As filed with the Securities and Exchange Commission on April 26, 1996
Registration No. 33-33606*
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 6
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 39 & SERIES 47
and SERIES 48
B. Name of depositors: REICH & TANG DISTRIBUTORS L.P.
GRUNTAL & CO., INCORPORATED
C. Complete address of depositors' principal executive offices:
REICH & TANG DISTRIBUTORS L.P. GRUNTAL & CO., INCORPORATED
600 Fifth Avenue 14 Wall Street
New York, NY 10020 New York, NY 10005
D. Name and complete address of agent for service:
PETER J. DeMARCO ROBERT SABLOWSKY Copy of comments to:
Executive Vice Executive Vice-President MICHAEL R. ROSELLA, ESQ.
President Gruntal & Co., Battle Fowler LLP
Reich & Tang Incorporated 75 East 55th Street
Distributors L.P. 14 Wall Street New York, NY 10022
600 Fifth Avenue New York, NY 10005 (212) 856-6858
New York, NY 10020
It is proposed that this filing become effective (check appropriate box)
/ / immediately upon filing pursuant to paragraph (b) of Rule 485
/x/ on April 30, 1996 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 39 & Series 47 and Series 48 covered
by prospectuses heretofore filed as part of separate registration
statements on Form S-6 (Registration Nos. 33-33606 and 33-34900,
respectively) under the Act.
1137.1
<PAGE>
MUNICIPAL SECURITIES TRUST
MULTI-STATE SERIES 39, SERIES 47
and SERIES 48
CROSS-REFERENCE SHEET
Pursuant to Rule 404 of Regulation C
under the Securities Act of 1933
(Form N-8B-2 Items required by Instruction as
to the Prospectus in Form S-6)
Form N-8B-2 Form S-6
Item Number Heading in Prospectus
I. Organization and General Information
1. (a) Name of trust...................Front Cover of Prospectus
(b) Title of securities issued...... "
2. Name and address of each depositor..The Sponsors
3. Name and address of trustee.........The Trustee
4. Name and address of principal
underwriters......................The Sponsors
5. State of organization of trust......Organization
6. Execution and termination of
trust agreement...................Trust Agreement, Amendment and
Termination
7. Changes of name.....................Not Applicable
8. Fiscal year......................... "
9. Litigation..........................None
II. General Description of the Trust and Securities of the Trust
10. (a) Registered or bearer
securities......................Certificates
(b) Cumulative or distributive
securities......................Interest and Principal
Distributions
(c) Redemption......................Trustee Redemption
(d) Conversion, transfer, etc.......Certificates, Sponsors Repurchase,
Trustee Redemption, Exchange
Privilege and Conversion Offer
(e) Periodic payment plan...........Not Applicable
(f) Voting rights...................Trust Agreement, Amendment and
Termination
(g) Notice to certificateholders....Records, Portfolio, Trust
Agreement, Amendment and
Termination, The Sponsors,
The Trustee
(h) Consents required...............Trust Agreement, Amendment and
Termination
(i) Other provisions................Tax Status
11. Type of securities
comprising units..................Objectives, Portfolio, Description
of Portfolio
12. Certain information regarding
periodic payment certificates.....Not Applicable
-i-
1177.1
<PAGE>
Form N-8B-2 Form S-6
Item Number Heading in Prospectus
13. (a) Load, fees, expenses, etc.......Summary of Essential Information,
Offering Price, Volume and Other
Discounts, Sponsors' and
Underwriters' Profits, Total
Reinvestment Plan, Trust Expenses
and Charges
(b) Certain information regarding
periodic payment certificates...Not Applicable
(c) Certain percentages.............Summary of Essential Information,
Offering Price, Total
Reinvestment Plan
(d) Price differences...............Volume and Other Discounts
(e) Other loads, fees, expenses.....Certificates
(f) Certain profits receivable
by depositors, principal
underwriters, trustee or
affiliated persons..............Sponsors' and Underwriters' Profits
(g) Ratio of annual charges
to income.......................Not Applicable
14. Issuance of trust's securities......Organization, Certificates
15. Receipt and handling of payments
from purchasers...................Organization
16. Acquisition and disposition of
underlying securities.............Organization, Objectives,
Portfolio, Portfolio Supervision
17. Withdrawal or redemption............Comparison of Public Offering
Price, Sponsors' Repurchase Price
and Redemption Price, Sponsors
Repurchase, Trustee Redemption
18. (a) Receipt, custody and
disposition of income...........Distribution Elections, Interest
and Principal Distributions,
Records, Total Reinvestment Plan
(b) Reinvestment of distributions...Total Reinvestment Plan
(c) Reserves or special funds.......Interest and Principal
Distributions
(d) Schedule of distributions.......Not Applicable
19. Records, accounts and reports.......Records, Total Reinvestment Plan
20. Certain miscellaneous provisions
of trust agreement................Trust Agreement, Amendment and
Termination
(a) Amendment....................... "
(b) Termination..................... "
(c) and (d) Trustee, removal and
successor.......................The Trustee
(e) and (f) Depositor, removal
and successor...................The Sponsors
21. Loans to security holders...........Not Applicable
22. Limitations on liability............The Sponsors, The Trustee,
The Evaluator
23. Bonding arrangements................Part II--Item A
24. Other material provisions
of trust agreement................Not Applicable
III. Organization, Personnel and Affiliated Persons of Depositor
25. Organization of depositor...........The Sponsors
26. Fees received by depositor..........Not Applicable
-ii-
1177.1
<PAGE>
Form N-8B-2 Form S-6
Item Number Heading in Prospectus
27. Business of depositor...............The Sponsors
28. Certain information as to
officials and affiliated
persons of depositor..............Part II--Item C
29. Voting securities of depositor......Not Applicable
30. Persons controlling depositor....... "
31. Payments by depositor for certain
services rendered to trust........ "
32. Payment by depositor for certain
other services rendered to trust.. "
33. Remuneration of employees of
depositor for certain services
rendered to trust................... "
34. Remuneration of other persons for
certain services rendered to trust.. "
IV. Distribution and Redemption of Securities
35. Distribution of trust's
securities by states..............Distribution of Units
36. Suspension of sales of
trust's securities................Not Applicable
37. Revocation of authority
to distribute..................... "
38. (a) Method of distribution..........Distribution of Units, Total
Reinvestment Plan
(b) Underwriting agreements......... "
(c) Selling agreements.............. "
39. (a) Organization of principal
underwriters....................The Sponsors
(b) N.A.S.D. membership of
principal underwriters.......... "
40. Certain fees received by
principal underwriters............Not Applicable
41. (a) Business of principal
underwriters....................The Sponsors
(b) Branch offices of principal
underwriters....................Not Applicable
(c) Salesmen of principal
underwriters.................... "
42. Ownership of trust's
securities by certain persons..... "
43. Certain brokerage commissions
received by principal
underwriters...................... "
44. (a) Method of valuation.............Summary of Essential Information,
Offering Price, Accrued Interest,
Volume and Other Discounts,
Total Reinvestment Plan,
Distribution of Units
(b) Schedule as to offering price...Not Applicable
(c) Variation in offering price
to certain persons..............Distribution of Units, Total
Reinvestment Plan, Volume and
Other Discounts
45. Suspension of redemption rights.....Trustee Redemption
-iii-
1177.1
<PAGE>
Form N-8B-2 Form S-6
Item Number Heading in Prospectus
46. (a) Redemption valuation............Comparison of Public Offering
Price, Sponsors' Repurchase Price
and Redemption Price, Trustee
Redemption
(b) Schedule as to
redemption price................Not Applicable
47. Maintenance of position in
underlying securities.............Comparison of Public Offering
Price, Sponsors' Repurchase Price
and Redemption Price, Sponsors
Repurchase, Trustee Redemption
V. Information Concerning the Trustee or Custodian
48. Organization and regulation
of trustee........................The Trustee
49. Fees and expenses of trustee........Trust Expenses and Charges
50. Trustee's lien...................... "
VI. Information Concerning Insurance of Holders of Securities
51. Insurance of holders of
trust's securities................Not Applicable
VII. Policy of Registrant
52. (a) Provisions of trust agreement
with respect to selection or
elimination of underlying
securities......................Objectives, Portfolio, Portfolio
Supervision
(b) Transactions involving
elimination of underlying
securities......................Not Applicable
(c) Policy regarding substitution
or elimination of underlying
securities......................Objectives, Portfolio, Portfolio
Supervision, Substitution of
Bonds
(d) Fundamental policy not
otherwise covered...............Not Applicable
53. Tax status of trust.................Tax Status
VIII. Financial and Statistical Information
54. Trust's securities during
last ten years....................Not Applicable
55. Hypothetical account for issuers
of periodic payment plans......... "
56. Certain information regarding
periodic payment certificates..... "
-iv-
1177.1
<PAGE>
Form N-8B-2 Form S-6
Item Number Heading in Prospectus
57. Certain information regarding
periodic payment plans............ "
58. Certain other information
regarding periodic payment plans.. "
59. Financial Statements
(Instruction 1(c) to Form S-6)......Statement of Financial Condition
-v-
1177.1
<PAGE>
Note: Part A of This Prospectus May Not Be
Distributed Unless Accompanied by Part B.
MUNICIPAL SECURITIES TRUST
MULTI-STATE SERIES 39
_______________________________________________________________________________
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 existing law. 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 bonds in such State Trust are
located. Such interest income may, however, be a specific preference item for
purposes of Federal individual and/or corporate alternative minimum tax.
Investors may recognize taxable capital gain or ordinary income, to the extent
of accrued market discount, upon maturity or the earlier receipt of principal
payments with respect to the bonds. (See "Tax Status" and "The
Portfolios--General.") The Sponsors are Reich & Tang Distributors L.P.
(successor Sponsor to Bear, Stearns & Co. Inc.) and Gruntal & Co., Incorporated
(sometimes referred to as the "Sponsor" or the "Sponsors"). 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 December 31, 1995 (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.
Investors Should Read and Retain Both Parts
of This Prospectus for Future Reference.
_______________________________________________________________________________
Principal Secondary Market
Number of Amount of Offering Price
Units Bonds per Unit (12/31/95)
New York Trust 4,808 $4,800,000 $1,145.04
_______________________________________________________________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus Part A Dated April 30, 1996
110882.1
<PAGE>
THE TRUST. The Trust is a unit investment trust designated New York
Trust (the "State Trust"). The State Trust has been 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 under existing law 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. A
Trust designated as a short/intermediate-term trust must have a dollar-weighted
average portfolio maturity of more than two years but less than five years; a
Trust designated as an intermediate-term trust must have a dollar-weighted
average portfolio maturity of more than three years but not more than ten
years; a Trust designated as an intermediate/long- term trust must have a
dollar-weighted average portfolio maturity of more than ten years but less than
fifteen years; and a Trust designated as a long-term trust must have a
dollar-weighted average portfolio maturity of more than ten years. 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. See also "Tax Status" in Part B of this
Prospectus.) 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. 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 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". The payment of interest and preservation
of capital are, of course, dependent upon the continuing ability of the issuers
of the Bonds to meet their obligations. There can be no assurance
A-2
110882.1
<PAGE>
that the Trust's investment objectives will be achieved. 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.
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 4.66% of the
Public Offering Price, or 4.887% of the net amount invested in Bonds per Unit.
In addition, accrued interest to the expected date of settlement is added to
the Public Offering Price. If Units of the New York Trust had been purchased on
the Evaluation Date, the Public Offering Price per Unit would have been
$1,145.04 plus accrued interest of $12.52 under the monthly distribution plan,
$18.65 under the semi-annual distribution plan and $18.61 under the annual
distribution plan, for a total of $1,157.56, $1,163.69 and $1,163.65,
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 previously described under "Public Offering Price") 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
A-3
110882.1
<PAGE>
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 Sponsors, although not obligated to do so,
presently maintain and intend to continue 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 4.66% of the Public
Offering Price (4.887% 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.)
TOTAL REINVESTMENT PLAN. Certificateholders under the semi-annual
and annual plans of distribution have the opportunity to have all their regular
interest distributions, and principal distributions, if any, reinvested in
available series of "Insured Municipal Securities Trust" or "Municipal
Securities Trust." (See "Total Reinvestment Plan" in Part B of this Prospectus.
Residents of Texas, see "Total Reinvestment Plan for Texas Residents" in Part B
of this Prospectus.) The Plan is not designed to be a complete investment
program.
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
one of the immediately succeeding pages.
A-4
110882.1
<PAGE>
MUNICIPAL SECURITIES TRUST
MULTI-STATE SERIES 39
NEW YORK TRUST
SUMMARY OF ESSENTIAL INFORMATION AS OF DECEMBER 31, 1995
Date of Deposit: March 30, 1990 Minimum Principal Distribution:
Principal Amount of Bonds .. $4,800,000 $1.00 per Unit.
Number of Units ............ 4,808 Weighted Average Life to Maturity:
Fractional Undivided Inter- 15 Years.
est in Trust per Unit .... 1/4808 Minimum Value of Trust: Trust may
Principal Amount of be terminated if value of Trust is
Bonds per Unit ........... $998.34 less than $2,000,000 in principal
Secondary Market Public amount of Bonds.
Offering Price** Mandatory Termination Date:
Aggregate Bid Price The earlier of December 31, 2039
of Bonds in Trust ...... $5,260,238+++ or the disposition of the last
Divided by 4,808 Units ... $1,094.06 Bond in the Trust.
Plus Sales Charge of 4.66% Trustee***: The Chase Manhattan
of Public Offering Price $50.98 Bank, N.A.
Public Offering Price Trustee's Annual Fee: Monthly
per Unit ............... $1,145.04+ plan $.96 per $1,000; semi-annual
Redemption and Sponsors' plan $.50 per $1,000; and annual
Repurchase Price plan is $.32 per $1,000.
per Unit ................. $1,094.06+ Evaluator: Kenny S&P Evaluation
+++ Services.
++++Evaluator's Fee for Each
Excess of Secondary Market Evaluation: Minimum of $15 plus
Public Offering Price $.25 per each issue of Bonds in
over Redemption and excess of 50 issues (treating
Sponsors' Repurchase separate maturities as separate
Price per Unit ........... $50.98++++ issues).
Difference between Public Sponsors: Reich & Tang
Offering Price per Unit Distributors L.P. and Gruntal &
and Principal Amount per Co., Incorporated.
Unit Premium/(Discount) .. $146.70 Sponsors' Annual Fee: Maximum of
Evaluation Time: 4:00 p.m. $.25 per $1,000 principal amount
New York Time. of Bonds (see "Trust Expenses and
Charges" in Part B of this
Prospectus).
PER UNIT INFORMATION BASED UPON INTEREST DISTRIBUTION PLAN ELECTED
Monthly Semi-Annual Annual
Option Option Option
Gross annual interest income# ......... $75.02 $75.02 $75.02
Less estimated annual fees and
expenses ............................ 2.09 1.56 2.01
Estimated net annual interest ______ ______ ______
income (cash)# ...................... $72.93 $73.46 $73.01
Estimated interest distribution# ...... 6.07 36.72 73.01
Estimated daily interest accrual# ..... .2025 .2040 .2028
Estimated current return#++ ........... 6.37% 6.41% 6.38%
Estimated long term return ++ ......... 3.62% 3.67% 3.63%
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
110882.1
<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.
** For information regarding offering price per unit and applicable sales
charge under the Total Reinvestment Plan, see "Total Reinvestment Plan"
in Part B of this Prospectus.
*** The Trustee maintains its principal executive office at 1 Chase Manhattan
Plaza, New York, New York 10081 and its unit investment trust office at
770 Broadway, New York, New York 10003 (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 five
business days after purchase) of $12.52 monthly, $18.65 semi-annually and
$18.61 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.
A-6
110882.1
<PAGE>
INFORMATION REGARDING THE TRUST
AS OF DECEMBER 31, 1995
DESCRIPTION OF PORTFOLIO
Each Unit in the New York Trust consists of a 1/4808th undivided
interest in the principal and net income of the Trust in the ratio of one Unit
for each $998.34 of principal amount of the Bonds currently held in the Trust.
The Sponsors have not participated as sole underwriters or managers, co-
managers or members 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 10 issues of 9 issuers located in New York and 1 in
Puerto Rico. None of the Bonds are obligations of state and local housing
authorities; approximately 19.9% are hospital revenue bonds; and none were
issued in connection with the financing of nuclear generating facilities. One
issue comprising approximately 2.5% of the aggregate principal amount of the
Bonds is a mortgage subsidy bond. 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). One issue representing $600,000 of the principal amount of the Bonds
is a general obligation bond. All 9 of the remaining issues representing
$4,200,000 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
Facility 1, Health Research 1, Hospital 2, Mortgage Revenue 1, University 2,
Urban Development 1, and Water and Sewer 1. For an explanation of the
significance of these factors see "The State Trusts--Portfolios" in Part B of
this Prospectus.
As of December 31, 1995, $1,200,000 (approximately 25% of the
aggregate principal amount of the Bonds) were original issue discount bonds. Of
these original issue discount bonds, none of the Bonds were Zero Coupon Bonds.
Approximately 52% of the aggregate principal amount of the Bonds in the Trust
were purchased at a "market" discount from par value at maturity, approximately
15.1% were purchased at a premium and approximately 7.9% 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 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.
A-7
110882.1
<PAGE>
FINANCIAL AND STATISTICAL INFORMATION
Selected data for each Unit outstanding for the periods listed below:
New York Trust
Distribu-
tions of
Distributions of Interest Principal
During the Period (per Unit) During
Net Asset* Semi- the
Units Out- Value Monthly Annual Annual Period
Period Ended standing Per Unit Option Option Option (Per Unit)
December 31, 1993 4,995 $1,146.37 $72.84 $73.46 $73.69 -0-
December 31, 1994 4,813 1,062.57 72.69 73.36 73.57 -0-
December 31, 1995 4,808 1,112.10 73.18 73.85 73.91 -0-
- --------
* Net Asset Value per Unit is calculated by dividing net assets as
disclosed in the "statement of Net Assets" by the number of Units
outstanding as of the date of the Statement of Net Assets. See Note 5 of
Notes to Financial Statements for a description of the components of Net
Assets.
A-8
110882.1
<PAGE>
Independent Auditors' Report
The Sponsor, Trustee and Certificateholders
Municipal Securities Trust, Multi-State Series 39, New York Trust:
We have audited the accompanying statement of net assets, including the
portfolio, of Municipal Securities Trust, Multi-State Series 39, New York Trust
as of December 31, 1995, and the related statements of operations, and changes
in net assets for each of the years in the three year period then ended. These
financial statements are the responsibility of the Trustee (see note 2). Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1995, by correspondence with
the Trustee. An audit also includes assessing the accounting principles used and
significant estimates made by the Trustee, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Municipal Securities Trust,
Multi-State Series 39, New York Trust as of December 31, 1995, and the results
of its operations and the changes in its net assets for each of the years in the
three year period then ended in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
New York, New York
March 31, 1996
<PAGE>
NEW YORK TRUST
Statement of Net Assets
December 31, 1995
Investments in marketable securities,
at market value (cost$4,630,362) $ 5,272,581
Excess of other assets over total liabilities 74,397
------------
Net assets 4,808 units of fractional undivided
interest outstanding,$1,112.10 per unit) $ 5,346,978
============
See accompanying notes to financial statements.
<PAGE>
NEW YORK TRUST
Statements of Operations
Years ended December 31,
--------- -- --------- - ----------
1995 1994 1993
--------- --------- ----------
Investment income - interest $ 360,719 365,995 374,643
--------- --------- ----------
Expenses:
Trustee's fees 6,047 6,077 6,425
Evaluator's fees 2,000 2,387 2,190
Sponsor's advisory fee 1,200 1,246 1,248
--------- --------- ----------
Total expenses 9,247 9,710 9,863
--------- --------- ----------
Investment income, net 351,472 356,285 364,780
--------- --------- ----------
Realized and unrealized gain
(loss) on investments:
Realized gain on bonds
sold or called - 10,340 25
Unrealized appreciation
(depreciation) for the year 239,823 (423,283) 345,714
--------- --------- ----------
Net gain (loss)
on investments 239,823 (412,943) 345,739
--------- --------- ----------
Net increase (decrease)
in net assets resulting
from operations $ 591,295 (56,658) 710,519
========= ========= ==========
See accompanying notes to financial statements.
<PAGE>
<TABLE>
NEW YORK TRUST
Statements of Changes in Net Assets
<CAPTION>
Years ended December 31,
---------- - ----------- - -----------
1995 1994 1993
---------- ----------- -----------
<S> <C> <C> <C>
Operations:
Investment income, net $ 351,472 356,285 364,780
Realized gain on bonds sold
or called - 10,340 25
Unrealized appreciation
(depreciation) for the year 239,823 (423,283) 345,714
---------- ----------- -----------
Net increase (decrease)
in net assets resulting
from operations 591,295 (56,658) 710,519
---------- ----------- -----------
Distributions to Certificateholders:
Investment income 352,980 355,876 365,181
Principal - - -
Redemptions:
Interest 145 4,058 84
Principal 5,325 195,408 5,577
---------- ----------- -----------
Total distributions
and redemptions 358,450 555,342 370,842
---------- ----------- -----------
Total increase (decrease) 232,845 (612,000) 339,677
Net assets at beginning of year 5,114,133 5,726,133 5,386,456
---------- ----------- -----------
Net assets at end of year (including
undistributed net investment
income of $86,740, $88,393
and $92,042 respectively) $ 5,346,978 5,114,133 5,726,133
========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
MUNICIPAL SECURITIES TRUST, MULTI-STATE SERIES 39
NEW YORK TRUST
Notes to Financial Statements
December 31, 1995, 1994 and 1993
(1) Organization
Municipal Securities Trust, Multi-State Series 39 (Trust) was organized on
March 30, 1990 by Bear, Stearns & Co. Inc. and Gruntal & Co., Incorporated
(Co-Sponsors) 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.
Effective September 28, 1995, Reich & Tang Distributors L.P. (Reich & Tang)
has become the successor sponsor (Sponsor) to certain of the unit
investments trusts previously sponsored by Bear, Stearns & Co. Inc. and
Gruntal & Co. Incorporated. As successor Sponsor, Reich & Tang has assumed
all of the obligations and rights of Bear Stearns & Co. Inc. and Gruntal &
Co. Incorporated, the previous sponsors.
(2) Summary of Significant Accounting Policies
Effective September 2, 1995, United States Trust Company of New York was
merged into Chase Manhattan Bank (National Association) (Chase).
Accordingly, Chase is the successor trustee of the unit investment trusts.
The Trustee has custody of and responsibility for the accounting records
and financial statements of the Trust and is responsible for establishing
and maintaining a system of internal control related thereto.
The Trustee is also responsible for all estimates of expenses and accruals
reflected in the Trust's financial statements. The accompanying financial
statements have been adjusted to record the unrealized appreciation
(depreciation) of investments and to record interest income and expenses on
the accrual basis.
Investments are carried at market value which is determined by Kenny S&P
Evaluation Services (Evaluator). The market value of the portfolio is
based upon the bid prices for the bonds at the end of the year, except
that the market value on the date of deposit represents the cost to the
Trust based on the offering prices for investments at that date. The
difference between cost 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.
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Trustee to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
(3) Income Taxes
The Trust is not subject to Federal income taxes as provided for by the
Internal Revenue Code.
(Continued)
<PAGE>
MUNICIPAL SECURITIES TRUST, MULTI-STATE SERIES 39
NEW YORK TRUST
Notes to Financial Statements
(4) Trust Administration
The fees and expenses of the Trust are incurred and paid on the basis set
forth under "Trust Expenses and Charges" in Part B of this Prospectus.
The Trust Indenture and Agreement provides for interest distributions as
often as monthly (depending upon the distribution plan elected by the
Certificateholders).
See "Financial and Statistical Information" in Part A of this Prospectus
for the amounts of per unit distributions during the years ended December 31,
1995, 1994 and 1993.
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. 5, 182 and 5 units were redeemed during the years ended December 31,
1995, 1994 and 1993, respectively.
(5) Net Assets
At December 31, 1995, the net assets of the Trust represented the
interest of Certificateholders as follows:
Original cost to Certificateholders $ 5,072,465
Less initial gross underwriting commission (248,551)
----------
4,823,914
Cost of securities sold or called (193,552)
Net unrealized appreciation 642,219
Undistributed net investment income 86,740
Distributions in excess of proceeds
from bonds sold or called (12,343)
----------
Total $ 5,346,978
==========
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.
<PAGE>
<TABLE>
MUNICIPAL SECURITIES TRUST, MULTI-STATE SERIES 39
NEW YORK TRUST
Portfolio
December 31, 1995
<CAPTION>
Port- Aggregate Coupon Rate/ Redemption Feature
folio Principal Name of Issuer Ratings Date(s) of S.F.--Sinking Fund Market
No. Amount and Title of Bonds (1) Maturity(2) Ref.--Refunding (2)(7) Value(3)
- ----- --------- ----------------------- ------- --------------- ------------------------ -----------
<S> <C> <C> <C> <C> <C> <C>
1 $ 600,000 N.Y. State Dorm. Auth. Aaa* 7.625% 7/01/06 @ 100 S.F. $ 695,388
City Univ. Sys. 7/01/2020 7/01/00 @ 102 Ref.
Consldtd. Rev. Bonds
Series 1990 A (5)
2 600,000 N.Y. State Dorm. Auth. Aaa* 7.70 5/15/06 @ 100 S.F. 694,974
State Univ. Ed. Facs. 5/15/2012 5/15/00 @ 102 Ref.
Rev. Bonds Series 1990
A (5)
3 600,000 N.Y. State Dorm. Auth. Aaa* 7.700 7/01/11 @ 100 S.F. 697,223
Rev. Bonds (Dept. of 7/01/2020 7/01/00 @ 102 Ref.
Hlth. of the State of
N.Y. Issue) Series 1990
(5)
4 380,000 N.Y. State Med. Care AA 7.625 8/15/05 @ 100 S.F. 409,112
Facs. Finc. Agncy. 2/15/2023 2/15/98 @ 102 Ref.
Hosp. & Nrsg. Home FHA
Insrd. Mtg. Rev. Bonds
Good Samaritan Hosp.
Series 1988A
5 285,000 N.Y. State Med. Care BBB+ 7.750 2/15/11 @ 100 S.F. 316,609
Facs. Finc. Agncy. 2/15/2020 2/15/00 @ 102 Ref.
Mental Hlth. Serv.
Facs. Imprvmt. Rev.
Bonds Series 1990A
5a 290,000 N.Y. State Med. Care Aaa* 7.750 2/15/11 @ 100 S.F. 334,347
Facs. Finc. Agncy. 2/15/2020 2/15/00 @ 102 Ref.
Mental Hlth. Serv.
Facs. Imprvmt. Rev.
Bonds Series 1990A (5)
6 120,000 N.Y. State Mtg. Agncy. Aa* 7.500 4/01/09 @ 100 S.F. 128,255
Hmownr. Mtg. Rev. Bonds 10/01/2017 10/01/99 @ 102 Ref.
Series JJ
7 225,000 N.Y. State Urban Dev. Aaa* 8.125 1/01/09 @ 100 S.F. 247,379
Corp. Correctnl. Facs. 1/01/2014 1/01/98 @ 102 Ref.
Rev. Bonds Series E (5)
8 250,000 N.Y. City Gen. Oblig. BBB+ 7.000 No Sinking Fund 261,075
Bonds Fiscal 1990 10/01/2017 10/01/99 @ 100 Ref.
Series B
9 350,000 N.Y. City Gen. Oblig. BBB+ 7.000 No Sinking Fund 364,907
Bonds Fiscal 1990 10/01/2018 10/01/99 @ 100 Ref.
Series B
10 600,000 N.Y. City Muni. Wtr. A* 6.000 6/15/17 @ 100 S.F. 607,062
Finc. Auth. Wtr. & Swr. 6/15/2019 6/15/99 @ 100 Ref.
Sys. Rev. Bonds Fiscal
1990 Series A
11 500,000 P.R. Indus. Med. Hghr. Baa1* 8.750 No Sinking Fund 516,250
Ed. & Envrnmntl. Poll. 12/01/2025 6/1/96 @ 102 Ref.
Cntrl. Facs. Fincg.
Auth. Spec. Fac. Rev.
Bonds (American
Airlines, Inc. Prjt.)
Series 1985A
--------- -----------
$ 4,800,000 $ 5,272,581
========= ===========
</TABLE>
<PAGE>
MUNICIPAL SECURITIES TRUST, MULTI-STATE SERIES 39
NEW YORK TRUST
Footnotes to Portfolio
December 31, 1995
(1) All ratings are by Standard & Poor's Corporation, except for those
identified by an asterisk (*) which are by Moody's Investors Service, Inc.
A brief description of the ratings symbols and their meanings is set forth
under "Description of Bond Ratings" in Part B of this Prospectus.
(2) See "The Trust - Portfolio" in Part B of this Prospectus for an explanation
of redemption features. See "Tax Status" in Part B of this Prospectus for a
statement of the Federal tax consequences to a Certificateholder upon the
sale, redemption or maturity of a bond.
(3) At December 31, 1995, the net unrealized appreciation of all the bonds was
comprised of the following:
Gross unrealized appreciation $ 660,909
Gross unrealized depreciation ( 18,690)
---------
Net unrealized appreciation $ 642,219
=========
(4) The annual interest income, based upon bonds held at December 31, 1995, to
the Trust is $360,719.
(5) The bonds have been prerefunded and will be redeemed at the next refunding
call date.
(6) Bonds sold or called after December 31, 1995 are noted in a footnote
"Changes in Trust Portfolio" under "Description of Portfolio" in Part A of
this Prospectus.
(7) The Bonds may also be subject to other calls, which may be permitted or
required by events which cannot be predicted (such as destruction,
condemnation, termination of a contract, or receipt of excess or
unanticipated revenues).
<PAGE>
Note: Part A of This Prospectus May Not Be
Distributed Unless Accompanied by Part B.
MUNICIPAL SECURITIES TRUST
SERIES 47
- ------------------------------------------------------------------------------
The Trust is a unit investment trust designated Series 47
("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 existing law but may be subject to state and local taxes. Such
interest income may, however, be a specific preference item for purposes of
Federal individual and/or corporate alternative minimum tax. Investors may
recognize taxable capital gain upon maturity or earlier redemption of the
underlying bonds. (See "Tax Status" and "The Trust--Portfolio" in Part B of this
Prospectus.) The Sponsors are Reich & Tang Distributors L.P. (successor Sponsor
to Bear, Stearns & Co. Inc.) and Gruntal & Co., Incorporated (sometimes referred
to as the "Sponsor" or the "Sponsors"). 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 December 31, 1995 (the "Evaluation Date"), a
summary of certain specific information regarding the Trust and audited
financial statements of the Trust, including the related portfolio, as of the
Evaluation Date. Part B of this Prospectus contains a general summary of the
Trust.
Investors should retain both parts of this Prospectus for
future reference.
- ------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus Part A Dated April 30, 1996
110862.1
<PAGE>
THE TRUST. The Trust is a unit investment trust 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 under existing law through investment in a fixed, diversified
portfolio of long-term bonds (the "Bonds") issued by or on behalf of states,
municipalities and public authorities. A Trust designated as a
short/intermediate-term trust must have a dollar-weighted average portfolio
maturity of more than two years but less than five years; a Trust designated as
an intermediate-term trust must have a dollar-weighted average portfolio
maturity of more than three years but not more than ten years; a Trust
designated as an intermediate/long-term trust must have a dollar-weighted
average portfolio maturity of more than ten years but less than fifteen years;
and a Trust designated as a long-term trust must have a dollar-weighted average
portfolio maturity of more than ten years. 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. See also "Tax Status" in Part B of this
Prospectus.) 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 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. 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". The payment of interest and preservation of
capital are, of course, dependent upon the continuing ability of the issuers of
the Bonds to meet their obligations. There can be no assurance that the Trust's
objectives will be achieved. Investment in the Trust should 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. Each Unit in the Trust represents a
1/4777th 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.
A-2
110862.1
<PAGE>
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 4.16% of the Public
Offering Price, which is the same as 4.340% of the net amount invested in Bonds
per Unit. 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 $634.69 plus accrued
interest of $10.20 under the monthly distribution plan, $13.76 under the
semi-annual distribution plan and $13.83 under the annual distribution plan, for
a total of $644.89, $648.45 and $648.52, 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 previously described under "Public Offering Price") 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-3
110862.1
<PAGE>
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,
presently maintains and intends to continue to maintain a market for the Units
at prices based upon the aggregate bid price of the Bonds in the portfolio of
the Trust. 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 4.16% of the Public
Offering Price (4.340% 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.)
TOTAL REINVESTMENT PLAN. Certificateholders under the semi-annual
and annual plans of distribution have the opportunity to have their interest
distributions and principal distributions, if any, reinvested in available
series of "Insured Municipal Securities Trust" or "Municipal Securities Trust."
(See "Total Reinvestment Plan" and for residents of Texas, see "Total
Reinvestment Plan for Texas Residents" in Part B of this Prospectus.) The Plan
is not designed to be a complete investment program.
A-4
110862.1
<PAGE>
MUNICIPAL SECURITIES TRUST
SERIES 47
SUMMARY OF ESSENTIAL INFORMATION AS OF DECEMBER 31, 1995
Date of Deposit: March 30, 1990 Minimum Principal Distribution:
Principal Amount of Bonds ... $2,890,000 $1.00 per Unit.
Number of Units ............. 4,777 Weighted Average Life
Fractional Undivided Inter- to Maturity: 13.2 Years.
est in Trust per Unit ..... 1/4777 Minimum Value of Trust:
Principal Amount of Trust may be terminated if value
Bonds per Unit ............ $604.98 of Trust is less than $2,000,000
Secondary Market Public in principal amount of Bonds.
Offering Price** Mandatory Termination Date:
Aggregate Bid Price The earlier of December 31, 2039
of Bonds in Trust ....... $2,910,840+++ or the disposition of the last
Divided by 4,777 Units .... $609.34 Bond in the Trust.
Plus Sales Charge of 4.16% Trustee***: The Chase Manhattan
of Public Offering Price $25.34 Bank, N.A.
Public Offering Price Trustee's Annual Fee: Monthly
per Unit ................ $634.69+ plan $.96 per $1,000; semi-annual
Redemption and Sponsor's plan $.50 per $1,000; and annual
Repurchase Price plan is $.32 per $1,000.
per Unit .................. $609.34+ Evaluator: Kenny S&P Evaluation
+++ Services.
++++ Evaluator's Fee for Each
Excess of Secondary Market Evaluation: Minimum of $15 plus
Public Offering Price $.25 per each issue of Bonds in
over Redemption and excess of 50 issues (treating
Sponsor's Repurchase separate maturities as separate
Price per Unit ............ $25.34++++ issues).
Difference between Public Sponsors: Reich & Tang
Offering Price per Unit Distributors L.P. and Gruntal &
and Principal Amount per Co., Incorporated
Unit Premium/(Discount) ... $29.71 Sponsors' Annual Fee: Maximum of
Evaluation Time: 4:00 p.m. $.25 per $1,000 principal amount
New York Time. of Bonds (see "Trust Expenses and
Charges" in Part B of this
Prospectus).
PER UNIT INFORMATION BASED UPON INTEREST DISTRIBUTION PLAN ELECTED
Monthly Semi-Annual Annual
Option Option Option
Gross annual interest income# ......... $41.13 $41.13 $41.13
Less estimated annual fees and
expenses ............................ 1.50 1.14 .39
Estimated net annual interest ______ ______ ______
income (cash)# ...................... $39.63 $39.99 $40.74
Estimated interest distribution# ...... 3.30 19.99 40.73
Estimated daily interest accrual# ..... .1100 .1110 .1131
Estimated current return#++ ........... 6.24% 6.30% 6.42%
Estimated long term return++ .......... 4.13% 4.19% 4.32%
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
110862.1
<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.
** For information regarding offering price per unit and applicable sales
charge under the Total Reinvestment Plan, see "Total Reinvestment Plan" in
Part B of this Prospectus.
Certain amounts distributable as of December 31, 1995 are reported in the
summary of essential information as if they had been distributed at
year-end.
*** The Trustee maintains its principal executive office at 1 Chase Manhattan
Plaza, New York, New York 10081 and its unit investment trust office at
770 Broadway, New York, New York 10003 (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 five
business days after purchase) of $10.20 monthly, $13.76 semi-annually and
$13.83 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.
A-6
110862.1
<PAGE>
INFORMATION REGARDING THE TRUST
AS OF DECEMBER 31, 1995
DESCRIPTION OF PORTFOLIO
The portfolio of the Trust consists of 7 issues representing
obligations of issuers located in 5 states and 1 in the District of Columbia.
The Sponsors 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. Approximately 8.7% of the Bonds are
obligations of state and local housing authorities; approximately 51.9% 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 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. Seven issues representing $2,890,000 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: Coal Power 1, Federally
Assisted Housing 1, Higher Education 1, Hospital 3 and Resource Recovery 1. For
an explanation of the significance of these factors see "The Trust--Portfolio"
in Part B of this Prospectus.
As of December 31, 1995, $450,000 (approximately 15.6% of the
aggregate principal amount of the Bonds) were original issue discount bonds. Of
these original issue discount bonds, $250,000 (approximately 8.7% of the
aggregate principal amount of the Bonds) were Zero Coupon Bonds. Zero Coupon
Bonds do not provide for 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 51.9% of the aggregate
principal amount of the Bonds in the Trust were purchased at a "market" discount
from par value at maturity, approximately 15.2% were purchased at a premium and
approximately 17.3% 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.
A-7
110862.1
<PAGE>
FINANCIAL AND STATISTICAL INFORMATION
Selected data for each Unit outstanding for the periods listed below:
Distribu-
tions of
Distributions of Interest Principal
During the Period (per Unit) During
Net Asset* Semi- the
Units Out- Value Monthly Annual Annual Period
Period Ended standing Per Unit Option Option Option (Per Unit)
December 31, 1993 5,000 $1,053.13 $72.34 $73.02 $73.25 $ 16.00
December 31, 1994 4,971 830.25 62.19 62.77 62.94 146.24
December 31, 1995 4,777 657.99 54.96 55.46 55.78 199.15
- --------
* 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-8
110862.1
<PAGE>
Independent Auditors' Report
The Sponsor, Trustee and Certificateholders
Municipal Securities Trust, Series 47:
We have audited the accompanying statement of net assets, including the
portfolio, of Municipal Securities Trust, Series 47 as of December 31, 1995, and
the related statements of operations, and changes in net assets for each of the
years in the three year period then ended. These financial statements are the
responsibility of the Trustee (see note 2). Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1995, by correspondence with
the Trustee. An audit also includes assessing the accounting principles used and
significant estimates made by the Trustee, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Municipal Securities Trust,
Series 47 as of December 31, 1995, and the results of its operations and the
changes in its net assets for each of the years in the three year period then
ended in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
New York, New York
March 31, 1996
<PAGE>
Statement of Net Assets
December 31, 1995
Investments in marketable securities,
at market value (cost $2,589,281) $ 2,910,793
Excess of other assets over total liabilities 232,420
-----------
Net assets 4,777 units of fractional undivided
interest outstanding, $657.99 per unit) $ 3,143,213
===========
See accompanying notes to financial statements.
<PAGE>
Statements of Operations
Years ended December 31,
---------- - ---------- - ----------
1995 1994 1993
---------- ---------- ----------
Investment income - interest $ 260,675 315,928 372,670
---------- ---------- ----------
Expenses:
Trustee's fees 4,977 5,736 6,112
Evaluator's fees 1,501 1,791 1,643
Sponsor's advisory fee 1,001 1,226 1,246
---------- ---------- ----------
Total expenses 7,479 8,393 9,001
---------- ---------- ----------
Investment income, net 253,196 307,535 363,669
---------- ---------- ----------
Realized and unrealized gain (loss) on investments:
Realized loss on bonds sold
or called (42,813) (28,582) (3,640)
Unrealized appreciation
(depreciation) for the year 189,795 (350,374) 212,476
---------- ---------- ----------
Net gain (loss)
on investments 146,982 (378,956) 208,836
---------- ---------- ----------
Net increase (decrease)
in net assets resulting
from operations $ 400,178 (71,421) 572,505
========== ========== ==========
See accompanying notes to financial statements.
<PAGE>
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
Years ended December 31,
----------- - ------------ ------------
1995 1994 1993
----------- ------------ ------------
<S> <C> <C> <C>
Operations:
Investment income, net $ 253,196 307,535 363,669
Net loss on bonds sold
or called (42,813) (28,582) (3,640)
Unrealized appreciation (depreciation)
of investments for the year 189,795 (350,374) 212,476
----------- ------------ ------------
Net increase (decrease) in
net assets resulting
from operations 400,178 (71,421) 572,505
----------- ------------ ------------
Distributions to Certificateholders:
Investment income 268,682 311,173 362,549
Principal 956,508 730,469 80,000
Redemptions:
Interest 2,878 466 -
Principal 156,071 24,947 -
----------- ------------ ------------
Total distributions
and redemptions 1,384,139 1,067,055 442,549
----------- ------------ ------------
Total decrease increase (983,961) (1,138,476) 129,956
Net assets at beginning of year 4,127,174 5,265,650 5,135,694
----------- ------------ ------------
Net assets at end of year (including
undistributed net investment
income of $71,253 , $89,617
and $93,721 respectively) $ 3,143,213 4,127,174 5,265,650
=========== ============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
MUNICIPAL SECURITIES TRUST, SERIES 47
Notes to Financial Statements
December 31, 1995, 1994, 1993
(1) Organization
Municipal Securities Trust, Series 47 (Trust) was organized on March 30,
1990 by Bear, Stearns & Co. Inc. and Gruntal & Co., Incorporated
(Co-Sponsors) 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.
Effective September 28, 1995, Reich & Tang Distributors L.P. (Reich & Tang)
has become the successor sponsor (the Sponsor) to certain of the unit
investments trusts previously sponsored by Bear, Stearns & Co. Inc. and
Gruntal & Co., Incorportated. As successor Sponsor, Reich & Tang has
assumed all of the obligations and rights of Bear Stearns & Co. Inc. and
Grunatl and Co. Incorporated, the previous sponsors.
(2) Summary of Significant Accounting Policies
Effective September 2, 1995, United States Trust Company of New York was
merged into Chase Manhattan Bank (National Association) (Chase).
Accordingly, Chase is the successor trustee of the unit investment trusts.
The Trustee has custody of and responsibility for the accounting records
and financial statements of the Trust and is responsible for establishing
and maintaining a system of internal control related thereto.
The Trustee is also responsible for all estimates of expenses and accruals
reflected in the Trust's financial statements. The accompanying financial
statements have been adjusted to record the unrealized appreciation
(depreciation) of investments and to record interest income and expenses on
the accrual basis.
The discount on the zero-coupon bonds is accreted by the interest method
over the respective lives of the bonds. The accretion of such discount is
included in interest income; however, it is not distributed until realized
in cash upon maturity or sale of the respective bonds.
Investments are carried at market value which is determined by Kenny S&P
Evaluation Services (Evaluator). The market value of the portfolio is
based upon the bid prices for the bonds at the end of the year, except
that the market value on the date of deposit represents the cost to the
Trust based on the offering prices for investments at that date. The
difference between cost (including accumulated accretion of original issue
discount on zero-coupon bonds) and market value is reflected as unrealized
appreciation (depreciation) of investments. Securities transactions are
recorded on the trade date. Realized gains (losses) from securities
transactions are determined on the basis of average cost of the securities
sold or redeemed.
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Trustee to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
(Continued)
<PAGE>
MUNICIPAL SECURITIES TRUST, SERIES 47
Notes to Financial Statements
(3) Income Taxes
The Trust is not subject to Federal income taxes as provided for by the
Internal Revenue Code.
(4) Trust Administration
The fees and expenses of the Trust are incurred and paid on the basis set
forth under "Trust Expenses and Charges" in Part B of this Prospectus.
The Trust Indenture and Agreement provides for interest distributions as
often as monthly (depending upon the distribution plan elected by the
Certificateholders).
See "Financial and Statistical Information" in Part A of this Prospectus
for the amounts of per unit distributions during the years ended December 31,
1995, 1994 and 1993.
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. 194 and 29 units were redeemed during the years ended December 31,
1995 and 1994, respectively. No units were redeemed during the year ended
December 31, 1993.
(5) Net Assets
At December 31, 1995, the net assets of the Trust represented the
interest of Certificateholders as follows:
Original cost to Certificateholders $ 5,035,774
Less initial gross underwriting commission (246,753)
----------
4,789,021
Cost of securities sold or called (2,206,578)
Net unrealized appreciation 321,512
Undistributed net investment income 71,253
Undistributed proceeds from bonds sold or called 168,005
----------
Total $ 3,143,213
==========
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 $6,838.
<PAGE>
<TABLE>
MUNICIPAL SECURITIES TRUST, SERIES 47
Portfolio
December 31, 1995
<CAPTION>
Port- Aggregate Coupon Rate/ Redemption Feature
folio Principal Name of Issuer Ratings Date(s) of S.F.--Sinking Fund Market
No. Amount and Title of Bonds (1) Maturity(2) Ref.--Refunding (2) (7) Value(3)
- ----- --------- ------------------------- -------- ------------- ------------------------- ------------
<S> <C> <C> <C> <C> <C> <C>
1 $ 500,000 D.C. Assoc. of America AA- 7.500% 2/15/05 @ 100 S.F. $ 547,924
Med. Collgs. Issue Rev. 2/15/2010 2/15/00 @ 102 Ref.
Bonds Series 1990
2 440,000 Broward Cnty. Fla. Res. A* 7.950 12/01/92 @ 100 S.F. 497,913
Rcvry. Rev. Bonds (SES 12/01/2008 12/01/99 @ 103 Ref.
Broward Co., L.P. So.
Prjt.) Series 1984
3 500,000 Ill. Hlth. Facs. Auth. Aaa* 7.700 10/01/08 @ 100 S.F. 570,790
Rev. Rfndg. Bonds (Ill. 10/01/2015 10/01/99 @ 102 Ref.
Masonic Med. Cntr.)
Series 1989A (5)
4 500,000 Mass. Hlth. & Ed. Facs. A+ 7.500 7/01/09 @ 100 S.F. 558,605
Auth. Rev. Bonds Baystate 7/01/2020 7/01/99 @ 102 Ref.
Med. Cntr. Issue 1989
Series C (5)
5 500,000 Flint Mich. Hosp. Bldg. Baa* 7.800 7/01/00 @ 100 S.F. 541,705
Auth. Genesee Cnty. Bldg. 7/01/2014 7/01/00 @ 102 Ref.
Auth. Rev. Rental Bonds
(Hurley Med. Cntr.)
Series 1990
6 200,000 N.C. Eastern Muni. Pwr. Aaa* 4.500 1/01/21 @ 100 S.F. 180,688
Agncy. Pwr. Sys. Rev. 1/01/2024 1/01/22 @ 100 Ref.
Rfndg. Bonds Series 1987A
(5)
7 250,000 Ill. Hsg. Dev. Auth. A+ 0.000 7/01/06 @ 13.676 S.F. 13,168
Multi-Fam. Hsg. Rev. 7/01/2025 None
Bonds 1983 Series A
--------- ------------
$ 2,890,000 $ 2,910,793
========= ============
</TABLE>
<PAGE>
MUNICIPAL SECURITIES TRUST, SERIES 47
Footnotes to Portfolio
December 31, 1995
(1) All ratings are by Standard & Poor's Corporation, except for those
identified by an asterisk (*) which are by Moody's Investors Service, Inc.
A brief description of the ratings symbols and their meanings is set forth
under "Description of Bond Ratings" in Part B of this Prospectus.
(2) See "The Trust - Portfolio" in Part B of this Prospectus for an explanation
of redemption features. See "Tax Status" in Part B of this Prospectus for a
statement of the Federal tax consequences to a Certificateholder upon the
sale, redemption or maturity of a bond.
(3) At December 31, 1995, the net unrealized appreciation of all the bonds was
comprised of the following:
Gross unrealized appreciation $ 324,987
Gross unrealized depreciation (3,475)
-------
Net unrealized appreciation $ 321,512
=======
(4) The annual interest income, based upon bonds held at December 31, 1995,
(excluding accretion of original issue discount on zero-coupon bonds) to
the Trust is $196,480.
(5) The bonds have been prerefunded and will be redeemed at the next refunding
call date.
(6) Bonds sold or called after December 31, 1995 are noted in a footnote
"Changes in Trust Portfolio" under "Description of Portfolio" in Part A of
this Prospectus.
(7) The Bonds may also be subject to other calls, which may be permitted or
required by events which cannot be predicted (such as destruction,
condemnation, termination of a contract, or receipt of excess or
unanticipated revenues).
<PAGE>
Note: Part A of This Prospectus May Not Be
Distributed Unless Accompanied by Part B.
MUNICIPAL SECURITIES TRUST
SERIES 48
- ------------------------------------------------------------------------------
The Trust is a unit investment trust designated Series 48 ("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
existing law but may be subject to state and local taxes. Such interest income
may, however, be a specific preference item for purposes of Federal individual
and/or corporate alternative minimum tax. Investors may recognize taxable
capital gain upon maturity or earlier redemption of the underlying bonds. (See
"Tax Status" and "The Trust-- Portfolio" in Part B of this Prospectus.) The
Sponsors are Reich & Tang Distributors L.P. (successor Sponsor to Bear, Stearns
& Co. Inc.) and Gruntal & Co., Incorporated (sometimes referred to as the
"Sponsor" or the "Sponsors"). The value of the Units of the Trust will fluctuate
with the value of the underlying bonds. Minimum purchase: 1 Unit.
Y
- ------------------------------------------------------------------------------
This Prospectus consists of two parts. Part A contains the Summary
of Essential Information as of December 31, 1995 (the "Evaluation Date"), a
summary of certain specific information regarding the Trust and audited
financial statements of the Trust, including the related portfolio, as of the
Evaluation Date. Part B of this Prospectus contains a general summary of the
Trust.
Investors should retain both parts of this
Prospectus for future reference.
- ------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus Part A Dated April 30, 1996
110859.1
<PAGE>
THE TRUST. The Trust is a unit investment trust 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 under existing law through investment in a fixed, diversified
portfolio of long-term bonds (the "Bonds") issued by or on behalf of states,
municipalities and public authorities. A Trust designated as a
short/intermediate-term trust must have a dollar-weighted average portfolio
maturity of more than two years but less than five years; a Trust designated as
an intermediate-term trust must have a dollar-weighted average portfolio
maturity of more than three years but not more than ten years; a Trust
designated as an intermediate/long-term trust must have a dollar-weighted
average portfolio maturity of more than ten years but less than fifteen years;
and a Trust designated as a long-term trust must have a dollar-weighted average
portfolio maturity of more than ten years. 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. See also "Tax Status" in Part B of this
Prospectus.) 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 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. 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". The payment of interest and preservation of
capital are, of course, dependent upon the continuing ability of the issuers of
the Bonds to meet their obligations. There can be no assurance that the Trust's
objectives will be achieved. Investment in the Trust should 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. Each Unit in the Trust represents a
1/4626th 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.
A-2
110859.1
<PAGE>
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 4.67% of the Public
Offering Price, which is the same as 4.898% of the net amount invested in Bonds
per Unit. 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 $896.12 plus accrued
interest of $12.58 under the monthly distribution plan, $17.88 under the
semi-annual distribution plan and $17.91 under the annual distribution plan, for
a total of $908.70, $914.00 and $914.03, 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 previously described under "Public Offering Price") 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-3
110859.1
<PAGE>
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 Sponsors, although not obligated to do so,
presently maintain and intend to continue to maintain a market for the Units at
prices based upon the aggregate bid price of the Bonds in the portfolio of the
Trust. 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 4.67% of the Public
Offering Price (4.898% 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.)
TOTAL REINVESTMENT PLAN. Certificateholders under the semi-annual
and annual plans of distribution have the opportunity to have their interest
distributions and principal distributions, if any, reinvested in available
series of "Insured Municipal Securities Trust" or "Municipal Securities Trust."
(See "Total Reinvestment Plan" and for residents of Texas, see "Total
Reinvestment Plan for Texas Residents" in Part B of this Prospectus.) The Plan
is not designed to be a complete investment program.
A-4
110859.1
<PAGE>
MUNICIPAL SECURITIES TRUST
SERIES 48
SUMMARY OF ESSENTIAL INFORMATION AS OF DECEMBER 31, 1995
Date of Deposit: June 1, 1990 Minimum Principal Distribution:
Principal Amount of Bonds ... $3,620,000 $1.00 per Unit.
Number of Units ............. 4,626 Weighted Average Life
Fractional Undivided Inter- to Maturity: 15.3 Years.
est in Trust per Unit ..... 1/4626 Minimum Value of Trust:
Principal Amount of Trust may be terminated if
Bonds per Unit ............ $782.53 value of Trust is less than
Secondary Market Public $2,000,000 in principal amount
Offering Price** of Bonds.
Aggregate Bid Price Mandatory Termination Date:
of Bonds in Trust ....... $3,960,743+++ The earlier of December 31,
Divided by 4,626 Units .... $856.19 2040 or the disposition of the
Plus Sales Charge of 4.67% last Bond in the Trust.
of Public Offering Price $39.93 Trustee***: The Chase Manhattan
Public Offering Price Bank, N.A.
per Unit ................ $896.12+ Trustee's Annual Fee: Monthly
Redemption and Sponsors' plan $.96 per $1,000; semi-
Repurchase Price annual plan $.50 per $1,000;
per Unit .................. $856.19+ and annual plan is $.32 per
+++ $1,000.
++++ Evaluator: Kenny S&P Evaluation
Excess of Secondary Market Services.
Public Offering Price Evaluator's Fee for Each
over Redemption and Evaluation: Minimum of $6.30
Sponsors' Repurchase plus $.25 per each issue of
Price per Unit ............ $39.93++++ Bonds in excess of 50 issues
Difference between Public (treating separate maturities
Offering Price per Unit as separate issues).
and Principal Amount per Sponsors: Reich & Tang
Unit Premium/(Discount) ... $113.59 Distributors L.P. and Gruntal &
Evaluation Time: 4:00 p.m. Co., Incorporated
New York Time. Sponsors' Annual Fee: Maximum of
$.25 per $1,000 principal amount
of Bonds (see "Trust Expenses and
Charges" in Part B of this
Prospectus).
PER UNIT INFORMATION BASED UPON INTEREST DISTRIBUTION PLAN ELECTED
Monthly Semi-Annual Annual
Option Option Option
Gross annual interest income# ......... $59.35 $59.35 $59.35
Less estimated annual fees and
expenses ............................ 1.77 1.42 1.07
Estimated net annual interest ______ ______ ______
income (cash)# ...................... $57.58 $57.93 $58.28
Estimated interest distribution# ...... 4.79 28.96 58.28
Estimated daily interest accrual# ..... .1599 .1609 .1618
Estimated current return#++ ........... 6.43% 6.46% 6.50%
Estimated long term return++ .......... 3.58% 3.62% 3.66%
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
110859.1
<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.
** For information regarding offering price per unit and applicable sales
charge under the Total Reinvestment Plan, see "Total Reinvestment Plan" in
Part B of this Prospectus.
Certain amounts distributable as of December 31, 1995 are reported in the
summary of essential information as if they had been distributed at
year-end.
*** The Trustee maintains its principal executive office at 1 Chase Manhattan
Plaza, New York, New York 10081 and its unit investment trust office at
770 Broadway, New York, New York 10003 (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 five
business days after purchase) of $12.58 monthly, $17.88 semi-annually and
$17.91 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.
A-6
110859.1
<PAGE>
INFORMATION REGARDING THE TRUST
AS OF DECEMBER 31, 1995
DESCRIPTION OF PORTFOLIO
The portfolio of the Trust consists of 8 issues representing
obligations of issuers located in 7 states. The Sponsors have not participated
as a sole underwriters or managers, co-managers or members of an underwriting
syndicate from which any of the initial aggregate principal amount of the Bonds
were acquired. None of the Bonds are obligations of state and local housing
authorities; approximately 25.3% are hospital revenue bonds; none are issued in
connection with the financing of nuclear generating facilities; and
approximately 27.6% are "mortgage subsidy" bonds. All of the Bonds in the Trust
are subject to redemption prior to their stated maturity dates pursuant to
sinking fund or optional call provisions. The Bonds may also be subject to other
calls, which may be permitted or required by events which cannot be predicted
(such as destruction, condemnation, termination of a contract, or receipt of
excess or unanticipated revenues). None of the Bonds are general obligation
bonds. Eight issues representing $3,620,000 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: Bond Bank 1, Economic Development 1, Hospital 2,
Mortgage Revenue 2, Waste Water 1 and Water 1. For an explanation of the
significance of these factors see "The Trust--Portfolio" in Part B of this
Prospectus.
As of December 31, 1995, $880,000 (approximately 24.3% of the
aggregate principal amount of the Bonds) were original issue discount bonds. Of
these original issue discount bonds, none are Zero Coupon Bonds. Approximately
25.3% of the aggregate principal amount of the Bonds in the Trust were purchased
at a "market" discount from par value at maturity, approximately 23.1% were
purchased at a premium and approximately 27.3% 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.
A-7
110859.1
<PAGE>
FINANCIAL AND STATISTICAL INFORMATION
Selected data for each Unit outstanding for the periods listed below:
Distribu-
tions of
Distributions of Interest Principal
During the Period (per Unit) During
Net Asset* Semi- the
Units Out- Value Monthly Annual Annual Period
Period Ended standing Per Unit Option Option Option (Per Unit)
December 31, 1993 5,000 $1,079.92 $72.91 $73.59 $73.79 $2.82
December 31, 1994 4,673 1,007.79 72.60 73.25 73.44 -0-
December 31, 1995 4,626 1,042.02 72.68 73.28 73.52 -0-
- --------
* Net Asset Value per Unit is calculated by dividing net assets as disclosed
in the "Statement of Net Assets" by the number of Units outstanding as of
the date of the Statement of Net Assets. See Note 5 of Notes to Financial
Statements for a description of the components of Net Assets.
A-8
110859.1
<PAGE>
Independent Auditors' Report
The Sponsor, Trustee and Certificateholders
Municipal Securities Trust, Series 48:
We have audited the accompanying statement of net assets, including the
portfolio, of Municipal Securities Trust, Series 48 as of December 31, 1995, and
the related statements of operations, and changes in net assets for each of the
years in the three year period then ended. These financial statements are the
responsibility of the Trustee (see note 2). Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1995, 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 provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Municipal Securities Trust,
Series 48 as of December 31, 1995, and the results of its operations and the
changes in its net assets for each of the years in the three year period then
ended in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
New York, New York
March 31, 1996
<PAGE>
MUNICIPAL SECURITIES TRUST, SERIES 48
Statement of Net Assets
December 31, 1995
Investments in marketable securities,
at market value (cost$3,573,943) $ 3,960,735
Excess of other assets over total liabilities 859,643
----------
Net assets 4,626 units of fractional undivided
interest outstanding,$1,042.02 per unit) $ 4,820,378
==========
See accompanying notes to financial statements.
<PAGE>
<TABLE>
MUNICIPAL SECURITIES TRUST, SERIES 48
Statements of Operations
<CAPTION>
Years ended December 31,
------------ - ------------ - ------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Investment income - interest $ 344,790 362,369 376,050
------------ ------------ ------------
Expenses:
Trustee's fees 5,733 5,790 6,290
Evaluator's fees 1,651 1,969 1,807
Sponsor's advisory fee 1,109 1,185 1,249
------------ ------------ ------------
Total expenses 8,493 8,944 9,346
------------ ------------ ------------
Investment income, net 336,297 353,425 366,704
------------ ------------ ------------
Realized and unrealized gain (loss)
on investments:
Realized ( loss) gain on bonds
sold or called (49,398) 4,018 (4,173)
Unrealized appreciation (depreciation)
for the year 212,781 (361,219) 196,570
------------ ------------ ------------
Net gain (loss)
on investments 163,383 (357,201) 192,397
------------ ------------ ------------
Net increase (decrease) in
net assets resulting
from operations $ 499,680 (3,776) 559,101
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
MUNICIPAL SECURITIES TRUST, SERIES 48
Statements of Changes in Net Assets
<CAPTION>
Years ended December 31,
------------ - ------------ - ------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Operations:
Investment income, net $ 336,297 353,425 366,704
Realized (loss) gain on
bonds sold or called (49,398) 4,018 (4,173)
Unrealized appreciation (depreciation)
of investments for the year 212,781 (361,219) 196,570
------------ ------------ ------------
Net increase (decrease)
in net assets resulting
from operations 499,680 (3,776) 559,101
------------ ------------ ------------
Distributions to Certificateholders:
Investment income 339,887 351,196 365,288
Principal - - 14,100
Redemptions:
Interest 771 7,981 -
Principal 48,033 327,276 -
------------ ------------ ------------
Total distributions
and redemptions 388,691 686,453 379,388
------------ ------------ ------------
Total increase (decrease) 110,989 (690,229) 179,713
Net assets at beginning of year 4,709,389 5,399,618 5,219,905
------------ ------------ ------------
Net assets at end of year (including
undistributed net investment
income o$80,710, $85,071
and $90,823 respectively) $ 4,820,378 4,709,389 5,399,618
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
MUNICIPAL SECURITIES TRUST, SERIES 48
Notes to Financial Statements
December 31, 1995, 1994, and 1993
(1) Organization
Municipal Securities Trust, Series 48 (Trust) was organized on June 1, 1990
by Bear, Stearns & Co. Inc. and Gruntal & Co., Incorporated (Co-Sponsors)
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. Effective
September 28, 1995, Reich & Tang Distributors L.P. (Reich & Tang) has
become the successor sponsor (Sponsor) to certain of the unit investments
trusts previously sponsored by Bear, Stearns & Co. Inc. and Gruntal & Co.
Incorportated. As successor Sponsor, Reich & Tang has assumed all of the
obligations and rights of Bear Stearns & Co. Inc. and Gruntal & Co,
Incorporated, the previous sponsors.
(2) Summary of Significant Accounting Policies
Effective September 2, 1995, United States Trust Company of New York was
merged into Chase Manhattan Bank (National Association) (Chase).
Accordingly, Chase is the successor trustee of the unit investment trusts.
The Trustee has custody of and responsibility for the accounting records
and financial statements of the Trust and is responsible for establishing
and maintaining a system of internal control related thereto.
The Trustee is also responsible for all estimates of expenses and accruals
reflected in the Trust's financial statements. The accompanying financial
statements have been adjusted to record the unrealized appreciation
(depreciation) of investments and to record interest income and expenses on
the accrual basis.
Investments are carried at market value which is determined by Kenny S&P
Evaluation Services (Evaluator). The market value of the portfolio is
based upon the bid prices for the bonds at the end of the year, except
that the market value on the date of deposit represents the cost to the
Trust based on the offering prices for investments at that date. The
difference between cost 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.
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Trustee to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
(3) Income Taxes
The Trust is not subject to Federal income taxes as provided for by the
Internal Revenue Code.
(Continued)
F-5
<PAGE>
MUNICIPAL SECURITIES TRUST, SERIES 48
Notes to Financial Statements
(4) Trust Administration
The fees and expenses of the Trust are incurred and paid on the basis set
forth under "Trust Expenses and Charges" in Part B of this Prospectus.
The Trust Indenture and Agreement provides for interest distributions as
often as monthly (depending upon the distribution plan elected by the
Certificateholders).
See "Financial and Statistical Information" in Part A of this Prospectus
for the amounts of per unit distributions during the years ended December 31,
1995, 1994 and 1993.
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. 47 and 327 units were redeemed during the years ended December 31,
1995 and 1994, respectively. No units were redeemed during the year ended
December 31, 1993.
(5) Net Assets
At December 31, 1995, the net assets of the Trust represented the interest
of Certificateholders as follows:
Original cost to Certificateholders $ 5,040,144
Less initial gross underwriting commission (246,967)
----------
4,793,177
Cost of securities sold or called (1,219,235)
Net unrealized appreciation 386,792
Undistributed net investment income 80,710
Undistributed proceeds from bonds sold or called 778,934
-----------
Total $ 4,820,378
==========
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.
F-6
<PAGE>
<TABLE>
MUNICIPAL SECURITIES TRUST, SERIES 48
Portfolio
December 31, 1995
<CAPTION>
Port- Aggregate Coupon Rate/ Redemption Feature
folio Principal Name of Issuer Ratings Date(s) of S.F.--Sinking Fund Market
No. Amount and Title of Bonds (1) Maturity(2) Ref.--Refunding (2)(6) Value(3)
- ----- ------------ ----------------------------------- -------- ------------ ------------------------- ------------
<S> <C> <C> <C> <C> <C> <C>
1 335,000 Ind. Bond Bank Spec. Prgm. Rev. A 8.000% 8/01/00 @ 100 S.F. 348,745
Bonds Series 1986C 8/01/2011 8/01/96 @ 102 Ref.
2 500,000 Maine Reg. Waste Sys. Inc. Solid AA 7.950 7/01/01 @ 100 S.F. 549,040
Waste Res. Recvry. Sys. Rev. Bonds 7/01/2010 1/01/99 @ 103 Ref.
1986 Series A, B, C
3 380,000 Mass. Wtr. Res. Auth. Gen. Rev. AAA 7.500 4/01/15 @ 100 S.F. 434,895
Bonds 1990 Series A (5) 4/01/2016 4/01/00 @ 102 Ref.
4 415,000 N.Y. State Med. Care Facs. Finc. AA 7.600 No Sinking Fund 455,371
Agncy. Hosp. & Nrsg. Home Insrd. 2/15/2029 2/15/99 @ 102 Ref.
Mtg. Rev. Bonds 1989 Series A
5 500,000 Battery Park City Auth. of N.Y. AAA 6.500 5/01/16 @ 100 S.F. 538,185
Rev. Bonds Series 1990 (5) 5/01/2020 5/01/99 @ 100 Ref.
6 500,000 Lycoming Cnty. Auth. Pa. Hosp. Rev. NR 7.750 7/01/01 @ 100 S.F. 574,010
Bonds (Divine Providence Hosp. of 7/01/2016 7/01/00 @ 102 Ref.
The Sisters of Christian Charity)
1990 Series B(5)
7 500,000 R.I. Hsg. & Mtg. Finc. Corp. AA+ 7.750 4/01/11 @ 100 S.F. 535,155
Hmownrshp. Oppor. Rev. Bonds Series 4/01/2022 4/01/00 @ 102 Ref.
2
9 490,000 Wisc. Hsg. & Econ. Dev. Auth. AA 7.750 9/01/09 @100 S.F. 525,334
Hmownrshp. Rev. Bonds 1990 Series A 9/01/2017 9/01/00 @ 102 Ref.
------------ ------------
$ 3,620,000 $ 3,960,735
============ ============
</TABLE>
F-7
<PAGE>
MUNICIPAL SECURITIES TRUST, SERIES 48
Footnotes to Portfolio
December 31, 1995
(1) All ratings are by Standard & Poor's Corporation, except for those
identified by an asterisk (*) which are by Moody's Investors Service, Inc.
A brief description of the ratings symbols and their meanings is set forth
under "Description of Bond Ratings" in Part B of this Prospectus.
(2) See "The Trust - Portfolio" in Part B of this Prospectus for an explanation
of redemption features. See "Tax Status" in Part B of this Prospectus for a
statement of the Federal tax consequences to a Certificateholder upon the
sale, redemption or maturity of a bond.
(3) At December 31, 1995, the net unrealized appreciation of all the bonds was
comprised of netunrealized appreciation of $386,792.
(4) The annual interest income, based upon bonds held at December 31, 1995, to
the Trust is $274,565.
(5) The bonds have been prerefunded and will be redeemed at the next refunding
call date.
(6) Bonds sold or called after December 31, 1995 are noted in a footnote
"Changes in Trust Portfolio" under "Description of Portfolio" in Part A of
this Prospectus.
(7) 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).
F-8
<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: April 30, 1996
THE TRUST
Organization
"Municipal Securities Trust," Multi-State Series (the "Trust")
consists of several separate "unit investment trusts," which may include
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 L.P., as Sponsor, or depending
on the particular Trust, among Reich & Tang Distributors L.P. and Gruntal & Co.,
Incorporated, as Co-Sponsors (the Sponsors or Co-Sponsors, if applicable, are
referred to herein as the "Sponsor"), Kenny S&P Evaluation Services, a division
of J.J. Kenny Co., Inc., as Evaluator, and, depending on the particular State
Trust, either The Bank of New York or The Chase Manhattan Bank, N.A., 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
- --------
* 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.
82600.4
<PAGE>
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.
Objectives
Each State Trust, each one of a series of similar but separate unit
investment trusts formed by the Sponsor, 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 corporate 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 Bonds 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 Corporation or Moody's Investors Service, Inc. 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: (a) the
quality of the Bonds and whether such Bonds were rated "A" or better by Standard
& Poor's Corporation or Moody's Investors Service, Inc., (b) the yield and price
of the Bonds relative to other tax-exempt securities of comparable quality and
maturity, (c) income to the Certificateholders of the State Trusts, (d) 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 (e)
the existence of "market" discount and original
-2-
82600.4
<PAGE>
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 insurers and governmental agencies
and the increased cost and possible unavailability of malpractice insurance.
Additionally, a major portion of hospital revenue typically is derived from
federal or state programs such as Medicare and Medicaid which have been revised
substantially in recent years and which are undergoing further review at the
state and federal level.
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.
Proposals for significant changes in the health care system and the
present programs for third party payment of health care costs are under
consideration in Congress and many states. Future legislation or changes in the
areas noted above, among other things, would affect all hospitals to varying
degrees and, accordingly, any adverse change in these areas may affect the
ability of such issuers to make payment of principal and interest on such bonds.
See "Description of Portfolio" in Part A for the amount of hospital revenue
bonds contained therein.
Nuclear Power Facility Bonds. Certain Bonds may have been issued in
connection with the financing of nuclear generating facilities. In view of
recent developments in connection with such facilities, legislative and
administrative actions have been taken and proposed relating to the development
and operation of nuclear generating facilities. The Sponsor is unable to predict
whether any such actions or whether any such proposals or litigation, if enacted
or instituted, will have an adverse impact on the revenues available to pay the
debt service on the Bonds in the portfolio issued to finance such nuclear
projects. See "Description of Portfolio" in Part A for the amount of bonds
issued to finance nuclear generating facilities contained therein.
-3-
82600.4
<PAGE>
Mortgage Subsidy Bonds. Certain Bonds may be "mortgage subsidy
bonds" which are obligations of which all or a significant portion of the
proceeds are to be used directly or indirectly for mortgages on owner-occupied
residences. Section 103A of the Internal Revenue Code of 1954, as amended,
provided as a general rule that interest on "mortgage subsidy bonds" will not be
exempt from Federal income tax. An exception is provided for certain "qualified
mortgage bonds." Qualified mortgage bonds are bonds that are used to finance
owner-occupied residences and that meet numerous statutory requirements. These
requirements include certain residency, ownership, purchase price and target
area requirements, ceiling residency, ownership, purchase price and target area
requirements, ceiling amounts for state and local issuers, arbitrage
restrictions and (for bonds issued after December 31, 1984) certain information
reporting, certification, public hearing and policy statement requirements. In
the opinions of bond counsel to the issuing governmental authorities, interest
on all the Bonds in a Trust that might be deemed "mortgage subsidy bonds" will
be exempt from Federal income tax when issued. See "Description of Portfolio" in
Part A for the amount of mortgage subsidy Bonds contained therein.
Mortgage Revenue Bonds. Certain Bonds may be "mortgage revenue
bonds." Under the Internal Revenue Code of 1986, as amended (the "Code") (and
under similar provisions of the prior tax law) "mortgage revenue bonds" are
obligations the proceeds of which are used to finance owner-occupied residences
under programs which meet numerous statutory requirements relating to residency,
ownership, purchase price and target area requirements, ceiling amounts for
state and local issuers, arbitrage restrictions, and certain information
reporting certification, and public hearing requirements. There can be no
assurance that additional federal legislation will not be introduced or that
existing legislation will not be further amended, revised, or enacted after
delivery of these Bonds or that certain required future actions will be taken by
the issuing governmental authorities, which action or failure to act could cause
interest on the Bonds to be subject to federal income tax. If any portion of the
Bonds proceeds are not committed for the purpose of the issue, Bonds in such
amount could be subject to earlier mandatory redemption at par, including issues
of Zero Coupon Bonds (see "Discount and Zero Coupon Bonds"). See "Description of
Portfolio" in Part A for the amount of mortgage revenue bonds contained therein.
Private Activity Bonds. The portfolio of the Trust may contain other
Bonds which are "private activity bonds" (often called Industrial Revenue Bonds
("IRBs") if issued prior to 1987) which would be primarily of two types: (1)
Bonds for a publicly owned facility which a private entity may have a right to
use or manage to some degree, such as an airport, seaport facility or water
system and (2) facilities deemed owned or beneficially owned by a private entity
but which were financed with tax-exempt bonds of a public issuer, such as a
manufacturing facility or a pollution control facility. In the case of the first
type, bonds are generally payable from a designated source of revenues derived
from the facility and may further receive the benefit of the legal or moral
obligation of one or more political subdivisions or taxing jurisdictions. In
most cases of project financing of the first type, receipts or revenues of the
issuer are derived from the project or the operator or from the unexpended
proceeds of the bonds. Such revenues include user fees, service charges, rental
and lease payments, and mortgage and other loan payments.
The second type of issue will generally finance projects which are
owned by or for the benefit of, and are operated by, corporate entities.
Ordinarily, such private activity bonds are not general obligations of
governmental entities and are not backed by the taxing power of such entities,
and are solely dependent upon the creditworthiness of the corporate user of the
project or corporate guarantor.
-4-
82600.4
<PAGE>
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 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
-5-
82600.4
<PAGE>
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 which will be
affected by general economic conditions in Puerto Rico. The economy of Puerto
Rico is closely integrated with that of the mainland United States. During
fiscal year 1994, approximately 87% of Puerto Rico's exports were to the United
States mainland, which was also the source of 69% of Puerto Rico's imports. In
fiscal 1994, Puerto Rico experienced a $4.3 billion positive adjusted trade
balance. The economy of Puerto Rico is dominated by the manufacturing and
service sectors. The manufacturing sector has experienced a basic change over
the years as a result of increased emphasis on higher wage, high technology
industries such as pharmaceuticals, electronics, computers, microprocessors,
professional and scientific instruments, and certain high technology machinery
and equipment. The service sector, including finance, insurance and real estate,
also plays a major role in the economy. It ranks second only to manufacturing in
contribution to the gross domestic product and leads all sectors in providing
employment. In recent years, the service sector has experienced significant
growth in response to and paralleling the expansion of the manufacturing sector.
Since fiscal 1985, personal income, both aggregate and per capita, has increased
consistently in each fiscal year. In fiscal 1994, aggregate personal income was
$25.7 billion ($21.6 billion in 1987 prices) and personal income per capita was
$7,047 ($5,902 in 1987 prices). Personal income includes transfer payments to
individuals in Puerto Rico under various social programs. Total federal payments
to Puerto Rico, which include many types in addition to federal
-6-
82600.4
<PAGE>
transfer payments, are lower on a per capita basis in Puerto Rico than in any
state. Transfer payments to individuals in fiscal 1994 were $5.7 billion, of
which $3.9 billion, or 68.9%, represent entitlement to individuals who had
previously performed services or made contributions under programs such as
Social Security, veterans benefits and Medicare. The number of persons employed
in Puerto Rico during fiscal 1994 averaged 1,011,000. Unemployment, although at
a low level compared to the late 1970s, remains above the average for the United
States. At fiscal year end June 30, 1994, the unemployment rate in Puerto Rico
was 16.0%. Puerto Rico's decade-long economic expansion continued throughout the
five-year period from fiscal 1990 through fiscal 1994. Almost every sector of
its economy was affected and record levels of employment were achieved. Factors
behind this expansion include Commonwealth sponsored economic development
programs, the relatively stable prices of oil imports, the continued growth of
the United States economy, periodic declines in exchange value of the United
States dollar and the relatively low cost of borrowing during the period. The
Puerto Rico Planning Board's most recent Gross Product forecast for fiscal 1995
and fiscal 1996, made in February 1995, shows increases of 2.9% and 2.7%,
respectively. The Planning Board's economic activity index, a composite index
for thirteen economic indicators, increased 2.7% for the first seven months of
fiscal 1995 compared to the same period of fiscal 1994, which period showed an
increase of 1.3% over the same period of fiscal 1993. Growth in the Puerto Rico
economy in fiscal 1996 depends on several factors, including the state of the
United States economy and the relative stability in the price of oil imports,
the exchange value of the U.S.
dollar and the cost of borrowing.
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 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
-7-
82600.4
<PAGE>
bond held to maturity will have a larger portion of its total return in the form
of capital gain and less in the form of tax-exempt interest income than a
comparable bond newly issued at current market rates. Gain on the disposition of
a Bond purchased at a market discount generally will be treated as ordinary
income, rather than capital gain, to the extent of accrued market discount.
Discount bonds with a longer term to maturity tend to have a higher current
yield and a lower current market value than otherwise comparable bonds with a
shorter term to maturity. If interest rates rise, the value of the bonds will
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
California Economy
California's economy is the largest among the 50 states and one of
the largest in the world. This diversified economy has major components in
agriculture, manufacturing, high technology, trade, entertainment, tourism,
construction and services. Total State gross domestic product of about $835
billion in 1994 was larger than all but six nations in the world.
After suffering through a severe recession, California's economy has
been on a steady recovery since the start of 1994. Employment has grown by over
500,000 in 1994 and 1995, and the prerecession level of total employment is
expected to be matched by early 1996. The strongest growth has been in
export-related industries, business services, electronics, entertainment and
tourism, all of which have offset the recession-related losses which were
heaviest in aerospace and defense-related industries (which accounted for
two-thirds of the job losses), finance and insurance. Residential housing
construction, with new permits for under 100,000 annual new units issued in 1994
and 1995, is weaker than in previous recoveries, but has been growing slowly
since 1993.
California's July 1, 1994 population of 32.1 million represented
over 12% of the United States' population and is concentrated in metropolitan
areas. As of the April 1, 1990 census, 96 percent resided in the 23 Metropolitan
Statistical Areas in the State. As of July 1, 1994, the 5-county Los Angeles
area accounted for 48 percent of the State's population with 15.6 million
residents, and the 10-county San Francisco Bay Area represented 21 percent, with
a population of 6.7 million.
California has a large and diverse labor force. The following table
presents civilian labor force data for the resident population, age 16 and over,
for the years 1989 to 1994.
-8-
82600.4
<PAGE>
<TABLE>
<CAPTION>
LABOR FORCE
1989-94
Labor Force Trends (thousands) Unemployment Rate
--------------------------------------------- -----------------------
Labor United
Year Force Employment Unemployment California States
<C> <C> <C> <C> <C> <C>
1989......... 14,518 13,780 737 5.1 5.3
1990......... 15,136 14,286 850 5.6 5.5
1991......... 15,118 13,978 1,141 7.5 6.7
1992......... 15,335 13,939 1,396 9.1 7.4
1993......... 15,205 13,995 1,410 9.2 6.8
1994*........ 15,470 14,141 1,330 8.6 6.1
- --------------
</TABLE>
*Data for 1994 are not comparable with prior historical data because of the
current population survey (CPS) redesign.
SOURCE: State of California, Employment Development Department.
California's employment distribution among nonagricultural
industries is fairly similar to the distribution nationally. The following table
shows California's nonagricultural employment distribution and growth from 1980
to 1990 and from 1990 to 1994.
<TABLE>
Payroll Employment By Major Sector
1980, 1990 and 1994
<CAPTION>
Employment % Distribution
(thousands) of Employment
------------------------------- ------------------------------------
Industry Sector 1980 1990 1994 1980 1990 1994
--------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Mining............ 44 39 33 0.4 0.3 0.3
Construction...... 428 605 464 4.3 4.8 3.80
Manufacturing
Nondurable goods 639 721 698 6.5 5.7 5.7
High Technology 615 686 485 6.2 5.4 4.0
Other Durable Goods 764 690 596 7.8 5.5 4.9
Transportation and
Utilities...... 546 624 620 5.5 4.9 5.1
Wholesale and Retail
Trade.......... 2,267 3,002 2,841 23.0 23.7 23.4
Finance, Insurance
and Real Estate 623 825 775 6.3 6.5 6.4
Services.......... 2,159 3,395 3,551 21.9 26.8 29.2
Government
Federal........ 334 362 327 3.4 2.9 2.7
State and Local 1,430 1,713 1,767 14.5 13.5 14.5
----- ----- ----- ---- ---- ----
TOTAL....... 9,849 12,662 12,157 100 100 100
===== ====== ====== === === ===
- -------------------
</TABLE>
SOURCE: State of California, Employment Development Department and State of
California, Department of Finance.
-9-
82600.4
<PAGE>
The State.
Fiscal Years Prior to 1994-95.
The 1989-90 Fiscal Year ended with revenues below estimates, so that the
State's budget reserve (the Special Fund for Economic Uncertainties or "SFEU")
was fully depleted by June 30, 1990. A recession began in mid-1990, which
severely affected State General Fund revenues, and increased expenditures above
initial budget appropriations due to greater health and welfare costs. The
State's budget problems in recent years have also been caused by a structural
imbalance in that the largest General Fund Programs -- K-14 education, health,
welfare and corrections -- were increasing faster than the revenues base, driven
by the State's rapid population growth. These pressures are expected to continue
as population trends maintain strong demand for health and welfare services, as
the school age population continues to grow, and as the State's corrections
program responds to a "Three Strikes" law enacted in 1994, which requires
mandatory life prison terms for certain third- time felony offenders.
As a result of these factors and others, from the late 1980's until
1992-93, the State had a period of budget imbalance. During this period,
expenditures exceeding revenues in four out of six years, and the State
accumulated and sustained a budget deficit in the SFEU approaching $2.8 billion
at its peak at June 30, 1993. Starting in the 1990-91 Fiscal Year and for each
fiscal year thereafter, each budget required multibillion dollar actions to
bring projected revenues and expenditures into balance. The Legislature and
Governor agreed on the following principal steps to produce Budget Acts in the
years 1991-92 to 1993-94, including:
o significant cuts in health and welfare program expenditures; o transfers
of program responsibilities and funding from the State to
local governments (referred to as "realignment"), coupled with some reduction
in mandates on local government;
o transfer of about $3.6 billion in local property tax revenues from
cities, counties, redevelopment agencies and some other districts to local
school districts, thereby reducing State funding for schools under Proposition
98;
o reduction in growth of support for higher education programs, coupled
with increases in student fees;
o revenue increases (particularly in the 1991-92 Fiscal Year budget),
most of which were for a short duration;
o increased reliance on aid from the federal government to offset the
costs of incarcerating, educating and providing health and welfare services to
illegal immigrants; and
o various one-time adjustments and accounting changes.
Despite these budget actions, as noted, the effects of the recession led to
large, unanticipated deficits in the budget reserve, the SFEU, as compared to
projected positive balances. By the 1993-94 Fiscal Year, the accumulated deficit
wa so large that it was impractical to budget to retire it in one year, so a
two-year program was implemented, using the issuance of revenue anticipation
warrants to carry a portion of the deficit over the end of the fiscal year. When
the economy failed to recover sufficiently in 1993-94, a second two-year plan
was implemented in 1994-95.
1994-95 Fiscal Year
The Governor's Budget Proposal for the 1994-95 Fiscal Year, as updated in
May and June 1994, recognized that the accumulated deficit could not be repaid
in one year, and proposed a two-year solution designed to eliminate the
accumulated budget deficit, estimated at about $1.8 billion at June 30, 1994, by
June 30, 1996.
-10-
82600.4
<PAGE>
The 1994-95 Budget Act, signed by the Governor on July 8, 1994, projected
General Fund revenues and transfers of $41.9 billion, $2.1 billion more than
actual revenues received in 1993-94, and expenditures of $0.9 billion, an
increase of $1.6 billion from the prior year. As a result of the improving
economy, the Department of Finance's final estimates for the fiscal year showed
revenues and transfers of $42.7 billion and expenditures of $42.0 billion,
reducing the accumulated budget deficit to about $600 million.
The principal features of the 1994-95 Budget Act were the following:
1. Receipt of additional federal aid of about $760 million for costs of
refugee assistance and costs of incarceration and medical care for illegal
immigrants. Only about $33 million of this amount was received, with about
another $98 million scheduled to be received in the 1995-96 Fiscal Year.
2. Reduction of approximately $1.1 billion in health and welfare costs.
Certain of these actions were blocked by legal challenges.
3. A General Fund increase of approximately $38 million in support for the
University of California and $65 million for California State University,
accompanied by student fee increases for both the University of California and
California State University.
4. Proposition 98 funding for K-14 schools was increased by $526 million
from 1993-94 Fiscal Year levels, representing an increase for enrollment growth
and inflation. Consistent with previous budget agreements, Proposition 98
funding provided approximately $4,217 per student for K-12 schools, equal to the
level in the prior three years.
5. Additional miscellaneous cuts ($500 million), fund transfers ($255
million), and adjustment to prior years' legislation concerning property tax
shifts for local governments ($300 million).
The 1994-95 Budget Act contained no tax increases. Under legislation
enacted for the 1993-94 Budget Act, the renters' tax credit was suspended for
two years (1993 and 1994). A ballot proposition to permanently restore the
renters' tax credit after this year failed at the June 1994 election. the
Legislature enacted a further one-year suspension of the renters' tax credit,
for 1995, saving about $390 million in the 1995-96 Fiscal Year.
Budget Adjustment Law
The State's cash flow management plan for the 1994-95 Fiscal Year included
the issuance of $4.0 billion of Revenue Anticipation Warrants, Series C and D
(the "RAWs") on July 26, 1994, to mature on april 25, 1996, as part of a
two-year plan to retire the accumulated State budget deficit. To assure
repayment of the RAWs, the Legislature enacted a backup mechanism which could
result in automatic expenditure cuts if projected revenues did not meet certain
targets, the "Budget Adjustment Law").
The third and last step in the Budget Adjustment Law process occurred on
October 16, 1995, when the State Controller issued a report (the "October
Trigger Report") reviewing the estimated cash condition of the General Fund for
the 1995-96 Fiscal Year. The State Controller estimated that the General Fund
would have at least $1.4 billion in internal cash resources on June 30, 1996
(i.e, external borrowing would not be needed on June 30, 1996). As a result of
this finding, certain provisions of the Budget Adjustment Law, which could have
ultimately led to automatic, automatic, across-the-board cuts in the General
Fund budget, will not have to be implemented. (Likewise, an earlier report
issued on November 15, 1994, avoided implementation of any automatic budget cuts
in the 1994-95 fiscal year.)
-11-
82600.4
<PAGE>
1995-96 Fiscal Year
With strengthening revenues and reduced caseload growth based on an
improving economy, the State entered the 1995-96 Fiscal Year budget negotiations
with the smallest nominal "budget gap" to be closed in many years. Nonetheless,
serious policy differences between the Governor and Legislature prevented timely
enactment of the budget. The 1995-96 Budget Act was signed by the Governor on
August 3, 1995, 34 days after the start of the fiscal year. The Budget Act
projected General Fund revenues and transfers of $44.1 billion, a 3.5 percent
increase from the prior year. Expenditures were budgeted at $43.4 billion, a 4
percent increase. The Department of Finance projected that, after repayment the
last of the carryover budget deficit, there would be a positive balance of $28
million in the budget reserve, the Special Fund for Economic Uncertainties, at
June 30, 1996. The Budget Act also projected Special Fund revenues of $12.7
billion and appropriated Special Fund expenditures of $13.0 billion.
The Governor's Budget for the 1996-97 Fiscal Year, released on January 10,
1996 (the "Governor's Budget"), updated the current year projections, so that
revenues and transfers are estimated to be $45.0 billion, and expenditures to be
$44.2 billion. The Special Fund for Economic Uncertainties is projected to have
a positive balance of about $50 million at June 30, 1996, and on that date
available internal borrowable resources (available cash, after payment of all
obligations due) will be about $2.2 billion. This latter figure is higher than
the Controller's estimate of Page A-21 because it is based primarily on later
information. The Administration projects it will issue up to $2.0 billion of
revenue anticipation notes in April, 1996, to mature by June 30, 1996, to assist
in cash flow management for the final two months of the year, after repayment of
the $4.0 billion RAW issue on April 25, 1996.
The following are the principal features of the 1995-96 Budget Act:
1. Proposition 98 funding for schools and community colleges was
originally budgeted to increase by about $1.0 billion (General Fund) and $1.2
billion total above revised 1994-95 levels. Because of higher than projected
revenues in 1994-95, an additional $543 million (91 per K-12 ADA) was
appropriated to the 1994-95 Proposition 98 entitlement. A large part of this
is a block grant of about $54 per pupil for any one-time purpose. For the
first time in several years, a full 2.7 percent cost of living allowance was
funded. The budget compromise anticipates a settlement of the CTA v. Gould
litigation as described below. The Governor's Budget indicates that, with
revenues even higher than projected, Proposition 98 apportionments will
exceed the amounts originally budgeted, reaching a level of $4,500 per ADA.
2. Cuts in health and welfare costs totaling about $0.9 billion. Some of
these cuts (totaling about $500 million) require federal legislative or
administrative approval, which were still pending as of February, 1996.
3. A 3.5 percent increase in funding for the University of California ($90
million General Fund) and the California State University system ($24 million
General Fund), with no increases in student fees.
4. The Budget, as updated by the 1996-97 Governor's Budget dated January
10, 1996, assumed receipt of $494 million in new federal aid for
incarceration and health care costs of illegal immigrants, above commitments
already made by the federal government.
5. General Fund support for the Department of Corrections is increased
by about 8 percent over the prior year, reflecting estimates of increased
-12-
82600.4
<PAGE>
prison population, but funding is less than proposed in the 1995 Governor's
Budget.
1996-97 Fiscal Year
On January 10, 1996, the Governor released his proposed budget for the
next fiscal year (the "Governor's Budget"). The Governor requested total General
Fund appropriations of about $45.2 billion, based on projected revenues and
transfers of about $45.6 billion, which would leave a budget reserve in the
Special Fund for Economic Uncertainties at June 30, 1997 of about $400 million.
The Governor renewed a proposal, which had been rejected by the Legislature in
1995, for a 15 percent phased cut in individual and corporate tax rates over
three years (the budget proposal assumes this will be enacted, reducing revenues
in 1996-97 by about $600 million). There was also a proposal to restructure
trial court funding in a way which would result in a $300 million decrease in
General Fund revenues. The Governor requested legislation to make permanent a
moratorium on cost of living increases for welfare payments, and suspension of a
renters tax credit, which otherwise would go back into effect in the 1996-97
Fiscal Year. He further proposed additional cuts in certain health and welfare
programs, and assumed that cuts previously approved by the Legislature will
receive federal approval. The Governor's Budget proposes increases in funding
for K-12 schools under Proposition 98, for State higher education systems (with
a second year of no student fee increases), and for corrections. The Governor's
Budget projects external cash flow borrowing of up to $3.2 billion, to mature by
June 30, 1997.
Local Governments. The primary units of local government in California are
the counties, ranging in population from 1,300 (Alpine) to over 9,000,000 (Los
Angeles). Counties are responsible for the provision of many basic services,
including indigent health care, welfare, courts, jails and public safety in
unincorporated areas. There are also about 480 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, which reduced and limited the future
growth of property taxes, and limited the ability of local governments to impose
other taxes. 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 from the
General Fund to make up some of the loss of property tax moneys, including
taking over the principal responsibility for funding local K-12 schools and
community colleges. Under the pressure of the recent recession, the Legislature
has eliminated the remnants of this post-Proposition 13 aid to entities other
than K-14 education districts, although it has also provided additional funding
sources (such as sales taxes) and reduced mandates for local services. Many
counties continue to be under severe fiscal stress. While such stress has in
recent years most often been experienced by smaller, rural counties, larger
urban counties, such as Los Angeles, have also been affected.
On December 6, 1994, Orange County, California (the "County"), together
with its pooled investment funds (the "Pools") filed for protection under
Chapter 9 of the federal Bankruptcy Code, after reports that the Pools had
suffered significant market losses in their investments, causing a liquidity
crisis for the Pools and the County. More than 180 other public entities, most
of which, but not all, are located in the County, were also depositors in the
Pools. The County has reported the Pools' loss at about $1.69 billion, or about
23 percent of their initial deposits of approximately $7.5 billion. Many of the
entities which deposited moneys in the Pools, including the
-13-
82600.4
<PAGE>
County, faced interim and/or extended cash flow difficulties because of the
bankruptcy filing and may be required to reduce program or capital projects.
Orange County has embarked on a fiscal recovery plan based on sharp
reductions in services and personnel, and rescheduling of outstanding short term
debt using certain new revenues transferred to Orange County from other local
governments pursuant to special legislation enacted in October, 1995.
Constitutional and Statutory Limitations; Recent Initiatives; Pending
Litigation. Article XIIIA of the California Constitution (which resulted from
the voter-approved Proposition 13 in 1978) limits the taxing powers of
California public agencies. Article XIIIA provides that the maximum ad valorem
tax on real property cannot exceed 1% of the "full cash value" of the property,
and effectively prohibits the levying of any other ad valorem property tax for
general purposes. However, on May 3, 1986, Proposition 46, an amendment to
Article XIIIA, was approved by the voters of the State of California, creating a
new exemption under Article XIIIA permitting an increase in ad valorem taxes on
real property in excess of 1% 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 2%) 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.
Article XIIIB of the California Constitution limits the amount of
appropriations of the State and of local governments to the amount of
appropriations of the entity for the prior year, adjusted for changes in the
cost of living, population and the services that the local government has
financial responsibility for providing. To the extent the revenues of the state
and/or local government exceed its appropriations, the excess revenues must be
rebated to the public either directly or through a tax decrease. Expenditures
for voter-approved debt services are not included in the appropriations limit.
Proposition 62. On September 28, 1995, the California Supreme Court
affirmed the lower court decision in Santa Clara County Local Transportation
Authority v. Guardino (the "Santa Clara Case"). The action held invalid a
half-cent sales tax to be levied by the Santa Clara County Local Transportation
Authority because it was approved by a majority but not two-thirds of the voters
in Santa Clara County voting on the tax. The California Supreme Court decided
the tax was invalid under Proposition 62, a statutory initiative adopted at the
November 4, 1986 election that (a) requires that any new or higher taxes for
general governmental purposes imposed by local governmental entities be approved
by a majority vote of the voters of the governmental entity voting in an
election on the tax, (b) requires that any special tax (defined as taxes levied
for other than general governmental purposes) imposed by a local governmental
entity be approved by a two-thirds vote of the voters of the governmental entity
voting in an election on the tax, (c) restricts the use of revenues from a
special tax to the purposes or for the service for which the special tax was
imposed, (d) prohibits the imposition of ad valorem taxes on real property by
local governmental entities except as permitted by article XIII A of the
California Constitution, (e) prohibits the imposition of transaction taxes and
sales taxes on the sale of real property by local governmental entities, (f)
required that any tax imposed by a local governmental entity on or after August
1, 1985 be ratified by a majority vote of the voters voting in an election on
the tax within two years of November 5, 1986 or be terminated by November 15,
1988 and (g) requires a reduction of ad valorem property taxes allocable to the
-14-
82600.4
<PAGE>
jurisdiction imposing a tax not in compliance with its provisions equal to one
dollar for each dollar of revenue attributable to the invalid tax, for each year
that the tax is collected.
In deciding the Santa Clara Case on Proposition 62 grounds, the Court
disapproved the 1991 decision in City of Woodlake v. Logan ("Woodlake"), where
the Court of Appeal had held portions of Proposition 62 unconstitutional as a
referendum on taxes prohibited by the California Constitution. The California
Supreme Court determined that the voter approval requirement of Proposition 62
is a condition precedent to the enactment of each tax statute to which it
applies, while referendum refers to a process invoked only after a statute has
been enacted. Numerous taxes to which Proposition 62 would apply were imposed or
increased without any voter approval in reliance on Woodlake. The Court noted as
apparently distinguishable, but did not confirm, the 1988 decision in City of
Westminster v. County of Orange, that held unconstitutional the section of
Proposition 62 requiring voter approval of taxes imposed during the "window
period" of August 1, 1985 until November 5, 1986. Proposition 62 as an
initiative statute does not have the same level of authority as a constitutional
initiative, but is akin to legislation adopted by the State Legislature.
Proposition 98. In 1988, California voters approved an initiative known as
Proposition 98. This initiative amends Article XIIIB to require that (i) the
California legislature establish a prudent state reserve fund in an amount as it
shall deem reasonable and necessary and (ii) revenues in excess of amounts
permitted to be spent and which would otherwise be returned pursuant to Article
XIIIB by revision of tax rates or fee schedules, be transferred and allocated
(up to a maximum of 40%) to the State School Fund and be expended solely for
purposes of instructional improvement and accountability. Proposition 98 also
amends Article XVI to require that the State of California provide a minimum
level of funding for public schools and community colleges. Commencing with the
1988-89 fiscal year, money to be applied by the State for the support of school
districts and community college districts shall not be less than the greater of:
(i) the amount which, as a percentage of the State general fund revenues which
may be appropriated pursuant to Article XIIIB, equals the percentage of such
State general fund revenues appropriated for school districts and community
college districts, respectively, in fiscal year 1986-87 or (ii) the amount
required to ensure that the total allocations to school districts and community
college districts from the State general fund proceeds of taxes appropriated
pursuant to Article XIIIB and allocated local proceeds of taxes shall not be
less than the total amount from these sources in the prior year, adjusted for
increases in enrollment and adjusted for changes in the costs of living pursuant
to the provisions of Article XIIIB. The initiative permits the enactment of
legislation, by a two-thirds vote, to suspend the minimum funding requirement
for one year. As a result of Proposition 98, funds that the State might
otherwise make available to its political subdivisions may be allocated instead
to satisfy such minimum funding level.
During the recent recession, 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'
entitlements. By 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, which challenged the validity of these off-budget loans. As part of
-15-
82600.4
<PAGE>
the negotiations leading to the 1995-96 Budget Act, an oral agreement was
reached to settle this case. It is expected that a formal settlement reflecting
these conditions will be entered into in the near future.
The oral agreement provides that both the State and K-14 schools share in
the repayment of prior year's 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 share of the repayment
will be reflected as expenditures 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 diverse fiscal impact. Once a court settlement
is reached, and the Director of Finance certifies that such a settlement has
occurred, approximately $377 million in appropriations from the 1995-96 Fiscal
Year to schools will be disbursed in August 1996.
Proposition 187. On November 8, 1994, the voters in California approved
Proposition 187, an initiative statute ("Proposition 187"). Proposition 187
specifically prohibits funding by the State of social service, health care
services and public school education for the benefit of any person not verified
as either a United States citizen or a person legally admitted to the Untied
States. Among the provisions in Proposition 187 pertaining to public school
education, the measure requires, commencing January 1, 1995, that every school
district in the State verify the legal status of every child enrolling in the
district for the first time. By January 1, 1996, each school district must also
verify the legal status of children already enrolled in the district and of all
parents or guardians of all students. If the district "reasonably suspects" that
a student, parent or guardian is not legally in the United States, that district
must report the student to the United States Immigration and Naturalization
Service and certain other parties. The measure also prohibits a school district
from providing education to a student it does not verify as either a United
States citizen or a person legally admitted to the United States. The State
Legislative Analyst estimates that verification costs could be in the tens of
millions of dollars on a statewide level (including verification costs incurred
by other local governments) with first-year costs potentially in excess of $100
million.
The reporting requirements may violate the Family Educational Rights and
Privacy Act ("FERPA"), which generally prohibits schools that receive federal
funds from disclosing information in student records without parental consent.
Compliance with FERPA is a condition of receiving federal education funds, which
total $2.3 billion annually to California school districts. The Secretary of the
Untied States Department of Education has indicated that the reporting
requirement in Proposition 18 could jeopardize the ability of school districts
to receive these funds.
Opponents of Proposition 187 have filed at least eight lawsuits
challenging the constitutionality and validity of the measure. On November 2,
1995, a United States District Court judge struck down the central provision of
Proposition 187 by ruling that parts of Proposition 187 conflict with federal
power over immigration. The ruling concluded that states may not enact their own
schemes to "regulate immigration or devise immigration regulations which run
parallel or purport to supplement federal immigration law." As a consequence of
the ruling, students may not be denied public education and may not be asked
about their immigration status when enrolling in public schools. Further, the
ruling struck down the requirements of Proposition 187 that teachers and
district employees report information on the immigrant status of students,
parents, and guardians. An appeal has been filed. It cannot be predicted what
the nature or outcome of such appeal will be or the ultimate fiscal impact of
Proposition 187.
-16-
82600.4
<PAGE>
Article XIIIA, Article XIIIB and a number of propositions have been
adopted pursuant to California's constitutional initiative process. From time to
time, other initiative measures could be adopted by California voters. The
adoption of any such initiatives may cause California issuers to receive reduced
revenues, or to increase expenditures, or both.
Pending Litigation. The State is involved in a lawsuit, Thomas Hayes v.
Commission on State Mandates, related to state-mandated costs. The action
involves 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
(Commission)). The Board of Control decided in favor of local school districts'
claims for reimbursement for special education programs for handicapped
students. The case was then brought to the trial court by the State and later
remanded to the Commission for redetermination. The Commission has since
expanded the claim to include supplemental claims filed by seven other
educational institutions; the issuance of a final consolidated decision is
anticipated sometime after September 1996. To date, the Legislature has not
appropriated funds. The liability to the State, if all potentially eligible
school districts pursue timely claims, has been estimated by the Department of
Finance at over $1 billion.
In the Yuba River flood litigation in which the State is a defendant in a
coordinated action, the trial court has found liability in inverse condemnation
and awarded damages of $500,000 to 12 sample plaintiffs. Potential liability to
the remaining 3,000 plaintiffs, from claims filed, ranges from $800 million to
$1.5 billion. The appellate court affirmed the trial court finding and the State
is pursuing its remaining appellate remedies. Damages have yet to be determined
for all but the 12 sample plaintiffs.
In Parr v. State of California, the federal district court issued an order
on March 1, 1995, withdrawing its December 1992 order which found that payment
of wages with registered warrants violated the Fair Labor Standards Act. The
parties have agreed to the terms of a settlement which will have to be approved
by the trial court. Further proceedings are undetermined at this time. The
maximum amount of damages could be approximately $500 million.
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. However, the defendants have filed a counterclaim against the State
for alleged negligent acts. Because the State is the present owner of the site,
the State may be found liable. Present estimates of the cleanup range from $200
million to $800 million.
In the consolidated state case of Malibu Video Systems, et al. v. Kathleen
Brown and Abramovitz, et al. v. Wilson, et al., a stipulated judgment has been
entered requiring return of $119 million plus interest or specified special
funds over a period of up to five years beginning in fiscal year 1995-97. The
related federal cases will be dismissed.
A federal Court of Appeals in the case of Deanna Beno, et al. v. Donna
Shalala, et al., reversing a trial court ruling in favor of the State, recently
determined that the Secretary of the United States Department of Health and
Human Services violated the federal Administrative Procedure Act when she
approved California's Assistance Payment Demonstration Project, which, in part,
granted California a waiver from complying with requirements for state
participation in the federal program for medical assistance (Medicaid). The
waiver had allowed California to reduce payments under the Aid to Families with
Dependent Children program (AFDC) below 1988 payment
-17-
82600.4
<PAGE>
levels without jeopardizing Medicaid requirements relating to maintenance of
AFDC payment levels. The Court of Appeals remanded the case to the trial court
with instructions to remand the demonstration project to the Secretary for
additional consideration of objections raised by the plaintiffs. The State has
submitted a renewed waiver request to the Secretary, which is currently pending.
The effect of the court's decision on California is uncertain at this time.
One of the features of the 1994-95 Budget Act is a 2.3 percent reduction
in AFDC payments. In Welch v. Anderson, on August 19, 1994, the San Francisco
Superior Court issued a preliminary injunction against the California Director
of Social Services to prevent the 2.3 percent AFDC cuts from becoming effective
September 1, 1994. The case has been appealed, and on August 16, 1995, the
appellate court upheld the issuance of the preliminary injunction.
The case on the merits remains pending.
The State is a respondent/defendant in two consolidated cases (American
Lung Association of California v. Wilson; Americans for Nonsmokers' Rights v.
State of California). These cases challenge the amendment of statutes
prescribing specific percentages of tobacco tax revenues to be placed in
accounts to be used for health education and research programs, as well as the
appropriation of approximately $63 million in tobacco tax funds for medical
treatment programs, pursuant to legislation enacted in July 1995. In September
1995, the Sacramento County Superior Court issued preliminary injunctions,
confirming an earlier temporary restraining order, prohibiting the State from
issuing, negotiating or processing warrants from the challenged appropriations.
The State has appealed the Court's rulings. A hearing on the petition for writ
of mandate is anticipated to be scheduled, which the State will contest.
In the case of Board of Administration, California Public Employees'
Retirement System, et al. v. Pete Wilson, Governor, et al., plaintiffs
challenged the constitutionality of legislation which deferred payment of the
State's employer contribution to the Public Employees' Retirement System
beginning in fiscal year 1992-93. On January 11, 1995, the Sacramento County
Superior Court entered a judgment finding that the legislation
unconstitutionally impaired the vested contract rights of PERS members. The
judgment provides for issuance of a writ of mandate directing State defendants
to disregard the provisions of the legislation, to implement the statute
governing employer contributions that existed before the changes in the
legislation found to be constitutional, and to transfer to PERS the 1993-94 and
1994-95 contributions that are unpaid to date. The State defendant has appealed.
In Jernigan & Burleson v. State, filed in federal district court, the
prison inmate plaintiffs claim they are entitled to minimum wages while working
for the Prison Industry Authority. The inmates claim the State has violated the
Fair Labor Standards Act. The district court has ruled that the inmates are not
employees and the plaintiffs have appealed.
The State is a defendant in a coordinate action involving 3,000 plaintiffs
seeking recovery for damages caused by the Yuba River flood of February 1986.
The trial court has found liability in inverse condemnation and awarded damages
of $500,000 to 12 sample plaintiffs. The State's potential liability to the
remaining 3,000 plaintiffs from claims filed ranges from $800 million to $1.5
billion. An appeal has been filed.
The State is a defendant in three lawsuits and numerous administrative
proceedings involving the exclusion of small business stock gains from certain
taxes. The lead case is Pearce Investments, Ltd., et al. (Gordon P. Getty
Family Trust) v. Franchise Tax Board. In the event of an adverse outcome, the
effect on the State will be dependent upon the rationale for the decision and
-18-
82600.4
<PAGE>
the subsequent application by the courts. However, the State could be
required to refund an estimated $500 million.
Other California issuers are subject to litigation which may in the event
of an adverse ruling affect the finances of such issuer.
Florida Trust
Florida Risk Factors
The State Economy. In 1980 Florida ranked seventh among the fifty states
with a population of 9.7 million people. The State has grown dramatically since
then and, as of April 1, 1995, ranked fourth with an estimated population of
14.1 million. Since the beginning of the eighties, Florida has surpassed Ohio,
Illinois and Pennsylvania in total population. Florida's attraction, as both a
growth and retirement state, has kept net migration fairly steady with an
average of 235,600 new residents each year, from 1985 through 1994. Since 1985
the prime working age population (18-44) has grown at an average annual rate of
2.2%. The share of Florida's total working age population (18-59) to total State
population is approximately 54%. Non-farm employment has grown by approximately
37.9% since 1985. Total non- farm employment in Florida is expected to increase
3.1% in 1995-96 and rise 2.8% in 1996-97. By the end of 1996-97, non-farm
employment in the State is expected to reach an average of 6.3 million. The
service sector is Florida's largest employment sector, presently accounting for
87% of total non-farm employment. Employment in the service sector should
experience an increase of 5.6% in 1995-96, while growing 4.9% in 1996-97.
Manufacturing jobs in Florida are concentrated in the area of high-tech and
value-added sectors, such as electrical and electronic equipment, as well as
printing and publishing. Florida's manufacturing sector has kept pace with the
U.S., at about 2.6% of total U.S. manufacturing employment since the beginning
of the nineties. Foreign Trade has contributed significantly to Florida's
employment growth. Trade is expected to expand 3.1% this year and 2.5% next
year. Florida's dependence on highly cyclical construction and construction
related manufacturing has declined. Total contract construction employment as a
share of total non-farm employment has fallen from 10% in 1973 to 7.5% in 1980,
and down to nearly 5% in 1995. Although the job creation rate for the State of
Florida is almost twice the rate for the nation as a whole, in recent years the
unemployment rate for the State has risen faster than the national average. The
average rate of unemployment for Florida since 1986 is 6.2%, while the national
average is also 6.2%. Florida's unemployment rate is forecasted at 5.9% in both
1995-96 and 1996-97. Because Florida has a proportionately greater retirement
age population, property income (dividends, interest and rent) and transfer
payments (Social Security and pension benefits) are a relatively more important
source of income. In 1994, Florida employment income represented 61.5% of total
personal income, while nationally, employment income represented 72.6% of total
personal income. In the ten years ending in 1994, Florida total nominal personal
income grew by nearly 107% and per capita income by approximately 64.6%. For the
nation, total and per capita personal income increased by roughly 80.7% and
63.7%, respectively. Real personal income in Florida is estimated to increase
4.7% in 1995-96 and increase 3.8% in 1996-97 while real personal income per
capita in the State is projected to grow at 2.9% in 1995-96 and 1.9% in 1996-97.
The ability of the State and its local units of government to satisfy the
Debt Obligations may be affected by numerous factors which impact on the
economic vitality of the State in general and the particular region of the State
in which the issuer of the Debt Obligation is located. South Florida is
particularly susceptible to international trade and currency imbalances and to
economic dislocations in Central and South America, due to its geographical
location and its involvement with foreign trade, tourism and investment
-19-
82600.4
<PAGE>
capital. The central and northern portions of the State are impacted by problems
in the agricultural sector, particularly with regard to the citrus and sugar
industries. Short-term adverse economic conditions may be created in these
areas, and in the State as a whole, due to crop failures, severe weather
conditions or other agriculture-related problems. The State economy also has
historically been somewhat dependent on the tourism and construction industries
and is sensitive to trends in those sectors.
The State Budget. The State operates under a biennial budget which is
formulated in even numbered years and presented for approval to the Legislature
in odd numbered years. A supplemental budget request process is utilized in the
even numbered years for refining and modifying the primary budget. Under the
State Constitution and applicable statutes, the State budget as a whole, and
each separate fund within the State budget, must be kept in balance from
currently available revenues during each State fiscal year. (The State's fiscal
year runs from July 1 through June 30). The Governor and the Comptroller of the
State are charged with the responsibility of ensuring that sufficient revenues
are collected to meet appropriations and that no deficit occurs in any State
fund.
The financial operations of the State covering all receipts and expenditures
are maintained through the use of three types of funds: the General Revenue
Fund, Trust Funds and Working Capital Fund. The majority of the State's tax
revenues are deposited in the General Revenue Fund and moneys in the General
Revenue Fund are expended pursuant to appropriations acts. In fiscal year
1994-1995, expenditures for education, health and welfare and public safety
represented approximately 49%, 32% and 11%, respectively, of expenditures from
the General Revenue Fund. The Trust Funds consist of moneys received by the
State which under law or trust agreement are segregated for a purpose authorized
by law. Revenues in the General Revenue Fund which are in excess of the amount
needed to meet appropriations may be transferred to the Working Capital Fund.
State Revenues. For fiscal year 1995-1996 the estimated General Revenue plus
Working Capital Fund and Budget Stabilization funds available total $15,311.3
million, a 3.3% increase over 1994-95. The $14,538.8 million in Estimated
Revenues represent an increase of 6.5% over the analogous figure in 1994-95.
With combined General Revenue, Working Capital Fund and Budget Stabilization
Fund appropriations at $14,808.2 million, unencumbered reserves at the end of
1995-96 are estimated at $503.1 million. For fiscal year 1996-97, the estimated
General Revenue plus Working Capital and Budget Stabilization funds available
total $15,997.6 million, a 4.5% increase over 1995-96. The $15,296.4 million in
Estimated Revenues represent a 5.0% increase over the analogous figure in
1995-96.
In fiscal year 1994-1995, the State derived approximately 66% of its total
direct revenues for deposit in the General Revenue Fund, Trust Funds and Working
Capital Fund from State taxes. Federal funds and other special revenues
accounted for the remaining revenues. The greatest single source of tax receipts
in the State is the 6% sales and use tax. For the fiscal year ended June 30,
1995, receipts from the sales and use tax totalled $10,672.0 million, an
increase of approximately 6.0% over fiscal year 1993-94. The second largest
source of State tax receipts is the tax on motor fuels including the tax
receipts distributed to local governments. Receipts from the taxes on motor
fuels are almost entirely dedicated to trust funds for specific purposes or
transferred to local governments and are not included in the General Revenue
Fund. Preliminary data for the fiscal year ended June 30, 1994, show collections
of this tax totalled $1,733.4 million.
The State currently does not impose a personal income tax. However, the State
does impose a corporate income tax on the net income of corporations,
organizations, associations and other artificial entities for the privilege of
-20-
82600.4
<PAGE>
conducting business, deriving income or existing within the State. For the
fiscal year ended June 30, 1995, receipts from the corporate income tax totalled
$1,063.5 million, an increase of 1.5% from fiscal year 1993-94. The Documentary
Stamp Tax collections totalled $695.3 million during fiscal year 1994-95,
posting a 11.4% increase over fiscal year 1993-94. The Alcoholic Beverage Tax,
an excise tax on beer, wine and liquor totalled $437.3 million in fiscal year
1994-95. The Florida lottery produced sales of $2.19 billion in fiscal year
1994-95 of which $853.2 million was used for education purposes.
While the State does not levy ad valorem taxes on real property or tangible
personal property, counties, municipalities and school districts are authorized
by law, and special districts may be authorized by law, to levy ad valorem
taxes. Under the State Constitution, ad valorem taxes may not be levied by
counties, municipalities, school districts and water management districts in
excess of the following respective millages upon the assessed value of real
estate and tangible personal property: for all county purposes, ten mills; for
all municipal purposes, ten mills; for all school purposes, ten mills; and for
water management purposes, either 0.05 mill or 1.0 mill, depending upon
geographic location. These millage limitations do not apply to taxes levied for
payment of bonds and taxes levied for periods not longer than two years when
authorized by a vote of the electors. (Note: one mill equals one-tenth of one
cent).
The State Constitution and statutes provide for the exemption of homesteads
from certain taxes. The homestead exemption is an exemption from all taxation,
except for assessments for special benefits, up to a specific amount of the
assessed valuation of the homestead. This exemption is available to every person
who has the legal or equitable title to real estate and maintains thereon his or
her permanent home. All permanent residents of the State are currently entitled
to a $25,000 homestead exemption from levies by all taxing authorities, however,
such exemption is subject to change upon voter approval.
On November 3, 1992, the voters of the State of Florida passed an amendment
to the Florida Constitution establishing a limitation on the annual increase in
assessed valuation of homestead property commencing January 1, 1994, of the
lesser of 3% or the increase in the Consumer Price Index during the relevant
year, except in the event of a sale thereof during such year, and except as to
improvements thereto during such year. The amendment did not alter any of the
millage rates described above.
Since municipalities, counties, school districts and other special purpose
units of local governments with power to issue general obligation bonds have
authority to increase the millage levy for voter approved general obligation
debt to the amount necessary to satisfy the related debt service requirements,
the amendment is not expected to adversely affect the ability of these entities
to pay the principal of or interest on such general obligation bonds. However,
in periods of high inflation, those local government units whose operating
millage levies are approaching the constitutional cap and whose tax base
consists largely of residential real estate, may, as a result of the
above-described amendment, need to place greater reliance on non-ad valorem
revenue sources to meet their operating budget needs.
At the November 1994 general election, voters approved an amendment to the
State Constitution that limits the amount of taxes, fees, licenses and charges
imposed by the Legislature and collected during any fiscal year to the amount of
revenues allowed for the prior fiscal year, plus an adjustment for growth.
Growth is defined as the amount equal to the average annual rate of growth in
Florida personal income over the most recent twenty quarters times the state
revenues allowed for the prior fiscal year. The revenues allowed for any fiscal
year can be increased by a two-thirds vote of the Legislature. The limit is
effective starting with fiscal year 1995-1996 based on actual
-21-
82600.4
<PAGE>
revenues from fiscal year 1994-1995. Any excess revenues generated will be
deposited in the budget stabilization fund until it is fully funded and then
refunded to taxpayers. Included among the categories of revenues which are
exempt from the proposed revenue limitation, however, are revenues pledged to
state bonds.
State General Obligation Bonds and State Revenue Bonds. The State
Constitution does not permit the State to issue debt obligations to fund
governmental operations. Generally, the State Constitution authorizes State
bonds pledging the full faith and credit of the State only to finance or
refinance the cost of State fixed capital outlay projects, upon approval by a
vote of the electors, and provided that the total outstanding principal amount
of such bonds does not exceed 50% of the total tax revenues of the State for the
two preceding fiscal years. Revenue bonds may be issued by the State or its
agencies without a vote of the electors only to finance or refinance the cost of
State fixed capital outlay projects which are payable solely from funds derived
directly from sources other than State tax revenues.
Exceptions to the general provisions regarding the full faith and credit
pledge of the State are contained in specific provisions of the State
Constitution which authorize the pledge of the full faith and credit of the
State, without electorate approval, but subject to specific coverage
requirements, for: certain road projects, county education projects, State
higher education projects, State system of Public Education and construction of
air and water pollution control and abatement facilities, solid waste disposal
facilities and certain other water facilities.
Local Bonds. The State Constitution provides that counties, school districts,
municipalities, special districts and local governmental bodies with taxing
powers may issue debt obligations payable from ad valorem taxation and maturing
more than 12 months after issuance, only (i) to finance or refinance capital
projects authorized by law, provided that electorate approval is obtained; or
(ii) to refund outstanding debt obligations and interest and redemption premium
thereon at a lower net average interest cost rate.
Counties, municipalities and special districts are authorized to issue
revenue bonds to finance a variety of self-liquidating projects pursuant to the
laws of the State, such revenue bonds to be secured by and payable from the
rates, fees, tolls, rentals and other charges for the services and facilities
furnished by the financed projects. Under State law, counties and municipalities
are permitted to issue bonds payable from special tax sources for a variety of
purposes, and municipalities and special districts may issue special assessment
bonds.
Bond Ratings. General obligation bonds of the State are currently rated Aa
by Moody's and AA by Standard & Poor's.
Litigation. Due to its size and its broad range of activities, the State (and
its officers and employees) are involved in numerous routine lawsuits. The
managers of the departments of the State involved in such routine lawsuits
believed that the results of such pending litigation would not materially affect
the State's financial position. In addition to the routine litigation pending
against the State, its officers and employees, the following lawsuits and claims
are also pending:
A. In a class action suit brought against the Florida Department of
Corrections alleging race discrimination in hiring and employment practices, the
Eleventh Circuit Court of Appeals affirmed all but one issue in favor of the
State. The remaining issue was appealed to the United States Supreme Court, but
was remanded to the District Court.
-22-
82600.4
<PAGE>
B. In two suits, plaintiff taxpayers seek approximately $25 million in
intangible tax refunds based partly upon challenges heard before the United
States Supreme Court in Ford Motor Credit Corporation v. Department of Revenue.
In the Ford Motor Credit case, the taxpayers argued that Florida's intangible
tax violated the commerce clause of the U.S. Constitution, by failing to pass
the "internal consistency test" as developed by the U.S. Supreme Court. The
First District Court of Appeals of Florida rejected this argument, and the
United States Supreme Court affirmed the decision of the First District. A
settlement was reached by the parties subsequent to June 30, 1995. The net
amount refunded by the State to GMAC after considering the effect of corporate
income taxes was $153,000.
C. In a suit filed against the Florida Department of Health and
Rehabilitative Services (DHRS) arising out of the implementation of a DHRS
computer system, plaintiffs seek declaratory relief and money damages. The trial
court has denied DHRS' motions to dismiss, which were then appealed to the First
District Court of Appeals. In an effort to bring this matter to a final hearing,
the parties agreed to be heard in one proceeding before a special master. The
special master recommended against DHRS which, including accrued interest,
approximates $50 million. DHRS is contesting the special master's
recommendation.
D. In a suit filed against the Florida Agency for Health Care Administration,
plaintiffs seek a declaration that certain Florida statutes imposing an
assessment on the net operating income of hospitals are invalid,
unconstitutional and unenforceable. Plaintiffs have requested temporary and
permanent injunctive relief and that all moneys paid to the defendants by
plaintiffs and the class members within the four years preceding the filing of
the action be reimbursed with interest. In a trial hearing, the court ordered
that a final judgment be entered in favor of the State. Plaintiff has appealed
to the First District Court of Appeals. An unfavorable outcome to this case
could result in the possibility of refunds exceeding $100 million.
E. In an inverse condemnation suit, plaintiff claims that the action of State
constitutes a taking of plaintiff's leases for which compensation is due. The
Circuit judge granted the State's motion for summary judgment finding that as a
matter of law, the State had not deprived plaintiff of any royalty rights.
Plaintiff appealed to the First District Court of Appeals, but the case was
remanded to the Circuit Court for trial.
F. In a challenge by plaintiffs to the constitutionality of the $295 fee
imposed by Florida law on the issuance of motor vehicle titles for vehicles
previously titled outside the State. The Court granted summary judgment to the
plaintiff finding the fee violated the commerce clause of the U.S. Constitution.
The Court enjoined further collection of the fee and has ordered refunds to all
those who have paid since 1991. In an appeal to the State Supreme Court by the
State, the Court ordered a full refund of the impact fee. The case was directed
to and is currently with Orange County Circuit Court to oversee refund
procedures. The refund exposure is in excess of $188 million. Refunds, for the
most part, have been made. After the refunding is completed, this case will be
concluded. In a related suit alleging that those who were required to pay the
fee under a predecessor statute are also due a refund, the Circuit Court has
dismissed the claim and the plaintiff has appealed to the Fourth District Court
of Appeals. Approximately $29 million was collected under the predecessor
statute.
G. The Florida Department of Transportation has filed an action against
owners of property adjoining property that is subject to a claim by the U.S.
Environmental Protection Agency, seeking a declaratory judgment that the
Department is not the owner of such property. The case is at the preliminary
pleading stage. The EPA has agreed to await the outcome of the Department's
-23-
82600.4
<PAGE>
declaratory action before proceeding further. If the Department's action is not
successful, the possible clean-up costs could exceed $25 million.
H. In a class action suit on behalf of clients of residential placement for
the developmentally disabled seeking refunds for services where children were
entitled to free education under the Education for Handicapped Act, the district
court held that the State could not charge maintenance fees for children between
the ages of 5 and 17 based on the Act. The State's potential cost of refunding
these charges could exceed $42 million. However, attorneys are in the process of
negotiating a settlement amount.
I. In an action challenging the constitutionality of the Public Medical
Assistance Trust Fund annual assessment on net operating revenue of
free-standing out-patient facilities offering sophisticated radiology services,
a trial has not been scheduled. If the State does not prevail, the potential
refund liability could be approximately $70 million.
J. In an action against the Florida Department of Corrections, plaintiffs
seek a declaratory judgment that they are not exempt employees under the Fair
Labor Standards Act and that, therefore, they are entitled to certain overtime
compensation. An answer has been filed and discovery is underway. If the outcome
is unfavorable to the State, the potential loss to the State could exceed $28
million.
Summary. Many factors including national, economic, social and environmental
policies and conditions, most of which are not within the control of the State
or its local units of government, could affect or could have an adverse impact
on the financial condition of the State. Additionally, the limitations placed by
the State Constitution on the State and its local units of government with
respect to income taxation, ad valorem taxation, bond indebtedness and other
matters, discussed above, as well as other applicable statutory limitations, may
constrain the revenue-generating capacity of the State and its local units of
government and, therefore, the ability of the issuers of the Debt Obligations to
satisfy their obligations thereunder.
The Sponsors believe that the information summarized above describes some of
the more significant matters relating to the Florida Trust. For a discussion of
the particular risks with each of the Debt Obligations, and other factors to be
considered in connection therewith, reference should be made to the Official
Statement and other offering materials relating to each of the Debt Obligations
included in the portfolio of the Florida Trust. The foregoing information
regarding the State, its political subdivisions and its agencies and authorities
constitutes only a brief summary, does not purport to be a complete description
of the matters covered and is based solely upon information drawn from official
statements relating to offerings of certain bonds of the State. The Sponsors and
their counsel have not independently verified this information, and the Sponsors
have no reason to believe that such information is incorrect in any material
respect. None of the information presented in this summary is relevant to Puerto
Rico or Guam Debt Obligations which may be included in the Florida Trust.
For a general description of the risks associated with the various types of
Debt Obligations comprising the Florida Trust, see the discussion under "Risk
Factors", above.
New York Trust
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
-24-
82600.4
<PAGE>
the issuance of New York State and New York City municipal bonds. The Sponsors
have not independently verified this information.
State 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.
In recent years the State's economic position has improved in a manner
consistent with that for the Northeast as a whole.
The State has for many years had a very high State and local tax burden
relative to other states. The State and its localities have used these taxes to
develop and maintain their transportation networks, public schools and colleges,
public health systems, other social services and recreational facilities.
Despite these benefits, the burden of State and local taxation, in combination
with the many other causes of regional economic dislocation, has contributed to
the decisions of some businesses and individuals to relocate outside, or not
locate within, the State.
Notwithstanding the numerous initiatives that the State and its localities
may take to encourage economic growth and achieve balanced budgets, reductions
in Federal spending could materially and adversely affect the financial
condition and budget projections of the State and its localities.
New York City. The City, with a population of approximately 7.3 million,
is an international center of business and culture. Its non- manufacturing
economy is broadly based, with the banking and securities, life insurance,
communications, publishing, fashion design, retailing and construction
industries accounting for a significant portion of the City's total employment
earnings. Additionally, the City is the nation's leading tourist destination.
The City's manufacturing activity is conducted primarily in apparel and
publishing.
The national economic downturn which began in July 1990 adversely affected
the local economy, which had been declining since late 1989. As a result, the
City experienced job losses in 1990 and 1991 and real Gross City Product (GCP)
fell in those two years. For the 1992 fiscal year, the City closed a projected
budget gap of $3.3 billion in order to achieve a balanced budget as required by
the laws of the State. Beginning in calendar year 1992, the improvement in the
national economy helped stabilize conditions in the City. Employment losses
moderated toward year-end and real GCP increased, boosted by strong wage gains.
The City's current four-year financial plan assumes that, after noticeable
improvements in the City's economy during calendar year 1994, economic growth
will slow in calendar years 1995 and 1996 with local employment increasing
modestly. During the 1995 fiscal year, the City experienced substantial
shortfalls in payments of non-property tax revenues from those forecasted.
For each of the 1981 through 1994 fiscal years, the City achieved balanced
operating results as reported in accordance with generally accepted accounting
principles ("GAAP"), and the City's 1995 fiscal year results are
-25-
82600.4
<PAGE>
projected to be balanced in accordance with GAAP. The City was required to close
substantial budget gaps in recent years in order to maintain balanced operating
results. For fiscal year 1995, the City has adopted a budget which has halted
the trend in recent years of substantial increases in City spending from one
year to the next. There can be no assurance that the City will continue to
maintain a balanced budget as required by State law without additional tax or
other revenue increases or reductions in City services, which could adversely
affect the City's economic base.
Pursuant to the laws of the State, the City prepares an annual four-year
financial plan, which is reviewed and revised on a quarterly basis and which
includes the City's capital, revenue and expense projections and outlines
proposed gap-closing programs for years with projected budget gaps. The City is
required to submit its financial plans to review bodies, including the New York
State Financial Control Board ("Control Board"). If the City were to experience
certain adverse financial circumstances, including the occurrence or the
substantial likelihood and imminence of the occurrence of an annual operating
deficit of more than $100 million or the loss of access to the public credit
markets to satisfy the City's capital and seasonal financing requirements, the
Control Board would be required by State law to exercise powers, among others,
of prior approval of City financial plans, proposed borrowings and certain
contracts.
The City depends on the State for State aid both to enable the City to
balance its budget and to meet its cash requirements. There can be no assurance
that there will not be reductions in State aid to the City from amounts
currently projected or that State budgets in future fiscal years will be adopted
by the April 1 statutory deadline and that such reductions or delays will not
have adverse effects on the City's cash flow or expenditures.
The Mayor is responsible for preparing the City's four-year financial
plan, including the City's current financial plan for the 1996 through 1999
fiscal years (the "1996-1999 Financial Plan" or "Financial Plan"). The City's
projections set forth in the Financial Plan are based on various assumptions and
contingencies which are uncertain and which may not materialize. Changes in
major assumptions could significantly affect the City's ability to balance its
budget as required by State law and to meet its annual cash flow and financing
requirements. Such assumptions and contingencies include the condition of the
regional and local economies, the impact on real estate tax revenues of the real
estate market, wage increases for City employees consistent with those assumed
in the Financial Plan, employment growth, the results of a pending actuarial
audit of the City's pension system which is expected to significantly increase
the City's annual pension costs, the ability to implement proposed reductions in
City personnel and other cost reduction initiatives, which may require in
certain cases the cooperation of the City's municipal unions, revenue generating
transactions and provision of State and Federal aid and mandate relief.
Implementation of the Financial Plan is also dependent upon the City's
ability to market its securities successfully in the public credit markets. The
City's financing program for fiscal years 1996 through 1999 contemplates the
issuance of $9.7 billion of general obligation bonds primarily to reconstruct
and rehabilitate the City's infrastructure and physical assets and to make other
capital investments. In addition, the City issues revenue and tax anticipation
notes to finance its seasonal working capital requirements. The success of
projected public sales of City bonds and notes will be subject to prevailing
market conditions, and no assurance can be given that such sales will be
completed. If the City were unable to sell its general obligation bonds and
notes, it would be prevented from meeting its planned capital and operating
expenditures.
-26-
82600.4
<PAGE>
The City submitted to the Control Board on July 21, 1995 a fourth quarter
modification to the City's financial plan for the 1995 fiscal year, which
projects a balanced budget in accordance with GAAP for the 1995 fiscal year,
after taking into account a discretionary transfer of $75 million. On July 11,
1995, the City submitted to the Control Board the Financial Plan for the 1996
through 1999 fiscal years, which relates to the City, the Board of Education
("BOE") and the City University of New York ("CUNY"). The Financial Plan is
based on the City's expense and capital budgets for the City's 1996 fiscal year,
which were adopted on June 14, 1995, and sets forth proposed actions by the City
for the 1996 fiscal year to close substantial projected budget gaps resulting
from lower than projected tax receipts and other revenues and greater than
projected expenditures. In addition to substantial proposed agency expenditure
reductions and productivity, efficiency and labor initiatives negotiated with
the City's labor unions, the Financial Plan reflects a strategy to substantially
reduce spending for entitlements for the 1996 and subsequent fiscal years.
The 1996-1999 Financial Plan projects revenues and expenditures for the
1996 fiscal year balanced in accordance with GAAP. The projections for the 1996
fiscal year reflect proposed actions to close a previously projected gap of
approximately $3.1 billion for the 1996 fiscal year. The proposed actions in the
Financial Plan for the 1996 fiscal year include (i) a reduction in spending of
$400 million, primarily affecting public assistance and Medicaid payments by the
City; (ii) expenditure reductions in agencies, totalling $1.2 billion; (iii)
transitional labor savings, totalling $600 million; and (iv) the phase-in of the
increased annual pension funding cost due to revisions resulting from an
actuarial audit of the City pension systems, which would reduce such costs in
the 1996 fiscal year. Other proposed actions include (i) welfare savings of $100
million from increased fraud detection; (ii) $170 million of additional
expenditure reductions in agencies and HHC; (iii) a delay in the proposed
reduction in the commercial rent tax, which would increase projected revenues by
$62 million in the 1996 fiscal year; (iv) an increase of $75 million in
projected tax collections for the 1996 fiscal year; (v) $50 million of proposed
additional State aid not included in the adopted State budget and $75 million of
proposed additional Federal aid; (vi) certain revenue initiatives, including the
proposed sale of delinquent tax liens and the U.N. Plaza Hotel for $104 million;
and (vii) savings from the proposed refunding of outstanding debt, totalling $50
million.
The proposed agency spending reductions include the reduction of City
personnel through attrition, government efficiency initiatives, procurement
initiatives and labor productivity initiatives. The substantial agency
expenditure reductions proposed in the Financial Plan may be difficult to
implement, and the Financial Plan is subject to the ability of the City to
implement proposed reductions in City personnel and other cost reduction
initiatives. In addition, certain initiatives are subject to negotiation with
the City's municipal unions, and various actions, including proposed anticipated
State aid totalling $50 million are subject to approval by the Governor and
State Legislature.
The City annually prepares a modification to its financial plan in October
or November which amends the financial plan to accommodate any revisions to
forecast revenues and expenditures and to specify any additional gap-closing
initiatives to the extent required to offset decreases in projected revenues or
increases in projected expenditures (the "First Quarter Modification").
Subsequent to the preparation of the Financial Plan, the City has agreed to pay
for a portion of the cost of student transit passes, which will result in a $45
million increase in expenditures for the 1996 fiscal year. In addition, the City
is in the process of identifying any additional spending requirements or revenue
losses affecting the 1996 fiscal year. In October or November, 1995, the Mayor
is expected to publish the First Quarter Modification for the 1996 fiscal year.
-27-
82600.4
<PAGE>
The Financial Plan also sets forth projections for the 1997 through 1999
fiscal years and outlines a proposed gap-closing program to eliminate projected
gaps of $888 million, $1.5 billion and $1.4 billion for the 1997, 1998 and 1999
fiscal years, respectively, after successful implementation of the $3.1 billion
gap-closing program for the 1996 fiscal year.
The projections for the 1996 through 1999 fiscal years assume (i)
agreement with the City's unions with respect to approximately $100 million of
savings to be derived from efficiencies in management of employee health
insurance programs and other health benefit related savings for each of the 1996
through 1999 fiscal years to be negotiated with the City's unions; (ii) $200
million of additional anticipated State aid and $75 million of additional
anticipated Federal aid in each of the 1997 through 1999 fiscal years; (iii)
that HHC and BOE will each be able to identify actions to offset substantial
revenue shortfalls reflected in the Financial Plan, including approximately $254
million annual reduction in revenues for HHC, which results from the reduction
in Medicaid payments proposed by the State and the City, without any increase in
City subsidy payments to HHC; (iv) the continuation of the current assumption of
no wage increases after fiscal year 1995 for City employees unless offset by
productivity increases; (v) $130 million of additional revenues as a result of
increased rent payments for the City's airports proposed by the City, which is
subject to further discussion with the Port Authority; and (vi) savings of $45
million in each of the 1997 through 1999 fiscal years which would result from
the State Legislature's enactment of proposed tort reform legislation. In
addition, the 1996-1999 Financial Plan anticipates the receipt of substantial
amounts of Federal aid. Certain Federal legislative proposals contemplate
significant reductions in Federal spending, including proposed Federal welfare
reform, which could result in caps on, or block grants of, Federal programs.
The proposed gap-closing actions, a substantial number of which are not
specified in detail, include additional agency expenditure reductions, primarily
resulting from a partial hiring freeze, totalling between $388 million and $684
million in each of the 1997 through 1999 fiscal years; reductions in
expenditures resulting from proposed procurement initiatives totalling between
$50 million and $100 million in each of the 1997 through 1999 fiscal years;
revenue initiatives totalling between $100 million and $200 million in each of
the 1997 through 1999 fiscal years; the availability in each of the 1997, 1998
and 1999 fiscal years of $100 million of the general reserve appropriated in the
prior year; and additional reduced expenditures resulting from further revisions
in entitlement programs to reduce City expenditures by $250 million, $400
million and $400 million in the 1997, 1998 and 1999 fiscal years, respectively,
which may be subject to State or Federal approval.
On July 10, 1995, Standard & Poor's revised downward its rating on City
general obligation bonds from A- to BBB+ and removed City bonds from
CreditWatch. Standard & Poor's stated that "structural budgetary balance remains
elusive because of persistent softness in the City's economy, highlighted by
weak job growth and a growing dependence on the historically volatile financial
services sector". Other factors identified by Standard & Poor's in lowering its
rating on City bonds included a trend of using one-time measures, including debt
refinancings, to close projected budget gaps, dependence on unratified labor
savings to help balance the Financial Plan, optimistic projections of additional
federal and State aid or mandate relief, a history of cash flow difficulties
caused by State budget delays and continued high debt levels. Fitch Investors
Service, Inc. continues to rate the City general obligation bonds A-. Moody's
rating for City general obligation bonds is Baa1.
In January 1993, the City announced a settlement with a coalition of 19
municipal unions for a 39-month period that extends into fiscal year 1995.
-28-
82600.4
<PAGE>
The settlement resulted in a total net expenditure increase of 8.25% of covered
employee payroll over a 39-month period, ending March 31, 1995, for most of
these employees. Subsequently, the City reached agreement with all of its major
bargaining units on terms which are generally consistent with the coalition
agreement.
Contracts with all of the City's municipal unions either expired in the
1995 fiscal year or will expire in the 1996 fiscal year. The Financial Plan
provides no additional wage increases for City employees after the 1995 fiscal
year. Each 1% wage increase for all union contracts commencing in the 1995 or
1996 fiscal year would cost the City an additional $141 million for the 1996
fiscal year and $161 million each year thereafter above the amounts provided for
in the Financial Plan. The terms of wage settlements could be determined through
the impasse procedure in the New York City Collective Bargaining Law, which can
impose a binding settlement.
The projections and assumptions contained in the 1996-1999 Financial Plan
are subject to revision which may involve substantial change, and no assurance
can be given that these estimates and projections, which include actions which
the City expects will be taken but which are not within the City's control, will
be realized.
From time to time, the Control Board staff, the Municipal Assistance
Corporation for the City of New York ("MAC"), Office of the State Deputy
Comptroller ("OSDC"), the City Comptroller and others issue reports and make
public statements regarding the City's financial condition, commenting on, among
other matters, the City's financial plans, projected revenues and expenditures
and actions by the City to eliminate projected operating deficits. Some of these
reports and statements have warned that the City may have underestimated certain
expenditures and overestimated certain revenues and have suggested that the City
may not have adequately provided for future contingencies. Certain of these
reports have analyzed the City's future economic and social conditions and have
questioned whether the City has the capacity to generate sufficient revenues in
the future to meet the costs of its expenditure increases and to provide
necessary services. It is reasonable to expect that such reports and statements
will continue to be issued and to engender public comment.
On July 24, 1995, the City Comptroller issued a report on the Financial
Plan. The report concluded that the Financial Plan includes total risks of $749
million to $1.034 billion for the 1996 fiscal year. These risks include (i)
possible tax revenue shortfalls of $53 million; (ii) a possible $20 million to
$60 million shortfall in savings resulting from unspecified improvements in the
City's health benefits system; (iii) a potential shortfall of up to $40 million
in projected savings from an early retirement program; (iv) the receipt of $125
million of unspecified additional Federal and State assistance; (v) up to $203
million of projected savings from the public assistance eligibility review and
electronic signature program for public assistance recipients; (vi) $93 million
of greater than projected expenditures for overtime; (vii) $284 million of
greater than projected expenditures and lower than projected revenues at BOE;
and (viii) the receipt of $130 million of lease payments from the Port
Authority. Other potential uncertainties identified in the report include the
projected $253.6 million deficit for the Health and Hospitals Corporation
("HHC"), $160 million of the $600 million in labor savings for the 1996 fiscal
year which are yet to be identified, and the impact on the City of a possible
reduction in Federal entitlement programs. Subsequently, the City Comptroller
stated that an additional $129 million of anticipated State and Federal
assistance for BOE might not be received by BOE.
With respect to the 1997 through 1999 fiscal years, the report noted that
the gap-closing program in the Financial Plan does not include information about
how the City will implement the various gap-closing
-29-
82600.4
<PAGE>
programs, and that the entitlement cost containment and revenue initiates will
require approval of the State legislature. Taking into account the same
categories of risks for the 1997 through 1999 fiscal years as the report
identified for the 1996 fiscal year and the uncertainty concerning the gap-
closing program, the report estimated that the Financial Plan includes total
risks of $2.0 billion to $2.5 billion in the 1997 fiscal year, $2.8 billion to
$3.3 billion in the 1998 fiscal year and $2.9 billion to $3.4 billion in the
1999 fiscal year. The report further noted that the City Comptroller continues
to oppose the proposed sale of the water system, primarily because of the
unwillingness of the City to guarantee that $1 billion from the $2.3 billion in
proceeds of the sale will be used only to fund capital and not operating
expenses, and concerns about the jurisdiction and composition of the Water Board
once title to the Water Board has been transferred.
In early December, 1994, the City Comptroller issued a report which noted
that the City is currently seeking to develop and implement plans which will
satisfy the Federal Environmental Protection Agency that the water supplied by
the City watershed areas does not need to be filtered. The City Comptroller
noted that, if the City is ordered to build filtration plants, they could cost
as much as $4.57 billion to construct, with annual debt service and operating
costs of more than $500 million, leading to a water rate increase of 45%.
On December 16, 1994, the City Comptroller issued a report noting that the
capacity of the City to issue general obligation debt could be greatly reduced
in future years due to the decline in value of taxable real property. The report
noted that, under the State constitution, the City is permitted to issue debt in
an amount not greater than 10% of the average full value of taxable real estate
for the current year and preceding four years, that the latest estimates
produced by the State Board of Equalization and Assessment relating to the full
value of real property, using data from a 1992 survey, indicate a 19% decline in
the market value of taxable real property from the previous survey in 1990, and
that the State Board has decided to use a projected annual growth rate of 8.84%,
as compared to its previous projection of 14% for estimating full value after
1992. The report concludes that the City will be within the projected legal debt
incurring limit in the 1996 fiscal year. However, the report concluded that,
based on the most likely forecast of full value of real property, the debt
incurring power of the City would be curtailed in the 1997 and 1998 fiscal years
substantially. The City Comptroller recommended, among other things,
prioritization of capital projects to determine which can be delayed or
cancelled, and better maintenance of the City's physical plant and
infrastructure, which would result in less capital spending for repair and
replacement of capital structures.
On July 21, 1995, the staff of the Control Board issued a report on the
Financial Plan which identified risks of $873 million, $2.1 billion, $2.8
billion and $2.8 billion for the 1996 through 1999 fiscal years, respectively.
With respect to the 1996 fiscal year, the principal risks included (i) possible
shortfalls in projected tax revenues totaling $50 million, (ii) the possibility
that revenue actions and expenditure reduction initiatives for BOE totaling $266
million might not be successfully implemented, (iii) possible shortfalls
totaling $172 million in proposed welfare savings from increased fraud
detection, and (iv) uncertainty concerning the $50 million of proposed
additional State aid and $75 million of proposed additional Federal aid, the
proposed receipt of $130 million of increased rent payments for the City's
airports and the $100 million of savings to be derived from health benefit-
related savings, which are subject to negotiations with or approvals by other
parties. Additional risks identified for the 1997 through 1999 fiscal years
include the possibility of additional tax revenue shortfalls, uncertainty
concerning the ability of the City to implement the gap-closing actions for such
years and uncertainty concerning the projected receipt of additional
-30-
82600.4
<PAGE>
anticipated State aid. Other areas of concern identified in the report included
the projected deficit at HHC of approximately $400 million, reflecting the
impact on HHC of the entitlement reductions contained in the State budget and
the City's reduction in the subsidy provided to HHC, and the assumption in the
Financial Plan that the City will realize the full $400 million of projected
savings in public assistance and Medicaid payments enacted at the State level.
The report noted that substantially more information is needed concerning the
proposed gap-closing actions for the 1997-1999 fiscal years.
On June 14, 1995, the staff of the OSDC issued a report on the Financial
Plan with respect to the 1995 fiscal year. The report noted that, during the
1995 fiscal year, the City faced adverse financial developments totaling over $2
billion resulting from the inability to initiate approximately 35% of the City's
gap-closing program, as well as newly-identified spending needs and revenue
shortfalls resulting from the adverse impact on the City's personal income,
general corporation and other tax revenues of the policy of the Federal Reserve
of increasing short-term interest rates and the related downturn in the bond
market and profits and bonus income on Wall Street. The report noted that the
City relied heavily on one-time actions to offset these adverse developments,
using $2 billion in one-time resources in the 1995 fiscal year, or nearly double
the 1994 amount.
On July 24, 1995, the staff of the OSDC issued a report on the Financial
Plan. The report concluded that there remains a budget gap for the 1996 fiscal
year of $392 million, largely because the City and its unions have yet to reach
an agreement on how to achieve $160 million in unspecified labor savings and the
remaining $100 million in recurring health insurance savings from last year's
agreement. The report also identified a number of issues that present a net
potential risk of $409 million to the City's revenue and expenditure forecasts
for the 1996 fiscal year, including risks of (i) $160 million associated with
anticipated increases in Federal and State assistance, (ii) $130 million
relating to projected Port Authority airport lease payments, and (iii) $100
million with respect to unfunded BOE mandates. The report also identified
several other concerns regarding the 1996 fiscal year, including concerns that
(i) detailed programs have not yet been fully developed to meet the $564 million
and $400 million cost-reduction targets established for BOE and HHC,
respectively, (ii) State and City initiatives to reduce public assistance and
Medicaid costs, which are expected to reduce City costs by $745 million in the
1996 fiscal year, will require close monitoring to ensure that financial targets
are met; (iii) the City has not provided sufficient assurances that the bond
proceeds from its proposed sale of the water and sewer system would be used
strictly for capital spending purposes; and (iv) the Financial Plan makes no
provision for wage increases in the collective bargaining agreements between the
City and its unions, which generally will expire by October, 1995. The report
further noted that growth in City revenues is being constrained by the weak
economy in the City, which is likely to be compounded by the slowing national
economy, and that there is a likelihood of a national recession during the
course of the Financial Plan. Moreover, the report noted that State and Federal
budgets are undergoing tumultuous changes, and that the potential for
far-reaching reductions in intergovernmental assistance is clearly on the
horizon, with greater uncertainty about the impact on City finances and
services.
A substantial portion of the capital improvements in the City are financed
by indebtedness issued by MAC. MAC was organized in 1975 to provide financing
assistance for the City and also to exercise certain review functions with
respect to the City's finances. MAC bonds are payable out of certain State sales
and compensating use taxes imposed within the City, State stock transfer taxes
and per capita State aid to the City. Any balance from these sources after
meeting MAC debt service and reserve fund requirements and paying MAC's
operating expenses is remitted to the City or, in the case of the
-31-
82600.4
<PAGE>
stock transfer taxes, rebated to the taxpayers. The State is not, however,
obligated to continue the imposition of such taxes or to continue appropriation
of the revenues therefrom to MAC, nor is the State obligated to continue to
appropriate the State per capita aid to the City which would be required to pay
the debt service on certain MAC obligations. MAC has no taxing power and MAC
bonds do not create an enforceable obligation of either the State or the City.
As of June 30, 1995, MAC had outstanding an aggregate of approximately $4.882
billion of its bonds.
New York State and its Authorities. The State's current fiscal year
commenced on April 1, 1995, and ends on March 31, 1996, and is referred to
herein as the State's 1995-96 fiscal year. The prior fiscal year, which ended on
March 31, 1995, is referred to herein as the State's 1994-95 fiscal year. The
State's budget for the 1995-96 fiscal year was enacted by the Legislature on
June 7, 1995, more than two months after the start of the fiscal year. Prior to
adoption of the budget, the Legislature enacted appropriations for disbursements
considered to be necessary for State operations and other purposes, including
all necessary appropriations for debt service. The State Financial Plan for the
1995-96 fiscal year was formulated on June 20, 1995 and is based on the State's
budget as enacted by the Legislature and signed into law by the Governor.
The 1995-96 budget is the first to be enacted in the administration of the
Governor, who assumed office on January 1. It is the first budget in over half a
century which proposed and, as enacted, projects an absolute year-over- year
decline in General Fund disbursements. Spending for State operations is
projected to drop even more sharply, by 4.6 percent. Nominal spending from all
State funding sources (i.e., excluding Federal aid) is proposed to increase by
only 2.5 percent from the prior fiscal year, in contrast to the prior decade
when such spending growth averaged more than 6.0 percent annually.
In his Executive Budget, the Governor indicated that in the 1995-96 fiscal
year, the State Financial Plan, based on then-current law governing spending and
revenues, would be out of balance by almost $4.7 billion, as a result of the
projected structural deficit resulting from the ongoing disparity between
sluggish growth in receipts, the effect of prior-year tax changes, and the rapid
acceleration of spending growth; the impact of unfunded 1994-95 initiatives,
primarily for local aid programs; and the use of one-time solutions, primarily
surplus funds from the prior year, to fund recurring spending in the 1994-95
budget. The Governor proposed additional tax cuts, to spur economic growth and
provide relief for low and middle-income tax payers, which were larger than
those ultimately adopted, and which added $240 million to the then projected
imbalance or budget gap, bringing the total to approximately $5 billion.
This gap is projected to be closed in the 1995-96 State Financial Plan
based on the enacted budget, through a series of actions, mainly spending
reductions and cost containment measures and certain reestimates that are
expected to be recurring, but also through the use of one-time solutions. The
State Financial Plan projects (i) nearly $1.6 billion in savings from cost
containment, disbursement reestimates, and other savings in social welfare
programs, including Medicaid, income maintenance and various child and family
care program; (ii) $2.2 billion in savings from State agency actions to reduce
spending on the State workforce, State University of New York ("SUNY") and City
University of New York ("CUNY"), mental hygiene programs, capital projects, the
prison system and fringe benefits; (iii) $300 million in savings from local
assistance reforms, including actions affecting school aid and revenue sharing
while proposing program legislation to provide relief from certain mandates that
increase local spending; (iv) over $400 million in revenue measures, primarily a
new Quick Draw Lottery game, changes to tax
-32-
82600.4
<PAGE>
payment schedules, and the sale of assets; and (v) $300 million from
reestimates in receipts.
There are risks and uncertainties concerning the future-year impact of tax
reductions and other measures in 1995-96 budget.
The economic and financial condition of the State may be affected by
various financial, social, economic and political factors. Those factors can be
very complex, may vary from fiscal year to fiscal year, and are frequently the
result of actions taken not only by the State and its agencies and
instrumentalities, but also by entities, such as the Federal government, that
are not under the control of the State. For example, various proposals relating
to Federal tax and spending policies that are currently being publicly discussed
and debated could, if enacted, have a significant impact on the State's
financial condition in the current and future fiscal years. Because of the
uncertainty and unpredictability of the changes, their impact cannot, as a
practical matter, be included in the assumptions underlying the State's
projections at this time.
The State Financial Plan is based upon forecasts of national and State
economic activity. Economic forecasts have frequently failed to predict
accurately the timing and magnitude of changes in the national and the State
economies. Many uncertainties exist in forecasts of both the national and State
economies, including consumer attitudes toward spending, the extent of corporate
and governmental restructuring, Federal fiscal and monetary policies, the level
of interest rates, and the condition of the world economy, which could have an
adverse effect on the State. There can be no assurance that the State economy
will not experience results in the current fiscal year that are worse than
predicted, with corresponding material and adverse effects on the State's
projections of receipts and disbursements.
Projections of total State receipts in the State Financial Plan are based
on the State tax structure in effect during the fiscal year and on assumptions
relating to basic economic factors and their historical relationships to State
tax receipts. In preparing projections of State receipts, economic forecasts
relating to personal income, wages and employment have been particularly
important. The projection of receipts from most tax or revenue sources is
generally made by estimating the change in yield of such tax or revenue source
caused by economic and other factors, rather than by estimating the total yield
of such tax or revenue source from its estimated tax base. The forecasting
methodology, however, ensures that State fiscal year estimates for taxes that
are based on a computation of annual liability, such as the business and
personal income taxes, are consistent with estimates of total liability under
such taxes.
Projections of total State disbursements are based on assumptions relating
to economic and demographic factors, levels of disbursements for various
services provided by local governments (where the cost is partially reimbursed
by the State), and the results of various administrative and statutory
mechanisms in controlling disbursements for State operations. Factors that may
affect the level of disbursements in the fiscal year include uncertainties
relating to the economy of the nation and the State, the policies of the Federal
government, and changes in the demand for and use of State services.
The State Division of the Budget ("DOB") believes that its projections of
receipts and disbursements relating to the current State Financial Plan, and the
assumptions on which they are based, are reasonable. Actual results, however,
could differ materially and adversely from the projections set forth below, and
those projections may be changed materially and adversely from time to time.
-33-
82600.4
<PAGE>
The national economy began the current expansion in 1991 and has added
over 7 million jobs since early 1992. However, the recession lasted longer in
the State and the State's economic recovery has lagged behind the nation's.
Although the State has added approximately 185,000 jobs since November 1992,
employment growth in the State has been hindered during recent years by
significant cutbacks in the computer and instrument manufacturing, utility,
defense, and banking industries.
The State Financial Plan is based on a projection by DOB of national and
State economic activity. DOB forecasts that national economic growth will
weaken, but not turn negative, during the course of 1995 before beginning to
rebound by the end of the year. This dynamic is often described as a "soft
landing". The overall rate of growth of the national economy during calendar
year 1995 will be slightly below the "consensus" of a widely followed survey of
national economic forecasters. Growth in the real gross domestic product during
1995 is projected to be moderate (3.0 percent), with declines in defense
spending and net exports more than offset by increases in consumption and
investment. Continuing efforts by business and government to reduce costs are
expected to exert a drag on economic growth. Inflation, as measured by the
Consumer Price Index, is projected to remain about 3 percent due to moderate
wage growth and foreign competition. Personal income and wages are projected to
increase by about 6 percent or more.
New York's economy is expected to continue to expand modestly during 1995,
but there will be a pronounced slow-down during the course of the year. Although
industries that export goods and services abroad are expected to benefit from
the lower dollar, growth will be slowed by government cutbacks at all levels. On
an average annual basis, employment growth will be about the same as 1994. Both
personal income and wages are expected to record moderate gains in 1995. Bonus
payments in the securities industry are expected to increase from last year's
depressed level.
As noted above, the financial condition of the State is affected by
several factors, including the strength of the State and regional economy and
actions of the Federal government, as well as State actions affecting the level
of receipts and disbursements. Owing to these and other factors, the State may,
in future years, face substantial potential budget gaps resulting from a
significant disparity between tax revenues projected from a lower recurring
receipts base and the future costs of maintaining State programs at current
levels. Any such recurring imbalance would be exacerbated if the State were to
use a significant amount of nonrecurring resources to balance the budget in a
particular fiscal year. To address a potential imbalance for a given fiscal
year, the State would be required to take actions to increase receipts and/or
reduce disbursements as it enacts the budget for that year, and under the State
Constitution the Governor is required to propose a balanced budget each year. To
correct recurring budgetary imbalances, the State would need to take significant
actions to align recurring receipts and disbursements in future fiscal years.
There can be no assurance, however, that the State's actions will be sufficient
to preserve budgetary balance in a given fiscal year or to align recurring
receipts and disbursements in future fiscal years.
The General Fund is the general operating fund of the State and is used to
account for all financial transactions, except those required to be accounted
for in another fund. It is the State's largest fund and receives almost all
State taxes and other resources not dedicated to particular purposes. In the
State's 1995-96 fiscal year, the General Fund is expected to account for
approximately 49 percent of total governmental-fund receipts and 51 percent of
total governmental-fund disbursements. General Fund moneys are also transferred
to other funds, primarily to support certain capital projects and debt service
payments in other fund types.
-34-
82600.4
<PAGE>
In recent years, State actions affecting the level of receipts and
disbursements, as well as the relative strength of the State and regional
economy, actions of the Federal government and other factors have created
structural budget gaps for the State. These gaps resulted from a significant
disparity between recurring revenues and the costs of maintaining or increasing
the level of support for State programs. The 1995-96 enacted budget combines
significant tax and program reductions which will, in the current and future
years, lower both the recurring receipts base (before the effect of any economic
stimulus from such tax reductions) and the historical annual growth in State
program spending. The three-year plan to reduce State personal income taxes will
decrease State tax receipts by an estimated $1.7 billion in State fiscal year
1996-97 in addition to the amount of reduction in State fiscal year 1995-96.
Further significant reductions in the personal income tax are scheduled for the
1997-98 State fiscal year. Other tax reductions enacted in 1994 and 1995 are
estimated to cause an additional reduction in receipts of over $500 million in
1996-97, as compared to the level of receipts in 1995-96. Similarly, many
actions taken to reduce disbursements in the State's 1995-96 fiscal year are
expected to provide greater reductions in State fiscal year 1996-97. These
include actions to reduce the State workforce, reduce Medicaid and welfare
expenditures and slow community mental hygiene program development. The net
impact of these and other factors is expected to produce a potential imbalance
in receipts and disbursements in State fiscal year 1996-97. The Governor has
indicated that in the 1996-97 Executive Budget he will propose to close this
potential imbalance primarily through General Fund expenditure reductions and
without increases in taxes or deferrals of scheduled tax reductions. On October
2, 1995, the State Comptroller released a report in which he reaffirmed his
estimate that the State will face a budget gap of at least $2.7 billion for the
1996-97 fiscal year and a projected gap of at least $3.9 billion for the 1997-98
fiscal year.
On January 13, 1992, Standard & Poor's reduced its ratings on the State's
general obligation bonds from A to A- and, in addition, reduced its ratings on
the State's moral obligation, lease purchase, guaranteed and contractual
obligation debt. Standard & Poor's also continued its negative rating outlook
assessment on State general obligation debt. On April 26, 1993, Standard &
Poor's revised the rating outlook assessment to stable. On February 14, 1994,
Standard & Poor's raised its outlook to positive and, on July 13, 1995,
confirmed its A- rating. On January 6, 1992, Moody's reduced its ratings on
outstanding limited-liability State lease purchase and contractual obligations
from A to Baa1. On July 3, 1995, Moody's reconfirmed its A rating on the State's
general obligation long-term indebtedness.
The fiscal stability of the State is related to the fiscal stability of
its authorities, which generally have responsibility for financing, constructing
and operating revenue-producing public benefit facilities. The authorities are
not subject to the constitutional restrictions on the incurrence of debt which
apply to the State itself and may issue bonds and notes within the amounts of,
and as otherwise restricted by, their legislative authorization. As of September
30, 1994, there were 18 authorities that had outstanding debt of $100 million or
more, and the aggregate outstanding debt, including refunding bonds, of these 18
authorities was $70.3 billion. As of March 31, 1995, aggregate public authority
debt outstanding as State-supported debt was $27.9 billion and as State-related
debt was $36.1 billion.
There are statutory arrangements providing for State local assistance
payments, otherwise payable to localities, to be made under certain
circumstances to public authorities. Although the State has no obligation to
provide additional assistance to localities whose local assistance payments have
been paid to public authorities under these arrangements if local assistance
payments are so diverted, the affected localities could seek additional State
assistance.
-35-
82600.4
<PAGE>
The Metropolitan Transit Authority ("MTA"), a State agency, oversees the
operation of the City's subway and bus system by its affiliates, the New York
City Transit Authority and Bronx Surface Transit Operating Authority (the
"Transit Authority" or "TA") and commuter rail and bus lines serving the New
York metropolitan area. Fare revenues from such operations have been
insufficient to meet expenditures, and the MTA depends heavily upon a system of
State, local, Triborough Bridge and Tunnel Authority ("TBTA") and, to the extent
available, Federal support. Over the past several years, the State has enacted
several taxes, including a surcharge on the profits of banks, insurance
corporations and general business corporations doing business in the 12 county
region served by the MTA and a special one-quarter of 1% regional sales and use
tax, that provide additional revenues for mass transit purposes including
assistance to the MTA. For the 1995-96 State fiscal year, total State assistance
to the MTA is estimated at approximately $1.1 billion.
In 1993, State legislation authorized the funding of a five-year $9.56
billion MTA capital plan for the five-year period, 1992 through 1996 (the
"1992-96 Capital Program"). The MTA has received approval of the 1992-96 Capital
Program based on this legislation from the MTA Capital Program Review Board, as
State law requires. This is the third five-year plan since the Legislature
authorized procedures for the adoption, approval and amendment of a five-year
plan for 1981 for a capital program designed to upgrade the performance of the
MTA's transportation systems and to supplement, replace and rehabilitate
facilities and equipment. The MTA, the TBTA and the TA are collectively
authorized to issue an aggregate of $3.1 billion of bonds (net of certain
statutory exclusions) to finance a portion of the 1992-96 Capital Program. The
1992-96 Capital Program was expected to be financed in significant part through
dedication of the State petroleum business tax receipts. However, in December
1994 the proposed bond resolution based on such tax receipts was not approved by
the MTA Capital Program Review Board. Further consideration of the resolution
was deferred until 1995.
There can be no assurance that all the necessary governmental actions for
the MTA 1992-96 Capital Program or future capital programs will be taken, that
funding sources currently identified will not be decreased or eliminated, or
that the MTA 1992-96 Capital Program, or parts thereof, will not be delayed or
reduced. If the MTA Capital Program is delayed or reduced, ridership and far
revenues may decline, which could, among other things, impair the MTA's ability
to meet its operating expenses without additional assistance.
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.
Adverse developments in these proceedings or the initiation of new proceedings
could affect the ability of the State to maintain a balanced 1995-96 State
Financial Plan. The State believes that the 1995-96 State Financial Plan
includes sufficient reserves for the payment of judgments that may be required
during the 1995-96 fiscal year. There can be no assurance, however, that an
adverse decision in any of these proceedings would not exceed the amount of the
1995-96 State Financial Plan reserves for the payment of judgments and,
therefore, could affect the ability of the State to maintain a balanced 1995-96
State Financial Plan.
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
-36-
82600.4
<PAGE>
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.
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. The Federal Base
Closing Commission has ordered that a number of military facilities in Virginia
be closed or reduced. As a result of recessionary conditions, the Commonwealth
has experienced for the past several years severe revenue shortfalls, which have
necessitated cutbacks of expenditures in the budgets for the 1992-1994 biennia.
In the 1994 General Assembly session, the 1992-1994 budget was amended to
reflect $96,000,000 in additional revenues.
In Davis v. Michigan (decided March 28, 1989), the United States Supreme
Court ruled unconstitutional Michigan's statute exempting from state income tax
the retirement benefits paid by the state and local governments and not
exempting retirement benefits paid by the federal government. In Harper v.
Virginia Department of Taxation (decided June 18, 1993), the United States
Supreme Court held, in a suit involving claims for refunds by Federal retirees
living in Virginia that Virginia State income tax Statutes violated the
principles of Davis v. Michigan, but remanded for further relief so long as the
relief was consistent with Federal due process. If the courts ultimately rule
that the Commonwealth must make full refunds of taxes imposed prior to Davis v.
Michigan, the State has estimated that the potential financial impact on the
Commonwealth based on its review of claims for refunds by federal pensioners
(including interest payable calculated as of December 31, 1993) is approximately
$700 million. The Governor and General Assembly of Virginia have authorized a
settlement of $340 million, plus interest, payable into a special trust fund in
amounts of $60 million in 1994 and $70 million in each of the years 1995 through
1998. Acceptance of the settlement, which has been recommended by the
Plaintiffs' attorneys in the Harper case, is subject to approval by individual
retirees, which is currently being solicited by the Virginia Department of
Taxation. If the total principal amount of claims of retirees deciding to opt
out of the settlement exceeds $20 million by March 1, 1995, the settlement
agreement becomes null and void, unless re-authorized by the General Assembly.
Although holders of more than $20 million in claims opted out, the General
Assembly reauthorized the settlement at its 1995 session, accepted the
settlement of those who had accepted and established a pro rata litigation
reserve for those claimants who had opted out.
The Governor proposed a plan to the General Assembly to eliminate or
reduce parole for persons convicted of violent crime. In that connection he
proposed the issuance of bonds to finance part of the cost of additional prisons
that would result from the program. The General Assembly approved part of the
plan, with bonds to be issued by the Virginia Public Building Authority.
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
-37-
82600.4
<PAGE>
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 15.1-227.61 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 (1)
revenue bonds payable exclusively from revenue producing governmental
enterprises and (2) 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 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.
No Virginia law expressly authorizes Virginia political subdivisions to
file under Chapter 9 of the United States Bankruptcy Code, but some recent case
law suggests that the granting of general powers to such subdivisions may be
sufficient to permit them to file voluntary petitions under Chapter 9. Bonds
payable exclusively by private entities may be subject to the provisions of the
United States Bankruptcy Code other than Chapter 9.
Virginia municipal issuers have generally not been required to provide
ongoing information about their finances and operations to holders of their debt
obligations, although a number of cities, counties and other issuers prepare
annual reports.
Although revenue obligations of the Commonwealth or its political
subdivisions may be payable from a specific project or source, including lease
rentals, there can be no assurance that future economic difficulties and the
resulting impact on Commonwealth and local government finances will not
adversely affect the market value of the portfolio of the Fund or the ability of
the respective obligors to make timely payments of principal and interest on
such obligations.
The Sponsors believe the information summarized above describes some of
the more significant events relating to the Virginia Trust. Sources of such
information are the official statements of the issuers located in the
Commonwealth of Virginia, as well as other publicly available documents and
-38-
82600.4
<PAGE>
information. While the Sponsors have not independently verified such
information, they have no reason to believe it is not correct in all material
respects.
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.
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.
As Percent of Public
Time to Maturity Offering Price
less than 6 months 0%
6 mos. to 1 year 1%
over 1 yr. to 2 yrs. 1 1/2%
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%
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. 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. This daily rate is net of estimated fees and
expenses. The secondary market Public Offering Price can vary on a daily basis
from the amount stated 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.
-39-
82600.4
<PAGE>
Accrued Interest
An amount of accrued interest which represents accumulated unpaid or
uncollected interest on a bond from the last day on which interest was paid
thereon will be added to the Public Offering Price and paid by the
Certificateholder at the time Units are purchased. 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 Reich & Tang Distributors L.P. (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 of $10.00 per Unit. Such
arrangements result in less selling effort and selling expenses than sales to
employee groups of other companies. Resales or transfers of Units purchased
under the employee benefit arrangements may only be made through the Sponsor's
secondary market, so long as it is being maintained.
Distribution of Units
Certain banks and thrifts will make Units of the Trust available to their
customers on an agency basis. A portion of the sales charge paid by their
customers is retained by or remitted to the banks. Under the Glass- Steagall
Act, banks are prohibited from underwriting Units; however, the Glass-Steagall
Act does permit certain agency transactions and the banking regulators have
indicated that these particular agency transactions are permitted under such
Act. In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law.
The Sponsor intends to qualify the Units 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 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
-40-
82600.4
<PAGE>
the amount of any difference between the price at which it buys Units and the
price at which it resells such Units.
Participants in the "Total Reinvestment Plan" can designate a broker as
the recipient of a dealer concession (see "Total Reinvestment Plan").
Comparison of Public Offering Price, 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
5-1/2% sales charge), the amount realized by a Certificateholder upon any
redemption of Units may be less than the price paid for such Units.
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 previously described under "Public Offering
Price") 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 a Trust's portfolio in accordance with accepted bond practices,
which practices take into account not only the interest payable on the Bond but
also the amortization of premiums or accretion of discounts, if any; (2)
calculating the average of the yields for the Bonds in each Trust's portfolio by
weighing each Bond's yield by the market value of the Bond and by the amount of
time remaining to the date to which the Bond is priced (thus creating an average
yield for the portfolio of each Trust); and (3) reducing the average yield for
the portfolio of each Trust in order to reflect estimated fees and expenses of
that Trust and the maximum sales charge paid by 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,
-41-
82600.4
<PAGE>
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.
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.
-42-
82600.4
<PAGE>
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 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 (a) as to the Interest Account of such State Trust: interest received
(including any earned original issue discount and amounts
-43-
82600.4
<PAGE>
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; (b) 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; (c) 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; (d) the Redemption Price per Unit of such State Trust
based upon the last computation thereof made during such calendar year; and (e)
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
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 corporate
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 proceedings relating to the issuance of the Bonds or the bases for
such opinions and express no opinion as to these matters, and neither the
Trustee nor the Sponsor nor their respective counsel have made an independent
examination or verification that the federal income tax status of the Bonds has
not been altered since the time of the original delivery of those opinions.
The Revenue Reconciliation Act of 1993 ("P.L. 103-66") increases maximum
marginal income tax rates for individuals and corporations (generally effective
for taxable years beginning after December 31, 1992), extends the authority to
issue certain categories of tax-exempt bonds (qualified small issue bonds and
qualified mortgage bonds), limits the availability of capital gain treatment for
tax-exempt bonds purchased at a market discount, increases the amount of Social
Security benefits subject to tax (effective for taxable years beginning after
December 31, 1993) and makes a variety of other changes. Prospective investors
are urged to consult their own tax advisors as to the effect of P.L. 103-66 on
an investment in Units.
In rendering the opinion set forth below, counsel has examined the
Agreement, the final form of Prospectus dated the date hereof (the "Prospectus")
and the documents referred to therein, among others, and has
-44-
82600.4
<PAGE>
relied on the validity of said documents and the accuracy and completeness of
the facts set forth therein.
In the opinion of Battle Fowler LLP, counsel for the Sponsor, under
existing law:
The State Trusts are not associations taxable as corporations for federal
income tax purposes under the Internal Revenue Code of 1986 (the "Code"), and
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 that State Trust under Section 676(a) of the Code. Thus,
each Certificateholder of a State Trust will be considered to have received
his 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 (other than any earned original issue discount) realized on sale or
redemption of the Bonds or on sale of a Unit is, however, includible in gross
income for federal income tax purposes, generally as capital gain, although
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. (It should be noted in this connection
that such gain does not include any amounts received in respect of accrued
interest.) Such gain may be long or short-term gain depending on the facts
and circumstances. Capital losses are deductible to the extent of capital
gains; in addition, up to $3,000 of capital losses of non-corporate
Certificateholders may be deducted against ordinary income. Capital assets
acquired on or after January 1, 1988 must be held for more than one year to
qualify for long-term capital gain treatment. Individuals who realize
long-term capital gains will be subject to a maximum tax rate of 28% on such
gain.
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 his pro rata share of such Bond. The gain or loss is measured by
the difference between (i) the tax cost of such pro rata share and (ii) the
amount received therefor. 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 plus
any original issue discount (limited, in the case of Bonds issued after June
8, 1980, to the portion earned from the date of acquisition to the date of
disposition). Gain on the disposition of a Bond purchased at a market
discount 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.
-45-
82600.4
<PAGE>
Discount generally accrues based on the principle of compounding of
accrued interest, not on a straight-line or ratable method, with the result
that the amount of earned original issue discount is less in the earlier
years and more in the later years of a bond term. The tax basis of a discount
bond is increased by the amount of accrued, tax-exempt original issue
discount thus determined. This method of calculation will produce higher
capital gains (or lower losses) to a Certificateholder, as compared to the
results produced by the straight-line method of accounting for original issue
discount, upon an early disposition of a Bond by a State Trust or of a Unit
by a Certificateholder.
A Certificateholder may also realize taxable income 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 includible in gross income for
taxpayers whose "modified adjusted gross income" combined with a portion of
their benefits exceeds a base amount. The base amount is $25,000 for an
individual, $32,000 for a married couple filing a joint return and zero for
married persons filing separate returns. Interest on tax-exempt bonds is to
be added to adjusted gross income for purposes of computing the amount of
Social Security benefits that are includible in gross income and determining
whether an individual's income exceeds the base amount above which a portion
of the benefits would be subject to tax. For taxable years beginning after
December 31, 1993, the amount of Social Security benefits subject to tax has
been increased.
Corporate Certificateholders are required to include in federal corporate
alternative minimum taxable income 75 percent of the amount by which the
adjusted current earnings (which will include tax-exempt interest) of the
corporation exceeds alternative minimum taxable income (determined without
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 minimum tax on excess "passive investment income" which
includes tax-exempt interest.
Under federal law, interest on Bonds in each State Trust issued by
authority of the Government of Puerto Rico is exempt from regular federal
income tax and state and local income taxes in the United States and Puerto
Rico.
The State Trusts are not subject to the New York State Franchise Tax on
Business Corporations or the New York City General Corporation Tax.
Messrs. Battle Fowler LLP are 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 his basis and holding period
for his 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
-46-
82600.4
<PAGE>
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.
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. See "Rights of
Certificateholders" in this Part B.
In the opinion of Brown & Wood, 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.
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 Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel,
P.A., special counsel to the Sponsors for Florida tax matters, under existing
Florida law:
1. The Florida Trust will not be subject to income, franchise or other
taxes of a similar nature imposed by the State of Florida or its
subdivisions, agencies or instrumentalities.
2. Because Florida does not impose a personal income tax, non-corporate
Certificateholders of Units of the Florida Trust will not be subject to any
Florida income taxes with respect to (i) amounts received by the Florida
Trust on the Bonds it holds; (ii) amounts which are distributed by the
Florida Trust to non-corporate Certificateholders of the Florida Trust; or
(iii) any gain realized on the sale or redemption of Bonds by the Florida
Trust or of a Unit of the Florida Trust by a noncorporate Certificateholder.
However, corporations as defined in Chapter 220, Florida Statutes (1995),
which are otherwise subject to Florida income taxation will be subject to tax
on their respective share of any income and gain realized by the Florida
Trust and on any gain realized on the sale or redemption of Units of the
Florida Trust by the corporate Certificateholder.
3. The Units will be subject to Florida estate taxes only if held by
Florida residents, or if held by non-residents deemed to have business situs
in Florida. The Florida estate tax is limited to the amount of the credit for
state death taxes provided for in Section 2011 of the Internal Revenue Code
of 1986, as amended.
4. Bonds issued by the State of Florida or its political subdivisions
are exempt from Florida intangible personal property taxation under Chapter
-47-
82600.4
<PAGE>
199, Florida Statutes (1995), as amended. Bonds issued by the Government of
Puerto Rico or by the Government of Guam, or by their authority, are exempt
by Federal statute from taxes such as the Florida intangible personal
property tax. Thus, the Florida Trust will not be subject to Florida
intangible personal property tax on any Bonds in the Florida Trust issued by
the State of Florida or its political subdivisions, by the Government of
Puerto Rico or by its authority or by the Government of Guam or by its
authority. In addition, the Units of the Florida Trust will not be subject to
the Florida intangible personal property tax if the Florida Trust invests
solely in such Florida, Puerto Rico or Guam debt obligations.
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 realize a taxable event
when the Virginia Trust disposes of a Bond (whether by sale, exchange,
redemption or payment at maturity) or when the Certificateholder redeems or
sells his Units, and taxable gain for Federal income tax purposes may result
in taxable gain for Virginia income tax purposes. Certain Bonds, however, may
have been issued under Acts of the Virginia General Assembly which provide
that all income from such Bond, including any profit from the sale thereof,
shall be free from all taxation by the Commonwealth of Virginia. To the
extent that any such profit is exempt from Virginia income tax, any such
profit received by the Virginia Trust will retain its tax exempt status in
the hands of the Certificateholders of the Virginia Trust.
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
-48-
82600.4
<PAGE>
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.
From time to time proposals have been introduced before Congress to
restrict or eliminate the federal income tax exemption for interest on debt
obligations similar to the Bonds in the State Trusts, and it can be expected
that similar proposals may be introduced in the future.
In South Carolina v. Baker, the U.S. Supreme Court held that the federal
government may constitutionally require states to register bonds they issue and
subject the interest on such bonds to federal income tax if not registered, and
that there is no constitutional prohibition against the federal government's
taxing the interest earned on state or other municipal bonds. The Supreme Court
decision affirms the authority of the federal government to regulate and control
bonds such as the Bonds in the Trust and to tax interest on such bonds in the
future. The decision does not, however, affect the current exemption from
taxation of the interest earned on the Bonds in the Trust in accordance with
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, Reich & Tang Distributors L.P., 600 Fifth Avenue,
New York, N.Y. 10020. Units received after 4:00 p.m., New York Time, will be
deemed to have been repurchased on the next business day. In the event a market
is not maintained
-49-
82600.4
<PAGE>
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 a 5-1/2% sales charge (5.820% of the net amount invested)
plus net accrued interest. Any Units that are purchased by the Sponsor in the
secondary market also may be redeemed by the Sponsor if it determines such
redemption to be in its best interest.
The Sponsor may, under certain circumstances, as a service to
Certificateholders, elect to purchase any Units tendered to the Trustee for
redemption (see "Trustee Redemption"). For example, if in order to meet
redemptions of Units the Trustee must dispose of Bonds, and if such disposition
cannot be made by the redemption date (seven calendar days after tender), the
Sponsor may elect to purchase such Units. Such purchase shall be made by payment
to the Certificateholder not later than the close of business on the redemption
date of an amount equal to the Redemption Price on the date of tender.
Trustee Redemption
Units may also be tendered to the Trustee for redemption at its corporate
trust office 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 cancelled.
Certificates representing Units to be redeemed must be delivered to the
Trustee and must be properly endorsed or accompanied by proper instruments of
transfer with signature guaranteed (or by providing satisfactory indemnity, as
in the case of lost, stolen or mutilated Certificates). Thus, redemptions of
Units cannot be effected until Certificates representing such Units have been
delivered by the person seeking redemption. (See "Certificates.")
Certificateholders must sign exactly as their names appear on the faces of their
Certificates. In certain instances the Trustee may require additional documents
such as, but not limited to, trust instruments, certificates of death,
appointments as executor or administrator or certificates of corporate
authority.
Within seven calendar days following a tender for redemption, or, if such
seventh day is not a business day, on the first business day prior thereto, the
Certificateholder will be entitled to receive in cash an amount for each Unit
tendered equal to the Redemption Price per Unit computed as of the Evaluation
Time 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.
-50-
82600.4
<PAGE>
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 (1) on the basis of current bid
prices of the Bonds obtained from dealers or brokers who customarily deal in
bonds comparable to those held by such State Trust, (2) on the basis of bid
prices for bonds comparable to any Bonds for which bid prices are not available,
(3) by determining the value of the Bonds by appraisal, or (4) by any
combination of the above.
The Trustee is irrevocably authorized in its discretion, if the Sponsor
does not elect to purchase a Unit tendered for redemption or if the Sponsor
tenders a Unit for redemption, in lieu of redeeming such Unit, to sell such Unit
in the over-the-counter market for the account of the tendering
Certificateholder at prices which will return to the 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.
TOTAL REINVESTMENT PLAN
Under the Total Reinvestment Plan (the "Plan"), semi-annual and annual
Certificateholders may elect to have all interest and principal distributions,
if any, with respect to their Units reinvested either in units of various
-51-
82600.4
<PAGE>
series of "Municipal Securities Trust"* which will have been created shortly
before each semi-annual or annual Payment Date (a "Primary Series") or, if units
of a Primary Series are not available, in units of a previously formed series of
the Trust which have been repurchased by the Sponsor in the secondary market,
including the Units being offered hereby (a "Secondary Series") (Primary Series
and Secondary Series are hereafter collectively referred to as "Available
Series"). June 15 and December 15 of each year in the case of semi-annual
Certificateholders and December 15 of each year in the case of annual
Certificateholders are "Plan Reinvestment Dates."
Under the Plan (subject to compliance with applicable blue sky laws),
fractional units ("Plan Units") will be purchased from the Sponsor at a price
equal to the aggregate offering price per Unit of the bonds in the Available
Series portfolio during the initial offering of the Available Series or at the
aggregate bid price per Unit of the Available Series if its initial offering has
been completed, plus a sales charge equal to 3.627% of the net amount invested
in such bonds or 3-1/2% of the Reinvestment Price per Plan Unit, plus accrued
interest, divided by one hundred (the "Reinvestment Price per Plan Unit"). All
Plan Units will be sold at this reduced sales charge of 3-1/2% in comparison to
the regular sales charge levied on primary and secondary market sales of Units
in any series of "Municipal Securities Trust." Participants in the Plan will
have the opportunity to designate, in the Authorization Form for the Plan, the
name of a broker to whom the Sponsor will allocate a sales commission of 1-1/2%
of the Reinvestment Price per Plan Unit, payable out of the 3-1/2% sales charge.
If no such designation is made, the Sponsor will retain the sales commission.
Under the Plan, the entire amount of a participant's income and principal
distributions will be reinvested. For example, a Certificateholder who is
entitled to receive $130.50 interest income from the Trust would acquire 13.05
Plan Units assuming that the Reinvestment Price per Plan Unit, plus accrued
interest, approximated $10 (Ten Dollars).
A semi-annual or annual Certificateholder may join the Plan at the time he
invests in Units of the State Trust or any time thereafter by delivering to the
Trustee an Authorization Form which is available from brokers or the Sponsor. In
order that distributions may be reinvested on a particular Plan Reinvestment
Date, the Authorization Form must be received by the Trustee not later than the
15th day of the month preceding such date. Authorization Forms not received in
time for a particular Plan Reinvestment Date will be valid only for the second
succeeding Plan Reinvestment Date. Similarly, a participant may withdraw from
the program at any time by notifying the Trustee (see below). However, if
written confirmation of withdrawal is not given to the Trustee prior to a
particular distribution, the participant will be deemed to have elected to
participate in the Plan with respect to that particular distribution and his
withdrawal would become effective for the next succeeding distribution.
Once delivered to the Trustee, an Authorization Form will constitute a
valid election to participate in the Plan with respect to Units purchased in the
Trust (and with respect to Plan Units purchased with the distributions from the
Units purchased in the State Trust) for each subsequent distribution
- --------
* Certificateholders of a particular State Trust of the Multi-State Trust who
participate in the Plan will have reinvestments made in Units from the same
State Trust of a similar Multi-State Trust if such Units are available. If no
such Units are available for reinvestment, distributions to Certificate-
holders will be reinvested in Units of regular series of Municipal Securities
Trust, the income earned on which may not be exempt from state and local
income taxes.
-52-
82600.4
<PAGE>
as long as the Certificateholder continues to participate in the Plan. However,
if an Available Series should materially differ from the Trust in the opinion of
the Sponsor, the authorization will be voided and participants will be provided
with both a notice of the material change and a new Authorization Form which
would have to be returned to the Trustee before the Certificateholder would
again be able to participate in the Plan. The Sponsor anticipates that a
material difference which would result in a voided authorization would include
such facts as the inclusion of bonds in the Available Series portfolio, the
interest income on which was not exempt from all Federal income tax, or the
inclusion of bonds which were not rated "A" or better by either Standard &
Poor's Corporation or Moody's Investors Service, Inc. on the date such bonds
were initially deposited in the Available Series portfolio.
The Sponsor has the option at any time to use units of a Secondary Series
to fulfill the requirements of the Plan in the event units of a Primary Series
are not available either because a Primary Series is not then in existence or
because the registration statement relating thereto is not declared effective in
sufficient time to distribute final prospectuses to Plan participants (see
below). It should be noted that there is no assurance that the quality and
diversification of the Bonds in any Available Series or the estimated current
return thereon will be similar to that of this Trust.
It is the Sponsor's intention that Plan Units will be offered on or about
each semi-annual and annual Record Date for determining who is eligible to
receive distributions on the related Payment Date. Such Record Dates are June 1
and December 1 of each year for semi-annual Certificateholders, and December 1
of each year for annual Certificateholders. On each Record Date the Sponsor will
send a current Prospectus relating to the Available Series being offered for the
next Plan Reinvestment Date along with a letter which reminds each participant
that Plan Units are being purchased for him as part of the Plan unless he
notifies the Trustee in writing by that Plan Reinvestment Date that he no longer
wishes to participate in the Plan. In the event a Primary Series has not been
declared effective in sufficient time to distribute a final Prospectus relating
thereto and there is no Secondary Series as to which a registration statement is
currently effective, it is the Sponsor's intention to suspend the Plan and
distribute to each participant his regular semi-annual or annual distribution.
If the Plan is so suspended, it will resume in effect with the next Plan
Reinvestment Date, assuming units of an Available Series are then being offered.
To aid a participant who might desire to withdraw either from the Plan or
from a particular distribution, the Trustee has established a toll free number
(see below) for participants to use for notification of withdrawal, which must
be confirmed in writing prior to the Plan Reinvestment Date. Should the Trustee
be so notified, it will make the appropriate cash disbursement. Unless the
withdrawing participant specifically indicates in his written confirmation that
(a) he wishes to withdraw from the Plan for that particular distribution only,
or (b) he wishes to withdraw from the Plan for less than all units of each
series of "Municipal Securities Trust" which he might then own (and specifically
identifies which series are to continue in the Plan), he will be deemed to have
withdrawn completely from the Plan in all respects. Once a participant withdraws
completely, he will only be allowed to again participate in the Plan by
submitting a new Authorization Form. A sale or redemption of a portion of a
participant's Plan Units will not constitute a withdrawal from the Plan with
respect to the remaining Plan Units owned by such participant.
Unless a Certificateholder notifies the Trustee in writing to the
contrary, each semi-annual and annual Certificateholder who has acquired Plan
Units will be deemed to have elected the semi-annual and annual plan of
distribution, respectively, and to participate in the Plan with respect to
-53-
82600.4
<PAGE>
distributions made in connection with such Plan Units. (Should the Available
Series from which Plan Units are purchased for the account of an annual
Certificateholder fail to have an annual distribution plan, such
Certificateholder will be deemed to have elected the semi-annual plan of
distribution, and to participate in the Plan with respect to distributions made,
in connection with such Plan Units.) A participant who subsequently desires to
have distributions made with respect to Plan Units delivered to him in cash may
withdraw from the Plan with respect to such Plan Units and remain in the Plan
with respect to units acquired other than through the Plan. Assuming a
participant has his distributions made with respect to Plan Units reinvested,
all such distributions will be accumulated with distributions generated from the
Units of the Trust used to purchase such additional Plan Units. However,
distributions related to units in other series of "Municipal Securities Trust"
will not be accumulated with the foregoing distributions for Plan purchases.
Thus, if a person owns units in more than one series of "Municipal Securities
Trust" (which are not the result of purchases under the Plan), distributions
with respect thereto will not be aggregated for purchases under the Plan.
Although not obligated to do so, the Sponsor intends to maintain a market
for the Plan Units and continuously to offer to purchase Plan Units at prices
based upon the aggregate offering price of the Bonds in the Available Series
portfolio during the initial offering of the Available Series, or at the
aggregate bid price of the Bonds of the Available Series of its initial offering
has been completed. The Sponsor may discontinue such purchases at any time. The
aggregate bid price of the underlying bonds may be expected to be less than the
aggregate offering price. In the event that a market is not maintained for Plan
Units, a participant desiring to dispose of his Plan Units may be able to do so
only by tendering such Plan Units to the Trustee for redemption at the
Redemption Price of the full units in the Available Series corresponding to such
Plan Units, which is based upon the aggregate bid price of the underlying bonds
as described in the "Municipal Securities Trust" Prospectus for the Available
Series in question. If a participant wishes to dispose of his Plan Units, he
should inquire of the Sponsor as to current market prices prior to making a
tender for redemption to the Trustee.
Any participant may tender his Plan Units for redemption to the Available
Series Trust. Participants may redeem Plan Units by making a written request to
the Trustee at the address set forth in Part A, on the Redemption Form supplied
by the Trustee. The redemption price per Plan Unit will be determined as set
forth in the "Municipal Securities Trust" Prospectus of the Available Series
from which such Plan Unit was purchased following receipt of the request and
adjusted to reflect the fact that it relates to a Plan Unit. There is no charge
for the redemption of Plan Units.
The Trust Agreement requires that the Trustee notify the Sponsor of any
tender of Plan Units for redemption. So long as the Sponsor is maintaining a bid
in the secondary market, the Sponsor will purchase any Plan Units tendered to
the Trustee for redemption by making payment therefor to the Certificateholder
in an amount not less than the redemption price for such Plan Units on the date
of tender not later than the day on which such Plan Units otherwise would have
been redeemed by the Trustee.
Participants in the Plan will not receive individual certificates for
their Plan Units unless the amount of Plan Units accumulated represents the
principal amount of bonds per Unit for the Available Series and, in such case, a
written request for certificates is made to the Trustee. All Plan Units will be
accounted for by the Trustee on a book entry system. Each time Plan Units are
purchased under the Plan, a participant will receive a confirmation stating his
cost, number of Units purchased and estimated current return. Questions
regarding a participant's statements should be directed to the
-54-
82600.4
<PAGE>
Trustee by calling the Trustee at the number set forth under "Summary of
Essential Information" in Part A of this Prospectus.
All expenses relating to the operation of the Plan are borne by the
Sponsor. Both the Sponsor and the Trustee reserve the right to suspend, modify
or terminate the Plan at any time for any reason, including the right to suspend
the Plan if the Sponsor is unable or unwilling to establish a Primary Series or
is unable to provide Secondary Series Units. All participants will receive
notice of any such suspension, modification or termination.
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.
Trust Agreement, Amendment and Termination
The Trust Agreement may be amended by the Trustee, the Sponsor and the
Evaluator without the consent of any of the Certificateholders: (1) to cure any
ambiguity or to correct or supplement any provision which may be defective or
inconsistent; (2) to change any provision thereof as may be required by the
Securities and Exchange Commission or any successor governmental agency; or (3)
to make such other provisions in regard to matters arising thereunder as shall
not adversely affect the interests of the Certificateholders.
The Trust Agreement may also be 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
-55-
82600.4
<PAGE>
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 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 Sponsors
The Sponsor, Reich & Tang Distributors L.P. (successor to the Unit
Investment Trust Division of Bear, Stearns & Co., Inc.), a Delaware limited
partnership, is engaged in the brokerage business and is a member of the
National Association of Securities Dealers, Inc. Reich & Tang is also a
registered investment adviser. Reich & Tang maintains its principal business
offices at 600 Fifth Avenue, New York, New York 10020. Reich & Tang Asset
Management L.P. ("RTAM LP"), a registered investment adviser, having its
principal place of business at 399 Boylston Street, Boston, MA 02116, is the 99%
limited partner of the Sponsor. RTAM LP is 99.5% owned by New England Investment
Companies, LP ("NEIC LP") and Reich & Tang Asset Management, Inc., a wholly
owned subsidiary of NEIC LP, owns the remaining .5% interest of RTAM LP and is
its general partner. NEIC LP's general partner is New England Investment
Companies, Inc. ("NEIC"), a holding company offering a broad array of investment
styles across a wide range of asset categories through ten investment
advisory/management affiliates and two distribution affiliates. These affiliates
in the aggregate are investment advisers or managers to over 57 registered
investment companies. Reich & Tang is the successor sponsor for numerous series
of unit investment trusts, including: New York Municipal Trust, Series 1 (and
Subsequent Series); Municipal Securities Trust, Series 1 (and Subsequent
Series), 1st Discount Series (and Subsequent Series), Multi- State Series 1 (and
Subsequent Series); Insured Municipal Securities Trust, Series 1 (and Subsequent
Series), 5th Discount Series (and Subsequent Series), and Equity Securities
Trust, Series 1, Signature Series, Gabelli Communications Income Trust (and
Subsequent Series). The information included herein is only for the purpose of
informing investors as to the financial responsibility of the Sponsor and its
ability to carry out its contractual obligations.
For certain other Trusts as set forth in the "Summary of Essential
Information" in Part A, the Sponsors are Reich & Tang and Gruntal & Co.,
Incorporated, both of whom have entered into an Agreement Among Co-Sponsors
pursuant to which both parties have agreed to act as Co-Sponsors for the Trust.
Reich & Tang has been appointed by Gruntal & Co., Incorporated as agent for
purposes of taking any action required or permitted to be taken by
-56-
82600.4
<PAGE>
the Sponsor under the Trust Agreement. If the Sponsors are unable to agree with
respect to action to be taken jointly by them under the Trust Agreement and they
cannot agree as to which Sponsor shall act as sole Sponsor, then Reich & Tang
shall act as sole Sponsor. If one of the Sponsors fails to perform its duties
under the Trust Agreement or becomes incapable of acting or becomes bankrupt or
its affairs are taken over by public authorities, that Sponsor may be discharged
under the Trust Agreement and a new Sponsor may be appointed or the remaining
Sponsor may continue to act as Sponsor.
Gruntal & Co., Incorporated, a Delaware corporation, operates a regional
securities broker/dealer from its main office in New York City and branch
offices in nine states and the District of Columbia. The firm is very active in
the marketing of investment companies and has signed dealer agreements with
every mutual fund group, as well as being the managing distributor for The Home
Group Money Market and Mutual Funds. Further, through its Syndicate Department,
Gruntal & Co. Incorporated has underwritten a large number of Closed-End Funds
and has been Co-Manager on the following offerings: Cigna High Income Shares;
Dreyfus New York Municipal Income, Inc.; Franklin Principal Maturity Trust and
Van Kampen Merritt Limited Term High Income Trust. The Sponsor is liable for the
performance of its obligations arising from its responsibilities under the Trust
Agreement, but will be under no liability to Certificateholders for taking any
action, or refraining from taking any action, in good faith pursuant to the
Trust Agreement, or for errors in judgment except in cases of its own willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations and duties.
The Sponsor may resign at any time by delivering to the Trustee an
instrument of resignation executed by the Sponsor.
If at any time the Sponsor shall resign or fail to perform any of its
duties under the Trust Agreement or becomes incapable of acting or becomes
bankrupt or its affairs are taken over by public authorities, then the Trustee
may either (a) appoint a successor Sponsor; (b) terminate the Trust Agreement
and liquidate the Trust; or (c) continue to act as Trustee without terminating
the Trust Agreement. Any successor Sponsor appointed by the Trustee shall be
satisfactory to the Trustee and, at the time of appointment, shall have a net
worth of at least $1,000,000.
The Trustee
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 (National
Association), a national banking association with its principal executive office
located at 1 Chase Manhattan Plaza, New York, New York 10081 and its unit
investment trust office at 770 Broadway, New York, New York 10003 (800)
882-9898. The Trustee is subject to the supervision by the Comptroller of the
Currency, 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 (1-800-431-8002). 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.
-57-
82600.4
<PAGE>
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.
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
Co., 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.
-58-
82600.4
<PAGE>
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."
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. Both
fees may be increased without approval of the Certificateholders by amounts not
exceeding proportionate increases in consumer prices for services as measured by
the United States Department of Labor's Consumer Price Index entitled "All
Services Less Rent."
The following additional charges are or may be incurred by any or all of
the State Trusts: 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;
fees of the Trustee for any extraordinary services performed under the Trust
Agreement; indemnification of the Trustee for any loss or liability accruing to
it without gross negligence, bad faith or willful misconduct on its part,
arising out of or in connection with its acceptance or administration of a State
Trust; 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 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.
-59-
82600.4
<PAGE>
EXCHANGE PRIVILEGE AND CONVERSION OFFER
Exchange Privilege
Certificateholders may elect to exchange any or all of their Units of
these Trusts for Units of one or more of any available series of Insured
Municipal Securities Trust, Municipal Securities Trust, New York Municipal
Trust, Mortgage Securities Trust or Equity Securities Trust (the "Exchange
Trusts") at a reduced sales charge as set forth below. Under the Exchange
Privilege, the Sponsor's repurchase price 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 Bonds in the particular Trust
portfolio. Units in an Exchange Trust will be sold to Certificateholders at a
price based on the aggregate offer price of the Bonds in the Exchange Trust
portfolio during the initial public offering period of the Exchange Trust; and
after the initial public offering period has been completed, based on the
aggregate bid price of the Bonds in the Exchange Trust portfolio if its initial
offering has been completed, plus accrued interest (or for units of the Equity
Securities Trust, based on the market value of the underlying securities in the
Equity Trust portfolio), and a reduced sales charge as set forth below.
Except for Certificateholders who wish to exercise the Exchange Privilege
within the first five months of their purchase of Units of Trust, the sales
charge applicable to the purchase of units of an Exchange Trust shall be
approximately 1.5% of the price of each Exchange Trust unit (or 1,000 Units for
the Mortgage Securities Trust or 100 Units for the Equity Securities Trust). For
Certificateholders who wish to exercise the Exchange Privilege within the first
five months of their purchase of Units of Trust, the sales charge applicable to
the purchase of units of an Exchange Trust shall be the greater of (i) 1.5% of
the price of each Exchange Trust unit (or 1,000 Units for the Mortgage
Securities Trust or 100 Units for the Equity Securities Trust), or (ii) an
amount which when coupled with the sales charge paid by the unitholder upon his
original purchase of Units of the Trust at least equals the sales charge
applicable in the direct purchase of units of an Exchange Trust. The Exchange
Privilege is subject to the following conditions:
(1) The Sponsor must be maintaining a secondary market in both the Units
of the Trust held by the Certificateholder and the Units of the available
Exchange Trust. While the Sponsor has indicated its intention to maintain a
market in the Units of all Trusts sponsored by it, the Sponsor is under no
obligation to continue to maintain a secondary market and therefore there is
no assurance that the Exchange Privilege will be available to a
Certificateholder at any specific time in the future. At the time of the
Certificateholder's election to participate in the Exchange Privilege, there
also must be Units of the Exchange Trust available for sale, either under the
initial primary distribution or in the Sponsor's secondary market.
(2) Exchanges will be effected in whole units only. Any excess proceeds
from the Units surrendered for exchange will be remitted and the selling
Certificateholder will not be permitted to advance any new funds in order to
complete an exchange. Units of the Mortgage Securities Trust may only be
acquired in blocks of 1,000 Units. Units of the Equity Securities Trust may
only be acquired in blocks of 100 units.
(3) The Sponsor reserves the right to suspend, modify or terminate the
Exchange Privilege. The Sponsor will provide Certificateholders of the Trust
with 60 days' prior written notice of any termination or material amendment
to the Exchange Privilege, provided that, no notice need be given
-60-
82600.4
<PAGE>
if (i) the only material effect of an amendment is to reduce or eliminate the
sales charge payable at the time of the exchange, to add one or more series
of the Trust eligible for the Exchange Privilege or to delete a series which
has been terminated from eligibility for the Exchange Privilege, (ii) there
is a suspension of the redemption of units of an Exchange Trust under Section
22(e) of the Investment Company Act of 1940, or (iii) an Exchange Trust
temporarily delays or ceases the sale of its units because it is unable to
invest amounts effectively in accordance with its investment objectives,
policies and restrictions. During the 60 day notice period prior to the
termination or material amendment of the Exchange Privilege described above,
the Sponsor will continue to maintain a secondary market in the units of all
Exchange Trusts that could be acquired by the affected Certificateholders.
Certificateholders may, during this 60 day period, exercise the Exchange
Privilege in accordance with its terms then in effect. In the event the
Exchange Privilege is not available to a Certificateholder at the time he
wishes to exercise it, the Certificateholder will immediately be notified and
no action will be taken with respect to his Units without further
instructions from the Certificateholder.
To exercise the Exchange Privilege, a Certificateholder should notify the
Sponsor of his desire to exercise his Exchange Privilege. If Units of a
designated, outstanding series of an Exchange Trust are at the time available
for sale and such Units may lawfully be sold in the state in which the
Certificateholder is a resident, the Certificateholder will be provided with a
current prospectus or prospectuses relating to each Exchange Trust in which he
indicates an interest. He may then select the Trust or Trusts into which he
desires to invest the proceeds from his sale of Units. The exchange transaction
will operate in a manner essentially identical to a secondary market transaction
except that units may be purchased at a reduced sales charge.
Example: Assume that after the initial public offering has been completed,
a Certificateholder has five units of a Trust with a current value of $700 per
unit which he has held for more than 5 months and the Certificateholder wishes
to exchange the proceeds for units of a secondary market Exchange Trust with a
current price of $725 per unit. The proceeds from the Certificateholder's
original units will aggregate $3,500. Since only whole units of an Exchange
Trust may be purchased under the Exchange Privilege, the Certificateholder would
be able to acquire four units (or 4,000 Units of the Mortgage Securities Trust
or 400 Units of the Equity Securities Trust) for a total cost of $2,943.50
($2,900 for unit and $43.50 for the sales charge). The remaining $556.50 would
be remitted to the Certificateholder in cash. If the Certificateholder acquired
the same number of units at the same time in a regular secondary market
transaction, the price would have been $3,059.80 ($2,900 for units and $159.50
for the sales charge, assuming a 5 1/2% sales charge times the public offering
price).
The Conversion Offer
Certificateholders of any registered unit investment trust for which there
is no active secondary market in the units of such trust (a "Redemption Trust")
may elect to redeem such units and apply the proceeds of the redemption to the
purchase of available Units of one or more series of Municipal Securities Trust,
Insured Municipal Securities Trust, Mortgage Securities Trust, New York
Municipal Trust or Equity Securities Trust (the "Conversion Trusts") at the
Public Offering Price for units of the Conversion Trust based on a reduced sales
charge as set forth below. Under the Conversion Offer, units of the Redemption
Trust must be tendered to the trustee of such trust for redemption at the
redemption price, which is based upon the market value of the underlying
securities in the Trust portfolio or the aggregate bid side evaluation of the
underlying bonds in such trust and is
-61-
82600.4
<PAGE>
generally about 1 1/2% to 2% lower than the offering price for such bonds. The
purchase price of the units will be based on the aggregate offer price of bonds
in the Conversion Trust portfolio during its initial offering period; or, at a
price based on the aggregate bid price of the underlying bonds if the initial
public offering of the Conversion Trust has been completed, plus accrued
interest, and a sales charge as set forth below. If the participant elects to
purchase units of the Equity Securities Trust under the Conversion Offer, the
purchase price of the units will be based, at all times, on the market value of
the underlying securities in the Trust portfolio plus a sales charge.
Except for Certificateholders who wish to exercise the Conversion Offer
within the first five months of their purchase of units of a Redemption Trust,
the sales charge applicable to the purchase of Units of the Conversion Trust
shall be 1.5% per Unit (or per 1,000 Units for the Mortgage Securities Trust or
per 100 Units for the Equity Securities Trust). For Certificateholders who wish
to exercise the Conversion Offer within the first five months of their purchase
of units of a Redemption Trust, the sales charge applicable to the purchase of
Units of a Conversion Trust shall be the greater of (i) 1.5% per Unit (or per
1,000 Units for the Mortgage Securities Trust or per 100 Units for the Equity
Securities Trust) or (ii) an amount which when coupled with the sales charge
paid by the unitholder upon his original purchase of units of the Redemption
Trust at least equals the sales charge applicable in the direct purchase of
Units of a Conversion Trust. The Conversion Offer is subject to the following
limitations:
(1) The Conversion Offer is limited only to Certificateholders of any
Redemption Trust, defined as a unit investment trust for which there is no
active secondary market at the time the Certificateholder elects to
participate in the Conversion Offer. At the time of the unit owner's election
to participate in the Conversion Offer, there also must be available units of
a Conversion Trust, either under a primary distribution or in the Sponsor's
secondary market.
(2) Exchanges under the Conversion Offer will be effected in whole units
only. Certificateholders will not be permitted to advance any new funds in
order to complete an exchange under the Conversion Offer. Any excess proceeds
from units being redeemed will be returned to the unit owner. Units of the
Mortgage Securities Trust may only be acquired in blocks of 1,000 units.
Units of the Equity Securities Trust may only be acquired in blocks of 100
units.
(3) The Sponsor reserves the right to modify, suspend or terminate the
Conversion Offer at any time without notice to Certificateholders of
Redemption Trusts. In the event the Conversion Offer is not available to a
unit owner at the time he wishes to exercise it, the unit owner will be
notified immediately and no action will be taken with respect to his units
without further instruction from the unit owner. The Sponsor also reserves
the right to raise the sales charge based on actual increases in the
Sponsor's costs and expenses in connection with administering the program, up
to a maximum sales charge of $20 per unit (or per 1,000 units for the
Mortgage Securities Trust or per 100 units for the Equity Securities Trust).
To exercise the Conversion Offer, a unit owner of a Redemption Trust
should notify his retail broker of his desire to redeem his Redemption Trust
Units and use the proceeds from the redemption to purchase Units of one or more
of the Conversion Trusts. If Units of a designated, outstanding series of a
Conversion Trust are at that time available for sale and if such Units may
lawfully be sold in the state in which the unit owner is a resident, the unit
owner will be provided with a current prospectus or prospectuses relating to
each Conversion Trust in which he indicates an interest. He then may
-62-
82600.4
<PAGE>
select the Trust or Trusts into which he decides to invest the proceeds from the
sale of his Units. The transaction will be handled entirely through the unit
owner's retail broker. The retail broker must tender the units to the trustee of
the Redemption Trust for redemption and then apply the proceeds to the
redemption toward the purchase of units of a Conversion Trust at a price based
on the aggregate offer or bid side evaluation per Unit of the Conversion Trust,
depending on which price is applicable, plus accrued interest and the applicable
sales charge. The certificates must be surrendered to the broker at the time the
redemption order is placed and the broker must specify to the Sponsor that the
purchase of Conversion Trust Units is being made pursuant to the Conversion
Offer. The unit owner's broker will be entitled to retain $5 of the applicable
sales charge.
Example: Assume a unit owner has five units of a Redemption Trust which
has held for more than 5 months with a current redemption price of $675 per unit
based on the aggregate bid price of the underlying bonds and the unit owner
wishes to participate in the Conversion Offer and exchange the proceeds for
units of a secondary market Conversion Trust with a current price of $750 per
Unit. The proceeds from the unit owner's redemption of units will aggregate
$3,375. Since only whole units of a Redemption Trust may be purchased under the
Conversion Offer, the unit owner will be able to acquire four units of the
Conversion Trust (or 4,000 units of the Mortgage Securities Trust or 400 units
of the Equity Securities Trust) for a total cost of $3,045 ($3,000 for units and
$45 for the sales charge). The remaining $330 would be remitted to the unit
owner in cash. If the unit owner acquired the same number of Conversion Trust
units at the same time in a regular secondary market transaction, the price
would have been $3,165.00 ($3,000 for units and $165.00 sales charge, assuming a
5 1/2% sales charge times the public offering price).
Description of the Exchange Trusts and the Conversion Trusts
Municipal Securities Trust and New York Municipal Trust may be appropriate
investment vehicles for an investor who is more interested in tax-exempt income.
The interest income from New York Municipal Trust is, in general, also exempt
from New York State and local New York income taxes, while the interest income
from Municipal Securities Trust is subject to applicable New York State and
local New York taxes, except for that portion of the income which is
attributable to New York and Puerto Rico obligations in the Trust portfolio, if
any. The interest income from each State Trust of the Municipal Securities
Trust, Multi-State Series is, in general, exempt from state and local taxes when
held by residents of the state where the issuers of bonds in such State Trusts
are located. The Insured Municipal Securities Trust combines the advantages of
providing interest income free from regular federal income tax under existing
law with the added safety of irrevocable insurance. Insured Navigator Series
further combines the advantages of providing interest income free from regular
federal income tax and state and local taxes when held by residents of the state
where issuers of bonds in such state trusts are located with the added safety of
irrevocable insurance. Mortgage Securities Trust offers an investment vehicle
for investors who are interested in obtaining safety of capital and a high level
of current distributions of interest income through investment in a fixed
portfolio of collateralized mortgage obligations. Equity Securities Trust offers
investors an opportunity to achieve capital appreciation together with a high
level of income.
Tax Consequences of the Exchange Privilege and the Conversion Offer
A surrender of units pursuant to the Exchange Privilege or the Conversion
Offer will constitute a "taxable event" to the Certificateholder under the Code.
The Certificateholder will recognize a tax gain or loss that will be of a long
or short-term capital or ordinary income nature depending on
-63-
82600.4
<PAGE>
the length of time the units have been held and other factors. 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 Battle Fowler LLP, 75
East 55th Street, 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, as special California counsel to the Sponsor. Certain matters relating to
Florida tax law have been passed upon by Greenberg, Traurig Hoffman Lipoff Rosen
& Quentel, P.A., as special Florida 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, N.A. Messrs. Booth & Baron, 122 East 42nd Street, New York, New York
10168, have acted as counsel for The Bank of New York.
Independent Auditors
The financial statements of the Trusts included in Part A of this
Prospectus as of the dates set forth in Part A have been examined by KPMG Peat
Marwick, independent certified public accountants for the periods indicated in
its reports appearing herein. The financial statements of KPMG Peat Marwick have
been so included in reliance on its reports given upon the authority of said
firm as expert in accounting and auditing.
DESCRIPTION OF BOND RATINGS*
Standard & Poor's Corporation
A brief description of the applicable Standard & Poor's Corporation rating
symbols and their meanings is as follows:
A Standard & Poor's corporate or municipal bond rating is a current
assessment of the creditworthiness of an obligor with respect to a specific debt
obligation. This assessment of creditworthiness may take into consideration
obligors such as guarantors, insurers, or lessees.
The bond rating is not a recommendation to purchase or sell a security,
inasmuch as it does not comment as to market price.
The ratings are based on current information furnished to Standard &
Poor's by the issuer and obtained by Standard & Poor's from other sources it
considers reliable. The ratings may be changed, suspended or withdrawn as a
result of changes in, or unavailability of, such information.
- --------
* As described by the rating agencies.
-64-
82600.4
<PAGE>
The ratings are based, in varying degrees, on the following
considerations:
a. 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.
b. Nature of and provisions of the obligation.
c. 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.
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.
-65-
82600.4
<PAGE>
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 (1) designate
the bonds which offer the maximum in security within their quality group, (2)
designate bonds which can be bought for possible upgrading in quality and (3)
additionally afford the investor an opportunity to gauge more precisely the
relative attractiveness of offerings in the market place.
Moody's applies numerical modifiers, 1, 2, and 3 in each generic
rating classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
Con-Bonds for which the security depends upon the completion of some
act or the fulfillment of some condition are rated conditionally. These are debt
obligations secured by (a) earnings of projects under construction, (b) earnings
of projects unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Rating denotes probable credit stature upon completion of construction
or elimination of basis of condition.
* * *
-66-
82600.4
<PAGE>
FOR USE WITH MUNICIPAL SECURITIES TRUST
MULTISTATE SERIES 1-11
AUTHORIZATION FOR INVESTMENT IN MUNICIPAL SECURITIES TRUST,
MULTI-STATE SERIES ____
TRP PLAN - TOTAL REINVESTMENT PLAN
I hereby elect to participate in the TRP Plan and am the owner of ____ units of
__________ Trust.
I hereby authorize The Bank of New York, Trustee, to pay all semi-annual or
annual distributions of interest and principal (if any) with respect to such
units to The Bank of New York, Wall Street Trust Division, as TRP Plan Agent,
who shall immediately invest the distributions in units of the available series
of The State Trust above or, if unavailable, of other available series of
regular Municipal Securities Trust.
The foregoing authorization is subject in Date ____________, 19__ all respects
to the terms and conditions of participation set forth in the pros pectus
relating to such available series.
- ------------------------------------ ------------------------------------
Registered Holder (print) Registered Holder (print)
- ------------------------------------ ------------------------------------
Registered Holder Signature Registered Holder Signature
(Two signatures if joint tenancy)
My Brokerage Firm's Name
Street Address
City, State and Zipcode
Salesman's Name ___________________ Salesman's No.
UNIT HOLDERS NEED ONLY DATE AND SIGN THIS FORM.
MAIL TO YOUR BROKER
OR
THE BANK OF NEW YORK
ATTN: UNIT INVESTMENT TRUST DIVISION
101 BARCLAY STREET
NEW YORK, NEW YORK 10286
82600.4
<PAGE>
FOR USE WITH MUNICIPAL SECURITIES TRUST
MULTISTATE SERIES 12-46
AUTHORIZATION FOR INVESTMENT IN MUNICIPAL SECURITIES TRUST,
MULTI-STATE SERIES ____
TRP PLAN - TOTAL REINVESTMENT PLAN
I hereby elect to participate in the TRP Plan and am the owner of ____ units of
__________ Trust.
I hereby authorize The Chase Manhattan Bank, N.A., Trustee, to pay all
semi-annual or annual distributions of interest and principal (if any) with
respect to such units to The Chase Manhattan Bank, N.A., as TRP Plan Agent, who
shall immediately invest the distributions in units of the available series of
The State Trust above or, if unavailable, of other available series of regular
Municipal Securities Trust.
The foregoing authorization is subject Date ____________, 19__
in all respects to the terms and
conditions of participation set forth
in the pros pectus relating to such
available series.
- ------------------------------------ ------------------------------------
Registered Holder (print) Registered Holder (print)
- ------------------------------------ ------------------------------------
Registered Holder Signature Registered Holder Signature
(Two signatures if joint tenancy)
My Brokerage Firm's Name
Street Address
City, State and Zip Code
Salesman's Name ___________________ Salesman's No.
UNIT HOLDERS NEED ONLY DATE AND SIGN THIS FORM.
MAIL TO YOUR BROKER
OR
THE CHASE MANHATTAN BANK, N.A.
ATTN: THE UIT REINVESTMENT UNIT A
770 BROADWAY
NEW YORK, NEW YORK 10003
82600.4
<PAGE>
INDEX
Title Page * * *
MUNICIPAL SECURITIES TRUST
Summary of Essential Information........... A-5 MULTI-STATE SERIES
Information Regarding the Trust............ A-9
Financial and Statistical Information......A-12 (A Unit Investment Trust)
Audit and Financial Information
Prospectus
Report of Independent Accountants........ F-1
Statement of Net Assets.................. F-2 Dated: April 30, 1996
Statement of Operations.................. F-3
Statement of Changes in Net Assets....... F-6 Sponsor:
Notes to Financial Statements............F-10
Portfolio................................F-13 Reich & Tang Distributors L.P.
600 Fifth Avenue
The Trust.................................. 1 New York, N.Y. 10020
The State Trusts........................... 8 212-830-5200
Public Offering............................ 39
Estimated Long Term Return and Estimated (and for certain Trusts:)
Current Return........................... 41 Gruntal & Co. Incorporated
Rights of Certificateholders............... 42 14 Wall Street
Tax Status................................. 44 New York, New York 10005
Liquidity.................................. 49 (212) 267-8800
Total Reinvestment Plan.................... 51
Trust Administration....................... 55 Trustee:
Trust Expenses and Charges................. 59
Exchange Privilege and Conversion Offer.... 60 The Chase Manhattan Bank, N.A.
Other Matters.............................. 64 770 Broadway
Description of Bond Ratings................ 64 New York, N.Y. 10003
800-882-9898
Parts A and B of this Prospectus do not or
contain all of information set forth in the The Bank of New York
registration statement and exhibits relating 101 Barclay Street
thereto, filed with the Securities and Exchange New York, N.Y. 10286
Commission, Washington, D.C., under the Securities 800-431-8002
Act of 1933, and to which reference is made
Evaluator:
Kenny S&P Evaluation Services,
a Division of
J.J. Kenny Co., Inc.
65 Broadway
New York, N.Y. 10006
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.
82600.4
<PAGE>
PART II
ADDITIONAL INFORMATION NOT REQUIRED
IN PROSPECTUS
CONTENTS OF REGISTRATION STATEMENT
This Post-Effective Amendment to the Registration Statements on Form S-6
comprises the following papers and documents:
The facing sheet on Form S-6.
The Cross-Reference Sheet.
The Prospectus consisting of pages.
Signatures.
Consent of Independent Auditors.
Consent of Counsel (included in Exhibits 99.3.1 and 99.3.1.1).
Consents of the Evaluator including Confirmation of Ratings
(included in Exhibit 99.5.1).
The following exhibits:
99.1.1 -- Form of Reference Trust Agreement, as amended (filed as
Exhibit 1.1 to Amendment No. 1 to Form S-6 Registration
Statements Nos. 33-33606 and 33-34900 of Municipal Securities
Trust, Multi-State Series 39 & Series 47 and Series 48 on
March 30, 1990 and June 1, 1990, respectively, and incorporated
herein by reference).
99.1.1.1 -- Trust Indenture and Agreement for Municipal Securities Trust,
Multi-State Series 37 (and Subsequent Series).
99.1.1.2 -- Trust Indenture and Agreement for Municipal Securities Trust,
Series 45 and 73rd Discount Series (and Subsequent Series).
99.1.3.4 -- Certificate of Formation and Agreement among Limited Partners,
as amended, of Reich & Tang Distributors L.P. (filed as Exhibit
99.1.3.4 to Post-Effective Amendment No. 10 to Form S-6
Registration Statements Nos. 2-98914, 33-00376, 33-00856 and
33-01869 of Municipal Securities Trust, Series 28, 39th
Discount Series, Series 29 & 40th Discount Series and Series 30
& 41st Discount Series, respectively, on October 31, 1995 and
incorporated herein by reference).
99.1.3.6 -- Certificate of Incorporation of Gruntal & Co., Incorporated, as
amended (filed as Exhibit 1.3.6 to Post-Effective Amendment No. 7
to Form S-6 Registration Statement No. 33-28384 of Insured
Municipal Securities Trust Series 20 on April 25, 1996 and
incorporated herein by reference).
99.1.3.7 -- By-Laws of Gruntal & Co., Incorporated, as amended (filed as
Exhibit 1.3.7 to Post-Effective Amendment No. 7 to Form S-6
Registration Statement No. 33-28384 of Insured Municipal
Securities Trust, Series 20 on April 25, 1996 and incorporated
herein by reference).
II-1
1137.1
<PAGE>
99.1.4 -- Form of Agreement Among Underwriters (filed as Exhibit 1.4 to
Amendment No. 1 to Registration Statement No. 33-28384 of
Insured Municipal Securities Trust, 47th Discount Series and
Series 20 on June 16, 1989 and incorporated herein by
reference).
99.2.1 -- Form of Certificate (filed as Exhibit 2.1 to Amendment No. 1 to
Registration Statement No. 33-28384 of Insured Municipal
Securities Trust, 47th Discount Series and Series 20 on
June 16, 1989 and incorporated herein by reference).
99.3.1 -- Opinion of Berger 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 3.1
to Amendment No. 1 to Form S-6 Registration Statements
Nos. 33-33606 and 33-34900 of Municipal Securities Trust,
Multi-State Series 39 & Series 47 and Series 48, respectively,
on March 30, 1990 and June 1, 1990, respectively, 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 3.1.1 to Post-
Effective Amendment No. 1 to Form S-6 Registration Statements
Nos. 33-33606 and 33-34900 of Municipal Securities Trust,
Multi-State Series 39 & Series 47 and Series 48, respectively,
on May 1, 1991 and incorporated herein by reference).
*99.5.1 -- Consents of the Evaluator including Confirmation of Ratings.
99.6.0 -- Power of Attorney of Reich & Tang Distributors L.P., the
Depositor, by its officers and a majority of its Directors
(filed as Exhibit 99.6.0 to Amendment No. 1 to Form S-6
Registration Statement No. 33-62627 of Equity Securities Trust,
Series 6, Signature Series, Gabelli Entertainment and Media
Trust on November 16, 1995 and incorporated herein by
reference).
99.6.1 -- Power of Attorney of Gruntal & Co., Incorporated, by its officers
and a majority of its Directors (filed as Exhibit 6.1 to
Post-Effective Amendment No. 7 to Form S-6 Registration Statement
No. 33-28384 of Insured Municipal Securities Trust, Series 20 on
April 25, 1996 and incorporated herein by reference).
99.7.0 -- Form of Agreement Among Co-Sponsors (filed as Exhibit 7.0 to
Post-Effective Amendment No. 7 to Form S-6 Registration Statement
No. 33-28384 of Insured Municipal Securities Trust, Series 20 on
April 25, 1996 and incorporated herein by reference).
*27 -- Financial Data Schedule(s) (for EDGAR filing only).
- --------
* Being filed by this Amendment.
II-2
1137.1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrants, Municipal Securities Trust, Multi-State Series 39 & Series 47 and
Series 48 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 17th day of April, 1996.
MUNICIPAL SECURITIES TRUST,
MULTI-STATE SERIES 39 & SERIES 47
and SERIES 48
(Registrants)
REICH & TANG DISTRIBUTORS L.P.
(Depositor)
By: Reich & Tang Asset Management, Inc.,
as general partner
By: 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 Reich & Tang Asset Management, Inc., the general partner
of Reich & Tang Distributors L.P., the Depositor, in the capacities and on the
dates indicated.
Name Title Date
PETER S. VOSS President, Chief Executive Officer )
and Director )
G. NEAL RYLAND Executive Vice President, Treasurer ) April 17, 1996
and Chief Financial Officer )
EDWARD N. WADSWORTH Clerk )
RICHARD E. SMITH III Director )By: PETER J. DeMARCO
STEVEN W. DUFF Director ) Attorney-in-Fact*
BERNADETTE N. FINN Vice President )
LORRAINE C. HYSLER Secretary )
RICHARD DE SANCTIS Vice President and Treasurer )
- ---------------
* Executed copies of Powers of Attorney were filed as Exhibit 6.0 to
Amendment No. 1 to Registration Statement No. 33-62627 on November 16,
1995.
II-3
1137.1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrants, Municipal Securities Trust, Multi-State Series 39 & Series 47 and
Series 48 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 17th day of April, 1996.
INSURED MUNICIPAL SECURITIES TRUST,
MULTI-STATE SERIES 39 & SERIES 47
and SERIES 48
(Registrants)
GRUNTAL & CO., INCORPORATED
(Depositor)
By: BARRY RICHTER
(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 Gruntal & Co., Incorporated, the Depositor, in the
capacities and on the dates indicated.
Name Title Date
ROBERT P. RITTEREISER Chief Executive Officer, )
President and Director ) April 17, 1996
LIONEL G. HEST Executive Vice President, )
General Counsel, Secretary )
and Director )
BARRY RICHTER Executive Vice President and )By: BARRY RICHTER
Director ) Attorney-in-Fact*
- ---------------
* An executed copy of the power of attorney was filed as Exhibit 6.1 to
Amendment No. 1 to Registration Statement No. 33-36316 on August 10,
1990.
II-4
1137.1
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in these Post-Effective Amendments to the Registration
Statement of our report on the financial statements of Municipal Securities
Trust, Multi-State Series 39 (New York Trust); Municipal Securities Trust,
Series 47 and Municipal Securities Trust, Series 48 included herein and to the
reference to our firm under the heading "Independent Auditors" in the Prospectus
which is part of this Registration Statement.
KPMG Peat Marwick LLP
New York, New York
April 17, 1996
II-5
1137.1
<PAGE>
EXHIBIT INDEX
Exhibit Description Page No.
99.1.1 Form of Reference Trust Agreement, as
amended (filed as Exhibit 1.1 to Amendment
No. 1 to Form S-6 Registration Statements
Nos. 33-33606 and 33-34900 of Municipal
Securities Trust, Multi-State Series 39 &
Series 47 and Series 48 on March 30, 1990
and June 1, 1990, respectively, and
incorporated herein by reference).
99.1.1.1 Trust Indenture and Agreement for Municipal
Securities Trust, Multi-State Series 37
(and Subsequent Series)...........................
99.1.1.2 Trust Indenture and Agreement for Municipal
Securities Trust, Series 45 and 73rd
Discount Series (and Subsequent Series)...........
99.1.3.4 Certificate of Formation and Agreement
among Limited Partners, as amended, of
Reich & Tang Distributors L.P. (filed as
Exhibit 99.1.3.4 to Post-Effective
Amendment No. 10 to Form S-6 Registration
Statements Nos. 2-98914, 33-00376,
33-00856 and 33-01869 of Municipal
Securities Trust, Series 28, 39th Discount
Series, Series 29 & 40th Discount Series
and Series 30 & 41st Discount Series,
respectively, on October 31, 1995 and
incorporated herein by reference).
99.1.3.6 Certificate of Incorporation of Gruntal &
Co., Incorporated, as amended (filed as
Exhibit 1.3.6 to Post-Effective Amendment
No. 7 to Form S-6 Registration Statement
No. 33-28384 of Insured Municipal
Securities Trust Series 20 on April 25,
1996 and incorporated herein by reference).
99.1.3.7 By-Laws of Gruntal & Co., Incorporated, as
amended (filed as Exhibit 1.3.7 to
Post-Effective Amendment No. 7 to Form S-6
Registration Statement No. 33-28384 of
Insured Municipal Securities Trust, Series
20 on April 25, 1996 and incorporated
herein by reference).
99.1.4 Form of Agreement Among Underwriters
(filed as Exhibit 1.4 to Amendment No. 1
to Registration Statement No. 33-28384 of
-1-
1137.1
<PAGE>
Exhibit Description Page No.
Insured Municipal Securities Trust, 47th
Discount Series and Series 20 on June 16,
1989 and incorporated herein by
reference).
99.2.1 Form of Certificate (filed as Exhibit 2.1
to Amendment No. 1 to Registration
Statement No. 33-28384 of Insured
Municipal Securities Trust, 47th Discount
Series and Series 20 on June 16, 1989 and
incorporated herein by reference).
99.3.1 Opinion of Berger 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 3.1
to Amendment No. 1 to Form S-6 Registra-
tion Statements Nos. 33-33606 and 33-34900
of Municipal Securities Trust, Multi-State
Series 39 & Series 47 and Series 48,
respectively, on March 30, 1990 and
June 1, 1990, respectively, 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 filing
thereof and to the use of their name under
the heading "Tax Status" in the Prospectus
(filed as Exhibit 3.1.1 to Post-Effective
Amendment No. 1 to Form S-6 Registration
Statements Nos. 33-33606 and 33-34900 of
Municipal Securities Trust, Multi-State
Series 39 & Series 47 and Series 48,
respectively, on May 1, 1991 and
incorporated herein by reference).
99.5.1 Consents of the Evaluator including
Confirmation of Ratings. . . . . . .
99.6.0 Power of Attorney of Reich & Tang
Distributors L.P., the Depositor, by its
officers and a majority of its Directors
(filed as Exhibit 99.6.0 to Amendment No.
1 to Form S-6 Registration Statement No.
33-62627 of Equity Securities Trust,
Series 6, Signature Series, Gabelli
Entertainment and Media Trust on November
16, 1995 and incorporated herein by
reference).
99.6.1 Power of Attorney of Gruntal & Co.,
Incorporated, by its officers and a
-2-
1137.1
<PAGE>
Exhibit Description Page No.
majority of its of its Directors (filed as
Exhibit 6.1 to Post-Effective Amendment No.
7 to Form S-6 Registration Statement No.
33-28384 of Insured Municipal Securities
Trust, Series 20 on April 25, 1996 and
incorporated herein by reference).
99.7.0 Form of Agreement Among Co-Sponsors (filed
as Exhibit 7.0 to Post-Effective Amendment
No. 7 to Form S-6 Registration Statement
No. 33-28384 of Insured Municipal
Securities Trust, Series 20 on April 25,
1996 and incorporated herein by reference).
27 Financial Data Schedule(s) (for EDGAR filing only).
-3-
1137.1
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND> The schedule contains summary financial information
extracted from the financial statements and
supporting schedules as of the end of the most
current period and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000861068
<NAME> MST NY 39 SERIES
<SERIES>
<NUMBER> 1
<NAME> MST NY 39 SERIES
<S> <C>
<FISCAL-YEAR-END> Dec-31-1995
<PERIOD-START> Jan-01-1995
<PERIOD-END> Dec-31-1995
<PERIOD-TYPE> Year
<INVESTMENTS-AT-COST> 4630362
<INVESTMENTS-AT-VALUE> 5272581
<RECEIVABLES> 106796
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5379377
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 32399
<TOTAL-LIABILITIES> 32399
<SENIOR-EQUITY> 5346978
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 642219
<NET-ASSETS> 5346978
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 360719
<OTHER-INCOME> 0
<EXPENSES-NET> 9247
<NET-INVESTMENT-INCOME> 351472
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 239823
<NET-CHANGE-FROM-OPS> 591295
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 352980
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 5
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 88393
<ACCUMULATED-GAINS-PRIOR> (7018)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 1062.57
<PER-SHARE-NII> 73.18
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1112.10
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND> The schedule contains summary financial information
extracted from the financial statements and
supporting schedules as of the end of the most
current period and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000861068
<NAME> MST SERIES 47
<SERIES>
<NUMBER> 2
<NAME> MST SERIES 47
<S> <C>
<FISCAL-YEAR-END> Dec-31-1995
<PERIOD-START> Jan-01-1995
<PERIOD-END> Dec-31-1995
<PERIOD-TYPE> Year
<INVESTMENTS-AT-COST> 2589281
<INVESTMENTS-AT-VALUE> 2910793
<RECEIVABLES> 69456
<ASSETS-OTHER> 163285
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3143534
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 321
<TOTAL-LIABILITIES> 321
<SENIOR-EQUITY> 3143213
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 71253
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1286000
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 321512
<NET-ASSETS> 3143213
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 260675
<OTHER-INCOME> 0
<EXPENSES-NET> 7479
<NET-INVESTMENT-INCOME> 253196
<REALIZED-GAINS-CURRENT> (42813)
<APPREC-INCREASE-CURRENT> 189795
<NET-CHANGE-FROM-OPS> 400178
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 268682
<DISTRIBUTIONS-OF-GAINS> 956508
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 194
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (983961)
<ACCUMULATED-NII-PRIOR> 89617
<ACCUMULATED-GAINS-PRIOR> (5416)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 830.25
<PER-SHARE-NII> 54.96
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 199.15
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 657.99
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND> The schedule contains summary financial information
extracted from the financial statements and
supporting schedules as of the end of the most
current period and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000863446
<NAME> MST 48 SERIES
<SERIES>
<NUMBER> 1
<NAME> MST 48 SERIES
<S> <C>
<FISCAL-YEAR-END> Dec-31-1995
<PERIOD-START> Jan-01-1995
<PERIOD-END> Dec-31-1995
<PERIOD-TYPE> Year
<INVESTMENTS-AT-COST> 3573942
<INVESTMENTS-AT-VALUE> 3960735
<RECEIVABLES> 97218
<ASSETS-OTHER> 762828
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4820781
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 403
<TOTAL-LIABILITIES> 403
<SENIOR-EQUITY> 4820378
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 831300
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 386792
<NET-ASSETS> 4820378
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 344790
<OTHER-INCOME> 0
<EXPENSES-NET> 8493
<NET-INVESTMENT-INCOME> 336297
<REALIZED-GAINS-CURRENT> (49398)
<APPREC-INCREASE-CURRENT> 212781
<NET-CHANGE-FROM-OPS> 499680
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 339887
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 47
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 85071
<ACCUMULATED-GAINS-PRIOR> (4333)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 1007.79
<PER-SHARE-NII> 72.68
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1042.02
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
MUNICIPAL SECURITIES TRUST,
(A UNIT INVESTMENT TRUST)
MULTI-STATE SERIES 37 (and Subsequent Series)
TRUST INDENTURE AND AGREEMENT
DATED JUNE 30, 1989
This Trust Indenture and Agreement ("Indenture") dated June 30,
1989, among Bear, Stearns & Co. Inc. ("Bear Stearns"), Gruntal & Co.,
Incorporated ("Gruntal"), as Depositors, United States Trust Company of New
York, as Trustee and Standard & Poor's Corporation, as Evaluator.
WITNESSETH THAT
In consideration of the mutual agreements herein contained, the
Depositors, the Trustee and the Evaluator agree as follows:
INTRODUCTION
The Depositors, concurrently with the execution and delivery hereof,
is establishing Municipal Securities Trust, Multi-State Series 37 (and
Subsequent Series), wherein certain interest-bearing obligations will be
deposited by the Depositors, to be held by the Trustee in trust for the use and
benefit of the registered holders of certificates of ownership to be issued as
hereinafter provided. The parties hereto are entering into this Indenture for
the purpose of establishing certain of the terms, covenants and conditions of
Municipal Securities Trust, Multi-State Series 37 and of each additional series
of such Trust which may be established from time to time hereafter. For
Municipal Securities Trust, Multi-State Series 37 and each subsequent series of
Municipal Securities Trust (as to which this Indenture is to be applicable), the
parties hereto shall execute a separate Reference Trust Agreement incorporating
by reference this Indenture and effecting any amendment, supplement or variation
from or to this Indenture with respect to such series and specifying for that
series (i) the Bonds deposited in each State Trust and the number of Units
delivered by the Trustee in exchange for the Bonds pursuant to Section 2.3; (ii)
the initial fractional undivided interest represented by each Unit for each
State Trust; (iii) the First Record Date; (iv) the First Payment Date; (v) the
First Settlement Date; (vi) the Evaluator's fee; (vii) the liquidation amount
for purposes of Section 6.1(g); (viii) the Trustee's fee and (ix) any other
change or addition contemplated or permitted by this Indenture.
360017.1
<PAGE>
ARTICLE I
DEFINITIONS; CERTIFICATES
Section 1.1. Definitions. Whenever used in this Indenture the
following words and phrases, unless the context clearly indicates otherwise,
shall have the following meanings:
(1) "Bonds" shall mean the bonds, including Contract Bonds as
defined herein, (i) which are listed in Schedule A to the Reference Trust
Agreement or (ii) which have been received by the Trust as defined herein,
in exchange, substitution or replacement pursuant to Sections 3.8 and 3.14
hereof, as may from time to time continue to be held as part of the Trust.
(2) "Business Day" shall mean any day other than a Saturday, Sunday,
or, in the City of New York, a legal holiday or a day on which banking
institutions are authorized by law to close.
(3) "Certificate" shall mean any one of the certificates
substantially in the form hereinafter recited executed by the Trustee and
the Depositors evidencing ownership of an undivided fractional interest in
a State Trust.
(4) "Certificateholder" shall mean the registered holder of any
Certificate as recorded on the books of the Trustee, his legal
representatives and heirs and the successors of any corporation,
partnership or legal entity which is a registered holder of any
Certificate, and as such shall be deemed a beneficiary of the related
State Trust created by the Indenture to the extent of his pro rata share
thereof.
(5) "Contract Bonds" shall mean Bonds which are to be acquired by
the Trust pursuant to contracts, including (i) Bonds listed in Schedule A
to the Reference Trust Agreement, contracts for the purchase thereof which
have been assigned to the Trustee and cash or an irrevocable letter of
credit issued by a commercial bank in the amount required for such
purchase which has been delivered to the Trustee and (ii) Bonds which the
Depositors have contracted to purchase for the Trust pursuant to Section
3.14.
(6) "Depositors" shall mean Bear, Stearns & Co. Inc. ("Bear Stearns"),
or its successors and Gruntal & Co., Incorporated ("Gruntal") or its
successors or any successor Depositor appointed as herein provided.
-2-
360017.1
<PAGE>
(7) "Evaluator" shall mean Standard & Poor's Corporation, or its
successors or any successor Evaluator appointed as herein provided.
(8) "First Payment Date" shall mean the date specified in Part II of
the Reference Trust Agreement.
(9) "First Record Date" shall mean the date specified in Part II of
the Reference Trust Agreement.
(10) "First Settlement Date" shall mean the date specified in Part
II of the Reference Trust Agreement.
(11) "Indenture" shall mean this Trust Indenture and Agreement as
originally executed or, if subsequently amended as herein provided, as so
amended.
(12) "Payment Date" shall have the meaning assigned to it in Part II
of the Reference Trust Agreement.
(13) "Plan Units" shall mean fractional Units offered by the
Depositors pursuant to the reinvestment plans described in the final
prospectus of the Trust filed within the appropriate registration forms
under the Securities Act of 1933, and for which Plan Units the Trustee is
acting as Trustee.
(14) "Record Date" shall have the meaning assigned to it in Part II
of the Reference Trust Agreement.
(15) "Redemption Form" shall mean the form provided by the Trustee
at the request of holders of Plan Units for the purposes of redeeming such
Units, as such form may be reasonably acceptable to the Depositors and the
Trustee from time to time.
(16) "Reference Trust Agreement" shall mean the indenture for the
particular Multi-State series of Municipal Securities Trust into which the
terms of this Indenture are incorporated.
(17) The words "herein", "hereby", "herewith", "hereof",
"hereinafter", "hereunder", "hereinabove"', "hereafter", "heretofore" and
similar words or phrases of reference and association shall refer to this
Indenture in its entirety.
(18) "State Trust" or "State Trusts" shall mean the separate trust
or trusts created by this Indenture, the Bonds constituting the portfolios
of which are listed in the various separate schedules attached to the
Reference Trust Agreement.
-3-
360017.1
<PAGE>
(19) "Trust" shall mean the collective State Trusts created by this
Indenture, which shall consist of all the Bonds held pursuant and subject
to this Indenture together with all undistributed interest received or
accrued thereon, and any undistributed cash realized from the sale,
redemption, liquidation, or maturity thereof. Such amounts as may be on
deposit in the Reserve Accounts hereinafter established shall be excluded
from the respective State Trusts and the Trust.
(20) "Trustee" shall mean United States Trust Company of New York or
its successors, or any successor Trustee appointed as herein provided.
(21) "Unit" in respect of any State Trust shall mean the fractional
undivided interest in and ownership of the State Trust initially equal to
the fraction specified in Part II of the Reference Trust Agreement, the
denominator of which fraction shall be decreased by the number of any such
Units redeemed as provided in Section 5.2.
(22) Words importing singular number shall include the plural number
in each case and vice versa, and words importing person shall include
corporations and associations, as well as natural persons.
Section 1.2. Form of Certificate. The form of Certificate evidencing
ownership of fractional undivided interests in the respective State Trusts shall
be substantially as follows:
No. ___ _______ Units
CERTIFICATE OF OWNERSHIP
--evidencing--
A Fractional Undivided Interest
--in--
MUNICIPAL SECURITIES TRUST
______ SERIES ________ PLAN OF DISTRIBUTION
--------------------
CUSIP
-------------------
-4-
360017.1
<PAGE>
This is to certify that ________________ is the owner and registered holder of
this Certificate evidencing the ownership of ________ unit(s) of fractional
undivided interest in the above named Trust created under the laws of the State
of New York pursuant to the Trust Indenture and Agreement among Bear, Stearns &
Co. Inc. (and such other Depositors, if any, identified therein) as Depositors,
United States Trust Company of New York as Trustee, and Standard & Poor's
Corporation as Evaluator (the "Indenture"), a copy of which is available at the
office of the Trustee. This Certificate is issued under and is subject to the
terms, provisions and conditions of the Indenture to which the holder of this
Certificate by virtue of the acceptance hereof asserts and is bound, a summary
of which Indenture is contained in the Prospectus relating to the Trust. This
Certificate is transferable and interchangeable by the registered holder in
person or by his duly authorized attorney at the Trustee's office upon surrender
of this Certificate properly endorsed or accompanied by a written instrument of
transfer or other documents that the Trustee may require for transfer in form
satisfactory to the Trustee and payment of the fees and expenses as provided in
the Indenture.
Witness the facsimile signature of a duly authorized officer of the
Agent for the Depositors (referred to in the Indenture) and the manual signature
of an authorized signature of the Trustee.
Date: AGENT FOR THE DEPOSITORS
__________________________________
Authorized Signatory
UNITED STATES TRUST COMPANY
OF NEW YORK,
Trustee
By ________________________________
Authorized Officer
-5-
360017.1
<PAGE>
ABBREVIATIONS
The following abbreviations, when used in the inscription on the
face of this instrument, shall be construed as though they were written out in
full according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship
and not as tenants in common
UNIF GIFT MIN ACT..... Custodian.....
(cust) (Minor)
under Uniform Gifts to Minors
Act............................
(State)
Additional abbreviations may also be used though not in the above.
-6-
360017.1
<PAGE>
ASSIGNMENT
For Value Received ________________________ hereby sells, assigns and
transfers unto ________________ the within Certificate and does hereby
irrevocably constitute and appoint ________________________ attorney, to
transfer the within Certificate on the books of the Trustee, with full power of
substitution in the premises.
Dated:
------------------------
Notice: The signature(s) to this assignment must correspond with the
name(s) as written above upon the face of this Certificate in every
particular, without alteration or enlargement or any change
whatever.
- -----------------------
Signature Guaranteed
[end of certificate]
-7-
360017.1
<PAGE>
ARTICLE II
DEPOSIT OF BONDS; DECLARATION OF TRUST;
FORM AND ISSUANCE OF CERTIFICATES; SEPARATE TRUSTS;
CERTAIN CONTRACTS SATISFACTORY
Section 2.1. Deposit of Bonds. The Depositors, concurrently with the
execution and delivery of a Reference Trust Agreement, have deposited with the
Trustee in trust the Bonds listed in Schedule A to the Reference Trust Agreement
in bearer form or registered in the name of the Trustee, or its nominee, or duly
endorsed in blank or accompanied by all necessary instruments of assignment and
transfer in proper form to be held, managed and applied by the Trustee as herein
provided. The Depositors shall deliver the Bonds listed on said Schedule A to
the Trustee which were not actually delivered concurrently with the execution
and delivery of the Reference Trust Agreement within 90 days after said
execution and delivery, or if the contract to buy such Bond between the
Depositors and seller is terminated by the seller thereof for any reason beyond
the control of the Depositors, the Depositors shall forthwith take the remedial
action specified in Section 3.14.
Section 2.2. Declaration of Trust. The Trustee declares that it
holds and will hold each State Trust as Trustee in trust upon the terms herein
set forth for the use and benefit of all present and future Certificateholders.
Section 2.3. Issue of Certificates. The Trustee hereby acknowledges
receipt of the deposit referred to in Section 2.1, and simultaneously with the
receipt of said deposit, has executed Certificates substantially in the form
above recited representing the ownership of the number of Units of each State
Trust, specified in Part II of the Reference Trust Agreement.
Section 2.4. Form of Certificates. Each Certificate referred to in
Section 2.3 is, and each Certificate hereafter issued shall be, in substantially
the form hereinabove recited, numbered serially for identification, in fully
registered form, transferable only on the books of the Trustee as herein
provided, executed manually by an authorized officer of the Trustee and in
facsimile by an authorized signatory of Bear Stearns, on behalf of the
Depositors.
Section 2.5. Separate Trusts. The State Trusts created by this
Indenture are separate and distinct trusts for all purposes and the assets of
one trust may not be commingled with the assets of any other nor shall the
expenses of any trust be charged against the other. The Certificates
representing the ownership of an undivided fractional interest in one State
Trust shall not be exchangeable for certificates representing the ownership of
an undivided fractional interest in any other.
-8-
360017.1
<PAGE>
Section 2.6. Certain Contracts Satisfactory. The Depositors approve
as satisfactory in form and substance the contracts to be assumed by the Trustee
with regard to any Bonds listed in Schedule A to the Reference Trust Agreement
and authorize the Trustee on behalf of the Trust to assume such contracts and
otherwise to carry out the terms and provisions thereof or to take other
appropriate action in order to complete the deposit of the Bonds covered thereby
into each State Trust.
ARTICLE III
ADMINISTRATION OF TRUST
Section 3.1. Initial Cost. The cost of the initial preparation,
printing and execution of the Certificates and this Indenture, the initial fees
of the Trustee and its counsel, and the initial fees of the Evaluator and other
reasonable expenses in connection therewith, shall be paid by the Depositors,
provided, however, that the liability on the part of the Depositors for such
initial costs, fees and expenses shall not include any fees, costs or other
expenses incurred in connection herewith after the execution of this Indenture
and the deposit referred to in Section 2.1.
Section 3.2. Interest Account. The Trustee shall collect the
interest on the Bonds in each State Trust as it becomes payable (including all
interest accrued but unpaid prior to the date of deposit of the Bonds in trust
and including that part of the proceeds of the sale, liquidation, redemption or
maturity of any Bonds which represents accrued interest thereon and including
all moneys representing penalties for the failure to make timely payments on the
Bonds, or as liquidated damages for default or breach of any condition or term
of the Bonds or of any instrument underlying such Bonds) and credit such
interest to a separate account for each State Trust to be known as the "Interest
Account" for that State Trust.
Section 3.3. Principal Account. (a) The Bonds in each State Trust
and all moneys (except moneys held by the Trustee pursuant to subsection (b)
hereof), other than amounts credited to the Interest Account, received by the
Trustee in respect of the Bonds in each State Trust shall be credited to a
separate account to be known as the "Principal Account" for the State Trust.
(b) Moneys and/or irrevocable letters of credit required to purchase
Contract Bonds or deposited to secure such purchases are hereby declared to be
held specially by the Trustee for such purchases and shall not be deemed to be
part of the Principal Account until (i) the Depositors fail to purchase timely a
Contract Bond and have not given the Failed Contract Notice (as defined in
Section 3.14) at which time the moneys
-9-
360017.1
<PAGE>
and/or letters of credit attributable to the Contract Bond not purchased by the
Depositors shall be credited to the Principal Account; or (ii) the Depositors
have given the Trustee the Failed Contract Notice at which time the moneys
and/or letters of credit attributable to failed contracts referred to in such
Notice shall be credited to the Principal Account; provided, however, that if
the Depositors also notify the Trustee in the Failed Contract Notice that they
have purchased or entered into a contract to purchase a New Bond (as defined in
Section 3.14), the Trustee shall not credit such moneys and/or letters of credit
to the Principal Account unless the New Bond shall also have failed or is not
delivered by the Depositors within two business days after the settlement date
of such New Bond, in which event the Trustee shall forthwith credit such moneys
and/or letters of credit to the Principal Account. The Trustee shall in any case
forthwith credit to the Principal Account, and/or cause the Depositors to
deposit in the Principal Account, the difference, if any, between the purchase
price of the failed Contract Bond and the purchase price of the New Bond,
together with any sales charge and accrued interest applicable to such
difference and distribute such moneys to Certificateholders pursuant to Section
3.5.
Section 3.4. Reserve Account. From time to time the Trustee shall
withdraw from the cash on deposit in the Interest Account or the Principal
Account of the appropriate State Trust such amounts as it, in its sole
discretion, shall deem requisite to establish a reserve for any applicable taxes
or other governmental charges that may be payable out of or by such State Trust.
Such amounts so withdrawn shall be credited to a separate account for each State
Trust which shall be known as the "Reserve Account" for that State Trust. The
Trustee shall not be required to distribute to the Certificateholders any of the
amounts in the Reserve Account; provided, however, that if it shall, in its sole
discretion, determine that such amounts are no longer necessary for payment of
any applicable taxes or other governmental charges, then it shall promptly
deposit such amounts in the appropriate account from which withdrawn or, if the
State Trust has been terminated or is in the process of termination, the Trustee
shall distribute to each Certificateholder such holder's interest in the Reserve
Account for such State Trust in accordance with Section 9.2.
Section 3.5. Distributions. On the First Settlement Date, the
Trustee shall advance out of its own funds and cause to be deposited in and
credited to the Interest Account for each State Trust an amount equal to all
interest accrued on the Bonds in such State Trust but unpaid as of the First
Settlement Date. Immediately after such advance, the Trustee shall distribute
out of the Interest Account for each State Trust to the Depositors, as
Certificateholder of record of such State Trust on the First Settlement Date, an
amount equal to the amount then credited to the Interest Account. The Trustee
shall be entitled to be
-10-
360017.1
<PAGE>
reimbursed, without interest, out of the cash balance in the Interest Account
for each State Trust from time to time, for amounts advanced pursuant to this
Section 3.5 before it is required to make any subsequent distributions to
Certificateholders of such State Trust. Repayment of any advance made by the
Trustee to the Interest Account of such State Trust pursuant to this Section 3.5
shall be secured by a lien upon such State Trust prior to the interests of the
Certificateholders thereof. In the event the advance by the Trustee is not
reimbursed prior to the first distribution referred to in Part II(e) of the
Reference Trust Agreement, the Trustee shall have the power to sell Bonds of
related State Trust in the manner provided in Section 5.2 hereof. The Trustee
shall not be liable or responsible in any way for depreciation or loss incurred
by reason of any sale of Bonds of related State Trust made pursuant to this
Section 3.5. The Trustee shall promptly notify the Depositors of such action in
writing and shall set forth in such notice the Bonds sold and the proceeds
received therefrom.
On or before each Record Date, the Trustee shall, with respect to
each State Trust:
(a) deduct from the Interest Account or, to the extent funds are not
available in such Account, from the Principal Account, and pay to itself
individually the amounts that it is at the time entitled to receive pursuant to
Section 6.4 or pursuant to this Section 3.5;
(b) deduct from the Interest Account, or, to the extent funds are
not available in such Account, from the Principal Account, and pay to the
Evaluator the amount that it is at the time entitled to receive pursuant to
Section 4.2;
(c) deduct from the Interest Account, or, to the extent funds are
not available in such Account, from the Principal Account, and pay an amount
equal to the unpaid fees and expenses, if any, of counsel pursuant to Section
3.9 as certified to it by the Depositors;
(d) on each monthly Record Date, deduct from the Interest Account,
or, to the extent funds are not available in such Account, from the Principal
Account one-twelfth of the estimated annual amount that the Depositors are
entitled to receive pursuant to Section 7.5 and hold such amount without
interest until such time as it is payable to the Depositors as set forth below;
provided that the Trustee shall deduct from the Interest Account when making the
first monthly distribution, or to the extent funds are not available in such
Account, from the Principal Account an amount equal to a fraction of the
estimated annual amount that the Depositors are entitled to receive pursuant to
Section 7.5 in which the numerator is the number of months or fraction thereof
that Units in the State Trust have
-11-
360017.1
<PAGE>
been owned by a Certificateholder other than the Depositors and the denominator
is twelve.
On or before the first Payment Date after the conclusion of each
calendar year, the Trustee shall, upon certification in satisfactory form to the
Trustee, upon which the Trustee may rely, distribute to the Depositors from the
amount so held pursuant to the immediately preceding paragraph the amounts that
the Depositors are at the time entitled to receive pursuant to Section 7.5 on
account of their services theretofore performed and expenses theretofore
incurred.
On each semi-annual Payment Date or within a reasonable period of
time thereafter, the Trustee shall, with respect to each State Trust, distribute
by mail to each Certificateholder of record at the close of business on the
preceding Record Date, at the post office address appearing on the registration
books of the Trustee, such holder's pro rata share of the balance in the
Interest Account computed as of the Record Date on the basis of one-half of the
estimated annual interest income to such State Trust for the ensuing twelve
months, after deduction of the estimated costs and expenses of such State Trust
to be incurred during such period except that the first distribution will be in
the amount specified in the prospectus for any State Trust created under this
Indenture.
In the event the amount on deposit in the Interest Account of a
State Trust on a semi-annual Payment Date is not sufficient for the payment of
the amount of interest to be distributed on the basis of the aforesaid
computation, the Trustee shall advance out of its own funds and cause to be
deposited in and credited to the Interest Account such amount as may be required
to permit payment of the interest distribution to be made on such Payment Date
and shall be entitled to be reimbursed, without interest, out of interest
received by such State Trust on the first Record Date following the date of such
advance on which such reimbursement may be made without reducing the amount in
the Interest Account to an amount less than that required for the next ensuing
interest distribution.
In lieu of the semi-annual distributions of interest provided above,
a Certificateholder may elect to receive monthly or annual payments from the
Interest Account of such State Trust. Certificateholders desiring to receive
monthly or annual distributions and who purchase their Certificates prior to the
Record Date for the first distribution may elect at the time of purchase to
receive distributions on a monthly or annual basis by notice to the Trustee.
Such notice shall be effective with respect to subsequent distributions until
changed by further notice to the Trustee. In October of each year after the
initial public offering of the Units, the Trustee shall furnish each
Certificateholder a card to be returned to the Trustee by
-12-
360017.1
<PAGE>
November 1 of such year if the Certificateholder wishes to change his plan of
distribution. Those wishing to change shall so indicate on the card and return
it to the Trustee and accompany the card by the surrender of the Certificate to
which it relates. Changes may be made only as herein provided and will become
effective as of the following December 2 to continue until further notice.
For monthly distributions, the share of the balance in the Interest
Account of such State Trust to be distributed to a Certificateholder who has
elected to receive monthly distributions, after the first distribution, shall be
computed as of each monthly Record Date, and distribution made as provided
herein on or shortly after the fifteenth day of the month of computation to the
Certificateholder of record of such State Trust on such date of computation.
Such computation shall be made on the basis of one-twelfth of the estimated
annual interest income to such State Trust for the ensuing twelve months for the
account of Certificateholders who have elected to receive monthly distributions,
after deduction of the estimated costs and expenses to be incurred on behalf of
such Certificateholders during the twelve month period for which such interest
income has been estimated.
For annual distributions, the share of the balance in the Interest
Account to be distributed to a Certificateholder who has elected to receive
annual distributions, after the first distribution, shall be computed as of each
annual Record Date, and distribution made as provided herein on or shortly after
the fifteenth day of the month of computation to the Certificateholder of record
on such date of computation. Such computation shall be made on the basis of the
estimated annual interest income to the Trust for the ensuing twelve months for
the account of Certificateholders who have elected to receive annual
distributions, after deduction of the estimated costs and expenses to be
incurred on behalf of such Certificateholders during the twelve month period for
which such interest income has been estimated.
To the extent practicable, the Trustee shall allocate the expenses
of each State Trust among Units of such State Trust, giving effect within each
State Trust to differences in administrative and operational cost among those
who have chosen to receive distributions monthly, semi-annually and annually.
In the event the amount on deposit in the Interest Account of a
State Trust for a monthly distribution is not sufficient for the payment of the
amount of interest to be distributed to Certificateholders participating in such
distribution on the basis of the aforesaid computation, the Trustee shall
advance out of its own funds and cause to be deposited in and credited to the
Interest Account such amounts as
-13-
360017.1
<PAGE>
may be required to permit payment of the monthly interest distribution to be
made as aforesaid and shall be entitled to be reimbursed, without interest, out
of interest received by such State Trust subsequent to the date of such advance
and subject to the condition that the funds in or available for the Interest
Account will not be reduced in an amount less than required for the next ensuing
distribution of interest. Distributions to Certificateholders who are
participating in either of the optional plans for distribution of interest shall
not be affected because of advancements by the Trustee for the purpose of
equalizing distributions to Certificateholders participating in the other plan.
On each semi-annual Payment Date or within a reasonable period of
time thereafter, the Trustee shall distribute by mail to each Certificateholder
of record of each State Trust at the close of business on the preceding Record
Date, at the post office address appearing on the registration books of the
Trustee, such holder's pro rata share of the cash balance of the Principal
Account computed as of the Record Date. The Trustee shall not be required to
make a distribution from the Principal Account unless the cash balance on
deposit therein available for distribution shall be sufficient to permit
distribution of at least $1.00 per Unit.
If the Depositors (i) fail to replace any failed Special Bond (as
defined in Section 3.14) or (ii) are unable or fail to enter into any contract
for the purchase of any New Bond in accordance with Section 3.14, the Trustee
shall distribute to all Certificateholders the principal, accrued interest and
sales charge attributable to such Special Bond at the next monthly Payment Date
which is more than thirty days after the expiration of the Purchase Period (as
defined in Section 3.14) or at such earlier time or in such manner as the
Trustee in its sole discretion deems to be in the best interest of the
Certificateholders of the related State Trust.
If any contract for a New Bond in replacement of a Special Bond
shall fail, the Trustee shall distribute the principal, accrued interest and
sales charge attributable to the Special Bond to the Certificateholders at the
next monthly Payment Date which is more than thirty days after the date on which
the contract in respect of such New Bond failed or at such earlier time or in
such earlier manner as the Trustee in its sole discretion deems to be in the
best interest of the Certificateholders of the related State Trust.
If, at the end of the Purchase Period, less than all moneys
attributable to a failed Special Bond have been applied or allocated by the
Trustee pursuant to a contract to purchase New Bonds, the Trustee shall
distribute the remaining moneys to Certificateholders of the related State Trust
at the next monthly
-14-
360017.1
<PAGE>
Payment Date which is more than thirty days after the end of the Purchase Period
or at such earlier time thereafter as Trustee in its sole discretion deems to be
in the best interest of the Certificateholders of the related State Trust.
The amounts to be distributed to each Certificateholder shall be
that pro rata share of the cash balance of the Interest and Principal Accounts,
computed as set forth above, as shall be represented by the Units evidenced by
the outstanding Certificate or Certificates registered in the name of such
Certificateholder.
In the computation of each such share, fractions of less than one
cent shall be omitted. After any such distribution provided for above, any cash
balance remaining in the Interest Account or the Principal Account shall be held
in the same manner as other amounts subsequently deposited in each such
accounts, respectively.
For the purpose of distribution, as herein provided, the holders of
record on the registration books of the Trustee at the close of business on each
Record Date shall be conclusively entitled to such distribution, and no
liability shall attach to the Trustee by reason of payment to any such
registered Certificateholder of record. Nothing herein shall be construed to
prevent the payment of amounts from the Interest Account and the Principal
Account to individual Certificateholders by means of one check, draft or other
proper instrument, provided that the appropriate statement of such distribution
shall be furnished therewith as provided in Section 3.6 hereof.
Section 3.6. Distribution Statements. With each distribution from
the Interest or Principal Accounts of a State Trust the Trustee shall set forth,
either in the instrument by means of which payment of such distribution is made
or in an accompanying statement the amount being distributed from each such
account expressed as a dollar amount per Unit.
In the event that the issuer of any of the Bonds in a State Trust
shall fail to make payment when due of any interest or principal and such
failure results in a change in the amount which would otherwise be paid as a
distribution of interest the Trustee shall, with the first such distribution
relating to such State Trust following such failure, set forth in an
accompanying statement (a) the name of the issuer and the Bond, (b) the amount
of the reduction in the distribution per Unit resulting from such failure, (c)
the percentage of the aggregate principal amount of Bonds which such Bond
represents, and (d) to the extent then determined, information regarding any
disposition or legal action with respect to such Bonds.
Within a reasonable period of time after the last business day of
each calendar year, the Trustee shall furnish to
-15-
360017.1
<PAGE>
each person who at any time during such calendar year was a Certificateholder of
a State Trust, a statement setting forth for such State Trust, with respect to
such calendar year:
(A) as to the Interest Account:
(1) the amount of interest received on the Bonds,
(2) the amounts paid for purchases of New Bonds pursuant to
Section 3.14, and for redemptions of Units pursuant to Section 5.2,
(3) the deductions for applicable taxes and fees and expenses
of the Trustee, the Evaluator and counsel pursuant to Section 3.9,
the annual audit fees referred to in Section 6.2, and the annual fee
of the Depositors for portfolio supervisory services pursuant to
Section 7.5, and
(4) the balance remaining after such distributions and
deductions, expressed both as a total dollar amount and as a dollar
amount per Unit outstanding on the last business day of such
calendar year;
(B) as to the Principal Account:
(1) the date and the net proceeds received from the sale,
maturity, liquidation or redemption of any of the Bonds, excluding
any portion thereof credited to the Interest Account,
(2) the amounts paid for purchases of New Bonds pursuant to
Section 3.14, and for redemptions of Units pursuant to Section 5.2,
(3) the deductions for payment of applicable taxes and fees
and expenses of the Trustee, the Evaluator and counsel pursuant to
Section 3.9, the annual audit fees referred to in Section 6.2, and
the annual fee of the Depositors for portfolio supervisory services
pursuant to Section 7.5, and
(4) the balance remaining after such distributions and
deductions, expressed both as a total dollar amount and as a dollar
amount per Unit outstanding on the last business day of such
calendar year; and
-16-
360017.1
<PAGE>
(C) the following information:
(1) a list of Bonds disposed of or acquired during such
calendar year and a list of Bonds as of the last business day of
such calendar year,
(2) the number of Units outstanding on the last
business day of such calendar year,
(3) the Net Asset Value per Unit based on the last Trust
Evaluation (as defined in Section 5.1) for such State Trust made
during such calendar year, and
(4) the amounts actually distributed to Certificateholders
during such calendar year from the Interest and Principal Accounts,
separately stated, expressed both as total dollar amounts and as
dollar amounts per Unit outstanding on the Record Dates for such
distributions and the status of such distributions for Federal
income tax purposes.
Section 3.7. Sale of Bonds. In order to maintain the sound
investment character of each State Trust, the Depositors may direct the Trustee
to sell or liquidate Bonds in such State Trust at such prices and times and in
such manner as shall be determined by the Depositors, provided that the
Depositors have determined that any one or more of the following conditions
exist:
(a) that there has been a default on such Bonds in the
payment of principal or interest when due and payable;
(b) that any action or proceeding has been instituted at law or in
equity seeking to restrain or enjoin the payment of principal or interest on any
such Bond or that there exists any other legal question or impediment affecting
such Bonds or the payment of principal or interest thereon;
(c) that there has occurred any breach of covenant or warranty in
any trust indenture or other document relating to the issuer or guarantor of the
Bonds which would adversely affect either immediately or contingently the
payment of debt service on such Bonds, or their general credit standing, or
otherwise impair the sound investment character of such Bonds;
(d) that there has been a default in the payment of principal of or
interest on any other outstanding obligations of an issuer or guarantor of such
Bonds;
(e) that in the case of revenue Bonds, the revenues and income of
the facility or project or other special funds expressly charged and pledged for
debt service on any such Bonds
-17-
360017.1
<PAGE>
shall fall substantially below the estimated revenues or income calculated by
the engineers or other proper officials charged with the acquisition,
construction or operation of such facility or project, so that, in the opinion
of the Depositors, the retention of such Bonds would be detrimental to the sound
investment character of a State Trust and to the interests of the
Certificateholders; or
(f) that the price of any such Bonds has declined to such an extent,
or such other market or credit factor exists, that in the opinion of the
Depositors the retention of such Bonds would be detrimental to the interests of
the Certificateholders of such State Trust.
Upon receipt of such direction from the Depositors, upon which the
Trustee shall rely, the Trustee shall proceed to sell the specified Bonds in
accordance with such direction. The Trustee shall not be liable or responsible
in any way for depreciation or loss incurred by reason of any sale made pursuant
to any such direction, or by reason of the failure of the Depositors to give any
such direction, and in the absence of such direction the Trustee shall have no
duty to sell any Bonds under this Section 3.7 except to the extent otherwise
required by Section 3.10 of this Indenture. All proceeds from the disposition of
Bonds pursuant to this Section 3.7 which represent accrued interest thereon
shall be deposited in the Interest Account and the balance thereof in the
Principal Account and shall thereafter be distributed in accordance with Section
3.5.
Section 3.8. Refunding Bonds. In the event that an offer shall be
made to issue new securities in exchange or substitution for any issue of Bonds
pursuant to a plan for the refunding or refinancing of such Bonds, or an
exchange offer therefor; or tenders of Bonds for sinking fund or other cash
redemptions shall be solicited, the Depositors shall instruct the Trustee in
writing to reject such offer and either to hold or sell such Bonds, except that
if (1) the issuer is in default with respect to such Bonds or (2) in the opinion
of the Depositors, given in writing to the Trustee, the issuer will probably
default with respect to such Bonds in the reasonably foreseeable future, the
Depositors shall instruct the Trustee in writing to accept or reject such offer
and to take any other action with respect thereto as the Depositors may deem
proper. Any security so received in exchange shall be deposited hereunder and
shall be subject to the terms and conditions of this Indenture to the same
extent as the Bonds originally deposited hereunder. Within five days after such
deposit, notice of such exchange and deposit shall be given by the Trustee to
each Certificateholder of the appropriate State Trust, including an
identification of the Bonds eliminated and the Bonds substituted therefor.
-18-
360017.1
<PAGE>
Section 3.9. Counsel. The Depositors may employ from time to time as
they may deem necessary a firm of attorneys for any legal services that may be
required in connection with the disposition of Bonds pursuant to Section 3.7 or
the substitution of any securities for Bonds as the result of any refunding
permitted under Section 3.8. The fees and expenses of such counsel shall be paid
by the Trustee from the Interest and Principal Accounts of the State Trust in
respect of which services were performed as provided for in Section 3.5(c)
thereof.
Section 3.10. Notice and Sale by Trustee. If at any time the
principal of or interest on any of the Bonds shall be in default and not paid or
provision for payment thereof shall not have been duly made, the Trustee shall
notify the Depositors thereof. If within thirty days after such notification the
Depositors have not given any instruction in writing to sell or to hold or have
not taken any other action in connection with such Bonds, the Trustee shall sell
such Bonds forthwith, and the Trustee shall not be liable or responsible in any
way for depreciation or loss incurred by reason of such sale.
Section 3.11. Trustee Not to Amortize. Nothing in this Indenture, or
otherwise, shall be construed to require the Trustee to make any adjustments
between the Interest and Principal Accounts of any State Trust by reason of any
premium or discount in respect of any of the Bonds.
Section 3.12. Action by Trustee Regarding Bonds. In the event that
the Trustee shall have been notified at any time of any action to be taken or
proposed to be taken by holders of the Bonds (including but not limited to the
making of any demand, direction, request, giving of any notice, consent or
waiver or the voting with respect to any amendment or supplement to any
indenture or other instrument under or pursuant to which the Bonds have been
issued) the Trustee shall promptly notify the Depositors and shall thereupon
take such action or refrain from taking such action as the Depositors shall in
writing direct; provided, however, that if the Depositors shall not within five
business days of the giving of such notice to the Depositors direct the Trustee
to take or refrain from taking any action, the Trustee shall take such action as
it, in its sole direction, shall deem advisable. Neither the Depositors nor the
Trustee shall be liable to any person for any action or failure to take action
with respect to this Section 3.12.
Section 3.13. Notice of Change in Principal Account. The Trustee
shall give prompt written notice to the Depositors and the Evaluator of all
amounts credited to or withdrawn from the Principal Account of any State Trust
pursuant to any provisions of this Article III, and the balance of such account
after giving effect to such credit or withdrawal.
-19-
360017.1
<PAGE>
Section 3.14. Limited Replacement of Special Bonds. If any contract
in respect of Contract Bonds of any State Trust other than a contract to
purchase a New Bond (as defined below), including those purchased on a when, as
and if issued basis, shall have failed due to any occurrence, act or event
beyond the control of the Depositors or the Trustee (such failed Contract Bonds
being herein called the "Special Bonds"), the Depositors shall notify the
Trustee, (such notice being herein called the "Failed Contract Notice") of their
inability to deliver the failed Special Bond to the Trustee after they are
notified in writing that the Special Bond will not be delivered by the seller
thereof to the Depositors. Prior to, or simultaneously with, giving the Trustee
the Failed Contract Notice, or within a maximum of twenty days after giving such
Notice (such twenty day period being herein called the "Purchase Period"), the
Depositors shall, if possible, purchase or enter into the contract, if any, to
purchase an obligation to be held as a Bond hereunder (herein called the "New
Bond") as part of the appropriate State Trust in replacement of the failed
Special Bond, subject to the satisfaction of all of the following conditions in
the case of each purchase or contract to purchase:
(a) The New Bonds in respect of each State Trust (i) shall be tax
exempt bonds issued by states or their political subdivisions, (ii) shall have a
fixed maturity date (whether or not entitled to the benefits of any sinking,
redemption, purchase or similar fund) not exceeding the date of maturity of the
Special Bond it replaces and not less than ten years after the date of purchase,
(iii) shall bear fixed interest at a rate not less than that of the Special Bond
which it replaces, (iv) shall be payable as to principal and interest in United
States currency, and (v) shall not be a when, as and if issued Bond.
(b) Each New Bond shall be rated at least "A" or better by Standard
& Poor's Corporation or Moody's Investors Service, Inc., or comparably rated by
any other nationally recognized credit rating service rating debt obligations
which shall be designated by the Depositors and shall be satisfactory
to the Trustee.
(c) The purchase price of the New Bonds (exclusive of accrued
interest) shall not exceed the principal attributable to the Special Bonds.
(d) The Depositors shall furnish a notice to the Trustee (which may
be part of the Failed Contract Notice) in respect of the New Bond purchased or
to be purchased that shall (i) identify the New Bonds, (ii) state that the
contract to purchase, if any, entered into by the Depositors is satisfactory in
form and substance, and (iii) state that the foregoing conditions of clauses (a)
through (c) have been satisfied with respect to the New Bonds.
-20-
360017.1
<PAGE>
Upon satisfaction of the foregoing conditions with respect to any
New Bond, the Depositors shall pay the purchase price for the New Bond from
their own resources or, if the Trustee has credited any moneys and/or letters of
credit attributable to the failed Special Bond to the Principal Account, the
Trustee shall pay the purchase price of the New Bond upon directions from the
Depositors from the moneys and/or letters of credit so credited to the Principal
Account. If the Depositors have paid the purchase price, and, in addition, the
Trustee has credited moneys of the Depositors to the Principal Account, the
Trustee shall forthwith return to the Depositors the portion of such moneys that
is not properly distributable to Certificateholders pursuant to Section 3.5.
Whenever a New Bond is acquired by the Depositors pursuant to the
provisions of this Section 3.14, the Trustee shall, within five days thereafter,
mail to all Certificateholders of the appropriate State Trust, notices of such
acquisition, including an identification of the failed Special Bonds and the New
Bonds acquired. The purchase price of the New Bonds shall be paid out of the
principal attributable to the failed Special Bonds. The Trustee shall not be
liable or responsible in any way for depreciation or loss incurred by reason of
any purchase made pursuant to any such directions and in the absence of such
directions the Trustee shall have no duty to purchase any Bonds under this
Indenture. The Depositors shall not be liable for any failure to instruct the
Trustee to purchase any New Bonds or for errors of judgment in respect of this
Section 3.14; provided, however, that this provision shall not protect the
Depositors against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith or gross negligence in the performance
of their duties or by reason of their reckless disregard of their obligations
and duties hereunder.
ARTICLE IV
EVALUATION OF BONDS; EVALUATOR
Section 4.1. Evaluation of Bonds. The Evaluator shall determine
separately and promptly furnish to the Trustee and the Depositors upon request
the value of each issue of Bonds in each State Trust (treating separate
maturities of Bonds as separate issues) as of the close of trading on the New
York Stock Exchange on the bid side of the market on the days on which the Trust
Evaluation (as defined in Section 5.1) is required by Section 5.1, and, in
addition, as of the close of trading on the New York Stock Exchange on the
offering side of the market until such time as the Evaluator and Trustee have
been informed by the Depositors that the initial public offering has been
completed and thereafter if the secondary market for the Units is maintained
based on offering side values, such additional
-21-
360017.1
<PAGE>
evaluation being made as of the last business day of each calendar week
effective for transactions during the following week commencing with the week
after the initial public offering has been completed. If the Bonds are listed on
a national securities exchange, the current bid or offering side evaluation
shall be determined on the basis of the closing sale price on such exchange
(unless the Evaluator deems such price inappropriate as a basis for valuation).
If the Bonds are not so listed or, if so listed and the principal market
therefor is other than on such exchange or there is no such closing sale price
available, the current bid or offering price evaluation shall be based on the
closing sale prices of such Bonds on the over-the-counter market (unless the
Evaluator deems such prices inappropriate as a basis for valuation), or, if no
such closing sale prices are available (i) on the basis of current bid or
offering prices for the Bonds, (ii) if bid or offering prices are not available
for any Bonds, on the basis of current bid or offering prices for comparable
obligations, (iii) by determining the value of the Bonds on the bid or offering
side of the market by appraisal or (iv) by any combination of the above.
For each evaluation, the Evaluator shall also determine and furnish
to the Trustee and the Depositors the aggregate of (a) the value of all Bonds in
each State Trust on the basis of such evaluation and (b) on the basis of the
information furnished to the Evaluator by the Trustee pursuant to Section 3.13,
cash on hand in such State Trust.
For the purpose of this Section 4.1, the Evaluator may obtain
current bid or offering prices for the obligations from investment dealers or
brokers (including the Depositors) that customarily deal in tax-exempt
obligations or from any other reporting service or source of information which
the Evaluator deems appropriate.
Section 4.2. Compensation of Evaluator. As compensation for its
service hereunder, the Evaluator shall be paid the fee specified in Part II of
the Reference Trust Agreement, provided, that if at any time the fee of the
Trustee shall have been increased pursuant to Section 6.4, the compensation of
the Evaluator shall at the same time be ratably increased.
Section 4.3. Liability of Evaluator. The Trustee, the Depositors and
the Certificateholders may rely on any evaluation furnished by the Evaluator and
shall have no responsibility for the accuracy thereof. The determinations made
by the Evaluator hereunder shall be made in good faith upon the basis of the
best information available to it. The Evaluator shall be under no liability to
the Trustee, the Depositors or the Certificateholders for errors in judgment or
any action taken in good faith, provided, however, that this provision shall not
-22-
360017.1
<PAGE>
protect the Evaluator against any liability to which it would otherwise be
subject by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties or by reason of its reckless disregard of its
obligations and duties hereunder.
Section 4.4. Resignation, Removal and Other Matters. (a) The
Evaluator may resign and be discharged hereunder, by executing an instrument in
writing resigning as the Evaluator and filing the same with the Depositors and
the Trustee not less than sixty days before the date specified in such
instrument when, subject to Section 4.4(c), such resignation is to take effect.
Upon receiving such notice of resignation, the Depositors and the Trustee shall
use their best efforts to appoint a successor Evaluator having qualifications
and at a rate of compensation satisfactory to the Depositors and the Trustee.
Such appointment shall be made by written instrument executed by the Depositors
and the Trustee, in duplicate, one copy of which shall be delivered to the
resigning Evaluator and one copy to the successor Evaluator. The Depositors or
the Trustee may remove the Evaluator at any time upon thirty days' written
notice and appoint a successor Evaluator having qualifications and at a rate of
compensation satisfactory to the Depositors and the Trustee. Such appointment
shall be made by written instrument executed by the Depositors and the Trustee,
in duplicate, one copy of which shall be delivered to the Evaluator so removed
and one copy to the successor Evaluator. Notice of such resignation or removal
and appointment of a successor Evaluator shall be mailed by the Trustee to each
Certificateholder.
(b) If the Evaluator resigns and no successor Evaluator shall have
been appointed and have accepted appointment within thirty days after receipt of
the notice of resignation by the Depositors and the Trustee, the Evaluator may
forthwith apply to a court of competent jurisdiction for the appointment of a
successor Evaluator. Such court may thereupon, after such notice, if any, as it
may deem proper, appoint a successor Evaluator.
(c) Any successor Evaluator appointed hereunder shall execute,
acknowledge and deliver to the Depositors and the Trustee an instrument
accepting such appointment hereunder, and such successor Evaluator without any
further act, deed or conveyance shall become vested with all the rights, powers,
duties and obligations of its predecessor hereunder with like effect as if
originally named the Evaluator herein and shall be bound by all the terms and
conditions of this Indenture. Any resignation or removal of the Evaluator and
appointment of a successor Evaluator pursuant to this Section 4.4 shall become
effective upon such acceptance of appointment.
-23-
360017.1
<PAGE>
(d) Any corporation into which the Evaluator hereunder may be merged
or with which it may be consolidated, or any corporation resulting from any
merger or consolidation to which the Evaluator hereunder shall be a party, shall
be the successor Evaluator under this Indenture without the execution or filing
of any paper, instrument or further act to be done on the part of the parties
hereto, anything herein, or in any agreement relating to such merger or
consolidation, by which the Evaluator may seek to retain certain powers, rights
and privileges theretofore obtaining for any period of time following such
merger or consolidation, to the contrary notwithstanding.
ARTICLE V
TRUST EVALUATION; REDEMPTION, PURCHASE, TRANSFER,
INTERCHANGE OR REPLACEMENT OF CERTIFICATES
Section 5.1. Trust Evaluation. The Trustee shall make an evaluation
of each State Trust (herein called a "Trust Evaluation") as of the closing of
trading on the New York Stock Exchange, (i) on the last business day of each of
the months of December and June, (ii) on the day on which any Unit of such State
Trust is tendered for redemption unless such tender shall occur subsequent to
the close of trading on the New York Stock Exchange, in which event on the
business day next following such day, and on each business day after the initial
public offering has been completed, and (iii) on any other day desired by the
Trustee or requested by the Depositors. Each Trust Evaluation shall take into
account and itemize separately for the respective State Trust.
(1) the cash on hand in such State Trust (other than cash declared
held specially for purchase of Contract Bonds) or moneys in the process of being
collected from matured interest coupons or Bonds matured or called for
redemption prior to maturity;
(2) the value of each issue of the Bonds (including Contract Bonds)
on the bid side of the market as determined by the Evaluator pursuant to Section
4.1; and
(3) accrued but unpaid interest on the Bonds.
For each such Trust Evaluation there shall be deducted from the sum of the
above:
(1) amounts representing any applicable taxes or governmental
charges payable out of such State Trust and for which no deductions shall have
previously been made for the purpose of addition to the Reserve Account;
-24-
360017.1
<PAGE>
(2) amounts representing accrued expenses of such State Trust
including but not limited to unpaid fees and expenses (including legal and
auditing expenses) of the Trustee, the Evaluator and counsel pursuant to Section
3.9 on or prior to the date of evaluation; and
(3) cash held for distribution to Certificateholders of record as of
a date prior to the evaluation then being made.
The value of the pro rata share of each Unit of such State Trust determined on
the basis of any such Trust Evaluation is referred to herein as the "Net Asset
Value" per Unit.
Section 5.2. Redemptions by Trustee; Purchases by Depositors. Any
Certificate tendered for redemption by a Certificateholder or his duly
authorized attorney to the Trustee at its corporate trust office, or any Plan
Unit tendered to the Trustee for redemption by the registered holder thereof
pursuant to the Redemption Form, shall be redeemed by the Trustee on the seventh
calendar day following the day on which tender for redemption is made, provided
that if such day of redemption is not a business day, then such Certificate
shall be redeemed on the first business day prior thereto (such seventh calendar
day or first business day prior thereto being herein called the "Redemption
Date"). Subject to payment by such Certificateholder of any tax or other
governmental charges which may be imposed thereon, such redemption is to be made
by payment on the Redemption Date of cash equivalent to the Net Asset Value per
Unit or Plan Unit determined by the Trustee as of the closing of trading on the
New York Stock Exchange, on the date of tender, multiplied by the number of
Units represented by such Certificate or Redemption Form (herein called the
"Redemption Price"). Certificates or Redemption Forms received for redemption by
the Trustee on any day after the close of trading on the New York Stock Exchange
will be held by the Trustee until the next day on which the New York Stock
Exchange is open for trading and will be deemed to have been tendered on such
day for redemption at the Redemption Price computed on that day.
The Trustee may in its discretion, and shall when so directed by the
Depositors in writing, suspend the right of redemption or postpone the date of
payment of the Redemption Price for more than seven calendar days following the
day on which tender for redemption is made:
(1) for any period during which the New York Stock Exchange is
closed other than customary weekend and holiday closings or during which trading
on the New York Stock Exchange is restricted;
(2) for any period during which an emergency exists as
a result of which disposal by such State Trust of the Bonds is
-25-
360017.1
<PAGE>
not reasonably practicable or it is not reasonably practicable fairly to
determine in accordance herewith the value of the Bonds; or
(3) for such other periods as the Securities and Exchange Commission
may by order permit,
and the Trustee shall not be liable to any person or in any way for any loss or
damage which may result from any such suspension or postponement.
Not later than the close of business on the day of tender of a
Certificate or Redemption Form for redemption by a Certificateholder other than
the Depositors, the Trustee shall notify the Depositors of such tender. The
Depositors shall have the right to purchase such Certificate or Redemption Form
by notifying the Trustee of its election to make such purchase as soon as
practicable thereafter, but in no event subsequent to the close of business on
the second business day after the day on which such Certificate or Redemption
Form was tendered for redemption. Such purchase shall be made by payment for
such Certificate or Redemption Form by the Depositors to the Certificateholder
or Plan Unit holder not later than the close of business on the Redemption Date
of an amount equal to the Redemption Price which would otherwise be payable by
the Trustee to such Certificateholder or Plan Unit holder.
Any Certificate or Redemption Form so purchased by the Depositor
may, at the option of the Depositors, be tendered to the Trustee for redemption
at the corporate trust office of the Trustee in the manner provided in the first
paragraph of this Section 5.2.
If the Depositors do not elect to purchase any Certificate or
Redemption Form tendered to the Trustee for redemption, or if a Certificate or
Redemption Form is being tendered by the Depositors for redemption, that portion
of the Redemption Price which represents interest shall be withdrawn from the
Interest Account of the appropriate State Trust to the extent funds are
available. The balance paid on any redemption, including accrued interest, if
any, shall be withdrawn from the Principal Account of such State Trust to the
extent that funds are available for such purpose. If such available balance
shall be insufficient, the Trustee shall sell such Bonds held in such State
Trust from among those designated on the current list for such purpose as
provided below and in the manner, in its discretion, as it shall deem advisable
or necessary in order to fund the Principal Account of such State Trust for
purposes of such redemption. Sales of Bonds by the Trustee shall be made in such
manner as the Trustee shall determine, subject to any minimum face amount
limitations on sale which shall have been specified by the Depositors and agreed
to by the Trustee. In the
-26-
360017.1
<PAGE>
event that funds are withdrawn from the Principal Account or Bonds are sold for
payment of any portion of the Redemption Price representing accrued interest,
the Principal Account shall be reimbursed when sufficient funds are next
available in the Interest Account for such funds so applied.
The Depositors shall maintain with the Trustee a current list of
Bonds held in each State Trust designated to be sold for the purpose of
redemption of Certificates or Redemption Forms tendered for redemption and not
purchased by the Depositors, and for payment of expenses hereunder, provided
that if the Depositors shall for any reason fail to maintain such a list, the
Trustee, in its sole discretion, may designate a current list of Bonds for such
purposes. The net proceeds of any sales of Bonds from such list representing
principal shall be credited to the Principal Account of such State Trust and the
proceeds of such sales representing accrued interest shall be credited to the
Interest Account of such State Trust.
Neither the Trustee nor the Depositors shall be liable or
responsible in any way for depreciation or loss incurred by reason of any sale
of Bonds made pursuant to this Section 5.2.
Certificates evidencing Units, or Redemption Forms evidencing Plan
Units, redeemed pursuant to this Section 5.2 shall be cancelled by the Trustee
and the Units or Plan Units evidenced by such Certificates or Redemption Forms
shall be terminated by such redemptions. In the event that a Certificate shall
be tendered representing a number of Units greater than those requested to be
redeemed by the Certificateholder, the Trustee shall issue to each
Certificateholder, upon payment of any tax or charges of the character referred
to in the second paragraph to Section 5.3, a new Certificate evidencing the
Units representing the balance of the Certificate so tendered.
Notwithstanding the foregoing provisions of this Section 5.2, the
Trustee is hereby irrevocably authorized in its discretion, in the event that
the Depositors do not elect to purchase any Certificate or Redemption Form
tendered to the Trustee for redemption, or in the event that a Certificate or
Redemption Form is being tendered by the Depositors for redemption, in lieu of
redeeming Units or Plan Units tendered for redemption, to sell such Units or
Plan Units in the over-the-counter market or by private sale for the account of
tendering Unit or Plan Unit holders at prices which will return to the Unit or
Plan Unit holders amounts in cash, net after deducting brokerage commissions,
transfer taxes and other charges, equal to or in excess of the Redemption Prices
which such Unit or Plan Unit holders would otherwise be entitled to receive on
redemption pursuant to this Section 5.2. The Trustee shall pay to the Unit or
Plan Unit holders the net proceeds of any such sale on the day
-27-
360017.1
<PAGE>
they would otherwise be entitled to receive payment of the Redemption Price
hereunder.
Section 5.3. Transfer or Interchange of Certificates. Certificate
may be transferred by the registered holder thereof by presentation and
surrender of such Certificate at the corporate trust office of the Trustee
properly endorsed or accompanied by a written instrument or instruments of
transfer in form satisfactory to the Trustee and executed by the
Certificate-holder or his authorized attorney, whereupon a new registered
Certificate or Certificates for the same number of Units executed by the Trustee
and the Depositors will be issued in exchange and substitution therefor.
Certificates issued pursuant to this Indenture are interchangeable for one or
more other Certificates in an equal aggregate number of Units and all
Certificates issued shall be issued in denominations of one Unit or any multiple
thereof as may be requested by the Certificateholder. The Trustee may deem and
treat the person in whose name any Certificate shall be registered upon the
books of the Trustee as the owner of such Certificate for all purposes hereunder
and the Trustee shall not be affected by any notice to the contrary, nor be
liable to any person or in any way for so deeming or treating the person in
whose name any Certificate shall be so registered.
A sum sufficient to pay any tax or other governmental charge that
may be imposed in connection with any such transfer or interchange shall be paid
by the Certificateholder to the Trustee. The Trustee may require a
Certificateholder to pay $2.00 for each new Certificate issued on any such
transfer or interchange.
All Certificates cancelled pursuant to this Indenture shall be
disposed of by the Trustee without liability on its part.
Section 5.4. Certificates Mutilated, Destroyed, Stolen or Lost. In
case any Certificate shall become mutilated or be destroyed, stolen or lost, the
Trustee shall execute and deliver a new Certificate in exchange and substitution
therefor upon the holder's furnishing the Trustee with proper identification and
indemnity satisfactory to the Trustee, and complying with such other reasonable
regulations and conditions as the Trustee may prescribe and paying such expenses
as the Trustee may incur. Any mutilated Certificate shall be duly surrendered
and cancelled before any new Certificate shall be issued in exchange and
substitution therefor. Upon the issuance of any new Certificate a sum sufficient
to pay any tax or other governmental charge and the fees and expenses of the
Trustee may be imposed. Any such new Certificate issued pursuant to this Section
shall constitute complete and indefeasible evidence of ownership in the Trust,
as if originally issued, whether or not the lost, stolen or destroyed
Certificate shall be found at any time.
-28-
360017.1
<PAGE>
In the event a State Trust has terminated or is in the process of
termination, the Trustee may, instead of issuing a new Certificate in exchange
and substitution for any Certificate which shall have become mutilated or shall
have been destroyed, stolen or lost, make the distributions in respect of such
mutilated, destroyed, stolen or lost Certificate (without surrender thereof
except in the case of a mutilated Certificate) as provided in Section 9.2 hereof
if the Trustee is furnished with such security or indemnity as it may require to
save it harmless, and in the case of destruction, loss or theft of a
Certificate, evidence to the satisfaction of the Trustee of the destruction,
loss or theft of such Certificate and of the ownership thereof.
ARTICLE VI
TRUSTEE; REMOVAL OF DEPOSITORS
Section 6.1. General Definition of Trustee's Liabilities, Rights and
Duties; Removal of Depositors. In addition to and notwithstanding the other
duties, rights, privileges and liabilities of the Trustee otherwise set forth
herein, the liabilities of the Trustee are further defined as follows:
(a) all moneys deposited with or received by the Trustee hereunder
related to a State Trust shall be held by the Trustee without interest in trust
as part of such State Trust or the Reserve Account until required to be
disbursed in accordance with the provisions of this Indenture and such moneys
will be segregated by separate recordation on the trust ledgers of the Trustee
so long as such practice preserves a valid preference under applicable law, or
if such preference is not so preserved the Trustee shall handle such moneys in
such other manner as shall constitute the segregation and holding thereof in
trust within the meaning of the Investment Company Act of 1940;
(b) the Trustee shall be under no liability for any action taken in
good faith on any appraisal, paper, order, list, demand, request, consent,
affidavit, notice, opinion, direction, evaluation, endorsement, assignment,
resolution, draft or other document, whether or not of the same kind prima facie
properly executed, or for the disposition of moneys, Bonds or Certificates
pursuant to this Indenture, or in respect of any evaluation which the Trustee is
required to make or is required or permitted to have made by others under this
Indenture or otherwise except by reason of its gross negligence, lack of good
faith or willful misconduct, provided that the Trustee shall not in any event be
liable or responsible for any evaluation made by the Evaluator. The Trustee may
construe any of the provisions of this Indenture, insofar as the same may appear
to be ambiguous or inconsistent with any other provisions hereof, and any
construction of any
-29-
360017.1
<PAGE>
such provisions hereof by the Trustee in good faith shall be binding upon the
parties hereto. The Trustee shall in no event be deemed to have assumed or
incurred any liability, duty or obligation to any Certificateholder, the
Evaluator or the Depositors, other than expressly provided for herein;
(c) the Trustee shall not be responsible for or in respect of the
recitals herein, the validity or sufficiency of this Indenture or for the due
execution hereof by the Depositors or the Evaluator, or for the form, character,
genuineness, sufficiency, value or validity of any Bonds (except that the
Trustee shall be responsible for the exercise of due care in determining the
genuineness of Bonds delivered to it pursuant to contracts for the purchase of
such Bonds) or for or in respect of the validity or sufficiency of the
Certificates or of the due execution thereof by the Depositors, and the Trustee
shall in no event assume or incur any liability, duty or obligation to any
Certificateholder, the Evaluator or the Depositors other than as expressly
provided for herein. The Trustee shall not be responsible for or in respect of
the validity of any signature by or on behalf of the Depositors or the
Evaluator;
(d) the Trustee shall not be under any obligation to appear in,
prosecute or defend any action, which in its opinion may involve it in expense
or liability, unless as often as required, it shall be furnished with reasonable
security and indemnity against such expense or liability as it may require, and
any pecuniary cost of the Trustee from such actions shall be deductible from and
a charge against the Interest and Principal Accounts. The Trustee shall in its
discretion undertake such action as it may deem necessary at any and all times
to protect the Trust and the rights and interests of the Certificateholders
pursuant to the terms of this Indenture, provided, however, that the expenses
and costs of such actions, undertakings or proceedings shall be reimbursable to
the Trustee from the Interest and Principal Accounts, and the payment of such
costs and expenses shall be secured by a lien on the Trust prior to the
interests of the Certificateholders;
(e) the Trustee may employ agents, attorneys, accountants and
auditors and shall not be answerable for the default or misconduct of any such
agents, attorneys, accountants or auditors if such agents, attorneys,
accountants or auditors shall have been selected with reasonable care. The
Trustee shall be fully protected in respect of any action under this Indenture
taken, or suffered, in good faith by it in accordance with the opinion of
counsel. The fees and expenses charged by such agents, attorneys, accountants or
auditors shall constitute an expense of the Trustee reimbursable from the
Interest and Principal Accounts of the affected State Trust as set forth in
Section 3.5 hereof;
-30-
360017.1
<PAGE>
(f) other than as provided in Article VII hereunder, if at any time
there is only one Depositor acting hereunder and said Depositor shall resign or
fail to undertake or perform or become incapable of undertaking or performing
any of the duties which by the terms of this Indenture are required by it to be
undertaken or performed and no express provision is made for action to be taken
by the Trustee in such event, or said Depositor shall be adjudged a bankrupt or
insolvent, or a receiver of such Depositor or of its property shall be
appointed, or any public officer shall take charge or control of such Depositor
or of its property or affairs for the purpose of rehabilitation, conservation or
liquidation, then in any such case, the Trustee may do any one or more of the
following: (1) appoint a successor Depositor who shall act hereunder in all
respects in place of the Depositor, who shall be compensated semi-annually, at
rates deemed by the Trustee to be reasonable under the circumstances, by
deduction from the Interest Account or from the Principal Account of the
affected State Trust, but no such deduction shall be made exceeding such
reasonable amount as the Securities and Exchange Commission may prescribe in
accordance with Section 26(a)(2)(C) of the Investment Company Act of 1940; (2)
continue to act in the capacity of Trustee hereunder in its own absolute
discretion without appointing any successor Depositor; or (3) terminate this
Indenture and the Trust created hereby and liquidate the affected State Trust,
all in the manner provided in Section 9.2;
(g) if the value of any State Trust as shown by any evaluation by
the Trustee pursuant to Section 5.1 hereof shall be less than the liquidation
amount specified in Part II of the Reference Trust Agreement, the Trustee shall,
when so directed by the Depositors, terminate this Indenture and such State
Trust created hereby and liquidate such State Trust, all in the manner provided
in Section 9.2;
(h) in no event shall the Trustee be personally liable for any taxes
or other governmental charges imposed upon or in respect of the Bonds or upon
the interest thereon or upon it as Trustee hereunder or upon or in respect of
the Trust which it may be required to pay under any present or future law of the
United States of America or any other taxing authority having jurisdiction in
the premises. For all such taxes and charges and for any expenses, including
counsel fees, which the Trustee may sustain or incur with respect to such taxes
or charges, the Trustee shall be reimbursed and indemnified out of the Interest
and Principal Accounts of the affected State Trust, and the payment of such
amounts so paid by the Trustee shall be secured by a prior lien on such State
Trust;
(i) the Trustee, except by reason of its gross negligence, lack of
good faith, reckless disregard of its obligations hereunder or willful
misconduct, shall not be liable
-31-
360017.1
<PAGE>
for any action taken or suffered to be taken by it in good faith and believed by
it to be authorized or within the discretion or rights or powers conferred upon
it by this Indenture;
(j) notwithstanding anything in this Indenture to the contrary, the
Trustee is authorized and empowered to enter into any safekeeping arrangement or
arrangements it deems necessary or appropriate for holding the Bonds then owned
by the Trust and the Trustee is authorized and empowered in its sole right to
amend, supplement or terminate any safekeeping arrangement or arrangements made
under this provision.
Section 6.2. Books, Records and Reports. The Trustee shall keep
proper books of record and account of all the transactions under this Indenture
at its corporate trust office including a record of the name and address of, and
the Certificates issued by each State Trust and held by, every
Certificateholder, and such books and records shall be open to inspection by any
Certificateholder of such State Trust at all reasonable times during the usual
business hours, and such books and records shall be made available to the
Depositors upon the request of the Depositors including, but not limited to, a
record of the name and address of, and the Certificates issued by each State
Trust and held by, every Certificateholder.
The Trustee shall cause audited statements as to the assets and
income of the Trust to be prepared on an annual basis by independent public
accountants selected by the Depositors, provided, however, if the cost to the
Trust for preparation of such statements shall exceed an amount equivalent to
$.50 per Unit on an annual basis then the Trustee shall not be required to have
such statements prepared. Such audited statements will be made available to
Certificateholders upon request.
To the extent permitted under the Investment Company Act of 1940 as
evidenced by an opinion of counsel to the Depositors, the Trustee shall pay, or
reimburse to the Depositors or others, the costs of the preparation of documents
and information with respect to each State Trust required by law or regulation
in connection with the maintenance of a secondary market in units of such State
Trust. Such costs may include but are not limited to accounting and legal fees,
blue sky registration and filing fees, printing expenses and other reasonable
expenses related to documents required under Federal and state securities laws.
The Trustee shall make such annual or other reports as may from time
to time be required under any applicable state or federal statute or rule or
regulation thereunder.
Section 6.3. Indenture and List of Bonds on File. The Trustee shall
keep a certified copy or duplicate original of this
-32-
360017.1
<PAGE>
Indenture on file at its corporate trust office available for inspection at all
reasonable times during the usual business hours by any Certificateholder and
the Trustee shall keep and so make available for inspection a current list of
the Bonds in each State Trust.
Section 6.4. Compensation. For services performed under this
Indenture the Trustee shall be paid at the rate per annum set forth in Part II
of the Reference Trust Agreement which shall be computed on the basis of the
greatest principal amount of Bonds in each State Trust at any time during the
period with respect to which such compensation is being computed. The Trustee
may from time to time adjust its compensation as set forth above provided that
the total adjustment upward does not, at the time of such adjustment, exceed the
percentage of the total increase, after the date hereof, in consumer prices for
services as measured by the United States Department of Labor Consumer Price
Index entitled "All Services Less Rent", or, if such index shall cease to be
published, then as measured by the available index most nearly comparable to
such index. The consent or concurrence of any Certificateholder hereunder shall
not be required for any such adjustment or increase; however, the consent of the
Depositors shall be required. Such compensation shall be charged by the Trustee
against the Interest and Principal Accounts of the affected State Trust on or
before the Payment Date on which such period terminates; provided, however, that
such compensation shall be deemed to provide only for the usual normal and
recurring functions undertaken as Trustee pursuant to this Indenture.
The Trustee shall charge the Interest and Principal Accounts of the
affected State Trust as provided for in Section 3.5(a) for any and all expenses,
including the fees of counsel which may be retained by the Trustee in connection
with its activities hereunder, and disbursements incurred hereunder and any
extraordinary services performed by the Trustee hereunder. The Trustee shall be
indemnified ratably by the affected State Trust and held harmless against any
loss or liability accruing to it without negligence, bad faith or willful
misconduct on its part, arising out of or in connection with the acceptance or
administration of such State Trust, including the costs and expenses (including
counsel fees) of defending itself against any claim of liability in the
premises. If the cash balances in the Interest and Principal Accounts of the
affected State Trust shall be insufficient to provide for amounts payable
pursuant to this Section 6.4, the Trustee shall have the power to sell (i) Bonds
from the current list of Bonds designated to be sold pursuant to Section 5.2
hereof, or (ii) if no such Bonds have been so designated, such Bonds as the
Trustee may see fit to sell in its own discretion, and to apply the proceeds of
any such sale in payment of the amounts payable pursuant to this Section 6.4.
The Trustee shall not be liable or responsible in any way for
-33-
360017.1
<PAGE>
depreciation or loss incurred by reason of any sale of Bonds made pursuant to
this Section 6.4. Any moneys payable to the Trustee pursuant to this section
shall be secured by a prior lien on the affected State Trust.
Section 6.5. Removal and Resignation of the Trustee; Successor. The
following provisions shall provide for the removal and resignation of the
Trustee and the appointment of any successor Trustee:
(a) any resignation or removal of the Trustee and appointment of a
successor pursuant to this section shall not become effective until
acceptance of appointment by the successor Trustee as provided in
subsection (b) hereof;
(b) the Trustee or any trustee hereafter appointed may resign and be
discharged of the trust created by this Indenture by executing an
instrument in writing resigning as such Trustee, filing the same with the
Depositors and mailing a copy of a notice of resignation to all
Certificateholders then on record not less than sixty days before the date
specified in such instrument when, subject to Section 6.5(d), such
resignation is to take effect. Upon receiving such notice of resignation,
the Depositors shall use their best efforts to promptly appoint a
successor Trustee as hereinafter provided, by written instrument, in
duplicate, one copy of which shall be delivered to the resigning Trustee
and one copy to the successor Trustee. In case at any time the Trustee
shall become incapable of acting or shall be deemed incapable of acting by
the written consent of holders of Certificates evidencing 66 2/3% of the
outstanding Units of all the State Trusts comprising a particular
Multi-State Series, or shall be adjudged a bankrupt or insolvent, or a
receiver of the Trustee or of its property shall be appointed, or any
public officer shall take charge or control of the Trustee or of its
property or affairs for the purposes of rehabilitation, conservation, or
liquidation, then in any such case the Depositors may remove the Trustee
and appoint a successor Trustee by written instrument, in duplicate, one
copy of which shall be delivered to the Trustee so removed and one copy to
the successor Trustee; provided that notice of such removal and
appointment of a successor shall be given to each Certificateholder then
of record;
(c) any successor Trustee appointed hereunder shall execute,
acknowledge and deliver to the Depositors and the retiring Trustee an
instrument accepting such appointment hereunder, and such successor
Trustee without any further act, deed or conveyance shall become vested
with all the rights, powers, duties and obligations of its predecessor
hereunder with like effect as if originally named Trustee
-34-
360017.1
<PAGE>
herein and shall be bound by all the terms and conditions of this
Indenture. Upon the request of such successor Trustee, the Depositors and
the retiring Trustee shall, upon payment of any amounts due the retiring
Trustee or provision therefor to the satisfaction of such retiring
Trustee, execute and deliver an instrument acknowledged by it transferring
to such successor trustee all the rights and powers of the retiring
Trustee; and the retiring Trustee shall transfer, deliver and pay over to
the successor Trustee all bonds and moneys at the time held by it
hereunder, together with all necessary instruments of transfer and
assignment or other documents properly executed necessary to effect such
transfer and such of the records or copies thereof maintained by the
retiring Trustee in the administration hereof as may be requested by the
successor Trustee, and shall thereupon be discharged from all duties and
responsibilities under this Indenture. The retiring Trustee shall,
nevertheless, retain a lien upon all Bonds and moneys at the time held by
it hereunder to secure any amounts then due the retiring Trustee
hereunder;
(d) in case at any time the Trustee shall resign and no successor
Trustee shall have been appointed and have accepted appointment within
thirty days after notice of resignation has been received by the
Depositors, the retiring Trustee may forthwith apply to a court of
competent jurisdiction for the appointment of a successor Trustee. Such
court may thereupon, after such notice, if any, as it may deem proper and
prescribe, appoint a successor Trustee; and
(e) any corporation into which any Trustee hereunder may be merged
or with which it may consolidate, or any corporation resulting from any
merger or consolidation to which any Trustee hereunder shall be a party,
shall be the successor Trustee under this Indenture without the execution
or filing of any paper, instrument or further act to be done on the part
of the parties hereto, anything herein, or in any agreement relating to
such merger or consolidation, by which any such Trustee may seek to retain
certain powers, rights and privileges theretofore obtaining for any period
of time following such merger or consolidation, to the contrary
notwithstanding.
Section 6.6. Qualifications of Trustee. The Trustee, or any
successor thereof, shall be a corporation organized and doing business under the
laws of the United States or any state thereof, which is authorized under such
laws to exercise corporate trust powers and having at all times an aggregate
capital, surplus, and undivided profits of not less than $2,500,000.
-35-
360017.1
<PAGE>
ARTICLE VII
DEPOSITORS
Section 7.1. Power of Attorney. (a) At all times prior to the
termination of this Indenture and while the Depositors shall continue to act
jointly hereunder, there shall be maintained on file with the Trustee a power of
attorney executed in favor of Bear Stearns by Gruntal constituting and
appointing Bear Stearns as the true and lawful agent and attorney-in-fact of
Gruntal to execute and deliver for and on behalf of Gruntal, as a Depositor of
any State Trust created hereunder, all notices, opinions, certificates, lists,
demands, directions, instruments or other documents or agreements provided or
permitted to be executed by the Depositors hereunder or to take other action in
respect thereof. Such power of attorney shall also appoint Bear Stearns as the
true and lawful agent and attorney-in-fact of Gruntal to receive, on behalf of
Gruntal as a depositor of any State Trust created hereunder, all notices,
opinions, certificates, lists, demands, directions, instruments or other
documents to be provided to the Depositors hereunder. Such power of attorney
shall continue in effect until written notice of revocation thereof has been
received by the Trustee. Prior to the receipt of such notice of renovation, the
Trustee shall be entitled to rely conclusively upon such power of attorney as
authorizing Bear Stearns to give any and all notices, opinions, certificates,
lists, demands, directions, instruments or other documents or agreements
provided or permitted to be executed by the Depositors hereunder or to take
other action in respect thereof on behalf of Gruntal.
(b) In the event that the power of attorney referred to in Section
7.1(a) shall be revoked by written notice given by Gruntal and it shall not be
replaced within one business day by another power of attorney conforming with
the requirements of said Section 7.1(a), the Depositors shall be deemed to have
been unable to reach agreement with respect to action to be taken jointly by
them hereunder and thereupon Gruntal shall be discharged hereunder upon the
expiration of such one-day period and thereupon Bear Stearns shall act hereunder
without the necessity of any other or further action on their part or on the
part of the Trustee.
Section 7.2. Succession. The covenants, provisions and agreements
herein contained shall in every case be binding upon any successor to the
business of the Depositors. In the event of the death, resignation or withdrawal
of any partner of any successor Depositor which may be a partnership, the
deceased, resigning or withdrawing partner shall be relieved of all further
liability hereunder if at the time of such death, resignation or withdrawal such
Depositor maintains a net worth (determined in accordance with generally
accepted accounting principles) of at
-36-
360017.1
<PAGE>
least $1,000,000. In the event of an assignment by any Depositor to a successor
corporation or partnership as permitted by the next following sentence, such
Depositor and, if such Depositor is a partnership, its partners shall be
relieved of all further liability under this Indenture. The Depositors may
transfer all or substantially all of their assets to a corporation or
partnership which carries on the business of that Depositor, if at the time of
such transfer such successor duly assumes all the obligations of said Depositor
under this Indenture and if at such time such successor maintains a net worth of
at least $1,000,000 (determined in accordance with generally accepted accounting
principles).
Section 7.3. Resignation of a Depositor. If at any time, any
Depositor desires to resign its position as Depositor hereunder, it may resign
by delivering to the Trustee an instrument of resignation executed by such
Depositor. Such resignation shall become effective upon the expiration of thirty
days from the date on which such instrument is delivered to the Trustee. Upon
effective resignation hereunder, the resigning Depositor shall be discharged and
shall no longer be liable in any manner hereunder except as to acts or omissions
occurring prior to such resignation and any successor Depositor appointed by the
Trustee pursuant to Section 6.1(f) shall thereupon perform all duties and be
entitled to all rights under this Indenture. The successor Depositor shall not
be under any liability hereunder for occurrences or omissions prior to the
execution of such instrument.
Section 7.4. Liability of Depositors and Indemnification. (a) No
Depositor shall be under liability to any other Depositor, the Trust or the
Certificateholders for any action or for refraining from the taking of any
action in good faith pursuant to this Indenture, or for errors in judgment or
for depreciation or loss incurred by reason of the purchase or sale of any
Bonds, provided, however, that this provision shall not protect the Depositors
against any liability to which they would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of their
duties or by reason of their reckless disregard of their obligations and duties
hereunder. The Depositors may rely in good faith on any paper, order, notice,
list, affidavit, receipt, evaluation, opinion, endorsement, assignment, draft or
any other document of any kind prima facie properly executed and submitted to it
by the Trustee, the Trustee's counsel, the Evaluator or any other person for any
matters arising hereunder. The Depositors shall in no event be deemed to have
assumed or incurred any liability, duty, or obligation to any Certificateholder,
the Evaluator or the Trustee other than as expressly provided for herein.
(b) Each State Trust shall pay and hold the Depositors harmless from
and against any loss, liability or expense incurred
-37-
360017.1
<PAGE>
in acting as Depositors of the affected State Trust other than by reason of
willful misfeasance, bad faith or gross negligence in the performance of their
duties or by reason of the reckless disregard of their obligations and duties
hereunder, including the costs and expenses of the defense against any claim or
liability in the premises. The Depositors shall not be under any obligation to
appear in, prosecute or defend any legal action which in their opinion may
involve them in any expense or liability, provided, however, that the Depositors
may in their discretion, undertake any such action which they may deem necessary
or desirable in respect of this Indenture and the rights and duties of the
parties hereto and the interests of the Certificateholders hereunder and, in
such event, the legal expenses and costs of any such action and any liability
resulting therefrom shall be expenses, costs and liabilities of the affected
State Trust and shall be paid directly by the Trustee out of the Interest and
Principal Accounts of such State Trust as provided by Section 3.5.
(c) None of the provisions of this Indenture shall be deemed to
protect or purport to protect the Depositors against any liability to the Trust
or to the Certificateholders to which the Depositors would otherwise be subject
by reason of willful misfeasance, bad faith or gross negligence in the
performance of their duties, or by reason of the Depositors' reckless disregard
of their obligations and duties under this Indenture.
(d) Notwithstanding the discharge of a Depositor of the Trust in
accordance with Section 6.1(f) or Section 7.1(b), such Depositor shall continue
to be fully liable in accordance with the provisions hereof in respect of action
taken or refrained from under this Agreement by the Depositors before the date
of such discharge or by the undischarged Depositors before or after the date of
such discharge, as fully and to the same extent as if no discharge has occurred.
Section 7.5. Compensation. The Depositors shall receive at the times
set forth in Section 3.5 as compensation for performing portfolio supervisory
services, such amount and for such periods as specified in Part II of the
Reference Trust Agreement. The computation of such compensation shall be made on
the basis of the principal amount of Bonds in the Trust at the beginning of each
calendar year period. At no time, however, will the total amount received by the
Depositors for services rendered to all series of the Municipal Securities Trust
in any calendar year exceed the aggregate cost to them of supplying such
services in such year. Such rate may be increased by the Trustee from time to
time, without the consent or approval of any Certificateholder or the
Depositors, by amounts not exceeding the proportionate increase during the
period from the date of such Reference Trust Agreement to the date of any such
increase, in consumer prices as published either under the classification "All
-38-
360017.1
<PAGE>
Services Less Rent" in the Consumer Price Index published by the United States
Department of Labor or, if such Index is no longer published, a similar index.
In the event that any amount of the compensation paid to the
Depositors pursuant to Section 3.5 is found to be an improper charge against the
Trust, the Depositors shall reimburse the Trust in such amount. An improper
charge shall be established if a final judgment or order for reimbursement of
the Trust shall be rendered against the Depositors and such judgment or order
shall not be effectively stayed or a final settlement is established in which
the Depositors agree to reimburse the Trust for amounts paid to the Depositors
pursuant to this Section 7.5.
ARTICLE VIII
RIGHTS OF CERTIFICATEHOLDERS
Section 8.1. Beneficiaries of Trust. By the purchase and acceptance
or other lawful delivery and acceptance of any Certificate of a State Trust, a
Certificateholder shall be deemed to be a beneficiary of the Trust created by
this Indenture and vested with all right, title and interest in such State Trust
to the extent of the Unit or Units set forth and evidenced by such Certificate,
subject to the terms and conditions of this Indenture and of such Certificate.
Section 8.2. Rights, Terms and Conditions. In addition to the other
rights and powers set forth in the other provisions and conditions of this
Indenture the Certificateholders shall have the following rights and powers and
shall be subject to the following terms and conditions:
(a) a Certificateholder may at any time tender his Certificate or
Certificates to the Trustee for redemption in accordance with Section 5.2;
(b) the death or incapacity of any Certificateholder shall not
operate to terminate this Indenture or any State Trust created hereby, nor
entitle his legal representatives or heirs to claim an accounting or to
take any action or proceeding in any court of competent jurisdiction for a
partition or winding up of the related State Trust, nor otherwise affect
the rights, obligations and liabilities of the parties hereto or any of
them. Each Certificateholder expressly waives any right he may have under
any rule of law, or the provisions of any statute, or otherwise, to
require the Trustee at any time to account, in any manner other than as
expressly provided in this Indenture, in
-39-
360017.1
<PAGE>
respect of the Bonds or moneys from time to time received, held and applied
by the Trustee hereunder; and
(c) no Certificateholder shall have any right to vote or in any
manner otherwise control the operation and management of the Trust, or the
obligations of the parties hereto, nor shall anything herein set forth, or
contained in the terms of the Certificates, be construed so as to
constitute the Certificateholders from time to time as partners; nor shall
any Certificateholder ever be under any liability to any third persons by
reason of any action taken by the parties to this Indenture for any other
cause whatsoever.
ARTICLE IX
ADDITIONAL COVENANTS; MISCELLANEOUS PROVISIONS
Section 9.1. Amendments. This Indenture may be amended from time to
time by the parties hereto or their respective successors, without the consent
of any of the Certificateholders (a) to cure any ambiguity or to correct or
supplement any provision contained herein which may be defective or inconsistent
with any other provision contained herein; (b) to change any provision required
by Securities and Exchange Commission or any successor governmental agency to be
changed; or (c) to make such other provision in regard to matters or questions
arising hereunder as shall not adversely affect the interests of the
Certificateholders; provided, however, that the parties hereto may not amend
this Indenture so as to (1) increase the number of Units above the number set
forth in Part II of the Reference Trust Agreement except as provided in Section
5.4 hereof or such lesser amount as may be outstanding at any time during the
term of this Indenture or (2) subject to Sections 3.8 and 3.14 permit the
deposit or acquisition hereunder of securities either in addition to or in
replacement of any of the Bonds.
With respect to any State Trust, this Indenture may also be amended
from time to time by the Depositors and the Trustee (or the performance of any
of the provisions or this Agreement may be waived) with the expressed written
consent of holders of Certificates evidencing 66-2/3% of the Units of such State
Trust at the time outstanding under the Indenture for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Indenture or of modifying in any manner the rights of the holders of
Certificates of such State Trust, save for the termination of such State Trust
as set forth in Section 9.2 below; provided, however, that no such amendment or
waiver shall (i) reduce the interest in such
-40-
360017.1
<PAGE>
State Trust represented by Units evidenced by any Certificate without the
consent of the holder of such Certificate, (ii) reduce the aforesaid percentage
of Units of such State Trust, the holders of which are required to consent to
any such amendment, without the consent of the holders of all Certificates then
outstanding or (iii) affect the duties, obligations and responsibilities of the
Trustee without its consent.
Promptly after the execution of any such amendment the Trustee shall
furnish written notification to all then outstanding Certificateholders of the
substance of such amendment.
Section 9.2. Termination. This Indenture and each State Trust
created hereby shall terminate upon the maturity, redemption, sale or other
disposition as the case may be of the last Bond held in such State Trust
hereunder unless sooner terminated as hereinbefore specified and may be
terminated at any time by written consent of all the holders of Certificates of
such State Trust; provided that in no event shall any State Trust continue
beyond the end of the calendar year preceding the fiftieth anniversary of the
execution of this Indenture.
Written notice of any termination, specifying the time or times at
which the Certificateholders of such State Trust may surrender their
Certificates for cancellation shall be given by the Trustee to each
Certificateholder at his address appearing on the registration books of the
Trustee. Within a reasonable period of time after such termination of such State
Trust the Trustee shall fully liquidate the Bonds then held, if any, and shall,
with respect to such State Trust:
(a) deduct from the Interest Account or, to the extent that funds
are not available in such account, from the Principal Account and pay to
itself individually an amount equal to the sum of
(1) its accrued compensation for its ordinary
recurring services,
(2) any compensation due it for its extraordinary
services, and
(3) any other costs, expenses, advances or indemnities
as provided herein;
(b) deduct from the Interest Account or, to the extent
that funds are not available in such account, from the Principal
Account and pay accrued and unpaid fees of the Evaluator and
counsel pursuant to Section 3.9;
-41-
360017.1
<PAGE>
(c) deduct from the Interest Account or the Principal Account any
amounts which may be required to be deposited in the Reserve Account to
provide for payment of any applicable taxes or other governmental charges
and any other amounts which may be required to meet expenses incurred
under this Indenture in connection with such State Trust;
(d) distribute to each Certificateholder, upon surrender for
cancellation of his Certificate or Certificates, such holder's pro rata
share of the balance of the Interest Account;
(e) distribute to each Certificateholder, upon surrender for
cancellation of his Certificate or Certificates, such holder's pro rata
share of the balance of the Principal Account; and
(f) together with such distribution to each Certificateholder as
provided for in (d) and (e), furnish to each such Certificateholder a
final distribution statement as of the date of the computation of the
amount distributable to Certificateholders, setting forth the data and
information in substantially the form and manner provided for in Section
3.6 hereof.
The amounts to be so distributed to each Certificate-holder shall be
that pro rata share of the balance of the total Interest and Principal of such
State Trust as shall be represented by the Units therein evidenced by the
outstanding Certificate or Certificates held of record by such
Certificateholder.
The Trustee shall be under no liability with respect to moneys held
by it in the Interest, Reserve and Principal Accounts of such State Trust upon
termination except to hold the same in trust without interest until disposed of
in accordance with the terms of this Indenture.
In the event that all of the Certificateholders of such State Trust
shall not surrender their Certificates for cancellation within six months after
the time specified in the above mentioned written notice, the Trustee shall give
a second written notice to the remaining Certificateholders to surrender their
Certificates for cancellation and receive the liquidation distribution with
respect thereto. If within one year after the second notice all the Certificates
shall not have been surrendered for cancellation, the Trustee may take steps to
contact the remaining Certificateholders concerning surrender of their
Certificates and the cost thereof shall be paid out of the moneys and other
assets which remain in trust hereunder.
-42-
360017.1
<PAGE>
Section 9.3. Construction. This Indenture is executed and delivered
in the State of New York, and all local laws or rules of construction of such
State shall govern the rights of the parties hereto and the Certificateholders
and the interpretation of the provisions hereof.
Section 9.4. Registration of Certificates. The Depositors agree and
undertake to register the Certificates with the Securities and Exchange
Commission or other applicable governmental agency pursuant to applicable
Federal or state statutes, if such registration shall be required, and to do all
things that may be necessary or required to comply with this provision during
the term of each State Trust created hereunder, and the Trustee shall incur no
liability or be under any obligation or expense in connection therewith.
Section 9.5. Written Notice. Any notice, demand, direction or
instruction to be given to the Depositors hereunder shall be in writing and
shall be duly given if mailed or delivered to: Bear, Stearns & Co. Inc., 245
Park Avenue, New York, New York 10167, Gruntal & Co., Incorporated, 14 Wall
Street, New York, New York 10005 or at such other address as shall be specified
by the Depositors to the Trustee in writing. Any notice, demand, direction or
instruction to be given to the Trustee shall be in writing and shall be duly
given if mailed or delivered to the Trustee, 770 Broadway, New York, New York
10003, Attention: Corporate Trust and Agency Division or such other address as
shall be specified to the Depositors by the Trustee in writing. Any notice,
demand, direction or instruction to be given to the Evaluator hereunder shall be
in writing and shall be duly given if mailed to the Evaluator at 25 Broadway,
New York, New York 10004. Any notice to be given to the Certificateholders shall
be duly given if mailed or delivered to each Certificateholder at the address of
such holder appearing on the registration books of the Trustee.
Section 9.6. Severability. If any one or more of the covenants,
agreements, provisions or terms of this Indenture shall be held contrary to any
express provision of law or contrary to policy or express law, though not
expressly prohibited, or against public policy, or shall for any reason
whatsoever be held invalid, then such covenants, agreements, provisions or terms
shall be deemed severable from the remaining covenants, agreements, provisions
or terms of this Indenture and shall in no way affect the validity or
enforceability of the other provisions of this Indenture or of the Certificates
or the rights of the holders thereof.
-43-
360017.1
<PAGE>
Section 9.7. Dissolution of Depositors Not to Terminate. The
dissolution of either of the Depositors from or for any cause whatsoever shall
not operate to terminate this Indenture or the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed as of the date first above written.
(Signatures and acknowledgments on separate pages.)
-44-
360017.1
<PAGE>
BEAR, STEARNS & CO. INC.
Depositor
------------------------------
Associate Director
ATTEST:
- ----------------------------
STATE OF NEW YORK
ss.:
COUNTY OF NEW YORK
I, , a Notary Public in and for the
said County in the State aforesaid, do hereby certify that
, personally known to me to be the same person whose name is
subscribed to the foregoing instrument and personally known to me to be an
Associate Director of Bear Stearns & Co. Inc., a corporation, appeared before me
this day in person, and acknowledged that he signed and delivered the said
instrument as his free and voluntary act as such Associate Director and as the
free and voluntary act of said Bear Stearns & Co. Inc., for the uses and
purposes therein set forth.
GIVEN under my hand and notarial seal this day of , 19 .
------------------------------
Notary Public
(SEAL)
My Commission expires
360017.1
<PAGE>
GRUNTAL & CO., INCORPORATED
Depositor
------------------------------
Director
ATTEST:
- ----------------------------
STATE OF NEW YORK
ss.:
COUNTY OF NEW YORK
I, , a Notary Public in and for the
said County in the State aforesaid, do hereby certify that
, personally known to me to be the same person whose name is
subscribed to the foregoing instrument and personally known to me to be a
Director of Gruntal & Co., Incorporated, a corporation, appeared before me this
day in person, and acknowledged that he signed and delivered the said instrument
as his free and voluntary act as such Director and as the free and voluntary act
of said Gruntal & Co., Incorporated, for the uses and purposes therein set
forth.
GIVEN under my hand and notarial seal this day of , 19 .
------------------------------
Notary Public
(SEAL)
My Commission expires
360017.1
<PAGE>
UNITED STATES TRUST COMPANY OF NEW YORK
Trustee
--------------------------
Assistant Vice President
ATTEST:
- -------------------------
STATE OF NEW YORK
ss.:
COUNTY OF NEW YORK
On this day of , 19 , before me personally appeared , to me known,
who, being by me duly sworn, said that he is an Assistant Vice President of
United States Trust Company of New York, one of the corporations described in
and which (by facsimile) executed the foregoing instrument; that he knows the
seal of said corporation; that the seal affixed to the said instrument is such
corporate seal; that it was so affixed by authority of the Board of Directors of
said corporation, and that he signed his name thereto by like authority.
---------------------------
Notary Public
(SEAL)
My Commission expires
360017.1
<PAGE>
STANDARD & POOR'S CORPORATION
Evaluator
------------------------------
Vice President
(SEAL)
ATTEST:
- --------------------------
Vice President
STATE OF NEW YORK
ss.:
COUNTY OF NEW YORK
On this day of , 19 , before me personally appeared , to me known,
who, being by me duly sworn, said that he is Vice President of Standard & Poor's
Corporation, one of the corporations described in and which (by facsimile)
executed the foregoing instrument; that he knows the seal of said corporation;
that the seal affixed to the said instrument is such corporate seal; that it was
so affixed by authority of the Board of Directors of said corporation, and that
he signed his name (by facsimile) thereto by like authority.
---------------------------
Notary Public
(SEAL)
My Commission expires
360017.1
<PAGE>
MUNICIPAL SECURITIES TRUST,
MULTI-STATE SERIES 37 (and Subsequent Series)
------------------
TRUST INDENTURE AND AGREEMENT
Among
BEAR, STEARNS & CO. INC.
GRUNTAL & CO., INCORPORATED
As Depositors
UNITED STATES TRUST COMPANY OF NEW YORK
As Trustee
and
STANDARD & POOR'S CORPORATION
As Evaluator
------------------
Dated: June 30, 1989
360017.1
<PAGE>
TRUST INDENTURE AND AGREEMENT
MUNICIPAL SECURITIES TRUST,
MULTI-STATE SERIES 37
(and Subsequent Series)
TABLE OF CONTENTS
Article and Section Page
ARTICLE I DEFINITIONS; CERTIFICATES................................... 2
1.1. Definitions................................................. 2
1.2. Form of Certificate......................................... 4
ARTICLE II DEPOSIT OF BONDS; DECLARATION OF TRUST; FORM AND
ISSUANCE OF CERTIFICATES; SEPARATE TRUSTS;
CERTAIN CONTRACTS SATISFACTORY........................... 8
2.1. Deposit of Bonds............................................ 8
2.2. Declaration of Trust........................................ 8
2.3. Issue of Certificates....................................... 8
2.4. Form of Certificates........................................ 8
2.5. Separate Trusts............................................. 8
2.6. Certain Contracts Satisfactory.............................. 9
ARTICLE III ADMINISTRATION OF TRUST..................................... 9
3.1. Initial Cost................................................ 9
3.2. Interest Account............................................ 9
3.3. Principal Account........................................... 9
3.4. Reserve Account............................................. 10
3.5. Distributions............................................... 10
3.6. Distribution Statements..................................... 15
3.7. Sale of Bonds............................................... 17
3.8. Refunding Bonds............................................. 18
3.9. Counsel..................................................... 19
3.10. Notice and Sale by Trustee.................................. 19
3.11. Trustee Not to Amortize..................................... 19
3.12. Action by Trustee Regarding Bonds........................... 19
3.13. Notice of Change in Principal Account....................... 19
3.14. Limited Replacement of Special Bonds........................ 20
ARTICLE IV EVALUATION OF BONDS; EVALUATOR ............................. 21
4.1. Evaluation of Bonds......................................... 21
4.2. Compensation of Evaluator................................... 22
-i-
360017.1
<PAGE>
Article and Section Page
ARTICLE V TRUST EVALUATION; REDEMPTION, PURCHASE,
TRANSFER, INTERCHANGE OR REPLACEMENT OF
CERTIFICATES............................................. 24
5.1. Trust Evaluation............................................ 24
5.2. Redemptions by Trustee; Purchases by Depositors............. 25
5.3. Transfer or Interchange of Certificates..................... 28
5.4. Certificates mutilated, Destroyed, Stolen or
Lost..................................................... 28
ARTICLE VI TRUSTEE; REMOVAL OF DEPOSITORS.............................. 29
6.1. General Definition of Trustee's Liabilities,
Rights and Duties; Removal of Depositors................. 29
6.2. Books, Records and Reports.................................. 32
6.3. Indenture and List of Bonds on File......................... 32
6.4. Compensation................................................ 33
6.5. Removal and Resignation of the Trustee;
Successor................................................ 34
ARTICLE VII DEPOSITORS.................................................. 36
7.1. Power of Attorney........................................... 36
7.2. Succession.................................................. 36
7.3. Resignation of a Depositor.................................. 37
7.4. Liability of Depositors and Indemnification................. 37
7.5. Compensation................................................ 38
ARTICLE VIII RIGHTS OF CERTIFICATEHOLDERS............................. 39
8.1. Beneficiaries of Trust...................................... 39
8.2. Rights, Terms and Conditions................................ 39
ARTICLE IX ADDITIONAL COVENANTS; MISCELLANEOUS PROVISIONS.............. 40
9.1. Amendments.................................................. 40
9.2. Termination................................................. 41
9.3. Construction................................................ 42
9.4. Registration of Certificates................................ 43
9.5. Written Notice.............................................. 43
9.6. Severability................................................ 43
9.7. Dissolution of Depositors Not to Terminate.................. 43
------------------
This Table of Contents does not constitute part of the Indenture.
-ii-
360017.1
MUNICIPAL SECURITIES TRUST
SERIES 45 AND 73RD DISCOUNT SERIES
(A UNIT INVESTMENT TRUST)
AND
SUBSEQUENT SERIES
TRUST INDENTURE AND AGREEMENT
DATED JULY 20, 1989
This Trust Indenture and Agreement ("Indenture") dated
July 20, 1989, among Bear, Stearns & Co. Inc. ("Bear Stearns"),
Gruntal & Co., Incorporated ("Gruntal"), as Depositors, United
States Trust Company of New York, as Trustee and Standard & Poor's
Corporation, as Evaluator.
WITNESSETH THAT
In consideration of the premises and of the mutual agreements
herein contained, the Depositors, the Trustee and the Evaluator agree as
follows:
INTRODUCTION
The Depositors concurrently with the execution and delivery
hereof is establishing Municipal Securities Trust, Series 45 and 73rd Discount
Series (and Subsequent Series), wherein certain interest bearing obligations
will be deposited by the Depositors, to be held by the Trustee in trust for the
use and benefit of the registered holders of certificates of ownership to be
issued as hereinafter provided. The parties hereto are entering into this
Indenture for the purpose of establishing certain of the terms, covenants and
conditions of Municipal Securities Trust, Series 45 and 73rd Discount Series,
and of each additional series of such Trusts which may be established from time
to time hereafter. For Municipal Securities Trust, Series 45 and 73rd Discount
Series and each subsequent series of Municipal Securities Trust (as to which
this Indenture is to be applicable), the parties hereto shall execute a separate
Reference Trust Agreement incorporating by reference this Indenture and
effecting any amendment, supplement or variation from or to such incorporation
by reference with respect to the related series and specifying for that series
(i) the Bonds deposited in trust and the number of Units delivered by the
Trustee in exchange for the Bonds pursuant to Section 2.3; (ii) the initial
fractional undivided interest represented by each Unit; (iii) the First Payment
Date; (vi) the First Record Date; (v) the First Settlement Date; (vii) the
Evaluator's fee; (vii) the liquidation amount for purposes of Section 6.1(g);
(viii) the Trustee's fee and (ix) any other change or addition contemplated or
permitted by this Indenture.
-1-
360883.1
<PAGE>
ARTICLE I
DEFINITIONS; CERTIFICATES
Section 1.1. Definitions: Whenever used in this
Indenture the following words and phrases, unless the context
clearly indicates otherwise, shall have the following meanings:
(1) "Bonds" shall mean the bonds, including Contract Bonds as
defined herein, (i) which are listed in Schedule A to the Reference Trust
Agreement or (ii) which have been received by the Trust as defined herein, in
exchange, substitution or replacement pursuant to Sections 3.8 and 3.14 hereof,
as may from time to time continue to be held as part of the Trust.
(2) "Business Day" shall mean any day other than a Saturday,
Sunday, or, in the City of New York, a legal holiday or a day on which banking
institutions are authorized by law to close.
(3) "Certificate" shall mean any one of the certificates
substantially in the form hereinafter recited executed by the Trustee and the
Depositors evidencing ownership of an undivided fractional interest in the
Trust.
(4) "Certificateholder" shall mean the registered holder of
any Certificate as recorded on the books of the Trustee, his legal
representatives and heirs and the successors of any corporation, partnership or
legal entity which is a registered holder of any Certificate, and as such shall
be deemed a beneficiary of the Trust created by the Indenture to the extent of
his pro rata share thereof.
(5) "Contract Bonds" shall mean Bonds which are to be acquired
by the Trust pursuant to contracts, including (i) Bonds listed in Schedule A to
the Reference Trust Agreement, contracts for the purchase thereof which have
been assigned to the Trustee and cash or an irrevocable letter of credit issued
by a commercial bank in the amount required for such purchase which has been
delivered to the Trustee and (ii) Bonds which the Depositors have contracted to
purchase for the Trust pursuant to Section 3.14.
(6) "Depositors" shall mean Bear, Stearns & Co. Inc.
("Bear Stearns") or its successors and Gruntal & Co., Incorporated
("Gruntal") or its successors or any successor Depositor appointed
as herein provided.
(7) "Evaluator" shall mean Standard & Poor's
Corporation, or its successors or any successor Evaluator
appointed as herein provided.
-2-
360883.1
<PAGE>
(8) "First Payment Date" shall mean the date specified in Part
II of the Reference Trust Agreement.
(9) "First Record Date" shall mean the date specified in Part
II of the Reference Trust Agreement.
(10) "First Settlement Date" shall mean the date specified in
Part II of the Reference Trust Agreement.
(11) "Indenture" shall mean this Trust Indenture and Agreement
as originally executed or, if subsequently amended as herein provided, as so
amended.
(12) "Payment Date" shall have the meaning assigned to
it in Part II of the Reference Trust Agreement.
(13) "Plan Units" shall mean fractional Units offered by the
Depositors pursuant to the reinvestment plans described in the final prospectus
of the Trust filed within the appropriate registration forms under the
Securities Act of 1933, and for which Plan Units the Trustee is acting as
Trustee.
(14) "Record Date" shall have the meaning assigned to it
in Part II of the Reference Trust Agreement.
(15) "Redemption Form" shall mean the form provided by the
Trustee at the request of holders of Plan Units for the purposes of redeeming
such Units, as such form may be reasonably acceptable to the Depositors and the
Trustee from time to time.
(16) "Reference Trust Agreement" shall mean the indenture for
the particular sequentially numbered series of a Series of Municipal Securities
Trust into which the terms of this Indenture are incorporated.
(17) The term "sequentially numbered series" shall mean the
numbered series of any designated Series of Municipal Securities Trust as to
which this Indenture shall be applicable.
(18) "Series" shall mean the individual trusts comprising
Municipal Securities Trust, which Series consist of indefinite sequentially
numbered series.
(19) The words "herein", "hereby", "herewith", "hereof",
"hereinafter", "hereunder", "hereinabove", "hereafter", "heretofore" and similar
words or phrases of reference and association shall refer to this Indenture in
its entirety.
(20) "Trust" shall mean any sequentially numbered series of
Municipal Securities Trust created by this Indenture, which shall consist of the
Bonds held pursuant to subject to this Indenture together with all undistributed
interest received or
-3-
360883.1
<PAGE>
accrued thereon, and any undistributed cash realized from the sale, redemption,
liquidation, or maturity thereof. Such amounts as may be on deposit in the
Reserve Accounts hereinafter established shall be excluded from each Trust.
(21) "Trustee" shall mean United States Trust Company of New
York or its successors, or any successor Trustee appointed as herein provided.
(22) "Unit" shall mean the fractional undivided interest in
and ownership of the Trust initially equal to the fraction specified in Part II
of the Reference Trust Agreement, the denominator of which fraction shall be
decreased by the number of any such Units redeemed as provided in Section 5.2.
(23) Words importing singular number shall include the plural
number in each case and vice versa, and words importing person shall include
corporations and associations, as well as natural persons.
Section 1.2. Form of Certificate: The form of
Certificate evidencing ownership of fractional undivided interests
in the Trust shall be substantially as follows:
No. _________ _____________ Units
CERTIFICATE OF OWNERSHIP
--evidencing--
A Fractional Undivided Interest
--in--
MUNICIPAL SECURITIES TRUST PLAN OF DISTRIBUTION
________ SERIES ________
_______________________
CUSIP
This is to certify that ________________________ is the owner and
registered holder of this Certificate evidencing the ownership of
____ unit(s) of fractional undivided interest in the above named
Trust created under the laws of the State of New York pursuant to
the Trust Indenture and Agreement among Bear, Stearns & Co. Inc.
(and such other Depositors, if any, identified therein) as
Depositors, United Trust Company of New York as Trustee, and
Standard & Poor's Corporation as Evaluator (the "Indenture"), a
copy of which is available at the office of the Trustee. This
-4-
360883.1
<PAGE>
Certificate is issued under and is subject to the terms, provisions and
conditions of the Indenture to which the holder of this Certificate by virtue of
the acceptance hereof asserts and is bound, a summary of which Indenture is
contained in the Prospectus relating to the Trust. This Certificate is
transferable and interchangeable by the registered holder in person or by his
duly authorized attorney at the Trustee's office upon surrender of this
Certificate properly endorsed or accompanied by a written instrument of transfer
or other documents that the Trustee and payment of the fees and expenses as
provided in the Indenture.
-5-
360883.1
<PAGE>
Witness the facsimile signature of a duly authorized officer
of the Agent for the Depositors (referred to in the Indenture) and the manual
signature of an authorized signature of the Trustee.
Date: BEAR, STEARNS & CO. INC.,
Depositor
___________________________________________
Authorized Signatory
NITED STATES TRUST COMPANY
OF NEW YORK,
Trustee
By_________________________________________
Authorized Officer
-6-
360883.1
<PAGE>
ABBREVIATIONS
The following abbreviations, when used in the inscription on
the face of this instrument, shall be construed as though they were written out
in full according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with
right of survivorship
and not as tenants in
common
UNIT TRANSFERS MIN ACT.....Custodian.....
(cust) (Minor)
under Uniform Transfers to Minors
Act..............................
(State)
Additional abbreviations may also be used though not in the above
-7-
360883.1
<PAGE>
ASSIGNMENT
For Value Received ________________________ hereby sells,
assigns and transfers unto ________________________ the within Certificate and
does hereby revocably constitute and appoint ________________________ attorney,
to transfer the within Certificate on the books of the Trustee, with full power
of substitution in the premises.
Dated:
_______________________________
Notice: The signature(s) to this assignment must correspond
with the name(s) as written above upon the face of this
Certificate in every particular, without alteration or
enlargement or any change whatever.
___________________________
Signature Guaranteed
[end of certificate]
-8-
360883.1
<PAGE>
ARTICLE II
DEPOSIT OF BONDS; DECLARATION OF TRUST;
FORM AND ISSUANCE OF CERTIFICATES;
CERTAIN CONTRACTS SATISFACTORY
Section 2.1. Deposit of Bonds: The Depositors, concurrently
with the execution and delivery of a Reference Trust Agreement, have deposited
with the Trustee in trust the Bonds listed in Schedule A to the Reference Trust
Agreement in bearer form or registered in the name of the Trustee, or its
nominee, or duly endorsed in blank or accompanied by all necessary instruments
of assignment and transfer in proper form to be held, managed and applied by the
Trustee as herein provided. The Depositors shall deliver the Bonds listed on
said Schedule A to the Trustee which were not actually delivered concurrently
with the execution and delivery of the Reference Trust Agreement within 90 days
after said execution and delivery, or if the contract to buy such Bond between
the Depositors and seller is terminated by the seller thereof for any reason
beyond the control of the Depositors, the Depositors shall forthwith take the
remedial action specified in Section 3.14.
Section 2.2. Declaration of Trust: The Trustee declares that
it holds and will hold the Trust as Trustee in trust upon the terms herein set
forth for the use and benefit of all present and future Certificateholders.
Section 2.3. Issue of Certificates: The Trustee hereby
acknowledges receipt of the deposit referred to in Section 2.1, and
simultaneously with the receipt of said deposit, has executed Certificates
substantially in the form above recited representing the ownership of the number
of Units specified in Part II of the Reference Trust Agreement.
Section 2.4. Form of Certificates: Each Certificate referred
to in Section 2.3 is, and each Certificate hereafter issued shall be, in
substantially the form hereinabove recited, numbered serially for
identification, in fully registered form, transferable only on the books of the
Trustee as herein provided, executed manually by an authorized officer of the
Trustee and in facsimile by an authorized signatory of Bear Stearns, on behalf
of the Depositors.
Section 2.5. Certain Contracts Satisfactory: The Depositors
approve as satisfactory in form and substance the contracts to be assumed by the
Trustee with regard to any Bonds listed in Schedule A to the Reference Trust
Agreement and authorize the Trustee on behalf of the Trust to assume such
contracts and otherwise to carry out the terms and provisions thereof or to take
other appropriate action in order to complete the deposit of the Bonds covered
thereby into the Trust.
-9-
360883.1
<PAGE>
ARTICLE III
ADMINISTRATION OF TRUST
Section 3.1. Initial Cost: The cost of the initial
preparation, printing and execution of the Certificates and this Indenture, the
initial fees of the Trustee and its counsel, and the initial fees of the
Evaluator and other reasonable expenses in connection therewith, shall be paid
by the Depositors, provided, however, that the liability on the part of the
Depositors for such initial costs, fees and expenses shall not include any fees,
costs or other expenses incurred in connection herewith after the execution of
this Indenture and the deposit referred to in Section 2.1.
Section 3.2. Interest Account: The Trustee shall collect the
interest on the Bonds as it becomes payable (including all interest accrued but
unpaid prior to the date of deposit of the Bonds in trust and including that
part of the proceeds of the sale, liquidation, redemption or maturity of any
Bonds which represents accrued interest thereon and including all moneys
representing penalties for the failure to make timely payments on the Bonds, or
as liquidated damages for default or breach of any condition or term of the
Bonds or of any instrument underlying such Bonds) and credit such interest to a
separate account to be known as the "Interest Account".
Section 3.3. Principal Account: (a) The Bonds and all moneys
(except moneys held by the Trustee pursuant to subsection (b) hereof), other
than amounts credited to the Interest Account, received by the Trustee in
respect of the Bonds shall be credited to a separate account to be known as the
"Principal Account".
(b) Moneys and/or irrevocable letters of credit required to
purchase Contract Bonds or deposited to secure such purchases are hereby
declared to be held specially by the Trustee for such purchases and shall not be
deemed to be part of the Principal Account until (i) the Depositors fail to
timely purchase a Contract Bond and have not given the Failed Contract Notice
(as defined in Section 3.14) at which time the moneys and/or letters of credit
attributable to the Contract Bond not purchased by the Depositors shall be
credited to the Principal Account; or (ii) the Depositors have given the Trustee
the Failed Contract Notice at which time the moneys and/or letters of credit
attributable to failed contracts referred to in such Notice shall be credited to
the Principal Account; provided, however, that if the Depositors also notify the
Trustee in the Failed Contract Notice that they have purchased or entered into a
contract to purchase a New Bond (as defined in Section 3.14), the Trustee shall
not credit such moneys and/or letters of credit to the Principal Account unless
the New Bond shall also have failed or is not delivered by the
-10-
360883.1
<PAGE>
Depositors within two business days after the settlement date of such New Bond,
in which event the Trustee shall forthwith credit such moneys and/or letters of
credit to the Principal Account. The Trustee shall in any case forthwith credit
to the Principal Account, and/or cause the Depositors to deposit in the
Principal Account, the difference, if any, between the purchase price of the
failed Contract Bond and the purchase price of the New Bond, together with any
sales charge and accrued interest applicable to such difference and distribute
such moneys to Certificateholders pursuant to Section 3.5.
Section 3.4. Reserve Account: From time to time the Trustee
shall withdraw from the cash on deposit in the Interest Account or the Principal
Account such amounts as it, in its sole discretion, shall deem requisite to
establish a reserve for any applicable taxes or other governmental charges that
may be payable out of or by the Trust. Such amounts so withdrawn shall be
credited to a separate account which shall be known as the "Reserve Account".
The Trustee shall not be required to distribute to the Certificateholders any of
the amounts in the Reserve Account; provided, however, that if it shall, in its
sole discretion, determine that such amounts are no longer necessary for payment
of any applicable taxes or other governmental charges, then it shall promptly
deposit such amounts in the appropriate account from which withdrawn or, if the
Trust has been terminated or is in the process of termination, the Trustee shall
distribute to each Certificateholder such holder's interest in the Reserve
Account in accordance with Section 9.2.
Section 3.5. Distributions: On the First Settlement Date, the
Trustee shall advance out of its own funds and cause to be deposited in and
credited to the Interest Account for the Trust an amount equal to all interest
accrued on the Bonds in the Trust but unpaid as of the First Settlement Date.
Immediately after such advance, the Trustee shall distribute out of the Interest
Account for the Trust to the Depositors, as Certificateholder of record of the
Trust on the First Settlement Date, an amount equal to the amount then credited
to the Interest Account. The Trustee shall be entitled to be reimbursed, without
interest, out of the cash balance in the Interest Account for the Trust from
time to time, for amounts advanced pursuant to this Section 3.5 before it is
required to make any additional distributions to Certificateholders of the
Trust. Repayment of any advance made by the Trustee to the Interest Account of
the Trust pursuant to this Section 3.5 shall be secured by a lien upon the Trust
prior to the interests of the Certificateholders thereof. In the event the
advance by the Trustee is not reimbursed prior to the first distribution
referred to in Part II(e) of the Reference Trust Agreement, the Trustee shall
have the power to sell Bonds of the Trust in the manner provided in Section 5.2
hereof. The Trustee shall not be liable or responsible in any way for
depreciation or loss incurred by reason of any sale of Bonds of the Trust made
-11-
360883.1
<PAGE>
pursuant to this Section 3.5. The Trustee shall promptly notify the Depositors
of such action in writing and shall set forth in such notice the Bonds sold and
the proceeds received therefrom. On or before each Record Date, the Trustee
shall:
(a) deduct from the Interest Account or, to the extent funds
are not available in such Account, from the Principal Account, and pay
to itself individually the amounts that it is at the time entitled to
receive pursuant to Section 6.4 or pursuant to this Section 3.5;
(b) deduct from the Interest Account or, to the extent funds
are not available in such Account, from the Principal Account, and pay
to the Evaluator the amount that it is at the time entitled to receive
pursuant to Section 4.2;
(c) deduct from the Interest Account, or, to the extent funds
are not available in such Account, from the Principal Account, and pay
an amount equal to the unpaid fees and expenses, if any, of counsel
pursuant to Section 3.9 as certified to it by the Depositors;
(d) on each monthly Record Date, deduct from the Interest
Account, or, to the extent funds are not available in such Account,
from the Principal Account, one-twelfth of the estimated annual amount
that the Depositors are entitled to receive pursuant to Section 7.5 and
hold such amount without interest until such time as it is payable to
the Depositors as set forth below; provided that the Trustee shall
deduct from the Interest Account when making the first monthly
distribution, or to the extent funds are not available in such Account,
from the Principal Account an amount equal to a fraction of the
estimated annual amount that the Depositors are entitled to receive
pursuant to Section 7.5 in which the numerator is the number of months
or fraction thereof that Units in the Trust have been owned by a
Certificateholder other than the Depositors and the denominator is
twelve.
On or before the first Payment Date after the conclusion of
each calendar year, the Trustee shall, upon certification in satisfactory form
to the Trustee, upon which the Trustee may rely, distribute to the Depositors
from the amount so held pursuant to the immediately preceding paragraph the
amounts that the Depositors are at the time entitled to receive pursuant to
Section 7.5 on account of their services theretofore performed and expenses
theretofore incurred.
On each semi-annual Payment Date or within a reasonable period
of time thereafter, the Trustee shall distribute by mail to each
Certificateholder of record at the close of business on the preceding Record
Date, at the post office address appearing on the
-12-
360883.1
<PAGE>
registration books of the Trustee, such holder's pro rata share of the balance
in the Interest Account computed as of the Record Date on the basis of one-half
of the estimated annual interest income to the Trust for the ensuing twelve
months, after deduction of the estimated costs and expenses to be incurred
during such period except that the first distribution will be in the amount
specified in the prospectus for any Trust created under this Indenture.
In the event the amount on deposit in the Interest Account on
a semi-annual Payment Date is not sufficient for the payment of the amount of
interest to be distributed on the basis of the aforesaid computation, the
Trustee shall advance out of its own funds and cause to be deposited in and
credited to the Interest Account such amount as may be required to permit
payment of the interest distribution to be made on such Payment Date and shall
be entitled to be reimbursed, without interest, out of interest received by the
Trust on the first Record Date following the date of such advance on which such
reimbursement may be made without reducing the amount in the Interest Account to
an amount less than that required for the next ensuing interest distribution.
In lieu of the semi-annual distributions of interest provided
above, a Certificateholder may elect to receive monthly or annual payments from
the Interest Account. Certificateholders desiring to receive monthly or annual
distributions and who purchase their Certificates prior to the Record Date for
the first distribution may elect at the time of purchase to receive
distributions on a monthly or annual basis by notice to the Trustee. Such notice
shall be effective with respect to subsequent distributions until changed by
further notice to the Trustee. In October of each year after the initial public
offering of the Units, the Trustee shall furnish each Certificateholder a card
to be returned to the Trustee by November 1 of such year if the
Certificateholder wishes to change his plan of distribution. Those wishing to
change shall so indicate on the card and return it to the Trustee and accompany
the card by the surrender of the Certificate to which it relates. Changes may be
made only as herein provided and will become effective as of the following
December 2 to continue until the Certificateholder advises the Trustee otherwise
in the manner provided herein.
For monthly distributions, the share of the balance in the
Interest Account to be distributed to a Certificateholder who has elected to
receive monthly distributions, after the first distribution, shall be computed
as of each monthly Record Date, and distribution made as provided herein on or
shortly after the fifteenth day of the month of computation to the
Certificateholder of record on such date of computation. Such computation shall
be made on the basis of one-twelfth of the estimated annual interest income to
the Trust for the ensuing twelve months for the account of Certificateholders
who have elected to receive monthly
-13-
360883.1
<PAGE>
distributions, after deduction of the estimated costs and expenses to be
incurred on behalf of such Certificateholders during the twelve month period for
which such interest income has been estimated.
For annual distributions, the share of the balance in the
Interest Account to be distributed to a Certificateholder who has elected to
receive annual distributions, after the first distribution, shall be computed as
of each annual Record Date, and distribution made as provided herein on or
shortly after the fifteenth day of the month of computation to the
Certificateholder of record on such date of computation. Such computation shall
be made on the basis of the estimated annual interest income to the Trust for
the ensuing twelve months for the account of Certificateholders who have elected
to receive annual distributions, after deduction of the estimated costs and
expenses to be incurred on behalf of such Certificateholders during the twelve
month period for which such interest income has been estimated.
To the extent practicable, the Trustee shall allocate the
expenses of the Trust among Units, giving effect to differences in
administrative and operational cost among those who have chosen to receive
distributions monthly, semi-annually and annually.
In the event the amount on deposit in the Interest Account for
a monthly distribution is not sufficient for the payment of the amount of
interest to be distributed to Certificateholders participating in such
distribution on the basis of the aforesaid computation, the Trustee shall
advance out of its own funds and cause to be deposited in and credited to the
Interest Account such amounts as may be required to permit payment of the
monthly interest distribution to be made as aforesaid and shall be entitled to
be reimbursed, without interest, out of interest received by the Trust
subsequent to the date of such advance and subject to the condition that the
funds in or available for the Interest Account will not be reduced in an amount
less than required for the next ensuing distribution of interest. Distributions
to Certificateholders who are participating in either of the optional plans for
distribution of interest shall not be affected because of advancements by the
Trustee for the purpose of equalizing distributions to Certificateholders
participating in the other plan.
On each semi-annual Payment Date or within a reasonable period
of time thereafter, the Trustee shall distribute by mail to each
Certificateholder of record at the close of business on the preceding Record
Date, at the post office address appearing on the registration books of the
Trustee, such holder's pro rata share of the cash balance of the Principal
Account computed as of the Record Date. The Trustee shall not be required to
make a
-14-
360883.1
<PAGE>
distribution from the Principal Account unless the cash balance on deposit
therein available for distribution shall be sufficient to permit distribution of
at least $1.00 per Unit.
If the Depositors (i) fail to replace any failed Special Bond
or (ii) are unable or fail to enter into any contract for the purchase of any
New Bond in accordance with Section 3.14, the Trustee shall distribute to all
Certificateholders the principal, accrued interest and sales charge attributable
to such Special Bond at the next monthly Payment Date which is more than thirty
days after the expiration of the Purchase Period (as defined in Section 3.14) or
at such earlier time or in such manner as the Trustee in its sole discretion
deems to be in the best interest of the Certificateholders.
If any contract for a New Bond in replacement of a Special
Bond shall fail, the Trustee shall distribute the principal, accrued interest
and sales charge attributable to the Special Bond to the Certificateholders at
the next monthly Payment Date which is more than thirty days after the date on
which the contract in respect of such New Bond failed or at such earlier time or
in such earlier manner as the Trustee in its sole discretion determines to be in
the best interest of the Certificateholders.
If, at the end of the Purchase Period, less than all moneys
attributable to a failed Special Bond have been applied or allocated by the
Trustee pursuant to a contract to purchase New Bonds, the Trustee shall
distribute the remaining moneys to Certificateholders at the next monthly
Payment Date which is more than thirty days after the end of the Purchase Period
or at such earlier time thereafter as the Trustee in its sole discretion deems
to be in the best interest of the Certificateholders.
The amounts to be distributed to each Certificateholder shall
be that pro rata share of the cash balance of the Interest and Principal
Accounts, computed as set forth above, as shall be represented by the Units
evidenced by the outstanding Certificate or Certificates registered in the name
of such Certificateholder.
In the computation of each such share, fractions of less than
one cent shall be omitted. After any such distribution provided for above, any
cash balance remaining in the Interest Account or the Principal Account shall be
held in the same manner as other amounts subsequently deposited in each such
accounts, respectively.
For the purpose of distribution, as herein provided, the
holders of record on the registration books of the Trustee at the close of
business on each Record Date shall be conclusively entitled to such
distribution, and no liability shall attach to the Trustee by reason of payment
to any such registered
-15-
360883.1
<PAGE>
Certificateholder of record. Nothing herein shall be construed to prevent the
payment of amounts from the Interest Account and the Principal Account to
individual Certificateholders by means of one check, draft or other proper
instrument, provided that the appropriate statement of such distribution shall
be furnished therewith as provided in Section 3.6 hereof.
Section 3.6. Distribution Statements: With each distribution
from the Interest or Principal Accounts the Trustee shall set forth, either in
the instrument by means of which payment of such distribution is made or in an
accompanying statement the amount being distributed from each such account
expressed as a dollar amount per Unit.
In the event that the issuer of any of the Bonds shall fail to
make payment when due of any interest or principal and such failure results in a
change in the amount which would otherwise be paid as a distribution of interest
the Trustee shall, with the first such distribution to each Certificateholder
following such failure, set forth in an accompanying statement (a) the name of
the issuer and the Bond, (b) the amount of the reduction in the distribution per
Unit resulting from such failure, (c) the percentage of the aggregate principal
amount of Bonds which such Bond represents, and (d) to the extent then
determined, information regarding any disposition or legal action with respect
to such Bonds.
Within a reasonable period of time after the last business day
of each calendar year, the Trustee shall furnish to each person who at any time
during such calendar year was a Certificateholder a statement setting forth,
with respect to such calendar year:
(A) as to the Interest Account:
(1) the amount of interest received on the
Bonds,
(2) the amounts paid for purchases of New
Bonds pursuant to Section 3.14, and for redemptions
of Units pursuant to Section 5.2,
(3) the deductions for applicable taxes and fees and
expenses of the Trustee, the Evaluator and counsel pursuant to
Section 3.9, the annual audit fees referred to in Section 6.2,
and the annual fee of the Depositors for portfolio supervisory
services pursuant to Section 7.5, and
(4) the balance remaining after such
distributions and deductions, expressed both as a
total dollar amount and as a dollar amount per Unit
-16-
360883.1
<PAGE>
outstanding on the last business day of such
calendar year;
(B) as to the Principal Account:
(1) the date and the net proceeds received
from the sale, maturity, liquidation or redemption
of any of the Bonds, excluding any portion thereof
credited to the Interest Account,
(2) the amounts paid for purchases of New
Bonds pursuant to Section 3.14, and for redemptions
of Units pursuant to Section 5.2,
(3) the deductions for payment of applicable taxes
and fees and expenses of the Trustee, the Evaluator and
counsel pursuant to Section 3.9, the annual audit fees
referred to in Section 6.2, and the annual fee of the
Depositors for portfolio supervisory services pursuant to
Section 7.5, and
(4) the balance remaining after such distributions
and deductions, expressed both as a total dollar amount and as
a dollar amount per Unit outstanding on the last business day
of such calendar year; and
(C) the following information:
(1) a list of Bonds disposed of or acquired
during such calendar year and a list of Bonds as of
the last business day of such calendar year,
(2) the number of Units outstanding on the
last business day of such calendar year,
(3) the Net Asset Value per Unit based on the
last Trust Evaluation made during such calendar
year, and
(4) the amounts actually distributed to
Certificateholders during such calendar year from the Interest
and Principal Accounts, separately stated, expressed both as
total dollar amounts and as dollar amounts per Unit
outstanding on the Record Dates for such distributions and the
status of such distributions for Federal income tax purposes.
Section 3.7. Sale of Bonds: In order to maintain the
sound investment character of the Trust, the Depositors may direct
the Trustee to sell or liquidate Bonds at such prices and times
-17-
360883.1
<PAGE>
and in such manner as shall be determined by the Depositors, provided that the
Depositors have determined that any one or more of the following conditions
exist:
(a) that there has been a default on such
Bonds in the payment of principal or interest when
due and payable;
(b) that any action or proceeding has been instituted
at law or in equity seeking to restrain or enjoin the payment
of principal or interest on any such Bond or that there exists
any other legal question or impediment affecting such Bonds or
the payment of principal or interest thereon;
(c) that there has occurred any breach of covenant or
warranty in any trust indenture or other document relating to
the issuer or guarantor of the Bonds which would adversely
affect either immediately or contingently the payment of debt
service on such Bonds, or their general credit standing, or
otherwise impair the sound investment character of such Bonds;
(d) that there has been a default in the
payment of principal of or interest on any other
outstanding obligations of an issuer or guarantor
of such Bonds;
(e) that in the case of Revenue Bonds, the revenues
and income of the facility or project or other special funds
expressly charged and pledged for debt service on any such
Bonds shall fall substantially below the estimated revenues or
income calculated by the engineers or other proper officials
charged with the acquisition, construction or operation of
such facility or project, so that, in the opinion of the
Depositors, the retention of such Bonds would be detrimental
to the sound investment character of the Trust and to the
interests of the Certificateholders;
(f) that the price of any such Bonds has declined to
such an extent, or such other market or credit factor exists,
that in the opinion of the Depositors the retention of such
Bonds would be detrimental to the interests of the
Certificateholders; or
(g) that the interest on any of the Bonds is
deemed to be subject to Federal taxation.
-18-
360883.1
<PAGE>
Upon receipt of such direction from the Depositors, upon which
the Trustee shall rely, the Trustee shall proceed to sell the specified Bonds in
accordance with such direction. The Trustee shall not be liable or responsible
in any way for depreciation or loss incurred by reason of any sale made pursuant
to any such direction, or by reason of the failure of the Depositors to give any
such direction, and in the absence of such direction the Trustee shall have no
duty to sell any Bonds under this Section 3.7 except to the extent otherwise
required by Section 3.10 of this Indenture. All proceeds from the disposition of
Bonds pursuant to this Section 3.7 which represent accrued interest thereon
shall be deposited in the Interest Account and the balance thereof in the
Principal Account and shall thereafter be distributed in accordance with Section
3.5.
Section 3.8. Refunding Bonds: In the event that an offer shall
be made to issue new securities in exchange or substitution for any issue of
Bonds pursuant to a plan for the refunding or refinancing of such Bonds, or an
exchange offer therefor; or tenders of Bonds for sinking fund or other cash
redemptions shall be solicited, the Depositors shall instruct the Trustee in
writing to reject such offer and either to hold or sell such Bonds, except that
if (1) the issuer is in default with respect to such Bonds or (2) in the opinion
of the Depositors, given in writing to the Trustee, the issuer will probably
default with respect to such Bonds in the reasonably foreseeable future, the
Depositors shall instruct the Trustee in writing to accept or reject such offer
and to take any other action with respect thereto as the Depositors may deem
proper. Any security so received in exchange shall be deposited hereunder and
shall be subject to the terms and conditions of this Indenture to the same
extent as the Bonds originally deposited hereunder. Within five days after such
deposit, notice of such exchange and deposit shall be given by the Trustee to
each Certificateholder, including an identification of the Bonds eliminated and
the Bonds substituted therefor.
Section 3.9. Counsel: The Depositors may employ from time to
time as they may deem necessary a firm of attorneys for any legal services that
may be required in connection with the disposition of Bonds pursuant to Section
3.7 or the substitution of any securities for Bonds as the result of any
refunding permitted under Section 3.8. The fees and expenses of such counsel
shall be paid by the Trustee from the Interest and Principal Accounts as
provided for in Section 3.5(c) hereof.
Section 3.10. Notice and Sale by Trustee: If at any time the
principal of or interest on any of the Bonds shall be in default and not paid or
provision for payment thereof shall not have been duly made, the Trustee shall
notify the Depositors thereof. If within thirty days after such notification the
Depositors have not given any instruction in writing to sell or to
-19-
360883.1
<PAGE>
hold or have not taken any other action in connection with such Bonds, the
Trustee shall sell such Bonds forthwith, and the Trustee shall not be liable or
responsible in any way for depreciation or loss incurred by reason of such sale.
Section 3.11. Trustee Not to Amortize: Nothing in this
Indenture, or otherwise, shall be construed to require the Trustee to make any
adjustments between the Interest and Principal Accounts by reason of any premium
or discount in respect of any of the Bonds.
Section 3.12. Action by Trustee Regarding Bonds: In
the event that the Trustee shall have been notified at any time of
any action to be taken or proposed to be taken by holders of the
Bonds (including but not limited to the making of any demand,
direction, request, giving of any notice, consent or waiver or the
voting with respect to any amendment or supplement to any
indenture or other instrument under or pursuant to which the Bonds
have been issued) the Trustee shall promptly notify the Depositors
and shall thereupon take such action or refrain from taking such
action as the Depositors shall in writing direct; provided,
however, that if the Depositors shall not within five business
days of the giving of such notice to the Depositors direct the
Trustee to take or refrain from taking any action, the Trustee
shall take such action as it, in its sole direction, shall deem
advisable. Neither the Depositors nor the Trustee shall be liable
to any person for any action or failure to take action with
respect to this Section 3.12.
Section 3.13. Notice of Change in Principal Account: The
Trustee shall give prompt written notice to the Depositors and the Evaluator of
all amounts credited to or withdrawn from the Principal Account pursuant to any
provisions of this Article III, and the balance of such account after giving
effect to such credit or withdrawal.
Section 3.14. Limited Replacement of Special Bonds: If
any contract in respect of Contract Bonds other than a contract to
purchase a New Bond (as defined below), including those purchased
on a when, as and if issued basis, shall have failed due to any
occurrence, act or event beyond the control of the Depositors or
the Trustee (such failed Contract Bonds being herein called the
"Special Bonds"), the Depositors shall notify the Trustee, (such
notice being herein called the "Failed Contract Notice") of their
inability to deliver the failed Special Bond to the Trustee after
they are notified in writing that the Special Bond will not be
delivered by the seller thereof to the Depositors. Prior to, or
simultaneously with, giving the Trustee the Failed Contract
Notice, or within a maximum of twenty days after giving such
Notice (such twenty day period being herein called the "Purchase
Period"), the Depositors shall, if possible, purchase or enter
into the contract, if any, to purchase an obligation to be held as
-20-
360883.1
<PAGE>
a Bond hereunder (herein called the "New Bond") as part of the Trust in
replacement of the failed Special Bond, subject to the satisfaction of all of
the following conditions in the case of each purchase or contract to purchase:
(a) The New Bonds (i) shall be tax exempt bonds issued by
states or their political subdivisions, (ii) shall have a fixed maturity date
(whether or not entitled to the benefits of any sinking, redemption, purchase or
similar fund) not exceeding the date of maturity of the Special Bond it replaces
and not less than ten years after the date of purchase, (iii) shall bear fixed
interest at a rate not less than that of the Special Bond which it replaces,
(iv) shall be payable as to principal and interest in United States currency,
and (v) shall not be a when, as and if issued Bond.
(b) Each New Bond shall be rated at least "A" or better by
Standard & Poor's Corporation or Moody's Investors Service, Inc., or comparably
rated by any other nationally recognized credit rating service rating debt
obligations which shall be designated by the Depositors and shall be
satisfactory to the Trustee.
(c) The purchase price of the New Bonds (exclusive of accrued
interest) shall not exceed the principal attributable to the Special Bonds.
(d) The Depositors shall furnish a notice to the Trustee
(which may be part of the Failed Contract Notice) in respect of the New Bond
purchased or to be purchased that shall (i) identify the New Bonds, (ii) state
that the contract to purchase, if any, entered into by the Depositors is
satisfactory in form and substance, and (iii) state that the foregoing
conditions of clauses (a) through (c) have been satisfied with respect to the
New Bonds.
Upon satisfaction of the foregoing conditions with respect to
any New Bond, the Depositors shall pay the purchase price for the New Bond from
their own resources or, if the Trustee has credited any moneys and/or letters of
credit attributable to the failed Special Bond to the Principal Account, the
Trustee shall pay the purchase price of the New Bond upon directions from the
Depositors from the moneys and/or letters of credit so credited to the Principal
Account. If the Depositors have paid the purchase price, and, in addition, the
Trustee has credited moneys of the Depositors to the Principal Account, the
Trustee shall forthwith return to the Depositors the portion of such moneys that
is not properly distributable to Certificateholders pursuant to Section 3.5.
Whenever a New Bond is acquired by the Depositors
pursuant to the provisions of this Section 3.14, the Trustee
-21-
360883.1
<PAGE>
shall, within five days thereafter, mail to all Certificateholders notices of
such acquisition, including an identification of the failed Special Bonds and
the New Bonds acquired. The purchase price of the New Bonds shall be paid out of
the principal attributable to the failed Special Bonds. The Trustee shall not be
liable or responsible in any way for depreciation or loss incurred by reason of
any purchase made pursuant to any such directions and in the absence of such
directions the Trustee shall have no duty to purchase any Bonds under this
Indenture. The Depositors shall not be liable for any failure to instruct the
Trustee to purchase any New Bonds or for errors of judgment in respect of this
Section 3.14; provided, however, that this provision shall not protect the
Depositors against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith or gross negligence in the performance
of their duties or by reason of their reckless disregard of their obligations
and duties hereunder.
ARTICLE IV
EVALUATION OF BONDS; EVALUATOR
Section 4.1. Evaluation of Bonds: The Evaluator shall
determine separately and promptly furnish to the Trustee and the Depositors upon
request the value of each issue of Bonds (treating separate maturities of Bonds
as separate issues) as of the close of trading on the New York Stock Exchange on
the bid side of the market on the days on which the Trust Evaluation is required
by Section 5.1, and, in addition, as of the close of trading on the New York
Stock Exchange on the offering side of the market until such time as the
Evaluator and Trustee have been informed by the Depositors that the initial
public offering has been completed and thereafter if the secondary market for
the Units is maintained based on offering side values, such additional
evaluation being made as of the last business day of each calendar week
effective for transactions during the following week commencing with the week
after the initial public offering has been completed. If the Bonds are listed on
a national securities exchange, the current bid or offering side evaluation
shall be determined on the basis of the closing sale price on such exchange
(unless the Evaluator deems such price inappropriate as a basis for valuation).
If the Bonds are not so listed or, if so listed and the principal market
therefor is other than on such exchange or there is no such closing sale price
available, the current bid or offering price evaluation shall be based on the
closing sale prices of such Bonds on the over-the-counter market (unless the
Evaluator deems such prices inappropriate as a basis for valuation), or, if no
such closing sale prices are available (i) on the basis of current bid or
offering prices for the Bonds, (ii) if bid or offering prices are not available
for any Bonds, on the basis of current bid or offering prices for comparable
obligations, (iii) by determining
-22-
360883.1
<PAGE>
the value of the Bonds on the bid or offering side of the market
by appraisal or (iv) by any combination of the above.
For each evaluation, the Evaluator shall also determine and
furnish to the Trustee and the Depositors the aggregate of (a) the value of all
Bonds on the basis of such evaluation and (b) on the basis of the information
furnished to the Evaluator by the Trustee pursuant to Section 3.13, cash on hand
in the Trust.
For the purpose of this Section 4.1, the Evaluator may obtain
current bid or offering prices for the obligations from investment dealers or
brokers (including the Depositors) that customarily deal in tax-exempt
obligations or from any other reporting service or source of information which
the Evaluator deems appropriate.
Section 4.2. Compensation of Evaluator: As compensation for
its services hereunder, the Evaluator shall be paid the fee specified in Part II
of the Reference Trust Agreement, provided that if at any time the fee of the
Trustee shall have been increased pursuant to Section 6.4, the compensation of
the Evaluator shall at the same time be ratably increased.
Section 4.3. Liability of Evaluator: The Trustee, the
Depositors and the Certificateholders may rely on any evaluation furnished by
the Evaluator and shall have no responsibility for the accuracy thereof. The
determinations made by the Evaluator hereunder shall be made in good faith upon
the basis of the best information available to it. The Evaluator shall be under
no liability to the Trustee, the Depositors or the Certificateholders for errors
in judgment or any action taken in good faith, provided, however, that this
provision shall not protect the Evaluator against any liability to which it
would otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of its reckless
disregard of its obligations and duties hereunder.
Section 4.4. Resignation, Removal and Other Matters: (a) The
Evaluator may resign and be discharged hereunder, by executing an instrument in
writing resigning as the Evaluator and filing the same with the Depositors and
the Trustee not less than sixty days before the date specified in such
instrument when, subject to Section 4.4(c), such resignation is to take effect.
Upon receiving such notice of resignation, the Depositors and the Trustee shall
use their best efforts to appoint a successor Evaluator having qualifications
and at a rate of compensation satisfactory to the Depositors and the Trustee.
Such appointment shall be made by written instrument executed by the Depositors
and the Trustee, in duplicate, one copy of which shall be delivered to the
resigning Evaluator and one copy to the successor Evaluator. The Depositors or
the Trustee may remove the Evaluator at any time
-23-
360883.1
<PAGE>
upon thirty days' written notice and appoint a successor Evaluator having
qualifications and at a rate of compensation satisfactory to the Depositors and
the Trustee. Such appointment shall be made by written instrument executed by
the Depositors and the Trustee, in duplicate, one copy of which shall be
delivered to the Evaluator so removed and one copy to the successor Evaluator.
Notice of such resignation or removal and appointment of a successor Evaluator
shall be mailed by the Trustee to each Certificateholder.
(b) If the Evaluator resigns and no successor Evaluator shall
have been appointed and have accepted appointment within thirty days after
receipt of the notice of resignation by the Depositors and the Trustee, the
Evaluator may forthwith apply to a court of competent jurisdiction for the
appointment of a successor Evaluator. Such court may thereupon, after such
notice, if any, as it may deem proper, appoint a successor Evaluator.
(c) Any successor Evaluator appointed hereunder shall execute,
acknowledge and deliver to the Depositors and the Trustee an instrument
accepting such appointment hereunder, and such successor Evaluator without any
further act, deed or conveyance shall become vested with all the rights, powers,
duties and obligations of its predecessor hereunder with like effect as if
originally named the Evaluator herein and shall be bound by all the terms and
conditions of this Indenture. Any resignation or removal of the Evaluator and
appointment of a successor Evaluator pursuant to this Section 4.4 shall become
effective upon such acceptance of appointment.
(d) Any corporation into which the Evaluator hereunder may be
merged or with which it may be consolidated, or any corporation resulting from
any merger or consolidation to which the Evaluator hereunder shall be a party,
shall be the successor Evaluator under this Indenture without the execution or
filing of any paper, instrument or further act to be done on the part of the
parties hereto, anything herein, or in any agreement relating to such merger or
consolidation, by which the Evaluator may seek to retain certain powers, rights
and privileges theretofore obtaining for any period of time following such
merger or consolidation, to the contrary notwithstanding.
ARTICLE V
TRUST EVALUATION; REDEMPTION, PURCHASE, TRANSFER,
INTERCHANGE OR REPLACEMENT OF CERTIFICATES
Section 5.1. Trust Evaluation: The Trustee shall make
an evaluation of the Trust (herein called a "Trust Evaluation") as
of the closing of trading on the New York Stock Exchange, (i) on
the last business day of each of the months of December and June,
-24-
360883.1
<PAGE>
(ii) on the day on which any Unit is tendered for redemption to the Sponsor for
repurchase unless such tender shall occur subsequent to the close of trading on
the New York Stock Exchange, in which event on the business day next following
such day, and on each business day after the initial public offering has been
completed, and (iii) on any other day desired by the Trustee or requested by the
Depositors. Each Trust Evaluation shall take into account and itemize
separately:
(1) the cash on hand in the Trust (other than cash declared
held specially for purchase of Contract Bonds) or moneys in the process
of being collected from matured interest coupons or Bonds matured or
called for redemption prior to maturity;
(2) the value of each issue of the Bonds (including
Contract Bonds) on the bid side of the market as determined
by the Evaluator pursuant to Section 4.1; and
(3) accrued but unpaid interest on the Bonds up to the
settlement date of the redemption.
For each such Trust Evaluation there shall be deducted from the sum of the
above:
(1) amounts representing any applicable taxes or governmental
charges payable out of the Trust and for which no deductions shall have
previously been made for the purpose of addition to the Reserve
Account;
(2) amounts representing accrued expenses of the Trust
including but not limited to unpaid fees and expenses (including legal
and auditing expenses) of the Trustee, the Evaluator and counsel
pursuant to Section 3.9 on or prior to the date of evaluation; and
(3) cash held for distribution to Certificateholders of
record as of a date prior to the evaluation then being made.
The value of the pro rata share of each Unit determined on the basis of any such
Trust Evaluation is referred to herein as the "Net Asset Value" per Unit.
Section 5.2. Redemptions by Trustee; Purchases by Depositors:
Any Certificate tendered for redemption by a Certificateholder or his duly
authorized attorney to the Trustee at its corporate trust office, or any Plan
Unit tendered to the Trustee for redemption by the registered holder thereof
pursuant to the Redemption Form, shall be redeemed by the Trustee on the seventh
calendar day following the day on which tender for redemption is made, provided
that if such day of redemption is not a business day, then such Certificate
shall be redeemed on the
-25-
360883.1
<PAGE>
first business day prior thereto (such seventh calendar day or first business
day prior thereto being herein called the "Redemption Date"). Subject to payment
by such Certificateholder of any tax or other governmental charges which may be
imposed thereon, such redemption is to be made by payment on the Redemption Date
of cash equivalent to the Net Asset Value per Unit or Plan Unit determined by
the Trustee as of the closing of trading on the New York Stock Exchange, on the
date of tender, multiplied by the number of Units represented by such
Certificate or Redemption Form (herein called the "Redemption Price").
Certificates or Redemption Forms received for redemption by the Trustee on any
day after the close of trading on the New York Stock Exchange will be held by
the Trustee until the next day on which the New York Stock Exchange is open for
trading and will be deemed to have been tendered on such day for redemption at
the Redemption Price computed on that day.
The Trustee may in its discretion, and shall when so directed
by the Depositors in writing, suspend the right of redemption or postpone the
date of payment of the Redemption Price for more than seven calendar days
following the day on which tender for redemption is made:
(1) for any period during which the New York Stock Exchange is
closed other than customary weekend and holiday closings or during
which trading on the New York Stock Exchange is restricted;
(2) for any period during which an emergency exists as a
result of which disposal by the Trust of the Bonds is not reasonably
practicable or it is not reasonably practicable fairly to determine in
accordance herewith the value of the Bonds; or
(3) for such other periods as the Securities and
Exchange Commission may by order permit,
and the Trustee shall not be liable to any person or in any way for any loss or
damage which may result from any such suspension or postponement.
Not later than the close of business on the day of tender of a
Certificate or Redemption Form for redemption by a Certificateholder other than
the Depositors, the Trustee shall notify the Depositors of such tender. The
Depositors shall have the right to purchase such Certificate or Redemption Form
by notifying the Trustee of their election to make such purchase as soon as
practicable thereafter, but in no event subsequent to the close of business on
the second business day after the day on which such Certificate or Redemption
Form was tendered for redemption. Such purchase shall be made by payment for
such Certificate or Redemption Form by the Depositors to the
-26-
360883.1
<PAGE>
Certificateholder or Plan Unit holder not later than the close of business on
the Redemption Date of an amount equal to the Redemption Price which would
otherwise be payable by the Trustee to such Certificateholder or Plan Unit
holder.
Any Certificate or Redemption Form so purchased by the
Depositors may, at the option of the Depositors, be tendered to the Trustee for
redemption at the corporate trust office of the Trustee in the manner provided
in the first paragraph of this Section 5.2.
If the Depositors do not elect to purchase any Certificate or
Redemption Form tendered to the Trustee for redemption, or if a Certificate or
Redemption Form is being tendered by the Depositors for redemption, that portion
of the Redemption Price which represents interest shall be withdrawn from the
Interest Account to the extent funds are available. The balance paid on any
redemption, including accrued interest, if any, shall be withdrawn from the
Principal account to the extent that funds are available for such purpose. If
such available balance shall be insufficient, the Trustee shall sell such Bonds
from among those designated on the current list for such purpose as provided
below and in the manner, in its discretion, as it shall deem advisable or
necessary in order to fund the Principal Account for purposes of such
redemption. Sales of Bonds by the Trustee shall be made in such manner as the
Trustee shall determine, subject to any minimum face amount limitations on sale
which shall have been specified by the Depositors and agreed to by the Trustee.
In the event that funds are withdrawn from the Principal Account or Bonds are
sold for payment of any portion of the Redemption Price representing accrued
interest, the Principal Account shall be reimbursed when sufficient funds are
next available in the Interest Account for such funds so applied.
The Depositors shall maintain with the Trustee a current list
of Bonds designated to be sold for the purpose of redemption of Certificates or
Redemption Forms tendered for redemption and not purchased by the Depositors,
and for payment of expenses hereunder, provided that if the Depositors shall for
any reason fail to maintain such a list, the Trustee, in its sole discretion,
may designate a current list of Bonds for such purposes. The net proceeds of any
sales of Bonds from such list representing principal shall be credited to the
Principal Account and the proceeds of such sales representing accrued interest
shall be credited to the Interest Account.
Neither the Trustee nor the Depositors shall be liable or
responsible in any way for depreciation or loss incurred by reason of any sale
of Bonds made pursuant to this Section 5.2.
Certificates evidencing Units, or Redemption Forms evidencing
Plan Units, redeemed pursuant to this Section 5.2 shall
-27-
360883.1
<PAGE>
be cancelled by the Trustee and the Units or Plan Units evidenced by such
Certificates or Redemption Forms shall be terminated by such redemptions. In the
event that a Certificate shall be tendered representing a number of Units
greater than those requested to be redeemed by the Certificateholder, the
Trustee shall issue to each Certificateholder, upon payment of any tax or
charges of the character referred to in the second paragraph to Section 5.3, a
new Certificate evidencing the Units representing the balance of the Certificate
so tendered.
Notwithstanding the foregoing provisions of this Section 5.2,
the Trustee is hereby irrevocably authorized in its discretion, in the event
that the Depositors do not elect to purchase any Certificate or Redemption Form
tendered to the Trustee for redemption, or in the event that a Certificate or
Redemption Form is being tendered by the Depositors for redemption, in lieu of
redeeming Units or Plan Units tendered for redemption, to sell such Units or
Plan Units in the over-the-counter market or by private sale for the account of
tendering Unit or Plan Unit holders at prices which will return to the Unit or
Plan Unit holders amounts in cash, net after deducting brokerage commissions,
transfer taxes and other charges, equal to or in excess of the Redemption Prices
which such Unit or Plan Unit holders would otherwise be entitled to receive on
redemption pursuant to this Section 5.2. The Trustee shall pay to the Unit or
Plan Unit holders the net proceeds of any such sale on the day they would
otherwise be entitled to receive payment of the Redemption Price hereunder.
Section 5.3. Transfer or Interchange of Certificates: A
Certificate may be transferred by the registered holder thereof by presentation
and surrender of such Certificate at the corporate trust office of the Trustee
properly endorsed or accompanied by a written instrument or instruments of
transfer in form satisfactory to the Trustee and executed by the
Certificateholder or his authorized attorney, whereupon a new registered
Certificate or Certificates for the same number of Units executed by the Trustee
and the Depositors will be issued in exchange and substitution therefor.
Certificates issued pursuant to this Indenture are interchangeable for one or
more other Certificates in an equal aggregate number of Units and all
Certificates issued shall be issued in denominations of one Unit or any multiple
thereof as may be requested by the Certificateholder. The Trustee may deem and
treat the person in whose name any Certificate shall be registered upon the
books of the Trustee as the owner of such Certificate for all purposes hereunder
and the Trustee shall not be affected by any notice to the contrary, nor be
liable to any person or in any way for so deeming or treating the person in
whose name any Certificate shall be so registered.
A sum sufficient to pay any tax or other governmental
charge that may be imposed in connection with any such transfer or
-28-
360883.1
<PAGE>
interchange shall be paid by the Certificateholder to the Trustee. The Trustee
may require a Certificateholder to pay $2.00 for each new Certificate issued on
any such transfer or interchange.
All Certificates cancelled pursuant to this Indenture shall be
disposed of by the Trustee without liability on its part.
Section 5.4. Certificates Mutilated, Destroyed, Stolen or
Lost: In case any Certificate shall become mutilated or be destroyed, stolen or
lost, the Trustee shall execute and deliver a new Certificate in exchange and
substitution therefor upon the holder's furnishing the Trustee with proper
identification and indemnity satisfactory to the Trustee, and complying with
such other reasonable regulations and conditions as the Trustee may prescribe
and paying such expenses as the Trustee may incur. Any mutilated Certificate
shall be duly surrendered and cancelled before any new Certificate shall be
issued in exchange and substitution therefor. Upon the issuance of any new
Certificate a sum sufficient to pay any tax or other governmental charge and the
fees and expenses of the Trustee may be imposed. Any such new Certificate issued
pursuant to this Section shall constitute complete and indefeasible evidence of
ownership in the Trust, as if originally issued, whether or not the lost, stolen
or destroyed Certificate shall be found at any time.
In the event the Trust has terminated or is in the process of
termination, the Trustee may, instead of issuing a new Certificate in exchange
and substitution for any Certificate which shall have become mutilated or shall
have been destroyed, stolen or lost, make the distributions in respect of such
mutilated, destroyed, stolen or lost Certificate (without surrender thereof
except in the case of a mutilated Certificate) as provided in Section 9.2 hereof
if the Trustee is furnished with such security or indemnity as it may require to
save it harmless, and in the case of destruction, loss or theft of a
Certificate, evidence to the satisfaction of the Trustee of the destruction,
loss or theft of such Certificate and of the ownership thereof.
ARTICLE VI
TRUSTEE; REMOVAL OF DEPOSITORS
Section 6.1. General Definition of Trustee's Liabilities,
Rights and Duties; Removal of Depositors: In addition to and notwithstanding the
other duties, rights, privileges and liabilities of the Trustee otherwise set
forth herein, the liabilities of the Trustee are further defined as follows:
(a) all moneys deposited with or received by the
Trustee hereunder shall be held by the Trustee without
-29-
360883.1
<PAGE>
interest in trust as part of the Trust or the Reserve Account until
required to be disbursed in accordance with the provisions of this
Indenture and such moneys will be segregated by separate recordation on
the trust ledgers of the Trustee so long as such practice preserves a
valid preference under applicable law, or if such preference is not so
preserved the Trustee shall handle such moneys in such other manner as
shall constitute the segregation and holding thereof in trust within
the meaning of the Investment Company Act of 1940.
(b) the Trustee shall be under no liability for any action
taken in good faith on any appraisal, paper, order, list, demand,
request, consent, affidavit, notice, opinion, direction, evaluation,
endorsement, assignment, resolution, draft or other document, whether
or not of the same kind prima facie properly executed, or for the
disposition of moneys, Bonds or Certificates pursuant to this
Indenture, or in respect of any evaluation which the Trustee is
required to make or is required or permitted to have made by others
under this Indenture or otherwise except by reason of its gross
negligence, lack of good faith or willful misconduct, provided that the
Trustee shall not in any event be liable or responsible for any
evaluation made by the Evaluator. The Trust shall pay and hold the
Trustee harmless from and against any loss, liability or expense
incurred in acting as Trustee of the Trust other than by reason of
willful misfeasance, bad faith or gross negligence in the performance
of its duties or by reason of its reckless disregard of its obligations
and duties hereunder, including the costs and expenses of the defense
against any claim or liability in the premises. The Trustee may
construe any of the provisions of this Indenture, insofar as the same
may appear to be ambiguous or inconsistent with any other provisions
hereof, and any construction of any such provisions hereof by the
Trustee in good faith shall be binding upon the parties hereto. The
Trustee shall in no event be deemed to have assumed or incurred any
liability, duty or obligation to any Certificateholder, the Evaluator
or the Depositors, other than expressly provided for herein.
(c) the Trustee shall not be responsible for or in respect of
the recitals herein, the validity or sufficiency of this Indenture or
for the due execution hereof by the Depositors or the Evaluator, or for
the form, character, genuineness, sufficiency, value or validity of any
Bonds (except that the Trustee shall be responsible for the exercise of
due care in determining the genuineness of Bonds delivered to it
pursuant to contracts for the purchase of such Bonds) or for or in
respect of the validity or sufficiency of the Certificates or of the
due execution thereof by the Depositors, and the Trustee shall in no
event
-30-
360883.1
<PAGE>
assume or incur any liability, duty or obligation to any
Certificateholder, the Evaluator or the Depositors other than as
expressly provided for herein. The Trustee shall not be responsible for
or in respect of the validity of any signature by or on behalf of the
Depositors or the Evaluator.
(d) the Trustee shall not be under any obligation to appear
in, prosecute or defend any action, which in its opinion may involve it
in expense or liability, unless as often as required, it shall be
furnished with reasonable security and indemnity against such expense
or liability as it may require, and any pecuniary cost of the Trustee
from such actions shall be deductible from and a charge against the
Interest and Principal Accounts. The Trustee shall in its discretion
undertake such action as it may deem necessary at any and all times to
protect the Trust and the rights and interests of the
Certificateholders pursuant to the terms of this Indenture, provided,
however, that the expenses and costs of such actions, undertakings or
proceedings shall be reimbursable to the Trustee from the Interest and
Principal Accounts, and the payment of such costs and expenses shall be
secured by a lien on the Trust prior to the interests of the
Certificateholders.
(e) the Trustee may employ agents, attorneys, accountants and
auditors and shall not be answerable for the default or misconduct of
any such agents, attorneys, accountants or auditors if such agents,
attorneys, accountants or auditors shall have been selected with
reasonable care. The Trustee shall be fully protected in respect of any
action under this Indenture taken, or suffered, in good faith by it in
accordance with the opinion of counsel. The fees and expenses charged
by such agents, attorneys, accountants or auditors shall constitute an
expense of the Trustee reimbursable from the Interest and Principal
Accounts as set forth in Section 3.5 hereof.
(f) other than as provided in Article VII hereunder, if at any
time there is only one Depositor acting hereunder and said Depositor
shall resign or fail to undertake or perform or become incapable of
undertaking or performing any of the duties which by the terms of this
Indenture are required by it to be undertaken or performed and no
express provision is made for action to be taken by the Trustee in such
event, or said Depositor shall be adjudged a bankrupt or insolvent, or
a receiver of such Depositor or of its property shall be appointed, or
any public officer shall take charge or control of such Depositor or of
its property or affairs for the purpose of rehabilitation, conservation
or liquidation, then in any such case, the Trustee may do any one or
more of the following: (1) appoint a successor Depositor who shall act
hereunder in all respects in place of the Depositor, who
-31-
360883.1
<PAGE>
shall be compensated semi-annually, at rates deemed by the Trustee to
be reasonable under the circumstances, by deduction from the Interest
Account or from the Principal Account, but no such deduction shall be
made exceeding such reasonable amount as the Securities and Exchange
Commission may prescribe in accordance with Section 26(a)(2)(C) of the
Investment Company Act of 1940; (2) continue to act in the capacity of
Trustee hereunder in its own absolute discretion without appointing any
successor Depositor; or (3) terminate this Indenture and the Trust
created hereby and liquidate the Trust, all in the manner provided in
Section 9.2.
(g) if the value of the Trust as shown by any evaluation by
the Trustee pursuant to Section 5.1 hereof shall be less than the
liquidation amount specified in Part II of the Reference Trust
Agreement, the Trustee may in its discretion, and shall, when so
directed by the Depositors, terminate this Indenture and the Trust
created hereby and liquidate the Trust, all in the manner provided in
Section 9.2.
(h) in no event shall the Trustee be liable for any taxes or
other governmental charges imposed upon or in respect of the Bonds or
upon the interest thereon or upon it as Trustee hereunder or upon or in
respect of the Trust which it may be required to pay under any present
or future law of the United States of America or any other taxing
authority having jurisdiction in the premises. For all such taxes and
charges and for any expenses, including counsel fees, which the Trustee
may sustain or incur with respect to such taxes or charges, the Trustee
shall be reimbursed and indemnified out of the Interest and Principal
Accounts of the Trust, and the payment of such amounts so paid by the
Trustee shall be secured by a lien on the Trust prior to the interests
of the Certificateholders.
(i) the Trustee, except by reason of its gross negligence,
lack of good faith, reckless disregard of its obligations hereunder or
willful misconduct, shall not be liable for any action taken or
suffered to be taken by it in good faith and believed by it to be
authorized or within the discretion or rights or powers conferred upon
it by this Indenture.
(j) notwithstanding anything in this Indenture to the
contrary, the Trustee is authorized and empowered to enter into any
safekeeping arrangement or arrangements it deems necessary or
appropriate for holding the Bonds then owned by the Trust and the
Trustee is authorized and empowered in its sole right to amend,
supplement or terminate any safekeeping arrangement or arrangements
made under this provision.
-32-
360883.1
<PAGE>
Section 6.2. Books, Records and Reports: The Trustee shall
keep proper books of record and account of all the transactions under this
Indenture at its corporate trust office including a record of the name and
address of, and the Certificates issued by the Trust and held by, every
Certificateholder, and such books and records shall be open to inspection by any
Certificateholder at all reasonable times during the usual business hours, and
such books and records shall be made available to the Depositors upon the
request of the Depositors including, but not limited to, a record of the name
and address of, and the Certificates issued by the Trust and held by, every
Certificateholder.
The Trustee shall cause audited statements as to the assets
and income of the Trust to be prepared on an annual basis by independent public
accountants selected by the Depositors, provided, however, if the cost to the
Trust for preparation of such statements shall exceed an amount equivalent to
$.50 per Unit on an annual basis then the Trustee shall not be required to have
such statements prepared. Such audited statements will be made available to
Certificateholders upon request.
To the extent permitted under the Investment Company Act of
1940 as evidenced by an opinion of counsel to the Depositors, the Trustee shall
pay, or reimburse to the Depositors or others, the costs of the preparation of
documents and information with respect to the Trust required by law or
regulation in connection with the maintenance of a secondary market in units of
the Trust. Such costs may include but are not limited to accounting and legal
fees, blue sky registration and filing fees, printing expenses and other
reasonable expenses related to documents required under Federal and state
securities laws.
The Trustee shall make such annual or other reports as may
from time to time be required under any applicable state or federal statute or
rule or regulation thereunder.
Section 6.3. Indenture and List of Bonds on File: The Trustee
shall keep a certified copy or duplicate original of this Indenture on file at
its corporate trust office available for inspection at all reasonable times
during the usual business hours by any Certificateholder and the Trustee shall
keep and so make available for inspection a current list of the Bonds.
Section 6.4. Compensation: For services performed under this
Indenture the Trustee shall be paid at the rate per annum set forth in Part II
of the Reference Trust Agreement which shall be computed on the basis of the
greatest principal amount of Bonds in the Trust at any time during the period
with respect to which such compensation is being computed. The Trustee may from
time to time adjust its compensation as set forth above provided that the total
adjustment upward does not, at the time of such
-33-
360883.1
<PAGE>
adjustment, exceed the percentage of the total increase, after the date hereof,
in consumer prices for services as measured by the United States Department of
Labor Consumer Price Index entitled "All Services Less Rent", or, if such index
shall cease to be published, then as measured by the available index most nearly
comparable to such index. The consent or concurrence of any Certificateholder
hereunder shall not be required for any such adjustment or increase; however,
the consent of the Depositors shall be required. Such compensation shall be
charged by the Trustee against the Interest and Principal Accounts on or before
the Payment Date on which such period terminates; provided, however, that such
compensation shall be deemed to provide only for the usual normal and recurring
functions undertaken as Trustee pursuant to this Indenture.
The Trustee shall charge the Interest and Principal Accounts
as provided for in Section 3.5(a) for any and all expenses, including the fees
of counsel which may be retained by the Trustee in connection with its
activities hereunder, and disbursements incurred hereunder and any extraordinary
services performed by the Trustee hereunder. The Trustee shall be indemnified
and held harmless against any loss or liability accruing to it without
negligence, bad faith or willful misconduct on its part, arising out of or in
connection with the acceptance or administration of the Trust, including the
costs and expenses (including counsel fees) of defending itself against any
claim of liability in the premises. If the cash balances in the Interest and
Principal Accounts shall be insufficient to provide for amounts payable pursuant
to this Section 6.4, the Trustee shall have the power to sell (i) Bonds from the
current list of Bonds designated to be sold pursuant to Section 5.2 hereof, or
(ii) if no such Bonds have been so designated, such Bonds as the Trustee may see
fit to sell in its own discretion, and to apply the proceeds of any such sale in
payment of the amounts payable pursuant to this Section 6.4. The Trustee shall
not be liable or responsible in any way for depreciation or loss incurred by
reason of any sale of Bonds made pursuant to this Section 6.4. Any moneys
payable to the Trustee pursuant to this section shall be secured by a prior lien
on the Trust.
Section 6.5. Removal and Resignation of the Trustee;
Successor: The following provisions shall provide for the removal
and resignation of the Trustee and the appointment of any
successor Trustee:
(a) any resignation or removal of the Trustee and appointment
of a successor pursuant to this section shall not become effective
until acceptance of appointment by the successor Trustee as provided in
subsection (b) hereof;
(b) the Trustee or any trustee hereafter appointed may
resign and be discharged of the trust created by this
-34-
360883.1
<PAGE>
Indenture by executing an instrument in writing resigning as such
Trustee, filing the same with the Depositors and mailing a copy of a
notice of resignation to all Certificateholders then on record not less
than sixty days before the date specified in such instrument when,
subject to Section 6.5(d), such resignation is to take effect. Upon
receiving such notice of resignation, the Depositors shall use their
best efforts to promptly appoint a successor Trustee as hereinafter
provided, by written instrument, in duplicate, one copy of which shall
be delivered to the resigning Trustee and one copy to the successor
Trustee. In case at any time the Trustee shall become incapable of
acting or shall be deemed incapable of acting by the written consent of
holders of Certificates evidencing 66-2/3% of the outstanding Units
comprising a particular series, or shall be adjudged a bankrupt or
insolvent, or a receiver of the Trustee or of its property shall be
appointed, or any public officer shall take charge or control of the
Trustee or of its property or affairs for the purposes of
rehabilitation, conservation, or liquidation, then in any such case the
Depositors may remove the Trustee and appoint a successor Trustee by
written instrument, in duplicate, one copy of which shall be delivered
to the Trustee so removed and one copy to the successor Trustee;
provided that notice of such removal and appointment of a successor
shall be given to each Certificateholder then of record;
(c) any successor Trustee appointed hereunder shall execute,
acknowledge and deliver to the Depositors and the retiring Trustee an
instrument accepting such appointment hereunder, and such successor
Trustee without any further act, deed or conveyance shall become vested
with all the rights, powers, duties and obligations of its predecessor
hereunder with like effect as if originally named Trustee herein and
shall be bound by all the terms and conditions of this Indenture. Upon
the request of such successor Trustee, the Depositors and the retiring
Trustee shall, upon payment of any amounts due the retiring Trustee or
provision therefor to the satisfaction of such retiring Trustee,
execute and deliver an instrument acknowledged by it transferring to
such successor trustee all the rights and powers of the retiring
Trustee; and the retiring Trustee shall transfer, deliver and pay over
to the successor Trustee all bonds and moneys at the time held by it
hereunder, together with all necessary instruments of transfer and
assignment or other documents properly executed necessary to effect
such transfer and such of the records or copies thereof maintained by
the retiring Trustee in the administration hereof as may be requested
by the successor Trustee, and shall thereupon be discharged from all
duties and responsibilities under this Indenture. The retiring Trustee
shall, nevertheless, retain a lien upon all
-35-
360883.1
<PAGE>
Bonds and moneys at the time held by it hereunder to secure
any amounts then due the retiring Trustee hereunder;
(d) in case at any time the Trustee shall resign and no
successor Trustee shall have been appointed and have accepted
appointment within thirty days after notice of resignation has been
received by the Depositors, the retiring Trustee may forthwith apply to
a court of competent jurisdiction for the appointment of a successor
Trustee. Such court may thereupon, after such notice, if any, as it may
deem proper and prescribe, appoint a successor Trustee; and
(e) any corporation into which any Trustee hereunder may be
merged or with which it may consolidate, or any corporation resulting
from any merger or consolidation to which any Trustee hereunder shall
be a party, shall be the successor Trustee under this Indenture without
the execution or filing of any paper, instrument or further act to be
done on the part of the parties hereto, anything herein, or in any
agreement relating to such merger or consolidation, by which any such
Trustee may seek to retain certain powers, rights and privileges
theretofore obtaining for any period of time following such merger or
consolidation, to the contrary notwithstanding.
Section 6.6. Qualifications of Trustee: The Trustee, or any
successor thereof, shall be a corporation organized and doing business under the
laws of the United States or any state thereof, which is authorized under such
laws to exercise corporate trust powers and having at all times an aggregate
capital, surplus, and undivided profits of not less than $2,500,000.
ARTICLE VII
DEPOSITORS
Section 7.1. Power of Attorney: (a) At all times prior to the
termination of this Indenture and while the Depositors shall continue to act
jointly hereunder, there shall be maintained on file with the Trustee a power of
attorney executed in favor of Bear Stearns by Gruntal constituting and
appointing Bear Stearns as the true and lawful agent and attorney-in-fact of
Gruntal to execute and deliver for and on behalf of Gruntal, as a Depositor of
any Trust created hereunder, all notices, opinions, certificates, lists,
demands, directions, instruments or other documents or agreements provided or
permitted to be executed by the Depositors hereunder or to take other action in
respect thereof. Such power of attorney shall also appoint Bear Stearns as the
true and lawful agent and attorney-in-fact of Gruntal to receive, on behalf of
Gruntal as a depositor of any Trust created hereunder, all notices, opinions,
certificates, lists, demands,
-36-
360883.1
<PAGE>
directions, instruments or other documents to be provided to the Depositors
hereunder. Such power of attorney shall continue in effect until written notice
of revocation thereof has been received by the Trustee. Prior to the receipt of
such notice of renovation, the Trustee shall be entitled to rely conclusively
upon such power of attorney as authorizing Bear Stearns to give any and all
notices, opinions, certificates, lists, demands, directions, instruments or
other documents or agreements provided or permitted to be executed by the
Depositors hereunder or to take other action in respect thereof on behalf of
Gruntal.
(b) In the event that the power of attorney referred to in
Section 7.1(a) shall be revoked by written notice given by Gruntal and it shall
not be replaced within one business day by another power of attorney conforming
with the requirements of said Section 7.1(a), the Depositors shall be deemed to
have been unable to reach agreement with respect to action to be taken jointly
by them hereunder and thereupon Gruntal shall be discharged hereunder upon the
expiration of such one-day period and thereupon Bear Stearns shall act hereunder
without the necessity of any other or further action on their part or on the
part of the Trustee.
Section 7.2. Succession: The covenants, provisions and
agreements herein contained shall in every case be binding upon any successor to
the business of the Depositors. In the event of the death, resignation or
withdrawal of any partner of any successor Depositor which may be a partnership,
the deceased, resigning or withdrawing partner shall be relieved of all further
liability hereunder if at the time of such death, resignation or withdrawal such
Depositors maintain a net worth (determined in accordance with generally
accepted accounting principles) of at least $1,000,000. In the event of an
assignment by any Depositor to a successor corporation or partnership as
permitted by the next following sentence, such Depositor and, if such Depositor
is a partnership, its partners, shall be relieved of all further liability under
this Indenture. The Depositors may transfer all or substantially all of their
assets to a corporation or partnership which carries on the business of that
Depositor, if at the time of such transfer such successor duly assumes all the
obligations of the Depositor under this Indenture and if at such time such
successor maintains a net worth of at least $1,000,000 (determined in accordance
with generally accepted accounting principles).
Section 7.3. Resignation of a Depositor: If at any time any
Depositor desires to resign its position as Depositor hereunder, it may resign
by delivering to the Trustee an instrument of resignation executed by such
Depositor. Such resignation shall become effective upon the expiration of thirty
days from the date on which such instrument is delivered to the Trustee. Upon
effective resignation hereunder, the resigning Depositor shall be discharged and
shall no longer be liable in any
-37-
360883.1
<PAGE>
manner hereunder except as to acts or omissions occurring prior to such
resignation and any successor Depositor appointed by the Trustee pursuant to
Section 6.1(f) shall thereupon perform all duties and be entitled to all rights
under this Indenture. The successor Depositor shall not be under any liability
hereunder for occurrences or omissions prior to the execution of such
instrument.
Section 7.4. Liability of Depositors and Indemnification: (a)
No Depositor shall be under liability to any other Depositor, the Trust or the
Certificateholders for any action or for refraining from the taking of any
action in good faith pursuant to this Indenture, or for errors in judgment or
for depreciation or loss incurred by reason of the purchase or sale of any
Bonds, provided, however, that this provision shall not protect the Depositors
against any liability to which they would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of their
duties or by reason of their reckless disregard of their obligations and duties
hereunder. The Depositors may rely in good faith on any paper, order, notice,
list, affidavit, receipt, evaluation, opinion, endorsement, assignment, draft or
any other document of any kind prima facie properly executed and submitted to it
by the Trustee, the Trustee's counsel, the Evaluator or any other person for any
matters arising hereunder. The Depositors shall in no event be deemed to have
assumed or incurred any liability, duty, or obligation to any Certificateholder,
the Evaluator or the Trustee other than as expressly provided for herein.
(b) The Trust shall pay and hold the Depositors harmless from
and against any loss, liability or expense incurred in acting as Depositors of
the Trust other than by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of its reckless
disregard of its obligations and duties hereunder, including the costs and
expenses of the defense against any claim or liability in the premises. The
Depositors shall not be under any obligation to appear in, prosecute or defend
any legal action which in their opinion may involve them in any expense or
liability, provided, however, that the Depositors may in their discretion
undertake any such action which they may deem necessary or desirable in respect
of this Indenture and the rights and duties of the parties hereto and the
interests of the Certificateholders hereunder and, in such event, the legal
expenses and costs of any such action and any liability resulting therefrom
shall be expenses, costs and liabilities of the Trust and shall be paid directly
by the Trustee out of the Interest and Principal Accounts as provided by Section
3.5.
(c) None of the provisions of this Indenture shall be
deemed to protect or purport to protect the Depositors against any
liability to the Trust or to the Certificateholders to which the
-38-
360883.1
<PAGE>
Depositors would otherwise be subject by reason of willful misfeasance, bad
faith or gross negligence in the performance of their duties, or by reason of
the Depositors' reckless disregard of their obligations and duties under this
Indenture.
(d) Notwithstanding the discharge of a Depositor of the Trust
in accordance with Section 6.1(f) or Section 7.1(b), such Depositor shall
continue to be fully liable in accordance with the provisions hereof in respect
of action taken or refrained from under this Agreement by the Depositors before
the date of such discharge or by the undischarged Depositors before the date of
such discharge or by the undischarged Depositors before or after the date of
such discharge, as fully and to the same extent as if no discharge has occurred.
Section 7.5. Compensation: The Depositors shall receive at the
times set forth in Section 3.5 as compensation for performing portfolio
supervisory services, such amount and for such periods as specified in Part II
of the Reference Trust Agreement. The computation of such compensation shall be
made on the basis of the principal amount of Bonds in the Trust at the beginning
of each calendar year period. At no time, however, will the total amount
received by the Depositors for services rendered to all series of the Municipal
Securities Trust in any calendar year exceed the aggregate cost to them of
supplying such services in such year. Such rate may be increased by the Trustee
from time to time, without the consent or approval of any Certificateholder or
the Depositors, by amounts not exceeding the proportionate increase during the
period from the date of such Reference Trust Agreement to the date of any such
increase, in consumer prices as published either under the classification "All
Services Less Rent" in the Consumer Price Index published by the United States
Department of Labor or, if such Index is no longer published, a similar index.
In the event that any amount of the compensation paid to the
Depositors pursuant to Section 3.5 is found to be an improper charge against the
Trust, the Depositors shall reimburse the Trust in such amount. An improper
charge shall be established if a final judgment or order for reimbursement of
the Trust shall be rendered against the Depositors and such judgment or order
shall not be effectively stayed or a final settlement is established in which
the Depositors agree to reimburse the Trust for amounts paid to the Depositors
pursuant to this Section 7.5.
-39-
360883.1
<PAGE>
ARTICLE VIII
RIGHTS OF CERTIFICATEHOLDERS
Section 8.1. Beneficiaries of Trust: By the purchase and
acceptance or other lawful delivery and acceptance of any Certificate, a
Certificateholder shall be deemed to be a beneficiary of the Trust created by
this Indenture and vested with all right, title and interest in the Trust to the
extent of the Unit or Units set forth and evidenced by such Certificate, subject
to the terms and conditions of this Indenture and of such Certificate.
Section 8.2. Rights, Terms and Conditions: In addition to the
other rights and powers set forth in the other provisions and conditions of this
Indenture the Certificateholders shall have the following rights and powers and
shall be subject to the following terms and conditions:
(a) A Certificateholder may at any time tender his
Certificate or Certificates to the Trustee for redemption in
accordance with Section 5.2.
(b) The death or incapacity of any Certificateholder shall not
operate to terminate this Indenture or the Trust created hereby, nor
entitle his legal representatives or heirs to claim an accounting or to
take any action or proceeding in any court of competent jurisdiction
for a partition or winding up of the Trust, nor otherwise affect the
rights, obligations and liabilities of the parties hereto or any of
them. Each Certificateholder expressly waives any right he may have
under any rule of law, or the provisions of any statute, or otherwise,
to require the Trustee at any time to account, in any manner other than
as expressly provided in this Indenture, in respect of the Bonds or
moneys from time to time received, held and applied by the Trustee
hereunder.
(c) No Certificateholder shall have any right to vote or in
any manner otherwise control the operation and management of the Trust,
or the obligations of the parties hereto, nor shall anything herein set
forth, or contained in the terms of the Certificates, be construed so
as to constitute the Certificateholders from time to time as partners;
nor shall any Certificateholder ever be under any liability to any
third persons by reason of any action taken by the parties to this
Indenture for any other cause whatsoever.
-40-
360883.1
<PAGE>
ARTICLE IX
ADDITIONAL COVENANTS; MISCELLANEOUS PROVISIONS
Section 9.1. Amendments: This Indenture may be amended from
time to time by the parties hereto or their respective successors, without the
consent of any of the Certificateholders (a) to cure any ambiguity or to correct
or supplement any provision contained herein which may be defective or
inconsistent with any other provision contained herein; (b) to change any
provision required by the Securities and Exchange Commission or any successor
governmental agency to be changed; or (c) to make such other provision in regard
to matters or questions arising hereunder as shall not adversely affect the
interests of the Certificateholders; provided, however, that the parties hereto
may not amend this Indenture so as to (1) increase the number of Units above the
number set forth in Part II of the Reference Trust Agreement except as provided
in Section 5.4 hereof or such lesser amount as may be outstanding at any time
during the term of this Indenture or (2) subject to Sections 3.8 and 3.14 permit
the deposit or acquisition hereunder of securities either in addition to or in
replacement of any of the Bonds.
This Indenture may also be amended from time to time by the
Depositors and the Trustee (or the performance of any of the provisions or this
Agreement may be waived) with the expressed written consent of holders of
Certificates evidencing 66-2/3% of the Units at the time outstanding under the
Indenture for the purpose of adding any provisions to or changing in any manner
or eliminating any of the provisions of this Indenture or of modifying in any
manner the rights of the holders of Certificates, save for the termination of
the Trust as set forth in Section 9.2 below; provided, however, that no such
amendment or waiver shall (i) reduce the interest in the Trust represented by
Units evidenced by any Certificate without the consent of the holder of such
Certificate, (ii) reduce the aforesaid percentage of Units, the holders of which
are required to consent to any such amendment, without the consent of the
holders of all Certificates then outstanding or (iii) affect the duties,
obligations and responsibilities of the Trustee without its consent.
Promptly after the execution of any such amendment the Trustee
shall furnish written notification to all then outstanding Certificateholders of
the substance of such amendment.
Section 9.2. Termination: This Indenture and the Trust created
hereby shall terminate upon the maturity, redemption, sale or other disposition
as the case may be of the last Bond held in the Trust hereunder unless sooner
terminated as hereinbefore specified and may be terminated at any time by
written consent of all the holders of Certificates; provided that in no event
shall
-41-
360883.1
<PAGE>
the Trust continue beyond the end of the calendar year preceding the fiftieth
anniversary of the execution of this Indenture.
Written notice of any termination, specifying the time or
times at which the Certificateholders may surrender their Certificates for
cancellation shall be given by the Trustee to each Certificateholder at his
address appearing on the registration books of the Trustee. Within a reasonable
period of time after such termination the Trustee shall fully liquidate the
Bonds then held, if any, and shall:
(a) deduct from the Interest Account or, to the extent that
funds are not available in such account, from the Principal Account and
pay to itself individually an amount equal to the sum of
(1) an amount sufficient to reimburse itself for
advances made pursuant to Section 3.5,
(2) its accrued compensation for its ordinary
recurring services,
(3) any compensation due it for its extraordinary
services, and
(4) any other costs, expenses, advances or
indemnities as provided herein;
(b) deduct from the Interest Account or, to the extent that
funds are not available in such account, from the Principal Account and
pay accrued and unpaid fees of the Evaluator and counsel pursuant to
Section 3.9;
(c) deduct from the Interest Account or the Principal Account
any amounts which may be required to be deposited in the Reserve
Account to provide for payment of any applicable taxes or other
governmental charges and any other amounts which may be required to
meet expenses incurred under this Indenture;
(d) distribute to each Certificateholder, upon
surrender for cancellation of his Certificate or
Certificates, such holder's pro rata share of the balance of
the Interest Account;
(e) distribute to each Certificateholder, upon
surrender for cancellation of his Certificate or
Certificates, such holder's pro rata share of the balance of
the Principal Account; and
(f) together with such distribution to each
Certificateholder as provided for in (d) and (e), furnish to
-42-
360883.1
<PAGE>
each such Certificateholder a final distribution statement as of the
date of the computation of the amount distributable to
Certificateholders, setting forth the data and information in
substantially the form and manner provided for in Section 3.6 hereof.
The amounts to be so distributed to each Certificateholder
shall be that pro rata share of the balance of the total Interest, Principal and
Reserve Accounts as shall be represented by the Units therein evidenced by the
outstanding Certificate or Certificates held of record by such
Certificateholder.
The Trustee shall be under no liability with respect to moneys
held by it in the Interest, Reserve and Principal accounts upon termination
except to hold the same in trust without interest until disposed of in
accordance with the terms of this Indenture.
In the event that all of the Certificateholders shall not
surrender their Certificates for cancellation within six months after the time
specified in the above-mentioned written notice, the Trustee shall give a second
written notice to the remaining Certificateholders to surrender their
Certificates for cancellation and receive the liquidation distribution with
respect thereto. If within one year after the second notice all the Certificates
shall not have been surrendered for cancellation, the Trustee may take steps to
contact the remaining Certificateholders concerning surrender of their
Certificates and the cost thereof shall be paid out of the moneys and other
assets which remain in trust hereunder.
Section 9.3. Construction: This Indenture is executed and
delivered in the State of New York, and all local laws or rules of construction
of such State shall govern the rights of the parties hereto and the
Certificateholders and the interpretation of the provisions hereof.
Section 9.4. Registration of Certificates: The Depositors
agree and undertake to register the Certificates with the Securities and
Exchange Commission or other applicable governmental agency pursuant to
applicable Federal or state statutes, if such registration shall be required,
and to do all things that may be necessary or required to comply with this
provision during the term of the Trust created hereunder, and the Trustee shall
incur no liability or be under any obligation or expense in connection
therewith. If the Depositors shall maintain a market in the Units or if
otherwise required by applicable law, the Depositors shall keep the registration
of the Units and the Trust with the Securities and Exchange Commission and under
applicable state statutes on a current basis, all expenses of such registration
shall be borne by the Depositors.
-43-
360883.1
<PAGE>
Section 9.5. Written Notice: Any notice, demand, direction or
instruction to be given to the Depositors hereunder shall be in writing and
shall be duly given if mailed or delivered to Bear, Stearns & Co. Inc., 245 Park
Avenue, New York, New York 10167, Gruntal & Co., Incorporated, 14 Wall Street,
New York, New York 10005 or at such other address as shall be specified by the
Depositors to the Trustee in writing. Any notice, demand, direction or
instruction to be given to the Trustee shall be in writing and shall be duly
given if mailed or delivered to the Trustee, 770 Broadway, New York, New York
10003, Attention: Corporate Trust and Agency Division or such other address as
shall be specified to the Depositors by the Trustee in writing. Any notice,
demand, direction or instruction to be given to the Evaluator hereunder shall be
in writing and shall be duly given if mailed to the Evaluator at 25 Broadway,
New York, New York 10004. Any notice to be given to the Certificateholders shall
be duly given if mailed or delivered to each Certificateholder at the address of
such holder appearing on the registration books of the Trustee.
Section 9.6. Severability: If any one or more of the
covenants, agreements, provisions or terms of this Indenture shall be held
contrary to any express provision of law or contrary to policy or express law,
though not expressly prohibited, or against public policy, or shall for any
reason whatsoever be held invalid, then such covenants, agreements, provisions
or terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Indenture and shall in no way affect the validity or
enforceability of the other provisions of this Indenture or of the Certificates
or the rights of the holders thereof.
Section 9.7. Dissolution of Depositors Not to Terminate: The
dissolution of the Depositors from or for any cause whatsoever shall not operate
to terminate this Indenture or the Trust created hereby.
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed as of the date first above written.
[Signatures and acknowledgments on separate pages.]
-44-
360883.1
<PAGE>
BEAR, STEARNS & CO. INC.
Depositor
__________________________________________
Associate Director
ATTEST:
________________________________
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
I, , a Notary Public in and for
the said County in the State aforesaid, do hereby certify that
, personally known to me to be the same person whose name is
subscribed to the foregoing instrument and personally known to me to be an
Associate Director of Bear Stearns & Co. Inc., a corporation, appeared before me
this day in person, and acknowledged that he signed and delivered the said
instrument as his free and voluntary act as such Associate Director and as the
free and voluntary act of said Bear Stearns & Co. Inc., for the uses and
purposes therein set forth.
GIVEN under my hand and notarial seal this day of
, 19 .
__________________________________________
Notary Public
(SEAL)
My Commission expires:
360883.1
<PAGE>
GRUNTAL & CO., INCORPORATED
Depositor
_________________________________________
ATTEST:
_________________________________
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
I, , a Notary Public in and for
the said County in the State aforesaid, do hereby certify that
, personally known to me to be the same person whose name is
subscribed to the foregoing instrument and personally known to me to be a
Director of Gruntal & Co., Incorporated, a corporation, appeared before me this
day in person, and acknowledged that he signed and delivered the said instrument
as his free and voluntary act as such Director and as the free and voluntary act
of said Gruntal & Co., Incorporated, for the uses and purposes therein set
forth.
GIVEN under my hand and notarial seal this day of July, 1989.
__________________________________________
Notary Public
(SEAL)
My Commission expires:
360883.1
<PAGE>
UNITED STATES TRUST COMPANY OF NEW YORK
Trustee
__________________________________________
Assistant Vice President
ATTEST:
_______________________________
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On this day of , 19 , before me personally appeared , to me
known, who, being by me duly sworn, said that he is an Assistant Vice President
of United States Trust Company of New York, one of the corporations described in
and which (by facsimile) executed the foregoing instrument; that he knows the
seal of said corporation; that the seal affixed to the said instrument is such
corporate seal; that it was so affixed by authority of the Board of Directors of
said corporation, and that he signed his name thereto by like authority.
__________________________________________
Notary Public
(SEAL)
(SEAL)
My Commission expires:
360883.1
<PAGE>
STANDARD & POOR'S CORPORATION
Evaluator
__________________________________________
Vice President
(SEAL)
ATTEST:
____________________________________
Vice President
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On this day of , 19 , before me personally appeared
_________________________ , to me known, who, being by me duly sworn, said that
he is Vice President of Standard & Poor's Corporation, one of the corporations
described in and which (by facsimile) executed the foregoing instrument; that he
knows the seal of said corporation; that the seal affixed to the said instrument
is such corporate seal; that it was so affixed by authority of the Board of
Directors of said corporation, and that he signed his name (by facsimile)
thereto by like authority.
__________________________________________
Notary Public
(SEAL)
My Commission expires:
360883.1
<PAGE>
MUNICIPAL SECURITIES TRUST
SERIES 45 AND 73RD DISCOUNT SERIES (and Subsequent Series)
________________
TRUST INDENTURE AND AGREEMENT
Among
BEAR, STEARNS & CO. INC.
GRUNTAL & CO., INCORPORATED
As Depositors
UNITED STATES TRUST COMPANY OF NEW YORK
As Trustee
and
STANDARD & POOR'S CORPORATION
As Evaluator
_______________
Dated: July 20, 1989
360883.1
<PAGE>
TRUST INDENTURE AND AGREEMENT
MUNICIPAL SECURITIES TRUST
SERIES 45 AND 73RD DISCOUNT SERIES (and Subsequent Series),
CONTENTS
Articles and Section Page
INTRODUCTION........................................ ..........................1
ARTICLE I - DEFINITIONS; CERTIFICATES..........................................2
Section 1.1. Definitions............................................2
Section 1.2. Form of Certificate....................................4
ARTICLE II - DEPOSIT OF BONDS; DECLARATION OF TRUST; FORM
AND ISSUANCE OF CERTIFICATES....................................9
Section 2.1. Deposit of Bonds......................................9
Section 2.2. Declaration of Trust..................................9
Section 2.3. Issue of Certificates.................................9
Section 2.4. Form of Certificates..................................9
Section 2.5. Certain Contracts Satisfactory........................9
ARTICLE III - ADMINISTRATION OF TRUST........................................ 10
Section 3.1. Initial Cost........................................ 10
Section 3.2. Interest Account.................................... 10
Section 3.3. Principal Account................................... 10
Section 3.4. Reserve Account..................................... 11
Section 3.5. Distributions....................................... 11
Section 3.6. Distribution Statements............................. 16
Section 3.7. Sale of Bonds....................................... 17
Section 3.8. Refunding Bonds..................................... 19
Section 3.9. Counsel ............................................ 19
Section 3.10. Notice and Sale by Trustee.......................... 19
Section 3.11. Trustee Not to Amortize............................. 20
Section 3.12. Action by Trustee Regarding Bonds................... 20
Section 3.13. Notice of Change in Principal Account............... 20
Section 3.14. Limited Replacement of Special Bonds................ 20
ARTICLE IV - EVALUATION OF BONDS; EVALUATOR.................................. 22
Section 4.1. Evaluation of Bonds................................. 22
Section 4.2. Compensation of Evaluator........................... 23
Section 4.3. Liability of Evaluator.............................. 23
Section 4.4. Resignation, Removal and Other Matters.............. 23
(i)
360883.1
<PAGE>
ARTICLE V - TRUST EVALUATION; REDEMPTION, PURCHASE, TRANSFER,
INTERCHANGE OR REPLACEMENT OF CERTIFICATES...................... 24
Section 5.1. Trust Evaluation.................................... 24
Section 5.2. Redemptions by Trustee; Purchases by
Depositors........................................ 25
Section 5.3. Transfer or Interchange of Certificates............. 28
Section 5.4. Certificates Mutilated, Destroyed, Stolen
or Lost.......................................... 29
ARTICLE VI - TRUSTEE; REMOVAL OF DEPOSITORS................................. 29
Section 6.1. General Definition of Trustee's
Liabilities, Rights and Duties; Removal of
Depositors........................................ 29
Section 6.2. Books, Records and Reports.......................... 33
Section 6.3. Indenture and List of Bonds on File................. 33
Section 6.4. Compensation........................................ 33
Section 6.5. Removal and Resignation of the Trustee;
Successor......................................... 34
Section 6.6. Qualifications of Trustee........................... 36
ARTICLE VII - DEPOSITORS..................................................... 36
Section 7.1. Power of Attorney.................................. 36
Section 7.2. Succession......................................... 37
Section 7.3. Resignation of a Depositor......................... 37
Section 7.4. Liability of Depositors and Indemnification........ 38
Section 7.5. Compensation....................................... 39
ARTICLE VIII - RIGHTS OF CERTIFICATEHOLDERS.................................. 40
Section 8.1. Beneficiaries of Trust............................. 40
Section 8.2. Rights, Terms and Conditions....................... 40
ARTICLE IX - ADDITIONAL COVENANTS; MISCELLANEOUS PROVISIONS.................. 41
Section 9.1. Amendments......................................... 41
Section 9.2. Termination........................................ 41
Section 9.3. Construction....................................... 43
Section 9.4. Registration of Certificates....................... 43
Section 9.5. Written Notice..................................... 44
Section 9.6. Severability....................................... 44
Section 9.7. Dissolution of Depositors Not to Terminate......... 44
__________________________
This Table of Contents does not constitue part of the Indenture.
(ii)
360883.1
J.J. Kenny Frank A. Ciccotto, Jr.
65 Broadway Vice President
New York, NY 10006-2551 Tax-Exempt Evaluations
Tel 212 770 4422
Fax 212 797 8681
STANDARD & POOR'S
A Division of The McGraw Hill Companies
April 30, 1996
Reich & Tang Distributors L.P.
600 Fifth Avenue
New York, NY 10020
Gruntal & Co., Inc.
14 Wall Street
New York, NY 10005
Re: Municipal Securities Trust
Multi-State Series 39 and Series 47
Gentlemen:
We have examined the post-effective Amendment to the Registration
Statement File No. 33-33606 for the above-captioned trust. We hereby acknowledge
that Kenny S&P Evaluation Services, a division of J.J. Kenny Co., Inc. is
currently acting as the evaluator for the trust. We hereby consent to the use in
the Amendment of the reference to Kenny S&P Evaluation Services, a division of
J.J. Kenny Co., Inc. as evaluator.
In addition, we hereby confirm that the ratings indicated in the
above-referenced Amendment to the Registration Statement for the respective
bonds comprising the trust portfolio are the ratings indicated in our KENNYBASE
database.
You are hereby authorized to file a copy of this letter with the
Securities and Exchange Commission.
Sincerely,
Frank A. Ciccotto
FAC/trh
<PAGE>
J.J. Kenny Frank A. Ciccotto, Jr.
65 Broadway Vice President
New York, NY 10006-2551 Tax-Exempt Evaluations
Tel 212 770 4422
Fax 212 797 8681
STANDARD & POOR'S
A Division of The McGraw Hill Companies
April 30, 1996
Reich & Tang Distributors L.P.
600 Fifth Avenue
New York, NY 10020
Gruntal & Co., Inc.
14 Wall Street
New York, NY 10005
Re: Municipal Securities Trust
Series 48
Gentlemen:
We have examined the post-effective Amendment to the Registration
Statement File No. 33-34900 for the above-captioned trust. We hereby acknowledge
that Kenny S&P Evaluation Services, a division of J.J. Kenny Co., Inc. is
currently acting as the evaluator for the trust. We hereby consent to the use in
the Amendment of the reference to Kenny S&P Evaluation Services, a division of
J.J. Kenny Co., Inc. as evaluator.
In addition, we hereby confirm that the ratings indicated in the
above-referenced Amendment to the Registration Statement for the respective
bonds comprising the trust portfolio are the ratings indicated in our KENNYBASE
database.
You are hereby authorized to file a copy of this letter with the
Securities and Exchange Commission.
Sincerely,
Frank A. Ciccotto
FAC/trh
