sponsor discontinued accruing interest on the bonds. The bondholders,
including the Trusts, originally commenced litigation against the
developer, its counsel and several other parties to the original bond
transaction which now has been settled in part. The settlements to date
include a payment to the bondholders by the developer and its affiliates
of $1,000,000 and the execution of a $375,000 note secured by certain real
property in the State of California. In addition, MST, High Income Series
10 and MST, High Income Series 11 Trust have received payments of $902,000
and $123,000, respectively, from the developer's attorney, the
underwriter's counsel and the bond counsel. Litigation against the
original Bond Trustee was dismissed on the trial level. The dismissal is
now being appealed to the Ninth Circuit Court of Appeals. The prospect of
recovery to the bondholders, including the Trust, pursuant to this
litigation is uncertain.
The current Bond Trustee has sold a portion of the bond financed
property for $400,000 in cash and a $200,000 promissory note (the "Note").
The Purchaser reported, as of early April 1994, that it is still working
on permanent financing for the Project, and it may seek an extension of
the maturity of the Note. Each of the Trusts' ratable interest in the
proceeds of the sale have been credited to the appropriate principal
account of each Trust. The balance of the bond financed property is being
offered for sale.
Portfolio No. 6 - Decatur Hotel Associates Project:
In the Spring of 1991, the owner of the property informed the Bond
Trustee that the hotel was not producing sufficient net income to pay debt
service on the bonds. The Debt Service Reserve Fund had already been
exhausted and, as a result, no interest payment was made in May 1991. The
Sponsor stopped accruing interest on the bonds in April of that year.
Subsequent to the default, various institutional bondholders,
including the Sponsor on behalf of the Trust, negotiated a work-out
agreement with the owner under which the owner was to have made scheduled
payments to the Bond Trustee from hotel revenues pending the financing of
a buy out of the bonds by the owner. The proposed buy-out offer was
ultimately rejected by several bondholders (not including the Sponsor).
Under the work-out agreement between the institutional bondholders
and the owner, the failure of the owner's offer led to the conveyance of
the property to the Bond Trustee on behalf of the bondholders. After
acquiring possession of the hotel, the Bond Trustee retained new
management, which has made progress in developing the commercial potential
of the property and producing net cash flow for distribution to
bondholders. The Sponsor began to re-accrue interest on the bonds in
August 1992 at a partial interest rate of 3 1/2% per annum. The Bond
Trustee is currently marketing the property for sale.
Debt Extinguishment. The collectibility of debt securing the Bonds in
this category has been written off. All distributable funds have been
paid out or are being held for administrative purposes and the property is
deemed to have little or no value. There may be litigation outstanding
against debtors seeking additional recoveries, but no value can be
ascribed to potential recoveries because of the considerable uncertainty
of net recovery estimates. The aggregate principal amount of Bonds in the
Trust has been reduced to reflect this reality. As of April 21, 1994,
none of the Bonds were in this category.
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 Bonds in the
portfolio of the Trust. If such a market is not maintained, a
Certificateholder will be able to redeem his Units with the Trustee at a
price also based upon the aggregate bid price of the Bonds. (See "Sponsor
Repurchase" and "Public Offering--Offering Price" in Part B of this
Prospectus.) Some of the Bonds in the Trust may be in default. Such
defaulted Bonds typically trade infrequently if at all and their market is
highly inefficient. If the Sponsor discontinues making a secondary market
for the Units in the Trust, the Trust will be required to sell certain of
the Bonds in the Trust in order to satisfy redemption requests. To the
extent the Trustee is required to sell Bonds that are in default in order
to satisfy redemption requests, the price realized upon such sale may be
significantly lower than the par value of such Bonds or even the value of
the Collateral underlying such Bonds. To the extent the Trustee is
required to sell Bonds that are not in default in order to satisfy
redemption requests, a greater percentage of the portfolio remaining after
such sale will be comprised of Bonds which are in default. This will
negatively impact the market value and liquidity of the Bonds which remain
in the Trust and, consequently, the market value of the Units.
TOTAL REINVESTMENT PLAN. Certificateholders under the semi-annual
and annual plans of distribution have the opportunity to have their
interest distributions and principal distributions, if any, reinvested in
available series of "Municipal Securities Trust, High Income Series" or
other available series. (See "Total Reinvestment Plan" and for residents
of Texas, see "Total Reinvestment Plan for Texas Residents" in Part B of
this Prospectus.) The Plan is not designed to be a complete investment
program.
<PAGE>
MUNICIPAL SECURITIES TRUST
HIGH INCOME SERIES 11
SUMMARY OF ESSENTIAL INFORMATION AS OF DECEMBER 31, 1993
Date of Deposit: March 18, 1987 Weighted Average Life
Principal Amount of Bonds ...$15,678,311 to Maturity: 21 Years.
Number of Units .............16,481 Minimum Principal Distribution:
Fractional Undivided Inter- $1.00 per Unit.
est in Trust per Unit .....1/16481 Minimum Value of Trust:
Principal Amount of Trust may be terminated if
Bonds per Unit ............$951.30 value of Trust is less than
Secondary Market Public $24,400,000 in principal amount
Offering Price** of Bonds.
Aggregate Bid Price of Mandatory Termination Date:
Bonds in Trust .......$13,275,161+++ The earlier of December 31,
Divided by 16,481 Units ...$805.48 2036 or the disposition of the
Plus Sales Charge of 5% last Bond in the Trust.
of Public Offering Price.$42.39 Trustee***: United States Trust
Public Offering Price Company of New York.
per Unit ................$847.87 Trustee's Annual Fee: Monthly
Redemption and Sponsor's plan $1.02 per $1,000; semi-
Repurchase Price annual plan $.54 per $1,000;
per Unit ..................$805.48+ and annual plan is $.35 per
+++ $1,000.
++++ Evaluator: Kenny S&P Evaluation
Excess of Secondary Market Services.
Public Offering Price Evaluator's Fee for Each
over Redemption and Evaluation: Minimum of $12
Sponsor's Repurchase plus $.25 per each issue of
Price per Unit ............$42.39++++ Bonds in excess of 50 issues
Difference between Public (treating separate maturities
Offering Price per Unit as separate issues).
and Principal Amount per Sponsor: Bear, Stearns & Co.
Unit Premium/(Discount) ...$(103.43) Inc.
Evaluation Time: 4:00 p.m. Sponsor's Annual Fee: Maximum of
New York Time. $.25 per $1,000 principal
amount of Bonds (see "Trust
Expenses and Charges" in
Part B).
PER UNIT INFORMATION BASED UPON INTEREST DISTRIBUTION PLAN
Monthly Semi-Annual Annual
Option Option Option
Gross annual interest income# .........$68.00 $68.00 $68.00
Less estimated annual fees and
expenses ............................ 1.67 1.05 .84
Estimated net annual interest ______ _______ ______
income (cash)# ......................$66.33 $66.95 $67.16
Estimated interest distribution# ...... 5.53 33.48 67.16
Estimated daily interest accrual# ..... .1843 .1860 .1866
Estimated current return#++ ........... 7.82% 7.90% 7.91%
Estimated long term return++ ...........9.23% 9.30% 9.33%
Record dates .......................... 1st of Dec. 1 and Dec. 1
each month June 1
Interest distribution dates ........... 15th of Dec. 15 and Dec. 15
each month June 15
<PAGE>
* The Date of Deposit is the date on which the Trust Agreement was
signed and the deposit of the Bonds with the Trustee made.
** For information regarding offering price per unit and applicable
sales charge under the Total Reinvestment Plan, see "Total
Reinvestment Plan" in Part B of this Prospectus.
*** The Trustee maintains its corporate trust office at 770 Broadway,
New York, New York 10003 (tel. no.: 1-800-428-8890). For
information regarding redemption by the Trustee, see "Trustee
Redemption" in Part B of this Prospectus.
+ Plus accrued interest to expected date of settlement (approximately
five business days after purchase) of $14.69 monthly, $19.93 semi-
annually and $19.81 annually.
++ The estimated current return and estimated long term return are
increased for transactions entitled to a discount (see "Employee
Discounts" in Part B of this Prospectus), and are higher under the
semi-annual and annual options due to lower Trustee's fees and
expenses.
+++ Based solely upon the bid side evaluation of the underlying Bonds
(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.
# Does not include income accrual from original issue discount bonds,
if any. Does not include income accrual from Bonds which are in
default as to the payment of principal or interest. Does include
income accrual from Bonds which are in technical default; however,
there can be no assurance that these Bonds will continue to make
future payments of principal or interest. See "The Trust" in this
Part A.
<PAGE>
INFORMATION REGARDING THE TRUST
AS OF DECEMBER 31, 1993
DESCRIPTION OF PORTFOLIO*
The portfolio of the Trust consists of 25 issues representing
obligations of issuers located in 12 states and Guam. The Sponsor
participated as a sole underwriter or manager, co-manager or member of an
underwriting syndicate, from which 15.9% of the initial aggregate
principal amount of the Bonds were acquired. Approximately 19.9% of the
Bonds are obligations of state and local housing authorities;
approximately 6.2% are hospital revenue bonds; approximately 6.6% were
issued in connection with the financing of nuclear generating facilities;
and none are "mortgage subsidy" bonds. All of the Bonds in the Trust are
subject to redemption prior to their stated maturity dates pursuant to
sinking fund or optional call provisions. 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). None of the
Bonds are general obligation bonds. Twenty-five issues representing
$15,678,311 of the aggregate principal amount of the Bonds are payable
from the income of a specific project or authority and are not supported
by the issuer's power to levy taxes. The portfolio is divided for purpose
of issue as follows: Chemical Dependency 1, Congregate Care 2,
Correctional Facilities 1, Federally Insured Mortgage 1, Gas 3,
Hospital 1, Industrial Development 1, Lodging 2, Multifamily Housing 3,
Nuclear Power 2, Nursing Home 4, Pollution Control 2, and Resource
Recovery 2. For an explanation of the significance of these factors see
"The Trust--Portfolio" in Part B of this Prospectus.
* Changes in the Trust Portfolio: From January 1, 1993 to March 24,
1994, the entire principal amounts of the Bonds in portfolio nos. 11
and 25 and $35,000 of the principal amount of the Bonds in portfolio
no. 19 have been called and are no longer contained in the Trust.
The entire principal amount of the Bonds in portfolio no. 2 has been
sold and is no longer contained in the Trust. The entire principal
amount of the Bonds in portfolio no. 10 has been called for
redemption pursuant to pre-refunding provisions and is no longer
contained in the Trust. 432 Units have been redeemed from the
Trust.
<PAGE>
As of December 31, 1993, $1,600,000 (approximately 10.2% of the
aggregate principal amount of the Bonds) were issued at an original issue
discount. Of these original issue discount bonds, $1,000,000
(approximately 6.3% of the aggregate principal amount of the Bonds) were
Zero Coupon Bonds. Zero Coupon Bonds do not provide for the payment of
any current interest and provide for payment at maturity at par value
unless sooner sold or redeemed. Approximately 14.8% of the aggregate
principal amount of the Bonds in the Trust were purchased at a discount
from par value at maturity, approximately 60.1% were purchased at a
premium and approximately 14.9% were purchased at par. For an explanation
of the significance of these factors see "Discount and Zero Coupon Bonds"
in Part B of this Prospectus.
Portfolio Ratings* Rated:
A, 13%; Baa, 10%; Ba, 7%.
Nonrated:
A, 3%; Ba, 20%; B, 10%; D, 37%.**
* Portfolio Ratings based on the credit ratings of the Bonds on
March 24, 1994. Approximate percentages computed on the basis of
the aggregate par value of the Bonds in the Trust as of December 31,
1993. See "Description of Bond Rating" in Part B of this Prospectus
for a discussion of the significance of these ratings. See "Special
Factors Concerning The Trust Portfolio" in this Part A for a
discussion of the particular bond issues in default.
** Portfolio numbers 1, 2, 4, 6, 14, 15, 16, 17a, 17b, 22 and 24 are in
default as to the payment of principal or interest.
<PAGE>
FINANCIAL AND STATISTICAL INFORMATION
Selected data for each Unit outstanding for the periods listed below:
Distribu-
tions of
Distributions of Interest Principal
During the Period (per Unit) During
Net Asset * Semi- the
Units Out- Value Monthly Annual Annual Period
Period Ended standing Per Unit Option Option Option (Per Unit)
December 31, 1991 22,219 $749.62 $58.98 $59.61 $59.76 -0-
December 31, 1992 19,733 742.89 55.38 55.99 56.19 $1.70
December 31, 1993 16,481 826.44 67.38 67.96 68.18 -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.
<PAGE>
Independent Auditors' Report
The Sponsor, Trustee and Certificateholders
Municipal Securities Trust, High Income Series 11:
We have audited the accompanying statement of net assets, including the
portfolio, of Municipal Securities Trust, High Income Series 11 as of December
31, 1993, 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, 1993,
by correspondence with the Trustee. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Municipal Securities Trust,
High Income Series 11 as of December 31, 1993, 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
New York, New York
March 31, 1994
<PAGE>
<TABLE>
Statement of Net Assets
December 31, 1993
<S> <C>
Investments in marketable securities,
at market value (cost $14,837,337) $ 13,187,616
Excess of other assets over total liabilities 432,915
------------
Net assets (16,481 units of fractional undivided
interest outstanding, $826.44 per unit) $ 13,620,531
============
See accompanying notes to financial statements.
Statements of Operations
Years ended December 31,
-------------- -- ---------- -- -------------
1993 1992 1991
-------------- ---------- -------------
Investment income - interest $ 1,289,390 779,981 2,193,961
-------------- ---------- -------------
Expenses:
Trustee's fees 26,090 25,483 43,616
Evaluator's fees 3,833 3,837 3,234
Sponsor's advisory fee 4,570 5,075 5,790
Legal fees 10,126 9,802 13,647
-------------- ---------- -------------
Total expenses 44,619 44,197 66,287
-------------- ---------- -------------
Investment income, net 1,244,771 735,784 2,127,674
-------------- ---------- -------------
Legal fees recovered from
principal 5,186 578,368 504,941
-------------- ---------- -------------
Realized and unrealized gain (loss)
on investments:
Net realized gain (loss) on
bonds sold or called 75,305 (697,159) (602,219)
Unrealized appreciation
(depreciation) for the year 1,533,604 416,941 (1,104,214)
-------------- ---------- -------------
Net gain (loss)
on investments 1,608,909 (280,218) (1,706,433)
-------------- ---------- -------------
Net increase in net
assets resulting
from operations $ 2,858,866 1,033,934 926,182
============== ========== =============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
Years ended December 31,
-------------- - ---------------- - --------------
1993 1992 1991
-------------- ---------------- --------------
<S> <C> <C> <C>
Operations:
Investment income, net $ 1,244,771 735,784 2,127,674
Legal fees recovered from
principal 5,186 578,368 504,941
Net realized gain (loss) on
bonds sold or called 75,305 (697,159) (602,219)
Unrealized appreciation
(depreciation) for the year 1,533,604 416,941 (1,104,214)
-------------- ---------------- --------------
Net increase in net
assets resulting
from operations 2,858,866 1,033,934 926,182
-------------- ---------------- --------------
Distributions to Certificateholders:
Investment income 1,221,349 1,211,430 1,389,057
Principal - 34,527 -
Redemptions:
Interest 69,853 38,513 33,591
Principal 2,606,524 1,745,931 1,541,009
-------------- ---------------- --------------
Total distributions and
redemptions 3,897,726 3,030,401 2,963,657
-------------- ---------------- --------------
Total decrease (1,038,860) (1,996,467) (2,037,475)
Net assets at beginning of year 14,659,391 16,655,858 18,693,333
-------------- ---------------- --------------
Net assets at end of year (including
undistributed net investment
income of$909,402, $955,833 and
$1,491,009, respectively) $ 13,620,531 14,659,391 16,655,858
============== ================ ==============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
MUNICIPAL SECURITIES TRUST, HIGH INCOME SERIES 11
Notes to Financial Statements
December 31, 1993, 1992, and 1991
(1) Organization
Municipal Securities Trust, High Income Series 11 (Trust) was
organized on March 18, 1987 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
United States Trust Company 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.
The discount on the zero-coupon bonds is accreted by the interest
method over the respective lives of the bonds. The accretion of such
discount is included in interest income; however, it is not
distributed until realized in cash upon maturity or sale of the
respective bonds.
Investments are carried at market value which is determined by either
Standard & Poor's Corporation or Moody's Investors Service, Inc.
(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 the Trust based on the offering prices for
investments at that date. The difference between cost (including
accumulated accretion of original issue discount on zero-coupon
bonds) 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, 1993, 1992, and 1991.
The Trust Indenture and Agreement also requires the Trust to redeem
units tendered. 3,252, 2,486, and 2,185 units were redeemed during
the years ended December 31, 1993, 1992, and 1991, respectively.
(5) Net Assets
At December 31, 1993, the net assets of the Trust represented the
interest of Certificateholders as follows:
Original cost to Certificateholders $ 62,748,272
Less initial gross underwriting commission (3,137,230)
59,611,042
Cost of securities sold or called (44,795,076)
Net unrealized depreciation (1,649,721)
Undistributed net investment income 909,402
Distributions in excess of proceeds from
bonds sold or called (455,116)
Total $ 13,620,531
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 61,000 units of fractional
undivided interest of the Trust as of the date of deposit.
Undistributed net investment income includes accumulated accretion of
original issue discount of $21,371.
<PAGE>
<TABLE>
MUNICIPAL SECURITIES TRUST, HIGH INCOME SERIES 11
Portfolio
December 31, 1993
<CAPTION>
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 $ 382,384 Alabama Statewide NR 13.000% 9/01/98 @ 100 S.F. $ 19,119
Health Care 9/01/2008 9/01/95 @ 105 Ref.
Authority, First
Mortgage Gross
Revenue Bonds (The
Prattville Chemical
Dependency Treatment
Facility) Series 1985
(4)
2 598,103 The Historical NR 11.750 Currently @ 100 S.F. 143,545
Preservation 9/01/2015 None
Authority of the City
of Huntsville,
Alabama, Revenue
Bonds (FPI Project)
Series 1984 (4)
3 100,000 Industrial NR 10.500 Currently @ 100 S.F. 100,000
Development Board of 9/01/2016 9/01/96 @ 103 Ref.
the Town of Vincent,
Alabama, First
Mortgage Industrial
Development Revenue
Bonds (Shelby Motel
Group Inc. Project)
Series 1986
4 600,000 City of Long Beach, NR 9.750 Currently @ 100 S.F. 84,000
California Industrial 12/01/2016 12/01/96 @ 103 Ref.
Development Revenue
Bonds (The Kress
Rehabilitation
Project) (4)
5 1,055,000 City of Sunrise, NR 10.750 Currently @ 100 S.F. 1,065,286
Florida Industrial 12/01/2016 12/01/96 @ 103 Ref.
Development Revenue
Bonds Series 1986
(Sunrise Palms Adult
Congregate Living
Facility)
6 660,000 Downtown Development NR 10.250 Currently @ 100 S.F. 435,600
Authority of the City 11/01/2016 11/01/96 @ 103 Ref.
of Decatur, Georgia,
Industrial
Development Revenue
Bonds (Decatur Hotel
Associates Project)
Series 1986(4)
7 900,000 East Chicago BB- 6.500 Currently @ 100 S.F. 900,855
Industrial Pollution 5/15/2008 5/15/94 @ 100 Ref.
Control Revenue Bonds
(Inland Steel Co.
Project #6)
8 395,000 Kentucky Local NR 7.000 11/01/06 @ 100 S.F. 428,457
Correctional Facility 11/01/2014 11/01/97 @ 102 Ref.
Multi-County
Correctional Facility
Refunding &
Improvement Bonds
9 975,000 Kentucky Development NR 8.375 Currently @ 100 S.F. 1,037,264
Finance Refunding 7/01/2012 7/01/95 @ 103 Ref.
Bonds Berea Hospital
Inc. Project) Series
1987
10 750,000 Massachusetts BBB+ 6.125% 7/01/99 @ 100 S.F. 767,512
Municipal Wholesale 7/01/2017 2/01/94 @ 102 Ref.
Electric Co. (A
Public Corporation of
The Commonwealth of
Massachusetts) Power
Supply System Revenue
Bonds 1977 Series A
11 290,000 Massachusetts BBB+ 6.375 7/01/99 @ 100 S.F. 296,789
Municipal Wholesale 7/01/2015 2/01/94 @ 102 Ref.
Electric Co. (A
Public Corporation of
The Commonwealth of
Massachusetts) Power
Supply System Revenue
Bonds 1977 Series A
12 510,000 Greater Detroit BBB- 9.250 12/13/99 @ 100 S.F. 557,838
Resource Recovery 12/13/2008 12/13/95 @ 103 Ref.
Authority Michigan
Fixed Rate Resource
Recovery Revenue
Bonds Series G
13 465,000 Greater Detroit BBB- 9.250 12/13/99 @ 100 S.F. 508,617
Resource Recovery 12/13/2008 12/13/95 @ 103 Ref.
Authority Michigan
Fixed Rate Resource
Recovery Revenue
Bonds Series H
14 160,000 Mantachie Natural Gas NR 4.400 No Sinking Fund 88,000
District Mississippi 2/01/2003 2/01/97 @ 103 Ref.
Natural Gas System
Revenue Bonds Series
1987 (4)
15 70,000 Mantachie Natural Gas NR 4.500 No Sinking Fund 38,500
District Mississippi 2/01/2008 2/01/97 @ 103 Ref.
Natural Gas System
Revenue Bonds Series
1987 (4)
16 130,000 Mantachie Natural Gas NR 4.500 No Sinking Fund 71,500
District Mississippi 2/01/2009 2/01/97 @ 103 Ref.
Natural Gas System
Revenue Bonds Series
1987 (4)
17a 10,000 St. Louis, Missouri NR 10.000 No Sinking Fund 10,150
Industrial 12/15/2003 12/15/99 @ 103 Ref.
Development Authority
Subordinated
Multifamily Housing
Refunding Revenue
Bonds (Westbrooke
Village West
Apartments Projects)
Series 1989 E (4)
17b 25,000 St. Louis, Missouri NR 10.000 No Sinking Fund 25,250
Industrial 6/15/2009 12/15/99 @ 103 Ref.
Development Authority
Subordinated
Multifamily Housing
Refunding Revenue
Bonds (Pine Tree
Apartments Project)
Series 1989 B (4)
18 230,000 Jefferson County, NR 12.000% Currently @ 100 S.F. 266,211
Missouri Industrial 12/15/2015 12/01/95 @ 103 Ref.
Development
Industrial
Development Revenue
Bonds Series 1985
(Cedars Hills
Retirement Village
Project)
19 1,865,000 City of Fargo North NR 9.000 Currently @ 100 S.F. 2,018,396
Dakota Multifamily 3/01/2012 3/01/97 @ 102 Ref.
Housing Revenue Bonds
(Graver Inn Project)
Series 1987
20 200,000 Beaver County BA1* 12.250 No Sinking Fund 229,566
Industrial 09/15/2015 9/15/95 @ 102
Development Authority
Pennsylvania
Pollution Control
Revenue Bonds 1985
Series B (The Toledo
Edison County Beaver
Valley Project)
21 480,000 El Paso (Texas) NR 10.000 Currently @ 100 S.F. 470,218
Health Facilities 12/01/2016 6/01/94 @ 101 Ref.
Development
Corporation Health
Facilities
Development Revenue
Bonds (Penan
Partnership Project)
Series 1986
22 3,000,000 DeSoto (Texas) Health NR 11.000 12/01/01 @ 100 S.F. 2,925,000
Facilities 12/01/2016 12/01/96 @ 103 Ref.
Development
Corporation Revenue
Bonds Series 1986
(Park Manor Senior
Care Center Inc.
Project)(4)
23 600,000 Brownsville Texas BBB 5.625 No Sinking Fund 600,546
Navigation District 11/01/2007 5/01/94 @ 100 Ref.
Cameron County
Environmental Project
(Union Carbide
Project)
24 227,824 Guam Economic NR 9.000 11/01/90 @ 100 S.F. 68,347
Development Authority 11/01/2018 11/01/96 @ 103 Ref.
Multi-Family Mortgage
Revenue Bonds Series
1985C-3 (Iberia
Apartments Project)
(4)
25 1,000,000 Housing Authority of A- 0.000 2/01/11 @ 17.768 S.F. 31,050
Kansas City Missouri 8/01/2027 2/01/00 @ 5.728 Ref.
Multifamily Housing
Revenue Bonds Series
1985 (FHA Insured
Mortgage
Loan-Boulevard
Association Project)
----------- -----------
$ 15,678,311 $ 13,187,616
=========== ===========
See accompanying footnotes to portfolio and notes to financial statements.
</TABLE>
<PAGE>
MUNICIPAL SECURITIES TRUST, HIGH INCOME SERIES 11
Footnotes to Portfolio
December 31, 1993
(1) All ratings are by Standard & Poor's Corporation, except for those
identified by an asterisk (*) which are by moody's Investors Service,
Inc. 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, 1993, the net unrealized depreciation of all the bonds
was comprised of the following:
Gross unrealized appreciation $ 738,197
Gross unrealized depreciation (2,387,918)
Net unrealized depreciation $ (1,649,721)
(4) The bonds in portfolio numbers 1, 2, 4, 6, 14, 15, 16, 17a, 17b, 22
and 24 are in default as to payments of prinicipal and interest and,
accordingly, are non-income producing.
(5) The annual interest income, based upon bonds held at December 31, 1993
(excluding accretion of original issue discount on zero-coupon bonds)
to the Trust is $ 1,120,672.
(6) Bonds sold or called after December 31, 1993 are noted in a footnote
"Changes in Trust Portfolio" under "Description of Portfolio" in Part
A of this Prospectus.
(7) 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.
MUNICIPAL SECURITIES TRUST
HIGH INCOME SERIES
Prospectus Part B
Dated: April 29, 1994
THE TRUST
Organization
"Municipal Securities Trust," High Income Series (the "Trust"),
is a "unit investment trust" created under the laws of the State of New
York pursuant to a Trust Indenture and Agreement (the "Trust Agreement"),
dated the Date of Deposit, among Bear, Stearns & Co. Inc., as Sponsor,
United States Trust Company of New York, as Trustee, and Kenny S&P
Evaluation Services, Inc., as Evaluator.*
* References in this Prospectus to the Trust Agreement are qualified
in their entirety by the Trust Indenture and Agreement which is
incorporated herein.
<PAGE>
On the Date of Deposit the Sponsor deposited with the Trustee
long-term bonds in the aggregate principal amount set forth in Part A,
including delivery statements relating to contracts for the purchase of
certain such bonds (the "Bonds") 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 Bonds 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 per Unit ratio set forth under "Summary of Essential
Information" in Part A. To the extent that any Units of the Trust 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 the Underwriters, or until the termination of the Trust Agreement. The
Trust offers investors the opportunity to participate in a portfolio
having a greater diversification than they might be able to acquire
themselves.
Objectives
The objective of the Trust is to provide a high level of
interest income (including, where applicable, earned original issue
discount) which, in the opinions of bond counsel to the respective issuers
given at the time of original delivery of the Bonds, is, with certain
exceptions, exempt from regular federal income tax under existing law
through investment in a fixed, diversified portfolio of long-term, high
risk bonds issued by or on behalf of states, municipalities and public
authorities. Such interest may, however, be subject to the federal
corporate alternative minimum tax and to state and local taxes. In
addition, interest on certain of the Bonds in the Trust may be subject to
the federal individual alternative minimum tax. See "Tax Status." The
Trust offers investors the opportunity to participate in a portfolio
having a greater diversification than they might be able to acquire
themselves. An investor will realize taxable income upon maturity or
early redemption of any market discount bonds in the Trust portfolio and
will realize, where applicable, tax-exempt income to the extent of the
earned portion of interest including any original issue discount earned on
the Bonds in the Trust portfolio. See "Discount and Zero Coupon Bonds"
and "Tax Status."
High-Yield Bonds - Risk Factors
As of the date set forth in Part A, Bonds representing that
percentage of the Bonds in the Trust as is set forth in Part A were rated
by Standard & Poor's Corporation or Moody's Investors Service, Inc.,
respectively. In addition, some of the Bonds in the Trust, as of the date
set forth in Part A, were unrated and have credit characteristics
determined by the Sponsor to be comparable to those ratings of Standard &
Poor's Corporation or Moody's Investors Service, Inc. as is set forth in
Part A. There are certain risks involved in applying credit ratings as a
method of evaluating high yield bonds. For example, while credit rating
agencies evaluate the safety of principal and interest payments, they do
not evaluate the market risk of the Bonds. There is no established
secondary market for many of those Bonds in the Trust that are unrated.
The Sponsor does not anticipate that these Bonds could be sold other than
to institutional investors. Some of these unrated Bonds may have credit
characteristics comparable to a D rating. (See "Description of the
Portfolio" for a listing of the percentages of the Bonds in the Trust
which are rated under each category by Standard & Poor's Corporation,
Moody's Investors Service, Inc. or by the Sponsor). Bonds such as those
included in the Trust are subject to greater market fluctuations and risk
of loss of income and principal than are investments in lower yielding
bonds. The Trust may contain "Zero Coupon" bonds. The market value of
Zero Coupon Bonds is affected by changes in interest rates to a greater
extent than the market value of bonds which pay interest periodically.
High yield bonds such as those found in the Trust are also more sensitive
to adverse economic changes and events affecting specific issuers than are
higher rated bonds. Periods of economic uncertainty can be expected to
result in an increased market price volatility of the high yield bonds.
In addition, some of the Bonds in the Trust are, or may recently have
been, in default and others may have public information available which
would indicate that a future default is possible. The evaluation of such
Bonds is highly speculative and volatile. As such, these evaluations are
very sensitive to the latest available public information relating to
developments concerning such Bonds, such as information relating to the
obligors under the Bonds, the collateral underlying the Bonds or any
restructurings or "workouts" with respect to the Bonds. The disposition
of these Bonds is also subject to substantial uncertainty and limitations.
Bonds rated A have a strong capacity to pay interest and to
repay principal. Bonds rated B through BBB or Baa have adequate capacity
to pay interest and to repay principal, however, such Bonds may have
certain speculative characteristics as well. Bonds rated CC or Ca through
CCC or Caa are in poor standing and are highly speculative. In the event
of adverse conditions, such Bonds are not likely to have the capacity to
pay interest and/or to repay principal. Bonds rated C are regarded as
having extremely poor prospects of ever attaining any real investment
standing. Bonds rated D are in default in the payment of interest or
repayment of principal or are expected to be in such a default upon
maturity or payment date. For a discussion of the significance of these
ratings see "Description of Bond Ratings" in this Part B.
All unrated Bonds which are in default as to the payment of
principal or repayment of interest, or which the Sponsor believes will be
in such default in the future, have been determined by the Sponsor to have
credit characteristics comparable to a D rating as of the date set forth
in Part A and there is frequently no secondary market for the resale of
these Bonds. The limited market for these Bonds may affect the choice of
the particular Bond to be sold for purposes of redemption and the amount
actually realized by the Trust upon such sale. There is no guarantee that
the Trust's objectives will be achieved, principally because these
objectives are subject to the continuing ability of the issuers of the
Bonds to meet their interest and principal payment requirements, on the
continuing satisfaction of the Bonds of the conditions required for
exemption of interest thereon from regular federal income tax and on the
market value of the Bonds, which can be affected by fluctuations in
interest rates and other factors. Investors should carefully review the
objective of the Trust and consider their ability to assume the risks
involved before making an investment in the Trust.
The high yield bond market is a relatively new market whose
growth has paralleled the recent period of economic expansion. As such,
the high yield bond market has not experienced a period of economic
recession. Such an economic downturn or a substantial period of rising
interest rates could negatively affect the ability of the obligors of the
Bonds to continue to make debt service payments and to repay principal.
An economic downturn could also severely restrict the already limited
secondary market for the Bonds and diminish their value.
Trading of high-yield bonds takes place primarily in over-the-
counter markets consisting of groups of dealer firms that are typically
major securities firms. Because the high-yield bond market is a dealer
market, rather than an auction market, no single obtainable price for a
given bond prevails at any given time. Prices are determined by
negotiation between traders. Not all dealers maintain markets in all
high-yield bonds. Therefore, since there are fewer traders in these bonds
than there are in investment grade bonds, the bid-offer spread is usually
greater for high-yield bonds than it is for investment grade bonds. 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, Sponsor's Repurchase Price and
Redemption Price"), the purchase of a Unit should be looked upon as a
long-term investment. The Sponsor may be the sole market maker for
certain of the Bonds in the Trust. However, since the Investment Company
Act of 1940 prohibits the sale of any of the Bonds from the Trust to the
Sponsor, there may be no means available for the Trust to dispose of these
Bonds if the Sponsor determines that such a sale is appropriate. The
Sponsor has obtained an exemption from this prohibition from the
Securities and Exchange Commission which permits the Sponsor to purchase
certain of these Bonds from the Trust under certain conditions. There can
be no assurance that the Sponsor will be able to obtain similar relief in
the future to permit it to purchase other Bonds from the Trust for which
it is the sole market maker. Neither the Trust nor the Total Reinvestment
Plan is designed to be a complete investment program.
Some of the Bonds in the Trust may be Refunded Bonds. Issuers
typically utilize refunding calls in order to take advantage of lower
interest rates in the marketplace. If an issuer exercises these
provisions in a declining interest rate market, the Trust would lose the
Refunded Bonds and their income stream, resulting in a decreased return to
Unitholders. The value of high yield bonds will decrease in a rising
interest rate market, as will the value of the Trust's assets. If the net
asset value of the Trust decreases and the Trust experiences Unit
redemptions, this may force the Trust to sell Bonds at a loss, thereby
decreasing the income and asset base of the Trust which are used to pay
Trust expenses and possibly reducing the Trust's return to Unitholders.
If the redemptions are great enough, this could trigger a complete
liquidation of the Trust before maturity, resulting in unanticipated
losses to Unitholders.
"High-yield" bonds offer higher returns than other bonds as
compensation to an investor for holding an obligation of an issuer which
is viewed as less creditworthy than similar obligations of other issuers.
While all investments have some degree of risk, "high-yield" bonds,
because of their speculative nature, are generally subject to greater
market fluctuations and risk of loss of income and principal than are
investments in lower yielding bonds. However, the Trust is designed to
reduce the effect of these risks by diversifying holdings to minimize the
portfolio impact of any single investment. In addition, certain of the
Bonds in the Trust will provide an even higher rate of return than
otherwise because the interest income from such Bonds is includable in
computing the federal individual alternative minimum tax.
The Portfolio
For information regarding (i) the number of issues in the
Trust, (ii) the range of fixed maturities of the Bonds, (iii) the number
of issues payable from the income of a specific project or authority, and
(iv) the ratings on the Bonds, see "The Trust" and "Description of
Portfolio" in Part A of this Prospectus.
When selecting Bonds for the Trust, the following factors,
among others, were considered by the Sponsor: (a) the quality of the
Bonds and whether at least 80% of the Bonds in the Trust were, on the Date
of Deposit, rated BB or Ba or better by Standard & Poor's Corporation or
Moody's Investors Service, Inc. respectively, or if unrated, had, as of
the Date of Deposit, at least comparable credit characteristics in the
opinion of the Sponsor, and, for the remainder of the Bonds in the Trust,
such Bonds were, on the Date of Deposit, rated B or better by Standard &
Poor's Corporation or Moody's Investors Service, Inc. or, if unrated, had,
as of the Date of Deposit, at least comparable credit characteristics in
the opinion of the Sponsor, (b) the yield and price of the Bonds relative
to other tax-exempt securities of comparable quality and maturity, (c) the
aggregate income to the Certificateholders of the Trust, and (d) the
diversification of the Trust portfolio, as to purpose of issue and
location of issuer, taking into account the availability in the market of
issues which meet the Trust's quality, rating, yield and price criteria.
Subsequent to the Date of Deposit, a Bond may cease to be rated or its
rating may be reduced below the minimum requirements of the Trust.
Neither event requires an elimination of such Bond from the Trust but may
be considered in the Sponsor's determination to direct the Trustee to
dispose of the Bond. (See "Trust Administration--Portfolio Supervision").
Although the Sponsor considers the ratings assigned by Standard & Poor's
and Moody's in selecting Bonds for the Trust, it also performs its own
investment suitability analysis, including, among other things,
consideration of the financial history, condition, prospects and
management of the issuers. In performing this analysis, the Sponsor
relies on information from various sources, including, to the extent
available, reports by the rating services, research, analysis and
appraisals of brokers and dealers and other responsible parties regarding
economic developments generally and the creditworthiness of particular
issuers.
Housing Bonds. Some of the aggregate principal amount of the
Bonds may consist of obligations of state and local housing authorities
whose revenues are primarily derived from mortgage loans to rental housing
projects for low to moderate income families. Since such obligations are
usually not general obligations of a particular state or municipality and
are generally payable from rents and other fees, economic developments
including failure or inability to increase rentals, fluctuations of
interest rates and increasing construction and operating costs may reduce
revenues available to pay existing obligations. See "Description of
Portfolio" in Part A for the amount of rental housing bonds contained
therein.
Hospital Revenue Bonds. Some of the aggregate principal amount
of the Bonds may consist of hospital revenue bonds. Ratings of hospital
bonds are often initially based on feasibility studies which contain
projections of occupancy levels, revenues and expenses. Actual experience
may vary considerably from such projections. A hospital's gross receipts
and net income will be affected by future events and conditions including,
among other things, demand for hospital services and the ability of the
hospital to provide them, physicians' confidence in hospital management
capability, economic developments in the service area, competition,
actions by insurers and governmental agencies and the increased cost and
possible unavailability of malpractice insurance. Additionally, a major
portion of hospital revenue typically is derived from federal or state
programs such as Medicare and Medicaid which have been revised
substantially in recent years and which are undergoing further review at
the state and federal level.
Proposals for significant changes in the health care system and
the present programs for third party payment of health care costs are
under consideration in Congress and many states. Future legislation or
changes in the areas noted above, among other things, would affect all
hospitals to varying degrees and, accordingly, any adverse change in these
areas may affect the ability of such issuers to make payment of principal
and interest on such bonds. See "Description of Portfolio" in Part A for
the amount of hospital revenue bonds contained therein.
Nuclear Power Facility Bonds. Certain Bonds may have been
issued in connection with the financing of nuclear generating facilities.
In view of recent developments in connection with such facilities,
legislative and administrative actions have been taken and proposed
relating to the development and operation of nuclear generating
facilities. The Sponsor is unable to predict whether any such actions or
whether any such proposals or litigation, if enacted or instituted, will
have an adverse impact on the revenues available to pay the debt service
on the Bonds in the portfolio issued to finance such nuclear projects.
See "Description of Portfolio" in Part A for the amount of bonds issued to
finance nuclear generating facilities contained therein.
Mortgage Subsidy Bonds. Certain Bonds may be "mortgage subsidy
bonds" which are obligations of which all or a significant portion of the
proceeds are to be used directly or indirectly for mortgages on owner-
occupied residences. Section 103A of the Internal Revenue Code of 1954,
as amended, provided as a general rule that interest on "mortgage subsidy
bonds" will not be exempt from Federal income tax. An exception is
provided for certain "qualified mortgage bonds." Qualified mortgage bonds
are bonds that are used to finance owner-occupied residences and that meet
numerous statutory requirements. These requirements include certain
residency, ownership, purchase price and target area requirements, ceiling
amounts for state and local issuers, arbitrage restrictions and (for bonds
issued after December 31, 1984) certain information reporting,
certification, public hearing and policy statement requirements. In the
opinions of bond counsel to the issuing governmental authorities, interest
on all the Bonds in a Trust that might be deemed "mortgage subsidy bonds"
will be exempt from Federal income tax when issued. See "Description of
Portfolio" in Part A for the amount of mortgage subsidy bonds contained
therein.
Mortgage Revenue Bonds. Certain Bonds may be "mortgage revenue
bonds." Under the Internal Revenue Code of 1986, as amended (the "Code")
(and under similar provisions of the prior tax law) "mortgage revenue
bonds" are obligations the proceeds of which are used to finance owner-
occupied residences under programs which meet numerous statutory
requirements relating to residency, ownership, purchase price and target
area requirements, ceiling amounts for state and local issuers, arbitrage
restrictions, and certain information reporting certification, and public
hearing requirements. There can be no assurance that additional federal
legislation will not be introduced or that existing legislation will not
be further amended, revised, or enacted after delivery of these Bonds or
that certain required future actions will be taken by the issuing
governmental authorities, which action or failure to act could cause
interest on the Bonds to be subject to federal income tax. It is unclear
whether legislation extending the authority to issue mortgage revenue
bonds will continue to be enacted. If any portion of the Bonds proceeds
are not committed for the purpose of the issue, Bonds in such amount could
be subject to earlier mandatory redemption at par, including issues of
Zero Coupon Bonds (see "Discount and Zero Coupon Bonds"). See
"Description of Portfolio" in Part A for the amount of mortgage revenue
bonds contained therein.
Private Activity Bonds. The portfolio of the Trust may contain
other Bonds which are "private activity bonds" (often called Industrial
Revenue Bonds ("IRBs") if issued prior to 1987) which would be primarily
of two types: (1) Bonds for a publicly owned facility which a private
entity may have a right to use or manage to some degree, such as an
airport, seaport facility or water system and (2) facilities deemed owned
or beneficially owned by a private entity but which were financed with
tax-exempt bonds of a public issuer, such as a manufacturing facility or a
pollution control facility. In the case of the first type, bonds are
generally payable from a designated source of revenues derived from the
facility and may further receive the benefit of the legal or moral
obligation of one or more political subdivisions or taxing jurisdictions.
In most cases of project financing of the first type, receipts or revenues
of the Issuer are derived from the project or the operator or from the
unexpended proceeds of the bonds. Such revenues include user fees,
service charges, rental and lease payments, and mortgage and other loan
payments.
The second type of issue will generally finance projects which
are owned by or for the benefit of, and are operated by, corporate
entities. Ordinarily, such private activity bonds are not general
obligations of governmental entities and are not backed by the taxing
power of such entities, and are solely dependent upon the creditworthiness
of the corporate user of the project or corporate guarantor.
The private activity bonds in the Trust have generally been
issued under bond resolutions, agreements or trust indentures pursuant to
which the revenues and receipts payable under the issuer's arrangements
with the users or the corporate operator of a particular project have been
assigned and pledged to the holders of the private activity bonds. In
certain cases a mortgage on the underlying project has been assigned to
the holders of the private activity bonds or a trustee as additional
security. In addition, private activity bonds are frequently directly
guaranteed by the corporate operator of the project or by another
affiliated company. See "Description of Portfolio" in Part A for the
amount of private activity bonds contained therein.
Other Factors. The Bonds in the Trust, despite their optional
redemption provisions which generally do not take effect until 10 years
after the original issuance dates of such bonds (often referred to as "ten
year call protection"), do contain provisions which require the issuer to
redeem such obligations at a par from unused proceeds of the issue within
a stated period. In recent periods of declining interest rates there have
been increased redemptions of bonds, particularly housing bonds, pursuant
to such redemption provisions. In addition, the Bonds in the Trusts are
also subject to mandatory redemption in whole or in part at par at any
time that voluntary or involuntary prepayments of principal on the
underlying collateral are made to the trustee for such bonds or that the
collateral is sold by the bond issuer. Prepayments of principal tend to
be greater in periods of declining interest rates; it is possible that
such prepayments could be sufficient to cause a bond to be redeemed
substantially prior to its stated maturity date, earliest call date or
sinking fund redemption date.
Legal Proceedings Involving the Trusts
The following are actions involving bond issues contained in
the portfolios of several of the Trusts. In the Sponsor's opinion, the
effects of these actions on the affected Trusts are reflected to the
fullest extent possible at this time in the yield on each individual
Trust.
1. Alabama Statewide Health Care Authority, First Mortgage
Cross Revenue Bonds (The Prattville Chemical Dependency Treatment
Facility) Series 1985:
On January 24, 1990, the owner of the projects, the Bradford
Group, Inc., filed a voluntary petition for relief under Chapter 11 of the
United States Bankruptcy Code. This bond issue is covered by Bradford's
bankruptcy filing. In March 1991, Bradford's plan of reorganization was
approved by creditors. The plan provided that bondholders of all five
facilities owned by Bradford would receive $12,000,000, certain
receivables and new securities representing rights in the Prattville
facility and another facility which has subsequently been sold. The Bond
Trustee for the Bradford facilities has received title to the Prattville
facility and has been marketing it to potential buyers. When the
Prattville facility is sold, all Bradford bondholders will receive
additional proceeds in the amount proportionate to their respective
interests in the Bradford bonds originally issued.
2. City of Mattoon, Illinois First Mortgage Revenue Bonds
(Mattoon Manor Project) Series 1985:
The owner of the project financed by these bonds, Healthvest,
Inc., failed to make debt service payments as required by the Loan
Agreement for these bonds. The Guarantor of the payment obligations of
Healthvest, Inc., Angell Care Incorporated ("ACI"), has failed to honor
its payment guaranty for debt service payments since June 1, 1989. As a
result, the Sponsor discontinued posting accrued interest on these bonds
and directed the Bond Trustee to accelerate all payments on the bonds and
to pursue appropriate legal remedies. In September 1990, the Bond Trustee
sued ACI for nonpayment of ACI's guaranty of the bonds and ACI's parent
corporation, Angell Group Incorporated ("AGI"), on several theories of
fraudulent conveyance and transfer of assets. In April 1991, the Bond
Trustee was successful in having a court appointed receiver take over
control of the project.
On February 11, 1994, these bonds were sold. Consequently, the
bonds are no longer held in the Trust.
3. Downtown Development Authority of the City of Decatur
(Georgia) Industrial Development Revenue Bonds (Decatur Hotel Associates
Project) Series 1986.
In the Spring of 1991, the owner of the property informed the
Bond Trustee that the hotel was not producing sufficient net income to pay
debt service on the bonds. The Debt Service Reserve Fund had already been
exhausted and, as a result, no interest payment was made in May 1991. The
Sponsor stopped accruing interest on the bonds in April of that year.
Subsequent to the default, various institutional bondholders,
including the Sponsor on behalf of the respective Trusts, negotiated a
work-out agreement with the owner under which the owner was to have made
scheduled payments to the Bond Trustee from hotel revenues pending the
financing of a buy out of the bonds by the owner. The proposed buy-out
offer was ultimately rejected by several bondholders (not including the
Sponsor).
Under the work-out agreement between the institutional
bondholders and the owner, the failure of the owner's offer led to the
conveyance of the property to the Bond Trustee on behalf of the
bondholders. After acquiring possession of the hotel, the Bond Trustee
retained new management, which has made progress in developing the
commercial potential of the property and producing net cash flow for
distribution to bondholders. The Sponsor began to re-accrue interest on
the bonds in August 1992 at a partial interest rate of 3 1/2% per annum.
The Bond Trustee is currently marketing the property for sale.
4. City of Long Beach, California Industrial Development
Revenue Bonds (The Kress Rehabilitation Project):
The developer of the project financed by the bonds failed to
make the monthly payments required under the Loan Agreement and, as a
result, the Sponsor discontinued accruing interest on the bonds. The
bondholders, including the Trusts, originally commenced litigation against
the developer, its counsel and several other parties to the original bond
transaction which now has been settled in part. The settlements to date
include a payment to the bondholders by the developer and its affiliates
of $1,000,000 and the execution of a $375,000 note secured by certain real
property in the State of California. In addition, MST, High Income Series
10 and MST, High Income Series 11 Trust have received payments of $902,000
and $123,000, respectively, from the developer's attorney, the
underwriter's counsel and the bond counsel. Litigation against the
original Bond Trustee was dismissed on the trial level. The dismissal is
now being appealed to the Ninth Circuit Court of Appeals. The prospect of
recovery to the bondholders, including the Trust, pursuant to this
litigation is uncertain.
The current Bond Trustee has sold a portion of the bond
financed property for $400,000 in cash and a $200,000 promissory note (the
"Note"). The Purchaser reported, as of early April 1994, that it is still
working on permanent financing for the Project, and it may seek an
extension of the maturity of the Note. Each of the Trusts' ratable
interest in the proceeds of the sale have been credited to the appropriate
principal account of each Trust. The balance of the bond financed
property is being offered for sale.
5. Guam Economic Development Authority Multi-Family Mortgage
Revenue Bonds Series 1985C-3 (Iberia Apartments Projects):
The bonds were called for mandatory redemption on May 1, 1989
at a redemption price equal to par value plus accrued interest to the date
of redemption. On that date, there were insufficient funds available to
redeem all of the bonds and available monies were applied to pay a portion
of the principal and interest due. On the redemption date, approximately
85% of the outstanding principal and interest on the bonds were paid. The
unpaid amount of the bonds continues to accrue interest. However,
insufficient monies are available to pay such interest. The Bond Trustee
has been enjoined by court order from taking action to cause a foreclosure
sale of the project until resolution of an action by the owner to rescind
the mortgage. On October 24, 1990, a judgment was entered against the
Bond Trustee. Among other things, the judgment states that the owner is
not liable under the mortgage. The Bond Trustee has appealed from the
judgment. In addition, the owner's leasehold interest in the property
securing the mortgage has been terminated. The Bond Trustee is seeking
reinstatement of the lease.
6. The Historical Preservation Authority of the City of
Huntsville, Alabama, Revenue Bonds (FPI Project) Series 1984:
FPI Huntsville Partners 841, Ltd. failed to make monthly
payments under the Lease Agreement with Huntsville Historical Preservation
Society. As a result, the Bond Trustee was required to draw on a Letter of
Credit in order to have sufficient funds to make the interest payment on
the bond for March 1, 1988. Insufficient monies have been available since
that date to make interest payments on the bond and the Sponsor
discontinued posting accrued interest on the bond as of July 1988.
On January 4, 1994, the Bond Trustee sold the property securing
the bond. Consequently, the bond is no longer held in the Trust.
7. Desoto (Texas) Health Facilities Development Corporation
Revenue Bonds Series 1986 (Park Manor Senior Care Center, Inc. Project):
After emerging from bankruptcy in August 1990, Park Manor
Senior Care Center, Inc. made full debt service payments on the Bonds
until March 1991. Beginning in March 1991, the borrower's monthly
payments to the Trustee dropped significantly, averaging approximately 44%
of the required amounts for the ten months of 1991 from March through
December. On August 26, 1991 the Sponsor notified unit holders that the
interest accrual rate on the above captioned Bonds held in the Trust was
being lowered to an annual rate of 4.4%. This interest rate reduction
reflected the inability of the owner of Park Manor to generate sufficient
operating income to meet full debt service payments on the Bonds.
The Sponsor was informed that the owner of Park Manor was able
to make full monthly interest payments on a more regular basis in 1992
than he was in 1991. As a result, the Sponsor increased the accrual rate
on Bonds held in the Trust to the full annual contractual rate of 11.00%.
Monthly payments continued to be paid through October 1993. Payments
were resumed in December 1993, but in February 1994 the borrower once
again failed to make a payment. The borrower has requested interest
rate relief from bondholders, and has presented unaudited financial
statements which indicate some deterioration in Park Manor's financial
operations in calendar year 1993. The bondholders are in the process
of evaluating the borrower's request.
In regard to the litigation pending against the guarantors, the
Sponsor has determined that anticipated recoveries from this source did
not justify the costs of pursuing the litigation. The Sponsor, however,
has not released the guarantors from any potential liability they may
have. The Sponsor has communicated to Park Manor's owner that it expects
debt service arrearages will be made current from Project operations in a
timely fashion.
Because the nursing home industry is vulnerable to changing
health care reimbursement regulations, and health care cost containment
initiatives and policy changes have become common in recent years at the
national, state, and local levels, there can be no assurance that Park
Manor Senior Care will continue to support full debt service payments on
the Bonds.
8. City of Topeka, Kansas, Industrial Revenue Bonds, Series
1986 (Mid America Motel Project):
In August 1989 the Bond Trustee received possession of this
hotel property from its owner. Since that time, the hotel has been
operated by a management agent on behalf of the Bond Trustee. Revenues
from the hotel have been insufficient to pay any debt service on the
Bonds. The hotel has been marketed for sale, by the Bond Trustee, but, to
date, no sale has been consummated.
9. Mantachie, Mississippi, Natural Gas System Distribution
Revenue Series 1987:
In November, 1991 the Sponsor reported that the District had
failed to make a full payment of interest due August 1, 1991 on the Bonds.
The District attributed this event to unseasonably warm winter weather
which has prevailed in the District's service area over the past three
years, resulting in lower than anticipated gas sales and revenue. In
response to the District's failure to make the full interest payment and
its assertion that its future capacity to make debt service payments on
the Bonds would depend upon weather conditions, the Sponsor stopped
accruing interest on the Bonds.
District operations have produced sufficient cash flow to make
partial interest payments to bondholders for the past few years.
Accordingly, in March 1992 the Sponsor began to accrue interest on the
Bonds at half the contractual interest rate (an accrual rate of 4.5% for
the 2008 and 2009 maturities and 4.4% for the 2003 maturity).
Recently the District approached the Sponsor to begin
discussions regarding the possible restructuring or refunding of the
Bonds. The Sponsor and the District are exploring the feasibility of both
options. Discussions on these matters are at a very early stage.
10. St. Louis, Missouri, Industrial Development Authority
Subordinated Multi-Family Housing Refunding Revenue Bonds (Series 1989H
Westbrooke Apartments Project; Series 1989E Westbrooke Village West
Apartment Project; and Series 1989B Pinetree Apartments Project):
The Trustee has notified the Sponsor that the borrower's failed
to pay the December 15, 1993 semi-annual interest payment on the bonds.
Payment of debt service on the bonds is supported by the
combined net revenues of the Pinetree, Westbrooke and Westbrooke Village
West Projects, after provision has been made for payment of debt service
on prior lien bonds issued for the three Projects. The borrower has
attributed the failure to make the December 15, 1993 interest payment on
the bonds to a substantial increase in property taxes assessed on the
three properties and the insufficiency of Project cash flows to meet both
this expense and interest obligations on the bonds. The borrower reports
that he has appealed the property tax increase.
The Trustee has stopped accruing interest on the bonds held in
the Trust pending resolution of the property tax issue and payment of
December 1993 semi-annual interest on the bonds.
11. Illinois Development Finance Authority Industrial
Development Revenue Bonds Series 1986 (Comfort Inn-O'Hare Project):
Illinois Development Finance Authority Industrial Development
Revenue Bonds Series 1986 (Comfort Inn-O'Hare Project) went into payment
default in November 1991. The project owners attributed their failure to
make monthly payments to the Trustee to a combination of increased
competition in the O'Hare motel market, the reduction in travel brought on
by the invasion of Kuwait and the Persian Gulf conflict, and the National
recession. The Bond Trustee, the majority of bondholders (including the
Trust), the owner and the guarantors of the bonds (who are the principals
of the owner of the Project) have previously reached a Settlement
Agreement which has been approved by a majority of the bondholders and by
the bankruptcy court. Pursuant to the Settlement Agreement, the owners of
the project have paid over to the Trustee sums representing previously
unpaid interest and property taxes and have restructured their debt. The
restructuring provides for a reduction in the interest rate on the bonds
for an eight year period which began 11/1/92 and will end 10/31/99. The
$7.0 million 11% Series 1986 Bonds have been exchanged for $4.5 Million
10% Series 1992A Bonds and $2.5 Million 2.5% Series 1992B Bonds. The
Series 1992B Bonds obligate the Issuer to pay a fixed contractual interest
rate of 2.5%, and two-thirds (2/3) of any excess cash flow which is
generated after payment of operating expenses, fixed interest payments,
management fees, and reserves established for capital repairs and property
taxes. Fixed interest rate payments on the 1992A and B Bonds are expected
to produce a return approximately two thirds the 11% interest rate on the
Series 1986 Bonds.
Security provisions for the Series 1992A and B Bonds include a
first mortgage lien as well as personal guarantees backing principal and
fixed interest payments on the 1992 Bonds. These security provisions are
similar to the security for the 11% Series 1986 Bonds.
Discount and Zero Coupon Bonds
Some of the Bonds in the Trust may be original issue discount
bonds. The original issue discount, which is the difference between the
initial purchase price of the Bonds and the face value, is deemed to
accrue on a daily basis and the accrued portion will be treated as tax-
exempt interest income for regular federal income tax purposes. Upon sale
or redemption, any gain realized that is in excess of the earned portion
of original issue discount will be taxable as capital gain. (See "Tax
Status.") The current value of an original issue discount bond reflects
the present value of its face amount at maturity. The market value tends
to increase more slowly in early years and in greater increments as the
Bonds approach maturity. Some of the original issue discount bonds in the
Trust may be Zero Coupon Bonds. Zero Coupon Bonds do not provide for the
payment of any current interest and provide for payment at maturity at
face value unless sooner sold or redeemed. The market value of Zero
Coupon Bonds is subject to greater fluctuation than coupon bonds in
response to changes in interest rates. Zero Coupon Bonds generally are
subject to redemption at compound accredited value based on par value at
maturity. Because the issuer is not obligated to make current interest
payments, Zero Coupon Bonds may be less likely to be redeemed than coupon
bonds issued at a similar interest rate.
Some of the Bonds in the Trust may have been purchased at a
"market" discount from par value at maturity. That is because the coupon
interest rates on the discount bonds at the time they were purchased and
deposited in the Trust were lower than the current market interest rates
for newly issued bonds of comparable rating and type. At the time of
issuance the discount bonds were for the most part issued at then current
coupon interest rates. The current yields (coupon interest income as a
percentage of market price) of discount bonds will be lower than the
current yields of comparably rated bonds of similar type newly issued at
current interest rates because discount bonds tend to increase in market
value as they approach maturity and the full principal amount becomes
payable. A discount bond held to maturity will have a larger portion of
its total return in the form of taxable income and less in the form of
tax-exempt interest income than a comparable bond newly issued at current
market rates. Gain on the disposition of a Bond purchased at a market
discount generally will be treated as ordinary income, rather than capital
gain, to the extent of accrued market discount. Discount bonds with a
longer term to maturity tend to have a higher current yield and a lower
current market value than otherwise comparable bonds with a shorter term
to maturity. If interest rates rise, the value of discount bonds will
decrease; and if interest rates decline, the value of discount bonds will
increase. The discount does not necessarily indicate a lack of market
confidence in the issuer.
PUBLIC OFFERING
Offering Price
The secondary market Public Offering Price per Unit is computed
by adding to the aggregate bid price of the Bonds in the Trust divided by
the number of Units outstanding, an amount equal to 5.263% of the
aggregate offering price of the Bonds. This amount is equal to a sales
charge or gross underwriting profit of 5% of the secondary market Public
Offering Price. A proportionate share of accrued interest on the Bonds
from the First Settlement Date to the expected date of settlement for the
Units is added to the secondary market Public Offering Price. Accrued
interest is the accumulated and unpaid interest on a Bond 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 of this Prospectus. The secondary market Public Offering Price
can vary on a daily basis from the amount stated on the cover of this
Prospectus in accordance with fluctuations in the prices of the Bonds and
the Price to be paid by each investor will be computed as of the date the
Units are purchased. The aggregate bid price evaluation of the Bonds is
determined in the manner set forth under "Trustee Redemption".
The Evaluator may obtain current prices for the Bonds from
investment dealers or brokers (including the Sponsor) that customarily
deal in tax-exempt obligations 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 Bond from the last day on which
interest was paid thereon will be added to the secondary market Public
Offering Price and paid by the Certificateholder at the time Units are
purchased. Since the Trust normally receives the interest on Bonds twice
a year and the interest on the Bonds in the Trust is accrued on a daily
basis (net of estimated fees and expenses), the Trust always will have an
amount of interest accrued but not actually received and distributed to
Certificateholders. A Certificateholder will not recover his
proportionate share of accrued interest until the Units are sold or
redeemed, or the Trust is terminated. At that time, the Certificateholder
will receive 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 offering side evaluation of the underlying securities in the Trust
during the initial offering period and at the bid side thereafter, 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
Certain banks and thrifts will make Units of the Trust
available to their customers on an agency basis. A portion of the sales
charge paid by their customers is retained by or remitted to the banks.
Under the Glass-Steagall Act, banks are prohibited from underwriting
Units; however, the Glass-Steagall Act does permit certain agency
transactions and the banking regulators have indicated that these
particular agency transactions are permitted under such Act. In addition,
state securities laws on this issue may differ from the interpretations of
federal law expressed herein and banks and financial institutions may be
required to register as dealers pursuant to state law.
The Sponsor intends to qualify the Units for sale in
substantially all states through the Underwriters and 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 up to 4%
of the Public Offering Price 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. In addition, for transactions of 1,000,000 Units or more, the
Sponsor intends to negotiate the applicable sales charge and such charge
will be disclosed to any such purchaser. The Sponsor reserves the right
to reject, in whole or in part, any order for the purchase of Units. The
Sponsor reserves the right to change the discounts from time to time.
Sponsor's and Underwriters' Profits
The Sponsor will receive a gross underwriting commission equal
to 5% of the secondary market Public Offering Price of the Units
(equivalent to 5.263% of the net amount invested in the Bonds) on each
transaction. In addition, in maintaining a market for the Units (see
"Sponsor Repurchase"), the Sponsor may realize profits or sustain losses,
as the case may be, in the amount of any difference between the price at
which it buys Units and the price at which it resells 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,
Sponsor's Repurchase Price and Redemption Price
The secondary market Public Offering Price will be determined
on the basis of the current bid prices of the Bonds in the Trust, plus the
applicable sales charge. The value at which Units may be resold in the
secondary market or redeemed will be determined on the basis of the
current bid prices of such Bonds without any sales charge. On the
Evaluation Date, the secondary market Public Offering Price per Unit
(based on the bid prices of the Bonds in the Trust plus the sales charge)
exceeded the Redemption and Repurchase Price per Unit (based upon the bid
Prices of the Bonds in the Trust without the sales charge) by the amount
shown under "Summary of Essential Information" in Part A. For this
reason, among others (including fluctuations in the market prices of Bonds
and the fact that the Public Offering Price includes the 5% sales charge),
the amount realized by a Certificateholder upon any redemption or
repurchase of Units may be less than the price paid for such Units.
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 Long Term Return" and "Estimated Current 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. 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 each 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 each Trust under
"Summary of Essential Information" in Part A.
The Estimated Net Annual Interest Income per Unit of each Trust
will vary with changes in the fees and expenses of the Trustee and the
Evaluator applicable to each Trust and with the redemption, maturity, sale
or other disposition of the Bonds of each Trust. The Public Offering
Price will vary with changes in the bid prices 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. In addition,
the Trust will not receive interest payments with respect to Bonds that
are in default and the Estimated Net Annual Interest Income per Unit will
reflect that such Bonds are not accruing any income for the Trust.
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
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 Trustee to an
Interest Account and a deduction is made to reimburse the Trustee without
interest for any amounts previously advanced. Proceeds representing
principal received from the maturity, redemption, sale or other
disposition of the Bonds 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
the following Payment Date and consist of an amount substantially equal to
one-twelfth, one-half or all 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 (other than amounts representing failed contracts,
as previously discussed) 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 Bonds between a Record Date and a
Payment Date which are not used for redemptions of Units will be held in
the Principal Account and not distributed until the second succeeding
semi-annual Payment Date. No distributions will be made to Certificate-
holders electing to participate in the Total Reinvestment Plan, except as
provided thereunder. 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 a given Record
Date. For the purpose of minimizing fluctuations in the distributions
from the Interest Account, the Trustee will advance sufficient funds,
without interest, as may be necessary to provide interest distributions of
approximately equal amounts. All funds in respect of the bonds received
and held by the Trustee prior to distribution to Certificateholders may be
of benefit to the Trustee and do not bear interest to Certificateholders.
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 Trustee also may withdraw from said accounts such amounts,
if any, as it deems 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 Trustee 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 purchases of Replacement Bonds and redemptions of Units
by the Trustee.
The estimated monthly, semi-annual or annual interest
distribution per Unit will initially be in the amounts shown under
"Summary of Essential Information" in Part A and will change and may be
reduced as Bonds mature or are redeemed, exchanged or sold, or as expenses
of the Trust fluctuate. No distribution 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, semi-annually or annually,
depending upon the distribution plan applicable to the Unit purchased.
Record Dates will be the first day of each month for monthly
distributions, the first day of June and December for semi-annual
distributions and the first day of December for annual distributions.
Payment Dates 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 the
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, 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 any earned original issue discount and amounts representing
interest received upon any disposition of Bonds), amounts paid for
purchases of Replacement Bonds and redemptions of Units, if any,
deductions for applicable taxes and 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 Bonds and the net proceeds received therefrom (including any
unearned original issue discount but excluding any portion representing
accrued interest), deductions for payments of applicable taxes and fees
and expenses of the Trust, amounts paid for purchases of Replacement Bonds
and 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 Bonds held and the number of Units outstanding on the last business
day of such calendar year; (d) the Redemption Price per Unit based upon
the last computation thereof made during such calendar year; and (e)
amounts actually distributed to Certificateholders 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 on the last business day of
such calendar year.
The Trustee shall keep available for inspection by Certificate-
holders at all reasonable times during 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 Bonds in the portfolio and a copy of the Trust Agreement.
TAX STATUS
All Bonds acquired by the Trust pursuant to the contracts of
purchase were accompanied by copies of opinions of bond counsel to the
issuing governmental authorities given at the time of original delivery of
the Bonds to the effect that the interest thereon is exempt from regular
federal income tax, but such interest may be subject to the federal
alternative minimum tax and to state or local taxes. Neither the Sponsor
nor the Trustee nor their respective counsel have made any review of the
proceedings relating to the issuance of the Bonds or the bases for such
opinions and express no opinion as to these matters, and neither the
Trustee nor the Sponsor nor their respective counsel have made an
independent examination or verification that the federal income tax status
of the Bonds has not been altered since the time of the original delivery
of those opinions.
The Revenue Reconciliation Act of 1993 ("P.L. 103-66") was
recently enacted. P.L. 103-66 increases maximum marginal income tax rates
for individuals and corporations (generally effective for taxable years
beginning after December 31, 1992), extends the authority to issue certain
categories of tax-exempt bonds (qualified small issue bonds and qualified
mortgage bonds), limits the availability of capital gain treatment for
tax-exempt bonds purchased at a market discount, increases the amount of
Social Security benefits subject to tax (effective for taxable years
beginning after December 31, 1993) and makes a variety of other changes.
Prospective investors are urged to consult their own tax advisors as to
the effect of P.L. 103-66 on an investment in Units.
In rendering the opinion set forth below, counsel has examined
the Agreement, the final form of Prospectus that includes this opinion
(the "Prospectus") and the documents referred to therein, among others,
and has relied on the validity of said documents and the accuracy and
completeness of the facts set forth therein.
In the opinion of Battle Fowler, counsel for the Sponsor, under
existing law:
The Trust is not an association taxable as a corporation for
federal income tax purposes under the Code, and income received by
the Trust that consists of interest excludable from federal gross
income under the Code will be excludable from the federal gross
income of the Certificateholders of the Trust.
Each Certificateholder will be considered the owner of a pro
rata portion of the Trust under Section 676(a) of the Code. Thus,
each Certificateholder will be considered to have received his pro
rata share of Bond interest when it is received by the Trust, and
the net income distributable to Certificateholders that is exempt
from federal income tax when received by the Trust will constitute
tax-exempt income when received by Certificateholders.
Gain (other than any earned original issue discount) realized
on a sale or redemption of the Bonds or on a sale of a Unit is,
however, includable in gross income for federal income tax purposes,
generally as capital gain. (It should be noted in this connection
that such gain does not include any amounts received in respect of
accrued interest.) Such gain may be long- or short-term gain
depending on the facts and circumstances. A loss realized on a sale
or redemption of a Bond or a Unit will generally be treated as a
capital loss. Capital losses are deductible to the extent of
capital gains; in addition, up to $3,000 of capital losses of non-
corporate taxpayers may be deducted against ordinary income. Capital
assets acquired on or after January 1, 1988 must be held for more
than one year to qualify for long-term capital gain treatment.
Each Certificateholder will realize taxable gain or loss when
the Trust disposes of a Bond (whether by sale, exchange, redemption
or payment at maturity), as if the Certificateholder had directly
disposed of his pro rata share of such Bond. The gain or loss is
measured by the difference between (i) the tax cost of such pro rata
share and (ii) the amount received therefor. For this purpose, a
Certificateholder's per Unit tax cost for each Bond is determined by
allocating the total tax cost of each Unit among all of the Bonds
held in the Trust (in accordance with the portion of the Trust
comprised by each Bond). In order to determine the amount of
taxable gain or loss, the Certificateholder's amount received is
similarly allocated at that time. The Certificateholder may exclude
from the amount received any amounts that represent accrued interest
or the earned portion of any original issue discount but may not
exclude amounts attributable to market discount. Thus, when a Bond
is disposed of by the Trust at a gain, taxable gain will equal the
difference between (i) the amount received and (ii) the amount paid
plus any original issue discount (limited, in the case of Bonds
issued after June 8, 1980, to the portion earned from the date of
acquisition to the date of disposition). Gain on the disposition of
a Bond purchased at a market discount will generally be treated as
ordinary income, rather than capital gain, to the extent of accrued
market discount. No deduction is allowed for the amortization of
bond premium on tax-exempt bonds such as the Bonds in computing
regular federal income tax.
Discount generally accrues based on the principle of
compounding of accrued interest, not on a straight-line or ratable
method, with the result that the amount of earned original issue
discount is less in the earlier years and more in the later years of
a bond term. The tax basis of a discount bond is increased by the
amount of accrued, tax-exempt original issue discount thus
determined. This method of calculation will produce higher capital
gains (or lower losses) to a Certificateholder, as compared to the
results produced by the straight-line method of accounting for
original issue discount, upon an early disposition of a Bond by the
Trust or of a Unit by a Certificateholder.
A Certificateholder may also realize taxable gain or loss when
a Unit is sold or redeemed. The amount received is allocated among
all the Bonds in the Trust in the same manner as when the Trust
disposes of Bonds and the Certificateholder may exclude accrued
interest and the earned portion of any original issue discount (but
not amounts attributable to market discount). The return of a Cer-
tificateholder's tax cost is otherwise a tax-free return of capital.
A portion of social security benefits is includable in gross
income for taxpayers whose "modified adjusted gross income" combined
with 50% of their benefits exceeds a base amount. The base amount
is $25,000 for an individual, $32,000 for a married couple filing a
joint return and zero for married persons filing separate returns.
Interest on tax-exempt bonds is to be added to adjusted gross income
for purposes of computing the amount of social security benefits
that are includable in gross income and determining whether an
individual's income exceeds the base amount above which a portion of
the benefits would be subject to tax. For taxable years beginning
after December 31, 1993, the amount of Social Security benefits
subject to tax will be increased.
A Certificateholder other than a corporation is required to
include as an item of tax preference for purposes of the federal
individual alternative minimum tax all tax-exempt interest on
"private activity" bonds (other than Section 501(c)(3) bonds) issued
after August 7, 1986. Corporate Certificateholders are required to
include in federal corporate alternative minimum taxable income 75
percent of the amount by which the adjusted current earnings (which
will include tax-exempt interest) of the corporation exceeds
alternative minimum taxable income (determined without this item).
Further, interest on the Bonds is includable in a 0.12% additional
corporate minimum tax imposed by the Superfund Amendments and
Reauthorization Act of 1986 for taxable years after December 31,
1986 and before January 1, 1992. In addition, in certain cases,
Subchapter S corporations with accumulated earnings and profits from
Subchapter C years will be subject to a minimum tax on excess
"passive investment income" which includes tax-exempt interest.
The Trust is not subject to the New York Franchise Tax on
Business Corporations or the New York City General Corporation Tax.
However, for a Certificateholder who is a New York resident, a pro
rata portion of all or part of the income of the Trust will be
treated as the income of the Certificateholder under the personal
income tax laws of the State and City of New York. Similar
treatment may apply in other states.
The exemption of interest on municipal obligations for federal
income tax purposes does not necessarily result in exemption under the
income tax laws of any state or political subdivision. In general,
municipal bond interest exempt from federal income tax is taxable income
to residents of the State or City of New York unless the bonds are issued
by the State of New York or one of its political subdivisions or by the
Commonwealth of Puerto Rico or one of its political subdivisions. For
corporations doing business in New York State, interest earned on state
and municipal obligations that are exempt from federal income tax,
including obligations of New York State, its political subdivisions and
instrumentalities, must be included in calculating New York State and New
York City entire net income for purposes of computing New York State and
New York City franchise (income) taxes. The laws of the several states
and local taxing authorities vary with respect to the taxation of such
obligations and each Certificateholder is advised to consult his own tax
advisor as to the tax consequences of his Certificates under state and
local tax laws.
In the case of Bonds that are Industrial Revenue Bonds ("IRBs")
or certain types of "private activity bonds", the opinions of bond counsel
to the respective issuing authorities indicate that interest on such Bonds
is exempt from regular federal income tax. However, interest on such
Bonds will not be exempt from regular federal income tax for any period
during which such Bonds are held by a "substantial user" of the facilities
financed by the proceeds of such Bonds or a "related person" thereof
within the meaning of the Code. Therefore, interest on any such Bonds
allocable to a Certificateholder who is such a "substantial user" or
"related person" thereof will not be tax-exempt. Furthermore, in the case
of Bonds that qualify for the "small issue" exemption, the "small issue"
exemption will not be available or will be lost if, at any time during the
three-year period beginning on the later of the date the facilities are
placed in service or the date of issue, all outstanding tax-exempt IRBs or
private activity bonds, together with a proportionate share of any present
issue, of an owner or principal user (or related person) of the facilities
exceeds $40,000,000. In the case of Bonds issued under the $10,000,000
"small issue" exemption, interest on such IRBs or private activity bonds
will become taxable if the face amount of the IRBs plus certain capital
expenditures exceeds $10,000,000.
In addition, a Bond can lose its tax-exempt status as a result
of other subsequent but unforeseeable events such as prohibited
"arbitrage" activities by the issuer of the Bond or the failure of the
Bond to continue to satisfy the conditions required for the exemptions of
interest thereon from regular federal income tax. No investigation has
been made as to the current or future owners or users of the facilities
financed by the Bonds, the amount of such persons' outstanding tax-exempt
IRBs or private activity bonds, or the facilities themselves, and no
assurance can be given that future events will not affect the tax-exempt
status of the Bonds. In particular, interest on Bonds that are in default
may lose its tax-exempt status as a result of a deemed "reissuance" of the
Bonds, upon an elimination of the obligation owed by the issuer of the
Bonds to bondholders, and other events. Investors should consult their
tax advisors for advice with respect to the effect of these provisions on
their particular tax situation.
Interest on indebtedness incurred or continued to purchase or
carry the Units is not deductible for regular federal income tax purposes.
However, such interest is deductible for New York State and City income
tax purposes by corporations that are required to include interest on the
Bonds in New York State and City entire net income for purposes of
calculating New York State and City franchise (income) taxes. In
addition, under rules used by the Internal Revenue Service for determining
when borrowed funds are considered used for the purpose of purchasing or
carrying particular assets, the purchase of Units may be considered to
have been made with borrowed funds even though the borrowed funds are not
directly traceable to the purchase of Units. Also, in the case of certain
financial institutions that acquire Units, in general no deduction is
allowed for interest expense allocable to the Units.
From time to time proposals have been introduced before
Congress to restrict or eliminate the federal income tax exemption for
interest on debt obligations similar to the Bonds in the Trust, and it can
be expected that similar proposals may be introduced in the future.
In a 1988 decision (South Carolina v. Baker) the U.S. Supreme
Court held that the federal government may constitutionally require states
to register bonds they issue and subject the interest on such bonds to
federal income tax if not registered, and that there is no constitutional
prohibition against the federal government's taxing the interest earned on
state or other municipal bonds. The Supreme Court decision affirms the
authority of the federal government to regulate and control bonds such as
the Bonds in the Trust and to tax interest on such bonds in the future.
The decision does not, however, affect the current exemption from taxation
of the interest earned on the Bonds in the Trust in accordance with Sec-
tion 103 of the Code.
The opinions of bond counsel or special tax counsel to the
issuing governmental authorities to the effect that interest on the Bonds
is exempt from regular federal income tax may be limited to law existing
at the time the Bonds were issued, and may not apply to the extent that
future changes in law, regulations or interpretations affect such Bonds.
Investors are advised to consult their own tax advisors for advice with
respect to the effect of any legislative changes.
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. The
Sponsor's secondary market repurchase price will be based on the aggregate
bid price of the Bonds in the Trust portfolio, 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 as to current market prices prior to
making a tender for redemption. The Sponsor may discontinue repurchases
of Units if the supply of Units exceeds demand, or for other business
reasons. Some of the Bonds in the Trust may be in default. Such
defaulted Bonds typically trade infrequently if at all and their market is
highly inefficient. If the Sponsor discontinues making a secondary market
for the Units in the Trust, the Trust will be required to sell certain of
the Bonds in the Trust in order to satisfy redemption requests. To the
extent the Trustee is required to sell Bonds that are in default in order
to satisfy redemption requests, the price realized upon such sale may be
significantly lower than the par value of such Bonds or even the
collateral underlying such Bonds. To the extent the Trustee is required
to sell Bonds that are not in default in order to satisfy redemption
requests, a greater percentage of the portfolio remaining after such sale
will be comprised of Bonds which are in default. This will negatively
impact the market value and liquidity of the Bonds which remain in the
Trust and, consequently, the market value of the Units. 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 respective Sponsors, subject to change, to repurchase
units of those funds on the basis of a price higher than the bid prices of
the bonds in the Trust. Consequently, depending on 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 this Trust, although in all bond
trusts, the purchase price of a 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 Bonds in the Trust plus a 5% sales charge (5.263% 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
Certificateholders, elect to purchase any Units tendered to the Trustee
for redemption (see "Trustee Redemption"). For example, if in order to
meet redemptions of Units the Trustee must dispose of Bonds, 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 redemption date of an amount equal to the
Redemption Price on the date of tender.
Trustee Redemption
Units may also be tendered to the Trustee for redemption at its
corporate trust office at 770 Broadway, New York, New York 10003, 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, redemptions 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.
Within seven calendar days following a tender for redemption,
or, if such seventh 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 set forth under "Summary of Essential
Information" in Part A 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
Bonds in order to make funds available for redemptions. Such sales, if
required, could result in a sale of Bonds by the Trustee at a loss. To
the extent Bonds 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 Bonds in the Trust based on the bid prices of such Bonds 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 the distribution to Cer-
tificateholders of record as of the business day prior to the evaluation
being made. The Evaluator may determine the value of the Bonds in the
Trust (1) on the basis of current bid prices of the Bonds 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
Bonds for which bid prices are not available, (3) by determining the value
of the Bonds by appraisal, or (4) by any combination of the above.
The Trustee is irrevocably authorized in its discretion, if the
Sponsor does not elect to purchase a 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 Certificateholder at prices which will return to the Certifi-
cateholder 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 Bonds 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
Under the Total Reinvestment Plan (the "Plan"), semi-annual and
annual Certificateholders (except Texas residents*) may elect to have all
interest and principal distributions, if any, with respect to their Units
reinvested either in units of various series of "Municipal Securities
Trust" which will have been created shortly before each semi-annual or
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, in the case of
semi-annual Certificateholders and December 15 of each year, in the case
of annual Certificateholders are the "Plan Reinvestment Dates".
* Texas residents may elect to participate in the "Total Reinvestment
Plan for Texas Residents" hereinafter described.
<PAGE>
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 bonds in
the Available Series portfolio during the initial offering of the
Available Series or at the aggregate bid price per Unit of the Available
Series if its initial offering has been completed, plus a sales charge
equal to 3.627% of the net amount invested in such bonds 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 on primary and secondary market sales of Units in any series
of "Municipal Securities 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 1-1/2%
of the Reinvestment Price per Plan Unit, 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 Certificate-
holder 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, approximated $10 (Ten Dollars).
A semi-annual or 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, any Underwriter of the Units 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 program 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 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 Units purchased in the Trust) for each
subsequent distribution so 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 bonds in the Available Series
portfolio the interest income on which was not exempt from all federal
income tax, or the inclusion of bonds which were not rated in accordance
with the minimum required ratings for the Trust by either Standard &
Poor's Corporation or Moody's Investors Service, Inc., as set forth in
Part A, on the date such bonds were initially deposited in the Available
Series portfolio, or, if unrated, did not have comparable credit
characteristics, in the opinion of the Sponsor, on such date.
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 Bonds 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 and 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 for semi-annual Cer-
tificateholders, and December 1 of each year for annual Certificate-
holders. On each Record Date the Trustee will send a current Prospectus
relating to the Available Series being offered for the next 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 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 or 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
"Municipal Securities 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, each semi-annual and annual Certificateholder who has
acquired Plan Units will be deemed to have elected the semi-annual and
annual plan of distribution, respectively, and to participate in the Plan
with respect to distributions made in connection with such Plan Units.
(Should the Available Series from which Plan Units are purchased for the
account of an annual Certificateholder fail to have an annual distribution
plan, such Certificateholder 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 "Municipal Securities Trust" will not be
accumulated with the foregoing distributions for Plan purchases. Thus, if
a person owns units in more than one series of "Municipal Securities
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 Bonds in the Available Series portfolio
during the initial offering of the Available Series, or at the aggregate
bid price of the Bonds of 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 price. 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 the full units in the
Available Series corresponding to such Plan Units, which is based upon the
aggregate bid price of the underlying bonds as described in the "Municipal
Securities Trust" Prospectus for the Available Series in question. 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.
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, 770 Broadway, New York, New York 10003, on
the Redemption Form supplied by the Trustee. The redemption price per
Plan Unit will be determined as set forth in the "Municipal Securities
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 otherwise would have been redeemed by the
Trustee.
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 bonds 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 statements should be directed to the Trustee by calling
1-800-428-8890.
All expenses relating to the operation of the Plan will be
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 and annual Certificateholders of the Trust who are
residents of Texas have the option prior to any semi-annual or 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 or annual Certificate-
holder may join the Texas Plan for any particular semi-annual or 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 or annual distribution he wishes to reinvest.
On or about each semi-annual or annual Record Date, Texas Authorization
Forms shall be sent by the Trustee to every Certificateholder who,
according to the Trustee's records, 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 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 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 and annual Record Date, the
Sponsor will send a current Prospectus relating to the Available Series
being offered on the next 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 or 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.
Each semi-annual and annual Certificateholder who has acquired
Plan Units will be deemed to have elected the semi-annual and annual plan
of distribution, respectively, with respect to such Units, but such Cer-
tificateholder will not be deemed to participate in the Plan for any
particular distribution unless and until he delivers to the Trustee a
Texas Authorization Form pertaining to those Plan Units. (Should the
Available Series from which Plan Units are purchased for the account of an
annual Certificateholder fail to have an annual distribution plan, such
Certificateholder 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.)
TRUST ADMINISTRATION
Portfolio Supervision
Except for the purchase of Replacement Bonds or as discussed
herein, the acquisition of any bonds for the Trust other than the Bonds
initially deposited by the Sponsor is prohibited. The Sponsor may direct
the Trustee to dispose of Bonds upon (i) default in payment of principal
or interest on such Bonds, (ii) institution of certain legal proceedings
with respect to the issuers of such Bonds, (iii) default under other
documents adversely affecting debt service on such Bonds, (iv) default in
payment of principal or interest on other obligations of the same issuer
or guarantor, (v) with respect to revenue Bonds, decline in revenues and
income of any facility or project below the estimated levels calculated by
proper officials charged with the construction or operation of such
facility or (vi) 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 Bonds in the Trust detrimental to the interests of the
Certificateholders. If a default in the payment of principal or interest
on any of the Bonds occurs and if the Sponsor fails to instruct the
Trustee to sell or hold such Bonds, the Trust Agreement provides that the
Trustee may sell such Bonds. The Trustee shall not be liable for any
depreciation or loss by reason of any sale of Bonds or by reason of the
failure of the Sponsor to give directions to the Trustee.
The Sponsor may be the sole market maker for certain of the
Bonds in the Trust. However, since the Investment Company Act of 1940
prohibits the sale of any of the Bonds from the Trust to the Sponsor,
there may be no means available for the Trust to dispose of these Bonds.
The Sponsor is presently seeking an exemption from this prohibition from
the Securities and Exchange Commission which would permit the Sponsor to
purchase these Bonds from the Trust under certain conditions. There can
be no assurance that this exemption will be obtained.
The Sponsor is authorized by the Trust Agreement to direct the
Trustee to accept or reject certain plans for the refunding or refinancing
of any of the Bonds. Any bonds received in exchange or substitution will
be held by the Trustee subject to the terms and conditions of the
Agreement to the same extent as the Bonds 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 Bonds eliminated and the
Bonds substituted therefor.
Trust Agreement, Amendment and Termination
The Trust Agreement may be amended by the Trustee, 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 Certificateholders.
The Trust Agreement may also be deemed 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 Certificate-
holders; provided that no such amendment or waiver shall reduce any Cer-
tificateholders'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 bonds in addition to or in substitution
for those initially deposited in the Trust, except in accordance with the
provisions of the Trust Agreement. The Trustee shall promptly notify Cer-
tificateholders, in writing, of the substance of any such amendment.
The Trust Agreement provides that the Trust shall terminate
upon the maturity, redemption or other disposition, as the case may be, of
the last of the Bonds held in the Trust but in no event is it to continue
beyond the end of the calendar year preceding the fiftieth anniversary of
the execution of the Trust Agreement. If the value of the Trust shall be
less than the minimum amount set forth under "Summary of Essential
Information" in Part A, the Trustee may, in its discretion, and shall when
so directed by the Sponsor, terminate the Trust. The Trust may also be
terminated at any time with the consent of the holders of Certificates
representing 100% of the Units then outstanding. In the event of
termination, written notice thereof will be sent by the Trustee to all
Certificateholders. Within a reasonable period after termination, the
Trustee must sell any Bonds remaining in the Trust, and, after paying all
expenses and charges incurred by the Trust, distribute to each Certifi-
cateholder, upon surrender for cancellation for his Certificate of Units,
his pro rata share of the Interest and Principal Accounts.
The Sponsor
The Sponsor, Bear, Stearns & Co. Inc. ("Bear Stearns"), 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 also the Sponsor of A Corporate
Trust, Series 1; New York Municipal Trust, Series 1 (and Subsequent
Series), New York Discount and Zero Coupon Fund - 1st Series (and
Subsequent Series); Municipal Securities Trust, Series 1 (and Subsequent
Series), 1st Discount Series (and Subsequent Series), Multi-State Series 1
(and Subsequent Series), Short-Intermediate Term 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 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.
If at any time the Sponsor shall resign or 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) terminate the
Trust Agreement and liquidate the Trust; or (c) continue to act as Trustee
without terminating the Trust Agreement. Any successor Sponsor appointed
by the Trustee shall be satisfactory to the Trustee and, at the time of
appointment, shall have a net worth of at least $1,000,000.
The Trustee
The Trustee is United States Trust Company of New York, with
its principal place of business at 770 Broadway, New York, New York 10003.
United States Trust Company of New York has, since its establishment in
1853, engaged primarily in the management of trust and agency accounts for
individuals and corporations. The Trustee is a member of the New York
Clearing House Association and is subject to supervision and examination
by the Superintendent of Banks of the State of New York, the Federal
Deposit Insurance Corporation and the Board of Governors of the Federal
Reserve System.
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, Bonds or Certificates in accordance with the
Trust Agreement, except in cases of its 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 Bonds or the Trust
which it 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 Bonds 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 retiring 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
$2,500,00.
The Evaluator
The Evaluator is Kenny S&P Evaluation Services, a corporation
organized and existing under the laws of the State of New York, with its
main offices located at 65 Broadway, New York, New York 10006.
The Trustee, the Sponsor and the Certificateholders may rely on
any evaluation furnished by the Evaluator and shall have no responsibility
for the 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
Trustee, and the Sponsor and the Trustee are to use their 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 the 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 and the Units under the Investment Company Act of 1940 and the
Securities Act of 1933, preparation and printing of the Certificates, the
fees of the Evaluator during the initial public offering, legal and
auditing expenses, advertising and selling expenses, expenses of the
Trustee including, but not limited to, an amount equal to interest accrued
on certain "when issued" bonds since the date of settlement for the Units,
initial fees and other out-of-pocket expenses.
The Sponsor will not charge the Trust a fee for its services as
such. (See "Sponsor's and Underwriters' Profits".)
The Sponsor will receive for portfolio supervisory services to
the Trust an Annual Fee in the amount set forth under "Summary of
Essential Information" in Part A. The Sponsor's fee may exceed the actual
cost of providing portfolio supervisory services for this Trust, but at no
time will the total amount received for portfolio supervisory services
rendered to all series of the Municipal Securities Trust in any calendar
year exceed the aggregate cost to the Sponsor of supplying such services
in such year. (See "Portfolio Supervision".)
The Trustee will receive for its ordinary recurring services to
the Trust an annual fee in the amount set forth under "Summary of
Essential Information" in Part A. For a discussion of the services
performed by the Trustee pursuant to its obligations under the Trust
Agreement, see "Trust Administration" and "Rights of Certificateholders."
The Evaluator will receive, for each daily evaluation of the
Bonds in the Trust, a fee in the amount set forth under "Summary of
Essential Information" in Part A.
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 and auditing fees) of the Trustee
incurred and advances made in connection with its 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 it without gross negligence, bad faith
or willful misconduct on its part, arising out of or in connection with
its 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 Bonds or any part of the Trust (no such taxes or charges
are being levied, made or, to the knowledge of the Sponsor, 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 Bonds in order to make funds available to pay
all expenses.
The accounts of the Trust shall be audited not less than
annually by independent public accountants selected by the Sponsor. The
expenses of the audit shall be an expense of the Trust. So long as the
Sponsor maintains a secondary market, the Sponsor will bear any audit
expense which exceeds 50 cents per Unit. Certificateholders covered by the
audit during the year may receive a copy of the audited financials upon
request.
EXCHANGE PRIVILEGE AND CONVERSION OFFER
Exchange Privilege
Certificateholders may elect to exchange any or all of their
Units of this Trust for Units of one or more of any available series of
Municipal Securities Trust, Insured Municipal Securities Trust, Mortgage
Securities Trust, New York Municipal Trust, A Corporate Trust or Equity
Securities Trust (upon receipt by the Equity Securities Trust of an
appropriate exemptive order from the Securities and Exchange Commission)
(the "Exchange Trusts") at a reduced sales charge of $15 per Unit. Under
the Exchange Privilege, the Sponsor's repurchase price will be based on
the aggregate bid price of the Bonds in the 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
(or for units of Equity Securities Trust, based on the Market Value of the
underlying securities in the Equity Trust portfolio) during the initial
public offering period of the Exchange Trust; or based on the aggregate
bid price of the Bonds in the Exchange Trust portfolio after its initial
public offering has been completed, plus accrued interest (or for units of
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. The Exchange Privilege is subject to the following
conditions:
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 $15 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) $15 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 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 Certificateholder 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 $2,960 ($2,900
for unit and $60 for the sales charge). The remaining $540 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 $3,068.80 ($2,900 for units
and $168.80 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 Trust, Mortgage Securities Trust, New York Municipal Trust or
Equity Securities Trust (upon receipt by the Equity Securities Trust of an
appropriate exemptive order from the Securities and Exchange Commission)
sponsored by Bear, Stearns & Co., Inc. (the "Conversion Trusts") at the
Public Offering Price for units of the Conversion Trust based on a reduced
sales charge of $15 per unit. 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 Units of the Conversion Trust will be based on the aggregate offer
price of the underlying bonds in the Conversion Trust portfolio (or for
units of 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
bonds after the initial public offering of the Conversion Trust has been
completed, plus accrued interest (or for units of 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. The Conversion Offer is
subject to the following limitations:
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 $15 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) $15 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. Units of the Equity
Securities Trust may only be acquired in blocks of 100 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).
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 $2,860 ($2,800 for units and $60 for
the sales charge). The remaining $515 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 $2,962.96 ($2,800 for units and $162.96 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 New York taxes, except for
that portion of the income which is 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. 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 irrevocable insurance. 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 or the
Conversion Offer will constitute a "taxable event" to the Certificate-
holder under the Code. The Certificateholder will realize a tax gain or
loss that will be of a long-term or short-term capital or ordinary income
nature 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. (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. Investors should consult their own tax advisors as to the tax
consequences 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, 280 Park Avenue, New York, New York 10017 or
Berger Steingut Tarnoff & Stern, 600 Madison Avenue, New York, New York
10022, as counsel for the Sponsor. Messrs. Carter, Ledyard & Milburn, Two
Wall Street, New York, New York 10005 have acted as counsel for the
Trustee.
Independent Accountants
The financial statements of the Trust included in Part A of
this Prospectus have been examined by KPMG Peat Marwick, independent
certified public accountants, for the periods indicated in its reports
appearing herein. The financial statements examined by KPMG Peat Marwick
have been included in reliance on its report given upon the authority of
said firm as experts in accounting and auditing.
DESCRIPTION OF BOND 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.
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.
* As described by the rating agencies.
<PAGE>
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 interest and repay principal. Whereas they normally
exhibit adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to
pay interest and repay principal for bonds in this category than for bonds
in the A category.
BB, B, CCC, CC -- Bonds rated BB, B, and CCC are regarded, on
balance, as predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the
obligation. BB indicates the lowest degree of speculation and CC the
highest degree of speculation. While such bonds will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
C,CI -- The C rating is applied to debt Subordinated to Senior
debt which is assigned an actual or implied CCC - debt rating. The CI
rating is reserved for income bonds on which no interest is being paid.
D -- Bonds rated D are in default, or are expected to default
upon maturity or payment date, and payment of interest and/or repayment of
principal is in arrears.
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.
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 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
sometimes 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 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 market place.
Ba -- Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well-assured. Often the
protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of
a desirable investment. Assurance of interest and principal payments or
of maintenance of other terms of the contract over any long period of time
may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such
issues may be in default or there may be present elements of danger with
respect to principal or interest.
Ca -- Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have
other marked shortcomings.
C -- Bonds which are rated C are the lowest rated class of
bonds by Moody's Investors Service and issues so rated can be regarded as
having extremely poor prospects of ever attaining any real investment
standing.
NR -- Indicates that the Security is not rated.
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.
<PAGE>
FOR USE WITH MUNICIPAL SECURITIES TRUST
HIGH INCOME SERIES (2-4, 10, 11)
=======================================================================
AUTHORIZATION FOR INVESTMENT IN MUNICIPAL SECURITIES 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 United States Trust Company of New York, Trustee,
to pay all semi-annual or annual distributions of interest and principal
(if any) with respect to such units to the United States Trust Company of
New York, as TRP Plan Agent, who shall immediately invest the
distributions in units of the available series of Municipal Securities
Trust.
The foregoing authorization is subject in Date ______________, 19__
all respects to the terms and conditions 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 AND MAIL THIS CARD.
=======================================================================
Mail to your Broker
or
United States Trust Company of New York
Attn: UIT Reinvestment Unit A
770 Broadway
New York, New York 10003
<PAGE>
INDEX MUNICIPAL SECURITIES TRUST
HIGH INCOME SERIES
Title Page
(Unit Investment Trust)
Summary of Essential Information . . .
A-7
Information Regarding the Trust . . . .
A-9
Financial and Statistical Prospectus
Information . . . . . . . . . . . . .
A-10
Audit and Financial Information Dated: April 29, 1994
Independent Accountants Report . .
F-1
Statement of Condition . . . . . .
F-2
Portfolio . . . . . . . . . . . .
F-6 Sponsor:
The Trust . . . . . . . . . . . . . 1
Public Offering . . . . . . . . . . . .
12 Bear, Stearns & Co. Inc.
Estimated Long Term Return and 245 Park Avenue
Estimated Current Return . .
14 New York, New York 10167
Rights of Certificateholders . . . . .
15 212-272-2500
Tax Status . . . . . . . . . . . . 17
Liquidity . . . . . . . . . . . . 21
Total Reinvestment Plan . . . . . . . .
24 Trustee:
Trust Administration . . . . . . . . .
28
Trust Expenses and Charges . . . . . .
32 United States Trust Company
Exchange Privilege and of New York
Conversion Offer . . . . . . . . . .
33 770 Broadway
Other Matters . . . . . . . . . . . . .
38 New York, New York 10003
Description of Bond Ratings . . . . . .
38 1-800-428-8890
Parts A and B of this
Evaluator:
Prospectus do not contain all of the
information set forth in the registration
Kenny S&P Evaluation Services
statement and exhibits relating thereto,
65 Broadway
filed with the Securities and Exchange
New York, New York 10006
Commission, Washington, D.C., under the
Securities Act of 1933, and to which
reference is made.
* * * * *
No person is authorized to give 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 Trustee, 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.
* * *
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.
