As filed with the Securities and Exchange Commission on October 27, 2000
Registration No. 33-29989*
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT
To
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT
TRUSTS REGISTERED ON FORM N-8B-2
A. Exact name of trust: MUNICIPAL SECURITIES TRUST,
MULTI-STATE SERIES 38,
SERIES 49, MULTI-STATE SERIES 44 AND SERIES 53
& MULTI-STATE SERIES 42
B. Name of depositor: ING FUNDS DISTRIBUTOR, INC.
C. Complete address of depositor's principal executive offices:
ING FUNDS DISTRIBUTOR, INC.
1475 Dunwoody Drive
West Chester, Pennsylvania 19380
D. Name and complete address of agent for service:
PETER J. DeMARCO Copy of comments to:
Senior Vice President MICHAEL R. ROSELLA, ESQ.
ING Funds Distributor, Inc. Paul, Hastings, Janofsky & Walker LLP
1475 Dunwoody Drive 399 Park Avenue
West Chester, Pennsylvania 19380 New York, NY 10022
(212) 318-6000
It is proposed that this filing become effective (check appropriate box)
|_| immediately upon filing pursuant to paragraph (b) of Rule 485
|X| on October 28, 2000 pursuant to paragraph (b)
|_| 60 days after filing pursuant to paragraph (a)
|_| on ( date ) pursuant to paragraph (a) of Rule 485
================================================================================
* The Prospectus included in this Registration Statement constitutes a
combined Prospectus as permitted by the provisions of Rule 429 of the
General Rules and Regulations under the Securities Act of 1933 (the
"Act"). Said Prospectus covers units of undivided interest in Municipal
Securities Trust, Multi-State Series 38, Series 49, Multi-State Series
44 and Series 53 & Multi-State Series 42 covered by prospectuses
heretofore filed as part of separate registration statements on Form S-6
(Registration Nos. 33-29989, 33-36335, 33-50901 and 33-53854
respectively) under the Act. This constitutes Post-Effective Amendment
No. 11 for Multi-State Series 38, Post-Effective Amendment No. 10 for
Series 49, Post-Effective Amendment No. 7 for Multi-State Series 44 and
Post-Effective Amendment No. 8 for Series 53 & Multi-State Series 42.
Each of the Registrants filed a Rule 24f-2 Notice for its fiscal year
ended June 30, 2000 on or about September 28, 2000.
NY/301105.1
<PAGE>
Prospectus Part A dated October 28, 2000
MUNICIPAL SECURITIES TRUST
MULTI-STATE SERIES 38
--------------------------------------------------------------------------------
The Trust consists of 1 unit investment trust designated New York
Trust (the "State Trust"). The State Trust contains an underlying portfolio of
long-term tax-exempt bonds issued by or on behalf of states, municipalities and
public authorities and was formed to preserve capital and to provide 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 (including where
applicable earned original discount) under the law in effect at the time of
issuance. There can be no assurance that the Trust's investment objectives will
be achieved. 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 federal income
tax. In addition, in the opinion of counsel to the Sponsor, the interest income
of the State Trust is exempt, to the extent indicated, from state and local
taxes when held by residents of the state where the issuers of the Bonds in the
State Trust is located. Such interest income may, however, be subject to the
federal corporate alternative minimum tax and to state and local taxes in other
jurisdictions. (See "Description of Portfolio" in this Part A for a description
of those Bonds which pay interest income subject to the federal individual
alternative minimum tax.) In addition, capital gains are subject to tax. (See
"Tax Status" and "The Portfolios--General.") The Sponsor is ING Funds
Distributor, Inc. (successor to Reich & Tang Distributors, Inc.). The value of
the Units of the Trust will fluctuate with the value of the underlying bonds.
Minimum purchase: 1 Unit.
This Prospectus consists of two parts. Part A contains the Summary
of Essential Information including descriptive material relating to the State
Trust as of June 30, 2000 (the "Evaluation Date"), a summary of certain specific
information regarding each State trust and audited financial statements of the
State Trust, including the related portfolio, as of the Evaluation Date. Part B
of this Prospectus contains a general summary of the State Trust. Part A of this
Prospectus may not be distributed unless accompanied by Part B. Investors should
read and retain both parts of this Prospectus for future reference.
--------------------------------------------------------------------------------
<TABLE>
Principal Secondary Market
Number of Amount of Offering Price
Units Bonds per Unit (06/30/00)
--------- --------- -------------------
<S> <C> <C> <C>
New York Trust 3,627 $1,195,000 $302.27
</TABLE>
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.
--------------------------------------------------------------------------------
THE TRUST. The Trust seeks to achieve its investment objectives
through investment in a fixed, diversified portfolio of long-term bonds (the
"Bonds") issued by or on behalf of the State for which such Trust is named and
political subdivisions, municipalities and public authorities thereof and of
Puerto Rico and its public authorities. All of the Bonds in the State Trust were
rated "A" or better by Standard & Poor's Corporation or Moody's Investors
Service, Inc. at the time originally deposited in the State Trust. For a
discussion of the significance of such ratings, see "Description of Bond
Ratings" in Part B of this Prospectus and for a list of ratings on the
Evaluation Date see the "Portfolio".
NY/300334.1
<PAGE>
The State Trust contains bonds that were acquired at prices which
resulted in the portfolios as a whole being purchased at a deep discount from
par value. The portfolio may also include bonds issued at a substantial original
issue discount, some of which may be Zero Coupon Bonds that provide for payment
at maturity at par value, but do not provide for the payment of current
interest. Gain on the disposition of a Bond or a Unit purchased at a market
discount generally will be treated as ordinary income, rather than capital gain,
to the extent of accrued market discount. Some of the Bonds in the portfolio may
have been purchased at an aggregate premium over par. (See "Tax Status" in Part
B of this Prospectus.) 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 (and 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 called for redemption
pursuant to pre-refunding provisions ("Pre-Refunded Bonds") whereby the proceeds
from the issue of the Refunding Bonds are typically invested in government
securities 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, if
any, as of the Evaluation Date, see "Notes to Financial Statements" in this Part
A. 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.
Investment in the Trust should be made with an understanding of the
risks which an investment in long-term fixed rate debt obligations may entail,
including the risk that the value of the underlying portfolio will decline with
increases in interest rates, and that the value of Zero Coupon Bonds is subject
to greater fluctuation than coupon bonds in response to such changes in interest
rates. A Trust designated as a long-term trust must have a dollar-weighted
average portfolio maturity of more than ten years.
Each Unit represents a fractional undivided interest in the
principal and net income of the State Trust. The principal amount of Bonds
deposited in the State Trust per Unit is reflected in the Summary of Essential
Information. Each State Trust will be administered as a distinct entity with
separate certificates, expenses, books and records. (See "The
Trust--Organization" in Part B of this Prospectus.) The Units being offered
hereby are issued and outstanding Units which have been purchased by the Sponsor
in the secondary market.
PUBLIC OFFERING PRICE. The 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 4.8% for the New York
Trust of the Public Offering Price, or 5.042% for the New York Trust of the net
amount invested in Bonds per Unit. The sales charge for secondary market
purchases is based upon the number of years remaining to maturity of each bond
in the Trust's portfolio. (See "Public Offering" in Part B of this Prospectus.)
In addition, accrued interest to the expected date of settlement is added to the
Public Offering Price. If Units of the New York Trust had been purchased on the
Evaluation Date, the Public Offering Price per Unit would have been $302.27 plus
accrued interest of $6.25 under the monthly distribution plan, $7.58 under the
semi-annual distribution plan and $16.40 under the annual distribution plan, for
a total of $308.52, $309.85 and $318.67, 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 "Summary of Essential Information" and
"Public Offering--Offering Price" in Part B of this Prospectus.)
A-2
NY/300334.1
<PAGE>
ESTIMATED LONG TERM RETURN AND ESTIMATED CURRENT RETURN. Units of
each Trust are offered to investors on a "dollar price" basis (using the
computation method described under "Public Offering--Offering Price" in Part B)
as distinguished from a "yield price" basis often used in offerings of tax
exempt bonds (involving the lesser of the yield as computed to maturity of bonds
or to an earlier redemption date). Since they are offered on a dollar price
basis, the rate of return on an investment in Units of each 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 either monthly, semi-annually or annually depending upon
the plan of distribution applicable to the Unit purchased. A purchaser of a Unit
in the secondary market will actually receive distributions in accordance with
the distribution plan chosen by the prior owner of such Unit and may thereafter
change the plan as provided under "Interest and Principal Distributions" in Part
B of this Prospectus. Distributions of principal, if any, will be made
semi-annually on June 15 and December 15 of each year. (See "Rights of
Certificateholders--Interest and Principal Distributions" in Part B of this
Prospectus. For estimated monthly, semi-annual and annual interest
distributions, see "Summary of Essential Information.")
MARKET FOR UNITS. The Sponsor, although not obligated to do so,
intends to maintain a secondary market for the Units at prices based on the
aggregate bid price of the Bonds in the Trust portfolio. The secondary market
A-3
NY/300334.1
<PAGE>
repurchase price is based on the aggregate bid price of the Bonds in the Trust
portfolio, and the reoffer price is based on the aggregate bid price of the
Bonds plus a sales charge of 4.8% for the New York Trust of the Public Offering
Price (5.042% for the New York Trust of the net amount invested) plus net
accrued interest. If a market is not maintained, a Certificateholder will be
able to redeem his or her Units with the Trustee at a price also based on the
aggregate bid price of the Bonds. (See "Sponsor Repurchase" and "Public
Offering--Offering Price" in Part B of this Prospectus.)
For additional information regarding the Public Offering Price and
Estimated Current Return and Estimated Long Term Return for Units of the State
Trust, descriptions of interest and principal distributions, repurchase and
redemption of Units and other essential information regarding the Trust, please
refer to the Summary of Essential Information for the State Trust on the
immediately succeeding page.
A-4
NY/300334.1
<PAGE>
MUNICIPAL SECURITIES TRUST
MULTI-STATE SERIES 38
NEW YORK TRUST
<TABLE>
<CAPTION>
SUMMARY OF ESSENTIAL INFORMATION AS OF JUNE 30, 2000
----------------------------------------------------
<S> <C> <C>
Date of Deposit*: Minimum Principal Distribution:
August 24, 1989 $1.00 per Unit.
Principal Amount of Bonds... $1,195,000 Weighted Average Life to
Number of Units............. 3,627 Maturity: 13.7 Years.
Fractional Undivided Inter- Minimum Value of Trust: Trust may
est in Trust per Unit..... 1/3627 be terminated if value of Trust
Principal Amount of is less than $2,000,000 in
Bonds per Unit............ $329.47 principal amount of Bonds.
Secondary Market Public Mandatory Termination Date: The
Offering Price** earlier of December 31, 2038 or
Aggregate Bid Price the disposition of the last
of Bonds in Trust........ $1,043,903+++ Bond in the Trust.
Divided by 3,627 Units.... $287.81 Trustee***: The Chase Manhattan
Plus Sales Charge of Bank.
4.8% of Public Trustee's Annual Fee: Monthly
Offering Price.......... $14.46 plan $.96 per $1,000;
Public Offering Price semi-annual plan $.50 per
per Unit................ $302.27+ $1,000; and annual plan is $.32
Redemption and Sponsor's per $1,000.
Repurchase Price Evaluator: Kenny S&P Evaluation
per Unit................ $287.81+ Services.
+++ Evaluator's Fee for Each
++++ Evaluation: Minimum of $15 plus
Excess of Secondary Market $.25 per each issue of Bonds in
Public Offering Price excess of 50 issues (treating
over Redemption and separate maturities as separate
Sponsor's Repurchase issues).
Price per Unit............ $14.46++++ Sponsor: ING Funds Distributor,
Difference between Public Inc.
Offering Price per Unit Sponsor's Annual Fee: Maximum of
and Principal Amount per $.25 per $1,000 principal
Unit Premium/(Discount)... $(27.20) amount of Bonds (see "Trust
Evaluation Time: 4:00 p.m. Expenses and Charges" in Part B
New York Time. of this Prospectus).
</TABLE>
<TABLE>
<CAPTION>
PER UNIT INFORMATION BASED UPON INTEREST DISTRIBUTION PLAN ELECTED
------------------------------------------------------------------
Monthly Semi-Annual Annual
Option Option Option
------ ------ ------
<S> <C> <C> <C>
Gross annual interest income# ........... $16.90 $16.90 $16.90
Less estimated annual fees and
expenses .............................. 1.19 1.01 1.82
Estimated net annual interest ______ ______ ______
income (cash)# ........................ $15.71 $15.89 $15.08
Estimated interest distribution# ........ 1.30 7.94 15.08
Estimated daily interest accrual# ....... .0436 .0441 .0419
Estimated current return#++ ............. 5.20% 5.26% 4.99%
Estimated long term return ++ ........... 4.71% 4.78% 4.50%
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
</TABLE>
A-5
<PAGE>
Footnotes to Summary of Essential Information
* The Date of Deposit is the date on which the Trust Agreement was signed
and the deposit of the Bonds with the Trustee made.
** Certain amounts distributable as of June 30, 2000 may be reported in the
Summary of Essential Information as if they had been distributed at
year-end.
*** The Trustee maintains its principal executive office at 270 Park Avenue,
New York, New York 10017 and its unit investment trust office at 4 New
York Plaza, New York, New York 10004 (tel. no.: 1-800-882-9898). 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 three
business days after purchase) of $6.25 monthly, $7.58 semi-annually and
$16.40 annually for the New York Trust.
++ 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 from 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 accrual from original issue discount bonds, if any.
<TABLE>
<CAPTION>
FINANCIAL AND STATISTICAL INFORMATION
Selected data for each Unit outstanding for the periods listed below:
Distribu-
Distributions of Interest tions of
During the Period (per Unit) Principal
---------------------------- During
Net Asset* Semi- the
Units Out- Value Monthly Annual Annual Period
Period Ended standing Per Unit Option Option Option (Per Unit)
------------ ---------- ---------- ------- ------ ------ ----------
New York Trust
--------------
<S> <C> <C> <C> <C> <C> <C>
June 30, 1998 4,362 $745.71 $48.42 $ 48.93 $ 52.06 $ 65.78
June 30, 1999 4,083 543.44 43.47 44.01 47.84 180.82
June 30, 2000 3,627 295.29 23.27 23.55 35.77 238.81
</TABLE>
----------
* Net Asset Value per Unit is calculated by dividing net assets as disclosed
in the "Statement of Net Assets" by the number of Units outstanding as of
the date of the Statement of Net Assets. See Note 5 of Notes to Financial
Statements for a description of the components of Net Assets.
A-6
NY/300334.1
<PAGE>
INFORMATION REGARDING THE TRUST
AS OF JUNE 30, 2000
DESCRIPTION OF PORTFOLIO*
------------------------
New York Trust
--------------
Each Unit in the New York Trust consists of a 1/3627th undivided
interest in the principal and net income of the Trust in the ratio of one Unit
for each $329.47 of principal amount of the Bonds currently held in the Trust.
The Sponsor has not participated as a sole underwriter or manager, co-manager or
member of an underwriting syndicate from which any of the initial aggregate
principal amount of the Bonds were acquired. The portfolio of the New York Trust
consists of 5 issues of 3 issuers located in New York and 2 in Puerto Rico. None
of the Bonds are obligations of state and local housing authorities;
approximately 20.9% are hospital revenue bonds; and none were issued in
connection with the financing of nuclear generating facilities. None are
mortgage subsidy bonds. Three of the Bonds are subject to redemption prior to
their stated maturity dates pursuant to sinking fund or 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. Five issues representing $1,195,000 of the
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: Dormitory Authority 1,
Electric 2, Hospital 1 and Water 1. For an explanation of the significance of
these factors see "The State Trusts--Portfolios" in Part B of this Prospectus.
As of June 30, 2000, $745,000 (approximately 62.3% of the aggregate
principal amount of the Bonds) were original issue discount bonds. Of these
original issue discount bonds, $250,000 (approximately 20.9% 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. The market value of Zero
Coupon Bonds is subject to greater fluctuations than coupon bonds in response to
changes in interest rates. Approximately 16.8% of the aggregate principal amount
of the Bonds in the Trust were purchased at a "market" discount from par value
at maturity, approximately 20.9% were purchased at a premium and none were
purchased at par. For an explanation of the significance of these factors see
"The Portfolios--Discount and Zero Coupon Bonds" in Part B of this Prospectus.
None of the Bonds in the New York Trust are subject to the federal
individual alternative minimum tax under the Tax Reform Act of 1986. See "Tax
Status" in Part B of this Prospectus.
----------
* Changes in the Trust Portfolio: From July 1, 2000 to September 15, 2000,
$85,000 of the principal amount of the Bond in portfolio no. 2 was called
and is no longer contained in the Trust. 40 Units were redeemed from the
Trust.
A-7
NY/300334.1
<PAGE>
Report of Independent Auditors
The Sponsor, Trustee and Certificateholders of
Municipal Securities Trust, Multi-State Series 38, New York Trust
We have audited the accompanying statement of net assets of Municipal Securities
Trust Multi-State Series 38, New York Trust, including the portfolio, as of June
30, 2000 and the related statements of operations, and changes in net assets and
financial highlights for the year then ended. These financial statements and
financial highlights are the responsibility of the Trustee. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audit. The statement of operations and statement of changes in net
assets for each of the two years in the period ended June 30, 1999 and financial
highlights for each of the four years in the period ended June 30, 1999 were
audited by other auditors whose report thereon dated September 15, 1999,
expressed an unqualified opinion on those financial statements and financial
highlights.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights 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 the securities
owned by correspondence with the Trustee. An audit also includes assessing the
accounting principles used and significant estimates made by the Trustee, as
well as evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the 2000 financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Municipal Securities Trust, Multi-State Series 38, New York Trust at June 30,
2000, the results of its operations, changes in its net assets and financial
highlights for the year then ended, in conformity with accounting principles
generally accepted in the United States.
/s/ Ernst & Young LLP
New York, New York
October 16, 2000
<PAGE>
Municipal Securities Trust
Multi-State Series 38, New York Trust
Portfolio
June 30, 2000
<TABLE>
<CAPTION>
Aggregate Coupon
Portfolio Principal Rate/Date(s) of
No. Amount Name of Issuer and Title of Bonds Ratings (1) Maturity (2)
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1 $ 195,000 N.Y. State Dorm. Auth. Judical Facs. Lease AAA 7.375%
Rev. Bonds (Suffolk Cnty. Issue) Series 1986 7/01/2016
1A 5,000 N.Y. State Dorm. Auth. Judicial Facs. AAA 7.375
Lease Rev. Bonds (Suffolk Cnty. Issue) 7/01/2016
Series 1986
2 250,000 N.Y. State Med. Care Facs. Finc. Agncy. Mental A- 8.875
Hlth. Svs. Facs. Imprvmt. Rev. Rfndg. Bonds 8/15/2007
1987 Series A
3 245,000 N.Y. City Munl. Wtr. Finc. Auth. Wtr. & Swr. AA 5.000
Sys. Rev. Bonds Fiscal 1987 Series A 6/15/2017
4 250,000 P.R. Elec. Pwr. Auth. Pwr. BBB 5.000
Rev. Bonds Series O 7/01/2012
5 250,000 P.R. Elec. Pwr. Auth. Rev. BBB 0.000
Bonds Series O 7/01/2017
--------------
$ 1,195,000 Total Investments (Cost (3) $924,398)
==============
</TABLE>
<TABLE>
<CAPTION>
Redemption
Aggregate Feature (2)(4)
Portfolio Principal S.F.-Sinking Fund Market
No. Amount Name of Issuer and Title of Bonds Ref.-Refunding Value (3)
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 $ 195,000 N.Y. State Dorm. Auth. Judical Facs. Lease 7/01/01 @ 100 S.F. $ 226,684
Rev. Bonds (Suffolk Cnty. Issue) Series 1986 None
1A 5,000 N.Y. State Dorm. Auth. Judicial Facs. 7/01/00 @ 100 S.F. 5,000
Lease Rev. Bonds (Suffolk Cnty. Issue) None`
Series 1986
2 250,000 N.Y. State Med. Care Facs. Finc. Agncy. Mental 8/15/00 @ 100 S.F. 254,900
Hlth. Svs. Facs. Imprvmt. Rev. Rfndg. Bonds 8/15/00 @ 100 Ref.
1987 Series A
3 245,000 N.Y. City Munl. Wtr. Finc. Auth. Wtr. & Swr. 6/15/15 @ 100 S.F. 224,263
Sys. Rev. Bonds Fiscal 1987 Series A 7/31/00 @ 100 Ref.
4 250,000 P.R. Elec. Pwr. Auth. Pwr. No Sinking Fund 244,268
Rev. Bonds Series O 7/31/00 @ 100 Ref.
5 250,000 P.R. Elec. Pwr. Auth. Rev. No Sinking Fund 93,945
Bonds Series O None
-------------- ---------------
$ 1,195,000 Total Investments (Cost (3) $924,398) $ 1,049,060
============== ===============
</TABLE>
See accompanying footnotes to portfolio and notes to financial statements.
<PAGE>
Municipal Securities Trust
Multi-State Series 38, New York Trust
Footnotes to Portfolio
1 All ratings are by Kenny S&P Evaluation Services, a business unit of J.J.
Kenny Company, Inc., a subsidiary of The McGraw-Hill Companies, Inc. A brief
description of the ratings symbols and their meaning is set forth under
"Description of Bond Ratings" in Part B of the Prospectus.
2. See "The Trust--Portfolio" in Part B of the Prospectus for an explanation of
redemption features. See "Tax Status" in Part B of the Prospectus for a
statement of the Federal tax consequences to a Certificateholder upon the
sale, redemption or maturity of a bond.
3. At June 30, 2000, the net unrealized appreciation of all the bonds was
comprised of the following:
Gross unrealized appreciation $ 150,109
Gross unrealized depreciation (25,447)
--------------------
Net unrealized appreciation $ 124,662
====================
4. 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 of
unanticipated revenues).
The accompanying notes form an integral part of the financial statements.
<PAGE>
Municipal Securities Trust
Multi-State Series 38, New York Trust
Statement of Net Assets
June 30, 2000
<TABLE>
<S> <C>
Investments in securities, at market value (cost $924,398) $ 1,049,060
Other assets
Accrued interest 22,972
------------------------
Total other assets 22,972
------------------------
Liabilities
Advance from Trustee 1,025
------------------------
Total liabilities 1,025
------------------------
Excess of other assets over total liabilities 21,947
------------------------
Net assets (3,627 units of fractional undivided
interest outstanding, $295.29 per unit) $ 1,071,007
========================
</TABLE>
The accompanying notes form an integral part of the financial statements.
<PAGE>
Municipal Securities Trust
Multi-State Series 38, New York Trust
Statement of Operations
<TABLE>
<CAPTION>
Year ended June 30,
2000 1999 1998
--------------------------------------------------------------------
<S> <C> <C> <C>
Investment income
Interest $ 94,950 $ 188,948 $ 226,753
Expenses
Trustee's fees 4,070 5,410 6,041
Evaluator's fee 1,375 1,429 1,483
Sponsor's advisory fee 779 816 926
--------------------------------------------------------------------
Total expenses 6,224 7,655 8,450
--------------------------------------------------------------------
Net investment income 88,726 181,293 218,303
--------------------------------------------------------------------
Realized and unrealized gain (loss)
Realized gain on investments 37,382 60,503 10,535
Unrealized appreciation (depreciation)
on investments (72,337) (145,628) 19,397
--------------------------------------------------------------------
Net gain (loss) on investments (34,955) (85,125) 29,932
--------------------------------------------------------------------
Net increase in net assets resulting from operations $ 53,771 $ 96,168 $ 248,235
====================================================================
</TABLE>
The accompanying notes form an integral part of the financial statements.
<PAGE>
Municipal Securities Trust
Multi-State Series 38, New York Trust
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year ended June 30,
2000 1999 1998
--------------------------------------------------------------------
<S> <C> <C> <C>
Operations
Net investment income $ 88,726 $ 181,293 $ 218,303
Realized gain on investments 37,382 60,503 10,535
Unrealized appreciation (depreciation)
on investments (72,337) (145,628) 19,397
--------------------------------------------------------------------
Net increase in net assets resulting from operations 53,771 96,168 248,235
--------------------------------------------------------------------
Distributions to Certificateholders
Investment income 91,285 184,778 218,195
Principal 954,317 759,783 296,251
Redemptions
Interest 4,705 3,904 3,551
Principal 151,310 181,651 206,667
--------------------------------------------------------------------
Total distributions and redemptions 1,201,617 1,130,116 724,664
--------------------------------------------------------------------
Total (decrease) (1,147,846) (1,033,948) (476,429)
Net assets
Beginning of year 2,218,853 3,252,801 3,729,230
--------------------------------------------------------------------
End of year (including undistributed net investment income of
$67,510, $74,774 and $82,163, respectively) $ 1,071,007 $ 2,218,853 $ 3,252,801
====================================================================
</TABLE>
The accompanying notes form an integral part of the financial statements.
<PAGE>
Municipal Securities Trust
Multi-State Series 38, New York Trust
Financial Highlights
Selected data for a unit of the Trust outstanding:*
<TABLE>
<CAPTION>
Year ended June 30,
2000 1999 1998
---------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of year** $ 543.44 $ 745.71 $ 805.10
---------------------------------------------------------
Interest income 24.63 44.74 50.42
Expenses (1.61) (1.81) (1.88)
---------------------------------------------------------
Net investment income 23.02 42.93 48.54
---------------------------------------------------------
Net gain or loss on investments (1) 1.28 (20.60) 7.26
---------------------------------------------------------
Total from investment operations 24.30 22.33 55.80
---------------------------------------------------------
Less distributions
to Certificateholders
Income 23.68 43.76 48.52
Principal 247.55 179.92 65.88
for Redemptions
Interest 1.22 .92 .79
---------------------------------------------------------
Total distributions 272.45 224.60 115.19
---------------------------------------------------------
Net asset value, end of year** $ 295.29 $ 543.44 $ 745.71
=========================================================
</TABLE>
<TABLE>
<CAPTION>
Year ended June 30,
1997 1996
--------------------------------------
<S> <C> <C>
Net asset value, beginning of year** $ 813.54 $ 1,041.33
--------------------------------------
Interest income 53.94 61.72
Expenses (1.58) (1.80)
--------------------------------------
Net investment income 52.36 59.92
--------------------------------------
Net gain or loss on investments (1) 3.15 (12.10)
--------------------------------------
Total from investment operations 55.51 47.82
--------------------------------------
Less distributions
to Certificateholders
Income 53.02 62.23
Principal 10.47 212.41
for Redemptions
Interest .46 .97
--------------------------------------
Total distributions 63.95 275.61
--------------------------------------
Net asset value, end of year** $ 805.10 $ 813.54
======================================
</TABLE>
(1) Net gain or loss on investments is a result of changes in outstanding units
since July 1, 1999, 1998, 1997, 1996 and 1995 respectively, and the dates of net
gain and loss on investments.
* Unless otherwise stated, based upon average units outstanding during the
year of 3,855 ([4,083 + 3,627]/2) for 2000, 4,223 ([4,362 + 4,083]/2) for
1999, 4,497 ([4,632 + 4,362]/2) for 1998, 4,729 ([4,826 + 4,632]/2) for 1997
and of 4,906 ([4,985 + 4,826]/2) for 1996.
** Based upon actual units outstanding.
The accompanying notes form an integral part of the financial statements.
<PAGE>
Municipal Securities Trust
Multi-State Series 38, New York Trust
Notes to Financial Statements
June 30, 2000
1. Organization
Municipal Securities Trust, Multi-State Series 38, New York Trust (the "Trust")
was organized on August 24, 1989 by Bear, Stearns & Co. Inc. and Gruntal & Co.,
LLC 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. The Trust was formed
to preserve capital and to provide interest income.
On September 28, 1995, Reich & Tang Distributors, Inc. ("Reich & Tang") had
become the successor sponsor to certain of the unit investment trusts previously
sponsored by Bear, Stearns & Co. Inc. As successor sponsor, Reich & Tang had
assumed all of the obligations and rights of Bear, Stearns & Co. Inc., the
previous sponsor.
Effective February 9, 2000, Gruntal & Co., LLC resigned as a co-sponsor of
certain unit investment trusts previously co-sponsored with Reich & Tang. ING
Funds Distributor, Inc. ("ING") has become the successor sponsor to certain unit
investment trusts previously sponsored by Reich & Tang. As successor sponsor,
ING has assumed all of the obligations and rights of Reich & Tang, the previous
sponsor.
2. Summary of Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Trust in preparation of its financial statements. The policies
are in conformity with generally accepted accounting principles ("GAAP"). The
preparation of financial statements in accordance with GAAP requires management
to make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual amounts could differ from those
estimates.
Interest Income
Interest income is recorded 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.
<PAGE>
Municipal Securities Trust
Multi-State Series 38, New York Trust
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Security Valuation
Investments are carried at market value which is determined by Kenny S&P
Evaluation Services, a business unit of J.J. Kenny Company, Inc., a subsidiary
of the McGraw-Hill Companies, Inc. The market value of the portfolio is based
upon the bid prices for the bonds at the end of the year, which approximates the
fair value of the security at that date, 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
No provision for federal income taxes has been made in the accompanying
financial statements because the Trust intends to continue to qualify for the
tax treatment applicable to Grantor Trusts under the Internal Revenue Code.
Under existing law, if the Trust so qualifies, it will not be subject to federal
income tax on net income and capital gains that are distributed to unitholders.
4. Trust Administration
The Chase Manhattan Bank (the "Trustee") has custody of assets 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 Trust Indenture and Agreement provides for interest distributions as often
as monthly (depending upon the distribution plan elected by the
Certificateholders).
<PAGE>
Municipal Securities Trust
Multi-State Series 38, New York Trust
Notes to Financial Statements (continued)
4. Trust Administration (continued)
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.
The Trust Indenture and Agreement also requires the Trust to redeem units
tendered. For the years ended June 30, 2000, 1999 and 1998, 456, 279 and 270
units were redeemed, respectively.
The Trust pays an annual fee for trustee services rendered by the Trustee that
ranges from $.32 to $.96 per $1,000 of outstanding investment principal. In
addition, a minimum fee of $15.00 is paid to a service bureau for each portfolio
valuation. A maximum fee of $.25 per $1,000 of outstanding investment principal
is paid to the Sponsor. For the years ended June 30, 2000, 1999 and 1998, the
"Trustee's Fees" are comprised of Trustee fees of $1,476, $2,525 and $3,049 and
other expenses of $2,594, $2,885 and $2,992 respectively. The other expenses
include professional, printing and miscellaneous fees.
5. Net Assets
At June 30, 2000, the net assets of the Trust represented the interest of
Certificateholders as follows:
Original cost to Certificateholders $ 5,083,268
Less initial gross underwriting commission 249,080
-----------------------
4,834,188
Accumulated cost of securities sold, matured or called (3,950,196)
Net unrealized appreciation 124,662
Undistributed net investment income 67,510
Distributions in excess of proceeds from investments (5,157)
-----------------------
Total $ 1,071,007
=======================
<PAGE>
Municipal Securities Trust
Multi-State Series 38, New York Trust
Notes to Financial Statements (continued)
5. Net Assets (continued)
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 5,000 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 $40,406.
6. Concentration of Credit Risk
Since the Trust invests a portion of its assets in municipal bonds, it may be
affected by economic and political developments in the municipalities. Certain
debt obligations held by the Trust may be entitled to the benefit of insurance,
standby letters of credit or other guarantees of banks or other financial
institutions.
<PAGE>
Prospectus Part A Dated October 28, 2000
MUNICIPAL SECURITIES TRUST
SERIES 49
--------------------------------------------------------------------------------
The Trust is a unit investment trust designated Series 49
("Municipal Trust") with an underlying portfolio of long-term tax-exempt bonds
issued by or on behalf of states, municipalities and public authorities, and was
formed to preserve capital and to provide 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 (including where applicable earned original
discount) under the law in effect at the time of issuance but may be subject to
state and local taxes. There can be no assurance that the Trust's objectives
will be achieved. 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. Such interest income may, however, be subject to the
federal corporate alternative minimum tax and to state and local taxes. (See
"Description of Portfolio" in this Part A for a description of those Bonds which
pay interest income subject to the federal individual alternative minimum tax.
In addition, capital gains are subject to tax. (See "Tax Status" and "The
Trust--Portfolio" in Part B of this Prospectus.) The Sponsor is ING Funds
Distributor, Inc. (successor to Reich & Tang Distributors, Inc.). The value of
the Units of the Trust will fluctuate with the underlying bonds. Minimum
purchase: 1 Unit.
This Prospectus consists of two parts. Part A contains the
Summary of Essential Information as of June 30, 2000 (the "Evaluation Date"), a
summary of certain specific information regarding the Trust and audited
financial statements of the Trust, including the related portfolio, as of the
Evaluation Date. Part B of this Prospectus contains a general summary of the
Trust. Part A of this Prospectus may not be distributed unless accompanied by
Part B. 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.
--------------------------------------------------------------------------------
THE TRUST. The Trust seeks to achieve its investment
objectives through investment in a fixed, diversified portfolio of long-term
bonds (the "Bonds") issued by or on behalf of states, municipalities and public
authorities. All of the Bonds in the Trust were rated "A" or better by Standard
& Poor's Corporation or Moody's Investors Service, Inc. at the time originally
deposited in the Trust. For a discussion of the significance of such ratings see
"Description of Bond Ratings" in Part B of this Prospectus and for a list of
ratings on the Evaluation Date see the "Portfolio."
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 any current interest.
NY/300335.1
<PAGE>
Some of the Bonds in the portfolio may have been purchased at an aggregate
premium over par. 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 (and
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 called for redemption
pursuant to pre-refunding provisions ("Pre-Refunded Bonds") whereby the proceeds
from the issue of the Refunding Bonds are typically invested in government
securities 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, if
any, as of the Evaluation Date, see "Notes to Financial Statements" in this Part
A. 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.
Investment in the Trust should 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 that the value of Zero Coupon Bonds is subject
to greater fluctuations than coupon bonds in response to changes in interest
rates. A Trust designated as a long-term trust must have a dollar-weighted
average portfolio maturity of more than ten years.
Each Unit in the Trust represents a 1/3831st 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.
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 3.5% of the
Public Offering Price, which is the same as 3.627% of the net amount invested in
Bonds per Unit. The sales charge for secondary market purchases is based upon
the number of years remaining to maturity of each bond in the Trust's portfolio.
(See "Public Offering" in Part B of this Prospectus.) In addition, accrued
interest to 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 $600.06 plus accrued interest of $7.20 under the
monthly distribution plan, $10.73 under the semi-annual distribution plan and
$32.34 under the annual distribution plan, for a total of $607.26, $610.79 and
$632.40, 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 the "Summary of Essential Information" and "Public Offering--Offering
Price" in Part B of this Prospectus.)
ESTIMATED LONG TERM RETURN AND ESTIMATED CURRENT RETURN. Units
of each Trust are offered to investors on a "dollar price" basis (using the
computation method described under "Public Offering--Offering Price" in Part B)
as distinguished from a "yield price" basis often used in offerings of tax
exempt bonds (involving the lesser of the yield as computed to maturity of
A-2
NY/300335.1
<PAGE>
bonds or to an earlier redemption date). Since they are offered on a dollar
price basis, the rate of return on an investment in Units of each 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 either monthly, semi-annually or annually
depending upon the plan of distribution applicable to the Unit purchased. A
purchaser of a Unit in the secondary market 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 in "Interest and Principal Distributions"
in Part B of this Prospectus. Distributions of principal, if any, will be made
semi-annually on June 15 and December 15 of each year. (See "Rights of
Certificateholders--Interest and Principal Distributions" in Part B of this
Prospectus. For estimated monthly, semi-annual and annual interest
distributions, see "Summary of Essential Information".)
A-3
NY/300335.1
<PAGE>
MARKET FOR UNITS. The Sponsor, although not obligated to do
so, intends to maintain a market for the Units at prices based upon the
aggregate bid price of the Bonds in the portfolio of the Trust. The Secondary
Market repurchase price is based on the aggregate bid price of the Bonds in the
Trust portfolio, and the reoffer price is based on the aggregate bid price of
the Bonds plus a sales charge of 3.5% of the Public Offering Price (3.627% of
the net amount invested) plus net accrued interest. If such a market is not
maintained, a Certificateholder will be able to redeem his or her 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.)
A-4
NY/300335.1
<PAGE>
MUNICIPAL SECURITIES TRUST
SERIES 49
<TABLE>
<CAPTION>
SUMMARY OF ESSENTIAL INFORMATION AS OF JUNE 30, 2000
----------------------------------------------------
<S> <C> <C>
Date of Deposit*: Minimum Principal Distribution:
December 12, 1990 $1.00 per Unit.
Principal Amount of Bonds ... $2,405,000 Weighted Average Life to Maturity:
Number of Units ............. 3,831 12.5 Years.
Fractional Undivided Inter- Minimum Value of Trust: Trust may
est in Trust per Unit ..... 1/3831 be terminated if value of Trust
Principal Amount of is less than $4,000,000 in
Bonds per Unit ............ $627.77 principal amount of Bonds.
Secondary Market Public Mandatory Termination Date: The
Offering Price** earlier of December 31, 2035 or
Aggregate Bid Price the disposition of the last
of Bonds in Trust ....... $2,217,445+++ Bond in the Trust.
Divided by 3,831 Units .... $578.82 Trustee***: The Chase Manhattan
Plus Sales Charge of Bank.
3.5% of Public Trustee's Annual Fee: Monthly plan
Offering Price .......... $21.24 $1.02 per $1,000; semi-annual
Public Offering Price plan $.54 per $1,000; and
per Unit ................ $600.06+ annual plan is $.35 per $1,000.
Redemption and Sponsor's Evaluator: Kenny S&P Evaluation
Repurchase Price Services.
per Unit ................ $578.82+ Evaluator's Fee for Each
+++ Evaluation: Minimum of $12 plus
++++ $.25 per each issue of Bonds in
Excess of Secondary Market excess of 50 issues (treating
Public Offering Price separate maturities as separate
over Redemption and issues).
Sponsor's Repurchase Sponsor: ING Funds Distributor,
Price per Unit ............ $21.24++++ Inc.
Difference between Public Sponsor's Annual Fee: Maximum of
Offering Price per Unit $.25 per $1,000 principal
and Principal Amount per amount of Bonds (see "Trust
Unit Premium/(Discount).... $(27.71) Expenses and Charges" in Part B
Evaluation Time: 4:00 p.m. of this Prospectus).
New York Time.
</TABLE>
<TABLE>
<CAPTION>
PER UNIT INFORMATION BASED UPON INTEREST DISTRIBUTION PLAN ELECTED
------------------------------------------------------------------
Monthly Semi-Annual Annual
Option Option Option
------ ------ ------
<S> <C> <C> <C>
Gross annual interest income# ......... $33.59 $33.59 $33.59
Less estimated annual fees and
expenses ............................ 1.48 1.29 .51
Estimated net annual interest ______ ______ ______
income (cash)# ...................... $32.11 $32.30 $33.08
Estimated interest distribution# ...... 2.67 16.15 33.08
Estimated daily interest accrual# ..... .0892 .0897 .0918
Estimated current return#++ ........... 5.35% 5.38% 5.51%
Estimated long term return++ .......... 1.75% 1.80% 1.97%
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
</TABLE>
A-5
NY/300335.1
<PAGE>
Footnotes to Summary of Essential Information
* The Date of Deposit is the date on which the Trust Agreement was signed
and the deposit of the Bonds with the Trustee made.
** Certain amounts distributable as of June 30, 2000 may be reported in
the Summary of Essential Information as if they had been distributed as
of year-end.
*** The Trustee maintains its principal executive office at 270 Park
Avenue, New York, New York 10017 and its unit investment trust office
at 4 New York Plaza, New York, New York 10004 (tel. no.:
1-800-882-9898). 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
three business days after purchase) of $7.20 monthly, $10.73 semi-
annually and $32.34 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.
<TABLE>
<CAPTION>
FINANCIAL AND STATISTICAL INFORMATION
Selected data for each Unit outstanding for the periods listed below:
Distribu-
Distributions of Interest tions of
During the Period (per Unit) Principal
---------------------------- During
Net Asset* Semi- the
Units Out- Value Monthly Annual Annual Period
Period Ended standing Per Unit Option Option Option (Per Unit)
------------ ---------- ---------- ------- ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C>
June 30, 1998 4,196 $739.02 $ 58.85 $ 59.21 $ 61.28 $107.79
June 30, 1999 3,902 605.60 48.45 48.79 56.97 116.24
June 30, 2000 3,831 588.94 42.61 42.94 42.45 -0-
</TABLE>
----------
* Net Asset Value per Unit is calculated by dividing net assets as
disclosed in the "Statement of Net Assets" by the number of Units
outstanding as of the date of the Statement of Net Assets. See Note 5
of Notes to Financial Statements for a description of the components of
Net Assets.
A-6
NY/300335.1
<PAGE>
INFORMATION REGARDING THE TRUST
AS OF JUNE 30, 2000
DESCRIPTION OF PORTFOLIO*
------------------------
The portfolio of the Trust consists of 8 issues representing
obligations of issuers located in 4 states. The Sponsor has not participated as
a sole underwriter or manager, co-manager or member of an underwriting syndicate
from which any of the initial aggregate principal amount of the Bonds were
acquired. Approximately 31.2% of the Bonds are obligations of state and local
housing authorities; approximately 25.6% are hospital revenue bonds; none are
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 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. Eight issues
representing $2,405,000 of the 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: Hospital 3, Multi-Family Housing 2, Transit Facility 1 and University
2. For an explanation of the significance of these factors see "The
Trust--Portfolio" in Part B of this Prospectus.
As of June 30, 2000, $250,000 (approximately 10.4% of the
aggregate principal amount of the Bonds) were original issue discount bonds. Of
these original issue discount bonds, $250,000 (approximately 10.4% of the
aggregate principal amount of the Bonds) are 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. The market
value of Zero Coupon Bonds is subject to greater fluctuations than coupon bonds
in response to changes in interest rates. Approximately 26.6% of the aggregate
principal amount of the Bonds in the Trust were purchased at a "market" discount
from par value at maturity, approximately 50.5% were purchased at a premium and
approximately 12.5% 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.
None of the Bonds in the Trust are subject to the federal
individual alternative minimum tax under the Tax Reform Act of 1986. See "Tax
Status" in Part B of this Prospectus.
----------
* Changes in the Trust Portfolio: From July 1, 2000 to September 15,
2000, the entire principal amount of the Bonds in portfolio nos. 5 and
6 and $260,000 of the principal amount of the Bond in portfolio no. 3
were called for redemption pursuant to pre-refunding provisions and are
no longer contained in the Trust. $55,000 of the principal amount of
the Bond in portfolio no.3 was called and is no longer contained in the
Trust. 39 Units were redeemed from the Trust.
A-7
NY/300335.1
<PAGE>
Report of Independent Auditors
The Sponsor, Trustee and Certificateholders of
Municipal Securities Trust, Series 49
We have audited the accompanying statement of net assets of Municipal Securities
Trust, Series 49, including the portfolio, as of June 30, 2000 and the related
statements of operations, and changes in net assets and financial highlights for
the year then ended. These financial statements and financial highlights are the
responsibility of the Trustee. Our responsibility is to express an opinion on
these financial statements and financial highlights based on our audit. The
statement of operations and statement of changes in net assets for each of the
two years in the period ended June 30, 1999 and financial highlights for each of
the four years in the period ended June 30, 1999 were audited by other auditors
whose report thereon dated September 15, 1999, expressed an unqualified opinion
on those financial statements and financial highlights.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights 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 the securities
owned by correspondence with the Trustee. An audit also includes assessing the
accounting principles used and significant estimates made by the Trustee, as
well as evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the 2000 financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Municipal Securities Trust, Series 49 at June 30, 2000, the results of its
operations, changes in its net assets and financial highlights for the year then
ended, in conformity with accounting principles generally accepted in the United
States.
/s/ Ernst & Young LLP
New York, New York
October 16, 2000
<PAGE>
Municipal Securities Trust, Series 49
Portfolio
June 30, 2000
<TABLE>
<CAPTION>
Redemption
Aggregate Coupon Feature (2)(4)
Portfolio Principal Rate/Date(s) of S.F.-Sinking Fund
No. Amount Name of Issuer and Title of Bonds Ratings (1) Maturity (2) Ref.-Refunding
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 $ 400,000 S.W. Ill. Dev. Auth. Hosp. Rev. Bonds (St. A 8.000% 6/01/03 @100 S.F.
Elizabeth Med. Cntr.) Series 1990 6/01/2010 6/01/01 @101 Ref.
2 300,000 Mass. Hlth. & Ed. Facs. Auth. Rev. Bonds A 8.000 7//01/03 @ 100 S.F.
Brockton Hosp. Issue Series B 7/01/2007 7/31/00 @101 Ref.
3 315,000 Boston Mass. Boston City Hosp. (FHA Insrd. Aaa* 7.625 2/15/11 @100 S.F.
Mtg.) Rev. Bonds Series A 2/15/2021 8/15/00 @102 Ref.
4 500,000 Mich. State Hsg. Dev. Auth. Rental Hsg. Rev. AA- 7.550 4/01/11 @100 S.F.
Bonds 1990 Series B 4/01/2023 4/01/01 @102 Ref.
5 250,000 Dorm. Auth. of the State of N.Y. City Univ. Aaa* 7.875 7/01/08 @100 S.F.
Sys. Cnsldtd. Second Gen. Resolution Rev. 7/01/2017 7/01/00 @102 Ref.
Bonds Series 1990 F
6 250,000 Metro. Trans. Auth. N.Y. Trans. Facs. 1987 AAA 7.500 7/01/09 @ 100 S.F.
Serv. Cntrct. Bonds Series 3 7/01/2016 7/01/00 @ 102 Ref.
7 140,000 N.Y. State Urb. Dev. Corp. Prjt. Rev. Bonds A 7.800 1/01/04 @ 100 S.F
(Clarkson Cntr. For Advanced Materials 1/01/2020 1/01/01 @ 102 Ref.
Processing Loan) Series 1990
8 250,000 Ill. Hsg. Dev. Auth. Multi-Fam. Hsg. Rev. A+ 0.000 7/01/06 @13.676 S.F
Bonds 1983 Series A 7/01/2025 None
-------------
$ 2,405,000 Total Investments (cost (3) $2,185,001)
=============
</TABLE>
<TABLE>
<CAPTION>
Aggregate
Portfolio Principal Market
No. Amount Name of Issuer and Title of Bonds Value (3)
--------------------------------------------------------------------------------------------------
<S> <C>
1 $ 400,000 S.W. Ill. Dev. Auth. Hosp. Rev. Bonds (St. $ 408,820
Elizabeth Med. Cntr.) Series 1990
2 300,000 Mass. Hlth. & Ed. Facs. Auth. Rev. Bonds 300,780
Brockton Hosp. Issue Series B
3 315,000 Boston Mass. Boston City Hosp. (FHA Insrd. 322,484
Mtg.) Rev. Bonds Series A
4 500,000 Mich. State Hsg. Dev. Auth. Rental Hsg. Rev. 516,015
Bonds 1990 Series B
5 250,000 Dorm. Auth. of the State of N.Y. City Univ. 255,000
Sys. Cnsldtd. Second Gen. Resolution Rev.
Bonds Series 1990 F
6 250,000 Metro. Trans. Auth. N.Y. Trans. Facs. 1987 255,000
Serv. Cntrct. Bonds Series 3
7 140,000 N.Y. State Urb. Dev. Corp. Prjt. Rev. Bonds 145,117
(Clarkson Cntr. For Advanced Materials
Processing Loan) Series 1990
8 250,000 Ill. Hsg. Dev. Auth. Multi-Fam. Hsg. Rev. 22,268
Bonds 1983 Series A
------------- -------------------
$ 2,405,000 Total Investments (cost (3) $2,185,001) $ 2,225,484
============= ===================
</TABLE>
See accompanying footnotes to portfolio and notes to financial statements.
<PAGE>
Municipal Securities Trust, Series 49
Footnotes to Portfolio
1 All ratings are by Kenny S&P Evaluation Services, a business unit of J.J.
Kenny Company, Inc., a subsidiary of The McGraw-Hill Companies, Inc., except
for these identified by an asterisk(*) which are by Moody's Investor
Service, Inc. A brief description of the ratings symbols and their meaning
is set forth under "Description of Bond Ratings" in Part B of the
Prospectus.
2. See "The Trust--Portfolio" in Part B of the Prospectus for an explanation of
redemption features. See "Tax Status" in Part B of the Prospectus for a
statement of the Federal tax consequences to a Certificateholder upon the
sale, redemption or maturity of a bond.
3. At June 30, 2000, the net unrealized appreciation of all the bonds was
comprised of the following:
Gross unrealized appreciation $ 49,158
Gross unrealized depreciation (8,675)
-------------------
Net unrealized appreciation $ 40,483
===================
4. 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 of
unanticipated revenues).
The accompanying notes form an integral part of the financial statements.
<PAGE>
Municipal Securities Trust, Series 49
Statement of Net Assets
June 30, 2000
<TABLE>
<S> <C>
Investments in securities, at market value (cost $2,185,001) $ 2,225,484
Other assets
Accrued interest 57,414
---------------------
Total other assets 57,414
---------------------
Liabilities
Advance from Trustee 26,680
---------------------
Total liabilities 26,680
---------------------
Excess of other assets over total liabilities 30,734
---------------------
Net assets (3,831 units of fractional undivided
interest outstanding, $588.94 per unit) $ 2,256,218
=====================
</TABLE>
The accompanying notes form an integral part of the financial statements.
<PAGE>
Municipal Securities Trust, Series 49
Statement of Operations
<TABLE>
<CAPTION>
Year ended June 30,
2000 1999 1998
--------------------------------------------------------------------
<S> <C> <C> <C>
Investment income
Interest $ 170,118 $ 195,774 $ 268,915
Expenses
Trustee's fees 4,511 5,109 6,223
Evaluator's fee 2,139 2,191 2,305
Sponsor's advisory fee 667 934 1,033
--------------------------------------------------------------------
Total expenses 7,317 8,234 9,561
--------------------------------------------------------------------
Net investment income 162,801 187,540 259,354
--------------------------------------------------------------------
Realized and unrealized gain (loss)
Realized gain (loss) on investments 405 (4,624) 5,819
Unrealized (depreciation) on investments (62,855) (51,980) (70,713)
--------------------------------------------------------------------
Net (loss) on investments (62,450) (56,604) (64,894)
--------------------------------------------------------------------
Net increase in net assets resulting from operations $ 100,351 $ 130,936 $ 194,460
====================================================================
</TABLE>
The accompanying notes form an integral part of the financial statements.
<PAGE>
Municipal Securities Trust, Series 49
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year ended June 30,
2000 1999 1998
--------------------------------------------------------------------
<S> <C> <C> <C>
Operations
Net investment income $ 162,801 $ 187,540 $ 259,354
Realized gain (loss) on investments 405 (4,624) 5,819
Unrealized (depreciation) on investments (62,855) (51,980) (70,713)
--------------------------------------------------------------------
Net increase in net assets resulting from operations 100,351 130,936 194,460
--------------------------------------------------------------------
Distributions to certificateholders
Investment income 164,728 203,191 262,008
Principal - 487,743 469,102
Redemptions
Interest 843 2,837 6,451
Principal 41,613 175,053 305,794
--------------------------------------------------------------------
Total distributions and redemptions 207,184 868,824 1,043,355
--------------------------------------------------------------------
Total (decrease) (106,833) (737,888) (848,895)
Net assets
Beginning of year 2,363,051 3,100,939 3,949,834
--------------------------------------------------------------------
End of year (including undistributed net investment
income of $53,229, $55,999 and $74,487, respectively) $ 2,256,218 $ 2,363,051 $ 3,100,939
====================================================================
</TABLE>
The accompanying notes form an integral part of the financial statements.
<PAGE>
Municipal Securities Trust, Series 49
Financial Highlights
Selected data for a unit of the Trust outstanding:*
<TABLE>
<CAPTION>
Year ended June 30,
2000 1999 1998
---------------- ----------------- -----------------
<S> <C> <C> <C>
Net asset value, beginning of year** $ 605.60 $ 739.02 $ 862.22
---------------- ----------------- -----------------
Interest income 43.99 48.35 61.27
Expenses (1.89) (2.03) (2.18)
---------------- ----------------- -----------------
Net investment income 42.10 46.32 59.09
---------------- ----------------- -----------------
Net gain or loss on investments (1) (15.94) (8.40) (14.24)
---------------- ----------------- -----------------
Total from investment operations 26.16 37.92 44.85
---------------- ----------------- -----------------
Less distributions
to Certificateholders
Income 42.60 50.18 59.70
Principal - 120.46 106.88
for Redemptions
Interest .22 .70 1.47
---------------- ----------------- -----------------
Total distributions 42.82 171.34 168.05
---------------- ----------------- -----------------
Net asset value, end of year** $ 588.94 $ 605.60 $ 739.02
================ ================= =================
</TABLE>
<TABLE>
<CAPTION>
Year ended June 30,
1997 1996
----------------- -------------------
<S> <C> <C>
Net asset value, beginning of year** $ 871.59 $ 983.64
----------------- -------------------
Interest income 65.06 64.54
Expenses (2.00) (1.84)
----------------- -------------------
Net investment income 63.06 62.70
----------------- -------------------
Net gain or loss on investments (1) (9.19) (9.97)
----------------- -------------------
Total from investment operations 53.87 52.73
----------------- -------------------
Less distributions
to Certificateholders
Income 62.23 64.90
Principal - 99.77
for Redemptions
Interest 1.01 .11
----------------- -------------------
Total distributions 63.24 164.78
----------------- -------------------
Net asset value, end of year** $ 862.22 $ 871.59
================= ===================
</TABLE>
(1) Net gain or loss on investments is a result of changes in outstanding units
since July 1, 1999, 1998, 1997, 1996 and 1995, respectively, and the dates of
net gain and loss on investments.
* Unless otherwise stated, based upon average units outstanding during the
year of 3,867 ([3,902 + 3,831]/2) for 2000, 4,049 ([4,196 + 3,902]/2) for
1999, 4,389 ([4,581 + 4,196]/2) for 1998, 4,764 ([4,947 + 4,581]/2) for 1997
and of 4,966 ([4,985 + 4,947]/2) for 1996.
** Based upon actual units outstanding.
The accompanying notes form an integral part of the financial statements.
<PAGE>
Municipal Securities Trust, Series 49
Notes to Financial Statements
June 30, 2000
1. Organization
Municipal Securities Trust, Series 49 (the "Trust") was organized on December 1,
1990 by Bear, Stearns & Co. Inc. and Gruntal & Co., LLC 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. The Trust was formed to preserve capital and
to provide interest income.
On September 28, 1995, Reich & Tang Distributors, Inc. ("Reich & Tang") had
become the successor sponsor to certain of the unit investment trusts previously
sponsored by Bear, Stearns & Co. Inc. As successor sponsor, Reich & Tang had
assumed all of the obligations and rights of Bear, Stearns & Co. Inc., the
previous sponsor.
Effective February 9, 2000, Gruntal & Co., LLC resigned as a co-sponsor of
certain unit investment trusts previously co-sponsored with Reich & Tang. ING
Funds Distributor, Inc. ("ING") has become the successor sponsor to certain unit
investment trusts previously sponsored by Reich & Tang. As successor sponsor,
ING has assumed all of the obligations and rights of Reich & Tang, the previous
sponsor.
2. Summary of Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Trust in preparation of its financial statements. The policies
are in conformity with generally accepted accounting principles ("GAAP"). The
preparation of financial statements in accordance with GAAP requires management
to make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual amounts could differ from those
estimates.
Interest Income
Interest income is recorded 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.
<PAGE>
Municipal Securities Trust, Series 49
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Security Valuation
Investments are carried at market value which is determined by Kenny S&P
Evaluation Services, a business unit of J.J. Kenny Company, Inc., a subsidiary
of the McGraw-Hill Companies, Inc. The market value of the portfolio is based
upon the bid prices for the bonds at the end of the year, which approximates the
fair value of the security at that date, 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
No provision for federal income taxes has been made in the accompanying
financial statements because the Trust intends to continue to qualify for the
tax treatment applicable to Grantor Trusts under the Internal Revenue Code.
Under existing law, if the Trust so qualifies, it will not be subject to federal
income tax on net income and capital gains that are distributed to unitholders.
4. Trust Administration
The Chase Manhattan Bank (the "Trustee") has custody of assets 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 Trust Indenture and Agreement provides for interest distributions as often
as monthly (depending upon the distribution plan elected by the
Certificateholders).
<PAGE>
Municipal Securities Trust, Series 49
Notes to Financial Statements (continued)
4. Trust Administration (continued)
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.
The Trust Indenture and Agreement also requires the Trust to redeem units
tendered. For the years ended June 30, 2000, 1999 and 1998, 71, 294 and 385
units were redeemed, respectively.
The Trust pays an annual fee for trustee services rendered by the Trustee that
ranges from $.35 to $1.02 per $1,000 of outstanding investment principal. In
addition, a minimum fee of $12.00 is paid to a service bureau for each portfolio
valuation. A maximum fee of $.25 per $1,000 of outstanding investment principal
is paid to the Sponsor. For the years ended June 30, 2000, 1999 and 1998, the
"Trustee's Fees" are comprised of Trustee fees of $2,189, $2,555 and $3,571 and
other expenses of $2,322, $2,554 and $2,652, respectively. The other expenses
include professional, printing and miscellaneous fees.
5. Net Assets
At June 30, 2000, the net assets of the Trust represented the interest of
Certificateholders as follows:
Original cost to Certificateholders $ 5,080,621
Less initial gross underwriting commission 248,950
-----------------------
4,831,671
Accumulated cost of securities sold, matured or called (2,661,126)
Net unrealized appreciation 40,483
Undistributed net investment income 53,229
Distributions in excess of proceeds from investments (8,039)
-----------------------
Total $ 2,256,218
=======================
<PAGE>
Municipal Securities Trust, Series 49
Notes to Financial Statements (continued)
5. Net Assets (continued)
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 5,000 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 $14,456.
6. Concentration of Credit Risk
Since the Trust invests a portion of its assets in municipal bonds, it may be
affected by economic and political developments in the municipalities. Certain
debt obligations held by the Trust may be entitled to the benefit of insurance,
standby letters of credit or other guarantees of banks or other financial
institutions.
<PAGE>
Prospectus Part A Dated October 28, 2000
MUNICIPAL SECURITIES TRUST
MULTI-STATE SERIES 44
(MULTIPLIER PORTFOLIO)
--------------------------------------------------------------------------------
The Trust consists of 2 separate unit investment trusts
designated California Trust and Virginia Trust (the "State Trusts"). Each State
Trust contains an underlying portfolio of long-term tax-exempt bonds issued by
or on behalf of states, municipalities and public authorities and was formed to
preserve capital and to provide 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 (including where applicable earned original discount) under
the law in effect at the time of issuance. There can be no assurance that the
Trusts' investment objectives will be achieved. 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 federal income tax. In addition, in the opinion of counsel to
the Sponsor, the interest income of each State Trust is exempt, to the extent
indicated, from state and local taxes when held by residents of the state where
the issuers of the Bonds in such State Trust are located. Such interest income
may, however, be subject to the federal corporate alternative minimum tax and to
state and local taxes in other jurisdictions. (See "Description of Portfolios"
in this Part A for a description of those Bonds which pay interest income
subject to the federal individual alternative minimum tax.) In addition, capital
gains are subject to tax. (See "Tax Status" and "The Portfolios--General.") The
Sponsor is ING Funds Distributor, Inc. (successor to Reich & Tang Distributors,
Inc.). The value of the Units of the Trust will fluctuate with the value of the
underlying bonds. Minimum purchase: 1 Unit.
This Prospectus consists of two parts. Part A contains the
Summary of Essential Information including descriptive material relating to each
State Trust as of June 30, 2000 (the "Evaluation Date"), a summary of certain
specific information regarding each State trust and audited financial statements
of each State Trust, including the related portfolio, as of the Evaluation Date.
Part B of this Prospectus contains a general summary of the State Trusts. Part A
of this Prospectus may not be distributed unless accompanied by Part B.
Investors should read and retain both parts of this Prospectus for future
reference.
--------------------------------------------------------------------------------
<TABLE>
Principal Secondary Market
Number of Amount of Offering Price
Units Bonds per Unit (06/30/00)
--------- --------- -------------------
<S> <C> <C> <C>
California Trust 1,511 $1,470,000 $933.40
Virginia Trust 2,477 $2,430,000 $948.64
</TABLE>
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.
--------------------------------------------------------------------------------
THE TRUST. The Trust seeks to achieve its investment
objectives through investment in a fixed, diversified portfolio of long-term
bonds (the "Bonds") issued by or on behalf of the State for which such Trust is
named and political subdivisions, municipalities and public authorities thereof
and of Puerto Rico and its public authorities. All of the Bonds in each State
Trust were rated "A" or better by Standard & Poor's Corporation or Moody's
Investors Service, Inc. at the time originally deposited in the State Trusts.
For a discussion of the significance of such ratings, see "Description of Bond
NY/300336.1
<PAGE>
Ratings" in Part B of this Prospectus and for a list of ratings on the
Evaluation Date see the "Portfolio".
The State Trusts contain bonds that were acquired at prices
which resulted in the portfolios as a whole being purchased at a deep discount
from par value. The portfolio may also include bonds issued at a substantial
original issue discount, some of which may be Zero Coupon Bonds that provide for
payment at maturity at par value, but do not provide for the payment of current
interest. Gain on the disposition of a Bond or a Unit purchased at a market
discount generally will be treated as ordinary income, rather than capital gain,
to the extent of accrued market discount. Some of the Bonds in the portfolio may
have been purchased at an aggregate premium over par. (See "Tax Status" in Part
B of this Prospectus.) 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 (and 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 called for redemption
pursuant to pre-refunding provisions ("Pre-Refunded Bonds") whereby the
proceeds from the issue of the Refunding Bonds are typically invested in
government securities 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, if any, as of the Evaluation Date, see "Notes to
Financial Statements" in this Part A. 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.
Investment in the Trust should be made with an understanding
of the risks which an investment in long-term fixed rate debt obligations may
entail, including the risk that the value of the underlying portfolio will
decline with increases in interest rates, and that the value of Zero Coupon
Bonds is subject to greater fluctuation than coupon bonds in response to such
changes in interest rates. A Trust designated as a long-term trust must have a
dollar-weighted average portfolio maturity of more than ten years.
Each Unit represents a fractional undivided interest in the
principal and net income of each State Trust. The principal amount of Bonds
deposited in such State Trust per Unit is reflected in the Summary of Essential
Information. Each State Trust will be administered as a distinct entity with
separate certificates, expenses, books and records. (See "The
Trust--Organization" in Part B of this Prospectus.) The Units being offered
hereby are issued and outstanding Units which have been purchased by the Sponsor
in the secondary market.
PUBLIC OFFERING PRICE. The 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 5.5% of the
Public Offering Price, or 5.820% of the net amount invested in Bonds per Unit
for the California Trust and 5.2% of the Public Offering Price, or 5.485% of the
net amount invested in Bonds per Unit of the Virginia Trust. The sales charge
for secondary market purchases is based upon the number of years remaining to
maturity of each bond in the Trust's portfolio. (See "Public Offering" in Part B
of this Prospectus.) In addition, accrued interest to the expected date of
settlement is added to the Public Offering Price. If Units of the California
Trust had been purchased on the Evaluation Date, the Public Offering Price per
Unit would have been $933.40 plus accrued interest of $7.48 under the monthly
distribution plan, $11.37 under the semi-annual distribution plan and $36.12
under the annual distribution plan, for a total of $940.88, $944.77 and $969.52,
respectively. If Units of the Virginia Trust had been purchased on the
Evaluation Date, the Public Offering Price per Unit would have been $948.64 plus
accrued interest of $6.84 under the monthly
A-2
NY/300336.1
<PAGE>
distribution plan, $10.91 under the semi-annual distribution plan and $35.57
under the annual distribution plan, for a total of $955.48, $959.55 and $984.21,
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
"Summary of Essential Information" and "Public Offering--Offering Price" in Part
B of this Prospectus.)
ESTIMATED LONG TERM RETURN AND ESTIMATED CURRENT RETURN. Units
of each Trust are offered to investors on a "dollar price" basis (using the
computation method described under "Public Offering--Offering Price" in Part B)
as distinguished from a "yield price" basis often used in offerings of tax
exempt bonds (involving the lesser of the yield as computed to maturity of bonds
or to an earlier redemption date). Since they are offered on a dollar price
basis, the rate of return on an investment in Units of each 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 either monthly, semi-annually or annually
depending upon the plan of distribution applicable to the Unit purchased. A
purchaser of a Unit in the secondary market will actually receive distributions
in accordance with the distribution plan chosen by the prior owner of such Unit
and may thereafter change the plan as provided under "Interest and Principal
Distributions" in Part B of this Prospectus. Distributions of principal, if any,
will be made semi-annually on June 15 and December 15 of each year. (See
A-3
NY/300336.1
<PAGE>
"Rights of Certificateholders--Interest and Principal Distributions" in Part B
of this Prospectus. For estimated monthly, semi-annual and annual interest
distributions, see "Summary of Essential Information.")
MARKET FOR UNITS. The Sponsor, although not obligated to do
so, intends to maintain a secondary market for the Units at prices based on the
aggregate bid price of the Bonds in the Trust portfolio. The secondary market
repurchase price is based on the aggregate bid price of the Bonds in the Trust
portfolio, and the reoffer price is based on the aggregate bid price of the
Bonds plus a sales charge of 5.5% of the Public Offering Price (5.820% of the
net amount invested) plus net accrued interest for the California Trust and a
sales charge of 5.2% of the Public Offering Price (5.485% of the net amount
invested) plus net accrued interest for the Virginia Trust. If a market is not
maintained, a Certificateholder will be able to redeem his or her Units with the
Trustee at a price also based on the aggregate bid price of the Bonds. (See
"Sponsor Repurchase" and "Public Offering--Offering Price" in Part B of this
Prospectus.)
For additional information regarding the Public Offering Price
and Estimated Current Return and Estimated Long Term Return for Units of each
State Trust, descriptions of interest and principal distributions, repurchase
and redemption of Units and other essential information regarding the Trusts,
please refer to the Summary of Essential Information for the particular State
Trust on one of the immediately succeeding pages.
A-4
NY/300336.1
<PAGE>
MUNICIPAL SECURITIES TRUST
MULTI-STATE SERIES 44
CALIFORNIA TRUST
<TABLE>
<CAPTION>
SUMMARY OF ESSENTIAL INFORMATION AS OF JUNE 30, 2000
----------------------------------------------------
<S> <C> <C>
Date of Deposit*: Minimum Principal Distribution:
December 9, 1993 $1.00 per Unit.
Principal Amount of Bonds .. $1,470,000 Weighted Average Life to Maturity:
Number of Units ............ 1,511 21.2 Years.
Fractional Undivided Inter- Minimum Value of Trust: Trust may
est in Trust per Unit .... 1/1511 be terminated if value of Trust
Principal Amount of is less than $1,000,000 in
Bonds per Unit ........... $972.87 principal amount of Bonds.
Secondary Market Public Mandatory Termination Date: The
Offering Price** earlier of December 31, 2043 or
Aggregate Bid Price the disposition of the last
of Bonds in Trust ....... $1,333,022+++ Bond in the Trust.
Divided by 1,511 Units ... $882.21 Trustee***: The Chase Manhattan
Plus Sales Charge of Bank.
5.5% of Public Trustee's Annual Fee: Monthly plan
Offering Price........... $51.19 $1.10 per $1,000; semi-annual
Public Offering Price plan $.63 per $1,000; and
per Unit ................ $933.40+ annual plan is $.36 per $1,000.
Redemption and Sponsor's Evaluator: Kenny S&P Evaluation
Repurchase Price Services.
per Unit ................. $882.21+ Evaluator's Fee for Each
+++ Evaluation: Minimum of $7.50
++++ plus $.25 per each issue of
Excess of Secondary Market Bonds in excess of 50 issues
Public Offering Price (treating separate maturities
over Redemption and as separate issues).
Sponsor's Repurchase Sponsor: ING Funds Distributor,
Price per Unit ........... $51.19++++ Inc.
Difference between Public Sponsor's Annual Fee: Maximum of
Offering Price per Unit $.25 per $1,000 principal
and Principal Amount per amount of Bonds (see "Trust
Unit Premium/(Discount)... $(39.47) Expenses and Charges" in Part B
Evaluation Time: 4:00 p.m. of this Prospectus).
New York Time.
</TABLE>
<TABLE>
<CAPTION>
PER UNIT INFORMATION BASED UPON INTEREST DISTRIBUTION PLAN ELECTED
------------------------------------------------------------------
Monthly Semi-Annual Annual
Option Option Option
------ ------ ------
<S> <C> <C> <C>
Gross annual interest income# ......... $49.02 $49.02 $49.02
Less estimated annual fees and
expenses ............................ 2.95 2.53 --
Estimated net annual interest ______ ______ ______
income (cash)# ...................... $46.07 $46.49 $49.02
Estimated interest distribution# ...... 3.83 23.24 49.02
Estimated daily interest accrual# ..... .1279 .1291 .1361
Estimated current return#++ ........... 4.94% 4.98% 5.25%
Estimated long term return++ .......... 5.09% 5.14% 5.15%
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
</TABLE>
A-5
NY/300336.1
<PAGE>
MUNICIPAL SECURITIES TRUST
MULTI-STATE SERIES 44
VIRGINIA TRUST
<TABLE>
<CAPTION>
SUMMARY OF ESSENTIAL INFORMATION AS OF JUNE 30, 2000
----------------------------------------------------
<S> <C> <C>
Date of Deposit*: Minimum Principal Distribution:
December 9, 1993 $1.00 per Unit.
Principal Amount of Bonds ... $2,430,000 Weighted Average Life to Maturity:
Number of Units ............. 2,477 19.3 Years.
Fractional Undivided Inter- Minimum Value of Trust: Trust may
est in Trust per Unit ..... 1/2477 be terminated if value of Trust
Principal Amount of is less than $1,200,000 in
Bonds per Unit ............ $981.03 principal amount of Bonds.
Secondary Market Public Mandatory Termination Date: The
Offering Price** earlier of December 31, 2043 or
Aggregate Bid Price the disposition of the last
of Bonds in Trust ....... $2,227,729+++ Bond in the Trust.
Divided by 2,477 Units..... $899.37 Trustee***: The Chase Manhattan
Plus Sales Charge of 5.2% Bank.
of Public Offering Price. $49.27 Trustee's Annual Fee: Monthly plan
Public Offering Price $1.10 per $1,000; semi-annual
per Unit ................ $948.64+ plan $.63 per $1,000; and
Redemption and Sponsor's annual plan is $.36 per $1,000.
Repurchase Price Evaluator: Kenny S&P Evaluation
per Unit ................ $899.37+ Services.
+++ Evaluator's Fee for Each
++++ Evaluation: Minimum of $7.50
Excess of Secondary Market plus $.25 per each issue of
Public Offering Price Bonds in excess of 50 issues
over Redemption and (treating separate maturities
Sponsor's Repurchase as separate issues).
Price per Unit ........... $49.27++++ Sponsor: ING Funds Distributor,
Difference between Public Inc.
Offering Price per Unit Sponsor's Annual Fee: Maximum of
and Principal Amount per $.25 per $1,000 principal
Unit Premium/(Discount) .. $(32.39) amount of Bonds (see "Trust
Evaluation Time: 4:00 p.m. Expenses and Charges" in Part B
New York Time. of this Prospectus).
</TABLE>
<TABLE>
<CAPTION>
PER UNIT INFORMATION BASED UPON INTEREST DISTRIBUTION PLAN ELECTED
------------------------------------------------------------------
Monthly Semi-Annual Annual
Option Option Option
------ ------ ------
<S> <C> <C> <C>
Gross annual interest income# ......... $51.01 $51.01 51.01
Less estimated annual fees and
expenses ............................ 2.50 2.13 1.97
Estimated net annual interest _____ _____ _____
income (cash)# ...................... $48.51 $48.88 49.04
Estimated interest distribution# ...... 4.04 24.44 49.04
Estimated daily interest accrual# ..... .1347 .1357 .1362
Estimated current return#++ ........... 5.11% 5.15% 5.17%
Estimated long term return++ .......... 5.22% 5.26% 5.28%
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
</TABLE>
A-6
NY/300336.1
<PAGE>
Footnotes to Summary of Essential Information
---------------------------------------------
* The Date of Deposit is the date on which the Trust Agreement was signed
and the deposit of the Bonds with the Trustee made.
** Certain amounts distributable as of June 30, 2000 may be reported in
the Summary of Essential Information as if they had been distributed as
of year-end.
*** The Trustee maintains its principal executive office at 270 Park
Avenue, New York, New York 10017 and its unit investment trust office
at 4 New York Plaza, New York, New York 10004 (tel. no.:
1-800-882-9898). 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
three business days after purchase) of $7.48 monthly, $11.37 semi-
annually and $36.12 annually for the California Trust and $6.84
monthly, $10.91 semi-annually and $35.57 annually for the Virginia
Trust.
++ 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 from 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 accrual from original issue discount bonds, if any.
<TABLE>
<CAPTION>
FINANCIAL AND STATISTICAL INFORMATION
Selected data for each Unit outstanding for the periods listed below:
Distribu-
Distributions of Interest tions of
During the Period (per Unit) Principal
---------------------------- During
Net Asset* Semi- the
Units Out- Value Monthly Annual Annual Period
Period Ended standing Per Unit Option Option Option (Per Unit)
------------ ---------- ---------- ------- ------ ------ ----------
California Trust
<S> <C> <C> <C> <C> <C> <C>
June 30, 1998 1,881 $964.51 $48.11 $48.36 -0- $16.21
June 30, 1999 1,670 934.79 47.16 47.44 -0- 16.34
June 30, 2000 1,511 892.68 46.90 47.34 -0- 10.99
Virginia Trust
<S> <C> <C> <C> <C> <C> <C>
June 30, 1998 2,901 $981.99 $49.55 $50.08 $50.16 -0-
June 30, 1999 2,771 953.16 49.07 49.59 49.82 $ 8.12
June 30, 2000 2,477 909.68 49.49 49.99 50.16 11.04
</TABLE>
----------
* Net Asset Value per Unit is calculated by dividing net assets as
disclosed in the "Statement of Net Assets" by the number of Units
outstanding as of the date of the Statement of Net Assets. See Note 5
of Notes to Financial Statements for a description of the components of
Net Assets.
A-7
NY/300336.1
<PAGE>
INFORMATION REGARDING THE TRUSTS
AS OF JUNE 30, 2000
DESCRIPTION OF PORTFOLIOS
-------------------------
California Trust*
----------------
Each Unit in the California Trust consists of a 1/1511th
undivided interest in the principal and net income of the Trust in the ratio of
one Unit for each $972.87 of principal amount of the Bonds currently held in the
Trust. The Sponsor has not participated as a sole underwriter or manager,
co-manager or member of an underwriting syndicate from which any of the initial
aggregate principal amount of the Bonds were acquired. The portfolio of the
California Trust consists of 9 issues of 9 issuers located in California. None
of the Bonds are obligations of state and local housing authorities;
approximately 17% are hospital revenue bonds; and none were issued in connection
with the financing of nuclear generating facilities. One issue comprising
approximately 13.9% of the aggregate principal amount of the Bonds is a mortgage
subsidy bond. Eight of the Bonds 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 issues
representing the aggregate principal amount of the Bonds are general obligation
bonds. All issues representing $1,470,000 of the 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: Apartments 1, Civic Center 1, Education 2, Hospital
1, Housing 1, Improvement Facility 1, Tax Allocation 1 and Transportation 1. For
an explanation of the significance of these factors see "The State Trusts--
Portfolios" in Part B of this Prospectus.
As of June 30, 2000, $900,000 (approximately 61.2% of the
aggregate principal amount of the Bonds) were original issue discount bonds. Of
these original issue discount bonds, $100,000 (approximately 6.8% 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. The market
value of Zero Coupon Bonds is subject to greater fluctuations than coupon bonds
in response to changes in interest rates. Approximately 24.9% of the aggregate
principal amount of the Bonds in the Trust were purchased at a "market" discount
from par value at maturity, none were purchased at a premium and approximately
13.9% were purchased at par. For an explanation of the significance of these
factors see "The Portfolios--Discount and Zero Coupon Bonds" in Part B of this
Prospectus.
None of the Bonds in the California Trust are subject to the
Federal individual alternative minimum tax under the Tax Reform Act of 1986. See
"Tax Status" in Part B of this Prospectus.
----------
* Changes in the Trust Portfolio: From July 1, 2000 to September 15,
2000, $30,000 of the principal amount of the Bond in portfolio no. 6
was sold and is no longer contained in the Trust. 32 Units were
redeemed from the Trust.
A-8
NY/300336.1
<PAGE>
Virginia Trust*
--------------
Each Unit in the Virginia Trust consists of a 1/2477th
undivided interest in the principal and net income of the Trust in the ratio of
one Unit for each $981.03 of principal amount of the Bonds currently held in the
Trust. The Sponsor has not participated as a sole underwriter or manager,
co-manager or member of an underwriting syndicate from which any of the initial
aggregate principal amount of the Bonds were acquired. The portfolio of the
Virginia Trust consists of 12 issues of 10 issuers located in Virginia and 2 in
Puerto Rico. Approximately 24.7% of the Bonds are obligations of state and local
housing authorities; approximately 32.9% are hospital revenue bonds; and none
were issued in connection with the financing of nuclear generating facilities.
Two issues comprising approximately 12.3% of the aggregate principal amount of
the Bonds are mortgage subsidy bonds. Eleven of the Bonds 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). One issue representing $250,000 of the principal amount
of the Bonds is a general obligation bond. All 11 of the remaining issues
representing $2,180,000 of the 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: Bridge & Tunnel Authority 1, Educational Facility 1, Electric 1,
Highway 1, Hospital 3, Housing 2, Multi-Family 1, Public Improvement 1 and Water
Revenue 1. For an explanation of the significance of these factors see "The
State Trusts--Portfolios" in Part B of this Prospectus.
As of June 30, 2000, $950,000 (approximately 39.1% of the
aggregate principal amount of the Bonds) were original issue discount bonds. Of
these original issue discount bonds, $150,000 (approximately 6.2% 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. The market
value of Zero Coupon Bonds is subject to greater fluctuations than coupon bonds
in response to changes in interest rates. Approximately 12.3% of the aggregate
principal amount of the Bonds in the Trust were purchased at a "market" discount
from par value at maturity, approximately 42.4% were purchased at a premium and
approximately 6.2% were purchased at par. For an explanation of the significance
of these factors see "The Portfolios--Discount and Zero Coupon Bonds" in Part B
of this Prospectus.
None of the Bonds in the Virginia Trust are subject to the
federal individual alternative minimum tax under the Tax Reform Act of 1986. See
"Tax Status" in Part B of this Prospectus.
----------
* Changes in the Trust Portfolio: From July 1, 2000 to September 15,
2000, the entire principal amount of the Bond in portfolio no. 5 and
$10,000 of the principal amount of the Bond in portfolio no. 7 were
sold and are no longer contained in the Trust. 80 Units were redeemed
from the Trust.
A-9
NY/300336.1
<PAGE>
Report of Independent Auditors
The Sponsor, Trustee and Certificateholders of
Municipal Securities Trust, Multi-State Series 44
We have audited the accompanying statements of net assets of Municipal
Securities Trust Multi-State Series 44, (comprising, respectively, the
California Trust, and Virginia Trust) including the portfolios, as of June 30,
2000 and the related statements of operations, and changes in net assets and
financial highlights for the year then ended. These financial statements and
financial highlights are the responsibility of the Trustee. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. The statements of operations and statements of changes in
net assets for each of the two years in the period ended June 30, 1999 and
financial highlights for each of the four years in the period ended June 30,
1999 were audited by other auditors whose report thereon dated September 15,
1999, expressed an unqualified opinion on those financial statements and
financial highlights.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights 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 the securities
owned by correspondence with the Trustee. An audit also includes assessing the
accounting principles used and significant estimates made by the Trustee, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the 2000 financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Municipal Securities Trust, Multi-State Series 44 at June 30, 2000, the results
of their operations, changes in their net assets and financial highlights for
the year then ended, in conformity with accounting principles generally accepted
in the United States.
/s/ Ernst & Young LLP
New York, New York
October 16, 2000
<PAGE>
Municipal Securities Trust
Multi-State Series 44
California Trust
Portfolio
June 30, 2000
<TABLE>
<CAPTION>
Redemption
Aggregate Coupon Feature (2)(4)
Portfolio Principal Rate/Date(s) S.F.-Sinking Fund
No. Amount Name of Issuer and Title of Bonds Ratings (1) of Maturity (2) Ref.-Refunding
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 $ 250,000 Ca. Hlth. Facs. Fincg. AA- 5.000% 11/01/13 @ 100 S.F.
Auth. Insrd. Hosp. Rev. 11/01/2018 11/01/03 @ 100 Opt.
Rfndg. Bonds (Marshall Hosp.)
Series 1993A
2 205,000 Ca. Hsg. Finc. Agncy. Aa2* 5.700 2/01/15 @ 100 S.F.
Home Mtg. Rev. Bonds 2/01/2025 2/01/04 @ 102 Opt.
Series 1993B
3 250,000 Ca. St. Pub. Wks. Bd. Aa3* 5.500 6/01/15 @ 100 S.F.
Lease Rev. Bonds 6/01/2019 6/01/03 @ 102 Opt.
(Univ. of Cal. Prjts.)
Series B
4 20,000 Univ. of Ca. Certs. of Aa3* 5.500 11/01/12 @ 100 S.F.
Part. Rfdg. Rev. Bonds 11/01/2014 11/01/03 @ 102 Opt.
(UCLA Cntr. Chiller
Cogen Prjt.)
5 115,000 Pleasanton Ca. Mtg. AAA 5.625 1/01/04 @ 100 S.F.
Rfng. Rev. Bonds 1/01/2026 7/01/03 @ 102 Opt.
(Gatewood Apts.) FHA
Insrd. Mtg. Ln. Series A
6 105,000 Sacramento City Ca. A+ 5.400 11/01/15 @ 100 S.F.
Fincg. Auth. Lease 11/01/2020 None
Rev. Rfndg. Bonds
Series 1993 B
7 175,000 San Diego Ca. Muni. A+ 5.375 6/01/19 @ 100 S.F.
Trans. Dstrct. Bd. 6/01/2023 6/01/03 @ 100 Opt.
Auth. Lease Rev.
Bonds (Old Town
Light Rail Trans. Ext.)
8 250,000 San Francisco Ca. City A 5.400 8/01/19 @ 100 S.F.
& Cnty. Redev. Fincg. 8/01/2021 8/01/03 @ 103 Opt.
Tax Alloc. Redev. Prjt.
Series C
9 100,000 City of San Marcos Ca. AAA 0.000 No Sinking Fund
(Civic Cntr. Twin Oaks 8/15/2022 None
Valley Rd. Lease Pub.
Wks. Yard Lease)
Series C
--------------
$ 1,470,000 Total Investments (Cost (3)
$1,359,600)
==============
</TABLE>
<TABLE>
<CAPTION>
Aggregate
Portfolio Principal Market
No. Amount Name of Issuer and Title of Bonds Value (3)
-----------------------------------------------------------------------------------------
<S> <C>
1 $ 250,000 Ca. Hlth. Facs. Fincg. $ 228,905
Auth. Insrd. Hosp. Rev.
Rfndg. Bonds (Marshall Hosp.)
Series 1993A
2 205,000 Ca. Hsg. Finc. Agncy. 198,567
Home Mtg. Rev. Bonds
Series 1993B
3 250,000 Ca. St. Pub. Wks. Bd. 247,092
Lease Rev. Bonds
(Univ. of Cal. Prjts.)
Series B
4 20,000 Univ. of Ca. Certs. of 20,062
Part. Rfdg. Rev. Bonds
(UCLA Cntr. Chiller
Cogen Prjt.)
5 115,000 Pleasanton Ca. Mtg. 106,859
Rfng. Rev. Bonds
(Gatewood Apts.) FHA
Insrd. Mtg. Ln. Series A
6 105,000 Sacremento City Ca. 102,586
Fincg. Auth. Lease
Rev. Rfndg. Bonds
Series 1993 B
7 175,000 San Diego Ca. Muni. 167,981
Trans. Dstrct. Bd.
Auth. Lease Rev.
Bonds (Old Town
Light Rail Trans. Ext.)
8 250,000 San Francisco Ca. City 233,873
& Cnty. Redev. Fincg.
Tax Alloc. Redev. Prjt.
Series C
9 100,000 City of San Marcos Ca. 27,922
(Civic Cntr. Twin Oaks
Valley Rd. Lease Pub.
Wks. Yard Lease)
Series C
-------------- -----------------
$ 1,470,000 Total Investments (Cost (3) $ 1,333,847
$1,359,600)
============== =================
</TABLE>
See accompanying footnotes to portfolio and notes to financial statements.
<PAGE>
Municipal Securities Trust
Multi-State Series 44
Virginia Trust
Portfolio
June 30, 2000
<TABLE>
<CAPTION>
Redemption
Aggregate Coupon Feature (2)(4)
Portfolio Principal Rate/Date(s) S.F.-Sinking Fund
No. Amount Name of Issuer and Title of Bonds Ratings (1) of Maturity (2) Ref.-Refunding
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 $ 300,000 Va. Cllg. Bldg. Auth. A+ 5.750% 4/01/06 @ 100 S.F.
Ed. Facs. Rev. Rfndg. Bonds 4/01/2014 4/01/03 @ 102 Opt.
(Hampton Univ. Prjt.) Series 1993
2 150,000 Va. Hsg. Dev. Auth. AA+ 5.250 1/01/17 @ 100 S.F.
Cmmnwlth. Mtg. 7/01/2023 7/01/03 @ 102 Opt.
Rev. Bonds Series 1993H
3 150,000 Va Hsg. Dev. Auth. AA+ 5.250 1/01/24 @ 100 S.F.
Cmmnwlth. Mtg. Rev. 7/01/2027 7/01/03 @ 102 Opt.
Bonds Series 1993H
4 300,000 Albemarle Cnty. Va. A2* 5.500 10/01/16 @ 100 S.F.
Ind. Dev. Auth. Hosp. 10/01/2020 10/01/03 @ 102 Opt.
Rfndg. Rev. Bonds (Martha Jefferson
Hosp.) Series 1993
5 70,000 Chesapeake Bay Va. AAA 5.750 7/01/23 @ 100 S.F.
Bridge & Tunnel 7/01/2025 7/01/01 @ 100 Opt.
Commsn. Dist. Rev. Rfndg. Bonds
(MBIA Corp.)
6 250,000 Fairfax Cnty. Va. Dev. AA 5.000 8/15/20 @ 100 S.F.
Auth. Hosp. Rev. Rfndg. Bonds 8/15/2023 None
(Inova Hlth. Sys. Hosps. Prjt.)
Series 1993A
7 110,000 Fairfax Cnty. Va. Wtr. AA 5.750 4/01/09 @ 100 S.F.
Auth. Wtr. Rfndg. Rev. 4/01/2014 4/01/02 @ 102 Opt.
Bonds Series 1992
8 300,000 Harrisonburg Va. AA 6.300 3/01/10 @ 100 S.F.
Redev. & Hsg. Auth. 3/01/2016 3/01/03 @ 102 Opt.
Multifam. Hsg. Rev. Rfndg. Bonds
(Hanover Crossing Aprtmts. Prjt.)
Series 1993
9 250,000 City of Richmond Va. AA 5.500 1/15/18 @ 100 S.F.
Genl. Oblig. Pub. Imprvmnt. 1/15/2022 1/15/03 @ 102 Opt.
Rfndg. Bonds Series 1993 A
10 250,000 Roanoke Va. Ind. Dev. AAA 5.250 No Sinking Fund
Auth. Hosp. Rev. Rfndg. Bonds 7/01/2025 7/01/03 @ 102 Opt.
(Roanoke Mem. Hosps. Cmmnty. Hosp.
& Roanoke Valley, Franklin Mem. Hosp.
& St. Albans Psychiatric Hosp. Prjt.)
Series 1993 A (MBIA Corp.)
11 150,000 P.R. Hwy. & Trans. Auth. Hwy. Rev. A 5.500 7/01/16 @ 100 S.F.
Rfndg. Bonds Series X 7/01/2019 7/01/03 @ 101.5 Opt
12 150,000 P.R. Elec. Pwr. Auth. Pwr. Rev. BBB+ 0.000 No Sinking Fund
Bonds Series O 7/01/2017 None
--------------
$2,430,000 Total Investments (Cost (3) $2,319,226)
==============
</TABLE>
<TABLE>
<CAPTION>
Aggregate
Portfolio Principal Market
No. Amount Name of Issuer and Title of Bonds Value (3)
----------------------------------------------------------------------------------------------
<S> <C>
1 $ 300,000 Va. Cllg. Bldg. Auth. $ 302,820
Ed. Facs. Rev. Rfndg. Bonds
(Hampton Univ. Prjt.) Series 1993
2 150,000 Va. Hsg. Dev. Auth. 135,029
Cmmnwlth. Mtg.
Rev. Bonds Series 1993H
3 150,000 Va Hsg. Dev. Auth. 133,405
Cmmnwlth. Mtg. Rev.
Bonds Series 1993H
4 300,000 Albemarle Cnty. Va. 281,517
Ind. Dev. Auth. Hosp.
Rfndg. Rev. Bonds (Martha Jefferson
Hosp.) Series 1993
5 70,000 Chesapeake Bay Va. 70,944
Bridge & Tunnel
Commsn. Dist. Rev. Rfndg. Bonds
(MBIA Corp.)
6 250,000 Fairfax Cnty. Va. Dev. 222,653
Auth. Hosp. Rev. Rfndg. Bonds
(Inova Hlth. Sys. Hosps. Prjt.)
Series 1993A
7 110,000 Fairfax Cnty. Va. Wtr. 111,467
Auth. Wtr. Rfndg. Rev.
Bonds Series 1992
8 300,000 Harrisonburg Va. 306,153
Redev. & Hsg. Auth.
Multifam. Hsg. Rev. Rfndg. Bonds
(Hanover Crossing Aprtmts. Prjt.)
Series 1993
9 250,000 City of Richmond Va. 241,132
Genl. Oblig. Pub. Imprvmnt.
Rfndg. Bonds Series 1993 A
10 250,000 Roanoke Va. Ind. Dev. 227,983
Auth. Hosp. Rev. Rfndg. Bonds
(Roanoke Mem. Hosps. Cmmnty. Hosp.
& Roanoke Valley, Franklin Mem. Hosp.
& St. Albans Psychiatric Hosp. Prjt.)
Series 1993 A (MBIA Corp.)
11 150,000 P.R. Hwy. & Trans. Auth. Hwy. Rev. 147,228
Rfndg. Bonds Series X .
12 150,000 P.R. Elec. Pwr. Auth. Pwr. Rev. 56,367
Bonds Series O
-------------- -------------
$2,430,000 Total Investments (Cost (3) $2,319,226) $2,236,698
============== =============
</TABLE>
See accompanying footnotes to portfolio and notes to financial statements.
<PAGE>
Municipal Securities Trust
Multi-State Series 44
Footnotes to Portfolio
1 All ratings are by Kenny S&P Evaluation Services, a business unit of J.J.
Kenny Company, Inc., a subsidiary of The McGraw-Hill Companies, Inc., except
for those identified by an asterisk (*) which are by Moody's Investor
Service, Inc. A brief description of the ratings symbols and their meaning
is set forth under "Description of Bond Ratings" in Part B of the
Prospectus.
2. See "The Trust--Portfolio" in Part B of the Prospectus for an explanation of
redemption features. See "Tax Status" in Part B of the Prospectus for a
statement of the Federal tax consequences to a Certificateholder upon the
sale, redemption or maturity of a bond.
3. At June 30, 2000, the net unrealized depreciation of all the bonds was
comprised of the following:
California Trust Virginia
Trust
----------------------------------
Gross unrealized appreciation $ 2,747 $ 5,325
Gross unrealized depreciation (28,500) (87,853)
----------------------------------
Net unrealized (depreciation) $ (25,753) $ (82,528)
==================================
4. 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 of
unanticipated revenues).
The accompanying notes form an integral part of the financial statements.
<PAGE>
Municipal Securities Trust
Multi-State Series 44
Statements of Net Assets
June 30, 2000
<TABLE>
<CAPTION>
California Trust Virginia
Trust
------------------------------------------
<S> <C> <C>
Investments in securities, at market value
(cost $1,359,600 and $2,319,226, respectively) $ 1,333,847 $ 2,236,698
Other assets
Accrued interest 18,665 47,606
--------------------- --------------------
Total other assets 18,665 47,606
------------------------------------------
Liabilities
Accrued expenses 450 -
Advance from Trustee 3,221 31,030
------------------------------------------
Total liabilities 3,671 31,030
------------------------------------------
Excess of other assets over total liabilities 14,994 16,576
------------------------------------------
Netassets (1,511 and 2,477 units of fractional undivided interest
outstanding, $892.68 and $909.68 per unit, respectively) $ 1,348,841 $ 2,253,274
===========================================
</TABLE>
The accompanying notes form an integral part of the financial statements.
<PAGE>
Municipal Securities Trust
Multi-State Series 44
California Trust
Statements of Operations
<TABLE>
<CAPTION>
Year ended June 30,
2000 1999 1998
--------------------------------------------------------------
<S> <C> <C> <C>
Investment income
Interest $ 76,869 $ 91,031 $ 103,710
Expenses
Trustee's fees 3,829 3,029 3,447
Evaluator's fee 2,062 2,113 2,222
Sponsor's advisory fee 395 503 614
--------------------------------------------------------------
Total expenses 6,286 5,645 6,283
--------------------------------------------------------------
Net investment income 70,583 85,386 97,427
--------------------------------------------------------------
Realized and unrealized gain (loss)
Realized gain on investments 1,040 22,450 3,045
Unrealized appreciation (depreciation)
on investments (51,373) (42,130) 87,908
--------------------------------------------------------------
Net gain (loss) on investments (50,333) (19,680) 90,953
--------------------------------------------------------------
Net increase in net assets resulting from operations $ 20,250 $ 65,706 $ 188,380
==============================================================
</TABLE>
The accompanying notes form an integral part of the financial statements.
<PAGE>
Municipal Securities Trust
Multi-State Series 44
Virginia Trust
Statements of Operations
<TABLE>
<CAPTION>
Year ended June 30,
2000 1999 1998
--------------------------------------------------------------------
<S> <C> <C> <C>
Investment income
Interest $ 135,315 $ 150,214 $ 155,558
Expenses
Trustee's fees 4,131 4,444 4,734
Evaluator's fee 2,062 2,114 2,222
Sponsor's advisory fee 703 730 738
--------------------------------------------------------------------
Total expenses 6,896 7,288 7,694
--------------------------------------------------------------------
Net investment income 128,419 142,926 147,864
--------------------------------------------------------------------
Realized and unrealized gain (loss)
Realized gain (loss) on investments (54) 1,503 2,872
Unrealized appreciation (depreciation)
on investments (94,196) (61,585) 130,286
--------------------------------------------------------------------
Net gain (loss) on investments (94,250) (60,082) 133,158
--------------------------------------------------------------------
Net increase in net assets resulting from operations
$ 34,169 $ 82,844 $ 281,022
====================================================================
</TABLE>
The accompanying notes form an integral part of the financial statements.
<PAGE>
Municipal Securities Trust
Multi-State Series 44
California Trust
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year ended June 30,
2000 1999 1998
--------------------------------------------------------------------
<S> <C> <C> <C>
Operations
Net investment income $ 70,583 $ 85,386 $ 97,427
Realized gain on investments 1,040 22,450 3,045
Unrealized appreciation (depreciation)
on investments (51,373) (42,130) 87,908
--------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 20,250 65,706 188,380
--------------------------------------------------------------------
Distributions to Certificateholders
Investment income 72,774 85,333 97,316
Principal 16,617 27,650 32,474
Redemptions
Interest 11 1,884 1,988
Principal 143,103 203,978 176,355
--------------------------------------------------------------------
Total distributions and redemptions 232,505 318,845 308,133
--------------------------------------------------------------------
Total (decrease) (212,255) (253,139) (119,753)
Net assets
Beginning of year 1,561,096 1,814,235 1,933,988
--------------------------------------------------------------------
End of year (including undistributed net investment income of
$22,983, $25,185 and $27,016, respectively) $ 1,348,841 $ 1,561,096 $ 1,814,235
====================================================================
</TABLE>
The accompanying notes form an integral part of the financial statements.
<PAGE>
Municipal Securities Trust
Multi-State Series 44
Virginia Trust
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year ended June 30,
2000 1999 1998
--------------------------------------------------------------------
<S> <C> <C> <C>
Operations
Net investment income $ 128,419 $ 142,926 $ 147,864
Realized gain on investments (54) 1,503 2,872
Unrealized appreciation (depreciation)
on investments (94,196) (61,585) 130,286
--------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 34,169 82,844 281,022
--------------------------------------------------------------------
Distributions to Certificateholders
Investment income 129,411 142,001 147,075
Principal 28,468 23,402 9,913
Redemptions
Interest 3,258 1,279 1,071
Principal 260,966 123,704 95,854
--------------------------------------------------------------------
Total distributions and redemptions 422,103 290,386 253,913
--------------------------------------------------------------------
Total (decrease) (387,934) (207,542) 27,019
Net assets
Beginning of year 2,641,208 2,848,750 2,821,641
--------------------------------------------------------------------
End of year (including undistributed net investment income of
$37,238, $41,488 and $41,842, respectively) $ 2,253,274 $ 2,641,208 $ 2,848,750
====================================================================
</TABLE>
The accompanying notes form an integral part of the financial statements.
<PAGE>
Municipal Securities Trust
Multi-State Series 44
California Trust
Financial Highlights
Selected data for a unit of the Trust outstanding:*
<TABLE>
<CAPTION>
Year ended June 30,
2000 1999 1998 1997 1996
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year** $ 934.79 $ 964.51 $ 936.56 $ 899.72 $ 868.49
----------------------------------------------------------------------------------
Interest income 48.31 51.26 52.56 56.23 52.55
Expenses (3.95) (3.18) (3.18) (2.92) (2.66)
----------------------------------------------------------------------------------
Net investment income 44.36 48.08 49.38 53.31 49.89
----------------------------------------------------------------------------------
Net gain or loss on investments(1) (30.28) (13.12) 45.36 46.30 31.06
----------------------------------------------------------------------------------
Total from investment operations 14.08 34.96 94.74 99.61 80.95
----------------------------------------------------------------------------------
S
Less distributions
to Certificateholders
Income 45.74 48.05 49.32 53.34 49.65
Principal 10.44 15.57 16.46 7.54 -
for Redemptions
Interest .01 1.06 1.01 1.89 .07
----------------------------------------------------------------------------------
Total distributions 56.19 64.68 66.79 62.77 49.72
----------------------------------------------------------------------------------
Net asset value, end of year** $ 892.68 $ 934.79 $ 964.51 $ 936.56 $ 899.72
==================================================================================
</TABLE>
(1) Net gain or loss on investments is a result of changes in outstanding units
since July 1, 1999, 1998, 1997, 1996 and 1995, respectively, and the dates of
net gain and loss on investments.
* Unless otherwise stated, based upon average units outstanding during the
year of 1,591 ([1,670 + 1,511/2) for 2000, 1,776 ([1,881 + 1,670]/2) for
1999, 1,973 ([2,065 + 1,881]/2) for 1998, 2,259 ([2,453 + 2,065]/2) for
1997, and of 2,463 ([2,473 + 2,453]/2) for 1996.
** Based upon actual units outstanding.
The accompanying notes form an integral part of the financial statements.
<PAGE>
Municipal Securities Trust
Multi-State Series 44
Virginia Trust
Financial Highlights
Selected data for a unit of the Trust outstanding:*
<TABLE>
<CAPTION>
Year ended June 30,
2000 1999 1998 1997 1996
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year** $ 953.16 $ 981.99 $ 940.55 $ 921.03 $ 899.78
----------------------------------------------------------------------------------
Interest income 51.57 52.97 52.71 53.10 53.54
Expenses (2.63) (2.57) (2.61) (2.40) (2.39)
----------------------------------------------------------------------------------
Net investment income 48.94 50.40 50.10 50.70 51.15
----------------------------------------------------------------------------------
Net gain or loss on investments (1) (31.01) (20.46) 44.90 35.95 21.80
----------------------------------------------------------------------------------
Total from investment operations 17.93 29.94 95.00 86.65 72.95
----------------------------------------------------------------------------------
Less distributions
to Certificateholders
Income 49.32 50.07 49.84 50.30 51.70
Principal 10.85 8.25 3.36 16.83 -
for Redemptions
Interest 1.24 .45 .36 - -
----------------------------------------------------------------------------------
Total distributions 61.41 58.77 53.56 67.13 51.70
----------------------------------------------------------------------------------
Net asset value, end of year** $ 909.68 $ 953.16 $ 981.99 $ 940.55 $ 921.03
==================================================================================
</TABLE>
(1) Net gain or loss on investments is a result of changes in outstanding units
since July 1, 1999, 1998 1997, 1996 and 1995, respectively, and the dates of net
gain and loss on investments.
* Unless otherwise stated, based upon average units outstanding during the
year of 2,624 ([2,771 + 2,477]/2) for 2000, 2,836 ([2,901 + 2,771]/2) for
1999, 2,951 ([3,000 + 2,901]/2) for 1998, 3,000 ([3,000 + 3,000]/2) for
1997, and of 3,000 ([3,000 + 3,000]/2) for 1996.
** Based upon actual units outstanding.
The accompanying notes form an integral part of the financial statements.
<PAGE>
Municipal Securities Trust
Multi-State Series 44
Notes to Financial Statements
June 30, 2000
1. Organization
Municipal Securities Trust, Multi-State Series 44 (the "Trust") (comprising,
respectively, the California Trust and Virginia Trust) was organized on December
9, 1993 by Bear, Stearns & Co. Inc. and Gruntal & Co., LLC 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. The Trust was formed to preserve capital and
to provide interest income.
On September 28, 1995, Reich & Tang Distributors, Inc. ("Reich & Tang") had
become the successor sponsor to certain of the unit investment trusts previously
sponsored by Bear, Stearns & Co. Inc. As successor sponsor, Reich & Tang had
assumed all of the obligations and rights of Bear, Stearns & Co. Inc., the
previous sponsor.
Effective February 9, 2000, Gruntal & Co., LLC resigned as a co-sponsor of
certain unit investment trusts previously co-sponsored with Riech & Tang. ING
Funds Distributor, Inc. ("ING") has become the successor sponsor to certain unit
investment trusts previously sponsored by Reich & Tang. As successor sponsor,
ING has assumed all of the obligations and rights of Reich & Tang, the previous
sponsor.
2. Summary of Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Trust in preparation of its financial statements. The policies
are in conformity with generally accepted accounting principles ("GAAP"). The
preparation of financial statements in accordance with GAAP requires management
to make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual amounts could differ from those
estimates.
Interest Income
Interest income is recorded 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.
<PAGE>
Municipal Securities Trust
Multi-State Series 44
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Security Valuation
Investments are carried at market value which is determined by Kenny S&P
Evaluation Services, a business unit of J.J. Kenny Company, Inc., a subsidiary
of the McGraw-Hill Companies, Inc. The market value of the portfolio is based
upon the bid prices for the bonds at the end of the year, which approximates the
fair value of the security at that date, 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
No provision for federal income taxes has been made in the accompanying
financial statements because the Trust intends to continue to qualify for the
tax treatment applicable to Grantor Trusts under the Internal Revenue Code.
Under existing law, if the Trust so qualifies, it will not be subject to federal
income tax on net income and capital gains that are distributed to unitholders.
4. Trust Administration
The Chase Manhattan Bank (the "Trustee") has custody of assets 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 Trust Indenture and Agreement provides for interest distributions as often
as monthly (depending upon the distribution plan elected by the
Certificateholders).
<PAGE>
Municipal Securities Trust
Multi-State Series 44
Notes to Financial Statements (continued)
4. Trust Administration (continued)
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.
The Trust Indenture and Agreement also requires the Trust to redeem units
tendered. For the years ended June 30, 2000, 1999 and 1998, 159, 211 and 184
units were redeemed in the California Trust, respectively. respectively. For the
years ended June 30, 2000, 1999 and 1998, 294, 130 and 99 units were redeemed in
the Virginia Trust, respectively.
The Trust pays an annual fee for trustee services rendered by the Trustee that
ranges from $.36 to $1.10 per $1,000 of outstanding investment principal. In
addition, a minimum fee of $7.50 is paid to a service bureau for each portfolio
valuation. A maximum fee of $.25 per $1,000 of outstanding investment principal
is paid to the Sponsor. For the year ended June 30, 2000, the "Trustee's Fees"
are comprised of Trustee fees of $1,639 and $2,290 and other expenses of $2,190
and 1,841 for the California, and Virginia Trusts, respectively. For the year
ended June 30, 1999, the "Trustee's Fees" are comprised of Trustee fees of
$1,932, and $2,626 and other expenses of $1,097 and $1,818 for the California
and Virginia Trusts, respectively. For the year ended June 30, 1998, the
"Trustee's Fees" are comprised of Trustee fees of $2,329, and $2,881 and other
expenses of $1,118 and $1,853 for the California and Virginia Trusts,
respectively. The other expenses include professional, printing and
miscellaneous fees.
<PAGE>
Municipal Securities Trust
Multi-State Series 44
Notes to Financial Statements (continued)
5. Net Assets
At June 30, 2000, the net assets of the Trust represented the interest of
Certificateholders as follows:
<TABLE>
<CAPTION>
California Trust Virginia
Trust
------------------------------------------------
<S> <C> <C>
Original cost to Certificateholders $ 2,486,272 $ 3,033,293
Less initial gross underwriting commission 121,827 148,631
------------------------------------------------
2,364,995 2,884,662
Accumulated cost of securities sold,
matured or called (1,012,009) (577,129)
Net unrealized (depreciation) (25,753) (82,528)
Undistributed net investment income 22,983 37,238
Distributions in excess of proceeds
from investments (825) (8,969)
------------------------------------------------
Total $ 1,348,841 $ 2,253,274
================================================
</TABLE>
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 2,500 and 3,000 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 $7,164, and $11,693 for the California and Virginia Trust,
respectively.
<PAGE>
Municipal Securities Trust
Multi-State Series 44
Notes to Financial Statements (continued)
6. Concentration of Credit Risk
Since the Trust invests a portion of its assets in municipal bonds, it may be
affected by economic and political developments in the municipalities. Certain
debt obligations held by the Trust may be entitled to the benefit of insurance,
standby letters of credit or other guarantees of banks or other financial
institutions.
<PAGE>
Prospectus Part A Dated October 28, 2000
MUNICIPAL SECURITIES TRUST
SERIES 53
The Trust is a unit investment trust designated Series 53
("Municipal Trust") with an underlying portfolio of long-term tax-exempt bonds
issued by or on behalf of states, municipalities and public authorities, and was
formed to preserve capital and to provide 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 (including where applicable earned original
discount) under the law in effect at the time of issuance but may be subject to
state and local taxes. There can be no assurance that the Trust's objectives
will be achieved. 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. Such interest income may, however, be subject to the
federal corporate alternative minimum tax and to state and local taxes. (See
"Description of Portfolio" in this Part A for a description of those Bonds which
pay interest income subject to the federal individual alternative minimum tax.)
In addition, capital gains are subject to tax. (See "Tax Status" and "The
Trust--Portfolio" in Part B of this Prospectus.) The Sponsor is ING Funds
Distributor, Inc. (successor to Reich & Tang Distributors, Inc.). The value of
the Units of the Trust will fluctuate with the value of the underlying bonds.
Minimum purchase: 1 Unit.
This Prospectus consists of two parts. Part A contains the Summary
of Essential Information as of June 30, 2000 (the "Evaluation Date"), a summary
of certain specific information regarding the Trust and audited financial
statements of the Trust, including the related portfolio, as of the Evaluation
Date. Part B of this Prospectus contains a general summary of the Trust. Part A
of this Prospectus may not be distributed unless accompanied by Part B.
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.
THE TRUST. The Trust seeks to achieve its investment objectives
through investment in a fixed, diversified portfolio of long-term bonds (the
"Bonds") issued by or on behalf of states, municipalities and public
authorities. All of the Bonds in the Trust were rated "A" or better by Standard
& Poor's Corporation or Moody's Investors Service, Inc. at the time originally
deposited in the Trust. For a discussion of the significance of such ratings see
"Description of Bond Ratings" in Part B of this Prospectus and for a list of
ratings on the Evaluation Date see the "Portfolio".
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 any current interest. Some of the
Bonds in the portfolio may have been purchased at an aggregate premium over par.
Some of the Bonds in the Trust have been issued
NY/300337.1
<PAGE>
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 (and 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 called for redemption
pursuant to pre-refunding provisions ("Pre-Refunded Bonds") whereby the proceeds
from the issue of the Refunding Bonds are typically invested in government
securities 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, if
any, as of the Evaluation Date, see "Notes to Financial Statements" in this Part
A. 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.
Investment in the Trust should 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 that the value of Zero Coupon Bonds is subject
to greater fluctuations than coupon bonds in response to changes in interest
rates. A Trust designated as a long-term trust must have a dollar-weighted
average portfolio maturity of more than ten years.
Each Unit in the Trust represents a 1/3185th 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.
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 4.5% of the Public
Offering Price, which is the same as 4.712% of the net amount invested in Bonds
per Unit. The sales charge for secondary market purchases is based upon the
number of years remaining to maturity of each bond in the Trust's portfolio.
(See "Public Offering" in Part B of this Prospectus.) In addition, accrued
interest to 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 $910.63 plus accrued interest of $8.36 under the
monthly distribution plan, $12.84 under the semi-annual distribution plan and
$39.77 under the annual distribution plan, for a total of $918.99, $923.47 and
$950.40, 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 the "Summary of Essential Information" and "Public Offering--Offering
Price" in Part B of this Prospectus.)
ESTIMATED LONG TERM RETURN AND ESTIMATED CURRENT RETURN. Units of
each Trust are offered to investors on a "dollar price" basis (using the
computation method described under "Public Offering--Offering Price" in Part B)
as distinguished from a "yield price" basis often used in offerings of tax
exempt bonds (involving the lesser of the yield as computed to maturity of bonds
or to an earlier redemption date). Since they are offered on a dollar price
basis, the rate of return on an investment in Units of each Trust is measured in
terms of "Estimated Current Return" and "Estimated Long Term Return".
A-2
NY/300337.1
<PAGE>
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 either monthly, semi-annually or annually depending upon
the plan of distribution applicable to the Unit purchased. A purchaser of a Unit
in the secondary market 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 in "Interest and Principal Distributions" in Part B of this
Prospectus. Distributions of principal, if any, will be made semi-annually on
June 15 and December 15 of each year. (See "Rights of
Certificateholders--Interest and Principal Distributions" in Part B of this
Prospectus. For estimated monthly, semi-annual and annual interest
distributions, see "Summary of Essential Information".)
MARKET FOR UNITS. The Sponsor, although not obligated to do so,
intends to maintain a market for the Units at prices based upon the aggregate
bid price of the Bonds in the portfolio of the Trust. The Secondary Market
A-3
NY/300337.1
<PAGE>
repurchase price is based on the aggregate bid price of the Bonds in the Trust
portfolio, and the reoffer price is based on the aggregate bid price of the
Bonds plus a sales charge of 4.5% of the Public Offering Price (4.712% of the
net amount invested) plus net accrued interest. If such a market is not
maintained, a Certificateholder will be able to redeem his or her 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.)
A-4
NY/300337.1
<PAGE>
MUNICIPAL SECURITIES TRUST
SERIES 53
<TABLE>
<CAPTION>
SUMMARY OF ESSENTIAL INFORMATION AS OF JUNE 30, 2000
----------------------------------------------------
<S> <C> <C>
Date of Deposit*: November 19, 1992 Weighted Average Life to Maturity:
Principal Amount of Bonds....................... $2,885,000 17.0 Years.
Number of Units ................................ 3,185 Minimum Value of Trust:
Fractional Undivided Inter- Trust may be terminated if value
est in Trust per Unit ......................... 1/3185 of Trust is less than $1,600,000
Principal Amount of in principal amount of Bonds.
Bonds per Unit ................................ $905.81 Mandatory Termination Date:
Secondary Market Public The earlier of December 31, 2041
Offering Price** or the disposition of the last
Aggregate Bid Price Bond in the Trust.
of Bonds in Trust ............................. $2,771,377+++ Trustee***: The Chase Manhattan
Divided by 3,185 Units ..... .................. $870.13 Bank.
Plus Sales Charge of 4.5% Trustee's Annual Fee: Monthly
of Public Offering Price...................... $40.50 plan $1.10 per $1,000; semi-annual
Public Offering Price plan $.63 per $1,000; and annual
per Unit ...................................... $910.63+ plan is $.36 per $1,000.
Redemption and Sponsor's Evaluator: Kenny S&P Evaluation
Repurchase Price Services.
per Unit ...................................... $870.13+ Evaluator's Fee for Each
+++ Evaluation: Minimum of $8 plus
+++ $.25 per each issue of Bonds in
Excess of Secondary Market excess of 50 issues (treating
Public Offering Price separate maturities as separate
over Redemption and issues).
Sponsor's Repurchase Sponsor: ING Funds Distributor, Inc.
Price per Unit ................................ $40.50++++ Sponsor's Annual Fee: Maximum of
Difference between Public $.25 per $1,000 principal amount
Offering Price per Unit of Bonds (see"Trust Expenses and
and Principal Amount per Charges" in Part B of this
Unit Premium/(Discount) ....................... $4.82 Prospectus).
Evaluation Time: 4:00 p.m.
New York Time.
Minimum Principal Distribution:
$1.00 per Unit.
</TABLE>
PER UNIT INFORMATION BASED UPON INTEREST DISTRIBUTION PLAN ELECTED
------------------------------------------------------------------
Monthly Semi-Annual Annual
Option Option Option
------ ------ ------
Gross annual interest income# ......... $55.29 $55.29 $55.29
Less estimated annual fees and
expenses ............................ 2.15 1.80 1.69
Estimated net annual interest ______ ______ ______
income (cash)# ...................... $53.14 $53.49 $53.60
Estimated interest distribution# ...... 4.42 26.74 53.60
Estimated daily interest accrual# ..... .1476 .1485 .1488
Estimated current return#++ ........... 5.84% 5.87% 5.89%
Estimated long term return++ .......... 5.87% 5.91% 5.92%
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
A-5
NY/300337.1
<PAGE>
Footnotes to Summary of Essential Information
* The Date of Deposit is the date on which the Trust Agreement was signed
and the deposit of the Bonds with the Trustee made.
** The proceeds from securities distributable as of June 30, 2000 may be
reported in the Summary of Essential Information as if they had been
distributed as of year-end.
*** The Trustee maintains its principal executive office at 270 Park Avenue,
New York, New York 10017 and its unit investment trust office at 4 New
York Plaza, New York, New York 10004 (tel. no.: 1-800-882-9898). 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 three
business days after purchase) of $8.36 monthly, $12.84 semi-annually and
$39.77 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.
<TABLE>
<CAPTION>
FINANCIAL AND STATISTICAL INFORMATION
Selected data for each Unit outstanding for the periods listed below:
Distribu-
Distributions of Interest tions of
During the Period (per Unit) Principal
---------------------------- During
Net Asset* Semi- the
Units Out- Value Monthly Annual Annual Period
Period Ended standing Per Unit Option Option Option (Per Unit)
------------ ---------- ---------- ------- ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C>
June 30, 1998 $3,595 $951.42 $55.57 $55.11 $54.67 $ 7.18
June 30, 1999 3,481 921.64 53.85 54.11 54.38 15.08
June 30, 2000 3,185 882.29 54.12 54.53 54.85 4.08
</TABLE>
----------
* Net Asset Value per Unit is calculated by dividing net assets as disclosed
in the "Statement of Net Assets" by the number of Units outstanding as of
the date of the Statement of Net Assets. See Note 5 of Notes to Financial
Statements for a description of the components of Net Assets.
A-6
NY/300337.1
<PAGE>
INFORMATION REGARDING THE TRUST
AS OF JUNE 30, 2000
DESCRIPTION OF PORTFOLIO*
------------------------
The portfolio of the Trust consists of 8 issues representing
obligations of issuers located in 6 states. The Sponsor has not participated as
a sole underwriter or manager, co-manager or member of an underwriting syndicate
from which any of the initial aggregate principal amount of the Bonds were
acquired. Approximately 15.9% of the Bonds are obligations of state and local
housing authorities; approximately 25.6% are hospital revenue bonds; none are
issued in connection with the financing of nuclear generating facilities; and
approximately 8.3% are "mortgage subsidy" bonds. Seven 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. Eight issues representing $2,885,000 of the 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: Hospital 2, Multi-Family Housing 1, Nursing Home 1,
Pollution Facility 1, Single Family Mortgage Revenue 1, Toll Road 1 and
Transportation 1. For an explanation of the significance of these factors see
"The Trust--Portfolio" in Part B of this Prospectus.
As of June 30, 2000, $220,000 (approximately 7.6% of the aggregate
principal amount of the Bonds) were original issue discount bonds. Of these
original issue discount bonds, $220,000 (approximately 7.6% of the aggregate
principal amount of the Bonds) are 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. The market value of Zero
Coupon Bonds is subject to greater fluctuations than coupon bonds in response to
changes in interest rates. Approximately 67.9% of the aggregate principal amount
of the Bonds in the Trust were purchased at a "market" discount from par value
at maturity, approximately 8.5% were purchased at a premium and approximately
16% 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.
None of the Bonds in the Trust are subject to the federal
individual alternative minimum tax under the Tax Reform Act of 1986. See "Tax
Status" in Part B of this Prospectus.
----------
* Changes in the Trust Portfolio: From July 1, 2000 to September 15, 2000,
the entire principal amount of the Bond in portfolio no. 5a was called and
is no longer contained in the Trust.
A-7
NY/300337.1
<PAGE>
Report of Independent Auditors
The Sponsor, Trustee and Certificateholders of
Municipal Securities Trust, Series 53
We have audited the accompanying statement of net assets of Municipal Securities
Trust, Series 53, including the portfolio, as of June 30, 2000 and the related
statements of operations, and changes in net assets and financial highlights for
the year then ended. These financial statements and financial highlights are the
responsibility of the Trustee. Our responsibility is to express an opinion on
these financial statements and financial highlights based on our audit. The
statement of operations and statement of changes in net assets for each of the
two years in the period ended June 30, 1999 and financial highlights for each of
the four years in the period ended June 30, 1999 were audited by other auditors
whose report thereon dated September 15, 1999, expressed an unqualified opinion
on those financial statements and financial highlights.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights 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 the securities
owned by correspondence with the Trustee. An audit also includes assessing the
accounting principles used and significant estimates made by the Trustee, as
well as evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the 2000 financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Municipal Securities Trust, Series 53 at June 30, 2000, the results of its
operations, changes in its net assets and financial highlights for the year then
ended, in conformity with accounting principles generally accepted in the United
States.
/s/ Ernst & Young LLP
New York, New York
October 16, 2000
<PAGE>
Municipal Securities Trust, Series 53
Portfolio
June 30, 2000
<TABLE>
<CAPTION>
Redemption
Aggregate Coupon Feature (2)(4)
Portfolio Principal Rate/Date(s) of S.F.-Sinking Fund
No. Amount Name of Issuer and Title of Bonds Ratings (1) Maturity (2) Ref.-Refunding
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 $ 500,000 IL. Hlth. Facs. Auth. Rev. Bonds (Alexian Bros. BAA1* 6.800% 1/01/16 @ 100 S.F.
Med. Center Inc. Prjt.) Series 1992A 1/01/2022 1/01/02 @ 102 Ref.
2 285,000 Il. State Toll Hwy. Auth. Toll. Hwy. Priority Rev. AA- 6.375 1/01/13 @ 100 S.F.
Bonds 1992 Series A 11/01/2015 1/01/03 @ 102 Ref.
3 460,000 Village of Streamwood Il Multi-Fam. Hsg. Rev. Aa2* 6.700 5/01/07 @ 100 S.F.
Bonds (FHA Insrd. Mtg. Loan-Southgate Manors 11/01/2028 1/01/01 @ 103 Ref.
Prjt.) Series 1992
4 215,000 In. Trans. Finc. Auth. Arpt. Facs. Lease Rev. A1* 6.250 11/01/12 @ 100 S.F
Bonds Series A 11/01/2016 11/01/02 @ 102 Ref
5 240,000 N.M. Mtg. Finc. Auth. Hosp. Sngle. Fam. Mtg. AAA 6.900 1/01/13 @ 100 S.F.
Purch. Rfndg. Sr. Bonds 1992 Series A 7/01/2024 7/01/02 @ 102 Ref.
5a 5,000 N.M. Mtg. Finc. Auth. Hosp. Sngle. Fam. Mtg. AAA 6.900 11/01/13 @ 100 S.F
Purch. Rfndg. Sr. Bonds 1992 Series A 7/01/2024 7/01/00 @ 100 Ref.
6 460,000 Richland Cnty. S.C. Poll. Cntrl. Rev. Rfndg. Bonds A3* 6.550 No Sinking Fund
(Union Camp Corp. Prjt.) Series 1992C 11/01/2020 11/01/02 @ 102 Ref
7 500,000 Wisc. Hlth. & Ed. Facs. Auth. (Mercy Hosp. of A2* 6.600 8/15/12 @ 100 S.F.
Janesville) Rev. Bonds 8/15/2022 8/15/02 @ 102 Ref.
8 220,000 Savannah Ga. Econ. Dev. Auth. Rev. Bonds (Southern Aaa* 0.000 No Sinking Fund
Care Corp. Fac.) Series 1991C 12/01/2021 None
------------
$2,885,000 Total Investments (Cost (3) $2,694,109)
============
</TABLE>
<TABLE>
<CAPTION>
Aggregate
Portfolio Principal Market
No. Amount Name of Issuer and Title of Bonds Value (3)
----------------------------------------------------------------------------------------------------
<S> <C>
1 $ 500,000 IL. Hlth. Facs. Auth. Rev. Bonds (Alexian Bros. $ 523,035
Med. Center Inc. Prjt.) Series 1992A
2 285,000 Il. State Toll Hwy. Auth. Toll. Hwy. Priority Rev. 300,598
Bonds 1992 Series A
3 460,000 Village of Streamwood Il Multi-Fam. Hsg. Rev. 474,757
Bonds (FHA Insrd. Mtg. Loan-Southgate Manors
Prjt.) Series 1992
4 215,000 In. Trans. Finc. Auth. Arpt. Facs. Lease Rev. . 218,231
Bonds Series A .
5 240,000 N.M. Mtg. Finc. Auth. Hosp. Sngle. Fam. Mtg. 244,512
Purch. Rfndg. Sr. Bonds 1992 Series A
5a 5,000 N.M. Mtg. Finc. Auth. Hosp. Sngle. Fam. Mtg. . 5,000
Purch. Rfndg. Sr. Bonds 1992 Series A
6 460,000 Richland Cnty. S.C. Poll. Cntrl. Rev. Rfndg. Bonds 458,924
(Union Camp Corp. Prjt.) Series 1992C .
7 500,000 Wisc. Hlth. & Ed. Facs. Auth. (Mercy Hosp. of 498,105
Janesville) Rev. Bonds
8 220,000 Savannah Ga. Econ. Dev. Auth. Rev. Bonds (Southern 47,758
Care Corp. Fac.) Series 1991C
------------ ---------------
$2,885,000 Total Investments (Cost (3) $2,694,109) $2,770,925
============ ===============
</TABLE>
See accompanying footnotes to portfolio and notes to financial statements.
<PAGE>
Municipal Securities Trust, Series 53
Footnotes to Portfolio
1 All ratings are by Kenny S&P Evaluation Services, a business unit of J.J.
Kenny Company, Inc., a subsidiary of The McGraw-Hill Companies, Inc., except
for those identified by an asterisk (*) which are by Moody's Investor
Service, Inc. A brief description of the ratings symbols and their meaning
is set forth under "Description of Bond Ratings" in Part B of the
Prospectus.
2. See "The Trust--Portfolio" in Part B of the Prospectus for an explanation of
redemption features. See "Tax Status" in Part B of the Prospectus for a
statement of the Federal tax consequences to a Certificateholder upon the
sale, redemption or maturity of a bond.
3. At June 30, 2000, the net unrealized appreciation of all the bonds was
comprised of the following:
Gross unrealized appreciation $ 82,207
Gross unrealized depreciation (5,391)
----------------------
Net unrealized appreciation $ 76,816
======================
4. 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 of
unanticipated revenues).
The accompanying notes form an integral part of the financial statements.
<PAGE>
Municipal Securities Trust, Series 53
Statement of Net Assets
June 30, 2000
<TABLE>
<S> <C>
Investments in securities, at market value (cost $2,694,109) $ 2,770,925
Other assets
Accrued interest 59,022
------------------------
Total other assets 59,022
------------------------
Liabilities
Advance from Trustee 19,852
------------------------
Total liabilities 19,852
------------------------
Excess of other assets over total liabilities 39,170
------------------------
Net assets (3,185 units of fractional undivided
interest outstanding, $882.29 per unit) $ 2,810,095
========================
</TABLE>
The accompanying notes form an integral part of the financial statements.
<PAGE>
Municipal Securities Trust, Series 53
Statement of Operations
<TABLE>
<CAPTION>
Year ended June 30,
2000 1999 1998
--------------------------------------------------------------------
<S> <C> <C> <C>
Investment income
Interest $ 186,011 $ 200,889 $ 211,282
Expenses
Trustee's fees 5,049 5,409 5,795
Evaluator's fee 2,200 2,249 2,369
Sponsor's advisory fee 788 848 892
--------------------------------------------------------------------
Total expenses 8,037 8,506 9,056
--------------------------------------------------------------------
Net investment income 177,974 192,383 202,226
--------------------------------------------------------------------
Realized and unrealized gain (loss)
Realized gain on investments 15,804 5,564 15,238
Unrealized appreciation (depreciation)
on investments (134,257) (57,953) 54,689
--------------------------------------------------------------------
Net gain (loss) on investments (118,453) (52,389) 69,927
--------------------------------------------------------------------
Net increase in net assets resulting from operations $ 59,521 $ 139,994 $ 272,153
====================================================================
</TABLE>
The accompanying notes form an integral part of the financial statements.
<PAGE>
Municipal Securities Trust, Series 53
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year ended June 30,
2000 1999 1998
--------------------------------------------------------------------
<S> <C> <C> <C>
Operations
Net investment income $ 177,974 $ 192,383 $ 202,226
Realized gain on investments 15,804 5,564 15,238
Unrealized appreciation (depreciation)
on investments (134,257) (57,953) 54,689
--------------------------------------------------------------------
Net increase in net assets resulting from operations 59,521 139,994 272,153
--------------------------------------------------------------------
Distributions to Certificateholders
Investment income 178,362 190,695 200,566
Principal 13,627 52,813 26,191
Redemptions
Interest 3,840 1,375 1,688
Principal 261,843 107,205 119,343
--------------------------------------------------------------------
Total distributions and redemptions 457,672 352,088 347,788
--------------------------------------------------------------------
Total (decrease) (398,151) (212,094) (75,635)
Net assets
Beginning of year 3,208,246 3,420,340 3,495,975
--------------------------------------------------------------------
End of year (including undistributed net investment income of
$59,309, $63,537 and $63,224, respectively) $ 2,810,095 $ 3,208,246 $ 3,420,340
====================================================================
</TABLE>
The accompanying notes form an integral part of the financial statements.
<PAGE>
Municipal Securities Trust, Series 53
Financial Highlights
Selected data for a unit of the Trust outstanding:*
<TABLE>
Year ended June 30,
2000 1999 1998 1997 1996
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year** $ 921.64 $ 951.42 $ 939.27 $ 917.46 $ 985.71
---------------------------------------------------------------------------------------
Interest income 55.81 56.78 57.74 58.72 57.90
Expenses (2.41) (2.40) (2.47) (2.28) (2.14)
---------------------------------------------------------------------------------------
Net investment income 53.40 54.38 55.27 56.44 55.76
---------------------------------------------------------------------------------------
Net gain or loss on investments (1) (34.00) (14.94) 19.31 23.97 10.13
---------------------------------------------------------------------------------------
Total from investment operations 19.40 39.44 74.58 80.41 65.89
---------------------------------------------------------------------------------------
Less distributions
to Certificateholders
Income 53.51 53.90 54.81 55.99 55.24
Principal 4.09 14.93 7.16 2.01 78.70
for Redemptions
Interest 1.15 0.39 0.46 0.60 0.20
---------------------------------------------------------------------------------------
Total distributions 58.75 69.22 62.43 58.60 134.14
---------------------------------------------------------------------------------------
Net asset value, end of year** $ 882.29 $ 921.64 $ 951.42 $ 939.27 $ 917.46
=======================================================================================
</TABLE>
(1) Net gain or loss on investments is a result of changes in outstanding units
since July 1, 1999, 1998, 1997, 1996 and 1995, respectively, and the dates of
net gain and loss on investments.
* Unless otherwise stated, based upon average units outstanding during the
year of 3,333 ([3,481 + 3,185]/2) for 2000, 3,538 ([3,595 + 3,481]/2) for
1999, 3,659 ([3,722 + 3,595]/2) for 1998, 3,818 ([3,913 + 3,722]/2) for 1997
and of 3,936 ([3,958 + 3,913]/2) for 1996.
** Based upon actual units outstanding.
The accompanying notes form an integral part of the financial statements.
<PAGE>
Municipal Securities Trust, Series 53
Notes to Financial Statements
June 30, 2000
1. Organization
Municipal Securities Trust, Series 53 (the "Trust") was organized on November
19, 1992 by Bear, Stearns & Co. Inc. and Gruntal & Co., LLC 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. The Trust was formed to preserve
capital and to provide interest income.
On September 28, 1995, Reich & Tang Distributors, Inc. ("Reich & Tang") had
become the successor sponsor to certain of the unit investment trusts previously
sponsored by Bear, Stearns & Co. Inc. As successor sponsor, Reich & Tang had
assumed all of the obligations and rights of Bear, Stearns & Co. Inc., the
previous sponsor.
Effective February 9, 2000, Gruntal & Co., LLC resigned as a co-sponsor of
certain unit investment trusts previously co-sponsored with Reich & Tang. ING
Funds Distributor, Inc. ("ING") has become the successor sponsor to certain unit
investment trusts previously sponsored by Reich & Tang. As successor sponsor,
ING has assumed all of the obligations and rights of Reich & Tang, the previous
sponsor.
2. Summary of Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Trust in preparation of its financial statements. The policies
are in conformity with generally accepted accounting principles ("GAAP"). The
preparation of financial statements in accordance with GAAP requires management
to make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual amounts could differ from those
estimates.
Interest Income
Interest income is recorded 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.
<PAGE>
Municipal Securities Trust, Series 53
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Security Valuation
Investments are carried at market value which is determined by Kenny S&P
Evaluation Services, a business unit of J.J. Kenny Company, Inc., a subsidiary
of the McGraw-Hill Companies, Inc. The market value of the portfolio is based
upon the bid prices for the bonds at the end of the year, which approximates the
fair value of the security at that date, 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
No provision for federal income taxes has been made in the accompanying
financial statements because the Trust intends to continue to qualify for the
tax treatment applicable to Grantor Trusts under the Internal Revenue Code.
Under existing law, if the Trust so qualifies, it will not be subject to federal
income tax on net income and capital gains that are distributed to unitholders.
4. Trust Administration
The Chase Manhattan Bank (the "Trustee") has custody of assets 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 Trust Indenture and Agreement provides for interest distributions as often
as monthly (depending upon the distribution plan elected by the
Certificateholders).
<PAGE>
Municipal Securities Trust, Series 53
Notes to Financial Statements (continued)
4. Trust Administration (continued)
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.
The Trust Indenture and Agreement also requires the Trust to redeem units
tendered. For the years ended June 30, 2000, 1999 and 1998, 296, 114 and 127
units were redeemed, respectively.
The Trust pays an annual fee for trustee services rendered by the Trustee that
ranges from $.36 to $1.10 per $1,000 of outstanding investment principal. In
addition, a minimum fee of $8.00 is paid to a service bureau for each portfolio
valuation. A maximum fee of $.25 per $1,000 of outstanding investment principal
is paid to the Sponsor. For the years ended June 30, 2000, 1999 and 1998, the
"Trustee's Fees" are comprised of Trustee fees of $3,076, $3,290 and $3,668 and
other expenses of $1,973, $2,119 and $2,127, respectively. The other expenses
include professional, printing and miscellaneous fees.
5. Net Assets
At June 30, 2000, the net assets of the Trust represented the interest of
Certificateholders as follows:
<TABLE>
<S> <C>
Original cost to Certificateholders $ 3,995,388
Less initial gross underwriting commission 195,774
-----------------------
3,799,614
Accumulated cost of securities sold, matured or called (1,126,096)
Net unrealized appreciation 76,816
Undistributed net investment income 59,309
Undistributed proceeds from investments 452
-----------------------
Total $ 2,810,095
=======================
</TABLE>
<PAGE>
Municipal Securities Trust, Series 53
Notes to Financial Statements (continued)
5. Net Assets (continued)
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 4,000 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 $20,591.
6. Concentration of Credit Risk
Since the Trust invests a portion of its assets in municipal bonds, it may be
affected by economic and political developments in the municipalities. Certain
debt obligations held by the Trust may be entitled to the benefit of insurance,
standby letters of credit or other guarantees of banks or other financial
institutions.
<PAGE>
Prospectus Part A Dated October 28, 2000
MUNICIPAL SECURITIES TRUST
MULTI-STATE SERIES 42
(MULTIPLIER PORTFOLIO)
The Trust consists of 2 separate unit investment trusts designated
New York Trust and Virginia Trust (the "State Trusts"). Each State Trust
contains an underlying portfolio of long-term tax-exempt bonds issued on behalf
of states, municipalities and public authorities and was formed to preserve
capital and to provide 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 (including where applicable earned original discount) under
existing law. There can be no assurance that the Trusts' investment objectives
will be achieved. 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
federal income tax. In addition, in the opinion of counsel to the Sponsor, the
interest income of each State Trust is exempt, to the extent indicated, from
state and local taxes when held by residents of the state where the issuers of
the Bonds in such State Trust are located. Such interest income may, however, be
subject to the federal corporate alternative minimum tax and to state and local
taxes in other jurisdictions. (See "Description of Portfolios" in this Part A
for a description of those Bonds which pay interest income subject to the
federal individual alternative minimum tax.) In addition, capital gains are
subject to tax. (See "Tax Status" and "The Portfolios--General.") The Sponsor is
ING Funds Distributor, Inc. (successor to Reich & Tang Distributors, Inc.). The
value of the Units of the Trust will fluctuate with the value of the underlying
bonds. Minimum purchase: 1 Unit.
This Prospectus consists of two parts. Part A contains the Summary
of Essential Information including descriptive material relating to each State
Trust as of June 30, 2000 (the "Evaluation Date"), a summary of certain specific
information regarding each State trust and audited financial statements of each
State Trust, including the related portfolio, as of the Evaluation Date. Part B
of this Prospectus contains a general summary of the State Trusts. Part A of
this Prospectus may not be distributed unless accompanied by Part B. Investors
should read and retain both parts of this Prospectus for future reference.
<TABLE>
<CAPTION>
Principal Secondary Market
Number of Amount of Offering Price
Units Bonds per Unit (06/30/00)
--------- --------- -------------------
<S> <C> <C> <C>
New York Trust 2,023 $1,630,000 $ 872.92
Virginia Trust 2,173 $1,750,000 $ 814.05
</TABLE>
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.
THE TRUST. The Trust seeks to achieve its investment objectives
through investment in a fixed, diversified portfolio of long-term bonds (the
"Bonds") issued by or on behalf of the State for which such Trust is named and
political subdivisions, municipalities and public authorities thereof and of
Puerto Rico and its public authorities. All of the Bonds in each State Trust
were rated "A" or better by Standard & Poor's Corporation or Moody's Investors
Service, Inc. at the time originally deposited in the State Trusts. For a
discussion of the significance of such ratings, see "Description of Bond
Ratings" in Part B of this Prospectus and for a list of ratings on the
Evaluation Date see the "Portfolio".
NY/300338.1
<PAGE>
The State Trusts contain bonds that were acquired at prices which
resulted in the portfolios as a whole being purchased at a deep discount from
par value. The portfolio may also include bonds issued at a substantial original
issue discount, some of which may be Zero Coupon Bonds that provide for payment
at maturity at par value, but do not provide for the payment of current
interest. Gain on the disposition of a Bond or a Unit purchased at a market
discount generally will be treated as ordinary income, rather than capital gain,
to the extent of accrued market discount. Some of the Bonds in the portfolio may
have been purchased at an aggregate premium over par. (See "Tax Status" in Part
B of this Prospectus.) 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 (and 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 called for redemption
pursuant to pre-refunding provisions ("Pre-Refunded Bonds") whereby the proceeds
from the issue of the Refunding Bonds are typically invested in government
securities 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, if
any, as of the Evaluation Date, see "Notes to Financial Statements" in this Part
A. 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.
Investment in the Trust should be made with an understanding of the
risks which an investment in long-term fixed rate debt obligations may entail,
including the risk that the value of the underlying portfolio will decline with
increases in interest rates, and that the value of Zero Coupon Bonds is subject
to greater fluctuation than coupon bonds in response to such changes in interest
rates. A Trust designated as a long-term trust must have a dollar-weighted
average portfolio maturity of more than ten years.
Each Unit represents a fractional undivided interest in the
principal and net income of each State Trust. The principal amount of Bonds
deposited in such State Trust per Unit is reflected in the Summary of Essential
Information. Each State Trust will be administered as a distinct entity with
separate certificates, expenses, books and records. (See "The
Trust--Organization" in Part B of this Prospectus.) The Units being offered
hereby are issued and outstanding Units which have been purchased by the Sponsor
in the secondary market.
PUBLIC OFFERING PRICE. The 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 4.0% for the New York
Trust and 3.8% for the Virginia Trust of the Public Offering Price, or 4.166%
for the New York Trust and 3.950% for the Virginia Trust of the net amount
invested in Bonds per Unit. The sales charge for secondary market purchases is
based upon the number of years remaining to maturity of each bond in the Trust's
portfolio. (See "Public Offering" in Part B of this Prospectus.) In addition,
accrued interest to the expected date of settlement is added to the Public
Offering Price. If Units of the New York Trust had been purchased on the
Evaluation Date, the Public Offering Price per Unit would have been $872.92 plus
accrued interest of $7.65 under the monthly distribution plan, $12.06 under the
semi-annual distribution plan and $38.52 under the annual distribution plan, for
a total of $880.57, $884.98 and $911.44, respectively. If Units of the Virginia
Trust had been purchased on the Evaluation Date, the Public Offering Price per
Unit would have been $814.05 plus accrued interest of $6.64 under the monthly
distribution plan, $10.45 under the semi-annual distribution plan and $34.27
under the annual
A-2
NY/300338.1
<PAGE>
distribution plan, for a total of $820.69, $824.50 and $848.32, 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 "Summary of Essential
Information" and "Public Offering--Offering Price" in Part B of this
Prospectus.)
ESTIMATED LONG TERM RETURN AND ESTIMATED CURRENT RETURN. Units of
each Trust are offered to investors on a "dollar price" basis (using the
computation method described under "Public Offering--Offering Price" in Part B)
as distinguished from a "yield price" basis often used in offerings of tax
exempt bonds (involving the lesser of the yield as computed to maturity of bonds
or to an earlier redemption date). Since they are offered on a dollar price
basis, the rate of return on an investment in Units of each 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 either monthly, semi-annually or annually depending
upon the plan of distribution applicable to the Unit purchased. A purchaser of a
Unit in the secondary market will actually receive distributions in
A-3
NY/300338.1
<PAGE>
accordance with the distribution plan chosen by the prior owner of such Unit and
may thereafter change the plan as provided under "Interest and Principal
Distributions" in Part B of this Prospectus. Distributions of principal, if any,
will be made semi-annually on June 15 and December 15 of each year. (See "Rights
of Certificateholders--Interest and Principal Distributions" in Part B of this
Prospectus. For estimated monthly, semi-annual and annual interest
distributions, see "Summary of Essential Information.")
MARKET FOR UNITS. The Sponsor, although not obligated to do so,
intends to maintain a secondary market for the Units at prices based on the
aggregate bid price of the Bonds in the Trust portfolio. The secondary market
repurchase price is based on the aggregate bid price of the Bonds in the Trust
portfolio, and the reoffer price is based on the aggregate bid price of the
Bonds plus a sales charge of 4.0% for the New York Trust and 3.8% for the
Virginia Trust of the Public Offering Price (4.166% for the New York Trust and
3.950% for the Virginia Trust of the net amount invested) plus net accrued
interest. If a market is not maintained, a Certificateholder will be able to
redeem his or her Units with the Trustee at a price also based on the aggregate
bid price of the Bonds. (See "Sponsor Repurchase" and "Public Offering--Offering
Price" in Part B of this Prospectus.)
For additional information regarding the Public Offering Price and
Estimated Current Return and Estimated Long Term Return for Units of each State
Trust, descriptions of interest and principal distributions, repurchase and
redemption of Units and other essential information regarding the Trusts, please
refer to the Summary of Essential Information for the particular State Trust on
one of the immediately succeeding pages.
A-4
NY/300338.1
<PAGE>
MUNICIPAL SECURITIES TRUST
MULTI-STATE SERIES 42
NEW YORK TRUST
<TABLE>
<CAPTION>
SUMMARY OF ESSENTIAL INFORMATION AS OF JUNE 30, 2000
----------------------------------------------------
<S> <C> <C>
Date of Deposit*: Minimum Principal Distribution:
November 19, 1992 $1.00 per Unit.
Principal Amount of Bonds ... $1,630,000 Weighted Average Life to
Number of Units ............. 2,023 Maturity: 16.9 Years.
Fractional Undivided Inter- Minimum Value of Trust: Trust may
est in Trust per Unit ..... 1/2023 be terminated if value of
Principal Amount of Trust is less than $1,000,000
Bonds per Unit ............ $805.73 in principal amount of Bonds.
Secondary Market Public Mandatory Termination Date: The
Offering Price** earlier of December 31, 2041
Aggregate Bid Price or the disposition of the last
of Bonds in Trust ....... $1,695,358+++ Bond in the Trust.
Divided by 2,023 Units .... $838.04 Trustee***: The Chase Manhattan
Plus Sales Charge of 4.0% Bank.
of Public Offering Price $34.88 Trustee's Annual Fee: Monthly
Public Offering Price plan $1.10 per $1,000;
per Unit ................ $872.92+ semi-annual plan $.63 per
Redemption and Sponsor's $1,000; and annual plan is
Repurchase Price $.36 per $1,000.
per Unit .................. $838.04+ Evaluator: Kenny S&P Evaluation
+++ Services.
++++ Evaluator's Fee for Each
Excess of Secondary Market Evaluation: Minimum of $5 plus
Public Offering Price $.25 per each issue of Bonds
over Redemption and in excess of 50 issues
Sponsor's Repurchase (treating separate maturities
Price per Unit ............ $34.88++++ as separate issues).
Difference between Public Sponsor: ING Funds Distributor,
Offering Price per Unit Inc.
and Principal Amount per Sponsor's Annual Fee: Maximum of
Unit Premium/(Discount) ... $67.19 $.25 per $1,000 principal
Evaluation Time: 4:00 p.m. amount of Bonds (see "Trust
New York Time. Expenses and Charges" in Part
B of this Prospectus).
</TABLE>
<TABLE>
<CAPTION>
PER UNIT INFORMATION BASED UPON INTEREST DISTRIBUTION PLAN ELECTED
------------------------------------------------------------------
Monthly Semi-Annual Annual
Option Option Option
------ ------ ------
<S> <C> <C> <C>
Gross annual interest income# ........... $54.87 $54.87 $54.87
Less estimated annual fees and
expenses .............................. 2.13 1.97 2.03
Estimated net annual interest ______ ______ ______
income (cash)# ........................ $52.74 $52.90 $52.84
Estimated interest distribution# ........ 4.39 26.45 52.84
Estimated daily interest accrual# ....... .1465 .1469 .1467
Estimated current return#++ ............. 6.04% 6.06% 6.05%
Estimated long term return++ ............ 2.92% 2.94% 2.93%
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
</TABLE>
A-5
NY/300338.1
<PAGE>
MUNICIPAL SECURITIES TRUST
MULTI-STATE SERIES 42
VIRGINIA TRUST
<TABLE>
<CAPTION>
SUMMARY OF ESSENTIAL INFORMATION AS OF JUNE 30, 2000
----------------------------------------------------
<S> <C> <C>
Date of Deposit*: Minimum Principal Distribution:
November 19, 1992 $1.00 per Unit.
Principal Amount of Bonds ... $1,750,000 Weighted Average Life to
Number of Units ............. 2,173 Maturity: 10.7 Years.
Fractional Undivided Inter- Minimum Value of Trust: Trust
est in Trust per Unit ..... 1/2173 may be terminated if value of
Principal Amount of Trust is less than $1,200,000
Bonds per Unit ............ $805.34 in principal amount of Bonds.
Secondary Market Public Mandatory Termination Date: The
Offering Price** earlier of December 31, 2041
Aggregate Bid Price or the disposition of the
of Bonds in Trust ....... $1,702,216+++ last Bond in the Trust.
Divided by 2,173 Units .... $783.35 Trustee***: The Chase Manhattan
Plus Sales Charge of 3.8% Bank.
of Public Offering Price $30.70 Trustee's Annual Fee: Monthly
Public Offering Price plan $1.10 per $1,000;
per Unit ................ $814.05+ semi-annual plan $.63 per
Redemption and Sponsor's $1,000; and annual plan is
Repurchase Price $.36 per $1,000.
per Unit .................. $783.35+ Evaluator: Kenny S&P Evalua-
+++ tion Services.
++++ Evaluator's Fee for Each
Excess of Secondary Market Evaluation: Minimum of $5
Public Offering Price plus $.25 per each issue of
over Redemption and Bonds in excess of 50 issues
Sponsor's Repurchase (treating separate maturities
Price per Unit ............ $30.70++++ as separate issues).
Difference between Public Sponsor: ING Funds Distributor,
Offering Price per Unit Inc.
and Principal Amount per Sponsor's Annual Fee: Maximum
Unit Premium/(Discount) ... $8.71 of $.25 per $1,000 principal
Evaluation Time: 4:00 p.m. amount of Bonds (see "Trust
New York Time. Expenses and Charges" in Part
B of this Prospectus).
</TABLE>
<TABLE>
<CAPTION>
PER UNIT INFORMATION BASED UPON INTEREST DISTRIBUTION PLAN ELECTED
------------------------------------------------------------------
Monthly Semi-Annual Annual
Option Option Option
------ ------ ------
<S> <C> <C> <C>
Gross annual interest income# .......... $47.37 $47.37 $47.37
Less estimated annual fees and
expenses ............................. 2.13 1.69 -0-
Estimated net annual interest ______ ______ ______
income (cash)# ....................... $45.24 $45.68 $47.37
Estimated interest distribution# ....... 3.77 22.84 47.37
Estimated daily interest accrual# ...... .1256 .1268 .1315
Estimated current return#++ ............ 5.56% 5.61% 5.82%
Estimated long term return++ ........... 4.79% 4.85% 4.80%
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
</TABLE>
A-6
NY/300338.1
<PAGE>
Footnotes to Summary of Essential Information
---------------------------------------------
* The Date of Deposit is the date on which the Trust Agreement was signed
and the deposit of the Bonds with the Trustee made.
** Certain amounts distributable as of June 30, 2000 may be reported in the
Summary of Essential Information as if they had been distributed as of
year-end.
*** The Trustee maintains its principal executive office at 270 Park Avenue,
New York, New York 10017 and its unit investment trust office at 4 New
York Plaza, New York, New York 10004 (tel. no.: 1-800-882-9898). 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 three
business days after purchase) of $7.65 monthly, $12.06 semi-annually and
$38.52 annually for the New York Trust, and $6.64 monthly, $10.45
semi-annually and $34.27 annually for the Virginia Trust.
++ 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 from 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 accrual from original issue discount bonds, if any.
<TABLE>
<CAPTION>
FINANCIAL AND STATISTICAL INFORMATION
Selected data for each Unit outstanding for the periods listed below:
Distribu-
Distributions of Interest tions of
During the Period (per Unit) Principal
--------------------------- During
Net Asset* Semi- the
Units Out- Value Monthly Annual Annual Period
Period Ended standing Per Unit Option Option Option (Per Unit)
------------ ---------- ---------- ------- ------ ------ ----------
New York Trust
<S> <C> <C> <C> <C> <C> <C>
June 30, 1998 2,410 $ 989.52 $58.17 $58.51 $58.56 $ 5.06
June 30, 1999 2,246 958.91 57.67 58.07 58.18 10.47
June 30, 2000 2,023 849.49 53.60 53.86 56.08 87.53
Virginia Trust
<S> <C> <C> <C> <C> <C> <C>
June 30, 1998 2,759 $1,042.40 $60.12 $60.70 -0- $ 2.42
June 30, 1999 2,466 828.45 50.13 50.57 -0- 201.36
June 30, 2000 2,173 793.24 46.13 46.58 -0- 16.22
</TABLE>
----------
* Net Asset Value per Unit is calculated by dividing net assets as disclosed
in the "Statement of Net Assets" by the number of Units outstanding as of
the date of the Statement of Net Assets. See Note 5 of Notes to Financial
Statements for a description of the components of Net Assets.
A-7
NY/300338.1
<PAGE>
INFORMATION REGARDING THE TRUSTS
AS OF JUNE 30, 2000
DESCRIPTION OF PORTFOLIOS
-------------------------
New York Trust
--------------
Each Unit in the New York Trust consists of a 1/2023rd undivided interest
in the principal and net income of the Trust in the ratio of one Unit for each
$805.73 of principal amount of the Bonds currently held in the Trust. The
Sponsor have not participated as a sole underwriter or manager, co-manager or
member of an underwriting syndicate from which any of the initial aggregate
principal amount of the Bonds were acquired. The portfolio of the New York Trust
consists of 6 issues representing obligations of 5 issuers located in New York
and 1 in Puerto Rico. Approximately 16.6% of the Bonds are obligations of state
and local housing authorities; approximately 39% are hospital revenue bonds; and
none were issued in connection with the financing of nuclear generating
facilities. None of the Bonds are mortgage subsidy bonds. All of the Bonds 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). Two issues representing $520,000 of the principal
amount of the Bonds are general obligation bonds. All four of the remaining
issues representing $1,110,000 of the 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: Highway 1, Hospital 2 and Multi-Family Housing 1. For an explanation of
the significance of these factors see "The State Trusts--Portfolios" in Part B
of this Prospectus.
As of June 30, 2000, none of the Bonds were original issue discount bonds
and none 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. The market value of Zero Coupon Bonds is subject
to greater fluctuations than coupon bonds in response to changes in interest
rates. None of the aggregate principal amount of the Bonds in the Trust were
purchased at a "market" discount from par value at maturity, approximately 100%
were purchased at a premium and none were purchased at par. For an explanation
of the significance of these factors see "The Portfolios--Discount and Zero
Coupon Bonds" in Part B of this Prospectus.
None of the Bonds in the New York Trust are subject to the federal
individual alternative minimum tax under the Tax Reform Act of 1986. See "Tax
Status" in Part B of this Prospectus.
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NY/300338.1
<PAGE>
Virginia Trust*
--------------
Each Unit in the Virginia Trust consists of a 1/2173rd undivided interest
in the principal and net income of the Trust in the ratio of one Unit for each
$805.34 of principal amount of the Bonds currently held in the Trust. The
Sponsor have participated as a sole underwriter or manager, co-manager or member
of an underwriting syndicate from which none of the initial aggregate principal
amount of the Bonds were acquired. The portfolio of the Virginia Trust consists
of 5 issues representing obligations of 4 issuers located in Virginia and 1 in
Puerto Rico. None of the Bonds are obligations of state and local housing
authorities; approximately 54.2% are hospital revenue bonds; and none were
issued in connection with the financing of nuclear generating facilities. Four
of the Bonds 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. Five issues representing $1,750,000 of the 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: Airport 1, Electric 1,
Hospital 2 and University 1. For an explanation of the significance of these
factors see "The State Trusts--Portfolios" in Part B of this Prospectus.
As of June 30, 2000, $1,300,000 (approximately 74.3% of the aggregate
principal amount of the Bonds) were original issue discount bonds. Of these
original issue discount bonds, $150,000 (approximately 8.5% 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. The market value of Zero
Coupon Bonds is subject to greater fluctuations than coupon bonds in response to
changes in interest rates. None of the aggregate principal amount of the Bonds
in the Trust were purchased at a "market" discount from par value at maturity,
approximately 25.7% were purchased at a premium and none were purchased at par.
For an explanation of the significance of these factors see "The
Portfolios--Discount and Zero Coupon Bonds" in Part B of this Prospectus.
None of the Bonds in the Virginia Trust are subject to the federal
individual alternative minimum tax under the Tax Reform Act of 1986. See "Tax
Status" in Part B of this Prospectus.
----------
* Changes in the Trust Portfolio: From July 1, 2000 to September 15, 2000,
$50,000 of the principal amount of the Bond in portfolio no. 4 was sold
and is no longer contained in the Trust. 53 Units were redeemed from the
Trust.
A-9
NY/300338.1
<PAGE>
Report of Independent Auditors
The Sponsor, Trustee and Certificateholders of
Municipal Securities Trust, Multi-State Series 42
We have audited the accompanying statements of net assets of Municipal
Securities Trust Multi-State Series 42, (comprising, respectively, the New York
Trust and Virginia Trust) including the portfolios, as of June 30, 2000 and the
related statements of operations, and changes in net assets and financial
highlights for the year then ended. These financial statements and financial
highlights are the responsibility of the Trustee. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits. The statements of operations and statements of changes in net
assets for each of the two years in the period ended June 30, 1999 and financial
highlights for each of the four years in the period ended June 30, 1999 were
audited by other auditors whose report thereon dated September 15, 1999,
expressed an unqualified opinion on those financial statements and financial
highlights.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights 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 the securities
owned by correspondence with the Trustee. An audit also includes assessing the
accounting principles used and significant estimates made by the Trustee, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the 2000 financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Municipal Securities Trust, Multi-State Series 42 at June 30, 2000, the results
of their operations, changes in their net assets and financial highlights for
the year then ended, in conformity with accounting principles generally accepted
in the United States.
/s/ Ernst & Young LLP
New York, New York
October 16, 2000
<PAGE>
Municipal Securities Trust
Multi-State Series 42
New York Trust
Portfolio
June 30, 2000
<TABLE>
<CAPTION>
Redemption
Aggregate Coupon Feature (2)(4)
Portfolio Principal Rate/Date(s) of S.F.-Sinking Fund
No. Amount Name of Issuer and Title of Bonds Ratings (1) Maturity (2) Ref.-Refunding
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 $ 255,000 N.Y. State Genl. Oblig. Rev. Bonds A+ 6.875% No Sinking Fund
3/01/2020 3/01/02 @ 102 Ref.
2 270,000 N.Y. State Hsg. Finc. Agncy. Insrd. AAA 6.500 2/15/15 @ 100 S.F.
Multi-Fam. Mtg. Hsg. Rev. Bonds 1992 8/15/2024 8/15/02 @ 102 Ref.
Series C
3 330,000 N.Y. State Med. Care Facs. Finc. Agncy. AAA 6.650 8/15/04 @ 100 S.F.
Hosp. & Nrsg. Home Insrd. Mtg. Rev. 8/15/2032 8/15/02 @ 102 Ref.
Bonds 1992 Series C
3a 20,000 N.Y. State Med. Care Facs. Finc. Agncy. AAA 6.650 8/15/04 @ 100 S.F.
Hosp. & Nrsg. Home Insrd. Mtg. Rev. 8/15/2032 8/15/02 @ 102 Ref.
Bonds 1992 Series C (unrefunded)
4 260,000 N.Y. City Genl. Oblig. Rev. Bonds Series C Aaa* 7.000 No Sinking Fund
Subseries C1 8/01/2016 8/01/02 @101.5 Ref.
4a 5,000 N.Y. City Genl .Oblig. Rev. Bonds Series C BBB+ 7.000 No Sinking Fund
Subseries C1 (unrefunded) 8/01/2016 None
5 285,000 Oneida N.Y. Hlth. Care Corp. Mtg. Rev. A 7.200 2/01/07 @ 100 S.F.
Bonds (FHA Insrd. Mtg. Loan-Oneida Hlth. 8/01/2031 8/01/01 @ 102 Ref.
Care Corp. Resdntl. Hlth. Care Fac.
Prjt.) Series 1991A
6 200,000 P.R. Cmmnwlth. Hwy. & Trans. AAA 6.625 7/01/13 @ 100 S.F.
Auth. Hwy. Rev. Bonds 7/01/2018 7/01/02 @ 101.5 Ref.
6a 5,000 P.R. Cmmnwlth. Hwy. & Trans. AAA 6.625 7/01/13 @ 100 S.F.
Auth. Hwy. Rev. Bonds 7/01/2018 7/01/02 @ 101.5 Ref.
---------------
$1,630,000 Total Investments (3) (cost $1,664,360)
===============
</TABLE>
<TABLE>
<CAPTION>
Aggregate
Portfolio Principal Market
No. Amount Name of Issuer and Title of Bonds Value (3)
--------------------------------------------------------------------------------------------------
<S> <C>
1 $ 255,000 N.Y. State Genl. Oblig. Rev. Bonds $ 269,030
2 270,000 N.Y. State Hsg. Finc. Agncy. Insrd. 277,023
Multi-Fam. Mtg. Hsg. Rev. Bonds 1992
Series C
3 330,000 N.Y. State Med. Care Facs. Finc. Agncy. 346,546
Hosp. & Nrsg. Home Insrd. Mtg. Rev.
Bonds 1992 Series C
3a 20,000 N.Y. State Med. Care Facs. Finc. Agncy. 21,195
Hosp. & Nrsg. Home Insrd. Mtg. Rev.
Bonds 1992 Series C (unrefunded)
4 260,000 N.Y. City Genl. Oblig. Rev. Bonds Series C 276,078
Subseries C1
4a 5,000 N.Y. City Genl .Oblig. Rev. Bonds Series C 5,260
Subseries C1 (unrefunded)
5 285,000 Oneida N.Y. Hlth. Care Corp. Mtg. Rev. 295,192
Bonds (FHA Insrd. Mtg. Loan-Oneida Hlth.
Care Corp. Resdntl. Hlth. Care Fac.
Prjt.) Series 1991A
6 200,000 P.R. Cmmnwlth. Hwy. & Trans. 211,626
Auth. Hwy. Rev. Bonds
6a 5,000 P.R. Cmmnwlth. Hwy. & Trans. 5,291
Auth. Hwy. Rev. Bonds
--------------- ---------------
$1,630,000 Total Investments (3) (cost $1,664,360) $ 1,707,241
=============== ===============
</TABLE>
<PAGE>
Municipal Securities Trust
Multi-State Series 42
Virginia Trust
Portfolio
June 30, 2000
<TABLE>
<CAPTION>
Redemption
Aggregate Coupon Feature (2)(4)
Portfolio Principal Rate/Date(s) of S.F.-Sinking Fund
No. Amount Name of Issuer and Title of Bonds Ratings (1) Maturity (2) Ref.-Refunding
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 $ 500,000 Albemarle Cnty. Va. Ind. Dev. NR 6.500% 10/01/13 @ 100 S.F.
Auth. Hlth. Servs. Rev. Bonds 10/01/2022 10/01/02 @ 102 Ref.
(The Univ. of Va. Hlth. Servs. Fndtion.)
Series 1992
2 400,000 Loudoun Cnty. Va. Ind. Dev. Auth. Univ. A1* 6.250 5/15/13 @ 100 S.F.
Facs. Rev. Rfndg. Bonds 5/15/2022 5/15/02 @ 102 Ref.
(The George Washington Univ.) Series 1992
3 250,000 Met. Wash. Va. Arpts. Auth. Arpt. Sys. Rev. AAA 6.250 10/01/20 @ 100 S.F.
Bonds Series 1992A (AMT) (MBIA Corp.) 10/01/2021 10/01/02 @ 102 Ref.
4 450,000 Peninsula Ports Auth. of Va. Hlth. Sys. AA- 6.625 7/01/11 @ 100 S.F.
Rev. & Rfndg. Bonds (Riverside Hlth. 7/01/2018 7/01/02 @ 102 Ref.
Sys. Prjt.)
Series 1992A
5 150,000 P.R. Elec. Pwr. Auth. Pwr. Rev. Bonds BBB+ 0.000 No Sinking Fund
Series 1989 O 7/01/2017 None
---------------
$1,750,000 Total Investments (3) (cost $1,641,335)
===============
</TABLE>
See accompanying footnotes to portfolio and notes to financial statements.
<TABLE>
<CAPTION>
Aggregate
Portfolio Principal Market
No. Amount Name of Issuer and Title of Bonds Value (3)
------------------------------------------------------------------------------------------------------
<S> <C>
1 $ 500,000 Albemarle Cnty. Va. Ind. Dev. $ 526,225
Auth. Hlth. Servs. Rev. Bonds
(The Univ. of Va. Hlth. Servs. Fndtion.)
Series 1992
2 400,000 Loudoun Cnty. Va. Ind. Dev. Auth. Univ. 403,652
Facs. Rev. Rfndg. Bonds
(The George Washington Univ.) Series 1992
3 250,000 Met. Wash. Va. Arpts. Auth. Arpt. Sys. Rev. 253,408
Bonds Series 1992A (AMT) (MBIA Corp.)
4 450,000 Peninsula Ports Auth. of Va. Hlth. Sys. 474,574
Rev. & Rfndg. Bonds (Riverside Hlth.
Sys. Prjt.)
Series 1992A
5 150,000 P.R. Elec. Pwr. Auth. Pwr. Rev. Bonds 56,367
Series 1989 O
--------------- ---------------
$1,750,000 Total Investments (3) (cost $1,641,335) $1,714,226
=============== ===============
</TABLE>
See accompanying footnotes to portfolio and notes to financial statements.
<PAGE>
Municipal Securities Trust
Multi-State Series 42
Footnotes to Portfolio
1 All ratings are by Kenny S&P Evaluation Services, a business unit of J.J.
Kenny Company, Inc., a subsidiary of The McGraw-Hill Companies, Inc., except
for those identified by an asterisk (*) which are by Moody's Investors
Service Inc. A brief description of the ratings symbols and their meaning is
set forth under "Description of Bond Ratings" in Part B of the Prospectus.
2. See "The Trust--Portfolio" in Part B of the Prospectus for an explanation of
redemption features. See "Tax Status" in Part B of the Prospectus for a
statement of the Federal tax consequences to a Certificateholder upon the
sale, redemption or maturity of a bond.
3. At June 30, 2000, the net unrealized appreciation of all the bonds was
comprised of the following:
New York Virginia
Trust Trust
---------------------------------
Gross unrealized appreciation $ 48,991 $ 72,891
Gross unrealized depreciation (6,110) -
---------------------------------
Net unrealized appreciation $ 42,881 $ 72,891
=================================
4. 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 of
unanticipated revenues).
The accompanying notes form an integral part of the financial statements.
<PAGE>
Municipal Securities Trust
Multi-State Series 42
Statements of Net Assets
June 30, 2000
<TABLE>
<CAPTION>
New York Virginia
Trust Trust
------------------------------------------
<S> <C> <C>
Investments in securities, at market value
(cost $1,664,360, and $1,641,335, respectively) $ 1,707,241 $ 1,714,226
Other assets
Accrued interest 44,149 29,974
------------------------------------------
Total other assets 44,149 29,974
------------------------------------------
Liabilities
Redemption payable - 2,369
Advance from Trustee 31,688 18,121
Accrued expenses 1,174 -
------------------------------------------
Total liabilities 32,862 20,490
------------------------------------------
Excess of other assets over total liabilities 11,287 9,484
------------------------------------------
Net assets (2,023 and 2,173 units of
fractional undivided interest outstanding,
$849.49 and $793.24 per
unit, respectively) $ 1,718,528 $1,723,710
==========================================
</TABLE>
The accompanying notes form an integral part of the financial statements.
<PAGE>
Municipal Securities Trust
Multi-State Series 42
New York Trust
Statements of Operations
<TABLE>
<CAPTION>
Year ended June 30,
2000 1999 1998
--------------------------------------------------------------------
<S> <C> <C> <C>
Investment income
Interest $ 117,762 $ 141,353 $ 145,911
Expenses
Trustee's fees 2,261 3,800 4,017
Evaluator's fee 1,375 1,427 1,482
Sponsor's advisory fee 500 543 584
--------------------------------------------------------------------
Total expenses 4,136 5,770 6,083
--------------------------------------------------------------------
Net investment income 113,626 135,583 139,828
--------------------------------------------------------------------
Realized and unrealized gain (loss)
Realized gain on investments 7,695 21,825 3,262
Unrealized appreciation (depreciation)
on investments (54,290) (66,926) 25,809
--------------------------------------------------------------------
Net gain (loss) on investments (46,595) (45,101) 29,071
--------------------------------------------------------------------
Net increase in net assets
resulting from operations $ 67,031 $ 90,482 $ 168,899
====================================================================
</TABLE>
The accompanying notes form an integral part of the financial statements.
<PAGE>
Municipal Securities Trust
Multi-State Series 42
Virginia Trust
Statements of Operations
<TABLE>
<CAPTION>
Year ended June 30,
2000 1999 1998
--------------------------------------------------------------------
<S> <C> <C> <C>
Investment income
Interest $ 112,623 $ 129,642 $ 181,384
Expenses
Trustee's fees 3,324 3,903 4,785
Evaluator's fee 1,375 1,427 1,481
Sponsor's advisory fee 528 723 736
--------------------------------------------------------------------
Total expenses 5,227 6,053 7,002
--------------------------------------------------------------------
Net investment income 107,396 123,589 174,382
--------------------------------------------------------------------
Realized and unrealized gain (loss)
Realized gain (loss) on investments 4,480 (1,821) 10,853
Unrealized appreciation (depreciation)
on investments (70,135) (20,095) 28,577
--------------------------------------------------------------------
Net gain (loss) on investments (65,655) (21,916) 39,430
--------------------------------------------------------------------
Net increase in net assets resulting from operations $ 41,741 $ 101,673 $ 213,812
====================================================================
</TABLE>
The accompanying notes form an integral part of the financial statements.
<PAGE>
Municipal Securities Trust
Multi-State Series 42
New York Trust
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year ended June 30,
2000 1999 1998
--------------------------------------------------------------------
<S> <C> <C> <C>
Operations
Net investment income $ 113,626 $ 135,583 $ 139,828
Realized gain on investments 7,695 21,825 3,262
Unrealized appreciation (depreciation)
on investments (54,290) (66,926) 25,809
--------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 67,031 90,482 168,899
--------------------------------------------------------------------
Distributions to Certificateholders
Investment income 114,449 137,042 140,524
Principal 196,258 24,814 12,200
Redemptions
Interest 3,358 2,402 987
Principal 188,159 157,236 49,081
--------------------------------------------------------------------
Total distributions and redemptions 502,224 321,494 202,792
--------------------------------------------------------------------
Total (decrease) (435,193) (231,012) (33,893)
Net assets
Beginning of year 2,153,721 2,384,733 2,418,626
--------------------------------------------------------------------
End of year (including undistributed net investment income of
$23,170, $27,351, and $31,212, respectively) $ 1,718,528 $ 2,153,721 $ 2,384,733
====================================================================
</TABLE>
The accompanying notes form an integral part of the financial statements.
<PAGE>
Municipal Securities Trust
Multi-State Series 42
Virginia Trust
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year ended June 30,
2000 1999 1998
--------------------------------------------------------------------
<S> <C> <C> <C>
Operations
Net investment income $ 107,396 $ 123,589 $ 174,382
Realized gain (loss) on investments 4,480 (1,821) 10,853
Unrealized appreciation (depreciation)
on investments (70,135) (20,095) 28,577
--------------------------------------------------------------------
Net increase in net assets resulting from operations 41,741 101,673 213,812
--------------------------------------------------------------------
Distributions to Certificateholders
Investment income 105,736 129,885 173,054
Principal 18,799 551,612 7,013
Redemptions
Interest 3,819 4,409 2,365
Principal 232,623 248,803 197,354
--------------------------------------------------------------------
Total distributions and redemptions 360,977 934,709 379,786
--------------------------------------------------------------------
Total (decrease) (319,236) (833,036) (165,974)
Net assets
Beginning of year 2,042,946 2,875,982 3,041,956
--------------------------------------------------------------------
End of year (including undistributed net investment income of
$40,860, $43,019 and $53,724, respectively) $ 1,723,710 $ 2,042,946 $ 2,875,982
====================================================================
</TABLE>
The accompanying notes form an integral part of the financial statements.
<PAGE>
Municipal Securities Trust
Multi-State Series 42
New York Trust
Financial Highlights
Selected data for a unit of the Trust outstanding:*
<TABLE>
<CAPTION>
Year ended June 30,
2000 1999 1998
---------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of year** $ 958.91 $ 989.52 $ 983.18
---------------------------------------------------------
Interest income 55.16 60.72 59.92
Expenses (1.94) (2.48) (2.50)
---------------------------------------------------------
Net investment income 53.22 58.24 57.42
---------------------------------------------------------
Net gain or loss on investments(1) (15.54) (18.29) 12.05
---------------------------------------------------------
Total from investment operations 37.68 39.95 69.47
---------------------------------------------------------
Less distributions
to Certificateholders
Income 53.61 58.87 57.71
Principal 91.92 10.66 5.01
for Redemptions
Interest 1.57 1.03 .41
---------------------------------------------------------
Total distributions 147.10 70.56 63.13
---------------------------------------------------------
Net asset value, end of year** $ 849.49 $ 958.91 $ 989.52
=========================================================
</TABLE>
<TABLE>
<CAPTION>
1997 1996
---------------------------------------------
<S> <C> <C>
Net asset value, beginning of year** $ 979.23 $ 1,011.35
---------------------------------------------
Interest income 61.56 64.24
Expenses (2.33) (2.42)
---------------------------------------------
Net investment income 59.23 61.82
---------------------------------------------
Net gain or loss on investments(1) 20.54 10.18
---------------------------------------------
Total from investment operations 79.77 72.00
---------------------------------------------
Less distributions
to Certificateholders
Income 61.13 62.27
Principal 14.54 41.85
for Redemptions
Interest .15 -
---------------------------------------------
Total distributions 75.82 104.12
---------------------------------------------
Net asset value, end of year** $ 983.18 $ 979.23
=============================================
</TABLE>
(1) Net gain or loss on investments is a result of changes in outstanding units
since July 1, 1999, 1998, 1997, 1996 and 1995, respectively, and the dates
of net gain and loss on investments.
* Unless otherwise stated, based upon average units outstanding during the
year of 2,135 ([2,246 + 2,023]/2) for 2000, 2,328 ([2,410 + 2,246]/2) for
1999, 2,435 ([2,460 + 2,410]/2) for 1998, 2,465 ([2,470 + 2,460]/2) for 1997
and of 2,470 ([2,470 + 2,470]/2) for 1996, for the New York Trust.
** Based upon actual units outstanding.
The accompanying notes form an integral part of the financial statements.
<PAGE>
Municipal Securities Trust
Multi-State Series 42
Virginia Trust
Financial Highlights
<TABLE>
<CAPTION>
Selected data for a unit of the Trust outstanding:*
Year ended June 30,
2000 1999 1998 1997
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year** $ 828.45 $ 1,042.40 $ 1,031.17 $ 1,017.07
--------------------------------------------------------------------------------
Interest income 48.54 49.61 63.53 65.82
Expenses (2.25) (2.32) (2.45) (2.18)
--------------------------------------------------------------------------------
Net investment income 46.29 47.29 61.08 63.64
--------------------------------------------------------------------------------
Net gain or loss on investments (1) (26.17) 1.26 14.05 14.86
--------------------------------------------------------------------------------
Total from investment operations 20.12 48.55 75.13 78.50
--------------------------------------------------------------------------------
Less distributions
to Certificateholders
Income 45.58 49.71 60.61 60.83
Principal 8.10 211.10 2.46 3.42
for Redemptions
Interest 1.65 1.69 .83 .15
--------------------------------------------------------------------------------
Total distributions 55.33 262.50 63.90 64.40
--------------------------------------------------------------------------------
Net asset value, end of year** $ 793.24 $ 828.45 $ 1,042.40 $ 1,031.17
================================================================================
</TABLE>
1996
----------------------
Net asset value, beginning of year** $ 1,014.99
----------------------
Interest income 63.05
Expenses (2.24)
----------------------
Net investment income 60.81
----------------------
Net gain or loss on investments (1) 2.23
----------------------
Total from investment operations 63.04
----------------------
Less distributions
to Certificateholders
Income 60.90
Principal -
for Redemptions
Interest .06
----------------------
Total distributions 60.96
----------------------
Net asset value, end of year** $ 1,017.07
======================
(1) Net gain or loss on investments is a result of changes in outstanding units
since July 1, 1999, 1998, 1997, 1996 and 1995, respectively, and the dates
of net gain and loss on investments.
* Unless otherwise stated, based upon average units outstanding during the
year of 2,320 ([2,466 + 2,173])/2 for 2000, 2,613 ([2,759 + 2,466]/2) for
1999, 2,855 ([2,950 + 2,759]/2) for 1998, 2,968 ([2,985 + 2,950]/2) for 1997
and of 2,993 ([3,000 + 2,985]/2) for 1996, for the Virginia Trust.
** Based upon actual units outstanding.
The accompanying notes form an integral part of the financial statements.
<PAGE>
Municipal Securities Trust
Multi-State Series 42
Notes to Financial Statements
June 30, 2000
1. Organization
Municipal Securities Trust, Multi-State Series 42 (the "Trust") (comprising,
respectively, the New York Trust and Virginia Trust) was organized on November
19, 1992 by Bear, Stearns & Co. Inc. and Gruntal & Co., LLC 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. The Trust was formed to preserve
capital and to provide interest income.
On September 28, 1995, Reich & Tang Distributors, Inc. ("Reich & Tang") had
become the successor sponsor to certain of the unit investment trusts previously
sponsored by Bear, Stearns & Co. Inc. As successor sponsor, Reich & Tang had
assumed all of the obligations and rights of Bear, Stearns & Co. Inc., the
previous sponsor.
Effective February 9, 2000, Gruntal & Co., LLC resigned as a co-sponsor of
certain unit investment trusts previously co-sponsored with Riech & Tang. ING
Funds Distributor, Inc. ("ING") has become the successor sponsor to certain unit
investment trusts previously sponsored by Reich & Tang. As successor sponsor,
ING has assumed all of the obligations and rights of Reich & Tang, the previous
sponsor.
2. Summary of Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Trust in preparation of its financial statements. The policies
are in conformity with generally accepted accounting principles ("GAAP"). The
preparation of financial statements in accordance with GAAP requires management
to make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual amounts could differ from those
estimates.
Interest Income
Interest income is recorded 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.
<PAGE>
Municipal Securities Trust
Multi-State Series 42
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Security Valuation
Investments are carried at market value which is determined by Kenny S&P
Evaluation Services, a business unit of J.J. Kenny Company, Inc., a subsidiary
of the McGraw-Hill Companies, Inc. The market value of the portfolio is based
upon the bid prices for the bonds at the end of the year, which approximates the
fair value of the security at that date, 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
No provision for federal income taxes has been made in the accompanying
financial statements because the Trust intends to continue to qualify for the
tax treatment applicable to Grantor Trusts under the Internal Revenue Code.
Under existing law, if the Trust so qualifies, it will not be subject to federal
income tax on net income and capital gains that are distributed to unitholders.
4. Trust Administration
The Chase Manhattan Bank (the "Trustee") has custody of assets 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 Trust Indenture and Agreement provides for interest distributions as often
as monthly (depending upon the distribution plan elected by the
Certificateholders).
<PAGE>
Municipal Securities Trust
Multi-State Series 42
Notes to Financial Statements (continued)
4. Trust Administration (continued)
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.
The Trust Indenture and Agreement also requires the Trust to redeem units
tendered. For the years ended June 30, 2000, 1999 and 1998, 223, 164 and 50
units were redeemed in the New York Trust, respectively. For the years ended
June 30, 2000, 1999 and 1998, 293, 293 and 191 units were redeemed in the
Virginia Trust, respectively.
The Trust pays an annual fee for trustee services rendered by the Trustee that
ranges from $.36 to $1.10 per $1,000 of outstanding investment principal. In
addition, a minimum fee of $5.00 is paid to a service bureau for each portfolio
valuation. A maximum fee of $.25 per $1,000 of outstanding investment principal
is paid to the Sponsor. For the year ended June 30, 2000, the "Trustee's Fees"
are comprised of Trustee fees of $1,654 and 1,769 and other expenses of $607 and
1,555 for the New York and Virginia Trusts, respectively. For the year ended
June 30, 1999, the "Trustee's Fees" are comprised of Trustee fees of $1,976 and
$2,108 and other expenses of $1,824 and $1,795 for the New York and Virginia
Trusts, respectively. For the year ended December 31, 1998, the "Trustee's Fees"
are comprised of Trustee fees of $2,173, and $2,900 and other expenses of $1,844
and $1,885 for the New York and Virginia Trusts, respectively. The other
expenses include professional, printing and miscellaneous fees.
<PAGE>
Municipal Securities Trust
Multi-State Series 42
Notes to Financial Statements (continued)
5. Net Assets
At June 30, 2000, the net assets of the Trust represented the interest of
Certificateholders as follows:
<TABLE>
<CAPTION>
New York Virginia
Trust Trust
------------------------------------------------
<S> <C> <C>
Original cost to Certificateholders $ 2,540,097 $ 3,059,876
Less initial gross underwriting commission
124,465 149,934
------------------------------------------------
2,415,632 2,909,942
Accumulated cost of securities sold,
matured or called (751,272) (1,287,973)
Net unrealized appreciation 42,881 72,891
Undistributed net investment income 23,170 40,860
Distributions in excess of proceeds
from investments (11,883) (12,010)
------------------------------------------------
Total $ 1,718,528 $ 1,723,710
================================================
</TABLE>
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 2,500 and 3,000 units of fractional undivided
interest of the, New York Trust and Virginia Trust, respectively, as of the date
of deposit.
Undistributed net investment income includes accumulated accretion of original
issue discount of $19,366 for the Virginia Trust.
<PAGE>
Municipal Securities Trust
Multi-State Series 42
Notes to Financial Statements (continued)
6. Concentration of Credit Risk
Since the Trust invests a portion of its assets in municipal bonds, it may be
affected by economic and political developments in the municipalities. Certain
debt obligations held by the Trust may be entitled to the benefit of insurance,
standby letters of credit or other guarantees of banks or other financial
institutions.
<PAGE>
Note: Part B of This Prospectus May Not Be
Distributed Unless Accompanied by Part A.
Please Read and Retain Both Parts
---------------------------------
of the Prospectus for Future Reference.
--------------------------------------
MUNICIPAL SECURITIES TRUST
MULTI-STATE SERIES
(Multiplier Portfolio)
Prospectus Part B
Dated: October 28, 2000
THE TRUST
---------
Organization. "Municipal Securities Trust," Multi-State Series
(the "Trust") consists of several separate "unit investment trusts," which may
include the California Trust, Florida Trust, New York Trust and/or Virginia
Trust (collectively, the "State Trusts") designated as set forth in Part A. The
State Trusts were created under the laws of the State of New York pursuant to
the Trust Indenture and Agreement(*) (collectively, the "Trust Agreement"),
dated the Date of Deposit, among Reich & Tang Distributors, Inc., the
predecessor to ING Funds Distributor, Inc., as Sponsor, or depending on the
particular Trust, Reich & Tang Distributors, Inc. and Gruntal & Co., L.L.C., as
Co-Sponsors (Gruntal & Co., L.L.C. has resigned as co-sponsor), Kenny S&P
Evaluation Services, a division of J.J. Kenny Company, Inc., a subsidiary of The
McGraw-Hill Companies, as Evaluator, and, depending on the particular State
Trust, either The Bank of New York or The Chase Manhattan Bank, as Trustee. The
name of the Trustee for a particular State Trust is contained in the "Summary of
Essential Information" in Part A. For a description of the Trustee for a
particular State Trust, see "Trust Administration--The Trustee." Each State
Trust will be administered as a distinct entity with separate certificates,
expenses, books and records.
On the Date of Deposit the Sponsor deposited with the Trustee
long-term bonds, including delivery statements relating to contracts for the
purchase of certain such bonds (the "Bonds"), and cash or irrevocable letters 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 State Trusts. The Trust consists of the interest-bearing bonds described
under "The Trust" in Part A of this Prospectus, the interest on which is, in the
opinions of bond counsel to the respective issuers given at the time of original
delivery of the Bonds, exempt from regular Federal income tax under existing
law.
Each "Unit" outstanding on the Evaluation Date represented an
undivided interest or pro rata share in the principal and interest of each State
Trust in the ratio of one Unit to the principal amount of Bonds in such State
Trust on such date as specified in Part A of this Prospectus. To the extent that
any Units of a State Trust are redeemed by the Trustee, the fractional undivided
interest or pro rata share in such State Trust represented by each unredeemed
Unit of such State Trust will increase, although the actual interest in such
State Trust represented by such fraction will remain unchanged. Units will
remain outstanding until redeemed upon tender to the Trustee by
Certificateholders, which may include the Sponsor, or until the termination of
the Trust Agreement.
---------------------
* References in this Prospectus to the Trust Agreement are qualified in
their entirety by the respective Trust Indentures and Agreements which
are incorporated herein by reference.
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Objectives. Each State Trust is one of a series of similar but
separate unit investment trusts formed by the Sponsor which offers investors the
opportunity to participate in a portfolio of long-term tax-exempt bonds, which
may include deep "market" discount and original issue discount bonds, with a
greater diversification than they might be able to acquire themselves. The
objectives of each State Trust are to preserve capital and to provide interest
income 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,
currently exempt from regular Federal income tax and from present income taxes
of the State for which such Trust is named for residents thereof. Such interest
income may, however, be subject to the Federal alternative minimum tax and to
state and local taxes in other jurisdictions. Investors should be aware that
there is no assurance the State Trusts' objectives will be achieved because
these objectives are dependent on the continuing ability of the issuers of the
Bonds to meet their interest and principal payment requirements, on the
continuing satisfaction of the conditions required for the exemptions 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.
Since disposition of Units prior to final liquidation of a
State 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 State Trusts are not designed to be complete
investment programs.
The Portfolios--General. All of the Bonds in the State Trusts
were rated "A" or better by Standard & Poor's Ratings Services, A Division of
The McGraw-Hill Companies ("Standard & Poor's") or Moody's Investors Service,
Inc. ("Moody's") at the time originally deposited in the State Trust. For a list
of the ratings of each Bond on the Evaluation Date, see each "Portfolio" in Part
A of this Prospectus.
For information regarding (i) the number of issues in each
State Trust, (ii) the range of fixed maturity of the Bonds, (iii) the number of
issues payable from the income of a specific project or authority and (iv) the
number of issues constituting general obligations of a government entity, see
"The Trust" and "Description of Portfolio" for each State Trust in Part A of
this Prospectus.
When selecting Bonds for the State Trusts, the following
factors, among others, were considered by the Sponsor on the Date of Deposit:
(i) the quality of the Bonds and whether such Bonds were rated "A" or better by
Standard & Poor's or Moody's, (ii) the yield and price of the Bonds relative to
other tax-exempt securities of comparable quality and maturity, (iii) income to
the Certificateholders of the State Trusts, (iv) the diversification of each
State Trust's portfolio, as to purpose of issue and location of issuer, taking
into account the availability in the market of issues which meet such State
Trust's quality, rating, yield and price criteria and (v) the existence of
"market" discount and original issue discount. Subsequent to the Evaluation
Date, a Bond may cease to be rated or its rating may be reduced below that
specified above. Neither event requires an elimination of such Bond from a State
Trust but may be considered in the Sponsor's determination to direct the Trustee
to dispose of the Bond. See "Portfolio Supervision." For an interpretation of
the bond ratings, see "Description of Bond Ratings."
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 primarily or solely from rents and other fees, adverse 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 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
NY/302302.3
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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 third-party payors and government
programs such as Medicare and Medicaid. Both private third-party payors and
government programs have undertaken cost containment measures designed to limit
payments. Furthermore, government programs are subject to statutory and
regulatory changes, retroactive rate adjustments, administrative rulings and
government funding restrictions, all of which may materially decrease the rate
of program payments for health care facilities. There can be no assurance that
payments under governmental programs will remain at levels comparable to present
levels or will, in the future, be sufficient to cover the costs allocable to
patients participating in such programs. In addition, there can be no assurance
that a particular hospital or other health care facility will continue to meet
the requirements for participation in such programs.
The health care delivery system is undergoing considerable
alteration and consolidation. Consistent with that trend, the ownership or
management of a hospital or health care facility may change, which could result
in (i) an early redemption of bonds, (ii) alteration of the facilities financed
by the Bonds or which secure the Bonds, (iii) a change in the tax exempt status
of the Bonds or (iv) an inability to produce revenues sufficient to make timely
payment of debt service on the Bonds. 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.
Electric utilities which own or operate nuclear power plants are exposed to
risks inherent in the nuclear industry. These risks include exposure to new
requirements resulting from extensive Federal and state regulatory oversight,
public controversy, decommissioning costs, and spent fuel and radioactive waste
disposal issues. While nuclear power construction risks are no longer of
paramount concern, the emerging issue is radioactive waste disposal. In
addition, nuclear plants typically require substantial capital additions and
modifications throughout their operating lives to meet safety, environmental,
operational and regulatory requirements and to replace and upgrade various plant
systems. The high degree of regulatory monitoring and controls imposed on
nuclear plants could cause a plant to be out of service or on limited service
for long periods. When a nuclear facility owned by an investor-owned utility or
a state or local municipality is out of service or operating on a limited
service basis, the utility operator or its owners may be liable for the recovery
of replacement power costs. Risks of substantial liability also arise from the
operation of nuclear facilities and from the use, handling, and possible
radioactive emissions associated with nuclear fuel. Insurance may not cover all
types or amounts of loss which may be experienced in connection with the
ownership and operation of a nuclear plant and severe financial consequences
could result from a significant accident or occurrence. The Nuclear Regulatory
Commission has promulgated regulations mandating the establishment of funded
reserves to assure financial capability for the eventual decommissioning of
licensed nuclear facilities. These funds are to be accrued from revenues in
amounts currently estimated to be sufficient to pay for decommissioning costs.
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 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 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
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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. 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:
(i) 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 (ii) 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.
Litigation. Litigation challenging the validity under state
constitutions of present systems of financing public education has been
initiated in a number of states. Decisions in some states have been reached
holding such school financing in violation of state constitutions. In addition,
legislation to effect changes in public school financing has been introduced in
a number of states. The Sponsor is unable to predict the outcome of the pending
litigation and legislation in this area and what effect, if any, resulting
change in the sources of funds, including proceeds from property taxes applied
to the support of public schools, may have on the school bonds in the State
Trusts.
Legal Proceedings Involving the Trusts. The Sponsor has not
been notified or made aware of any litigation pending with respect to any Bonds
which might reasonably be expected to have a material effect on the State Trusts
other than that which is discussed under "The State Trusts" herein. Such
litigation as, for example, suits challenging the issuance of pollution control
revenue bonds under recently enacted environmental protection statutes, may
affect the validity of such Bonds or the tax-free nature of the interest
thereon. At any time after the
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date of this Prospectus, litigation may be instituted on a variety of grounds
with respect to the Bonds in the State Trusts. The Sponsor is unable to predict
whether any such litigation may be instituted or, if instituted, whether it will
have a material adverse effect on a State Trust.
Other Factors. The Bonds in the State Trusts, 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 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 State 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.
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, or termination of a contract).
In 1976 the Federal bankruptcy laws were amended so that an
authorized municipal debtor could more easily seek Federal court protection to
assist in reorganizing its debts so long as certain requirements were met.
Historically, very few financially troubled municipalities have sought court
assistance for reorganizing their debts; notwithstanding, the Sponsors are
unable to predict to what extent financially troubled municipalities may seek
court assistance in reorganizing their debts in the future and, therefore, what
effect, if any, the applicable Federal bankruptcy law provisions will have on
the State Trusts.
The State Trusts may also include "moral obligation" bonds.
Under statutes applicable to such bonds, if an issuer is unable to meet its
obligations, the repayment of such bonds becomes a moral commitment but not a
legal obligation of the state or municipality in question. See "Portfolio" and
"Information Regarding the State Trust" for each State Trust in Part A of this
Prospectus for the amount of moral obligation bonds contained in each State
Trust's portfolio.
Certain of the Bonds in the State Trusts are subject to
redemption prior to their stated maturity dates pursuant to sinking fund or call
provisions. A sinking fund is a reserve fund appropriated specifically toward
the retirement of a debt. A callable bond is one which is subject to redemption
or refunding prior to maturity at the option of the issuer. A refunding is a
method by which a bond is redeemed at or before maturity from the proceeds of a
new issue of bonds. In general, call provisions are more likely to be exercised
when the offering side evaluation of a bond is at a premium over par than when
it is at a discount from par. A listing of the sinking fund and call provisions,
if any, with respect to each of the Bonds in each State Trust is contained under
the "Portfolio" for such State Trust in Part A of this Prospectus.
Certificateholders will realize a gain or loss on the early redemption of such
Bonds, depending upon whether the price of such Bonds is at a discount from or
at a premium over par at the time the Certificateholders purchase their Units.
Neither the Sponsor nor the Trustee shall be liable in any way
for any default, failure or defect in any of the Bonds. Because certain of the
Bonds from time to time may be redeemed or will mature in accordance with their
terms or may be sold under certain circumstances, no assurance can be given that
the State Trusts will retain their present size and composition for any length
of time. The proceeds from the sale of a Bond in a State Trust or from the
exercise of any redemption or call provision will be distributed to
Certificateholders of such State Trust, except to the extent such proceeds are
applied to meet redemptions of Units. See "Trustee Redemption."
Puerto Rico Bonds. Certain of the Bonds in the Trust may be
general obligations and/or revenue bonds of issuers located in Puerto Rico.
These Bonds will be affected by general economic conditions in Puerto Rico. The
economy of Puerto Rico is fully integrated with that of the mainland United
States. During fiscal 1999, approximately 87% of Puerto Rico's exports were to
the United States mainland, which was also the source of 60% of Puerto Rico's
imports. In fiscal 1999, Puerto Rico experienced a $9.6 billion positive
adjusted merchandise trade
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balance. The dominant sectors of the Puerto Rico economy are manufacturing and
services. Gross product in fiscal 1995 was $28.5 billion ($26.0 billion in 1992
prices) and gross product in fiscal 1999 was $38.2 billion ($29.8 billion in
1992 prices). This represents an increase in gross product of 34.4% from fiscal
1995 to 1999 (14.8% in 1992 prices).
Average employment increased from 1,051,000 in fiscal 1995,to
1,147,000 in fiscal 1999. Average unemployment decreased from 13.8% in fiscal
1995, to 12.5% in fiscal 1999, the lowest annual unemployment rate in more than
two decades. According to the Labor Department's Household Employment Survey,
during fiscal 1999, total employment increased 0.9% over fiscal 1998. Total
monthly employment averaged 1,147,000 in fiscal 1999, compared to 1,137,400 in
fiscal 1998. The seasonally adjusted unemployment rate for January 2000 was
11.9%. According to the Labor Department's Household Employment Survey, during
the first seven months of fiscal 2000, total employment increased 0.4% over the
same period in fiscal 1999. Total monthly employment averaged 1,138,600 during
the first seven months of fiscal 2000, compared to 1,134,400 in the same period
in fiscal 1999.
The Planning Board's gross product forecast for fiscal 2000,
made in October 1999, projected an increase of 2.7% over fiscal 1999 and an
increase of 2.3% for fiscal 2001. The performance of the economy during fiscal
2000 and 2001 will be effected principally by the performance of the United
States economy and by the increase in oil prices and, to a lesser extent, by the
level of interest rates. Since Puerto Rico is heavily dependent on oil imports
for its energy needs, if the level of oil prices remain at their current high
levels, this may adversely affect economic activity in Puerto Rico during the
remainder of fiscal 2000 and during fiscal 2001.
Discount and Zero Coupon Bonds. The State Trust portfolios may
contain 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 generally 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. Of these original issue discount bonds, a portion of the aggregate
principal amount of the Bonds in each State 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 fluctuations 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. See "Description of Portfolios" in Part A for the
aggregate principal amount of original issue discount bonds in each State
Trust's portfolio.
The State Trust portfolios may also contain Bonds that were
purchased at deep "market" discount from par value at maturity. This is because
the coupon interest rates on the discount Bonds at the time they were purchased
and deposited in the State Trusts 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 returns (coupon interest income as a
percentage of market price) of discount bonds will be lower than the current
returns 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 capital gain and ordinary income and less in the form of tax-exempt
interest income than a comparable bond newly issued at current market rates.
Under the provisions of the Internal Revenue Code in effect on the date of this
Prospectus, any income attributable to market discount will be taxable but will
not be realized until maturity, redemption or sale of the Bonds or Units. 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 the
bonds will
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decrease; and if interest rates decline, the value of the bonds will
increase. The discount does not necessarily indicate a lack of market confidence
in the issuer.
THE STATE TRUSTS
----------------
The Sponsor believes the information summarized below
describes some of the more significant events relating to the State Trusts.
Sources of such information are the official statements of the issuers located
in the states of the State Trusts which have been issued in connection with debt
offerings by such states, as well as other publicly available documents and
information. While the Sponsor has not independently verified such information,
it has no reason to believe it is not correct in all material respects.
California Trust
Certain of the California Municipal Obligations in the Trust may be
bonds or other types of obligations that rely in whole or in part, directly or
indirectly, on ad valorem real property taxes as a source of revenue. In the
past few decades, California voters have approved amendments to the California
Constitution that establish certain limitations on the powers of municipalities
to impose and collect taxes on real property. See discussions below on
"Proposition 98" and "Constitutional and Statutory Limitations."
California Risk Factors
The following information is a brief summary of factors affecting the
economy of the State of California and does not purport to be a complete
description of such factors. Other factors will affect issuers. This summary is
based primarily upon one or more publicly available offering statements relating
to debt offerings of California issuers; however, it has not been updated. The
Trust has not independently verified the information.
General Economic Conditions. The economy of the State of California
(sometimes referred to herein as the "State") is the largest among the 50 states
and one of the largest in the world. This diversified economy has major
components in high technology, trade, entertainment, agriculture, manufacturing,
tourism, construction and services.
The State's July 1, 1999 population of over 34 million represented over
12 percent of the total United States population.
California's population is concentrated in metropolitan areas. As of
the April 1, 1990 census, 96 percent of population resided in the 23
Metropolitan Statistical Areas in the State. As of July 1, 1998, the five-county
Los Angeles area accounted for 49 percent of the State's population, with 16.0
million residents. The 10-county San Francisco Bay Area represented 21 percent,
with a population of 7.0 million.
Following a severe recession beginning in 1990, the State of
California's financial condition improved markedly during the fiscal years (a
"Fiscal Year" begins on July 1 and ends on June 30) starting in 1995-96, with a
combination of better than expected revenues, slowdown in growth of social
welfare programs, and continued spending restraint based on actions taken in
earlier years. The State's cash position also improved, and no external deficit
borrowing occurred over the end of the last five Fiscal Years.
The State's economy grew strongly during the Fiscal Years beginning in
1995-96, and as a result, the General Fund (which is the primary revenue account
of the State, holding all revenues received by the State Treasury that are not
required to be credited to a special fund and earnings from investments not
required to be allocated to another fund) took in substantially greater tax
revenues (around $2.2 billion in 1995-96, $1.6 billion in 1996-97 and $2.4
billion in 1997-98, $1.7 billion in 1998-99 and $8.2 billion in 1999-2000) than
were initially planned when the budgets were enacted. These additional funds
were largely directed to school spending as mandated by Proposition 98, to make
up shortfalls from reduced Federal health and welfare aid in 1995-96 and
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1996-97 and particularly in 1998-99 to fund new program incentives. The
accumulated budget deficit from the recession years was finally eliminated. (See
"Proposition 98" below.)
In the 2000 May Revision released on May 15, 2000, the Department of
Finance projected that the California economy will continue to show strong
growth in 2000, followed by more moderate gains in 2001. The projection assumed
a relatively flat stock market, and a 25 percent reduction in stock option
income in 2000-01. The economic expansion has been marked by strong growth in
high technology, manufacturing and business services (including software,
computer programming and the Internet), nonresidential construction,
entertainment and tourism-related industries. Growth in 1999 was greater than
earlier years in the economic expansion, with 3.7 percent year-over-year
increase in nonfarm payroll employment. Unemployment, now less than 5 percent,
is at the lowest rate in over 30 years. Taxable sales in the first quarter of
2000 were 10 percent above earlier year levels. Significant economic improvement
in Asia (excluding Japan), ongoing strength in NAFTA partners Mexico and Canada,
and stronger growth in Europe are expected to further increase California-made
exports in 2000 and 2001. Nonresidential construction has been strong for the
past four years. New residential construction has increased since lows of the
early 1990's recession, but remains lower than during the previous economic
expansion in the 1980's.
1998-99 Fiscal Year Budget
--------------------------
The following were major features of the 1998 Budget Act and certain
additional fiscal bills enacted before the end of the legislative session:
1. The most significant feature of the 1998 Budget Act was agreement on
a total of $1.4 billion of tax cuts. The central element was a bill that
provided for a phased-in reduction of the Vehicle License Fee ("VLF") . Since
the VLF is transferred to cities and counties under existing law, the bill
provided for the General Fund to replace the lost revenues. Starting on January
1, 1999, the VLF has been reduced by 25 percent, at a cost to the General Fund
of approximately $500 million in the 1998-99 Fiscal Year and about $1 billion
annually thereafter.
In addition to the cut in VLF, the 1998 Budget Act included both
temporary and permanent increases in the personal income tax dependent credit
($612 million General Fund cost in 1998-99, but less in future years), a
nonrefundable renters' tax credit ($133 million), and various targeted business
tax credits ($106 million).
2. Proposition 98 funding for local schools and community colleges
("K-14") was increased by $1.7 billion in General Fund moneys over revised
1997-98 levels, over $300 million higher than the minimum Proposition 98
guarantee. (See also "Proposition 98" below.) Of the 1998-99 funds, major new
programs included money for instructional and library materials, deferred
maintenance, support for increasing the school year to 180 days and reduction of
class sizes in Grade 9. The 1998 Budget Act also included $250 million as
repayment of prior years' loans to schools, as part of the settlement of the
California Teachers' Association v. Gould lawsuit. (See "Proposition 98" below.)
3. Funding for higher education increased substantially above the
actual 1997-98 level. General Fund support was increased by $340 million (15.6
percent) for the University of California ("UC") and $267 million (14.1 percent)
for the California State University ("CSU") system. In addition, community
college funding increased by $300 million (6.6 percent).
4. The 1998 Budget Act included increased funding for health, welfare
and social services programs. A 4.9 percent grant increase was included in the
basic welfare grants, the first increase in those grants in 9 years.
5. Funding for the judiciary and criminal justice programs increased by
about 11 percent over 1997-98, primarily to reflect increased State support for
local trial courts and rising prison population.
6. Major legislation enacted after the 1998 Budget Act included new
funding for resources projects, a share of the purchase of the Headwaters
Forest, funding for the Infrastructure and Economic Development Bank
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($50 million) and funding for the construction of local jails. The State
realized savings of $433 million from a reduction in the State's contribution to
the State Teacher's Retirement System in 1998-99.
Final tabulation of revenues and expenditures contained in the 2000-01
Governor's Budget, released on January 10, 2000, reveals that stronger than
expected economic conditions in the State produced total 1998-99 General Fund
revenues of about $58.6 billion, almost $1.6 billion above the 1998 Budget Act
estimates. Actual General Fund expenditures were $57.8 billion, the amount
estimated at the 1998 Budget Act. Some of this additional revenue was directed
to K-14 schools pursuant to Proposition 98. The Governor's Budget reports a
balance in the State's budget reserve fund at June 30, 1999, of approximately
$3.1 billion.
1999-00 Fiscal Year Budget
--------------------------
On January 8, 1999, Governor Davis released his proposed budget for
Fiscal Year 1999-00 (the "January Governor's Budget"). The January Governor's
Budget generally reported that General Fund revenues for Fiscal Year 1998-99 and
Fiscal Year 1999-00 would be lower than earlier projections (primarily due to
weaker overseas economic conditions perceived in late 1998), while some welfare
caseloads would be higher than earlier projections.
The principal features of the 1999 Budget Act include the following:
1. Proposition 98 funding for K-12 schools was increased by $1.6
billion in General Fund moneys over revised 1998-99 levels, $108.6 million
higher than the minimum Proposition 98 guarantee. Of the 1999-00 funds, major
new programs included money for reading improvement, new textbooks, school
safety, improving teacher quality, funding teacher bonuses, providing greater
accountability for school performance, increasing preschool and after school
care programs and funding deferred maintenance of school facilities. The 1999
Budget Act also included $310 million as repayment of prior years' loans to
schools, as part of the settlement of the California Teachers' Association v.
Gould lawsuit. (See also "Proposition 98" below.)
2. Funding for higher education increased substantially above the
actual 1998-99 level. General Fund support was increased by $184 million (7.3
percent) for the UC and $126 million (5.9 percent) for the CSU systems. In
addition, community college funding increased by $324.3 million (6.6 percent).
As a result, undergraduate fees at UC and CSU were reduced for the second
consecutive year, and the per-unit charge at community colleges was reduced by
$1.
3. The 1999 Budget Act included increased funding of nearly $600
million for health and human services.
4. About $800 million from the General Fund was directed toward
infrastructure costs, including $425 million in additional funding for the
Infrastructure Bank, initial planning costs for a new prison in the Central
Valley, additional equipment for train and ferry service, and payment of
deferred maintenance for State parks.
5. The Legislature enacted a one-year additional reduction of 10
percent of the VLF for calendar year 2000, at a General Fund cost of about $250
million in each of Fiscal Year 1999-00 and 2000-01 to make up lost funding to
local governments. Several other targeted tax cuts, primarily for businesses,
were also approved, at a cost of $54 million in 1999-00.
6. A one-time appropriation of $150 million, to be split between cities
and counties, was made to offset property tax shifts during the early 1990's.
Additionally, an ongoing $50 million was appropriated as a subvention to cities
for jail booking or processing fees charged by counties when an individual
arrested by city personnel is taken to a county detention facility.
The combination of resurging exports, a strong stock market, and a
rapidly-growing economy in 1999 and early 2000 resulted in unprecedented growth
in General Fund revenues during Fiscal Year 1998-99. The latest estimates from
the Department of Finance indicate revenues of about $71.2 billion, an increase
of over 20 percent
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over final 1999-00 revenues and $8.2 billion higher than projected for the 1999
Budget Act. The latest estimates indicate expenditures of $67.2 billion in
1999-2000, a $3.5 billion increase over the 1999 Budget Act, but the result
still left a record balance in the Special Fund for Economic Uncertainties at
June 30, 2000 of over $7.2 billion.
2000-01 Fiscal Year Budget
--------------------------
On January 10, 2000, Governor Davis released his proposed budget for
Fiscal Year 2000-01. The 2000-01 Governor's Budget ( "2000 Governor's Budget")
generally reflected an estimate that General Fund revenues for Fiscal Year
1999-2000 would be higher than projections made at the time of the 1999 Budget
Act. Even these positive estimates proved to be greatly understated as
continuing economic growth and stock market gains resulted in a surge of
revenues. The Administration estimated in the 2000 May Revision that General
Fund revenues would total $70.9 billion in 1999-2000, and $73.8 billion in
2000-01, a two-year increase of $12.3 billion above the 2000 Governor's Budget
revenue estimates. The latest estimates for 1999-2000 are even higher, with
revenues now estimated at $71.2 billion.
The 2000 Budget Act was signed by the Governor on June 30, 2000, the
second consecutive year the State's Budget was enacted on time. The spending
plan assumes General Fund revenues and transfers of $73.9 billion, an increase
of 3.8 percent above the estimates for 1999-2000. The 2000 Budget Act
appropriates $78.8 billion from the General Fund, an increase of 17.3 percent
over 1999-2000, and reflects the use of $5.5 billion from the Special Fund for
Economic Uncertainties. In order not to place undue pressure on future budget
years, about $7.0 billion of the increased spending in 2000-01 will be for
one-time expenditures and investments.
The Department of Finance estimates the Special Fund for Economic
Uncertainties will have a balance of $1.781 billion at June 30, 2001. In
addition, the Governor held back $500 million as a set-aside for litigation
costs. If this amount is not fully expended during Fiscal Year 2000-01, the
balance will increase the Special Fund for Economic Uncertainties. The Governor
vetoed just over $1 billion in General Fund and special fund appropriations from
the 2000 Budget Act, in order to achieve the budget reserve. Because of the
State's strong cash position, the Administration announced that it would not
undertake a revenue anticipation note borrowing in 2000-01.
The 2000 Budget Act also includes special fund expenditures of $15.6
billion, and bond fund expenditures of $5.0 billion. Special fund revenues are
estimated at $16.5 billion.
Some of the major features of the 2000 Budget Act were the following:
1. Proposition 98 funding for K-12 schools was increased by
$3.0 billion in General Fund moneys over revised 1999-2000 levels, $1.4 billion
higher than the minimum Proposition 98 guarantee. Per pupil spending is
estimated at $6,701 per average daily attendance ("ADA"), an 11 percent increase
from the 1999 Budget Act. Of the 2000-01 funds, over $1.8 billion is allowed for
discretionary spending by school districts. Major new programs included money
for high school scholarships to high-achieving students, English language and
literacy, improving teacher quality, funding teacher bonuses and salaries for
beginning teachers, increasing investments in technology and funding
professional development institutes. The 2000 Budget Act also includes an income
tax credit to compensate credentialed teachers for the purchase of classroom
supplies and a $350 million repayment of prior years' loans to schools, as part
of the settlement of the California Teachers' Association v. Gould lawsuit. See
also " Proposition 98" below.
2. Funding for higher education increased substantially above
the revised 1999-2000 level: General Fund support was increased by $486 million
(17.9 percent) for UC and $279 million (12.7 percent) for CSU system. In
addition, community college funding increased by $497 million (9.0 percent).
Undergraduate fees at UC and CSU and the per-unit charge at community colleges
will be unchanged. The Budget Act anticipates enrollment increases in all
sectors, and an expansion of financial aid.
3. Increased funding of $2.7 billion General Fund for health
and human services.
NY/302302.3
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4. Moneys were devoted for capital outlay. A total of $2.0
billion of General Fund money was appropriated for transportation improvements,
supplementing gasoline tax revenues normally used for that purpose. This was
part of a $6.9 billion Transportation Congestion Relief Program to be
implemented over six years. In addition, the 2000 Budget Act included $570
million from the General Fund in new funding for housing programs.
5. A total of about $1.5 billion of tax relief was enacted as
part of the budget process. The VLF reduction, started in 1998, was accelerated
to the final 67.5 percent level for calendar year 2001, two years ahead of
schedule. The acceleration will cost the General Fund about $887 million in
Fiscal Year 2000-01 and $1.426 billion in Fiscal Year 2001-02. A one-time Senior
Citizens Homeowner and Renters Tax Assistance program will cost about $154
million. A personal income tax credit for teachers will cost $218 million and a
refundable credit for childcare expenses will cost $195 million. Several other
targeted tax cuts, primarily for businesses, were also approved, at a cost of
$89 million in 2000-01.
6. A one-time appropriation of $200 million, to be split
between cities and counties, is made, to offset property tax shifts during the
early 1990s. Additionally, $121 million was appropriated for support of local
law enforcement, the Citizens' Option for Public Safety ("COPS") program, and
$75 million in one-time funding was provided for local law enforcement agencies
to purchase high technology equipment.
Future Budgets
--------------
It cannot be predicted what actions will be taken in the future by the
State Legislature and the Governor to deal with changing State revenues and
expenditures. The State budget will be affected by national and State economic
conditions and other factors.
State Indebtedness
------------------
General Obligation Bonds - As of July 1, 2000, the State had
outstanding $21,341,916,000 aggregate principal amount of long-term general
obligation bonds, and unused voter authorizations for the future issuance of
$14,808,749,000 of long-term general obligation bonds. This latter figure
consists of $6,472,434,000 of authorized commercial paper notes, described below
(of which $500,045,000 was outstanding), which had not yet been refunded by
general obligation bonds, and $8,336,315,000 of other authorized but unissued
general obligation debt.
At the March 7, 2000 election, voters approved four bond acts, totaling
$4.470 billion in new authorizations and rejected one bond act for $220 million.
One bond authorization totaling $500 million, for veterans' housing, will be on
the November 7, 2000 ballot.
Commercial Paper Program - Pursuant to the terms of the bank credit
agreement presently in effect supporting the general obligation commercial paper
program, not more than $1.5 billion of general obligation commercial paper notes
may be outstanding at any time; this amount may be increased or decreased in the
future. Commercial paper notes are deemed issued upon authorization by the
respective Finance Committees, whether or not such notes are actually issued. As
of July 1, 2000, the Finance Committees had authorized the issuance of up to
$6,472,434,028 of commercial paper notes; as of that date $500,045,000 aggregate
principal amount of general obligation commercial paper notes was outstanding.
Lease-Purchase Debt - In addition to general obligation bonds, the
State builds and acquires capital facilities through the use of lease-purchase
borrowing. Under these arrangements, the State Public Works Board, another State
or local agency or a joint powers authority issues bonds to pay for the
construction of facilities such as office buildings, university buildings or
correctional institutions. These facilities are leased to a State agency or the
University of California under a long-term lease that provides the source of
payment of the debt service on the lease-purchase bonds. In some cases, there is
not a separate bond issue, but a trustee directly creates certificates of
participation in the State's lease obligation, which are marketed to investors.
Under applicable court decisions, such lease arrangements do not constitute the
creation of "indebtedness" within the meaning of the Constitutional
NY/302302.3
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provisions that require voter approval. The State had $6,681,129,434 General
Fund-supported lease-purchase debt outstanding at July 1, 2000. The State Public
Works Board, which is authorized to sell lease revenue bonds, had $2,355,808,000
authorized and unissued as of July 1, 2000.
Non-Recourse Debt - Certain State agencies and authorities issue
revenue obligations for which the General Fund has no liability. Revenue bonds
represent obligations payable from State revenue-producing enterprises and
projects, which are not payable from the General Fund, and conduit obligations
payable only from revenues paid by private users of facilities financed by the
revenue bonds. The enterprises and projects financed include transportation
projects, various public works projects, public and private educational
facilities (including the CSU and UC systems), housing, health facilities and
pollution control facilities. There are 17 agencies and authorities authorized
to issue revenue obligations (excluding lease-purchase debt). State agencies and
authorities had $27,337,545,457 aggregate principal amount of revenue bonds and
notes that are non-recourse to the General Fund outstanding as of June 30, 2000.
Ratings
-------
The following ratings for the State of California debt issues have been
received from Moody's Investors Service ("Moody's"), Standard & Poor's Ratings
Services ("S&P") and Fitch IBCA, Inc. ("Fitch"):
<TABLE>
Fitch Moody's S&P
----- ------- ---
<S> <C> <C> <C>
General Obligation Bonds AA Aa2 AA
Tax-Exempt Commercial Paper F1+ Prime-1 A-1
Tax & Revenue Anticipation Note F1+ MIG 1 SP-1+
</TABLE>
These ratings apply to the State only and are not indicative of the
ratings assigned to local governments, such as counties, cities, school
districts and other local agencies.
Any explanation of the significance of such ratings may be obtained
only from the rating agency furnishing such ratings. There is no assurance that
such ratings will continue for any given period of time or that they will not be
revised downward or withdrawn entirely if, in the judgment of the particular
rating agency, circumstances so warrant.
State Appropriations Limit
--------------------------
The State is subject to an annual appropriations limit imposed by
Article XIII B of the State Constitution (the "Appropriations Limit"). The
Appropriations Limit does not restrict appropriations to pay debt service on
voter-authorized bonds.
Article XIII B prohibits the State from spending "appropriations
subject to limitation" in excess of the Appropriations Limit. "Appropriations
subject to limitation," with respect to the State, are authorizations to spend
"proceeds of taxes," which consist of tax revenues and certain other funds,
including proceeds from regulatory licenses, user charges or other fees to the
extent that such proceeds exceed "the cost reasonably borne by that entity in
providing the regulation, product or service," but "proceeds of taxes" exclude
most State subventions to local governments, tax refunds and some benefit
payments such as unemployment insurance. No limit is imposed on appropriations
of funds that are not "proceeds of taxes," such as reasonable user charges or
fees and certain other non-tax funds.
The following table shows the State's Appropriations Limit for the past
four Fiscal Years and the current Fiscal Year. Because of the extraordinary
surge of revenues in 1999-2000, the State came very close to reaching its
Appropriations Limit. Based on the 2000 Budget Act signed on June 30, 2000, the
Department of Finance projects
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the State's Appropriations-Limit for 2000-01 will be $6.036 billion under the
State Appropriations Limit in Fiscal Year 2000-01.
<TABLE>
<CAPTION>
State Appropriations Limit
(Millions)
Fiscal Years
1996-97 1997-98 1998-99 1999-00 2000-01
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
State Appropriations Limit $42,002 $44,778 $47,573 $50,673 $53,073
Appropriations Subject to Limit (35,103) (40,743) (43,777) (50,322) (48,037)*
Amount (Over)/Under Limit $6,899 $4,035 $3,796 $351* $6,036*
</TABLE>
*Estimated/Projected
Source: State of California, Department of Finance.
Proposition 98
--------------
Article XIII B, as amended by Proposition 98 on November 8, 1988, also
establishes a minimum level of State funding for school and community college
districts and requires that excess revenues up to a certain limit be transferred
to schools and community college districts instead of returned to the taxpayers.
Proposition 98 changed State funding of public education below the
university level and the operation of the State appropriations funding,
primarily by guaranteeing K-14 schools a minimum share of General Fund revenues.
(See "State Appropriations Limit" above.) Under Proposition 98 (as modified by
Proposition 111, which was enacted on June 5, 1990), K-14 schools are guaranteed
the greater of (a) in general, a fixed percent of General Fund revenues ("Test
1"), (b) the amount appropriated to K-14 schools in the prior year, adjusted for
changes in the cost of living (measured as in California Constitution Article
XIII B by reference to State per capita personal income) and enrollment ("Test
2"), or (c) a third test, which would replace Test 2 in any year when the
percentage growth in per capita General Fund revenues from the prior year plus
one half of one percent is less than the percentage growth in State per capita
personal income ("Test 3"). Under Test 3, schools would receive the amount
appropriated in the prior year adjusted for changes in enrollment and per capita
General Fund revenues, plus an additional small adjustment factor. If Test 3 is
used in any year, the difference between Test 3 and Test 2 would become a
"credit" to schools that would be the basis of payments in future years when per
capita General Fund revenue growth exceeds per capita personal income growth.
Legislation adopted prior to the end of the 1988-89 Fiscal Year, implementing
Proposition 98, determined the K-14 schools' funding guarantee under Test 1 to
be 40.3 percent of the General Fund tax revenues, based on 1986-87
appropriations. However, that percentage has been adjusted to approximately 35
percent to account for a subsequent redirection of local property taxes, since
such redirection directly affects the share of General Fund revenues to schools.
Proposition 98 permits the Legislature by two-thirds vote of both
houses, with the Governor's concurrence, to suspend the K-14 schools' minimum
funding formula for a one-year period. Proposition 98 also contains provisions
transferring certain State tax revenues in excess of the Article XIII B limit to
K-14 schools.
During the recession in the early 1990's, General Fund revenues for
several years were less than originally projected, so that the original
Proposition 98 appropriations turned out to be higher than the minimum
percentage provided in the law. The Legislature responded to these developments
by designating the "extra" Proposition 98 payments in one year as a "loan" from
future years' Proposition 98 entitlements and also intended that the "extra"
payments would not be included in the Proposition 98 "base" for calculating
future years' entitlement. By
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implementing these actions, per-pupil funding from Proposition 98 sources stayed
almost constant at approximately $4,220 from Fiscal Year 1991-92 to Fiscal Year
1993-94.
In 1992, a lawsuit was filed, called California Teachers' Association
v. Gould, that challenged the validity of these off-budget loans. The settlement
of this case, finalized in July 1996, provides, among other things, that both
the State and K-14 schools share in the repayment of prior years' emergency
loans to schools. Of the total $1.76 billion in loans, the State will repay $935
million by forgiveness of the amount owed, while schools will repay $825
million. The State's share of the repayment will be reflected as an
appropriation above the current Proposition 98 base calculation. The schools'
share of the repayment will count as appropriations that count toward satisfying
the Proposition 98 guarantee, or from "below" the current base. Repayments are
spread over the eight-year period of 1994-95 through 2001-02 to mitigate any
adverse fiscal impact.
Increased General Fund revenues, above initial budget projections, in
the 1994-95 through 1999-00 Fiscal Years have resulted in retroactive increases
in Proposition 98 appropriations from subsequent Fiscal Years' budgets. Because
of the State's increasing revenues, per-pupil funding at the K-12 level has
increased by more than 60 percent from the level in place in 1991-92, to $6,701
per ADA in 2000-01. A significant amount of the "extra" Proposition 98 monies in
the last few years has been allocated to special programs, including an
initiative to increase the number of computers in schools throughout the State.
Furthermore, since General Fund revenue growth is expected to continue in
2000-01, the 2000 Budget Act includes new initiatives to improve student
achievement, provide better teacher recruitment and training, and provide
schools with advanced technology and the opportunity to form academic
partnerships to help them meet increased expectations. Additional initiatives
include teacher performance bonuses, tax relief for teachers and an expansion of
English Language Learners Programs.
Because of the complexities of Article XIII B, the ambiguities and
possible inconsistencies in its terms, the applicability of its exceptions and
exemptions and the impossibility of predicting future appropriations, the Trust
cannot predict the impact of this or related legislation on the Bonds in the
California Trust portfolio. Other Constitutional amendments affecting State and
local taxes and appropriations have been proposed from time to time. If any such
initiatives are adopted, the State could be pressured to provide additional
financial assistance to local governments or appropriate revenues as mandated by
such initiatives. Propositions such as Proposition 98 and others that may be
adopted in the future, may place increasing pressure on the State's budget over
future years, potentially reducing resources available for other State programs,
especially to the extent the Article XIII B spending limit would restrain the
State's ability to fund such other programs by raising taxes.
Constitutional and Statutory Limitations
----------------------------------------
Article XIII A of the California Constitution (which resulted from the
voter-approved Proposition 13 in 1978) limits the taxing powers of California
public agencies. Article XIII A provides that the maximum ad valorem tax on real
property cannot exceed one percent of the "full cash value" of the property and
effectively prohibits the levying of any other ad valorem tax on real property
for general purposes. However, on June 3, 1986, Proposition 46, an amendment to
Article XIII A, was approved by the voters of the State of California, creating
a new exemption under Article XIII A permitting an increase in ad valorem taxes
on real property in excess of one percent for bonded indebtedness approved by
two-thirds of the voters voting on the proposed indebtedness. "Full cash value"
is defined as "the county assessor's valuation of real property as shown on the
1975-76 tax bill under 'full cash value' or, thereafter, the appraised value of
real property when purchased, newly constructed, or a change in ownership has
occurred after the 1975 assessment." The "full cash value" is subject to annual
adjustment to reflect increases (not to exceed two percent) or decreases in the
consumer price index or comparable local data, or to reflect reductions in
property value caused by damage, destruction or other factors.
At the November 1998 election, voters approved Proposition 2. This
Proposition required the General Fund to repay loans made from certain
transportation special accounts (such as the State Highway Account) at least
once per Fiscal Year, or up to 30 days after adoption of the annual Budget Act.
Since the General Fund may reborrow from the transportation accounts soon after
the annual repayment is made, the Proposition is not expected to have any
adverse impact on the State's cash flow.
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Future Initiatives
------------------
Articles XIII A, XIII B, XIII C and XIII D were each adopted as
measures that qualified for the ballot pursuant to the State's initiative
process. From time to time, other initiative measures could be adopted that
could affect revenues of the State or public agencies within the State.
Local Government
----------------
The primary units of local government in California are the counties,
ranging in population from 1,200 in Alpine County to over 9,900,000 in Los
Angeles County. Counties are responsible for the provision of many basic
services, including indigent healthcare, welfare, courts, jails and public
safety in unincorporated areas. There are also about 475 incorporated cities and
thousands of other special districts formed for education, utility and other
services. The fiscal condition of local governments has been constrained since
the enactment of "Proposition 13" in 1978 and later constitutional amendments,
which reduced and limited the future growth of property taxes and limited the
ability of local governments to impose "special taxes" (those devoted to a
specific purpose) without two-thirds voter approval. Counties, in particular,
have had fewer options to raise revenues than many other local government
entities, and have been required to maintain many services.
In the aftermath of Proposition 13, the State provided aid to local
governments from the General Fund to make up some of the loss of property tax
moneys, including taking over the principal responsibility for funding K-12
schools and community colleges. During the recession of the early 1990's, the
Legislature eliminated most of the remaining components of post-Proposition 13
aid to local government entities other than K-14 education districts by
requiring cities and counties to transfer some of their property tax revenues to
school districts. However, the Legislature also provided additional funding
sources (such as sales taxes) and reduced certain mandates for local services.
Since then the State has also provided additional funding to counties and cities
through such programs as health and welfare realignment, welfare reform, trial
court restructuring, the COPS Program supporting local public safety departments
and various other measures. In addition, legislation was enacted in 1999 to
provide approximately $35.8 million annual relief to cities based on 1997-98
costs of jail booking and processing fees paid to counties.
The 2000 Budget Act provides significant assistance to local
governments, including a $200 million set aside for one-time discretionary
funding to local governments, $121.3 million for the COPS program to support
local front-line law enforcement, sheriffs' departments for jail construction
and operations, and district attorneys for prosecution, $75 million for
technology funding for local law enforcement, $400 million for deferred
maintenance of local streets and roads, and hundreds of millions of dollars in
assistance in the areas of mental health, social services, environmental
protection, and public safety.
The entire Statewide welfare system was changed in response to the
change in Federal welfare law enacted in 1996. The Federal block grant formula
established in 1996 is operative through Federal fiscal year 2002. Under the
revised basic State welfare system, California Work Opportunity and
Responsibility to Kids ("CalWORKs"), counties are given flexibility to develop
their own plans, consistent with State law, to implement Welfare-to-Work and to
administer many of its elements and their costs for administrative and support
services are capped at 1996-97 levels. Counties are also given financial
incentives if, at the individual county level or statewide, the CalWORKs program
produces savings associated with specified Welfare-to-Work outcomes; counties
may also suffer penalties for failing to meet Federal standards. Under CalWORKs,
counties will still be required to provide "general assistance" aid to certain
persons who cannot obtain welfare from other programs.
Counties have been successful in earning performance incentive payments
and have earned amounts in excess of the available appropriation for 1998-99
and, it is estimated, for 1999-00 as well. As a result, the incentive structure
has been modified beginning in 2000-01 to ensure sufficient funding for other
CalWORKs program demands in the future. The Budget Act of 2000 includes $250
million for performance incentive payments to counties, an amount that will be
applied first to pay prior year incentive claims from counties. No appropriation
is included for new county incentive earnings in 2000-01.
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To date, the implementation of the CalWORKs program has continued the
trend of declining welfare caseloads. The CalWORKs caseload is projected to be
541,000 in 2000-01, down from 579,000 cases in 1999-00 and down from a high of
921,000 cases in 1994-95. The longer-term impact of the new Federal law and
CalWORKs is being evaluated by the RAND Corporation, with a series of reports to
be furnished and the final report due October 2001.
The 2000-01 CalWORKs budget reflects that California has met the
Federally-mandated work participation requirements for Federal fiscal years 1998
and 1999. With that goal being met, the Federally-imposed maintenance-of-effort
(MOE) level for California is reduced from 80 percent of the Federal fiscal year
1994 baseline expenditures for the former Aid to Families with Dependent
Children ("AFDC") program ($2.9 billion) to 75 percent ($2.7 billion). It is
expected that California will meet the work participation goal in Federal fiscal
year 2000 and beyond.
In addition, California will receive a Temporary Assistance for Needy
Families ("TANF") High Performance Bonus award of $45.5 million, which has been
appropriated as part of a $55.7 million TANF Block Grant reserve to be available
for unanticipated needs in any program for which TANF funds are appropriated.
This one-time bonus is awarded to states for their successes in moving welfare
recipients to work and sustaining their participation in the workforce.
In 2000-01, it is anticipated that California will continue to meet,
but not exceed, the Federally-required $2.7 billion combined State and county
MOE requirement. The 2000-01 Budget includes total CalWORKs-related expenditures
of $7.0 billion for 2000-01, including childcare transfer amounts for the
Department of Education and the TANF Block Grant reserve.
Historically, funding for the State's trial court system was divided
between the State and the counties. In 1997, legislation consolidated the trial
court funding at the State level in order to streamline the operation of the
courts, provide a dedicated revenue source and relieve fiscal pressure on the
counties. Since then, the county general purpose contribution for court
operations was reduced by $386 million and cities are retaining $62 million in
fine and penalty revenue previously remitted to the State. The General Fund
reimbursed the $448 million revenue loss to the Trial Court Trust Fund.
On November 5, 1996, voters approved Proposition 218, entitled the
"Right to Vote on Taxes Act," which incorporates new Articles XIII C and XIII D
into the California Constitution. These new provisions enact limitations on the
ability of local government agencies to impose or raise various taxes, fees,
charges and assessments without voter approval. Certain "general taxes" imposed
after January 1, 1995 must be approved by voters in order to remain in effect.
In addition, Article XIII C clarifies the right of local voters to reduce taxes,
fees, assessments or charges through local initiatives. There are a number of
ambiguities concerning the Proposition and its impact on local governments and
their bonded debt that will require interpretation by the courts or the State
Legislature. Proposition 218 does not affect the State or its ability to levy or
collect taxes.
Tobacco Litigation
In late 1998, the State signed a settlement agreement with the four
major cigarette manufacturers. The State agreed to drop its lawsuit and not to
sue in the future. Tobacco manufacturers agreed to billions of dollars in
payments and restrictions in marketing activities. Under the settlement, the
manufacturers will pay California governments a total of approximately $25
billion over a period of 25 years. In addition, payments of approximately $1
billion per year will continue in perpetuity. Under the settlement, half of the
moneys will be paid to the State and half to local governments (all counties and
the cities of San Diego, Los Angeles, San Francisco and San Jose). The 2000
Budget Act includes the receipt of $388 million of settlement money to the
General Fund in Fiscal Year 2000-01.
The specific amount to be received by the State and local governments
is subject to adjustment. Details in the settlement allow reduction of the
companies' payments because of Federal government actions, or reductions in
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cigarette sales. Settlement payments can increase due to inflation or increases
in cigarette sales. The "first annual" payment, received in April 2000 was 12
percent lower than the base settlement amount due to reduced sales. Future
payment estimates have been reduced by a similar percentage. If any of the
tobacco companies goes into bankruptcy, the State could seek to terminate the
agreement with respect to those companies filing bankruptcy actions, thereby
reinstating all claims against those companies. The State may then pursue those
claims in the bankruptcy litigation, or as otherwise provided by law. Also,
several parties have brought a lawsuit challenging the settlement and seeking
damages. (See "Pending Litigation" below.)
Pending Litigation
------------------
The State of California is a party to numerous legal proceedings, many
of which normally occur in governmental operations. In addition, the State is
involved in certain other legal proceedings that, if decided against the State
might require the State to make significant future expenditures or impair future
revenue sources. The litigation summarized below does not include litigation
pending against local governmental agencies. Because of the prospective nature
of these proceedings, it is not presently possible to predict the outcome of
such litigation or estimate the potential impact on the ability of the State to
pay debt service costs on its obligations. The litigation summaries presented
below are based primarily upon one or more publicly available offering
statements relating to debt offerings of California issuers and other readily
available public information sources. The Trust has not independently verified
this information. Some of the more significant lawsuits pending against the
State are described below.
On December 24, 1997, lead claimant Sonoma County and a consortium of
California counties filed a test claim with the Commission on State Mandates
(the "Commission") asserting that the property tax shift from counties to school
districts beginning in 1993-94, is a reimbursable State mandated cost. The
Commission denied the test claim on October 29, 1998, and the claimants sought
review in the Sonoma County Superior Court. On November 10, 1999, the superior
court granted the counties' petition for writ of mandate and reversed the
Commission's decision. The State then appealed to the Court of Appeal for the
First Appellate District. Briefing in that court was completed by the end of
June 2000. Oral argument has not yet been scheduled. Meanwhile, on April 19,
2000, the California Supreme Court denied the counties' petition to transfer the
State's appeal directly to the Supreme Court. Should the final decision on this
matter be in favor of the counties, the impact to the State General Fund could
be more than $10.0 billion. In addition, there would be an annual Proposition 98
General Fund cost of at least $3.75 billion. This cost would grow in accordance
with the annual assessed value growth rate.
In January of 1997, California experienced major flooding with
preliminary estimates of property damage of approximately $1.6 to $2.0 billion.
In McMahon v. State, a substantial number of plaintiffs have joined suit against
the State, local agencies, and private companies and contractors seeking
compensation for the damages they suffered as a result of the 1997 flooding.
After various pre-trial proceedings, the State filed its answer to the
plaintiffs' complaint in January 2000. No trial date has been set. The State is
defending the action.
The State is a defendant in Ceridian Corporation v. Franchise Tax
Board, a suit that challenges the constitutionality of a Revenue & Taxation Code
section that limits deductions for insurance dividends to those dividends paid
from earnings previously subject to California taxation. On August 13, 1998, the
trial court issued a judgment against the Franchise Tax Board. The Franchise Tax
Board has appealed the judgment. Briefing has been completed. The State has
taken the position that, if the challenged section of the Revenue & Taxation
Code were struck down, all deductions relating to dividends would be eliminated
and the result would be additional income to the State. Plaintiffs, however,
contend that if they prevail, the deduction should be extended to all dividends
which would result in a one-time liability for open years of approximately $60
million, including interest, and an annual revenue loss of approximately $10
million. No date has yet been set for oral argument.
Plaintiffs in County of San Bernardino v. Barlow Respiratory Hospital
and related actions seek mandamus relief requiring the State to retroactively
increase outpatient Medi-Cal reimbursement rates. Plaintiffs have estimated the
damages to be several hundred million dollars. The State is defending these
cases, as well as related
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Federal cases addressing the calculation of Medi-Cal reimbursement rates in the
future. Trial is to be held in three phases, with phase I oral argument set for
November 16, 2000.
The State is involved in ongoing litigation related to State mandate
test claims, initially filed in 1980 and 1981, concerning the costs of providing
special education programs and services to disabled children. The case
eventually resulted in a published opinion by the court of appeal: Thomas Hayes
v. Commission on State Mandates. The action involved an appeal by the Director
of Finance from a 1984 decision by the State Board of Control (now succeeded by
the Commission on State Mandates) in favor of the local school districts' claims
for reimbursement. In the trial and appellate courts, the State successfully
established that Federal special education requirements impose a "Federal
mandate" upon the State. Accordingly, the courts reversed the Board of Control's
decision and remanded the case to the Commission to determine what, if anything,
remained of the claim. On remand, the claimant identified several specific
aspects of the State's special education program that allegedly exceeded Federal
requirements. The Commission has since expanded the claim to include
supplemental claims filed by several other institutions. The Commission issued a
decision in December 1998 determining that a small number of components of the
State's special education program exceed Federal requirements and, therefore,
are State-mandated programs or services. On June 5, 2000, the Commission further
determined that these state-mandated components are "unfunded" and subject to
subvention, rejecting the Department's argument that existing special education
appropriations completely offset any possible costs, and therefore bar any
finding of a reimbursable State mandate. To date, the Legislature has not
appropriated funds. Also on June 5, 2000, the Commission adopted "parameters and
guidelines," and the State Controller has subsequently issued claiming
instructions. The State has the option to seek judicial review of the mandate
finding and of the Commission's failure to credit previous allocations as
offsets. Potential liability of the State, if all potentially eligible school
districts pursue timely claims, has been estimated by the claimants to be in
excess of $1.5 billion, if the State is not credited for its existing funding of
the program. The Commission was unable to resolve two other identified aspects
of the state's program due to tie votes and the Commission has referred these
matters to an administrative law judge for preparation of recommended decisions.
One of these matters encompasses all special education services for students
between the ages of 3 to 5 and 18 to 21, and thus represents significant
additional potential liability if the claim is ultimately upheld and the State
is denied credit for its existing funding.
The State is involved in a lawsuit related to contamination at the
Stringfellow toxic waste site. In United States, People of the State of
California v. J.B. Stringfellow, Jr., et al., the State is seeking recovery for
past costs of cleanup of the site, a declaration that the defendants are jointly
and severally liable for future costs, and an injunction ordering completion of
the cleanup. The defendants, however, have filed a counterclaim against the
State for alleged negligent acts, resulting in significant findings of liability
against the State as owner, operator, and generator of wastes taken to the site.
The State has appealed the rulings. Present estimates of the cleanup range from
$400 million to $600 million. Potential State liability falls within this same
range. However, all or a portion of any judgment against the State could be
satisfied by recoveries from the State's insurance carriers. The State has filed
a suit against certain of these carriers. The trial is expected to begin in
2001.
The State is a defendant in Paterno v. State of California, a
coordinated action involving 3,000 plaintiffs seeking recovery for damages
caused by the Yuba River flood of February 1986. The trial court found liability
in inverse condemnation and awarded damages of $500,000 to a sample of
plaintiffs. The State's potential liability to the remaining plaintiffs ranges
from $800 million to $1.5 billion. In 1992, the State and plaintiffs filed
appeals. In August 1999, the court of appeal issued a decision reversing the
trial court's judgment against the State and remanded the case for retrial on
the inverse condemnation cause of action. The California Supreme Court denied
plaintiffs' petition for review. Trial is presently set to commence January 15,
2001 in Yuba County.
On June 24, 1998, plaintiffs in Howard Jarvis Taxpayers Association et
al. v. Kathleen Connell filed a complaint for certain declaratory and injunctive
relief challenging the authority of the State Controller to make payments from
the State Treasury in the absence of a State budget. On July 21, 1998, the trial
court issued a preliminary injunction prohibiting the State Controller from
paying moneys from the State Treasury for Fiscal Year 1998-99, with certain
limited exceptions, in the absence of a State budget. The preliminary
injunction, among other things, prohibited the State Controller from making any
payments pursuant to - any continuing appropriation. On
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July 22 and 27, 1998, various employee unions that had intervened in the case
appealed the trial court's preliminary injunction and asked the court of appeal
to stay the preliminary injunction. On July 28, 1998, the court of appeal
granted the unions' requests and stayed the preliminary injunction pending the
court of appeal's decision on the merits of the appeal. On August 5, 1998, the
court of appeal denied the plaintiffs' request to reconsider the stay. Also on
July 22, 1998, the State Controller asked the California Supreme Court to
immediately stay the trial court's preliminary injunction and to overrule the
order granting the preliminary injunction on the merits. On July 29, 1998, the
Supreme Court transferred the State Controller's request to the court of appeal.
The matters are now pending before the court of appeal. Briefs have been
submitted; no date has yet been set for oral argument.
The State is involved in three refund actions, California Assn. of
Retail Tobacconists (CART), et al. v. Board of Equalization, et al., Cigarettes
Cheaper!, et al. v. Board of Equalization, et al. and McLane/Suneast, et al. v.
Board of Equalization, et al., that challenge the constitutionality of
Proposition 10, which the voters passed in 1998 to establish the Children and
Families Commission and local county commissions and to fund early childhood
development programs. CART and Cigarettes Cheaper! allege that Proposition 10,
which increases the excise tax on tobacco products, violates 11 sections of the
California Constitution and related provisions of law. McLane/Suneast challenges
only the "double tax" aspect of Proposition 10. Cigarettes Cheaper! seeks a
refund of over $4 million. CART seeks a refund of over $5 million and
McLane/Suneast seeks a refund between $500,000 and $1 million. The State is
contesting these cases. The State has transferred Cigarettes Cheaper! from
Sacramento and McLane/Suneast from Los Angeles to consolidate all three cases in
San Diego. Through a demurrer and motion for judgment on the pleadings, the
State has eliminated 25 of 58 counts of the complaint. Trial began in September
2000 and will continue well into October 2000. Due to the facial challenge,
there is exposure as to the entire $750 million per year collected under
Proposition 10 together with interest, which could amount to several billion
dollars by the time the case is finally resolved.
Guy F. Atkinson Company of California v. Franchise Tax Board is a
corporation tax refund action involving the solar energy system tax credit
provided for under the Revenue & Taxation Code. The case went to trial in May
1998 and the trial court entered judgment in favor of the Franchise Tax Board.
The taxpayer has filed an appeal to the California court of appeal and briefing
is completed. On June 12, 2000, the California court of appeal unanimously
affirmed the judgment in favor of the Franchise Tax Board. The Franchise Tax
Board estimates that the cost would be $150 million annually, if the plaintiff
prevails. Allowing refunds for all open years would entail a refund of at least
$500 million. The California Supreme Court has denied Plaintiff's petition for
review and a remittitur is pending in the court of appeal.
PTl, Inc., et al. v. Philip Morris, et al. was filed by five
distributors in the cigarette import-/re-entry business, seeking to overturn the
tobacco Master Settlement Agreement (the "MSA") entered between 46 states and
the tobacco industry in November 1998. See "Tobacco Litigation" above. The
primary focus of the complaint is the provision of the MSA encouraging
participating states to adopt a statute requiring nonparticipating manufacturers
to either become participating manufacturers and share the financial obligations
under the MSA or pay money into an escrow account. Plaintiffs seek compensatory
and punitive damages against the State and State officials and an order placing
tobacco settlement funds into a trust to be administered by the court for the
treatment of medical expenses of persons injured by tobacco products. Plaintiffs
have filed an amended complaint and the State has filed a motion to dismiss the
amended complaint. A hearing on the State's motion to dismiss was heard on May
8, 2000. The potential fiscal impact of an adverse ruling is largely unknown,
but could exceed the full amount of the settlement (estimated to be $1 billion
annually, of which 50 percent will go directly to the State's General Fund and
the other 50 percent directly to the State's 58 counties and 4 largest cities).
On May 25, 2000, the District Court issued an order dismissing the amended
complaint with prejudice. Plaintiffs have not filed an appeal from the order.
In FORCES Action Project et al. v. State of California et al., various
smokers' rights groups challenge the tobacco settlement as it pertains to
California, Utah and the City and County of San Francisco. Plaintiffs assert a
variety of constitutional challenges, including that the settlement represents
an unlawful tax on smokers. Motions to dismiss by all defendants, including the
tobacco companies, were eventually converted to summary judgment motions by the
court and heard on September 17, 1999. On January 5, 2000, the court dismissed
the complaint for
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lack of subject matter jurisdiction because the plaintiffs lacked standing to
sue. The court also concluded that the plaintiffs' claims against the State and
its officials are barred by the 11th Amendment. Plaintiffs have appealed. In
September 2000, the State filed additional briefs. No hearing date has been set.
Arnett v. California Public Employees Retirement System, et. al. was
filed by seven former employees of the State of California and local agencies,
seeking back wages, damages and injunctive relief. Plaintiffs are former public
safety members who began employment after the age of 40 and are recipients of
Industrial Disability Retirement ("IDR") benefits. Plaintiffs contend that the
formula that determines the amount of IDR benefits violates the Federal Age
Discrimination in Employment Act of 1967 ("ADEA"). Plaintiffs contend that, but
for their ages at hire, they would receive increased monthly IDR benefits
similar to their younger counterparts who began employment before the age of 40.
The California Public Employees' Retirement System ("CalPERS") has estimated the
liability to the State as approximately $315.5 million, if the plaintiffs
prevail. The district court dismissed the complaint for failure to state a
claim. On August 17, 1999, the Ninth Circuit Court of Appeals reversed the
district court's dismissal of the complaint. The State sought further review in
the United States Supreme Court. On January 11, 2000, the United States Supreme
Court in Kimel v. Florida Board of Regents, held that Congress did not abrogate
the sovereign immunity of the states when it enacted the ADEA. Thereafter, on
January 18, 2000, the Supreme Court granted the petition for writ of certiorari
in Arnett , vacated the judgment of the Ninth Circuit, and remanded the case to
the Ninth Circuit for further proceedings consistent with Kimel. In turn, the
Ninth Circuit has remanded the case to the district court and the State has
filed a motion to dismiss the complaint based upon a lack of subject matter
jurisdiction. After the State filed a motion to dismiss, the Equal Employment
Opportunity Commission intervened in the action as a party-plaintiff. Because
this Federal agency intervention raised novel and complex Federalism issues, the
court allowed State defendants to temporarily postpone the motion. At present,
the parties anticipate a trial date of April 30, 2001 in this matter.
On March 30, 2000, a group of students, parents, and community-based
organizations brought suit, on behalf of the school children in the Los Angeles
Unified School District against the State Allocation Board ("SAB"), the State
Office of Public School Construction ("OPSC") and a number of State officials
(Godinez, et al. v. Davis, et al.) in the Superior Court in the County of Los
Angeles. The lawsuit principally alleges SAB and OPSC have unconstitutionally
and improperly allocated funds to local school districts for new public school
construction as authorized by the Class Size Reduction Kindergarten-University
Public Education Facilities Bond Act (hereafter referred to as "Proposition
1A"). Plaintiffs seek only prospective relief, alleging that the current SAB
method of allocating new construction funds is neither reasonable nor fair to
large, urban school districts. The Plaintiffs allege the present allocation
method does not dispense new construction funds on a priority of greatest need
basis. Plaintiffs seek a declaration of the illegality of the current allocation
method, a preliminary and permanent injunction and/or a writ of mandate against
further allocation of Proposition 1A funds unless the allocation system is
modified. On May 12, 2000, plaintiffs' request for a temporary restraining order
was denied. Subsequent hearings were held on June 20, July 20 and August 24
regarding plaintiffs' request for a preliminary injunction. Prior to the June 20
hearing, the Los Angeles Unified School District intervened in the case.
Plaintiffs' request for preliminary injunction has not been granted. However,
another hearing has been set on the matter for October 19, 2000. The State is
defending this lawsuit. The Attorney General is of the opinion that the lawsuit
does not affect the validity of any State bonds, or the authority of the State
to issue bonds under current authorization granted by the finance committees.
In Charles Davis v. California Health and Human Services Agency, the
plaintiff has brought a class action under a number of Federal acts, including
the Americans with Disabilities Act, seeking declaratory and injunctive relief,
alleging that persons who are institutionalized with disabilities at a San
Francisco-run 1,200-bed skilled nursing facility (Laguna Honda) who require long
term care should be assessed as to whether they can be treated at home or in
community-based facilities, and then provided appropriate care. The State has
been given an extension in which to file its response. At this early stage in
the proceedings, it is difficult to assess the financial impact of a judgment
against the State.
In Stephen Sanchez, et al. v. Grantland Johnson et al., the plaintiff
has brought a class action in Federal District Court for the Northern District
of California, seeking declaratory and injunctive relief, alleging that provider
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rates for community-based services for developmentally disabled individuals are
discriminatory under the Americans with Disabilities Act, and violate Social
Security Act, and the Rehabilitation Act, because they result in unnecessary
institutionalization of developmentally disabled persons. The State has filed a
responsive pleading and is contesting this case. At this early stage in the
proceedings, it is difficult to assess the financial impact of a judgment
against the State.
The Trust believes the information summarized above describes some of
the more significant aspects relating to the California economy. The sources of
such information are Preliminary Official Statements and Official Statements
relating to the State's general obligation bonds and the State's revenue
anticipation notes, or obligations of other issuers located in the State of
California, or other publicly available documents. The State has indicated that
its discussion of budgetary information is based on estimates and projections of
revenues and expenditures for the current Fiscal Year and must not be construed
as statements of fact; the estimates and projections are based upon various
assumptions that may be affected by numerous factors, including future economic
conditions in the State and the nation, and there can be no assurance that the
estimates will be achieved. Although the Trust has not independently verified
this information, it has no reason to believe that such information is not
correct in all material respects.
Special Factors Affecting New York. The information set forth below is derived
from the Official Statements and/or preliminary drafts of Official Statements
prepared in connection with the issuance of New York State and New York City
municipal bonds. The Sponsors have not independently verified this information.
Economic Trends. Over the long term, the State of New York (the
"State") and the City of New York (the "City") face serious potential economic
problems. The City accounts for approximately 41% of the State's population and
personal income, and the City's financial health affects the State in numerous
ways. The State historically has been one of the wealthiest states in the
nation. For decades, however, the State has grown more slowly than the nation as
a whole, gradually eroding its relative economic affluence. Statewide, urban
centers have experienced significant changes involving migration of the more
affluent to the suburbs and an influx of generally less affluent residents.
Regionally, the older Northeast cities have suffered because of the relative
success that the South and the West have had in attracting people and business.
The City has also had to face greater competition as other major cities have
developed financial and business capabilities which make them less dependent on
the specialized services traditionally available almost exclusively in the City.
The State has for many years had a very high State and local tax burden
relative to other states. The State and its localities have used these taxes to
develop and maintain their transportation networks, public schools and colleges,
public health systems, other social services and recreational facilities.
Despite these benefits, the burden of State and local taxation, in combination
with the many other causes of regional economic dislocation, has contributed to
the decisions of some businesses and individuals to relocate outside, or not
locate within, the State.
Notwithstanding the numerous initiatives that the State and its
localities may take to encourage economic growth and achieve balanced budgets,
reductions in Federal spending could materially and adversely affect the
financial condition and budget projections of the State and its localities.
New York City. The City, with a population of approximately 7.4
million, is an international center of business and culture. Its
non-manufacturing economy is broadly based, with the banking and securities,
life insurance, communications, publishing, fashion design, retailing and
construction industries accounting for a significant portion of the City's total
employment earnings. Additionally, the City is the nation's leading tourist
destination. Manufacturing activity in the City is conducted primarily in
apparel and printing.
For each of the 1981 through 1999 fiscal years, the City had an
operating surplus, before discretionary transfers, and achieved balanced
operating results as reported in accordance with then applicable generally
accepted accounting principles ("GAAP"), after discretionary transfers. The City
has been required to close substantial gaps between forecast revenues and
forecast expenditures in order to maintain balanced operating results. There can
be no assurance that the City will continue to maintain balanced operating
results as required by State law without tax
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or other revenue increases or reductions in City services or entitlement
programs, which could adversely affect the City's economic base.
As required by law, the City prepares a four-year annual financial
plan, which is reviewed and revised on a quarterly basis and which includes the
City's capital, revenue and expense projections and outlines proposed gap-
closing programs for years with projected budget gaps. The City's current
financial plan projects a surplus in the 2000 and 2001 fiscal years, before
discretionary transfers, and budget gaps for each of the 2002, 2003 and 2004
fiscal years. This pattern of current year surplus operating results and
projected subsequent year budget gaps has been consistent through the entire
period since 1982, during which the City has achieved surplus operating results,
before discretionary transfers, for each fiscal year.
The City depends on aid from the State both to enable the City to
balance its budget and to meet its cash requirements. There can be no assurance
that there will not be reductions in State aid to the City from amounts
currently projected; that, in future years, State budgets will be adopted by the
April 1 statutory deadline, or interim appropriations will be enacted; or that
any such reductions or delays will not have adverse effects on the City's cash
flow or expenditures. In addition, the Federal budget negotiation process could
result in a reduction in or a delay in the receipt of Federal grants which could
have additional adverse effects on the City's cash flow or revenues.
The Mayor is responsible for preparing the City's financial plan,
including the City's current financial plan for the 2000 through 2004 fiscal
years (the "2000-2004 Financial Plan" or "Financial Plan"). The City's
projections set forth in the Financial Plan are based on various assumptions and
contingencies which are uncertain and which may not materialize. Such
assumptions and contingencies include the condition of the regional and local
economies, the provision of State and Federal aid and the impact on City
revenues and expenditures of any future Federal or State policies affecting the
City.
Implementation of the Financial Plan is dependent upon the City's
ability to market its securities successfully. The City's program for financing
capital projects for fiscal years 2000 through 2004 contemplates the issuance of
$7.21 billion of general obligation bonds and $7.33 billion of bonds to be
issued by the New York City Transitional Finance Authority (the "Finance
Authority"). In addition, the Financial Plan anticipates access to approximately
$2.4 billion in financing capacity of TSASC, Inc. ("TSASC"), which will issue
debt secured by revenues derived from the settlement of litigation with tobacco
companies selling cigarettes in the United States. The Finance Authority and
TSASC were created to assist the City in financing its capital program while
keeping the City's indebtedness within the forecast level of the constitutional
restrictions on the amount of debt the City is authorized to incur. In addition,
the City issues revenue and tax anticipation notes to finance its seasonal
working capital requirements. The success of projected public sales of City, New
York City Municipal Water Finance Authority ("Water Authority"), Finance
Authority, TSASC and other bonds and notes will be subject to prevailing market
conditions. The City's planned capital and operating expenditures are dependent
upon the sale of its general obligation debt, as well as debt of the Water
Authority, Finance Authority and TSASC. Future developments concerning the City
and public discussion of such developments, as well as prevailing market
conditions, may affect the market for outstanding City general obligation bonds
and notes.
The City Comptroller and other agencies and public officials, from time
to time, issue reports and make public statements which, among other things,
state that projected revenues and expenditures may be different from those
forecast in the City's financial plans.
For the 1999 fiscal year, the City had an operating surplus, before
discretionary and other transfers, and achieved balanced operating results,
after discretionary and other transfers, in accordance with GAAP. The 1999
fiscal year is the nineteenth year that the City has achieved an operating
surplus, before discretionary and other transfers, and balanced operating
results, after discretionary and other transfers.
On June 15, 2000, the City released the Financial Plan for the 2000
through 2004 fiscal years, which relates to the City and certain entities which
receive funds from the City, and which reflects changes as a result of the
City's expense and capital budgets for fiscal year 2001, which were adopted on
June 6, 2000. The Financial Plan is a modification to the financial plan
submitted to the Control Board on June 14, 1999 (the "June Financial Plan"),
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which was subsequently modified in November 1999 and January and May 2000. The
Financial Plan projects revenues and expenditures for the 2000 and 2001 fiscal
years balanced in accordance with GAAP, and projects gaps of $2.6 billion, $2.7
billion and $2.7 billion for fiscal years 2002 through 2004, respectively, after
implementation of a gap closing program.
Changes since the June Financial Plan include: (i) an increase in
projected revenues of $1.9 billion, $1.2 billion, $1.1 billion, $1.3 billion and
$1.6 billion in fiscal years 2000 through 2004, respectively, reflecting
primarily increases in projected personal income, business, sales, real estate
transfer and mortgage recording tax revenues; (ii) a delay in the assumed
collection of $730 million of projected rent payments for the City's airports
from fiscal year 2001 through 2004 to fiscal years 2002 through 2005; (iii)
establishment of a labor reserve for merit pay wage increases for City employees
of $30 million, $325 million, $750 million, $800 million and $800 million in
fiscal years 2000 through 2004, respectively, contingent upon productivity
savings set forth in the gap-closing program; and (iv) increased costs and
revenue losses from State and Federal actions of $185 million, $392 million,
$454 million, $518 million and $587 million in fiscal years 2000 through 2004,
respectively, including a reduction in the sales tax on utilities approved by
the State Legislature; and (v) other net expenditure savings of $784 million in
fiscal year 2000, and net expenditure increases of $771 million, $897 million,
$1.2 billion and $888 million in fiscal years 2001 through 2004, respectively.
The changes in net expenditures include, among other things, pension fund
savings of $524 million and $284 million in fiscal years 2000 and 2001,
respectively, resulting primarily from a market value restart, increased net
pension costs of $230 million, $348 million and $286 million in fiscal years
2002 through 2004, respectively, reflecting recent pension benefit legislation,
and increased spending for education and other agencies. Increased pension costs
reflect certain pension benefit improvements, to which the City and its unions
have agreed, which are estimated at $279 million per year commencing in fiscal
year 2001, pending the Governor signing enabling legislation and other actions.
In addition, various benefit enhancements for City and State employees,
including a cost of living adjustment in pension payments, which have been
adopted by the State legislature, are not reflected in the Financial Plan. These
benefit enhancements are expected to increase pension costs reflected in the
City's future financial plan modifications by $98 million, $236 million, $363
million and $480 million in fiscal years 2001 through 2004, respectively, and by
$586 million in fiscal year 2005 when the adjustment in fully implemented. The
City will consider revising the proposed tax reduction program and implementing
a planned expenditure reduction program to help offset these increased pension
costs.
The Financial Plan reflects a proposed discretionary transfer from
fiscal year 2000 to fiscal year 2001 primarily to pay debt service due in fiscal
year 2001 totaling $3.2 billion, a proposed discretionary transfer from fiscal
year 2001 to fiscal year 2002 to pay debt service due in fiscal year 2002
totaling $904 million and a proposed discretionary transfer from fiscal year
2002 to fiscal year 2003 to pay debt service in fiscal year 2003 totaling $345
million.
In addition, the Financial Plan sets forth gap-closing actions to
eliminate a previously projected gap for the 2001 fiscal year and to reduce
projected gaps for fiscal years 2002 through 2004. The gap-closing actions for
the 2000 through 2004 fiscal years include: (i) additional agency actions
totaling $337 million, $400 million, $210 million, $210 million and $210 million
for fiscal years 2000 through 2004, respectively; (ii) assumed additional
Federal and State actions of $75 million in each of fiscal years 2001 through
2004, which are subject to Federal and State approval; and (iii) proposed
productivity savings and reducing fringe benefits costs totaling $250 million,
$265 million, $280 million and $300 million in fiscal years 2001 through 2004,
respectively, to partly offset the costs of the proposed merit pay program which
is subject to collective bargaining negotiations. The Financial Plan also
reflects a proposed tax reduction program totaling $418 million, $735 million,
$877 million and $1.1 billion in fiscal years 2001 through 2004, respectively,
including elimination of the commercial rent tax over three years commencing
June 1, 2000, at a cost of $16 million in fiscal year 2001, increasing to $430
million in fiscal year 2004; a reduction and restructuring in the 14% personal
income tax surcharge on July 1, 2000, at a cost of $329 million in fiscal year
2001, increasing to $403 million in fiscal year 2004; the extension of current
tax reductions for owners of cooperative and condominium apartments at an annual
cost of approximately $200 million starting in fiscal year 2002; and repeal of
the $2 flat fee hotel occupancy tax effective December 1, 2000; and other tax
reduction proposals including elimination of the borough commercial
revitalization tax. Except for the elimination of the commercial rent tax, the
proposed tax reductions require State legislative approval. To date, only the
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reduction and restructuring of the 14% personal income tax surcharge and the
reduction of the borough commercial revitalization program have been passed by
the State Legislature.
Wage increases for City employees are provided for in the Financial
Plan through a merit pay plan for two years after their collective bargaining
agreements expire in fiscal years 2000 and 2001, contingent upon productivity
savings. The Financial Plan does not make any provision for wage increases
thereafter. In addition, the economic and financial condition of the City may be
affected by various financial, social, economic and other factors which could
have a material effect on the City.
The Financial Plan is based on numerous assumptions, including the
condition of the City's and the region's economies and modest employment growth
and the concomitant receipt of economically sensitive tax revenues in the
amounts projected. The 2000-2004 Financial Plan is subject to various other
uncertainties and contingencies relating to, among other factors, the extent, if
any, to which wage increases for City employees exceed the annual wage costs
assumed for the 2000 through 2004 fiscal years; continuation of projected
interest earnings assumptions for pension fund assets and current assumptions
with respect to wages for City employees affecting the City's required pension
fund contributions; the willingness and ability of the State to provide the aid
contemplated by the Financial Plan and to take various other actions to assist
the City; the ability of City agencies to maintain balanced budgets; the
willingness of the Federal government to provide the amount of Federal aid
contemplated in the Financial Plan; the impact on City revenues and expenditures
of Federal and State welfare reform and any future legislation affecting
Medicare or other entitlement programs; adoption of the City's budgets by the
City Council in substantially the forms submitted by the Mayor; the ability of
the City to implement cost reduction initiatives, and the success with which the
City controls expenditures; the impact of conditions in the real estate market
on real estate tax revenues; the City's ability to market its securities
successfully in the public credit markets; and unanticipated expenditures that
may be incurred as a result of the need to maintain the City's infrastructure.
Although the City has maintained balanced budgets in each of its last
nineteen fiscal years and is projected to achieve balanced operating results for
the 2000 and 2001 fiscal years, there can be no assurance that the gap-closing
actions proposed in the Financial Plan can be successfully implemented or that
the City will maintain a balanced budget in future years without additional
State aid, revenue increases or expenditure reductions. Additional tax increases
and reductions in essential City services could adversely affect the City's
economic base.
On July 16, 1998, Standard & Poor's revised its rating of City bonds
upward from BBB+ to A-. Moody's rating of City bonds was revised in February
1998 to A3 from Baa1. On March 8, 1999, Fitch revised its rating of City bonds
upward to A. Moody's, Standard & Poor's and Fitch currently rate the City's
outstanding general obligation bonds A3, A- and A, respectively.
New York State and its Authorities. The State ended the 1999-2000
fiscal year in balance on a cash basis, with a reported closing balance in the
General Fund of $1.17 billion. The State adopted the debt service portion of the
State budget for the 2000-01 fiscal year on March 30, 2000. The remainder of the
budget for the State's 2000-01 fiscal year was adopted by the State Legislature
on May 5, 2000, 35 days after the statutory deadline of April 1, 2000. Following
enactment of the budget, the State prepared a Financial Plan for the 2000-01
fiscal year which projects total General Fund disbursements of $38.9 billion, an
increase of 4.7 percent. Preliminary analysis by the State Division of the
Budget indicates that the State could face a projected 2001-02 budget gap of
approximately $2 billion. In a report released on June 7, 2000, the State
Comptroller estimated future State budget gaps of approximately $3.0 billion in
2001-02 and $4.9 billion in 2002-03, assuming certain one-time legislative
additions to the budget would be recurring.
In 2000-01, General Fund disbursements, including transfers to support
capital projects, debt service and other funds, are estimated at $38.92 billion,
an increase of $1.75 billion or 4.72 percent over 1999-2000. Projected spending
under the 2000-01 enacted budget is $992 million above the Governor's Executive
Budget recommendations, including 30-day amendments submitted January 31, 2000.
NY/302302.3
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The 2000-01 Financial Plan projects closing balances in the General
Fund and other reserves of $3.2 billion, including $1.71 billion in the General
Fund. This closing balance is comprised of $675 million in reserves for
potential labor costs resulting from new collective bargaining agreements and
other spending commitments, $547 million in the Tax Stabilization Reserve Fund
(for use in case of unanticipated deficits), $150 million in the Contingency
Reserve Fund (which helps offset litigation risks), and $338 million in the
Community Projects Fund (which finances legislative initiatives). In addition to
the $1.71 billion balance in the General Fund, $1.2 billion is projected for
reserve in the STAR Special Revenue Fund and $250 million in the Debt Reduction
Reserve Fund.
Many complex political, social and economic forces influence the
State's economy and finances, which may in turn affect the State Financial Plan.
The 2000-01 Financial Plan is also necessarily based upon forecasts of national
and State economic activity. The Division of Budget believes that its
projections of receipts and disbursements relating to the 2000-01 Financial
Plan, and the assumptions on which they are based, are reasonable, however,
actual results could differ materially and adversely from these projections.
Standard & Poor's rates the State's general obligation bonds A+, and
Moody's rates the State's general obligation bonds A2. On November 9, 1999,
Standard & Poor's revised its rating on the State's general obligation bonds
from A to A+.
Litigation. A number of court actions have been brought involving State
finances. The court actions in which the State is a defendant generally involve
State programs and miscellaneous tort, real property, and contract claims. While
the ultimate outcome and fiscal impact, if any, on the State of those
proceedings and claims are not currently predictable, adverse determinations in
certain of them might have a material adverse effect upon the State's ability to
carry out the State Financial Plan.
The City has estimated that its potential future liability on account
of outstanding claims against it as of June 30, 1999 amounted to approximately
$3.5 billion.
Virginia Trust
Virginia Risk Factors. Investors should be aware of certain
factors that might affect the financial condition of issuers of Virginia
municipal securities.
Bonds in the Virginia Trust may include primarily debt
obligations of the subdivisions of the Commonwealth of Virginia issued to obtain
funds for various public purposes, including the construction of a wide range of
public facilities such as airports, bridges, highways, schools, streets and
water and sewer works. Other purposes for which bonds may be issued include the
obtaining of funds to lend to public or private institutions for the
construction of facilities such as educational, hospital, housing, and solid
waste disposal facilities. The latter are generally payable from private sources
which, in varying degrees, may depend on local economic conditions, but are not
necessarily affected by the ability of the Commonwealth of Virginia and its
political subdivisions to pay their debts. Therefore, the general risk factors
as to the credit of the State or its political subdivision discussed herein may
not be relevant to the Virginia Trust.
To the extent bonds of the Commonwealth of Virginia are
included in the Virginia Issues, information on the financial condition of the
Commonwealth is noted. The Constitution of Virginia limits the ability of the
Commonwealth to create debt. The Constitution requires a balanced budget. The
Commonwealth has maintained a high level of fiscal stability for many years due
in large part to conservative financial operations and diverse sources of
revenue. The economy of the Commonwealth of Virginia is based primarily on
manufacturing, the government sector (including defense), agriculture, mining
and tourism. Defense installations are concentrated in Northern Virginia, the
location of the Pentagon, and the Hampton Roads area, including the Cities of
Newport News, Hampton, Norfolk and Virginia Beach, the locations of, among other
installations, the Army Transportation Center (Ft. Eustis), the Langley Air
Force Base, Norfolk Naval Base and the Oceana Naval Air Station, respectively.
Any substantial reductions in defense spending generally or in particular areas,
including base closings, could adversely affect the state and local economies.
NY/302302.3
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The Commonwealth currently has a Standard & Poor's rating of
AAA and a Moody's rating of Aaa on its general obligation bonds. There can be no
assurance that the economic conditions on which these ratings are based will
continue or that particular bond issues may not be adversely affected by changes
in economic or political conditions. Further, the credit of the Commonwealth is
not material to the ability of political subdivisions and private entities to
make payments on the obligations described below.
General obligations of cities, towns and counties in Virginia
are payable from the general revenues of the entity, including ad valorem tax
revenues on property within the jurisdiction. The obligation to levy taxes could
be enforced by mandamus, but such a remedy may be impracticable and difficult to
enforce. Under section 15.2-2659 of the Code of Virginia of 1950, as amended, a
holder of any general obligation bond in default may file an affidavit setting
forth such default with the Governor. If, after investigating, the Governor
determines that such default exists, he is directed to order the State
Comptroller to withhold State funds appropriated and payable to the entity and
apply the amount so withheld to unpaid principal and interest. The Commonwealth,
however, has no obligation to provide any additional funds necessary to pay such
principal and interest.
Revenue bonds issued by Virginia political subdivisions
include (i) revenue bonds payable exclusively from revenue producing
governmental enterprises and (ii) industrial revenue bonds, college and hospital
revenue bonds and other "private activity bonds" which are essentially
non-governmental debt issues and which are payable exclusively by private
entities such as non-profit organizations and business concerns of all sizes.
State and local governments have no obligation to provide for payment of such
private activity bonds and in many cases would be legally prohibited from doing
so. The value of such private activity bonds may be affected by a wide variety
of factors relevant to particular localities or industries, including economic
developments outside of Virginia.
Virginia municipal securities that are lease obligations are
customarily subject to "non-appropriation" clauses which allow the
municipality, or other public entity, to terminate its lease obligations if
moneys to make the lease payments are not appropriated for that purpose. See
"Objectives". Legal principles may restrict the enforcement of provisions in
lease financing limiting the municipal issuer's ability to utilize property
similar to that leased in the event that debt service is not appropriated.
PUBLIC OFFERING
---------------
Offering Price. The secondary market Public Offering Price per
Unit of each Trust is computed by adding a sales charge to the aggregate bid
price of the Bonds in such Trust divided by the number of Units thereof
outstanding. The method used by the Evaluator for computing the sales charge for
secondary market purchases shall be based upon the number of years remaining to
maturity of each Bond in the portfolio. Bonds will be deemed to mature on their
stated maturity dates unless bonds have been called for redemption, funds have
been placed in escrow to redeem them on an earlier call date or are subject to a
"mandatory put," in which case the maturity will be deemed to be such other
date.
The table below sets forth the various sales charges based on
the length of maturity of each Bond:
<TABLE>
As Percent of Public
Time to Maturity Offering Price
---------------- ------------------
<S> <C>
less than 6 months 0%
6 mos. to 1 year 1%
over 1 yr. to 2 yrs. 1 1/2%
</TABLE>
NY/302302.3
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<PAGE>
<TABLE>
<S> <C>
over 2 yrs. to 4 yrs. 2 1/2%
over 4 yrs. to 8 yrs. 3 1/2%
over 8 yrs. to 15 yrs. 4 1/2%
over 15 years 5 1/2%
</TABLE>
The secondary market Public Offering Price can vary on a daily
basis from the amount stated on the cover of Part A of this Prospectus in
accordance with fluctuations in the prices of the Bonds. The price to be paid by
each investor will be computed on the basis of an evaluation made as of the day
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 Sponsors) that customarily deal in
tax-exempt obligations or from any other reporting service or source of
information which the Evaluator deems appropriate.
Accrued Interest. A proportionate share of accrued interest on
the Bonds to the expected date of settlement for the Units is added to the
Public Offering Price and paid by the Certificateholder at the time Units are
purchased. Accrued interest is the accumulated and unpaid interest on Bonds from
the last day on which interest was paid and is initially accounted for daily by
each Trust at the daily rate set forth under "Summary of Essential Information"
for each Trust in Part A of this Prospectus. Since each Trust normally receives
the interest on the Bonds twice a year and the interest on the Bonds is accrued
on a daily basis (this daily rate is net of estimated fees and expenses), each
Trust will always have an amount of interest earned but uncollected by, or
unpaid to, the Trustee. A Certificateholder will not recover his proportionate
share of accrued interest until the Units of a Trust are sold or redeemed, or
such 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 families) of ING
Funds Distributor, Inc. (and its affiliates) and of any underwriter of any
Trust, pursuant to employee benefit arrangements, may purchase Units of a State
Trust at a price equal to the bid side evaluation of the underlying securities
in such State Trust divided by the number of Units outstanding plus a reduced
sales charge. 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. On November 16, 1996, President
Clinton signed the Gramm-Leach-Bliley Act, repealing certain provisions of the
Glass-Steagall Act which have restricted affiliation between banks and
securities firms and amending the Bank Holding Company Act thereby removing
restrictions on banks and insurance companies. The new legislation grants banks
new authority to conduct certain authorized activity through financial
institutions. 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 of each State Trust
for sale in only the State for which such Trust is named and certain other
states through dealers who are members of the National Association of Securities
Dealers, Inc. Units may be sold to dealers at prices which represent a
concession of up to $33.00 per Unit, subject to the Sponsor's right to change
the dealers' concession from time to time. 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
NY/302302.3
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disclosed to any such purchaser. Such Units may then be distributed to the
public by the dealers at the Public Offering Price then in effect. The Sponsor
reserves the right to reject, in whole or in part, any order for the purchase of
Units. The Sponsor reserves the right to change the discounts from time to time.
Sponsor's Profits. The Sponsor will receive a gross commission
on all Units sold in the secondary market equal to the applicable sales charge
in each transaction (see "Offering Price"). In addition, in maintaining a market
for the Units (see "Sponsor Repurchase"), the Sponsor will realize profits or
sustain losses in the amount of any difference between the price at which it
buys Units and the price at which it resells such Units.
Comparison of Public Offering Price, Sponsor's Repurchase
Price and Redemption Price. The secondary market Public Offering Price of Units
of each State Trust will be determined on the basis of the current bid prices of
the Bonds in such State Trust plus the applicable sales charge. 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 Public Offering Price per Unit of each State Trust
(based on the bid price of the Bonds in such State Trust plus the sales charge)
each exceeded the Repurchase and Redemption Price per Unit (based upon the bid
price of the Bonds in each State Trust without the sales charge) by the amounts
shown under "Summary of Essential Information" for each State Trust in Part A of
this Prospectus. For this reason, among others (including fluctuations in the
market prices of such Bonds and the fact that the Public Offering Price includes
the applicable sales charge), the amount realized by a Certificateholder upon
any redemption 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 each Trust is
measured in terms of "Estimated Current Return" and "Estimated Long Term
Return".
Estimated Long Term Return is calculated by: (i) 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; (ii) 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 (iii) 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
Certificateholders. The resulting Estimated Long Term Return represents a
measure of the return to Certificateholders 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 in 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.
NY/302302.3
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A schedule of cash flow projections is available from the
Sponsor upon request.
RIGHTS OF CERTIFICATEHOLDERS
----------------------------
Certificates. Ownership of Units of each State 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 instrument 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
each State Trust is credited by the Trustee to the Interest Account of such
Trust and a deduction is made to reimburse the Trustee without interest for any
amounts previously advanced. Proceeds representing principal received by each
State Trust from the maturity, redemption, sale or other disposition of Bonds
are credited to the Principal Account of such State Trust.
Distributions to each Certificateholder of each State Trust
from the Interest Account of such State Trust 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 such Interest Account, depending upon the applicable plan of distribution.
Distributions from the Principal Account of each State Trust will be computed as
of each semi-annual Record Date, and will be made to the Certificateholders of
such State Trust 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 appropriate Principal Account and not distributed until the
second succeeding semi-annual Payment Date. No distributions will be made to
Certificateholders 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 State 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 as may be necessary
to provide interest distributions of approximately equal amounts. The Trustee
shall be reimbursed, without interest, for these advances to the Interest
Account. Funds which are available for future distributions, investment in the
Total Reinvestment Plan, payments of expenses and redemptions are in accounts
which are non-interest bearing to Certificateholders and are available for use
by the Trustee pursuant to normal banking procedures.
As of the first day of each month, the Trustee will deduct
from the Interest Account and, to the extent funds are not sufficient therein,
from the Principal Account, amounts necessary to pay the expenses of the Trust
(as determined on the basis set forth under "Trust Expenses and Charges"). The
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 redemptions of Units by the Trustee.
The estimated monthly, semi-annual or annual interest
distribution per Unit of each State Trust initially will be in the amounts shown
under "Summary of Essential Information" in Part A and will change and be
reduced as Bonds mature or are redeemed, exchanged or sold, or as expenses of
each State Trust fluctuate. No
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<PAGE>
distribution need be made from a 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 applicable to the
Unit Purchased. Record Dates for interest distributions will be the first day of
each month for monthly distributions, the first day of each June and December
for semi-annual distributions and the first day of each 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 each Certificateholder may change his
distribution election by notifying the Trustee in writing of such change between
October 1 and November 1 of each year. (Certificateholders deciding to change
their election should contact the Trustee by calling the number listed on the
back cover hereof for information regarding the procedures that must be followed
in connection with this written notification of the change of election.) Failure
to notify the Trustee on or before November 1 of each year will result in a
continuation of the plan 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 of a
State Trust, a statement showing (i) as to the Interest Account of such State
Trust: interest received (including any earned original issue discount and
amounts representing interest received upon any disposition of Bonds and earned
original discount, if any), amounts paid for redemption of Units, if any,
deductions for applicable taxes and fees and expenses of such State 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; (ii) as to
such State Trust's 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 such State Trust,
amounts paid for redemption 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; (iii) a list of the Bonds held in
such State Trust and the number of Units thereof outstanding on the last
business day of such calendar year; (iv) the Redemption Price per Unit of such
State Trust based upon the last computation thereof made during such calendar
year; and (v) amounts actually distributed to Certificateholders of such State
Trust 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
Certificateholders, at all reasonable times during usual business hours, books
of record and account of its transactions as Trustee, including records of the
names and addresses of Certificateholders, Certificates issued or held, a
current list of Bonds in the portfolio and a copy of the Trust Agreement.
TAX STATUS
----------
This is a general discussion of some of the Federal income tax
consequences of ownership of Units in the Trust. It applies only to investors
who hold their Units as capital assets. It does not discuss special rules that
apply to investors subject to special treatment, such as securities dealers,
financial institutions, insurance companies and investors who hold the Units as
a part of a hedge or a straddle.
All Bonds acquired by the State Trusts 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 and from the respective State
income taxes. Such interest may, however, be subject to the Federal alternative
minimum tax and to state and local taxes in other jurisdictions. Neither the
Sponsor nor the Trustee nor their respective counsel have made any review of the
NY/302302.3
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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.
In rendering the opinion set forth below, counsel has examined
the Agreement, the final form of Prospectus dated the date hereof 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 Paul, Hastings, Janofsky & Walker LLP,
counsel for the Sponsor, under existing law:
Each State Trust will be classified as a grantor trust and not
as an association taxable as corporation for Federal income tax
purposes under the Internal Revenue Code. Income received by each
State 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 such State Trust.
Each Certificateholder of a State Trust will be considered the
owner of a pro rata portion of the assets of that State Trust. Thus,
each Certificateholder of a State Trust will be considered to have
received its pro rata share of Bond interest when it is received by the
State Trust, and the entire amount of net income distributable to
Certificateholders of a State Trust that is exempt from Federal income
tax when received by that State Trust will constitute tax-exempt income
when received by the Certificateholders.
Gain realized on a sale or redemption of the Bonds or on a
sale or redemption of a Unit is, however, includable in a Certificateholder's
gross income for Federal income tax purposes, generally as capital gain. Such
gain does not include any amount received in respect to accrued interest, earned
original issue discount and accrued market discount. Gain on the disposition of
a Bond or a Unit purchased at a market discount generally will be treated as
ordinary income, rather than capital gain, to the extent of any accrued market
discount. Such gain may be long- or short-term gain depending on the holding
period of the Bond or the Unit, assuming that the Bond or Unit is held as a
capital asset. Capital losses are deductible to the extent of capital gains; in
addition, up to $3,000 of capital losses of non-corporate Certificateholders
($1,500 for married persons filing separately) may be deducted against ordinary
income. Capital assets held by individuals will qualify for long-term capital
gain treatment if held for more than one year and will be subject to a reduced
tax rate of 20% rather than the regular maximum tax rate of 39.6%.
Each Certificateholder of a State Trust will realize taxable
gain or loss when that State Trust disposes of a Bond (whether by sale,
exchange, redemption or payment at maturity), as if the Certificateholder had
directly disposed of its 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 of
such Bond and (ii) the amount received therefor. The Certificateholder's tax
cost for each Bond is determined by allocating the total tax cost of each Unit
among all the Bonds held in the State Trust (in accordance with the portion of
the State 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 State Trust at a gain, taxable
gain will equal the difference between (i) the amount received and (ii) the
amount paid (tax cost) plus any accrued original issue discount. 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. No deduction is allowed for the amortization of bond premium on
tax-exempt bonds, such as the Bonds, in computing regular Federal income tax.
Original issue 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 an original issue discount bond is increased by the amount of accrued,
tax-exempt original issue discount thus determined. This method of
NY/302302.3
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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 a State Trust or of a Unit by a Certificateholder.
A Certificateholder may also realize taxable gain or loss when
a Unit of a State Trust is sold or redeemed. The amount received is allocated
among all the Bonds in that State Trust in the same manner as when the State
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 Certificateholder'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 a
portion of their Social Security benefits exceeds a base amount. The base amount
is $32,000 for a married couple filing a joint return, zero for married persons
filing separate returns and not living apart at all times during the taxable
year and $25,000 for all others. Interest on tax-exempt bonds is to be added to
a Certificateholder's adjusted gross income for purposes of computing the amount
of Social Security benefits that are includable in gross income and determining
whether a Certificateholder's income exceeds the base amount above which a
portion of the benefits would be subject to tax.
Corporate Certificateholders are required to include in
Federal corporate alternative minimum taxable income 75% 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
regard to this item). In addition, in certain cases, Subchapter S corporations
with accumulated earnings and profits from Subchapter C years will be subject to
a tax on tax-exempt interest.
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 local government. The laws of such states and local
governments vary with respect to the taxation of such obligations.
The State Trusts are not subject to the New York State
Franchise Tax on Business Corporations or the New York City General Corporation
Tax.
Paul, Hastings, Janofsky & Walker LLP is also of the opinion
that under the personal income tax laws of the State and City of New York, the
income of each State Trust will be treated as the income of the
Certificateholders. Interest on the Bonds that is exempt from tax under the laws
of the State and City of New York when received by the New York Trust will
retain its status as tax-exempt interest of the Certificateholders. In addition,
non-residents of New York City will not be subject to the City personal income
tax on gains derived with respect to their Units. Non-residents of New York
State will not be subject to New York State personal income tax on such gains
unless the Units are employed in a business, trade or occupation carried on in
New York State. A New York State or New York City resident should determine its
basis and holding period for its Units in the same manner for New York State and
New York City tax purposes as for Federal tax purposes. 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) tax.
In the opinion of Brown & Wood LLP, special counsel to the
Sponsor for California tax matters, under existing California law applicable to
individuals who are California residents:
The California Trust will not be treated as an association
taxable as a corporation, and the income of the California Trust will
be treated as the income of the Certificateholders. Accordingly,
interest on Bonds received by the California Trust that is exempt from
personal income taxes imposed by or under the authority of the State of
California will be treated for California income tax purposes in the
same manner as if received directly by the Certificateholders.
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Each Certificateholder of the California Trust will recognize
gain or loss when the California Trust disposes of a Bond (whether by
sale, exchange, redemption or payment at maturity) or upon the
Certificateholder's sale or other disposition of a Unit. The amount of
gain or loss for California income tax purposes will generally be
calculated pursuant to the Internal Revenue Code of 1986, as amended,
certain provisions of which are incorporated by reference under
California law.
In the opinion of Hunton & Williams, special counsel to the
Sponsors for Virginia tax matters, under existing Virginia law applicable to
individuals who are Virginia residents and assuming that the Virginia Trust is a
grantor trust under the grantor trust rules of Sections 671-679 of the Code:
The Virginia Trust will be taxable as a grantor trust for
Virginia income tax purposes with the result that income of the
Virginia Trust will be treated as income of the Certificateholders of
the Virginia Trust. Consequently, the Virginia Trust will not be
subject to any income or corporate franchise tax imposed by the
Commonwealth of Virginia, or its subdivisions, agencies or
instrumentalities.
Interest on the Bonds in the Virginia Trust that is exempt
from Virginia income tax when received by the Virginia Trust will
retain its tax exempt status in the hands of the Certificateholders of
the Virginia Trust.
A Certificateholder of the Virginia Trust will not recognize
gain or loss for Virginia income tax purposes when the Virginia Trust
disposes (whether by sale, exchange, redemption or payment at maturity)
of any Bonds of (i) Virginia or any of its political subdivisions or
instrumentalities or (ii) the United States or any of its authorities,
commissions or instrumentalities. A Certificateholder of the Virginia
Trust will recognize gain or loss for Virginia income tax purposes, to
the same extent that he will for Federal income tax purposes, when the
Virginia Trust disposes of any other Bond or when the Certificateholder
redeems or sells his Units.
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 by 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 IRBs 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,
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 IRBs issued under the $10,000,000 small issue exemption, interest on
such IRBs will become taxable if the face amount of such 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 exemption 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 the facilities themselves, and no
assurance can be given that future events will not affect the tax-exempt status
of the Bonds. 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. 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.
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<PAGE>
The U.S. Supreme Court has held that there is no
constitutional prohibition against the Federal government's taxing the interest
earned on state or other municipal bonds. The decision does not, however, affect
the current exemption from taxation of the interest earned on the Bonds in the
Trust in accordance with Section 103 of the Code.
The opinions of bond 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, intends to maintain a secondary market for the Units of each State Trust and
continuously to offer to repurchase the Units of the Trusts. The Sponsor's
secondary market repurchase price will be based on the aggregate bid price of
the Bonds in each State 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 of a State Trust if the supply of
Units exceeds demand, or for other business reasons. The date of repurchase is
deemed to be the date on which Certificates representing Units of a State Trust
are physically received in proper form by the Sponsor, ING Funds Distributor,
Inc., 1475 Dunwoody Drive, West Chester, P.A. 19380. Units received after 4:00
p.m., Eastern Time, will be deemed to have been repurchased on the next business
day. In the event a market is not maintained for the Units of a State Trust, a
Certificateholder may be able to dispose of Units only by tendering them to the
Trustee for redemption.
Prospectuses relating to certain other bond trusts indicate an
intention by the Sponsor, subject to change, to repurchase units of those funds
on the basis of a price higher than the bid prices of the Bonds in the Trusts.
Consequently, depending upon the prices actually paid, the secondary market
repurchase price of other trusts may be computed on a somewhat more favorable
basis than the repurchase price offered by the Sponsor for Units of these State
Trusts, although in all bond trusts, the purchase price per unit depends
primarily on the value of the bonds in the trust portfolio.
Units purchased by the Sponsor in the secondary market may be
re-offered for sale by the Sponsor at a price based on the aggregate bid price
of the Bonds in a State Trust plus the applicable sales charge 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 as set forth in Part A of this
Prospectus, 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 canceled.
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
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<PAGE>
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 three business days following a tender for redemption,
the Certificateholder will be entitled to receive in cash an amount for each
Unit tendered equal to the Redemption Price per Unit computed as of the
Evaluation Time on the date of tender. The "date of tender" is deemed to be the
date on which Units are received by the Trustee, except that, with respect to
Units received after the close of trading on the New York Stock Exchange, the
date of tender is the next day on which such Exchange is open for trading, and
such Units will be deemed to have been tendered to the Trustee on such day for
redemption at the Redemption Price computed on that day.
Accrued interest paid on redemption shall be withdrawn from
the appropriate Interest Account, or, if the balance therein is insufficient,
from the appropriate Principal Account. All other amounts paid on redemption
shall be withdrawn from the appropriate 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 in a State Trust are sold, the size and diversity of such Trust
will be reduced.
The Redemption Price per Unit of a State Trust is the pro rata
share of each Unit in such State Trust determined by the Trustee on the basis of
(i) the cash on hand in such Trust or monies in the process of being collected,
(ii) the value of the Bonds in such State 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 such State Trust, (b) the accrued
expenses of such State Trust and (c) cash allocated for distribution to
Certificateholders of record of such State Trust as of the business day prior to
the evaluation being made. The Evaluator may determine the value of the Bonds in
such State Trust for purposes of redemption (i) 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 such State Trust, (ii) on the basis of bid
prices for bonds comparable to any Bonds for which bid prices are not available,
(iii) by determining the value of the Bonds by appraisal, or (iv) 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 Certificateholder an amount
in cash, net after deducting brokerage commissions, transfer taxes and other
charges, equal to or in excess of the Redemption Price for such Unit. The
Trustee will pay the net proceeds of any such sale to the Certificateholder on
the day he would otherwise be entitled to receive payment of the Redemption
Price.
The Trustee reserves the right to suspend the right of
redemption and to postpone the date of payment of the Redemption Price per Unit
for any period during which the New York Stock Exchange is closed, other than
customary weekend and holiday closings, or trading on that Exchange is
restricted or during which (as determined by the Securities and Exchange
Commission) an emergency exists as a result of which disposal or evaluation of
the 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.
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<PAGE>
TRUST ADMINISTRATION
--------------------
Portfolio Supervision. The Sponsor may direct the Trustee to
dispose of Bonds in a State Trust 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 project, or (vi) decline in
price or the occurrence of other market or credit factors that in the opinion of
the Sponsor would make the retention of such Bonds in such State 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 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 Trust Agreement to the
same extent as the Bonds originally deposited. Within five days after such
deposit in a State Trust, notice of such exchange and deposit shall be given by
the Trustee to each Certificateholder of such Trust registered on the books of
the Trustee, including an identification of the Bonds eliminated and the Bonds
substituted therefor. Except as previously stated in the discussion regarding
Failed Bonds, the acquisition by a State Trust of any securities other than the
Bonds initially deposited is prohibited.
In determining whether to direct the Trustee to accept or
reject certain plans for the refunding or refinancing of any of the Bonds, the
Sponsor may be advised by the Portfolio Supervisor.
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: (i) to cure any ambiguity or to
correct or supplement any provision which may be defective or inconsistent; (ii)
to change any provision thereof as may be required by the Securities and
Exchange Commission or any successor governmental agency; or (iii) 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 amended in any respect, or
performance of any of the provisions thereof may be waived, with the consent of
the holders of Certificates evidencing 66-2/3% of the Units then outstanding of
each State Trust affected by such amendment for the purpose of modifying the
rights of Certificateholders; provided that no such amendment or waiver shall
reduce any Certificateholder's interest in a State 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 in a State Trust then outstanding, to increase the number of Units
issuable by such State Trust or to permit the acquisition of any bonds in
addition to or in substitution for those initially deposited in such State
Trust, except in accordance with the provisions of the Trust Agreement. The
Trustee shall promptly notify Certificateholders, in writing, of the substance
of any such amendment.
The Trust Agreement provides that each State Trust shall
terminate upon the maturity, redemption or other disposition, as the case may
be, of the last of the Bonds held in such State 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 a State Trust shall be
less than the minimum amount set forth under "Summary of Essential Information
in Part A" for such State Trust, the Trustee may, in its discretion, and shall
when so directed by the Sponsor, terminate such State Trust. Each State Trust
may also be terminated at any time with the consent of the holders of
Certificates representing 100% of the Units of such State Trust then
outstanding. In the event of termination of a State Trust, written notice
thereof will be sent by the Trustee to all Certificateholders of such State
Trust. Within a reasonable period after termination, the Trustee must sell any
Bonds remaining in the terminated State Trust, and, after paying all expenses
and charges incurred by such State Trust, distribute to each
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<PAGE>
Certificateholder thereof, upon surrender for cancellation of his Certificate
for Units, his pro rata share of the Interest and Principal Accounts of such
State Trust.
The Sponsor. Effective February 9, 2000, ING Funds
Distributor, Inc. has become the successor to Reich & Tang Distributors, Inc.,
as Sponsor to the Trusts. In addition, Gruntal & Co., L.L.C. has resigned as co-
sponsor for those particular Trusts for which it acted in that capacity. ING
Funds Distributor, Inc., an Iowa corporation, is a wholly owned indirect
subsidiary of ING Group. ING Group, among the leading global financial services
organizations, is engaged in asset management, banking and insurance activities
in 60 countries worldwide with over 82,000 employees. The Sponsor is a member of
the National Association of Securities Dealers, Inc.
The information included herein is only for the purpose of
informing investors as to the financial responsibility of the Sponsor and its
ability to carry out its contractual obligations. The Sponsor will be under no
liability to Unitholders 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 become incapable of acting or become bankrupt or their affairs are
taken over by public authorities, then the Trustee may either (i) appoint a
successor sponsor; (ii) terminate the Trust Agreement and liquidate the Trust;
or (iii) 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. For certain of the State Trusts, as set forth in
the "Summary of Essential Information" in Part A, the Trustee is The Chase
Manhattan Bank with its principal executive office located at 270 Park Avenue,
New York, New York 10017 (800) 428-8890 and its unit investment trust office at
4 New York Plaza, New York, New York 10004. The Trustee is subject to
supervision 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.
For certain other State Trusts as set forth in the "Summary of
Essential Information" in Part A, the Trustee is The Bank of New York, a trust
company organized under the laws of New York, having its offices at 101 Barclay
Street, New York, New York 10286. The Bank of New York is subject to supervision
and examination by the Superintendent of Banks of the State of New York and the
Board of Governors of the Federal Reserve System, and its deposits are insured
by the Federal Deposit Insurance Corporation to the extent permitted by law. The
Trustee must be a banking corporation organized under the laws of the United
States or any state which is authorized under such laws to exercise corporate
trust powers and must have at all times an aggregate capital, surplus and
undivided profits of not less than $5,000,000. The duties of the Trustee are
primarily ministerial in nature. The Trustee did not participate in the
selection of Securities for the portfolio of the Trust.
The Trustee must be a banking corporation organized under the
laws of the United States or any state which is authorized under such laws to
exercise corporate trust powers and must have at all times an aggregate capital,
surplus and undivided profits of not less than $5,000,000. The duties of the
Trustee are primarily ministerial in nature. The Trustee did not participate in
the selection of Securities for the portfolio of the Trust.
The Trustee shall not be liable or responsible in any way for
taking any action, or for refraining from taking any action, in good faith
pursuant to the Trust Agreement, or for errors in judgment; or for any
disposition of any moneys, 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 Trusts 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.
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<PAGE>
For further information relating to the responsibilities of
the Trustee under the Trust Agreement, reference is made to the material set
forth under "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 $2,500,000.
The Evaluator. The Evaluator is Kenny S&P Evaluation Services,
a division of J. J. Kenny Company, Inc., a subsidiary of The McGraw-Hill
Companies, Inc. with main offices located at 65 Broadway, New York, New York
10006. The Evaluator is a wholly-owned subsidiary of McGraw-Hill, Inc. The
Evaluator is a registered investment advisor and also provides financial
information services.
The Trustee, the Sponsor and 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 thirty
days after notice of resignation, the retiring Evaluator may apply to a court of
competent jurisdiction for the appointment of a successor.
TRUST EXPENSES AND CHARGES
--------------------------
At no cost to the State Trusts, the Sponsor has borne the
expenses of creating and establishing the State Trusts, including the cost of
initial preparation and execution of the Trust Agreement, registration of the
State Trusts and the Units under the Investment Company Act of 1940 and the
Securities Act of 1933, preparation and printing of the Certificates, legal and
auditing expenses, advertising and selling expenses, initial fees and expenses
of the Trustee and other out-of-pocket expenses. The fees of the Evaluator,
however, incurred during the initial public offering, are paid directly by the
Trustee.
The Sponsor will not charge the State Trust a fee for its
services as such. See "Sponsor's Profits."
ING Mutual Funds Management Co. LLC, an affiliate of ING Funds
Distributor, Inc., 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. This fee may exceed the actual cost of providing
portfolio supervisory services for the Trust, but at no time will the total
amount received for portfolio supervisory services rendered to all series of the
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Municipal Securities Trust in any calendar year exceed the aggregate cost to ING
Mutual Funds Management Co. LLC of supplying such services in such year. (See
"Trust Administration--Trust Supervision.")
The Trustee will receive for its ordinary recurring services
to each State 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, which fee shall be allocated pro rata among each State
Trust.
The Trustee's and Evaluator's fees applicable to a State Trust
are payable monthly as of the Record Date from such State Trust's Interest
Account to the extent funds are available and then from such Trust's Principal
Account. The Trustee's fees, the Evaluator's fees and the Portfolio Supervisor's
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 any
or all of the State Trusts: (i) all expenses (including counsel and auditing
fees) of the Trustee incurred in connection with its activities under the Trust
Agreement, including the expenses and costs of any action undertaken by the
Trustee to protect a State Trust and the rights and interests of the
Certificateholders; (ii) fees of the Trustee for any extraordinary services
performed under the Trust Agreement; (iii) 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 a State Trust; (iv) indemnification of the
Sponsor for any loss, liabilities and expenses incurred in acting as Sponsor of
a State Trust without gross negligence, bad faith or willful misconduct on its
part; and (v) all taxes and other governmental charges imposed upon the Bonds or
any part of a State 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 State Trust to which such expenses are allocable. In addition, the
Trustee is empowered to sell Bonds of a State Trust in order to make funds
available to pay all expenses of such State Trust.
Unless the Sponsor otherwise directs, 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 per 1,000 Units. Certificateholders
covered by the audit during the year may receive a copy of the audited
financials upon request.
EXCHANGE PRIVILEGE AND CONVERSION OFFER
---------------------------------------
Certificateholders will be able to elect to exchange any or
all of their Units of this Trust for Units of one or more of any available
series of Equity Securities Trust, Insured Municipal Securities Trust, Municipal
Securities Trust, New York Municipal Trust or Mortgage Securities Trust (the
"Exchange Trusts") subject to a reduced sales charge as set forth in the
prospectus of the Exchange Trust (the "Exchange Privilege"). 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") will be able to elect to
redeem such units and apply the proceeds of the redemption to the purchase of
available Units of one or more series of an Exchange Trust (the "Conversion
Trusts") at the Public Offering Price for units of the Conversion Trust subject
to a reduced sales charge as set forth in the prospectus of the Conversion Trust
(the "Conversion Offer"). Under the Exchange Privilege, the Sponsor's repurchase
price during the initial offering period of the Units being surrendered will be
based on the market value of the Securities in the Trust portfolio or on the
aggregate offer price of the Bonds in the other Trust Portfolios; and, after the
initial offering period has been completed, will be based on the aggregate bid
price of the securities in the particular Trust portfolio. Under the Conversion
Offer, units of the Redemption Trust must be tendered to the trustee of such
trust
NY/302302.3
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<PAGE>
for redemption at the redemption price determined as set forth in the relevant
Redemption Trust's prospectus. Units in an Exchange or Conversion Trust will be
sold to the Certificateholder at a price based on the aggregate offer price of
the securities in the Exchange or Conversion trust portfolio (or for units of
Equity Securities Trust, based on the market value of the underlying securities
in the trust portfolio) during the initial public offering period of the
Exchange or Conversion Trust; and after the initial public offering period has
been completed, based on the aggregate bid price of the securities in the
Exchange or Conversion Trust Portfolio if its initial 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 trust portfolio) and a
reduced sales charge.
Except for Certificateholders who wish to exercise the
Exchange Privilege or Conversion Offer within the first five months of their
purchase of Units of the Exchange or Redemption Trust, any purchaser who
purchases Units under the Exchange Privilege or Conversion Offer will pay a
lower sales charge than that which would be paid for the Units by a new
investor. For Certificateholders who wish to exercise the Exchange Privilege or
Conversion Offer within the first five months of their purchase of Units of the
Exchange or Redemption Trust, the sales charge applicable to the purchase of
units of an Exchange or Conversion Trust shall be the greater of (i) the reduced
sales charge or (ii) an amount which when coupled with the sales charge paid by
the Certificateholder upon his original purchase of Units of the Exchange or
Redemption Trust would equal the sales charge applicable in the direct purchase
of units of an Exchange Trust.
In order to exercise the Exchange Privilege the Sponsor must
be maintaining a secondary market in the units of the available Exchange Trust.
The Conversion Offer is limited only to unit owners of any Redemption Trust.
Exercise of the Exchange Privilege and the Conversion Offer by
Certificateholders is subject to the following additional conditions: (i) at the
time of the Certificateholder's election to participate in the Exchange
Privilege or Conversion Offer, there must be units of the Exchange or Conversion
Trust available for sale, either under the initial primary distribution or in
the Sponsor's secondary market, (ii) exchanges will be effected in whole units
only, (iii) Units of the Mortgage Securities Trust may only be acquired in
blocks of 1,000 Units and (iv) Units of the Equity Securities Trust may only be
acquired in blocks of 100 Units. Certificateholders will not be permitted to
advance any funds in excess of their redemption in order to complete the
exchange. Any excess proceeds received from a Certificateholder for exchange or
from units being redeemed per conversion will be remitted to such
Certificateholder.
The Sponsor reserves the right to suspend, modify or terminate
the Exchange Privilege and/or the Conversion Offer. The Sponsor will provide
Certificateholders of the Trust with 60 days' prior written notice of any
termination or material amendment to the Exchange Privilege and/or the
Conversion Offer, 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 the Conversion Offer, to add any new unit investment trust
sponsored by ING Funds Distributor, Inc. or a sponsor controlled by or under
common control with ING Funds Distributor, Inc., or to delete a series which has
been terminated from eligibility for the Exchange Privilege and/or the
Conversion Offer, (ii) there is a suspension of the redemption of units of an
Exchange or Conversion 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
Certificateholders. Certificateholders may, during this 60-day period, exercise
the Exchange Privilege in accordance with its terms then in effect.
To exercise the Exchange Privilege, a Certificateholder should
notify the Sponsor of his desire to exercise his Exchange Privilege. 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 an Exchange or
Conversion 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 or Conversion Trust in which he indicates an interest.
He may then select
NY/302302.3
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<PAGE>
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. The conversion 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 a
portion of the sales charge.
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 Certificateholder under the
Internal Revenue Code. The Certificateholder will realize a tax gain or loss
that will be of a long- or short-term capital or ordinary income nature
dependent on the length of time the Units have been held and other factors. (See
"Tax Status".) A Certificateholder'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 and New York tax law have been passed
upon by Paul, Hastings, Janofsky & Walker LLP, 399 Park Avenue, New York, New
York 10022, or Berger Steingut Tarnoff & Stern, 600 Madison Avenue, New York,
New York 10022, as counsel for the Sponsor. Certain matters relating to
California tax law have been passed upon by Brown & Wood LLP, as special
California counsel to the Sponsor. Certain matters relating to Virginia tax law
have been passed upon by Hunton & Williams, as special Virginia counsel to the
Sponsor. Carter, Ledyard & Milburn, Two Wall Street, New York, New York 10005
have acted as counsel for The Chase Manhattan Bank. Messrs. Booth & Baron, 122
East 42nd Street, New York, New York 10168, have acted as counsel for The Bank
of New York.
Independent Accountants/Auditors. The financial statements of
the Trusts for the years ended June 30, 2000, and June 30, 1999, included in
Part A of this Prospectus have been examined by Ernst & Young LLP, independent
auditors. The financial statements have been so included in reliance on their
report given upon the authority of said firm as experts in accounting and
auditing. PricewaterhouseCoopers LLP has consented to the incorporation by
reference of their report on the statements of operations, changes in net assets
and financial highlights for the Trusts included in Part A of this Prospectus
for the period ended June 30, 1998.
Portfolio Supervisor. ING Mutual Funds Management Co. LLC, a
Delaware limited liability company, is a wholly-owned indirect subsidiary of ING
Group and is an affiliate of the Sponsor.
Performance Information. Total returns, average annualized
returns or cumulative returns for various periods of this Trust may be included
from time to time in advertisements, sales literature and reports to current or
prospective investors. Total return shows changes in Unit price during the
period plus reinvestment of dividends and capital gains, divided by the original
public offering price as of the date of calculation. Average annualized returns
show the average return for stated periods of longer than a year. Sales material
may also include an illustration of the cumulative results of like annual
investments during an accumulation period and like annual withdrawals during a
distribution period. Figures for actual portfolios will reflect all applicable
expenses and, unless otherwise stated, the maximum sales charge. No provision is
made for any income taxes payable. Returns may also be shown on a combined
basis. Trust performance may be compared to performance on a total return basis
of the Dow Jones Industrial Average, the S&P 500 Composite Price Stock Index, or
performance data from Lipper Analytical Services, Inc. and Morningstar
Publications, Inc. or from publications such as Money, The New
NY/302302.3
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<PAGE>
York Times, U.S. News and World Report, Business Week, Forbes or Fortune. As
with other performance data, performance comparisons should not be considered
representative of a Trust's relative performance for any future period.
DESCRIPTION OF BOND RATINGS*
---------------------------
Standard & Poor's Ratings Services. 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.
The ratings are based, in varying degrees, on the following
considerations:
1. 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.
2. Nature of and provisions of the obligation.
3. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
AAA -- This is the highest rating assigned by Standard &
Poor's to a debt obligation and indicates an extremely strong capacity to pay
principal and interest.
AA -- Bonds rated AA also qualify as high-quality debt
obligations. Capacity to pay principal and interest is very strong, and they
differ from AAA issues only in small degrees.
A -- Bonds rated A have a strong capacity to pay principal and
interest, although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
BBB -- Bonds rated BBB are regarded as having an adequate
capacity to pay principal and interest. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay principal and interest for
bonds in this category than for bonds in the A category.
Plus (+) or Minus (-): To provide more detailed indications of
credit quality, the ratings from "AA" to "BB" may be modified by the addition of
a plus or minus sign to show relative standing within the major rating
categories.
------------------
* As described by the rating agencies.
NY/302302.3
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<PAGE>
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. 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 which make the long term risks appear somewhat larger than in Aaa
securities.
A -- Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa -- Bonds which are rated Baa are considered as medium
grade obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
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 (i)
designate the bonds which offer the maximum in security within their quality
group, (ii) designate bonds which can be bought for possible upgrading in
quality and (iii) additionally afford the investor an opportunity to gauge more
precisely the relative attractiveness of offerings in the market place.
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 (i) earnings of projects under construction,
(ii) earnings of projects unseasoned in operating experience, (iii) rentals
which begin when facilities are completed, or (iv) payments to which some other
limiting condition attaches. Rating denotes probable credit stature upon
completion of construction or elimination of basis of condition.
NR: Indicates that no rating has been requested, that there is insufficient
information on which to base a rating or that S&P does not rate a particular
type of obligation as a matter of policy.
NY/302302.3
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<PAGE>
<TABLE>
<CAPTION>
INDEX
-----
Title Page
<S> <C>
Summary of Essential Information........................................... A-5
Financial and Statistical Information...................................... A-6
Information Regarding the Trust............................................ A-7
Audit and Financial Information............................................ F-1
The Trust.................................................................. B-1
The State Trusts........................................................... B-7
Public Offering............................................................ B-26
Estimated Long Term Return and Estimated
Current Return............................................................. B-28
Rights of Certificateholders............................................... B-29
Tax Status................................................................. B-30
Liquidity.................................................................. B-34
Trust Administration....................................................... B-36
Trust Expenses and Charges................................................. B-38
Exchange Privilege and Conversion Offer.................................... B-39
Other Matters.............................................................. B-41
Description of Bond Ratings................................................ B-42
</TABLE>
MUNICIPAL SECURITIES TRUST
MULTI-STATE SERIES
(A Unit Investment Trust)
Prospectus
----------
Dated: October 28, 2000
Sponsor:
ING Funds Distributor, Inc.
1475 Dunwoody Drive
West Chester, P.A. 19380
1-877-463-6464
Trustee:
The Chase Manhattan Bank
4 New York Plaza
New York, N.Y. 10004
800-882-9898
(or for certain Trusts)
The Bank of New York
101 Barclay Street
New York, N.Y. 10286
800-431-8002
Evaluator:
Kenny S&P Evaluation Services
65 Broadway
New York, N.Y. 10006
This Prospectus does not contain all of the information with respect to the
Trusts set forth in their registration statements filed with the Securities and
Exchange Commission, Washington, D.C. under the Securities Act of 1933, and to
which reference is hereby made. Information may be reviewed and copied at the
Commission's Public Reference Room, and information on the Public Reference Room
may be obtained by calling the SEC at 1-202-942-8090. Copies may be obtained
from the SEC by:
o visiting the SEC Internet address: http://www.sec.gov
------------------
o electronic request (after paying a duplicating fee) at the following E-mail
address: [email protected]
------------------
o writing: Public Reference Section of the Commission, 450 Fifth Street N.W.,
Washington, D.C. 20549-6009
This Prospectus does not constitute an offer to sell, or a
solicitation of any offer to buy securities in any state to any person to whom
it is not lawful to make such offer in such state.
* * *
No person is authorized to give any information or to make any
representations not contained in Parts A and B of this Prospectus; and any
information or representation not contained herein must not be relied upon as
having been authorized by the Trust, the 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.
NY/302302.3
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<PAGE>
PART II
ADDITIONAL INFORMATION NOT REQUIRED
IN PROSPECTUS
CONTENTS OF REGISTRATION STATEMENT
This Post-Effective Amendment to the Registration Statements on Form S-6
comprises the following papers and documents:
The facing sheet on Form S-6.
The Prospectus consisting of pages.
Undertaking to File Reports.
Signatures.
Consent of Independent Accountants/Auditors.
Consent of Counsel.
Consent of Special California Counsel (included in Exhibit 99.3.2).
Consent of Special Virginia Counsel (included in Exhibit 9.3.3).
Consent of the Evaluator (included in Exhibit 99.5.1).
The following exhibits:
99.1.1 -- Reference Trust Agreement including certain Amendments to the
Trust Indenture and Agreement referred to under Exhibit 1.1.1
below (filed as Exhibit 1.1 to Amendment No. 1 to Form S-6
Registration Statement No. 33-50901 of Municipal Securities
Trust, Multi-State Series 44, on December 9, 1993, and
incorporated herein by reference).
99.1.2 -- Reference Trust Agreement including certain Amendments to the
Trust Indenture and Agreement referred to under Exhibit 1.1.1
below (filed as Exhibit 99.1.1 to Post-Effective Amendment
Nos. 7 and 6 to Form S-6 Registration Statement Nos. 33-29989
and 33-36335 of Municipal Securities Trust, Multi-State Series
38, and Multi-State Series 40 and Series 49, respectively, on
October 25, 1996 and incorporated herein by reference).
99.1.3 -- Reference Trust Agreement including certain Amendments to the
Trust Indenture and Agreement referred to under Exhibit 1.1.1.
below (filed as Exhibit 99.1.1 to Post-Effective Amendment No.
4 to Form S-6 Registration Statement No. 33-53854 of Municipal
Securities Trust, Series 53 and Multi-State Series 42,
respectively, on October 28, 1996 and incorporated herein by
reference).
99.1.1.2 -- Trust Indenture and Agreement for Municipal Securities Trust,
Multi-State Series 37 (and Subsequent Series) dated June 30,
1989 (filed as Exhibit 99.1.1.1 to Post-Effective Amendment
No. 6 to Form S-6 Registration Statement No. 33-33606 of
Municipal Securities Trust, Multi-State Series 39 on April 26,
1996 and incorporated herein by reference).
99.1.1.3 -- Trust Indenture and Agreement for Municipal Securities Trust,
Series 45 and 73rd Discount Series (and Subsequent Series)
dated June 16, 1989 (filed as Exhibit 99.1.1.2 to Post-
Effective Amendment No. 6 to Form S-6 Registration Statement
No. 33-33606 of Municipal Securities Trust, Multi-State Series
39 on April 26, 1996 and incorporated herein by reference).
II-1
NY/301105.1
<PAGE>
99.1.3.4 -- Certificate of Incorporation of ING Funds Distributor, Inc.
(filed as Exhibit 99.1.3.5 to Amendment No. 2 to Form S-6
Registration Statement No. 333-31048 on March 28, 2000 and
incorporated herein by reference).
99.1.3.5 -- By-Laws of ING Funds Distributor, Inc. (filed as Exhibit
99.1.3.6 to Amendment No. 2 to Form S-6 Registration Statement
No. 333-31048 on March 28, 2000 and incorporated herein by
reference).
99.1.4 -- Form of Agreement Among Underwriters dated June 16, 1989
(filed as Exhibit 99.1.4 to Post-Effective Amendment No. 7 to
Registration Statement Nos. 33-29313 and 33-30144 of Municipal
Securities Trust, Series 45 and Series 46 on October 25, 1996
and incorporated herein by reference).
99.2.1 -- Form of Certificates (filed as Exhibit 2.1 to Post-Effective
Amendment No. 8 to Form S-6 Registration Statement No.
33-24031 of Municipal Securities Trust, Series 39 on October
25, 1996 and incorporated herein by reference).
99.2.2 -- Form of Certificate dated June 16, 1989 (filed as Exhibit
99.2.1 to Post-Effective Amendment No. 7 to Registration
Statement Nos. 33-29313 and 33-30144 of Municipal Securities
Trust, Series 45 and Series 46 on October 25, 1996 and
incorporated herein by reference).
99.3.1 -- Steingut Tarnoff & Stern (formerly Berger & Steingut) as to
the legality of the securities being registered, including
their consent to the filing thereof and to the use of their
name under the headings "Tax Status" and "Legal Opinions" in
the Prospectus, and to the filing of their opinion regarding
tax status of the Trust (filed as Exhibit 99.3.1 to
Post-Effective Amendment Nos. 7 and 4 to Form S-6 Registration
Statement Nos. 33-29989 and 33-53854 of Municipal Securities
Trust, Multi-State Series 38 and Multi-State Series 42 on
October 25, 1996 and incorporated herein by reference).
99.3.1.1 -- Opinion of Battle Fowler LLP as to tax status of Securities
being registered including their consent to the delivery
thereof and to the use of their name under the heading "Tax
Status" in the Prospectus (filed as Exhibit 99.3.1.1 to
Post-Effective Amendment No. 7 to Form S-6 Registration
Statement No. 33-29989 of Municipal Securities Trust,
Multi-State Series 38 on October 25, 1996 and incorporated
herein by reference).
99.3.1.2 -- Opinion of Battle Fowler LLP as to tax status of Securities
being registered including their consent to the delivery
thereof and to the use of their name under the heading "Tax
Status" in the Prospectus (filed as Exhibit 99.3.1.2 to
Post-Effective Amendment No. 1 to Form S-6 Registration
Statement No. 33-53854 of Municipal Securities Trust,
Multi-State Series 42 on October 26, 1993 and incorporated
herein by reference).
99.3.1.3 -- Opinion of Battle Fowler LLP as to the legality of the
Securities being registered, including their consent to the
filing thereof and to the use of their name under the headings
"Tax Status" and "Legal Opinions" in the Prospectus, and to
the filing of their opinion regarding the tax status of the
Trust (filed as Exhibit 99.3.1 to Amendment No. 1 to Form S-6
Registration Statement No. 33-50901 of Municipal Securities
Trust, Multi-State Series 44 on December 9, 1993 and
incorporated by reference herein).
99.3.2.1 -- Opinion of Brown & Wood, Special California Counsel including
their consent to the filing thereof and to the use of their
name in the Prospectus (filed as Exhibit 99.3.2 to
Post-Effective Amendment No. 7 to Form S-6 Registration
Statement No. 33-29989 of Municipal Securities Trust,
Multi-State Series 38 on October 25, 1996 and incorporated
herein by reference).
II-2
NY/301105.1
<PAGE>
99.3.2.2 -- Opinion of Brown & Wood as Special California Counsel (filed
as Exhibit 99.3.3 to Amendment No. 1 to Form S-6 Registration
Statement No. 33-50901 of Municipal Securities Trust,
Multi-State Series 44 on December 9, 1993 and incorporated by
reference herein).
99.3.3 -- Opinion of Hunton & Williams as Special Virginia Counsel
(filed as Exhibit 99.3.4 to Amendment No. 1 to Form S-6
Registration Statement No. 33-50901 of Municipal Securities
Trust, Multi-State Series 44 on December 9, 1993 and as
Exhibit 99.3.3 to Post-Effective Amendment No. 4 to Form S-6
Registration No. 33-53854 of Municipal Securities Trust,
Multi-State Series 42 on October 28, 1996 and incorporated
herein by reference).
*99.5.1 -- Consents of the Evaluator.
99.6.0 -- Powers of Attorney of ING Funds Distributor, Inc., by its
officers and a majority of its Directors (filed as Exhibit
99.6.0 to Form S-6 Registration Statement No. 333-31048 on
February 24, 2000 and incorporated herein by reference).
99.11.0 -- Code of Ethics of ING Mutual Funds Management Co. LLC (filed
as Exhibit 99.11.0 to Post-Effective Amendment No. 8 to Form
S-6 Registration No. 33-45890 on October 27, 2000 and
incorporated herein by reference).
--------
* Being filed by this Amendment.
II-3
NY/301105.1
<PAGE>
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the
Securities Exchange Act of 1934, the undersigned registrant hereby undertakes to
file with the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrants, Municipal Securities Trust, Multi-State Series 38, Series 49,
Multi-State Series 44 and Series 53 & Multi-State Series 42 certify that they
have met all of the requirements for effectiveness of this Post-Effective
Amendment to the Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933. The registrants have duly caused this Post-Effective
Amendment to the Registration Statement to be signed on their behalf by the
undersigned, thereunto duly authorized, in the City of New York and State of New
York on the 23rd day of October, 2000.
MUNICIPAL SECURITIES TRUST,
MULTI-STATE SERIES 38,
SERIES 49, MULTI-STATE SERIES 44 AND SERIES 53 &
MULTI-STATE SERIES 42
(Registrants)
ING FUNDS DISTRIBUTOR, INC.
(Depositor)
By: /s/PETER J. DEMARCO
----------------------
Peter J. DeMarco
(Authorized Signatory)
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons who constitute the principal officers and a majority of
the directors of ING Funds Distributor, Inc., the Depositor, in the capacities
and on the dates indicated.
Name Title Date
---- ----- ----
DONALD E. BROSTROM Chief Financial Officer, )October 23, 2000
Treasurer and Director )
ERIC M. RUBIN Director )
)
)By: /s/PETER J. DEMARCO
-------------------
) Peter J. DeMarco
) Attorney-in-Fact*
--------
* Executed copies of Powers of Attorney were filed as Exhibit 99.6.0 to Form
S-6 Registration Statement No. 333-31048 on February 24, 2000.
II-4
NY/301105.1
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the reference to our firm under the caption "Independent Auditors"
and to the use of our report dated October 16, 2000, in the Registration
Statement and related Prospectus of Municipal Securities Trust, Multi-State
Series 38, New York Trust; Municipal Securities Trust, Series 49; Municipal
Securities Trust, Multi-State Series 44 (comprising, respectively, the
California Trust and Virginia Trust); Municipal Securities Trust, Series 53 and
Municipal Securities Trust, Multi-State Series 42 (comprising, respectively, the
New York Trust and Virginia Trust).
ERNST & YOUNG LLP
New York, New York
October 27, 2000
II-5
NY/301105.1
<PAGE>
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Post-Effective Amendment to the registration statement
on Form S-6 of our reports dated September 15, 1999, relating to the financial
statements and financial highlights for the two years ended June 30, 1999 of the
Municipal Securities Trust, Multi-State Series 38, (New York Trust); Municipal
Securities Trust, Series 49; Municipal Securities Trust, Multi-State Series 44,
(California Trust, Virginia Trust); Municipal Securities Trust, Series 53; and
Municipal Securities Trust, Multi-State Series 42, (California Trust, New York
Trust, Virginia Trust) which appear in such Prospectus. We also consent to the
reference to us under the heading "Independent Accountants" in the Prospectus.
PricewaterhouseCoopers LLP
Boston, MA
October 25, 2000
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NY/301105.1
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CONSENT OF COUNSEL
We hereby consent to the use of our name under the heading "Legal
Matters" in the Prospectus included in the Registration Statement.
PAUL, HASTINGS, JANOFSKY & WALKER LLP
New York, New York
October 27, 2000
II-7
NY/301105.1
