As filed with the Securities and Exchange Commission on April 27, 1994
Registration No. 33-73653
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 3
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:
MORTGAGE SECURITIES TRUST, CMO SERIES 2
B. Name of depositors:
BEAR, STEARNS & CO. INC. GRUNTAL & CO., INCORPORATED
C. Complete address of depositors' principal executive offices:
Bear, Stearns & Co. Inc. Gruntal & Co., Incorporated
245 Park Avenue 14 Wall Street
New York, NY 10167 New York, NY 10005
D. Name and complete address of agent for service:
PETER J. DeMARCO ROBERT SABLOWSKY
Managing Director Executive Vice President
Bear, Stearns & Co. Inc. Gruntal & Co., Incorporated
245 Park Avenue 14 Wall Street
New York, NY 10167 New York, NY 10005
Copy of comments to:
MICHAEL R. ROSELLA, ESQ.
Battle Fowler
280 Park Avenue
New York, NY 10017
(212) 856-6858
It is proposed that this filing become effective (check appropriate box)
/ / immediately upon filing pursuant to paragraph (b) of Rule 485
/ X / on April 29, 1994 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)
/ / on ( date ) pursuant to paragraph (a) of Rule 485
<PAGE>
MORTGAGE SECURITIES TRUST,
CMO SERIES 2
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
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
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
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... "
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
<PAGE>
Note: Part A of This Prospectus May Not Be
Distributed Unless Accompanied by Part B.
MORTGAGE SECURITIES TRUST
CMO SERIES 2
The Trust consists of 1 separate unit investment trust
designated Mortgage Series Trust, CMO Series 2 Short-Intermediate
Portfolio (the "Trust"). The Trust consists of an underlying portfolio of
collateralized mortgage obligations ("CMOs" or "Securities") and was
formed to obtain safety of capital and provide a high level of current
distributions of interest income. The Trust seeks to obtain a higher
yield than fixed income investments with comparable AAA ratings. The
Trust seeks to achieve its objectives through investment in a fixed
portfolio of CMOs which may have been issued as debt obligations of a
trust or corporation or which may represent certificated interests of
beneficial ownership in pools of mortgage-backed securities. All of the
CMOs in the portfolio are backed by underlying mortgage-backed securities
which are pledged as collateral to secure payment of principal and
interest on the CMOs. Each of these underlying mortgage-backed securities
is guaranteed as to the payment of principal and interest by the
Government National Mortgage Association ("GNMA"), the Federal National
Mortgage Association ("FNMA") or the Federal Home Loan Mortgage
Corporation ("FHLMC"). All of the CMOs in the Trust are issued by GNMA,
FNMA or FHLMC or are otherwise rated AAA by Standard & Poor's and,
therefore, the Units of the Trust are rated AAA by Standard & Poor's
Corporation. The Units of the Trust are not, however, guaranteed by GNMA,
FNMA, FHLMC, the United States or any of its agencies. The full faith and
credit of the United States is pledged to the payment of all amounts
guaranteed by GNMA. However, payments guaranteed by FNMA and FHLMC are
not guaranteed by the United States and neither the CMOs in the Trust nor
any underlying Fannie Maes or Freddie Macs constitute a debt obligation of
the United States or any of its agencies. The Sponsors are Bear, Stearns
& Co. and Gruntal & Co., Incorporated. The value of the Units will
fluctuate with the value of the CMOs in the portfolio. Both the Estimated
Current Return and the Estimated Long Term Return are subject to
fluctuations with changes in portfolio composition, principal payments and
prepayments, changes in the market value of the CMOs in the portfolio and
changes in fees and expenses. Minimum purchase: 1,000 Units.
This Prospectus consists of two parts. Part A contains the
Summary of Essential Information, including descriptive material relating
to the Trust as of December 31, 1993 (the "Evaluation Date"), a summary of
certain specific information regarding the Trust and audited financial
statements of the Trust, including the Portfolio as of the Evaluation
Date. Part B of this Prospectus contains general information about the
Trust. Part A may not be distributed unless accompanied by Part B of this
Prospectus.
Investors Should Read and Retain Both Parts
of This Prospectus for Future Reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectus Part A Dated April 29, 1994
<PAGE>
THE TRUST. The Trust is a unit investment trust designated
Mortgage Securities Trust, CMO Series 2 Short-Intermediate Portfolio
("Short-Intermediate Portfolio"). The Trust was formed to obtain safety
of capital and a high level of current distributions of interest income
through investment in a fixed portfolio of CMOs. A CMO is a multiclass
bond backed by a pool of mortgage pass-through securities or mortgage
loans. CMOs are also known as "real estate mortgage investment conduits"
(REMICs). As a result of the 1986 Tax Reform Act, most CMOs are issued in
REMIC form to create a certain tax advantage for the issuer. The terms
CMO and REMIC are used interchangeably. The Trust seeks to obtain a
higher yield than fixed income investments with comparable AAA ratings.
An investment in the Trust entails differing degrees of risk.
The Short-Intermediate Portfolio may invest in one or more types
of CMOs including: standard bonds which accrue interest at a fixed rate,
payable at regular intervals from issuance to maturity or repayment of
principal, if earlier; compound interest bonds upon which interest will
accrue but will not be payable (but will be added to the principal amount
of the compound interest bonds), until all bonds issued by the same issuer
in the same series of CMOs, but which have an earlier stated maturity date
than the compound interest bonds, have been paid in full; adjustable rate
bonds upon which the interest rate may increase or decrease at one or more
future dates; floating rate bonds upon which interest accrues at a
floating rate that may be related directly or inversely (although not
necessarily proportionately) to an index; planned amortization bonds or
targeted amortization bonds that are expected to receive payments in
reduction of their outstanding principal amount in specified amounts and
on specified dates in a manner designed to provide as much assurance as
possible that those bonds will be repaid within the period of time
specified in the prospectus, offering circular or other documents pursuant
to which the bonds were offered for sale; bonds entitled to receive
payments of principal only; and support class bonds whose function is to
support the amortization schedule of the planned amortization bonds or
targeted amortization bonds. (See "The Trusts--Portfolios" in Part B of
this Prospectus.)
All of the CMOs in the Trust are backed by underlying mortgage-
backed securities which are pledged as collateral to secure payment of
principal and interest on the CMOs. Each of these mortgage-backed
securities is guaranteed as to the payment of principal and interest by
either the Government National Mortgage Association ("GNMA"), the Federal
National Mortgage Association ("FNMA") or the Federal Home Loan Mortgage
Corporation ("FHLMC"). All of the CMOs in the Trust are issued by GNMA,
FNMA or FHLMC or are otherwise rated AAA by Standard & Poor's Corporation
("Standard & Poor's") and therefore, the Units of the Trust are rated AAA
by Standard & Poor's. There can be no assurance that the Trust's
investment objectives can be achieved. Investments in the Trust should be
made with an understanding of the risks inherent in an investment in CMOs.
(See "The Trusts--Special Risk Considerations" in this Part A.) Each Unit
of the Trust represents an undivided interest in the principal and net
income of the Trust in the ratio of one thousand Units for the indicated
principal amount of Securities in the Trust. (See "The Trust--
Organization" in Part B of this Prospectus.) (For the specific number of
Units in the Trust, see "Summary of Essential Information" in this
Part A.)
Generally, CMOs are designed to provide a substantial degree of
prepayment and reinvestment risk protection as compared to other mortgage
related securities. The CMOs may have been issued as debt obligations of
a trust or corporation or as certificated interests representing
beneficial ownership in a pool of mortgage-backed securities (See "The
Trusts--The Securities" in Part B of this Prospectus for further
description and examples) which trust, corporation or pool may have been
established for the sole purpose of issuing CMOs by any of GNMA, FNMA or
FHLMC or by a private business organization. Such private business
organizations are typically single-purpose corporations established by
mortgage-banking institutions for the sole purpose of issuing CMOs. Any
CMOs in the Trust that have been issued by private business organizations
have been rated AAA by Standard & Poor's. The sole assets of the issuers
of the CMOs are the underlying mortgage-backed securities. If the
collateral securing the Securities of these issuers is insufficient to
make payments on those Securities, it is unlikely that any other assets of
these issuers will be available for payment of the deficiency. The
underlying mortgage-backed securities which are pledged as collateral to
secure the payment of principal and interest on the CMOs may be (i) "fully
modified pass-through" mortgage-backed certificates, guaranteed by GNMA
("Ginnie Maes"), (ii) mortgage pass-through certificates guaranteed by
FNMA ("Fannie Maes") or (iii) mortgage participation certificates
guaranteed by FHLMC ("Freddie Macs"). The full faith and credit of the
United States is pledged to the payment of all amounts guaranteed by GNMA.
However, payments guaranteed by FNMA and FHLMC are not guaranteed by the
United States and neither the CMOs in the Trust nor any underlying Fannie
Maes or Freddie Macs constitute a debt or obligation of the United States
or any of its agencies. The Units of the Trust, as such, are not
guaranteed by any of GNMA, FNMA, FHLMC, the United States or any of its
agencies. Additionally, CMOs that are issued by GNMA, FNMA or FHLMC or by
any entity established by GNMA, FNMA or FHLMC are guaranteed as to payment
of principal and interest by GNMA, FNMA or FHLMC, respectively. The
guaranty obligations of GNMA with respect to any Ginnie Maes or any CMOs
are supported by the full faith and credit of the United States. However,
the guaranty of obligations of FNMA and FHLMC with respect to any Fannie
Maes or Freddie Macs or any CMOs are obligations of FNMA and FHLMC only
(limited by their respective credit capabilities) and are not supported by
the full faith and credit of the United States or any other governmental
entity.
CMO Structure. CMOs are generally issued as a series of
different classes. An issue of CMOs generally is backed by a larger
number of mortgages than a pool of Ginnie Maes, Fannie Maes or Freddie
Macs, thus allowing greater statistical prediction of prepayment
characteristics. Interest and principal payments on the mortgages
underlying any series will first be applied to meet the interest payment
requirements of each class in the series other than any class in respect
of which interest accrues but is not paid or any "principal only" class.
Principal payments on the underlying mortgages are thereafter generally
applied to pay the principal amount of the class that has the earliest
maturity date. Once that class is retired, the principal payments on the
underlying mortgages are applied to the class with the next earliest
maturity date. This is repeated until all classes are paid. Therefore,
while each class of CMOs remains subject to prepayment as the underlying
mortgages prepay, structuring several classes of CMOs in the stream of
principal payments allows a more predictable estimate of the period of
time when any one class is likely to be repaid. The estimate can be even
closer with a class of planned amortization bonds or targeted amortization
bonds. The amortization schedule for these CMOs is structured so that, at
specified prepayment rates within a range, their principal will be repaid
at specified times and in specified amounts. However, if any series of
CMOs contains a class of planned amortization bonds or targeted
amortization bonds, then the other classes in that series may not be
retired in an order of priority determined strictly with reference to
their maturity dates.
These other classes are often referred to as "support classes"
because their function is to support the amortization schedule of the
planned amortization bonds or targeted amortization bonds. If the rate of
prepayment on the underlying mortgages is faster than assumed, then
classes with maturity dates later than the planned amortization bonds or
targeted amortization bonds may be retired earlier than estimated to
ensure that the planned amortization bonds or targeted amortization bonds
receive the principal payments required by their amortization schedule.
Similarly, if the rate of prepayments is slower than anticipated, then
earlier support classes may be retired later than estimated. Hence,
support classes of a series that contains planned amortization bonds or
targeted amortization bonds have less predictable prepayment
characteristics than classes of a series that does not. This lack of
predictability regarding prepayments also causes support class bonds to
have greater market value fluctuation than other classes of a CMO. (See
"Description of Portfolios" for the number of planned amortization bonds,
targeted amortization bonds or support class bonds in the Trust
portfolios.) The rate of prepayment on the underlying mortgages of a CMO
will most likely decline as interest rates increase. If the rate of
prepayment declines, the weighted average life of the support class bonds
will most likely increase and, in some cases, the decline will impact the
yield and market value of these Securities. This may cause an investor's
principal in a support class bond to be outstanding for a longer period of
time than initially anticipated. Conversely, if interest rates decline,
prepayments on the underlying mortgages will most likely increase, and the
weighted average life of the support class bonds may be shorter than
anticipated. A holder of a support class bond in these situations may be
unable to reinvest the proceeds of these principal distributions at an
effective interest rate equal to the specified coupon rate on the original
support class bond. Therefore, an investor expecting to earn a fixed
return for a fixed number of years may find the life of a support class
investment decreases as interest rates fall and increases as they rise.
Investors should be aware that the Federal Financial Institutions
Examination Council recently announced that certain high-risk CMO tranches
are generally not suitable investments for depository institutions.
Some of the CMOs in the Trust may be either a class of
Guaranteed REMIC Certificates ("REMIC Certificate") issued by FNMA or a
class of REMIC Certificates issued by FHLMC. A FNMA REMIC Certificate
represents a beneficial ownership interest in a certain class of a FNMA
REMIC Trust consisting of Fannie Maes, each of which in turn represents a
beneficial interest in a pool of first lien, single-family, fixed-rate
residential mortgage loans. FNMA REMIC Certificates are issued pursuant
to trust agreements executed by FNMA in both its corporate capacity and
its capacity as trustee. A FNMA REMIC Certificate evidences a beneficial
ownership interest in the distribution of principal and interest on the
underlying Fannie Maes, subject to certain limits and in an order of
distribution established for the particular FNMA REMIC Trust. Each FNMA
REMIC Certificate is backed by the guaranty obligation of FNMA to
distribute on a timely basis required installments of principal and
interest and to distribute the principal balance of the FNMA REMIC
Certificate in full no later than an established final distribution date,
notwithstanding insufficiency of funds from the underlying Fannie Maes. A
FHLMC REMIC Certificate represents a beneficial ownership interest in a
certain class of a pool of Freddie Macs, each of which in turn represents
undivided interests in discrete pools of fixed-rate, first lien,
residential mortgages or participations therein purchased by FHLMC. FHLMC
REMIC Certificates are issued pursuant to multiclass mortgage
participation certificate agreements executed by FHLMC. A FHLMC REMIC
Certificate evidences a beneficial ownership interest in the distributions
of principal and interest on the underlying Freddie Macs, subject to
certain limits and in an order of distribution established for the
particular FHLMC REMIC pool. Each FHLMC REMIC Certificate is backed by
the guaranty obligation of FHLMC to distribute required interest payments
on a timely basis and to distribute required principal payments as
principal payments on the underlying Freddie Macs are required to be made.
Except with respect to certain issues of "Gold" PCs, FHLMC generally does
not guarantee timely payment of principal but does guarantee ultimate
payment. Both FNMA REMIC Certificates and FHLMC REMIC Certificates pay
interest monthly. (See "The Trusts--The Securities" in Part B of this
Prospectus for a description of FHLMC Gold PCs.)
If FNMA or FHLMC were unable to fulfill its guarantees,
distributions to holders of REMIC Certificates such as the Trust would
consist solely of payments and other recoveries upon the mortgages
underlying the pledged Fannie Maes or Freddie Macs, respectively, and,
accordingly, delinquencies and defaults would diminish distributions to
the holders. (See "Description of Portfolios" for the number of FNMA
REMIC Certificates and FHLMC REMIC Certificates in the Trust portfolio.)
Some of the CMOs in the Trust may be a class of compound
interest bonds or principal only bonds. Interest on compound interest
bonds is accrued and is added to principal. Such interest is not paid
until all classes of CMOs issued in the same series with earlier final
distributions dates are paid in full. Principal only bonds entitle the
holder to no payments of interest but the holder will receive cash flow
from the amortization of principal and prepayments. Both compound
interest bonds and principal only bonds sell at a deep discount from par.
The Sponsors believe that a portfolio with a limited amount of compound
interest bonds and principal only bonds will assist the Trust in achieving
its objective of preserving capital. Since the principal only bond will
accrue to par if held to maturity, the holder of such a bond would receive
a full return of his or her initial investment upon maturity of the bond.
In addition, compound interest bonds also assist in the preservation of
capital as interest which accrues on these bonds is added to principal.
(See "Description of Portfolios" for the amount of Securities in the Trust
that are a class of compound interest bonds or principal only bonds.)
Special Risk Considerations. An investment in Units of the
Trust should be made with an understanding of risks which an investment in
fixed rate CMOs may entail, including the risk that the value of the
portfolio and, hence, the value of the Units will decline with increases
in interest rates and that the life of the CMOs in the portfolio depends
on the actual prepayments received on the underlying mortgage-backed
securities, the timing of which cannot be determined but which may be
sooner or later than anticipated, especially if interest rates decline.
The potential for appreciation, which could otherwise be expected to
result from a decline in interest rates, may be limited by any increased
prepayments by mortgagors. Investors should also note that prepayments of
principal on CMOs purchased at a premium over par will result in some loss
on investment while prepayments on CMOs purchased at a discount from par
will result in some gain on investment. Also, if interest rates rise, the
prepayment risk of higher yielding, premium CMOs and the prepayment
benefit for lower yielding, discount CMOs will be reduced. (See "The
Trusts--Life of the Securities and of the Trusts" in Part B of this
Prospectus.) In addition, a number of factors, including the extent of
prepayments of principal on the underlying mortgage-backed securities,
affect the availability of funds for payment of principal of bonds on any
payment date and, therefore, the timing of principal payments on each
class of such bonds.
While all of the mortgage-backed securities underlying each of
the CMOs in the Trust are guaranteed as to the payment of principal and
interest by GNMA, FNMA or FHLMC, the CMOs in the Trust represent
obligations solely of the issuers of those CMOs and are not themselves
insured or guaranteed by GNMA, FNMA or FHLMC, or any other governmental
agency. If a default were to occur with respect to any of the CMOs, there
can be no assurance that the collateral securing such bonds would be
sufficient to pay the principal and interest then due.
CMOs are generally not listed on a national securities exchange
or on the National Association of Securities Dealers Automated Quotation
System, Inc. Whether or not CMOs are listed on a national securities
exchange, the principal trading market for the CMOs will generally be in
the over-the-counter market. As a result the existence of a liquid
trading market for CMOs may depend on whether dealers will make a market
in CMOs. There can be no assurance that a market will be made for any of
the CMOs in the Trust, that any market for the CMOs in the Trust's
portfolio will be maintained or of the liquidity of the CMOs in the Trust
in any markets made. The price at which the CMOs in the Trust may be sold
to meet redemptions and the value of the Trust will be adversely affected
if trading markets for the CMOs in the Trust are limited or absent. (See
"The Trusts--Liquidity" in Part B of this Prospectus.) In addition, the
Trust may be restricted under the Investment Company Act of 1940 from
selling securities to the Sponsors. However, taking into account the
foregoing and other factors, the Sponsors believe that the nature of the
GNMA, FNMA or FHLMC guarantees of any securities that have been issued by
them, respectively, and the nature of the Ginnie Maes, Fannie Maes or
Freddie Macs securities payments of principal and interest due on the
Securities make the Securities adequately marketable for purposes of
redemptions of Units by the Trustee (see "Redemption" in Part B of this
Prospectus).
Investors should note that all of the CMOs in the Trust have
been issued by trusts, corporations or other entities that have elected to
be treated as Real Estate Mortgage Investment Conduits ("REMICs"). As
such, Certificateholders will be required to include in income their
respective pro rata share of interest on each Security (whether or not the
Security has original issue discount) as interest accrues, whether or not
the Certificateholder is an accrual method taxpayer. (See "Tax Status" in
Part B of this Prospectus.)
The principal amount of Securities actually deposited in the
Trust is affected by the prepayment estimate or factor for each CMO. If
the prepayment estimate or factor is adjusted because the level of actual
prepayments increases with respect to a particular CMO prior to the
settlement date of the Securities, the actual principal amount of
Securities deposited in the Trust may be less than the amount noted above
and the excess of any cash returned to the Trust as a result of these
prepayments will be held in the Trust's principal account. Cash balances
maintained in the principal account do not generate income for the Trust.
PUBLIC OFFERING PRICE. The secondary market Public Offering
Price per 1,000 Units of the Trust is equal to the aggregate bid side
evaluation of the underlying Securities in a Trust divided by the number
of Units outstanding times 1,000, plus a sales charge of 3.5% of the
Public Offering Price per 1,000 Units or 3.627% of the net amount invested
in Securities per 1,000 Units of the Short-Intermediate Portfolio. In
addition, accrued interest to the expected date of settlement is added to
the Public Offering Price. If the Units of the Short-Intermediate
Portfolio had been purchased on the Evaluation Date, the Public Offering
Price per 1,000 Units would have been $115.63, plus accrued interest of
$1.12, for a total of $116.75. The Public Offering Price per 1,000 Units
may vary on a daily basis in accordance with the fluctuations in the
aggregate bid price of the Bonds. (See "Public Offering" in Part B of
this Prospectus.)
The figures above assume a purchase of 1,000 Units. The price
of a single Unit, or any multiple thereof, is calculated by dividing the
Public Offering Price per 1,000 Units by 1,000 and multiplying by the
number of Units.
DISTRIBUTIONS. Distributions of principal and interest income,
less expenses, will be made by the Trust monthly on the 20th of each
month. (See "Rights of Certificateholders--Interest and Principal
Distributions" in Part B of this Prospectus. For the estimated amount of
distributions see "Summary of Essential Information" for the Trust in this
Part A.)
ESTIMATED LONG TERM RETURN AND ESTIMATED CURRENT RETURN. The
Sponsors will quote the Estimated Long Term Return for the Trust, along
with the traditional quotation of the Estimated Current Return, in
connection with all secondary market sales of that Trust. This conforms
the practice relating to the quotation of performance figures in secondary
market transactions to the current practice (recently mandated by the SEC)
in the initial public offering of a unit investment trust. The Sponsors
believe that quoting of both Estimated Long Term Return and Estimated
Current Return is the best way to insure the clear and accurate
representation of performance figures for secondary market transactions.
Estimated Long Term Return for the Trust is calculated by:
(1) computing the yield to maturity for each CMO in the Trust's portfolio
in accordance with accepted CMO practices, which practices take into
account not only the interest payable on the CMO but also the amortization
of premiums or accretion of discounts, if any, and estimates of projected
prepayments; (2) calculating the average of the yields for the CMOs in the
Trust's portfolio by weighing each CMO's yield by the market value of the
CMO and by the amount of time remaining to the date to which the CMO 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 Certificateholders. The resulting Estimated Long Term
Return represents a measure of the return to Certificateholders earned
over the estimated life of the Trust. (For the Estimated Long Term Return
to Certificateholders, see "Summary of Essential Information" for the
Trust. See "Estimated Long Term Return and Estimated Current Return" in
Part B of this Prospectus.)
Estimated Current Return for the Trust is computed by dividing
the Estimated Net Annual Interest Income per 1,000 Units by the Public
Offering Price per 1,000 Units. In contrast to the Estimated Long Term
Return, the Estimated Current Return does not take into account estimates
of prepayments or the amortization of premium or accretion of discount, if
any, on the CMOs in the portfolio of the Trust. For the Estimated Net
Annual Interest Income to Certificateholders, see "Summary of Essential
Information" in Part A.
If the CMOs in the Trust are priced at a discount, the Estimated
Current Return will generally be lower relative to the Estimated Long Term
Return, whereas if the CMOs are priced at a premium, the Estimated Current
Return will generally be higher relative to the Estimated Long Term
Return. This is because Estimated Current Return reflects primarily the
interest rate on the CMOs, while Estimated Long Term Return reflects yield
and timing of principal payments, and thus increases when the principal
returned is greater than the price paid for the CMOs (discount) and
decreases when the principal returned is lower than the price paid
(premium). Estimated Long Term Return is calculated using an estimated
average life for the CMOs in the Trust. Estimated average life is an
essential factor in the calculation of Estimated Long Term Return. When a
particular Trust has a shorter average life than is estimated, Estimated
Long Term Return will be higher if the Trust contains CMOs priced at a
discount and lower if the CMOs are priced at a premium. Conversely, when
a particular Trust has a longer average life than is estimated, Estimated
Long Term Return will be lower if the CMOs are priced at a discount and
higher if the CMOs are priced at a premium. To calculate estimated
average life several assumptions are made to derive an estimated
prepayment rate for the mortgages underlying the Ginnie Maes, Fannie Maes
or Freddie Macs that may back the CMOs in the Portfolio; the calculation
of estimated prepayment rates is based upon actual recent prepayments and
analysis of several factors including, among other things, the spread
between present market interest rates and the rate on the mortgages and
the housing environment. The estimated prepayment rate that is derived is
then applied to retire the principal amount of each CMO class of the same
series as each CMO in the Trust, including those CMOs in the Trust,
according to the specific principal reduction schedule of each series.
For a more detailed explanation of the calculation of estimated average
life, see "Estimated Long Term Return and Estimated Current Return" in
Part B of this Prospectus. The estimated average life for the Trust is
subject to change with alterations in the data used in any of the
underlying assumptions. The actual average lives of the CMOs in the Trust
portfolio and the actual long term returns will be different from the
estimated average lives and the estimated long term returns.
The Estimated Net Annual Interest Income per 1,000 Units 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, prepayment,
maturity, sale or other disposition of the CMOs in the Trust. The
Secondary Market Public Offering Price will vary with changes in the bid
prices of the CMOs. Therefore, there is no assurance that the present
Estimated Current Return or Estimated Long Term Return will be realized in
the future.
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 side evaluation
of the Securities in the Trust. The reoffer price will be based on the
aggregate bid side evaluation of the Securities, divided by the number of
Units outstanding times 1,000, plus a sales charge of 3.5% (3.627% of the
net amount invested), plus net accrued interest for the Short-Intermediate
Portfolio. If a market is not maintained a Certificateholder will be able
to redeem his Units with the Trustee at a price based on the aggregate bid
side evaluation of the Securities. (See "Sponsor Repurchase" in Part B of
this Prospectus.)
Total Reinvestment Plan. Distributions from the Trust are made
to Certificateholders monthly. The Certificateholder has the option,
however, of either receiving his interest check, together with any
principal payments, from the Trustee or participating in a reinvestment
program offered by the Sponsors in shares of The Treasurer's Fund, Inc.,
U.S. Treasury Money Market Portfolio (the "Fund"). Gabelli-O'Connor Fixed
Income Mutual Funds Management Co. serves as the investment advisor of the
Fund and GOC Fund Distributors, Inc. serves as distributor for the Fund.
Participation in the reinvestment option is conditioned on the Fund's
lawful qualification for sale in the state in which the Certificateholder
is a resident. The Plan is not designed to be a complete investment
program. See "Total Reinvestment Plan" in Part B of this Prospectus. The
shares of the Fund are not rated by Standard & Poor's.
<PAGE>
MORTGAGE SECURITIES TRUST
CMO SERIES 2, SHORT-INTERMEDIATE PORTFOLIO
SUMMARY OF ESSENTIAL INFORMATION AS OF DECEMBER 31, 1993
Date of Deposit:* March 13, 1991 Evaluation Time: 4.00 p.m.
Principal Amount of New York Time.
Securities ................ $1,215,322 Minimum Principal Distribution:
Principal Amount of Secu- $1 per 1,000 Units.
rities per 1,000 Units..... $110.88 Weighted Average Life to
Number of Units ............. 10,960,295 Maturity: .4 years
Fractional Undivided Inter- Minimum Value of Trust:
est in Trust per Unit ..... 1/10960295 Trust may be terminated if
Secondary Market Public less than $4,800,000 in
Offering Price**+ principal amount of
Aggregate Bid Price of Securities.
Securities in Trust ..... $1,222,952 Mandatory Termination Date:
Divided by 10,960,295 Units The earlier of December 31,
times $1,000 ............ $111.58 2040 or the disposition of the
Plus Sales Charge of 3.5% last Security in the Trust.
of Public Offering Price $4.05 Trustee: United States Trust
Public Offering Price Company of New York.
per 1,000 Units.......... $115.63 Trustee's Annual Fee:
Redemption and Sponsors' $.84 per $1,000.
Repurchase Price Evaluator: Kenny S&P
per 1,000 Units+ .......... $111.58+++# Evaluation Services.
Excess of Public Offering Evaluator's Fee for Each
Price over Redemption and Evaluation: $7 per
Sponsors' Repurchase Price evaluation.
per 1,000 Units#........... $4.05 Sponsors: Bear, Stearns & Co.
Difference between Public Inc. and Gruntal & Co.,
Offering Price per 1,000 Incorporated
Units and Principal Sponsors' Annual Fee: Maximum
Amount per 1,000 Units of $.25 per $1,000 principal
Premium/(Discount) ........ $4.75 amount of Securities (see
"Trust Expense and Charges"
in Part B of this Prospectus).
PER 1,000 UNIT INFORMATION
Gross annual interest income (cash)............................. $9.83
Less estimated annual fees and expenses......................... 1.61
Estimated net annual interest income (cash)..................... 8.22
Estimated interest distribution................................. .69
Estimated daily interest accrual................................
.02
Estimated current return++(1)................................... 7.12%
Estimated long term return++(1)................................. 4.76%
Record dates....................................................1st of
each month
Interest distribution dates.....................................
20th of
each month
<PAGE>
* The Date of Deposit is the date on which the Trust Agreement was
signed and the deposit of the Bonds with the Trustee made.
** Per 1,000 Units.
+ Plus accrued interest.
++ The estimated current return and estimated long term return are
increased for transactions entitled to a discount (see "Volume and
Other Discounts" in Part B of this Prospectus).
+++ Based solely upon the bid side evaluation of the underlying
Securities. 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, Sponsors' Repurchase Price
and Redemption Price" in Part B of this Prospectus.
(1) Estimated current return represents annual interest income after
estimated annual expenses divided by the Public Offering Price,
including for the Short-Intermediate Portfolio, a 3.5% maximum sales
charge. Estimated long term return is the net annual percentage
return based on the yield on each underlying Security in the Trust
weighted to reflect market value and estimated average life. The
estimated weighted average life to maturity of the Trust is an
estimate based upon various assumptions discussed more fully under
"Estimated Long Term Return and Estimated Current Return" in Part B
of this Prospectus. Estimated long term return is adjusted for
estimated expenses and the maximum public offering price but not for
delays in the Trust's distribution of income. Estimated current
return shows current annual cash return to investors while estimated
long term return shows the return on Units held to estimated average
life, reflecting prepayments of principal, maturities, discounts and
premiums on underlying Securities. Actual returns will vary with
purchase price, payments and prepayments of principal on the
underlying Ginnie Maes, Fannie Maes or Freddie Macs which back the
Securities, and changes in Trust income after expenses. These
returns do not include the effects of any delay in payments to
Unitholders and a calculation w wch includes those effects would be
lower. See "Estimated Long Term Return and Estimated Current
Return" in Part B of this Prospectus.
<PAGE>
INFORMATION REGARDING THE TRUST
AS OF DECEMBER 31, 1993
Description of Portfolio
Short-Intermediate Portfolio*
The Trust consists of 2 issues of CMOs. 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 CMOs in the Portfolio were acquired. None of the CMOs have
been issued by entities created by GNMA, 100% of the aggregate principal
amount of the CMOs in the portfolio have been issued by entities created
by FNMA, none have been issued by entities created by FHLMC and none have
been issued by private issuers. All of the CMOs in the Trust have been
issued by trusts, corporations or other entities that have elected to be
treated as Real Estate Mortgage Investment Conduits. The CMOs in the
Trust have stated final distribution dates ranging from September 25, 2016
through March 25, 2017 and average lives (based upon estimated prepayment
rates) ranging from .2 to .5 years.
* Changes in the Trust Portfolio: From January 1, 1994 to March 24,
1994, there has been a paydown on the securities in portfolio nos. 1
and 2, and the entire principal amount and $292,345.32 of the
principal amounts of the securities, respectively, are no longer
contained in the Trust. 224,495 Units have been redeemed from the
Trust.
<PAGE>
The CMOs in Portfolio Nos. 1 and 2 (representing $1,215,322 of the
principal amount of the Securities in the Trust) are planned amortization
bonds or targeted amortization bonds. None of the principal amount of the
Securities are support class bonds that are part of a series that contains
planned amortization bonds or targeted amortization bonds. $1,215,322 of
the principal amount of the Securities in the Trust are FNMA REMIC
Certificates. None of the principal amount of the Securities in the Trust
are a class of compound interest bonds or principal only bonds.
As of December 31, 1993, approximately 63.9% of the aggregate
principal amount of the Securities in the Trust were acquired at a
discount from par, approximately 36.1% of the Securities in the Trust were
acquired at a premium and none were acquired at par. A Certificateholder
may receive more or less than his original purchase price upon disposition
of his Units because the value of the Units fluctuates with the value of
the underlying Securities.
Educational material regarding CMOs is available, upon request, from
the Sponsor.
<PAGE>
FINANCIAL AND STATISTICAL INFORMATION
Selected data for each Unit of the Trust outstanding for the periods
listed below:
SHORT-INTERMEDIATE PORTFOLIO
Distribu-
tions of
Principal
Distributions During
Net Asset* of Interest the
Value During the Period
Units Out- Per 1,000 Period (per (Per 1,000
Period Ended standing Units 1,000 Units) Units)
December 31, 1991 12,419,373 $1,044.66 $58.08 -0-
December 31, 1992 12,419,373 834.37 84.00 $161.00
December 31, 1993 10,960,295 151.04 45.03 655.06
* Net Asset Value per 1,000 Units is calculated by dividing net assets
as disclosed in the "Statement of Net Assets" by the number of Units
outstanding as of the date of the Statement of Net Assets. See
Note 5 of Notes to Financial Statements for a description of the
components of Net Assets.
<PAGE>
Independent Auditors' Report
The Sponsor, Trustee and Certificateholders
Mortgage Securities Trust, CMO Series 2 Short-Intermediate:
We have audited the accompanying statement of net assets, including the
portfolio, of Mortgage Securities Trust, CMO Series 2 Short-Intermediate as of
December 31, 1993, and the related statements of operations, and changes in
net assets for each of the years in the two year period then ended, and for
the period March 13, 1991 (date of deposit) to December 31, 1991. These
financial statements are the responsibility of the Trustee (see note 2). Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1993,
by correspondence with the Trustee. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mortgage Securities Trust,
CMO Series 2 Short-Intermediate as of December 31, 1993, and the results of
its operations and the changes in its net assets for each of the years in the
two year period then ended, and for the period March 13, 1991 to December 31,
1991 in conformity with generally accepted accounting principles.
KPMG Peat Marwick
New York, New York
March 31, 1994
<PAGE>
<TABLE>
SHORT-INTERMEDIATE
Statement of Net Assets
December 31, 1993
<S> <C> <C>
Investments in marketable securities,
at market value (cost $1,215,565) $ 1,222,844
Accrued interest 8,986
Cash 424,525
---------
Other assets 433,511
---------
Accrued expenses 897
---------
Total liabilities 897
---------
Excess of other assets over total liabilities 432,614
-----------
Net assets 10,960,295 units of fractional undivided
interest outstanding, $0.15 per unit) $ 1,655,458
===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
SHORT-INTERMEDIATE
Statements of Operations
<CAPTION>
For the period
March 13,1991
Years ended December 31, (date of deposit)
------------ ------------
1993 1992 to December 31, 1991
------------ ------------ -- ------------ ---
<S> <C> <C> <C>
Investment income - interest $ 449,363 1,032,331 847,665
------------ ------------ ------------
Expenses:
Trustee's fees 14,777 18,811 8,300
Evaluator's fees - 1,778 1,274
Sponsor's advisory fee - 1,190 2,000
------------ ------------ ------------
Total expenses 14,777 21,779 11,574
------------ ------------ ------------
Investment income, net 434,586 1,010,552 836,091
------------ ------------ ------------
Realized and unrealized gain (loss)
on investments:
Realized gain (loss)
on bonds sold or called (56,896) 72,443 -
Unrealized appreciation
(depreciation) for the period (176,838) (652,995) 837,112
------------ ------------ ------------
Net gain (loss) on
investments (233,734) (580,552) 837,112
------------ ------------ ------------
Net increase in net
assets resulting
from operations $ 200,852 430,000 1,673,203
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
SHORT-INTERMEDIATE
Statements of Changes in Net Assets
<CAPTION> For the Period
March 13, 1991
Years ended December 31, (date of deposit)
----------- ------------
1993 1992 to December 31, 1991
----------- ------------ --------------
<S> <C> <C> <C>
Operations:
Investment income, net 434,586 1,010,552 836,091
Realized gain (loss) on
bonds sold or called (56,896) 72,443 -
Unrealized appreciation
(depreciation) for the period (176,838) (652,995) 837,112
----------- ------------ --------------
Net increase in net
assets resulting
from operations 200,852 430,000 1,673,203
Distributions to Certificateholders:
Investment income 523,571 1,041,737 683,878
Principal 7,457,358 1,999,892 -
Redemptions:
Interest 8,954 - -
Principal 917,902 - -
----------- ------------ --------------
Total distributions
and redemptions 8,907,785 3,041,629 683,878
----------- ------------ --------------
Total increase (decrease) (8,706,933) (2,611,629) 989,325
Net assets at beginning of period 10,362,391 12,974,020 11,984,695
----------- ------------ --------------
Net assets at end of period (including
undistributed net investment
income of $23,089 , $121,028
and $152,213 respectively) 1,655,458 10,362,391 12,974,020
=========== ============ ==============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Notes to Financial Statements
December 31, 1993, 1992 and 1991
(1) Organization and Financial and Statistical Information
Mortgage Securities Trust, CMO Series 2 Short-Intermediate (Trust) was
organized on March 13, 1991 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.
(2) Summary of Significant Accounting Policies
United States Trust Company of New York (Trustee) has custody of and
responsibility for the accounting records and financial statements of the
Trust and is responsible for establishing and maintaining a system of internal
control related thereto.
The Trustee is also responsible for all estimates of expenses and accruals
reflected in the Trust's financial statements. The accompanying financial
statements have been adjusted to record the unrealized appreciation
(depreciation) of investments and to record interest income and expenses on
the accrual basis.
Investments are carried at market value which is determined by either Standard
and Poor's Corporation or Moody's Investors Service, Inc. (Evaluator) as
discussed in Footnotes to Portfolio. The market value of
the investments is based upon the bid prices for the securitites at the end of
the period, 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.
(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 on a
monthly basis.
The Trust Indenture and Agreement further requires that principal received
from the disposition of securities, other than those securities sold in
connection with the redemption of units, be distributed to Certificateholders.
See "Financial and Statistical Information" in Part A of this Prospectus for
the amounts of per unit distributions during the periods ended December 31,
1993, 1992, and 1991.
The Trust Indenture and Agreement also requires the Trust to redeem units
tendered. 1,459,078 units were redeemed during the period ended December 31,
1993. No units were redeemed during the periods ended December 31, 1992 and
1991.
(5) Net Assets
At December 31, 1993, the net assets of the Trust represented the
interest of Certificateholders as follows:
Original cost to Certificateholders $ 12,419,373
Less initial gross underwriting commission (434,678)
11,984,695
Accumulated cost of securities sold or called (10,769,130)
Net unrealized appreciation 7,279
Undistributed net investment income 23,089
Undistributed proceeds from
securities sold or called 409,525
Total $ 1,655,458
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 12,419,373 units of
fractional undivided interest of the Trust as of the date of deposit.
<PAGE>
<TABLE>
MORTGAGE SECURITIES TRUST, CMO SERIES 2
SHORT-INTERMEDIATE
Portfolio
December 31, 1993
<CAPTION>
Coupon/ Estimated First
Port- Securities Final Distribution
folio Principal Contracted Distribution Date(s) Market
No. Amount for (3) Date (unaudited) (1) Value (2)
- ------ ----------- ---------------------- ------------- ----------------- ---------
<S> <C> <C> <C> <C> <C>
1 $ 777,337 Federal National 8.800% 1/25/97 $ 784,263
Mortgage Association 3/25/17
Guaranteed REMIC
Pass-Through
Certificate Fannie Mae
REMIC Trust 1990-Class
37-G
2 437,985 Federal National 9.000 11/25/97 438,581
Mortgage Association 9/25/16
Guaranteed REMIC
Pass-Through
Certificates Fannie
Mae REMIC Trust
1990-Class 132-D
----------- ---------
$ 1,215,322 $ 1,222,844
=========== =========
</TABLE>
See accompanying footnotes to portfolio and notes to financial statements.
<PAGE>
Footnotes to Portfolio
December 31, 1993, 1992, and 1991
(1) 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 security.
(2) At December 31, 1993, the net unrealized appreciation of all the
securities was comprised of the following:
Gross unrealized appreciation $ 8,850
Gross unrealized depreciation (1,571)
Net unrealized appreciation 7,279
(3) All of the CMOs in the portfolio are backed by underlying mortgage-
backed securities which are pledged as collateral to secure payment of
principal and interest on the CMOs. The CMOs in the Trust are issued
by the Federal National Mortgage Association ("FNMA") and the Federal
Home Loan Mortgage Corporation ("FHLMC"). The Units of the Trust are
not, however, guaranteed by FNMA, FHLMC, the United States or any of its
agencies. Payments are not guaranteed by the United States and neither
the CMOs in the Trust nor any underlying FNMA's or FHLMC's constitute a
debt obligation of the United States or any of its agencies.
(4) The annual interest income, based upon securities held at December 31,
1993, to the Trust is $107,825.
<PAGE>
Note: Part B of This Prospectus
May Not Be Distributed unless
Accompanied by Part A
Please Read and Retain Both Parts of This
Prospectus for Future Reference.
MORTGAGE SECURITIES TRUST
CMO SERIES
Prospectus Part B
Dated: April 29, 1994
THE TRUST
Organization
"Mortgage Securities Trust CMO Series" (the "Trusts") consists
of the "unit investment trusts" designated as set forth in Part A.* The
Trusts were created under the laws of the State of New York pursuant to a
Trust Indenture and Agreement** (the "Trust Agreement"), dated the Date
of Deposit, among Bear, Stearns & Co. Inc., and Gruntal & Co.,
Incorporated as Sponsors, United States Trust Company of New York, as
Trustee, and Kenny S&P Evaluation Services as Evaluator.
* This Part B relates to the outstanding series of Short-Intermediate
Portfolio, Intermediate Portfolio or Long-Intermediate Portfolio as
reflected in Part A attached hereto.
** References in this Prospectus to the Trust Agreement are qualified in
their entirety by the Trust Indenture and Agreement which is
incorporated herein.
<PAGE>
The Trusts contain different issues of collateralized mortgage
obligations ("CMOs" or "Securities"). On the Date of Deposit the Sponsors
deposited with the Trustee the underlying Securities as set forth in
Part A, including delivery statements relating to contracts for the
purchase of such Securities, and cash or an irrevocable letter of credit
issued by a major commercial bank in the amount required for such
purchases. Thereafter, the Trustee delivered to the Sponsors units of
interest ("Units") representing the entire ownership of the Trusts. Each
"Unit" of a Trust outstanding on the Evaluation Date represents an
undivided interest or pro rata share in the principal and interest of a
Trust in the ratio of one Unit for the indicated principal amount of
Securities in that Trust on such date as specified in Part A of this
Prospectus. Certificateholders will have the right to have their Units
redeemed (see "Redemption") at a price based on the aggregate bid side
evaluation of the Securities. To the extent that any Units are redeemed
by the Trustee, the fractional undivided interest or pro rata share in the
Trust represented by each unredeemed Unit will increase, although the
actual interest in the Trust represented by such fraction will remain
unchanged. Units will remain outstanding until redeemed upon tender to
the Trustee by Certificateholders, which may include the Sponsors or the
underwriters (the "Underwriters") (See "Underwriting Syndicate" in Part
A), or until the termination of the Trust Agreement.
Objectives
The Trusts offer investors the opportunity to participate in a
portfolio of collateralized mortgage obligations with a greater degree of
safety and diversification than they might be able to acquire themselves.
The objectives of the Trusts are to obtain safety of capital and a high
level of current distribution of interest income through investment in a
fixed portfolio of CMOs. The Trusts seek to obtain a higher yield than
fixed income investments with comparable AAA ratings. These CMOs may have
been issued as debt obligations of a trust or corporation or as
certificated interests representing beneficial ownership in pools of
mortgage-backed securities. All of the CMOs in the Trusts are backed by
underlying mortgage-backed securities which are pledged as collateral to
secure payment of principal and interest on the CMOs. Each of these
mortgage-backed securities is guaranteed by either the Government National
Mortgage Association ("GNMA"), the Federal National Mortgage Association
("FNMA"), or the Federal Home Loan Mortgage Corporation ("FHLMC"). All of
the CMOs in the Trusts are issued by GNMA, FNMA or FHLMC or are otherwise
rated AAA by Standard & Poor's and, therefore, the Units of the Trusts are
rated AAA by Standard & Poor's Corporation. However, neither GNMA, FNMA,
FHLMC, the United States or any of its agencies guarantees payment on
Units of the Trusts. The full faith and credit of the United States is
pledged to the payment of all amounts guaranteed by GNMA. However,
payments guaranteed by FNMA and FHLMC are not guaranteed by the United
States and neither the CMOs in the Trusts nor any underlying Fannie Maes
or Freddie Macs constitute a debt obligation of the United States or any
of its agencies.
Investors should be aware that there is no assurance that the
Trusts' objectives will be achieved. An investment in Units of the Trusts
should be made with an understanding of the risks which an investment in a
fixed portfolio of fixed rate CMOs may entail, including the risk that the
value of a Trust portfolio and hence of the Units will decline with
increases in interest rates. It should also be noted that the potential
for appreciation on the Securities which would otherwise be expected to
result from a decline in interest rates, may tend to be limited by any
increased prepayments including selling the property, refinancing the
mortgage or otherwise paying off the loan in whole or in part by
mortgagors as interest rates decline. In addition, prepayments of
principal on Securities purchased at a premium over par will result in
some loss on investment, while prepayments on Securities purchased at a
discount from par will result in some gain on investment. The Sponsors
cannot predict future economic policies or their consequences or,
therefore, the course or extent of any similar fluctuations in the future.
Educational materials regarding CMOs, including a discussion of risk
factors, investment features of CMOs and questions an investor should ask
before investing is available, upon request, from the Sponsor.
Since disposition of Units prior to final liquidation of the
Trusts may result in an investor receiving less than the amount paid for
such Units (see "Comparison of Public Offering Price, Sponsors' Repurchase
Price and Redemption Price"), the purchase of a Unit should be looked upon
as a long-term investment. Neither the Trusts nor the Total Reinvestment
Plan are designed to be complete investment programs.
Portfolios
The portfolios of the Trusts consist of the Securities described
in "Description of Portfolio" in Part A.
In selecting Securities for deposit in the Trust, the Sponsors
considered the following factors, among others: (i) the types of CMOs
available, (ii) the yield and price of the Securities relative to other
comparable mortgage-backed securities, (iii) the estimated average lives
and prepayment schedules of the Securities, (iv) the payment provisions
applicable to the Securities, and (v) whether the Securities were issued
after July 18, 1984 if interest thereon is United States source income.
The Trust consists of the Securities listed under "Portfolio" in
Part A as long as they may continue to be held from time to time in the
Trust together with accrued and undistributed interest thereon and
undistributed and uninvested cash realized from the disposition or
redemption of Securities (see "Trust Administration--Portfolio
Supervision").
A CMO is a multiclass bond backed by a pool of mortgage pass-
through securities or mortgage loans. CMOs are also known as "real estate
mortgage investment conduits" (REMICs). As a result of the 1986 Tax Reform
Act, most CMOs are issued in REMIC form to create a certain tax advantage
for the issuer. The terms CMO and REMIC are used interchangeably. CMOs
generally are bond-like tranches of the cash flow from a mortgage pool.
An issue of CMOs generally is backed by a larger number of mortgages than
a pool of Ginnie Maes, Fannie Maes or Freddie Macs, thus allowing greater
statistical prediction of prepayment characteristics. CMOs also differ
from regular mortgage-backed securities in that the cash flow on the
mortgage pool are applied to the various classes of any series of CMOs in
the order specified by that series, rather than to each CMO in the series
pro rata.
The Securities
The Securities in the Long-Intermediate Trust portfolio consist
of support class bonds, described below. The Securities in the
Intermediate Trust Portfolio may consist primarily of planned amortization
or targeted amortization bonds. The Securities in the Short-Intermediate
Portfolio may consist of one or more of several classes of CMOs,
including:
Standard (Plain Vanilla) Bonds: This class of CMO accrues
interest at a fixed rate on its outstanding principal amount. The
interest is payable monthly, quarterly or semi-annually as specified.
Holders of Standard Bonds receive only interest until all CMOs issued in
the same series with earlier final distribution dates have been paid in
full. In addition, some Standard Bonds may be issued as a support class
to Planned Amortization Bonds or Targeted Amortization Bonds (see below).
Compound Interest Bonds: Interest accrues upon this class of
CMO but is not payable until all classes of CMOs issued in the same series
with earlier final distribution dates have been paid in full. Interest
that accrues but is not paid is added to the principal amount of the
Compound Interest Bond.
Adjustable Rate Bonds: Interest rates on this class of CMO may
increase or decrease at one or more specified dates according to the
documentation governing their issuance.
Floating Rate Bonds: Interest rates on these classes of CMOs
vary directly or inversely (although not necessarily proportionately) in
relation to generally accepted market interest rate indices. The interest
rate is usually capped to limit the extent of over-collateralization with
mortgage-backed securities required in order to ensure that there is
sufficient cash flow to service all the classes of CMOs in that series.
Planned Amortization Bonds or Targeted Amortization Bonds and
Support Bonds: Planned Amortization or Target Amortization classes of
CMOs receive payments of principal according to a planned schedule to the
extent that prepayments on the underlying mortgage-backed securities occur
within a broad time period (the "Protection Period"). The principal is
reduced only in specified amounts at specified times resulting in greater
predictability of principal payments for the Planned Amortization Bonds or
Targeted Amortization Bonds. The greater predictability of cash flows for
Planned Amortization and Target Amortization Bonds is achieved by creating
other classes of bonds commonly called "support classes." Support classes
generally receive principal payments on any payment date only if scheduled
payments have been made on specified Planned Amortization and/or Target
Amortization classes. Support classes absorb the variability of principal
cash flows from the underlying mortgage-backed securities. For instance,
if prepayments on the underlying mortgage-backed securities occur at a
rate greater or less than that provided for by the Protection Period, then
the excess or deficiency of cash flows generated is absorbed by the
support classes of CMOs in the particular series until the principal
amount of each of the other classes has been paid in full, resulting in
less predictability of cash flows for the support classes. Accordingly,
the support classes are subject to a higher level of risk than the Planned
Amortization or Target Amortization Bonds because the support classes have
a higher degree of average life variability. Because the support classes
have a higher degree of average life variability, they generally pay a
higher yield.
Principal Only Bonds: This class of stripped CMOs has the right
to all principal payments from the underlying mortgage-backed securities.
Principal Only Bonds sell at a deep discount. The return on a Principal
Only Bond increases the faster prepayments are received at par. The
return on a Principal Only Bond decreases if the rate of prepayment is
slow. Slow prepayment can also cause great delays in recognizing gains.
Pledged as collateral to secure the payment of interest and
principal on each type of CMO in the Portfolio will be Ginnie Maes, Fannie
Maes or Freddie Macs, guaranteed by GNMA, FNMA and FHLMC, respectively.
The Units of the Trust, however, will not be guaranteed by GNMA, FNMA,
FHLMC, the United States or any of its agencies. The Trust may contain
CMOs, the collateral pledged to secure which, are mortgages referred to as
"Relocation Mortgages." Relocation Mortgages are issued expressly to
finance home purchases by transferred employees. Since such mortgages are
related to the relocation of the individual rather than housing activity
and mortgages rates generally, the anticipated prepayment rate for them is
different than other individual mortgage-backed securities. Historically,
prepayment speeds with respect to Relocation Mortgages are faster and less
interest rate sensitive than traditional single family mortgages.
Therefore, with respect to any CMOs in the Trust supported by such
Relocation Mortgages, the Trust would expect to receive prepayment of
principal on such instruments at a faster rate than that with respect to
other CMOs in the Trust.
GNMA. The Government National Mortgage Association is a wholly-
owned corporate instrumentality of the United States within the Department
of Housing and Urban Development. The National Housing Act of 1943, as
amended, authorizes GNMA to guarantee the timely payment of the principal
of, and interest on, certificates which are based on and backed by a pool
of mortgage loans insured by the Federal Housing Administration ("FHA"),
or partially guaranteed by the Veteran's Administration ("VA"). In order
to meet its obligations under such guaranty, GNMA may issue its general
obligations to the United States Treasury in an amount which is at any
time sufficient to enable GNMA, with no limitations as to amount, to
perform its obligations under its guaranty. In the event it is called
upon at any time to make good its guaranty, GNMA has the full power and
authority to borrow from the Treasury of the United States, if necessary,
amounts sufficient to make payments of principal and interest on the
Ginnie Maes.
Ginnie Maes. Ginnie Maes are mortgage-backed securities of the
"fully modified pass-through" type, the terms of which provide for timely
monthly payments by the issuers to the registered holders of their pro
rata shares of the scheduled principal payments, whether or not collected
by the issuers, on account of the mortgages backing such Ginnie Maes, plus
any prepayment of principal of such mortgages received, and interest (net
of servicing and guarantee charges) on the aggregate unpaid principal
balance of such Ginnie Maes, whether or not interest on account of such
mortgages has been collected by the issuers. Ginnie Maes will be
guaranteed as to timely payment of principal and interest by GNMA. The
full faith and credit of the United States is pledged to the payment of
all amounts which may be required to be paid under the guaranty.
FNMA. The Federal National Mortgage Association is a Federally
chartered, privately-owned corporation organized and existing under the
Federal National Mortgage Association Charter Act. FNMA was originally
established in 1938 as a United States government agency to provide
supplemental liquidity to the mortgage market but was transformed into a
stockholder owned and privately managed corporation by legislation enacted
in 1968. The Secretary of Housing and Urban Development exercises general
regulatory power over FNMA. FNMA nevertheless maintains certain
relationships with the U.S. Government. Although thirteen members of its
board of directors are authorized to be elected by the shareholders, five
are appointed by the President of the United States. The President can
also remove board members, including those elected by the shareholders.
Although the Secretary of the Treasury has discretionary authority to lend
FNMA up to $2.25 billion outstanding at any time, neither the United
States nor any agency thereof is obligated to finance FNMA's obligations
or to assist FNMA in any other matter, and obligations issued by FNMA are
not guaranteed by and do not constitute a debt or obligation of the United
States or of any agency or instrumentality thereof other than FNMA. FNMA
provides funds to the mortgage market primarily by purchasing home
mortgage loans from lenders, thereby replenishing funds for additional
lending. FNMA acquires funds to purchase home mortgage loans from many
capital market investors which may not ordinarily invest in mortgages
thereby expanding the total amount of funds available for housing.
Fannie Maes. Fannie Maes are certificates of beneficial
interest evidencing pro rata undivided ownership interests in pools of
residential mortgages either previously owned by FNMA or purchased by it
in connection with the formation of a pool. FNMA guarantees the full and
timely payment of principal and interest (adjusted to the pass-through
rate) on the mortgage loans in the pool, whether or not received by FNMA
or recovered by it in foreclosure. If FNMA were unable to fulfill its
guaranty, distributions to holders of Fannie Maes would consist solely of
payments and other recoveries upon the underlying mortgages, and,
accordingly, delinquencies and default would diminish distributions to the
holders. The obligations of FNMA under its guaranty are solely those of
FNMA and are not backed by the full faith and credit of the United States.
Moreover, neither the United States nor any of its agencies is obligated
to finance the operations of FNMA or to assist it.
FHLMC. The Federal Home Loan Mortgage Corporation is a
corporate instrumentality of the United States created pursuant to the
Emergency Home Finance Act of 1970 (the "FHLMC Act"). FHLMC's common
stock is owned by the Federal Home Loan Banks. FHLMC was established
primarily for the purpose of increasing the availability of mortgage
credit for the financing of urgently needed housing. It seeks to provide
an enhanced degree of liquidity for residential mortgage investments
primarily by assisting in the development of secondary markets for
conventional mortgages. The principal activity of FHLMC currently
consists of the purchase of first lien, conventional residential mortgage
loans or participation interests in such mortgage loans and the resale of
the mortgage loans so purchased in the form of mortgage securities,
primarily Freddie Macs. All mortgage loans purchased by FHLMC must meet
certain standards set forth in the FHLMC Act. Mortgages retained by FHLMC
are financed with debt and equity capital.
Freddie Macs. Freddie Macs represent an undivided interest in a
pool of first lien, residential mortgages and mortgage participations
("Mortgages" or "PCs") purchased by FHLMC. PCs include "Gold PCs,"
"Original PCs," "ARM PCs," "Gold Giant PCs," "Original Giant PCs," and
"ARM Giant PCs." PCs may include whole loans, participation interests in
whole loans and undivided interest in whole loans or participations
comprising other PCs. For example, Gold PCs, Original PCs and ARM PCs
represent undivided interests in discrete pools consisting of Mortgages.
Gold Giant PCs, Original Giant PCs and ARM Giant PCs represent beneficial
ownership interests in discrete pools consisting of PCs. In the case of
Original PCs FHLMC guarantees the timely payment of interest at the rate
provided for by Freddie Macs on the unpaid principal balance outstanding
on the underlying mortgage loans in the PCs represented by the Freddie
Macs, whether or not received, and also guarantees collection of all
principal on the underlying mortgage loans, without any offset or
deduction, but does not guarantee the timely payment of scheduled
principal. Unlike Original PCs, Gold PCs guarantee the timely payment of
both interest and scheduled principal, thus producing a more predictable
payment stream. Gold PCs also offer a shorter payment delay than that of
conventional mortgage pass-through securities (FHLMC advances payment to
Gold PC holders 14 days after the borrower's scheduled principal and
interest payments are due), and a shorter period (approximately 45 days)
between the first day of the month in which the Gold PCs are issued and
the initial payment date. Freddie Macs are not guaranteed by the United
States or by any Federal Home Loan Bank and do not constitute debts or
obligations of the United States or any Federal Home Loan Bank. The
obligations of FHLMC under its guarantee are obligations solely of FHLMC
and are not backed by, nor entitled to, the full faith and credit of the
United States. If FHLMC were unable to fulfill its guaranty,
distributions to holders of Freddie Macs would consist solely of payments
and other recoveries upon the underlying mortgages, and, accordingly,
delinquencies and defaults would diminish distributions to the holders.
Special Features of Market Discount Securities
Certain of the Securities in the Trusts may have been valued at
a market discount. Securities trade at less than par value because the
interest rates on the Securities are lower than interest on comparable
obligations being issued at currently prevailing interest rates. The
current returns of Securities trading at a market discount are lower than
the current returns of comparably rated obligations of a similar type
issued at currently prevailing interest rates because discount securities
tend to increase in market value as they approach maturity and the full
principal amount becomes payable. If currently prevailing interest rates
for newly issued and otherwise comparable securities increase, the market
discount of previously issued securities will become deeper, and if
currently prevailing interest rates for newly issued comparable securities
decline, the market discount of previously issued securities will be
reduced, other things, including, without limitation, credit quality and
rate of prepayment, being equal. Investors should also note that the
value of the Securities valued at a market discount will increase faster
than the Securities valued at a market premium if interest rates decrease.
Conversely, if interest rates increase, the value of the Securities valued
at a market discount will decrease faster than the Securities valued at a
premium. In addition, if interest rates rise, the prepayment risk of
higher yielding premium Securities, and the prepayment benefit for lower
yielding, discount Securities will be reduced. Market discount
attributable to interest rate changes does not indicate a lack of market
confidence in the issue.
Special Features of Market Premium Securities
Certain of the Securities in the Trusts may have been valued at
a market premium. Securities trade at a premium because the interest
rates on the Securities are higher than interest on comparable obligations
being issued at currently prevailing interest rates. The current returns
of Securities trading at a market premium are higher than the current
returns of comparably rated obligations of a similar type issued at
currently prevailing interest rates because premium securities tend to
decrease in market value as they approach maturity when the principal
amount becomes payable. Because part of the purchase price is returned
not at maturity but through current income payments, an early redemption
of a premium security at par will result in a reduction in yield. If
currently prevailing interest rates for newly issued and otherwise
comparable securities increase, the market premium of previously issued
securities will decline and if currently prevailing interest rates for
newly issued comparable securities decline the market premium of
previously issued securities will increase, other things, including,
without limitation, credit quality and rate of prepayment, being equal.
Market premium attributable to interest rate changes does not indicate
market confidence in the issue.
Neither the Sponsors nor the Trustee shall be liable in any way
for any default, failure or defect in any of the Securities. Because
certain of the Securities 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 Trusts will retain their present size
and composition for any length of time. The proceeds from the sale of a
Security or the exercise of any redemption or call provision will be
distributed to Certificateholders except to the extent such proceeds are
applied to meet redemptions of Units (see "Trustee Redemption").
Liquidity
The Securities in the Trusts have been registered, or are exempt
from registration, under the Securities Act of 1933 and, therefore, may be
sold by a Trust at any time to provide funds for purposes of redemption of
Units. However, the Securities are generally not listed on a national
securities exchange or on the National Association of Securities Dealers
Automated Quotation System, Inc. Whether or not the Securities are
listed, the principal trading market for the Securities will generally be
in the over-the-counter market. As a result, the existence of a liquid
trading market for the Securities may depend on whether dealers will make
a market in the Securities. There can be no assurance that a market will
be made for any of the Securities, that any market for the Securities will
be maintained or of the liquidity of the Securities in any markets made.
In addition, each Trust may be restricted under the Investment Company Act
of 1940 from selling Securities to the Sponsors. The price at which the
Securities may be sold to meet redemptions and the value of the Trusts
will be adversely affected if trading markets for the Securities are
limited or absent. However, taking into account the foregoing and other
factors, the Sponsors believe that the nature of the GNMA, FNMA or FHLMC
guarantees of any Securities that have been issued by them, respectively,
and the nature of the Ginnie Maes, Fannie Maes or Freddie Macs security
payments of principal and interest due on the Securities make the
Securities adequately marketable for purposes of redemption of Units by
the Trustee (see "Redemption").
Limited Assets and Limited Liability
Except as indicated under "Description of Portfolio" in Part A
and except for any Securities that were issued by GNMA, FNMA or FHLMC, the
issuers of the Securities are limited purpose corporations, trusts or
other entities ("Limited Purpose Issuers"), organized solely for the
purpose of issuing Ginnie Mae, Fannie Mae or Freddie Mac-collateralized
CMOs. None of the securities issued by the Limited Purpose Issuers
(including the Securities deposited in the Trust) are guaranteed by the
parent company or any other affiliate of any Limited Purpose Issuer.
Consequently, holders of these securities (including the Trust) must rely
upon payments on the Ginnie Maes, Fannie Maes or Freddie Macs and upon any
other collateral securing the securities (including the Securities
deposited in the Trust) for the payment of principal and interest due on
the Securities. If the collateral securing the securities of each Limited
Purpose Issuer is insufficient to make payments on those securities, it is
unlikely that any other asset of the Limited Purpose Issuer will be
available for payment of the deficiency. The collateral securing the CMOs
of each Issuer (including the Securities deposited in the Trust) will be
held by the CMO Trustee as security for the CMOs of that Issuer. Although
payment of principal of and interest on Ginnie Maes, Fannie Maes and
Freddie Macs securing the Securities is guaranteed by GNMA, FNMA and
FHLMC, respectively, the CMOs (including the Securities deposited in the
Trust except for any Securities which have been issued directly or
indirectly by GNMA, FNMA or FHLMC) represent obligations solely of the
Issuers and are not insured or guaranteed by GNMA, FNMA or FHLMC or any
other governmental agency. A default with respect to the securities of a
particular Issuer (including the Securities of the Issuer deposited in the
Trust) may not necessarily result from a corresponding default with
respect to the underlying Ginnie Maes, Fannie Maes or Freddie Macs.
For any Securities that have been issued by issuers other than
GNMA, FNMA or FHLMC, the Sponsors have obtained representations from the
issuer that it has received an opinion of counsel to the effect that it is
not an investment company or that it has been exempted from the definition
of an investment company by order of the Securities and Exchange
Commission. With respect to any Securities of issuers that have been
exempted from the definition of an investment company by order of the
Securities and Exchange Commission, the value of the Securities will not
exceed more than 5% individually, or 10% in the aggregate, of the total
value of the Securities in the Trust.
Life of the Securities and of the Trusts
CMOs are generally issued as a series of different classes. An
issue of CMOs tends to be backed by a larger number of mortgages than a
pool of Ginnie Maes, Fannie Maes or Freddie Macs, thus allowing greater
statistical prediction of prepayment characteristics. Interest and
principal payments on the mortgages underlying any series will first be
applied to meet the interest payment requirements of each class in the
series other than any class in respect of which interest accrues but is
not paid or any principal only class. Then, principal payments on the
underlying mortgages are generally applied to pay the principal amount of
the class that has the earliest maturity date. Once that class is
retired, the principal payments on the underlying mortgages are applied to
the class with the next earliest maturity date. This is repeated until
all classes are paid. Therefore, while each class of CMOs, remains
subject to prepayment as the underlying mortgages prepay, structuring
several classes of CMOs in the stream of principal payments allows a more
predictable estimate of the period of time when any one class is likely to
be repaid. The estimate can be even closer with a class of planned
amortization bonds or targeted amortization bonds. The amortization
schedule for these CMOs is structured so that, at specified prepayment
rates within a relatively wide range, their principal will be repaid at
specified times and in specified amounts. However, if any series of CMOs
contains a class of planned amortization bonds or targeted amortization
bonds, then the other classes in that series may not be retired in an
order of priority determined strictly with reference to their maturity
dates. These other classes are often referred to as "support classes"
because their function is to support the amortization schedule of the
planned amortization bonds or targeted amortization bonds. If the rate of
prepayments on the underlying mortgages is faster than assumed, then
classes with maturity dates later than the planned amortization bonds or
targeted amortization bonds may be retired earlier than estimated to
ensure that the planned amortization bonds or targeted amortization bonds
receive the principal payments required by their amortization schedule.
Similarly, if the rate of prepayments is slower than anticipated, earlier
support classes may be retired later than estimated. Hence, support
classes of a series that contains planned amortization bonds or targeted
amortization bonds have less predictable prepayment characteristics than
classes of a series that does not. This lack of predictability regarding
prepayments also causes support class bonds to have greater market value
fluctuation than other classes of a CMO and causes fluctuation, which may
be substantial, both in the amount of income earned by the Long-
Intermediate Portfolio and in the timing of the Long-Intermediate
Portfolio's principal distributions. This fluctuation may adversely
affect the repurchase and redemption prices of Units of the Long-
Intermediate Portfolio (see "Description of Portfolios" in each Part A for
the number of planned amortization bonds, target amortization bonds and
support bonds contained in the Trust portfolios). The rate of prepayment
on the underlying mortgages of a CMO will most likely decline as interest
rates increase. If the rate of prepayment declines, the weighted average
life of the support class bonds will most likely increase and, in some
cases, the decline will impact the yield and market value of these
Securities. This may cause an investor's principal in a support class
bond to be outstanding for a longer period of time than initially
anticipated. Conversely, if interest rates decline, prepayments on the
underlying mortgages will most likely increase, and the weighted average
life of the support class bonds may be shorter than anticipated. A holder
of a support class bond in these situations may be unable to reinvest the
proceeds of these principal distributions at an effective interest rate
equal to the specified coupon rate on the original support class bond.
Therefore, an investor expecting to earn a fixed return for a fixed number
of years may find the life of a support class investment decreases as
interest rates fall and increases as they rise.
In contrast, Ginnie Maes, Fannie Maes or Freddie Macs,
estimation of repayment is more difficult as the cash flow on the
underlying mortgages is simply passed through on a pro rata basis to the
holders. However, any estimate of the prepayment period for any class of
CMO is based upon certain assumptions as to the prepayment speed of the
underlying mortgages, which assumptions may prove to be inaccurate over
time. See "Estimated Long Term Return and Estimated Current Return."
All of the mortgages in the pools relating to the Ginnie Maes,
Fannie Maes or Freddie Macs backing the Securities in the Trust are
subject to prepayment without any significant premium or penalty at the
option of the mortgagors (i.e., the homeowners). Because certain of the
Securities from time to time may be redeemed or prepaid or will mature in
accordance with their terms or may be sold under certain circumstances
described herein, no assurance can be given that the Trust will retain for
any length of time its present size and composition (see "Redemption").
While the mortgages on the 1 to 4 family dwellings underlying
Ginnie Maes, Fannie Maes or Freddie Macs which may back the Securities are
amortized over a period of up to 30 years, it has been the experience of
the mortgage industry that the average life of comparable mortgages, owing
to prepayments, is considerably less. Prepayments on mortgages are
commonly measured relative to a prepayment standard or model. The
prepayment model of the Public Securities Association (the "Prepayment
Model") represents an assumed rate of prepayment each month relative to
the then outstanding principal balance of a pool of new mortgage loans.
100% of the Prepayment Model assumes prepayment rates of 0.2% per annum of
the then outstanding principal balance of such mortgage loans in the first
month of the life of the mortgage loans and an additional 0.2% per annum
in each month thereafter until the 30th month. Beginning in the 30th
month and in each month thereafter during the life of the mortgage loans,
100% of the Prepayment Model assumes a constant prepayment rate of 6% per
annum. The principal repayment behavior of any individual mortgage will
likely vary from these assumptions. The extent of this variation will
depend on a variety of factors, including the relationship between the
coupon rate on a mortgage and prevailing mortgage origination rates. As
prevailing mortgage origination rates increase in relationship to a
mortgage coupon rate, the likelihood of prepayment of that mortgage
decreases. Conversely, during periods in which prevailing mortgage
origination rates are significantly less than a mortgage coupon rate,
prepayment of that mortgage becomes increasingly likely. Research
analysts use complex formulae to scrutinize the prepayments of mortgage
pools in an attempt to predict more accurately the average life of any
particular class of mortgage-backed bonds. The basis for the calculation
of estimated average life and the relationship of this calculation for
Estimated Long Term Return is more fully described under "Estimated Long
Term Return and Estimated Current Return."
Generally speaking, a number of factors, including mortgage
market interest rates and homeowners' mobility, will affect the average
life of the Ginnie Maes, Fannie Maes or Freddie Macs which back the
Securities in the Trusts and, accordingly, there can be no assurance that
the prepayment levels which will be actually realized will conform to the
estimated levels. Changes in prepayment patterns, as reported by each of
GNMA, FNMA and FHLMC on a periodic basis, if generally applicable to the
mortgage pools related to specific CMOs could influence yield assumptions
used in pricing the securities. Shifts in prepayment patterns are
influenced by changes in housing cycles and mortgage refinancing and are
also subject to certain limitations on the gathering of the data; it is
impossible to predict how new statistics will affect the yield assumptions
that determine mortgage industry rooms and pricing of CMOs. Moreover,
there is no assurance that the pools of mortgage loans relating to the
Securities in the Trust will conform to prepayment experience as reported
by GNMA, FNMA or FHLMC on a periodic basis or the prepayment experience of
other mortgage lenders.
While the value of CMOs generally fluctuates inversely with
changes in interest rates, it should also be noted that the potential for
appreciation on CMOs, which could otherwise be expected to result from a
decline in interest rates, may tend to be limited by any increased
prepayments by mortgagors as interest rates decline (except for Principal
Only Bonds whose yield increases with the speed at which payments of
principal are received at par). Accordingly, the termination of the
Trusts might be accelerated as a result of prepayments made as described
above. In addition, it is possible that, in the absence of a secondary
market for the Units or otherwise, redemption of Units may occur in
sufficient numbers to reduce a Portfolio to a size resulting in the
termination of the Trust (termination for this reason would be delayed if
additional Units are issued). Early termination of a Trust may have
important consequences to Certificateholders, e.g., the extent that Units
were purchased with a view to an investment of longer duration, the
overall investment program of the investor may require readjustment, or
the overall return on investment may be less or greater than anticipated,
depending in part on whether the purchase price paid for Units represented
the payment of an overall premium or a discount, respectively, above or
below the stated principal amounts of the underlying mortgages.
Public Offering
Offering Price
The secondary market Public Offering Price per 1,000 Units of
the Trust is computed by adding to the aggregate bid price of the
Securities in the Trust divided by the number of Units outstanding times
1,000, an amount equal to (a) for the Short-Intermediate Portfolio, 3.627%
of the aggregate bid price of the Securities per 1,000 Units which is
equal to 3.5% of the Public Offering Price per 1,000 Units, (b) for the
Intermediate Portfolio, 3.896% of the aggregate bid price of the
Securities per 1,000 Units which is 3.75% of the Public Offering Price per
1,000 Units and (c) for the Long-Intermediate Portfolio, 4.167% of the
aggregate offering price of the Securities per 1,000 Units which is equal
to 4% of the Public Offering Price per 1,000 Units. A proportionate share
of accrued interest on the Securities is added to the Public Offering
Price. Accrued interest is the accumulated and unpaid interest on
Securities from the last day on which interest was paid and is accounted
for daily by the Trust at the initial daily rate set forth under "Summary
of Essential Information" in Part A. The Public Offering Price can vary
on a daily basis from the amount stated in this Prospectus in accordance
with fluctuations in the prices of the Securities and the price to be paid
by each investor will be computed as of the date the Units are purchased.
The aggregate bid price evaluation of the Bonds is determined in the
manner set forth under "Trustee Redemption."
The Evaluator may obtain current bid or offering prices for the
Securities from investment dealers or brokers (including the Sponsors)
that customarily deal in CMOs or from any other report service or source
of information which the Evaluator deems appropriate.
Accrued Interest
Accrued interest is the accumulation of unpaid interest on a
Security from the last day on which interest thereon was paid. Interest
on Securities in the Trusts is actually paid monthly to the Trusts.
However, interest on Securities in each Trust is accounted for daily on an
accrual basis. Because of this, a Trust always has an amount of interest
earned but not yet collected by the Trustee because of non-collected
coupons. For this reason, the Public Offering Price of Units will have
added to it the proportionate share of accrued and undistributed interest
to Date of Settlement.
A Certificateholder will not recover his proportionate share of
accrued interest until the Units are sold or redeemed, or the Trust is
terminated. At that time, the Certificateholder will receive his
proportionate share of the accrued interest computed to the Settlement
Date in the case of sale or termination and to the date of tender in the
case of redemption.
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 Sponsors intend to qualify the Units for sale in
substantially all States through the Underwriters and through dealers who
are members of the National Association of Securities Dealers, Inc. Units
may be sold to dealers at prices which represent a concession of up to $25
per 1,000 Units, subject to the Sponsors' right to change the dealers'
concession from time to time. In addition, for transactions of 1,000,000
Units or more, the Sponsors intend 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 Sponsors reserve the right to reject,
in whole or in part, any order for the purchase of Units. The Sponsors
reserve the right to change the discounts from time to time.
Sponsors' and Underwriters' Profits
The Sponsors will receive a gross commission equal to (a) for
the Short-Intermediate Portfolio, 3.5% of the Public Offering Price per
1,000 Units (equivalent to 3.627% of the net amount invested in the
Securities), (b) for the Intermediate Portfolio, 3.75% of the Public
Offering Price per 1,000 Units (equivalent to 3.896% of the net amount
invested in the Securities) and (c) for the Long-Intermediate Portfolio,
4% of the Public Offering Price per 1,000 Units (equivalent to 4.167% of
the net amount invested in the Securities). In addition, in maintaining a
market for the Units (see "Sponsors Repurchase") the Sponsors will realize
profits or sustain losses in the amount of any difference between the
price at which they buy Units and the price at which they resell 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, Sponsors'
Repurchase Price and Redemption Price.
The secondary market Public Offering Price of the Units will be
determined on the basis of the current bid prices of the Securities in the
Trusts, plus the applicable sale charges. The value at which Units may be
resold in the secondary market will be determined on the basis of the
aggregate bid side evaluation of the Securities. On the Evaluation Date,
the Public Offering Price per 1,000 Units and the Sponsors' Repurchase
Price per 1,000 Units (each based on the bid side evaluation of the
Securities) each exceeded the Redemption Price per 1,000 Units and the
Sponsors' secondary market Repurchase Price per 1,000 Units (based on the
current bid side evaluation of the Securities) by the amounts shown under
"Summary of Essential Information" in Part A.
Estimated Long Term Return And Estimated Current Return
The rate of return on an investment in Units of the Trust is
measured in terms of "Estimated Current Return" and "Estimated Long Term
Return" as described below.
The Estimated Net Annual Interest Income per 1,000 Units for the
Trust, set forth under "Summary of Essential Information", shows the
return based on $1.00 principal amount per Unit after deducting estimated
annual fees and expenses. This figure will change as Securities mature,
are prepaid, exchanged, redeemed, pair or sold, as replacements or
Additional Securities are purchased and deposited in the Trust or as the
expenses of the Trust change.
In actual operation, payments received in respect of the
mortgages underlying the Ginnie Maes, Fannie Maes or Freddie Macs which in
turn back the Securities will consist of a portion representing interest
and a portion representing principal. Although the aggregate monthly
payment made by the obligor on each mortgage remains constant (aside from
optional prepayments of principal), in the early years the larger
proportion of each payment will represent interest, while in later years,
the proportion representing interest will decline and the proportion
representing principal will increase, although the interest rate remains
constant. Moreover, by reason of optional prepayments, payments in the
earlier years on mortgages may be substantially in excess of those
required by the amortization schedules of these mortgages; conversely,
payments in later years may be substantially less since the aggregate
unpaid principal balances of the underlying mortgages and, hence, the
related Ginnie Maes, Fannie Maes or Freddie Macs may have been greatly
reduced--ultimately even sufficiently reduced to accelerate termination of
the Trust. To the extent that those Securities bearing the higher
interest rate represented in the Portfolio are prepaid faster than other
Securities, the net annual interest per 1,000 Units and the return on the
Units can be expected to decline. Monthly payments to the
Certificateholders will reflect all of the foregoing factors.
Interest on the Securities in the Trusts, less estimated fees of
the Trustee and Sponsors and certain other expenses, is expected to accrue
per 1,000 Units at the daily rate (based on a 360-day year) shown under
"Summary of Essential Information". The actual daily rate will vary as
Securities are prepaid, exchanged, redeemed, paid or sold or as the
expenses of the Trust change.
The Estimated Current Return and the Estimated Long Term Return
for each Trust on the Evaluation Date are set forth under "Summary of
Essential Information" in Part A. Estimated Long Term Return is
calculated by: (1) computing the yield to maturity for each CMO in the
Trust's portfolio in accordance with accepted CMO practices, which
practices take into account not only the interest payable on the CMO but
also the amortization of premiums or accretion of discounts, if any, and
estimated appropriate prepayments; (2) calculating the average of yields
for the CMOs in the Trust's portfolio by weighing each CMOs' yield by the
market value of the CMO and by the amount of time remaining to the date to
which the CMO 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 Certificateholders. The resulting Estimated
Long Term Return represents a measure of the return to Certificateholders
earned over the estimated life of the Trust.
Estimated Current Return for each Portfolio is computed by
dividing the Estimated Net Annual Interest Income per 1,000 Units by the
Public Offering Price per 1,000 Units. 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 CMOs in
the portfolio of the Trust.
The calculation of an estimated average life for any Security in
the Trusts is a two stage process. First, several assumptions are made to
derive an estimated prepayment rate for the mortgages underlying the
Ginnie Maes, Fannie Maes or Freddie Macs which back the Securities. Based
upon historical prepayment data provided by GNMA, FNMA or FHLMC an
assumption is made as to how the prepayment behavior of the mortgages will
be affected as they amortize. However, because historical prepayment data
afford only a limited basis upon which to analyze prepayment behavior, the
Sponsors have developed an econometric model that allows an analysis of
several other important variables. The principal variables are the spread
between present market interest rates and the interest rate on the
mortgages and the turnover rate in the housing market. Finally, the
Sponsors use this model's prepayment predictions to derive an estimated
prepayment rate for the mortgage pool, expressed in terms of the PSA
Prepayment Model, from which an estimated average life an estimated
prepayment schedule can be projected for the Ginnie Maes, Fannie Maes or
Freddie Macs themselves. While the various estimates made in this first
stage are subjected to rigorous analysis, investors should be aware that
they are based upon reported statistical relations that may not remain
constant and assumptions about the future of an uncertain economic
environment.
The second stage in determining the estimated average life of
any Security in the Trusts involves the use of a formula to apply the
estimated rate of principal payments on the mortgage pool to amortize the
Ginnie Maes, Fannie Maes or Freddie Macs which back the Securities and to
retire the principal amount of each CMO class of the same series,
including the Security itself, according to the specific principal
reduction schedule of that series. This results in an estimate of the
point at which the principal of any Security will begin to be paid and how
long it will take for the principal to be fully paid. If any Security was
issued in a series that contains planned amortization bonds or targeted
amortization bonds, then the estimated rate of principal payments on the
underlying mortgages will be applied to the other classes in that series
in a manner that takes account of the amortization schedule of the planned
amortization bonds or targeted amortization bonds. This results in less
predictable prepayment characteristics for those other classes. The
estimated average life for the Trust provided under the "Summary of
Essential Information" is subject to change with alterations in the data
used in any of the underlying assumptions. The actual average lives of
the Securities and the actual long term returns will be different from the
estimated average lives and the Estimated Long Term Returns.
Both Estimated Current Return and Estimated Long Term Return are
subject to fluctuation with changes in Portfolio composition, principal
payments and prepayments and changes in market value of the underlying
Securities and changes in fees and expenses, including sales charges, and
therefore can be materially different than the figures set forth under the
Summary of Essential Information. The size of any difference between
Estimated Current Return and Estimated Long Term Return can also be
expected to fluctuate at least as frequently. In addition, both return
figures may not be directly comparable to yield figures used to measure
other investments, and since the return figures are based on certain
assumptions and variables the actual returns received by a
Certificateholder may be higher or lower. The Estimated Long Term Return
and Estimated Current Return calculations do not take into account certain
delays in distributions of income and the timing of other receipts and
distributions on Units and may, depending on maturities, over or
understate the impact of sales charges. Both of these factors may result
in lower figures.
In addition to the Public Offering Price, the price of a Unit
includes accrued interest on the Securities. Securities deposited in the
Trust include an item of accrued but unpaid interest up to the date of
delivery of the Securities. Certificateholders pay for this additional
accrued interest when they purchase Units. In addition, interest accruing
after the date of delivery of the Securities is added to the Public
Offering Price. Accrued interest earns no return.
The payment dates of the Securities may vary and therefore
accrued interest at any time may be greater than the amount of interest
actually received by the Trust and distributed to Certificateholders.
Therefore, accrued interest (if any) is always added to the value of the
Units. If a Certificateholder sells all or a portion of his Units, he
will receive his proportionate share of the accrued interest from the
purchaser of his Units. Similarly, if a Certificateholder redeems all or
a portion of his Units, the Redemption Price per Unit will include accrued
interest on the Securities.
Rights of Certificateholders
Certificates
Ownership of Units of the Trust is evidenced by registered
Certificates executed by the Trustee and the Sponsors. Certificates may
be issued in denominations of one thousand or more Units. Certificates
are transferable by presentation and surrender to the Trustee properly
endorsed and/or accompanied by a written instrument or instruments of
transfer. Although no such charge is presently made or contemplated, the
Trustee may require a Certificateholder to pay $2.00 for each Certificate
reissued or transferred and any governmental charge that may be imposed in
connection with each such transfer or interchange. Mutilated, destroyed,
stolen or lost Certificates will be replaced upon delivery of satisfactory
indemnity and payment of expenses incurred.
Interest and Principal Distributions
Interest received by each Trust is credited by the Trustee to an
Interest Account for the Trust. Proceeds representing principal received
from the maturity, redemption, sale or other disposition of the Securities
are credited to the Principal Account of the Trust.
Distributions to each Certificateholder from the Interest
Account are computed as of the close of business on each Record Date for
the following Payment Date and consist of an amount substantially equal to
such Certificateholder's pro rata share of the amount of interest received
on the Securities during such month in the Interest Account less amounts
deducted or estimated to be deducted as discussed below. Distributions
from the Principal Account of each Trust (other than amount representing
failed contracts, as previously discussed) will be computed as of each
monthly Record Date, and will be made to the Certificateholders of that
Trust on the next monthly Payment Date. Proceeds representing principal
received from the disposition of any of the Securities between a Record
Date and a Payment Date which are not used for redemptions of Units will
be held in the Principal Account and not distributed until the second
succeeding monthly Payment Date. No distributions will be made to
Certificateholders electing to participate in the Total Reinvestment Plan.
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. All funds in respect of the Securities received and held by the
Trustee prior to distribution to Certificateholders may be of benefit to
the Trustee and do not bear interest to Certificateholders.
As of the first day of each month, the Trustee will deduct from
the Interest Account of each Trust, and, to the extent funds are not
sufficient therein, from the Principal Account of the Trust, amounts
necessary to pay the expenses of the Trust (as determined on the basis set
forth under "Trust Expenses and Charges"). The Trustee also may withdraw
from said accounts such amounts, if any, as it deems necessary to
establish a reserve for any applicable taxes or other governmental charges
that may be payable out of the Trust. Amounts so withdrawn shall not be
considered a part of the Trust's assets until such time as the Trustee
shall return all or any part of such amounts to the appropriate accounts.
In addition, the Trustee may withdraw from the Interest and Principal
Accounts such amounts as may be necessary to cover purchases of
Replacement Securities and redemptions of Units by the Trustee.
The estimated monthly distribution per 1,000 Units will be in
the approximate amount shown under "Summary of Essential Information" in
Part A and will change and may be reduced as Securities are prepaid or are
redeemed, exchanged or sold, or as expenses of the Trust fluctuate. No
distribution need be made from the Principal Account until the balance
therein is an amount sufficient to distribute $1 per 1,000 Units.
Records
The Trustee shall furnish Certificateholders in connection with
each distribution a statement of the amount of interest, if any, and the
amount of the receipts, if any, which are being distributed, expressed in
each case as a dollar amount per 1,000 Units. Within a reasonable time
after the end of each calendar year the Trustee will furnish to each
person who at any time during the calendar year was a Certificateholder of
record, a statement showing (a) as to the Interest Account: interest
received, amounts paid for purchases of Replacement Securities and
redemptions of Units, if any, deductions for applicable taxes and fees and
expenses of the Trust, and the balance remaining after such distributions
and deductions, expressed both as a total dollar amount and as a dollar
amount representing the pro rata share of each 1,000 Units outstanding on
the last business day of such calendar year; (b) as to the Principal
Amount: the dates of disposition of any Securities and the net proceeds
received therefrom, deductions for payments of applicable taxes and fees
and expenses of the Trust, amounts paid for purchases of Replacement
Securities and redemptions of Units, if any, and the balance remaining
after such distributions and deductions, expressed both as a total dollar
amount and as a dollar amount representing the pro rata share of each
1,000 Units outstanding on the last business day of such calendar year;
(c) a list of the Securities held and the number of Units outstanding on
the last business day of such calendar year; (d) the Redemption Price per
1,000 Units based upon the last computation thereof made during such
calendar year; and (e) amounts actually distributed to Certificateholders
during such calendar year from the Interest and Principal Accounts,
separately stated, of the Trust, expressed both as total dollar amounts
and as dollar amounts representing the pro rata share of each 1,000 Units
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 or record and account of its transactions as Trustee, including
records of the names and address of Certificateholders, Certificates
issued or held, a current list of Securities in the Portfolio and a copy
of the Trust Agreement.
Tax Status
The Sponsors believe that (i) each Security the interest on
which is United States source income (which is the case for most
Securities issued by United States issuers) was or will have been issued
after July 18, 1984, (ii) each Security is a regular interest in a REMIC,
as defined in Sections 860A-G of the Code, and (iii) interest on any
Security issued by a non-United States issuer is not subject to any
foreign withholding taxes under current law. There can be no assurance,
however, that foreign withholding taxes will not be imposed on interest on
Securities issued by non-United States issuers in the future.
Neither the Sponsors nor Battle Fowler has made or will make a
review of the facts and circumstances relating to the issuance of any
Security.
Based on the foregoing, in the opinion of Battle Fowler, special
counsel for the Sponsors, under existing law:
The Trusts are not associations taxable as a corporation for
Federal income tax purposes, and income received by each Trust will
be treated as the income of the Certificateholder in the manner set
forth below.
Each Certificateholder will be considered the owner of a pro
rata portion of each Security in the Trust under the grantor trust
rules of Sections 671-679 of the Internal Revenue Code of 1986, as
amended (the "Code"). In order to determine the face amount of the
Certificateholder's pro rata portion of each Security on the initial
Date of Deposit, see Principal Amount of Securities under
"Portfolio." The total cost to a Certificateholder of his Units,
including sales charges, is allocated among his or her pro rata
portion of each Security (in proportion to the fair market values
thereof on the date the Certificateholder purchases his Units) in
order to determine his tax cost for his pro rata portion of each
Security. In order for a Certificateholder who purchases his Units
on the initial Date of Deposit to determine the fair market value of
his pro rata portion of each Security on such date, see Cost of
Securities to Trust under "Portfolio."
A Certificateholder will be required to include in income his or
her respective pro rata share of interest on each Security (whether
or not the Security has original issue discount, as discussed below)
as interest accrues, whether or not the Certificateholder is an
accrual method taxpayer. An individual Certificateholder who
itemizes deductions may deduct his pro rata share of fees and
expenses of the Trust only to the extent that such amount together
with the Certificateholder's other miscellaneous deductions exceeds
2% of his adjusted gross income and subject to overall restrictions
on itemized deductions set forth in Section 68 of the Code.
The Trusts may contain Securities which were originally issued
at a discount ("original issue discount"). In general, original
issue discount is defined as the difference between the price at
which a security was issued and its stated redemption price at
maturity. Original issue discount on a Security will accrue as
interest over the life of the Security under a formula based on the
compounding of interest. Such formula requires the adoption by the
issuer of the Securities of certain prepayment assumptions, discussed
in more detail in "Estimated Long Term Return and Estimated Current
Return." Certificateholders are urged to consult their own tax
advisers. In the case of a Certificateholder who purchases Units in
a trust holding a Security that was originally issued at a discount,
the amount of original issue discount that will accrue will be
reduced if the Certificateholder purchases the Units at a price that
reflects a lower yield for the Security than the yield thereon at the
time of the original issuance of such Security. Each
Certificateholder will be required to include in income in each year
the amount of original issue discount which accrues during the year
on his pro rata portion of any Security originally issued at a
discount. The amount of original issue discount so included in
income in respect of a Certificateholder's pro rata portion of a
Security is added to the Certificateholder's tax cost therefor.
If a Certificateholder's tax cost for his pro rata portion of a
Security exceeds the redemption price at maturity thereof, the
Certificateholder will be considered to have purchased his pro rata
portion of the Security at a "premium." The Certificateholder
(except in the case of a dealer in securities or one who holds debt
obligations primarily for sale to customers in the ordinary course of
his trade or business) may elect to amortize the premium prior to the
maturity of the Security. The amount amortized in any year should be
applied to offset the Certificateholder's interest from the Security
and should result in an adjustment to basis (i.e., a reduction of the
Certificateholder's tax cost) for his pro rata portion of the
Security.
A Certificateholder will recognize taxable gain or loss when all
or part of his pro rata portion of a Security is disposed of for an
amount greater or less than his original tax cost therefor plus any
accrued original issue discount or minus any amortized premium. Any
such taxable gain or loss will be capital gain or loss, except in the
case of a dealer, and except as provided for in the next paragraph.
Any gain from the disposition of a Certificateholder's pro rata
portion of a Security issued after July 18, 1984 and acquired by the
Certificateholder at "market discount" (i.e., if the
Certificateholder's original cost for his pro rata portion of the
Security (plus any original issue discount which has accrued thereon)
is less than its stated redemption price at maturity) will be treated
as ordinary income to the extent the gain does not exceed the accrued
market discount. The deduction of capital losses is subject to
limitations. A Certificateholder will be considered to have disposed
of all or part of his pro rata portion of each Security when he sells
or redeems all or some of his Units. A Certificateholder will also
be considered to have disposed of all or part of his pro rata portion
of a Security when all or part of the Security is sold by the Trust
or is redeemed or paid at maturity.
Units that are owned by Certificateholders, other than a dealer
in securities or one who holds debt obligations primarily for sale to
customers in the ordinary course of his trade or business, are
capital assets and generally produce capital gains and losses upon
their sale or disposition. Gain realized upon the sale or
disposition of an interest in a REMIC, however, will be ordinary
income to the extent of unaccrued original issue discount as
determined by a prescribed formula.
Under the income tax laws of the State and City of New York, the
Trust is not an association taxable as a corporation and income
received by the Trust will be treated as the income of the
Certificateholders in the same manner as for Federal income tax
purposes.
Notwithstanding the foregoing, a Certificateholder who is not a
citizen or resident of the United States or a United States domestic
corporation (a "Foreign Certificateholder") will generally not be
subject to United States Federal income taxes, including withholding
taxes, or information reporting, on the interest income (including
any original issue discount) on, or any gain from the sale or other
disposition of, his pro rata portion of any Security provided that
(i) the interest income or gain is not effectively connected with the
conduct by the Foreign Certificateholder of a trade or business
within the United States, (ii) if the interest is United States
source income (which is the case on most Securities issued by United
States issuers), the Security is issued after July 18, 1984 and the
Foreign Certificateholder does not own, actually or constructively,
10% or more of the total combined voting power of all classes of
voting stock of the issuer of the Security and is not a controlled
foreign corporation related (within the meaning of Section 864(d)(4)
of the Code) to the issuer of the Security, (iii) with respect to any
gain, the Foreign Certificateholder (if an individual) is not present
in the United States for 183 days or more during the taxable year and
does not have a "tax home" (as defined in Section 911(d)(3) of the
Code) in the United States, and the gain is not attributable to an
office or fixed place of business maintained by such individual in
the United States, and (iv) the Foreign Certificateholder provides
the required certification of his status and of the matters contained
in clauses (i), (ii) and (iii) above. Foreign Certificateholders
should consult their own tax advisers with respect to United States
Federal income tax consequences of ownership of Units.
After the end of each calendar year, the Trustee will furnish to
each Certificateholder an annual statement containing information relating
to the interest received by the Trust on the Securities, the gross
proceeds received by the Trusts from the disposition of any Security
(resulting from redemption or payment at maturity of any Security or the
sale by the Trust of any Security), and the fees and expenses paid by the
Trusts. The Trustee will also furnish annual information returns to each
Certificateholder and to the Internal Revenue Service.
The foregoing discussion relates only to United States Federal
and, to a limited extent, New York State and City income taxes.
Certificateholders may be subject to taxation in New York or in other
jurisdictions (including a Foreign Certificateholder's country of
residence) and should consult their own tax advisers in this regard.
Tax-Exempt Investors
Entities that generally qualify for an exemption from federal
income tax, such as many pension trusts, are nevertheless taxed under
Section 511 of the Code on "unrelated business taxable income." Unrelated
business taxable income is income from a trade or business regularly
carried on by the tax-exempt entity that is unrelated to the entity's
exempt purpose. Unrelated business taxable income generally does not
include interest income or gain from the sale of investment property,
unless such income is derived from property that is debt-financed or such
gain is derived from property that is dealer property. A tax-exempt
entity's interest income from the Trust and gain from the sale of Units in
the Trust or the Trust's sale of Securities is not expected to constitute
unrelated business income to such tax-exempt entity unless the acquisition
of the Unit itself is debt-financed or constitutes dealer property in the
hands of the tax-exempt entity.
Before investing the Trust, the trustee or investment manager of
an employee benefit plan (e.g., a pension or profit sharing retirement
plan) should consider among other things (i) whether the investment is
prudent under ERISA, taking into account the needs of the plan and all of
the facts and circumstances of the investment in the Trust; (ii) whether
the investment satisfies the diversification requirement of Section
404(a)(1)(C) of ERISA; and (iii) whether the assets of the Trust are
deemed "plans assets" under ERISA and the Department of Labor regulations
regarding the definition of "plan assets."
Prospective tax-exempt investors are urged to consult their own
advisors prior to investing in the Trust.
Liquidity
Sponsors Repurchase
The Sponsors, although not obligated to do so, intend to
maintain a secondary market for the Units and continuously to offer to
repurchase the Units. The Sponsors' secondary market repurchase price
after the initial public offering is completed will be based on the
aggregate bid price of the Securities in each Trust and will be the same
as the redemption price. The aggregate bid price will be determined by
the Evaluator on a daily basis after the initial public offering is
completed and computed on the basis set forth under "Trustee Redemption".
Certificateholders who wish to dispose of their Units should inquire of
the Sponsors as to current market prices prior to making a tender for
redemption. The Sponsors may discontinue repurchase of Units if the
supply of Units exceeds demand, or for other business reasons. The date
of repurchase is deemed to be the date on which Certificates representing
Units are physically received in proper form by Bear, Stearns & Co. Inc.,
245 Park Avenue, New York, New York 10167, on behalf of the Sponsors.
Units received after 4 P.M., New York Time, will be deemed to have been
repurchased on the next business day. In the event a market is not
maintained for the Units, a Certificateholder may be able to dispose of
Units only by tendering them to the Trustee for redemption.
Units purchased by the Sponsors in the secondary market may be
reoffered for sale by the Sponsors at a price based on the aggregate bid
price of the Securities in the Trust plus (a) for the Short-Intermediate
Portfolio, a 3.5% sales charge (3.627% of the net amount invested) plus
net accrued interest, (b) for the Intermediate Portfolio, a 3.75% sales
charge (3.896% of the net amount invested) plus net accrued interest and
(c) for the Long-Intermediate Portfolio, a 4% Sales Charge (4.167% of the
net amount invested) plus net accrued interest. Any Units that are
purchased by the Sponsors in the secondary market also may be redeemed by
the Sponsors if it determines such redemption to be in its best interest.
The Sponsors may, under certain circumstances, as a service to
Certificateholders, elect to purchase any Units tendered to the Trustee
for redemption (see "Trust Redemption"). Factors which the Sponsors will
consider in making a determination will include the number of Units of all
Trusts which it has in inventory, its estimate of the salability and the
time required to sell such Units and general market conditions. For
example, if in order to meet redemption of Units the Trustee must dispose
of Securities, and if such disposition cannot be made by the redemption
date (seven calendar days after render), the Sponsors may elect to
purchase such Units. Such purchase shall be made by payment to the
Certificateholder not later than the close of business on the redemption
date of an amount equal to the Redemption Price on the date of tender.
Trustee Redemption
Units may also be tendered to the Trustee for redemption at its
corporate trust office at 770 Broadway, New York, New York 10003, upon
proper delivery of Certificates representing such Units and payment of any
relevant tax. At the present time there are no specific taxes related to
the redemption of Units. No redemption fee will be charged by the
Sponsors or the Trustee. Units redeemed by the Trustee will be canceled.
Certificate 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 Replacement Price per Unit
computed as of the Evaluation Time set forth under "Summary of Essential
Information" in Part A on the date of tender. The "date of tender" is
deemed to be the date on which Units are received by the Trustee, except
that with respect to Units received after the close of trading on the New
York Stock Exchange, the date of tender is the next day on which such
Exchange is open for trading, and such Units will be deemed to have been
tendered to the Trustee on such day for redemption at the Redemption Price
computed on that day.
Accrued interest paid on redemption shall be withdrawn from the
Interest Account, or, if the balance therein is insufficient, from the
Principal Account. All other amounts paid on redemption shall be
withdrawn from the Principal Account. The Trustee is empowered to sell
Securities in order to make funds available for redemptions. Such sales,
if required, could result in a sale of Securities by the Trustee at a
loss. To the extent Securities are sold, the size and diversity of the
Trust will be reduced.
The Redemption Price per Unit is the pro rata share of each Unit
in a Trust determined by the Trustee on the basis of (i) the cash on hand
in the Trust or moneys in the process of being collected, (ii) the value
of the Securities in the Trust based on the bid prices of such Securities
and (iii) interest accrued thereon, less (a) amounts representing taxes or
other governmental charges payable out of the Trust, (b) the accrued
expenses of the Trust and (c) cash allocated for the distribution to
Certificateholders of record as of the business day prior to the
evaluation being made. The Evaluator may determine the value of the
Securities in the Trust (i) if the Securities are listed on a national
securities exchange (CMOs are usually not so listed), based on the closing
sale prices on that exchange (unless the Evaluator deems these prices
inappropriate as a basis for valuation), (ii) if the Securities are not so
listed or, if so listed and the principal market therefor is other than on
the exchange or there are no closing sale prices on the exchange, based on
the closing sale prices on the over-the-counter market (unless the
Evaluator deems these prices inappropriate as a basis for evaluation),
(iii) if closing sale prices are unavailable, (a) on the basis of current
bid or offering prices for the Securities, (b) if bid or offering prices
are not available for any Securities, on the basis of current bid or
offering prices for comparable securities, (c) by appraising the value of
the Securities on the bid or offering side of the market or (d) by any
combination of the above. The Evaluator may obtain current price
information as to the Securities from investment dealers or brokers
(including the Sponsors) which customarily deal in this type of security.
While the Sponsors believe that Securities of the type included
in the Trusts involve minimal risk of loss of principal, due to variations
in interest rates the market value of these Securities, and Redemption
Price per Unit (particularly of the Long-Intermediate Portfolio), can be
expected to fluctuate during the period of an investment in the Trusts.
The Trustee is irrevocably authorized in its discretion, if the
Sponsors do not elect to purchase a Unit tendered for redemption or if the
Sponsors tender 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 Sponsors 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
Distributions of interest and principal, if any, from the Trusts
are made to Certificateholders monthly. The Certificateholder has the
option, however, of either receiving his interest check, together with any
principal payments, from the Trustee or participating in a reinvestment
program offered by the Sponsors in shares of The GOC Fund, Inc., U.S.
Treasury Money Market Portfolio (the "Fund"). Participation in the
reinvestment option is conditioned on the Fund's lawful qualification for
sale in the state in which the Certificateholder is a resident.
Upon enrollment in the reinvestment option, the Trustee will
direct interest and/or principal distributions, if any, to the Fund. The
Fund seeks to maximize current income and to maintain liquidity and a
stable net asset value by investing in short term U.S. Treasury
Obligations which have effective maturities of one year or less. For more
complete information concerning the Fund, including charges and expenses,
the Certificateholder should fill out and mail the card attached to the
inside back cover of this Prospectus. The prospectus for the Fund will be
sent to Certificateholders. The Certificateholder should read the
prospectus for the Fund carefully before deciding to participate. The
shares of the Fund are not rated by Standard & Poor's.
Trust Administration
Portfolio Supervision
Each Trust is a unit investment trust and is not an actively
managed fund. Traditional methods of investment management for a managed
fund typically involve frequent changes in a portfolio of securities on
the basis of economic, financial and market analyses. The portfolios of
the Trusts, however, will not be actively managed and therefore the
adverse financial condition of an issuer will not require the sale of its
Securities from the Portfolios. However, the Sponsors may direct the
disposition of Securities upon default in payment of amounts due on any of
the Securities, institution of certain legal proceedings, default in
payment of amounts due on other securities of the same issuer or
guarantor, or decline in price or the occurrence of other market or credit
factors that in the opinion of the Sponsors would make the retention of
these Securities detrimental to the interest of the Certificateholders.
If a default in the payment of amounts due on any Security occurs and if
the Sponsors fail to give instructions to sell or hold that Security, the
Indenture provides that the Trustee, within 30 days of that failure by the
Sponsors, shall sell the Security.
The Sponsors are required to instruct the Trustee to reject any
offer made by an issuer of any of the Securities to issue new Securities
in exchange or substitution for any Securities pursuant to a refunding or
refinancing plan, except that the Sponsors may instruct the Trustee to
accept or reject any offer or to take any other action with respect
thereto as the Sponsors may deem proper if (a) the issuer is in default
with respect to these Securities or (b) in the written opinion of the
Sponsors the issuer will probably default with respect to these Securities
in the reasonably foreseeable future. Any Securities so received in
exchange or substitution will be held by the Trustee subject to the terms
and conditions of the Indenture to the same extent as Securities
originally deposited thereunder. Within five days after the deposit of
Securities in exchange or substitution for underlying Securities, the
Trustee is required to give notice thereof to each Certificateholder,
identifying the Securities eliminated and the Securities substituted
therefor. Except as stated herein, the acquisition by the Trust of any
securities other than the Securities initially deposited is prohibited.
Trust Agreement, Amendment and Termination
The Trust Agreement may be amended by the Trustee, the Sponsors
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 for the purpose of modifying the rights of
Certificateholders; provided that no such amendment or waiver shall reduce
any Certificateholder's interest in a Trust without his consent or reduce
the percentage of Units required to consent to any such amendment or
waiver without the consent of the holders of all Certificates. The Trust
Agreement may not be amended, without the consent of the holders of all
Certificates in a Trust then outstanding, to increase the number of Units
issuable or to permit the acquisition of any bonds in addition to or in
substitution for those initially deposited in such 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 the Trust shall terminate upon
the maturity, redemption or other disposition, as the case may be, of the
last of the Securities held in the Trust but in no event is it to continue
beyond the end of the calendar year preceding the fiftieth anniversary of
the execution of the Trust Agreement. If the value of the Trust shall be
less than the minimum amount set forth under "Summary of Essential
Information" in Part A, the Trustee may, in its discretion, and shall when
so directed by the Sponsors, terminate such Trust. Each Trust may also be
terminated at any time with the consent of the holders of Certificates
representing 100% of the Units then outstanding. In the event of
termination, written notice thereof will be sent by the Trustee to all
Certificateholders. Within a reasonable period after termination, the
Trustee must sell any Securities remaining in the terminated Trust, and,
after paying all expenses and charges incurred by the Trust, distribute to
each Certificateholder, upon surrender for calculation of his Certificate
for Units, his pro rata share of the Interest and Principal Accounts.
The Sponsors
The Sponsors, Bear, Stearns & Co. Inc. and Gruntal & Co.,
Incorporated, have entered into an Agreement Among Co-Sponsors pursuant to
which both parties have agreed to act as Co-Sponsors for the Trust. Bear,
Stearns & Co. Inc., has been appointed by Gruntal & Co., Incorporated as
agent for purposes of taking any action required or permitted to be taken
by the Sponsors 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 Bear, Stearns & Co. Inc. shall act as sole Sponsor. If one
or 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.
Bear, Stearns & Co. Inc., a Delaware corporation, is engaged in
the underwriting, investment banking and brokerage business and is a
member of the National Association of Securities Dealers, Inc. and all
principal securities and commodities exchanges, including the New York
Stock Exchange, the American Stock Exchange, the Midwest Stock Exchange
and the Pacific Stock Exchange. Bear Stearns maintains its principal
business office at 245 Park Avenue, New York, New York 10167 and, since
its reorganization from a partnership to a corporation in October, 1985
has been a wholly-owned subsidiary of The Bear Stearns Companies Inc.
Bear Stearns, through its predecessor entities, has been engaged in the
investment banking and brokerage business since 1923. Bear Stearns is the
sponsor for numerous series of unit investment trusts, including, A
Corporate Trust, Series 1 (and Subsequent Series); New York Municipal
Trust, Series 1 (and Subsequent Series), New York Discount and Zero Coupon
Fund, 1st Series (and Subsequent Series); Municipal Securities Trust,
Series 1 (and Subsequent Series), 1st Discount Series (and Subsequent
Series), Multi-State Series 1 (and Subsequent Series), High Income
Series 1 (and Subsequent Series); Insured Municipal Securities Trust,
Series 1 (and Subsequent Series), Series 1-4 (Multiplier Portfolio), 5th
Discount Series (and Subsequent Series), Navigator Series (and Subsequent
Series); Mortgage Securities Trust, CMO Series 1 (and Subsequent Series)
and Equity Securities Trust, Series 1, Signature Series, Gabelli
Communications Income Trust (and Subsequent Series).
Gruntal & Co., Incorporated, a Delaware corporation, operates a
securities broker/dealer from its main office in New York City and branch
offices in ten states and the District of Columbia. The firm is active in
the marketing of investment companies and has signed dealer agreements
with many major mutual fund groups. 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 Meritt Limited Term High
Income Trust.
The information included herein is only for the purpose of
informing investors as to the financial responsibility of the Sponsors and
their ability to carry out their contractual obligations.
The Sponsors are joint and severally liable for the performance
of their obligations arising from their 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 their
own willful misfeasance, bad faith, gross negligence or reckless disregard
of its obligations and duties.
The Sponsors may resign at any time by delivering to the Trustee
an instrument of resignation executed by the Sponsors.
If at any time either of the Sponsors 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 Trust shall be satisfactory to the Trustee and,
at the time of appointment, shall have a net worth of at least $1,000,000.
The Trustee
The Trustee is United States Trust Company of New York, with its
principal place of business at 770 Broadway, New York, New York 10003.
United States Trust Company of New York has, since its establishment in
1853, engaged primarily in the management of trust and agency accounts for
individuals and corporations. The Trustee is a member of the New York
Clearing House Association and is subject to supervision and examination
by the Superintendent of Banks of the State of New York, the Federal
Deposit Insurance Corporation and the Board of Governors of the Federal
Reserve System.
The Trustee shall not be liable or responsible in any way for
taking any action, or for refraining from taking any action, in good faith
pursuant to the Trust Agreement, or for errors in judgment; or for any
disposition of any moneys, Securities 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 Securities 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 Securities 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 Sponsors, and mailing a copy of a notice of
resignation to all Certificateholders. In such an event, the Sponsors are
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 Sponsors 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 Sponsors. 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
Kenny Information Systems, 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 Sponsors and the Certificateholders may rely on
any evaluation furnished by the Evaluator and shall have no responsibility
for the accuracy thereof. Determinations by the Evaluator under the Trust
Agreement shall be made in good faith upon the basis of the best
information available to it, provided, however, that the Evaluator shall
be under no liability to the Trustee, the Sponsors or Certificateholders
for errors in judgment, except in cases of its own willful misfeasance,
bad faith, gross negligence or reckless disregard of its obligations and
duties.
The Evaluator may resign or may be removed by the Sponsors and
Trustee, and the Sponsors 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 Evaluator
may apply to a court of competent jurisdiction for the appointment of a
successor.
Trust Expenses and Charges
At no cost to the Trust, the Sponsors have borne all the
expenses of creating and establishing the Trust, including the cost of
initial preparation and execution of the Trust Agreement, registration of
the Trust and the Units under the Investment Company Act of 1940 and the
Securities Act of 1933, the initial preparation and printing of the
Certificates, the fees of the Evaluator during the initial public
offering, legal expenses, advertising and selling expenses, expenses of
the Trustee including, but not limited to, an amount equal to interest
accrued on certain "when issued" securities since the date of settlement
for the Units, initial fees and other out-of-pocket expenses.
The Sponsors will not charge the Trust a fee for its services as
such. (See "Sponsors' and Underwriters' Profits.")
The Sponsors will receive for portfolio supervisory services to
the Trusts an Annual Fee in the amount set forth under "Summary of
Essential Information" in Part A. The Sponsors' fee may exceed the actual
cost of providing portfolio supervisory services for the Trust, but at no
time will the total amount received for portfolio supervisory services
rendered to all series of the Mortgage Securities Trusts in any calendar
year exceed the aggregate cost to the Sponsors of supplying such services
in such year. (See "Portfolio Supervision.") Pursuant to the Agreement
Among Co-Sponsors, Bear Stearns shall receive the entire Sponsors' fee set
forth in the "Summary of Essential Information" in Part A.
The Trustee will receive for its ordinary recurring services to
the Trust an annual fee in the amount set forth under "Summary of
Essential Information" in Part A. For a discussion of the services
performed by the Trustee pursuant to its obligations under the Trust
Agreement, see "Trust Administration" and "Rights of Certificateholders."
The Evaluator will receive, for each daily evaluation of the
Securities in the Trust after the initial public offering is completed, a
fee in the amount set forth under "Summary of Essential Information" in
Part A.
The Trustee's and Evaluator's fees applicable to the Trust are
payable monthly as of the Record Date from the Interest Account of such
Trust to the extent funds are available and then from the Principal
Account. Both fees may be increased without approval of the
Certificateholders by amounts not exceeding proportionate increases in
consumer prices for services as measured by the United States Department
of Labor's Consumer Price Index entitled "All Services Less Rent."
The following additional charges are or may be incurred by the
Trust: all expenses (including counsel fees) of the Trustee incurred and
advances made in connection with its activities under the Trust Agreement,
including the expenses and costs of any action undertaken by the Trustee
to protect the Trust and the rights and interests of the
Certificateholders; fees of the Trustee for any extraordinary services
performed under the Trust Agreement; indemnification of the Trustee for
any loss or liability accruing to it without gross negligence, bad faith
or willful misconduct on its part, arising out of or in connection with
its acceptance or administration of the Trust; indemnification of the
Sponsors for any losses, liabilities and expenses incurred in acting as
sponsors of the Trust without gross negligence, bad faith or willful
misconduct on its part; and all taxes and other governmental charges
imposed upon the Securities or any part of the Trust (no such taxes or
charges are being levied, made or, to the knowledge of the Sponsors,
contemplated). The above expenses, including the Trustee's fees, when
paid by or owing to the Trustee are secured by a first lien on the Trust
to which such expenses are charged. In addition, the Trustee is empowered
to sell Securities in order to make funds available to pay all expenses.
The accounts of the Trusts shall be audited not less than
annually by independent public accountants selected by the Sponsors. The
expenses of the audit shall be an expense of the Trust. So long as the
Sponsors maintain a secondary market, the Sponsors will bear any audit
expense which exceeds $.50 per 1,000 Units. Certificateholders covered by
the audit during the year may receive a copy of the audited financials
upon request.
Exchange Privilege and Conversion Offer
Exchange Privilege
Certificateholders may elect to exchange any or all of their
Units of these Trusts for Units of one or more of any available series of
Insured Municipal Securities Trust, Municipal Securities Trust, New York
Municipal Trust, Mortgage Securities Trust, A Corporate Trust or Equity
Securities Trust (upon receipt by the Equity Securities Trust of an
appropriate exemptive order from the Securities and Exchange Commission)
(the "Exchange Trusts") at a reduced sales charge as set forth below.
Under the Exchange Privilege, the Sponsors' repurchase price will be based
on the aggregate bid price of the Bonds in the particular Trust portfolio.
Units in an Exchange Trust then will be sold to the Certificateholder at a
price based on the aggregate offer price of the Bonds in the Exchange
Trust portfolio (or for units of Equity Securities Trust, based on the
market value of the underlying Securities in the Equity Trust portfolio)
during the initial public offering period of the Exchange Trust; or based
on the aggregate bid price of the Bonds in the Exchange Trust portfolio if
its initial public offering has been completed, plus accrued interest (or
for units of Equity Securities Trust, based on the market value of the
underlying securities in the Equity Trust portfolio) and a reduced sales
charge as set forth below.
Except for certificateholders who wish to exercise the Exchange
Privilege within the first five months of their purchase of Units of a
Trust, the sales charge applicable to the purchase of units of an Exchange
Trust shall be $15 per unit (or per 1,000 Units for the Mortgage
Securities Trust or per 100 Units for the Equity Securities Trust)
(approximately 1.5% of the price of each Exchange Trust unit (or 1,000
Units for the Mortgage Securities Trust or 100 Units for the Equity
Securities Trust)). For certificateholders who wish to exercise the
Exchange Privilege within the first five months of their purchase of Units
of a Trust, the sales charge applicable to the purchase of units of an
Exchange Trust shall be the greater of (i) $15 per unit (or per 1,000
Units for the Mortgage Securities Trust or per 100 Units for the Equity
Securities Trust), or (ii) an amount which when coupled with the sales
charge paid by the certificateholder 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 Sponsors 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 Sponsors have indicated
their intention to maintain a market in the Units of all Trusts
sponsored by it, the Sponsors are 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 Certificate-
holder'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 Sponsors' 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 Sponsors reserve the right to suspend, modify or
terminate the Exchange Privilege. The Sponsors 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 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 Sponsors
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 Sponsors 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 five months and the
Certificateholder wishes to exchange the proceeds for units of a secondary
market Exchange Trust with a current price of $725 per unit. The proceeds
from the Certificateholder's original units will aggregate $3,500. Since
only whole units of an Exchange Trust may be purchased under the Exchange
Privilege, the Certificateholder would be able to acquire four units (or
4,000 Units of the Mortgage Securities Trust or 400 Units of the Equity
Securities Trust) for a total cost of $2,960 ($2,900 for units and $60 for
the sales charge). The remaining $540 would be remitted to the
Certificateholder in cash. If the Certificateholder acquired the same
number of units at the same time in a regular secondary market
transaction, the price would have been $3,068.80 ($2,900 for units and
$168.80 for the sales charge, assuming a 5 1/2% sales charge times the
public offering price).
The Conversion Offer
Unit owners of any registered unit investment trust for which
there is no active secondary market in the units of such trust (a
"Redemption Trust") may elect to redeem such units and apply the proceeds
of the redemption to the purchase of available Units of one or more series
of A Corporate Trust, Municipal Securities Trust, Insured Municipal
Securities Trust, Mortgage Securities Trust, New York Municipal Trust or
Equity Securities Trust (upon receipt by the Equity Securities Trust of an
appropriate exemptive order from the Securities and Exchange Commission)
sponsored by Bear, Stearns & Co. Inc. or the Sponsors (the "Conversion
Trusts") at the Public Offering Price for units of the Conversion Trust
based on a reduced sales charge as set forth below. Under the Conversion
Offer, units of the Redemption Trust must be tendered to the trustee of
such trust for redemption at the redemption price, which is based upon the
aggregate bid side evaluation of the underlying bonds in such trust and is
generally about 1 1/2% to 2% lower than the offering price for such bonds
(or for units of Equity Securities Trust, based on the market value of the
underlying securities in the Equity Trust portfolio). The purchase price
of the units will be based on the aggregate offer price of the underlying
bonds in the Conversion Trust portfolio (or for units of Equity Securities
Trust, based on the market value of the underlying securities in the
Equity Trust portfolio) during its initial public offering period, or at a
price based on the aggregate bid price of the underlying bonds if the
initial public offering of the Conversion Trust has been completed, plus
accrued interest (or for units of Equity Securities Trust, based on the
market value of the underlying securities in the Equity Trust portfolio)
and a sales charge as set forth below.
Except for 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 $15 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) $15 per Unit (or
per 1,000 Units for the Mortgage Securities Trust or per 100 Units for the
Equity Securities Trust) or (ii) an amount which when coupled with the
sales charge paid by the certificateholder upon his original purchase of
units of the Redemption Trust at least equals the sales charge applicable
in the direct purchase of Units of a Conversion Trust. The Conversion
Offer is subject to the following limitations:
1. The Conversion Offer is limited only to unit owners of any
Redemption Trust, defined as a unit investment trust for which there
is no active secondary market at the time the Certificateholder
elects to participate in the Conversion Offer. At the time of the
unit owner's election to participate in the Conversion Offer, there
also must be available units of a Conversion Trust, either under a
primary distribution or in the Sponsors' secondary market.
2. Exchanges under the Conversion Offer will be effected in
whole units only. Unit owners will not be permitted to advance any
new funds in order to complete an exchange under the Conversion
Offer. Any excess proceeds from units being redeemed will be
returned to the unit owner. Units of the Mortgage Securities Trust
may only be acquired in blocks of 1,000 units. Units of the Equity
Securities Trust may only be acquired in blocks of 100 Units.
3. The Sponsors reserve the right to modify, suspend or
terminate the Conversion Offer at any time without notice to unit
owners of Redemption Trusts. In the event the Conversion Offer is
not available to a unit owner at the time he wishes to exercise it,
the unit owner will be notified immediately and no action will be
taken with respect to his units without further instruction from the
unit owner. The Sponsors also reserve the right to raise the sales
charge based on actual increases in the Sponsors' 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 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 of 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 Sponsors 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 that a unit owner has five units of a Redemption Trust
which he has held for more than five 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 for the unit owner's
redemption of units will aggregate $3,375. Since only whole units of a
Redemption Trust may be purchased under the Conversion Offer, the unit
owner will be able to acquire four units of the Conversion Trust (or 4,000
units of the Mortgage Securities Trust or 400 Units of the Equity
Securities Trust) for a total cost of $2,860 ($2,800 for units and $60 for
the sales charge). The remaining $515 would be remitted to the unit owner
in cash. If the unit owner acquired the same number of Conversion Trust
units at the same time in a regular secondary market transaction, the
price would have been $2,962.96 ($2,800 for units and $162.96 for the
sales charge, assuming a 5 1/2% sales charge times the public offering
price).
Description Of The Exchange Trusts And The Conversion Trusts
A Corporate Trust may be an appropriate investment vehicle for
an investor who is more interested in a higher current return on his
investment (although taxable) than a tax-exempt return (resulting from the
fact that the current return from taxable fixed income securities is
normally higher than that available from tax-exempt fixed income
securities). Municipal Securities Trust and New York Municipal Trust may
be appropriate investment vehicles for an investor who is more interested
in tax-exempt income. The interest income from New York Municipal Trust
is, in general, also exempt from New York State and local New York income
taxes, while the interest income from Municipal Securities Trust is
subject to applicable New York State and local New York taxes, except for
that portion of the income which is attributable to New York obligations
in the Trust portfolio, if any. The interest income from each State Trust
of the Municipal Securities Trust, Multi-State Series is, in general,
exempt from state and local taxes when held by residents of the state
where the issuers of bonds in such State Trusts are located. The Insured
Municipal Securities Trust combines the advantages of providing interest
income free from regular federal income tax under existing law with the
added safety of irrevocable insurance. Insured Navigator Series further
combines the advantages of providing interest income free from regular
federal income tax and state and local taxes when held by residents of the
state where issuers of bonds in such state trusts are located with the
added safety of irrevocable insurance. Mortgage Securities Trust offers
an investment vehicle for investors who are interested in obtaining safety
of capital and a high level of current distribution of interest income
through investment in a fixed portfolio of collateralized mortgage
obligations. Equity Securities Trust offers investors an opportunity to
achieve capital appreciation together with a high level of current income.
Tax Consequences of the Exchange Privilege
and the Conversion Offer.
A surrender of units pursuant to the Exchange Privilege or the
Conversion Offer will constitute a "taxable event" to the
Certificateholder under the Internal Revenue Code. The Certificateholder
will realize a tax gain or loss that will be of a long- or short-term
capital or ordinary income nature depending on the length of time the
units have been held and other factors. (See "Tax Status".) A
Certificateholder's tax basis in the Units acquired pursuant to the
Exchange Privilege or Conversion Offer will be equal to the purchase price
of such Units. Investors should consult their own tax advisors as to the
tax consequences to them of exchanging or redeeming units and
participating in the Exchange Privilege or Conversion Offer.
Rating of Units
Standard & Poor's has rated the Units of the Trust AAA. This is
the highest rating assigned by Standard & Poor's (see Description of
Standard & Poor's Ratings). Standard & Poor's has been compensated by the
Sponsors for its service in rating the Units.
Other Matters
Legal Opinions
The legality of the Units offered hereby and certain matters
relating to federal tax law have been passed upon by Messrs. Battle
Fowler, 280 Park Avenue, New York, New York 10017 as counsel for the
Sponsors. Messrs. Carter, Ledyard & Milburn, Two Wall Street, New York,
New York 10005 have acted as counsel for the Trustee.
Independent Auditors
The Statement of Condition and Portfolio are included herein in
reliance upon the report of KPMG Peat Marwick, independent certified
public accountants, and upon the authority of said firm as experts in
accounting and auditing.
Description of Ratings*
Standard & Poor's Corporation
A Standard & Poor's rating on the units of an investment trust
(hereinafter referred to collectively as "units" and "trust") is a current
assessment of creditworthiness with respect to the investments held by
such trust. This assessment takes into consideration the financial
capacity of the issuers and of any guarantors, issuers, lessees, or
mortgagors with respect to such investments. The assessment, however,
does not take into account the extent to which trust expenses or portfolio
asset sales for less than the Trust's purchase price will reduce payment
to the unit holder of the interest and principal required to be paid on
the portfolio assets. In addition, the rating is not a recommendation to
purchase, sell or hold units, inasmuch as the rating does not comment as
to market price of the units or suitability for a particular investor.
* As described by the rating companies themselves.
<PAGE>
Trusts rated AAA are composed exclusively of assets that,
together with their credit support are rated AAA by Standard & Poor's.
Standard & Poor's defines its AAA rating for such assets as the highest
rating assigned by Standard & Poor's to a debt obligation. Capacity to
pay interest and repay principal is extremely strong.
<PAGE>
INDEX
Title Page MORTGAGE SECURITIES TRUST
Part A CMO SERIES
Summary of Essential (Unit Investment Trust)
Information . . . . . . . . . . A-2
Independent Auditors' Report . . A-9
Statement of Condition . . . . . A-9
Portfolios . . . . . . . . . . . A-10 Prospectus
Underwriting Syndicate . . . . . A-12
Part B
Dated: April 29, 1994
The Trust . . . . . . . . . . . . 1
Public Offering . . . . . . . . 10
Estimated Long Term Return and Sponsors:
Estimated Current Return . . . 12 Bear, Stearns & Co. Inc.
Rights of Certificateholders . . 14 245 Park Avenue
Tax Status . . . . . . . . . . . 16 New York, New York 10167
Liquidity . . . . . . . . . . 19 212-272-2500
Total Reinvestment Plan . . . . . 21
Trust Administration . . . . . . 22 Gruntal & Co., Incorporated
Trust Expenses and Charges . . . 26 14 Wall Street
Exchange Privilege and New York, New York 10005
Conversion Offer . . . . . . . 27 212-267-8800
Other Matters . . . . . . . . . . 31
Description of Ratings . . . . . 32
Trustee:
United States Trust Company
Parts A and B of this Prospectus of New York
do not contain all of the information 770 Broadway
set forth in the registration statement New York, New York 10003
and exhibits relating thereto, filed
with the Securities and Exchange
Commission, Washington, D.C. under the Evaluator:
Securities Act of 1933, and the Kenny S&P Evaluation Services
Investment Company Act of 1940, and to 65 Broadway
which reference is made. New York, New York 10006
* * *
This Prospectus does not constitute an offer to sell, or a
solicitation of an offer to buy, securities in any state to any person to
whom it is not lawful to make such offer in such state.
No person is authorized to give any information or to make any
representations not contained in Parts A and B in 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.
<PAGE>
I am the owner of __________ units of Mortgage Securities Trust, CMO
Series _______ Short-Intermediate/Intermediate/Long-Intermediate
Portfolio.
I would like to learn more about The GOC Fund, Inc. U.S. Treasury Money
Market Portfolio including charges and expenses. I understand that my
request for more information about this fund in no way obligates me to
participate in the reinvestment option, and that this request form is not
an offer to sell. Please send me more information, including a copy of
the current prospectus of The GOC Fund, Inc.
Date ______________________ 19__
Registered Holder (Print) Registered Holder
(Print)
Registered Holder Signature Registered Holder
Signature
(The signatures if
joint tenancy)
My Brokerage Firm's Name
Street Address
City, State & Zip Code
Broker's Name Broker's No.
MAIL TO:
THE GOC FUND, INC.
8 SOUND SHORE DRIVE
GREENWICH, CONNECTICUT 06830
<PAGE>
PART II
ADDITIONAL INFORMATION NOT REQUIRED
IN PROSPECTUS
CONTENTS OF REGISTRATION STATEMENT
This Post-Effective Amendment to the Registration Statements on Form S-6
comprises the following papers and documents:
The facing sheet on Form S-6.
The Cross-Reference Sheet.
The Prospectus consisting of pages.
Signatures.
Consent of Independent Auditors.
Consent of Counsel (included in Exhibits 99.3.1 and 99.3.1.1).
Consent of the Evaluator and Confirmation of Ratings of Standard & Poor's
Corporation (included in Exhibit 99.5.1).
The following exhibits:
99.1.1 -- Form of Reference Trust Agreement, as amended (filed as
Exhibit 1.1.1 to Amendment No. 1 to Form S-6 Registration
Statement No. 33-73653 of Mortgage Securities Trust, CMO
Series 2 on March 13, 1991 and incorporated herein by
reference).
99.1.1.1 -- Trust Indenture and Agreement for Mortgage Securities
Trust, CMO Series 1 and Subsequent Series (filed as
Exhibit 1.1.1 to Amendment No. 2 to Form S-6 Registration
Statement No. 33-36316 of Mortgage Securities Trust, CMO
Series 1 on November 1, 1990 and incorporated herein by
reference).
99.1.3.4 -- Certificate of Incorporation of Bear, Stearns & Co. Inc.,
as amended (filed as Exhibit 99.1.3.4 to Form S-6
Registration Statement Nos. 33-50891 and 33-50901 of
Insured Municipal Securities Trust, New York Navigator
Insured Series 15 and New Jersey Navigator Insured
Series 11; and Municipal Securities Trust, Multi-State
Series 44, respectively, on December 9, 1993 and
incorporated herein by reference).
99.1.3.5 -- By-laws of Bear, Stearns & Co. Inc., as amended (filed as
Exhibit 99.1.3.5 to Form S-6 Registration Statement
Nos. 33-50891 and 33-50901 of Insured Municipal Securities
Trust, New York Navigator Insured Series 15 and New Jersey
Navigator Insured Series 11; and Municipal Securities
Trust, Multi-State Series 44, respectively, on December 9,
1993 and incorporated herein by reference).
99.1.3.6 -- Certificate of Incorporation of Gruntal & Co.,
Incorporated, as amended (filed as Exhibit 1.3.6 to
Form S-6 Registration Statement No. 33-36316 of Mortgage
Securities Trust, CMO Series 1 on August 10, 1990 and
incorporated herein by reference).
99.1.3.7 -- By-Laws of Gruntal & Co., Incorporated, as amended (filed
as Exhibit 1.3.7 to Form S-6 Registration Statement
No. 33-36316 of Mortgage Securities Trust, CMO Series 1 on
August 10, 1990 and incorporated herein by reference).
99.1.4 -- Form of Agreement Among Underwriters (filed as Exhibit 1.4
to Amendment No. 1 to Form S-6 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. 2 to Form S-6 Registration Statement No. 33-36316 of
Mortgage Securities Trust, CMO Series 1 on November 1, 1990
and incorporated herein by reference).
99.3.1 -- Opinion of Battle Fowler as to the legality of the
securities being registered, including their consent to the
delivery thereof and to the use of their name under the
headings "Tax Status" and "Legal Opinions" in the
Prospectus, and to the filing of their opinion regarding
the tax status (filed as Exhibit 3.1 to Amendment No. 1 to
Form S-6 Registration Statement No. 33-73653 of Mortgage
Securities Trust, CMO Series 2 on March 13, 1991 and
incorporated herein by reference).
*99.5.1 -- Consent of the Evaluator and Confirmation of Ratings of
Standard & Poor's Corporation.
99.6.0 -- Power of Attorney of Bear, Stearns & Co. Inc., the
Depositor, by its Officers and a majority of its Directors
(filed as Exhibit 6.0 to Post-Effective Amendment No. 8 to
Form S-6 Registration Statements Nos. 2-92113, 2-92660,
2-93073, 2-93884 and 2-94545 of Municipal Securities Trust,
Multi-State Series 4, 5, 6, 7 and 8, respectively, on
October 30, 1992 and incorporated herein by reference).
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 Form S-6 Registration Statement No. 33-36316
of Mortgage Securities Trust, CMO Series 1 on August 10,
1990 and incorporated herein by reference).
99.7.0 -- Form of Agreement among Co-Sponsors (filed as Exhibit 7.0
to Form S-6 Registration Statement No. 33-36316 of Mortgage
Securities Trust, CMO Series 1 on August 10, 1990 and
incorporated herein by reference).
* Being filed by this Amendment.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the registrant, Mortgage Securities Trust, CMO Series 12 certifies that it
has 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 registrant has duly caused this Post-
Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New
York and State of New York on the 27th day of April, 1994.
MORTGAGE SECURITIES TRUST, CMO SERIES 12
(Registrant)
BEAR, STEARNS & CO. INC.
(Depositor)
By: PETER J. DeMARCO
(Authorized Signator)
Pursuant to the requirements of the Securities Act of 1933,
this Post-Effective Amendment to the Registration Statement has been
signed below by the following persons who constitute the principal
officers and a majority of the directors of Bear, Stearns & Co. Inc., the
Depositor, in the capacities and on the dates indicated.
Name Title Date
ALAN C. GREENBERG Chairman of the Board, Chief )
Executive Officer, Director and )
Senior Managing Director )
JAMES E. CAYNE President, Director and Senior )
Managing Director )April 27, 1994
ALVIN H. EINBENDER Chief Operating Officer, Executive)
Vice President, Director and )
Senior Managing Director )
JOHN C. SITES, JR. Executive Vice President, Director)
and Senior Managing Director )By:PETER J. DeMARCO
MICHAEL L. TARNOPOL Executive Vice President, Director)Attorney-in-Fact*
and Senior Managing Director )
VINCENT J. MATTONE Executive Vice President, Director)
and Senior Managing Director )
ALAN D. SCHWARTZ Executive Vice President, Director)
and Senior Managing Director )
DOUGLAS P.C. NATION Director and Senior Managing )
Director )
WILLIAM J. MONTGORIS Chief Financial Officer, Senior )
Vice President-Finance and Senior )
Managing Director )
KENNETH L. EDLOW Secretary and Senior Managing )
Director )
MICHAEL MINIKES Treasurer and Senior Managing )
Director )
MICHAEL J. ABATEMARCO Controller, Assistant Secretary )
and Senior Managing Director )
MARK E. LEHMAN Senior Vice President - General )
Counsel and Senior Managing )
Director )
FREDERICK B. CASEY Assistant Treasurer and Senior )
Managing Director )
_______________
* An executed power of attorney was filed as Exhibit 6.0 to Post-
Effective Amendment No. 8 to Registration Statements
Nos. 2-92113, 2-92660, 2-93073, 2-93884 and 2-94545 on
October 30, 1992.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the registrant, Mortgage Securities Trust, CMO Series 2 certifies that it
has 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 registrant has duly caused this Post-
Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New
York and State of New York on the 27th day of April, 1994.
MORTGAGE SECURITIES TRUST, CMO SERIES 2
(Registrant)
GRUNTAL & CO., INCORPORATED
(Depositor)
By: Robert Sablowsky
(Authorized Signator)
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
HOWARD SILVERMAN Chief Executive Officer and )
Director )April 27, 1994
)
EDWARD E. BAO Executive Vice President and )
Director )
)
BARRY RICHTER Executive Vice President and )By:Robert Sablowsky
Director ) Attorney-in-Fact*
)
ROBERT SABLOWSKY Executive Vice President and )
Director )
)
LIONEL G. HEST Senior Executive and Director )
_______________
* An executed copy of the power of attorney was filed as
Exhibit 6.1 to Registration Statement No. 33-36316 on August 10,
1990.
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in the Post-Effective Amendment to the Registration
Statement of our report on the financial statements of Mortgage Securities
Trust, Collateralized Mortgage Obligation Series 2 Short-Intermediate 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
New York, New York
April 15, 1994
<PAGE>
EXHIBIT INDEX
Exhibit Description Page No.
99.1.1 Form of Reference Trust Agreement, as amended
(filed as Exhibit 1.1.1 to Amendment No. 1 to
Form S-6 Registration Statement No. 33-73653 of
Mortgage Securities Trust, CMO Series 2 on
March 13, 1991 and incorporated herein by
reference).
99.1.1.1 Trust Indenture and Agreement for Mortgage
Securities Trust, CMO Series 1 and Subsequent
Series (filed as Exhibit 1.1.1 to Amendment No. 2
to Form S-6 Registration Statement No. 33-36316 of
Mortgage Securities Trust, CMO Series 1 on
November 1, 1990 and incorporated herein by
reference).
99.1.3.4 Certificate of Incorporation of Bear, Stearns &
Co. Inc., as amended (filed as Exhibit 99.1.3.4 to
Form S-6 Registration Statement Nos. 33-50891 and
33-50901 of Insured Municipal Securities Trust,
New York Navigator Insured Series 15 and New
Jersey Navigator Insured Series 11; and Municipal
Securities Trust, Multi-State Series 44,
respectively, on December 9, 1993 and incorporated
herein by reference).
99.1.3.5 By-laws of Bear, Stearns & Co. Inc., as amended
(filed as Exhibit 99.1.3.5 to Form S-6
Registration Statement Nos. 33-50891 and 33-50901
of Insured Municipal Securities Trust, New York
Navigator Insured Series 15 and New Jersey
Navigator Insured Series 11; and Municipal
Securities Trust, Multi-State Series 44,
respectively, on December 9, 1993 and incorporated
herein by reference).
99.1.3.6 Certificate of Incorporation of Gruntal & Co.,
Incorporated, as amended (filed as Exhibit 1.3.6
to Form S-6 Registration Statement No. 33-36316 of
Mortgage Securities Trust, CMO Series 1 on
August 10, 1990 and incorporated herein by
reference).
99.1.3.7 By-Laws of Gruntal & Co., Incorporated, as amended
(filed as Exhibit 1.3.7 to Form S-6 Registration
Statement No. 33-36316 of Mortgage Securities
Trust, CMO Series 1 on August 10, 1990 and
incorporated herein by reference).
99.1.4 Form of Agreement Among Underwriters (filed as
Exhibit 1.4 to Amendment No. 1 to Form S-6
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. 2 to Form S-6 Registration Statement
No. 33-36316 of Mortgage Securities Trust, CMO
Series 1 on November 1, 1990 and incorporated
herein by reference).
99.3.1 Opinion of Battle Fowler as to the legality of the
securities being registered, including their
consent to the delivery thereof and to the use of
their name under the headings "Tax Status" and
"Legal Opinions" in the Prospectus, and to the
filing of their opinion regarding the tax status
(filed as Exhibit 3.1 to Amendment No. 1 to
Form S-6 Registration Statement No. 33-73653 of
Mortgage Securities Trust, CMO Series 2 on
March 13, 1991 and incorporated herein by
reference).
99.5.1 Consent of the Evaluator and Confirmation of
Ratings of Standard & Poor's Corporation.........
99.6.0 Power of Attorney of Bear, Stearns & Co. Inc., the
Depositor, by its Officers and a majority of its
Directors (filed as Exhibit 6.0 to Post-Effective
Amendment No. 8 to Form S-6 Registration
Statements Nos. 2-92113, 2-92660, 2-93073, 2-93884
and 2-94545 of Municipal Securities Trust, Multi-
State Series 4, 5, 6, 7 and 8, respectively, on
October 30, 1992 and incorporated herein by
reference).
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 Form S-6 Registration
Statement No. 33-36316 of Mortgage Securities
Trust, CMO Series 1 on August 10, 1990 and
incorporated herein by reference).
99.7.0 Form of Agreement among Co-Sponsors (filed as
Exhibit 7.0 to Form S-6 Registration Statement
No. 33-36316 of Mortgage Securities Trust, CMO
Series 1 on August 10, 1990 and incorporated
herein by reference).
KENNY S&P EVALUATION SERVICES
A Division of Kenny Information Systems, Inc.
65 Broadway
New York, New York 10006-2511
Telephone 212/770-4990
F.A. Shinal
Senior Vice President
Chief Financial Officer
April 29, 1994
Bear, Stearns & Co., Inc.
245 Park Avenue
New York, NY 10167
Gruntal & Co., Inc.
14 Wall Street
New York, NY 10005
RE: Mortgage Securities Trust, CMO Series 2
(Short-Intermediate Portfolio)
Gentlemen:
We have examined the post-effective Amendment to the
Registration Statement File No. 33-73653 for the above-captioned trust.
We hereby acknowledge that Kenny S&P Evaluation Services, a division of
Kenny Information Systems, 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 as evaluator.
You are hereby authorized to file a copy of this letter with the
Securities and Exchange Commission.
Sincerely,
F. A. Shinal
Senior Vice President
FAS/cns
<PAGE>
Standard & Poor's Ratings Group
Municipal Finance Department
25 Broadway
New York, New York 10004-1064
Telephone 212/208-1366
Fax 212/412-0460
April 29, 1994
Richard P. Larkin
Managing Director
Mr. Peter J. DeMarco Mr. Robert Sablowsky
Managing Director Executive Vice President
Bear, Stearns & Co., Inc. Gruntal & Co., Inc.
245 Park Avenue 14 Wall Street
New York, NY 10167 New York, NY 10005
Re: Mortgage Securities Trust CMO Series 2 (Short-Intermediate Portfolio)
(SEC Reg. #33-37653)
Dear Mssrs. DeMarco and Sablowsky:
It is our understanding that you have filed with the Securities and
Exchange Commission a third Post Effective Amendment on the above
captioned fund, SEC file number 33-37653.
Because the portfolio is composed solely of Federal National Mortgage
Association (FNMA) guaranteed REMIC Pass-Through Certificates fully
guaranteed as to principal and interest by FNMA and/or the Federal Home
Loan Mortgage Corporation (FHLMC) guaranteed Multiclass Mortgage
Participation Certificates fully as to principal and interest by FHLMC, we
reaffirm the assignment of an "AAA" rating to the units of the trust.
You have permission to use the name of Standard & Poor's Ratings
Group and the above-assigned rating in connection with your dissemination
of information relating to these units, provided that it is understood
that the rating is not a "market" rating nor a recommendation to buy,
hold, or sell the units of the trust. Further, it should be understood
the rating does not take into account the extent to which fund expenses or
portfolio asset sales for less than the fund's purchase price will reduce
payment to the unit holders of the interest and principal required to be
paid on the portfolio assets. S&P reserves the right to advise its own
clients, subscribers, and the public of the rating. S&P relies on the
sponsor and its counsel, accountants, and other experts for the accuracy
and completeness of the information submitted in connection with the
rating. S&P does not independently verify the truth or accuracy of any
such information.
This letter evidences our consent to the use of the name of Standard
& Poor's Ratings Group in connection with the rating assigned to the units
in the post-effective amendment referred to above. However, this letter
should not be construed as a consent by us, within the meaning of Section
7 of the Securities Act of 1933, to the use of the name of Standard &
Poor's Ratings Group in connection with the ratings assigned to the
securities contained in the trust. You are hereby authorized to file a
copy of this letter with the Securities and Exchange Commission.
Please be certain to send us three copies of your final prospectus as
soon as it becomes available. Should we not receive them within a
reasonable time after the closing or should they not conform to the
representations made to us, we reserve the right to withdraw the rating.
We are pleased to have had the opportunity to be of service to you.
Our bill will be sent to you within one month. If we can be of further
help, please do not hesitate to call upon us.
Sincerely,
Richard P. Larkin
RPL:jmj
