Rule 497(b)
Registration No. 33-42466
Prospectus Part A Dated October 28, 1998
MUNICIPAL SECURITIES TRUST
MULTI-STATE SERIES 41
(MULTIPLIER PORTFOLIO)
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The Trust consists of 3 separate unit investment trusts designated
California Trust, New York Trust and Virginia Trust (the "State Trusts"). Each
State Trust contains an underlying portfolio of long-term tax-exempt bonds
issued by or on behalf of states, municipalities and public authorities and was
formed to preserve capital and to provide interest income (including, where
applicable, earned original issue discount) which, in the opinions of bond
counsel to the respective issuers, is, with certain exceptions, currently exempt
from regular Federal income tax (including where applicable earned original
discount) under existing law. There can be no assurance that the Trusts'
investment objectives will be achieved. Although the Supreme Court has
determined that Congress has the authority to subject interest on bonds such as
the Bonds in the Trust to regular federal income taxation, existing law excludes
such interest from federal income tax. In addition, in the opinion of counsel to
the Sponsors, the interest income of each State Trust is exempt, to the extent
indicated, from state and local taxes when held by residents of the state where
the issuers of the Bonds in such State Trust are located. Such interest income
may, however, be subject to the federal corporate alternative minimum tax and to
state and local taxes in other jurisdictions. (See "Description of Portfolios"
in this Part A for a description of those Bonds which pay interest income
subject to the federal individual alternative minimum tax.) In addition, capital
gains are subject to tax. (See "Tax Status" and "The Portfolios--General.") The
Sponsors are Reich & Tang Distributors, Inc. and Gruntal & Co., L.L.C.
(sometimes referred to as the "Sponsor" or the "Sponsors). The value of the
Units of the Trust will fluctuate with the value of the underlying bonds.
Minimum purchase: 1 Unit.
This Prospectus consists of two parts. Part A contains the Summary of
Essential Information including descriptive material relating to each State
Trust as of June 30, 1998 (the "Evaluation Date"), a summary of certain specific
information regarding each State trust and audited financial statements of each
State Trust, including the related portfolio, as of the Evaluation Date. Part B
of this Prospectus contains a general summary of the State Trusts. Part A of
this Prospectus may not be distributed unless accompanied by Part B. Investors
should read and retain both parts of this Prospectus for future reference.
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Principal Secondary Market
Number of Amount of Offering Price
Units Bonds per Unit (06/30/98)
--------- --------- -------------------
California Trust 1,377 $1,365,000 $1,010.11
New York Trust 3,747 $3,595,000 $1,059.21
Virginia Trust 2,013 $1,935,000 $1,068.91
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.
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THE TRUST. The Trust seeks to achieve its investment objectives
through investment in a fixed, diversified portfolio of long-term bonds (the
"Bonds") issued by or on behalf of the State for which such Trust is named and
political subdivisions, municipalities and public authorities thereof and of
Puerto Rico and its public authorities. All of the Bonds in each State Trust
were rated "A" or better by Standard & Poor's Corporation or Moody's Investors
Service, Inc. at the time originally deposited in the State Trusts. For a
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discussion of the significance of such ratings, see "Description of Bond
Ratings" in Part B of this Prospectus and for a list of ratings on the
Evaluation Date see the "Portfolio."
The State Trusts contain bonds that were acquired at prices which
resulted in the portfolios as a whole being purchased at a deep discount from
par value. The portfolio may also include bonds issued at a substantial original
issue discount, some of which may be Zero Coupon Bonds that provide for payment
at maturity at par value, but do not provide for the payment of current
interest. Gain on the disposition of a Bond or a Unit purchased at a market
discount generally will be treated as ordinary income, rather than capital gain,
to the extent of accrued market discount. Some of the Bonds in the portfolio may
have been purchased at an aggregate premium over par. (See "Tax Status" in Part
B of this Prospectus.) Some of the Bonds in the Trust have been issued with
optional refunding or refinancing provisions ("Refunded Bonds") whereby the
issuer of the Bond has the right to call such Bond prior to its stated maturity
date (and other than pursuant to sinking fund provisions) and to issue new bonds
("Refunding Bonds") in order to finance the redemption. Issuers typically
utilize refunding calls in order to take advantage of lower interest rates in
the marketplace. Some of these Refunded Bonds may be called for redemption
pursuant to pre-refunding provisions ("Pre-Refunded Bonds") whereby the proceeds
from the issue of the Refunding Bonds are typically invested in government
securities in escrow for the benefit of the holders of the Pre-Refunded Bonds
until the refunding call date. Usually, Pre-Refunded Bonds will bear a triple-A
rating because of this escrow. The issuers of Pre-Refunded Bonds must call such
Bonds on their refunding call date. Therefore, as of such date, the Trust will
receive the call price for such bonds but will cease receiving interest income
with respect to them. For a list of those Bonds which are Pre-Refunded Bonds, if
any, as of the Evaluation Date, see "Notes to Financial Statements" in this Part
A. The payment of interest and preservation of capital are, of course, dependent
upon the continuing ability of the issuers of the Bonds to meet their
obligations.
Investment in the Trust should be made with an understanding of the
risks which an investment in long-term fixed rate debt obligations may entail,
including the risk that the value of the underlying portfolio will decline with
increases in interest rates, and that the value of Zero Coupon Bonds is subject
to greater fluctuation than coupon bonds in response to such changes in interest
rates. A Trust designated as a long-term trust must have a dollar-weighted
average portfolio maturity of more than ten years.
Each Unit represents a fractional undivided interest in the principal
and net income of each State Trust. The principal amount of Bonds deposited in
such State Trust per Unit is reflected in the Summary of Essential Information.
Each State Trust will be administered as a distinct entity with separate
certificates, expenses, books and records. (See "The Trust--Organization" in
Part B of this Prospectus.) The Units being offered hereby are issued and
outstanding Units which have been purchased by the Sponsors in the secondary
market.
PUBLIC OFFERING PRICE. The secondary market Public Offering Price of
each Unit is equal to the aggregate bid price of the Bonds in the Trust divided
by the number of Units outstanding, plus a sales charge of 2.67% for the
California Trust, 2.26% for the New York Trust and 3.60% for the Virginia Trust
of the Public Offering Price, or 2.75% for the California Trust, 2.31% for the
New York Trust and 3.73% for the Virginia Trust of the net amount invested in
Bonds per Unit. The sales charge for secondary market purchases is based upon
the number of years remaining to maturity of each bond in the Trust's portfolio.
(See "Public Offering" in Part B of this Prospectus.) In addition, accrued
interest to the expected date of settlement is added to the
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Public Offering Price. If Units of the California Trust had been purchased on
the Evaluation Date, the Public Offering Price per Unit would have been
$1,010.11 plus accrued interest of $10.74 under the monthly distribution plan,
$15.66 under the semi-annual distribution plan and $45.46 under the annual
distribution plan, for a total of $1,020.85, $1,025.77 and $1,055.57,
respectively. If Units of the New York Trust had been purchased on the
Evaluation Date, the Public Offering Price per Unit would have been $1,059.21
plus accrued interest of $10.47 under the monthly distribution plan, $16.01
under the semi-annual distribution plan and $50.19 under the annual distribution
plan, for a total of $1,069.68, $1,075.22 and $1,109.40, respectively. If Units
of the Virginia Trust had been purchased on the Evaluation Date, the Public
Offering Price per Unit would have been $1,068.91 plus accrued interest of
$11.58 under the monthly distribution plan, $16.94 under the semi-annual
distribution plan and $49.53 under the annual distribution plan, for a total of
$1,080.49, $1,085.85 and $1,118.44, respectively. The Public Offering Price per
Unit can vary on a daily basis in accordance with fluctuations in the aggregate
bid price of the Bonds. (See "Summary of Essential Information" and "Public
Offering--Offering Price" in Part B of this Prospectus.)
ESTIMATED LONG TERM RETURN AND ESTIMATED CURRENT RETURN. Units of each
Trust are offered to investors on a "dollar price" basis (using the computation
method described under "Public Offering--Offering Price" in Part B) as
distinguished from a "yield price" basis often used in offerings of tax exempt
bonds (involving the lesser of the yield as computed to maturity of bonds or to
an earlier redemption date). Since they are offered on a dollar price basis, the
rate of return on an investment in Units of each Trust is measured in terms of
"Estimated Current Return" and "Estimated Long Term Return."
Estimated Long Term Return is calculated by: (1) computing the yield
to maturity or to an earlier call date (whichever results in a lower yield) for
each Bond in the Trust's portfolio in accordance with accepted bond practices,
which practices take into account not only the interest payable on the Bond but
also the amortization of premiums or accretion of discounts, if any; (2)
calculating the average of the yields for the Bonds in the Trust's portfolio by
weighing each Bond's yield by the market value of the Bond and by the amount of
time remaining to the date to which the Bond is priced (thus creating an average
yield for the portfolio of the Trust); and (3) reducing the average yield for
the portfolio of the Trust in order to reflect estimated fees and expenses of
the Trust and the maximum sales charge paid by investors. The resulting
Estimated Long Term Return represents a measure of the return to investors
earned over the estimated life of the Trust. (For the Estimated Long Term Return
to Certificateholders under the monthly, semi-annual and annual distribution
plans, see "Summary of Essential Information.")
Estimated Current Return is a measure of the Trust's cash flow.
Estimated Current Return is computed by dividing the Estimated Net Annual
Interest Income per Unit by the Public Offering Price per Unit. In contrast to
the Estimated Long Term Return, the Estimated Current Return does not take into
account the amortization of premium or accretion of discount, if any, on the
Bonds in the portfolio of the Trust. Moreover, because interest rates on Bonds
purchased at a premium are generally higher than current interest rates on newly
issued bonds of a similar type with comparable rating, the Estimated Current
Return per Unit may be affected adversely if such Bonds are redeemed prior to
their maturity.
The Estimated Net Annual Interest Income per Unit of the Trust will
vary with changes in the fees and expenses of the Trustee and the Evaluator
applicable to the Trust and with the redemption, maturity, sale or
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other disposition of the Bonds in the Trust. The Public Offering Price will vary
with changes in the bid prices of the Bonds. Therefore, there is no assurance
that the present Estimated Current Return or Estimated Long Term Return will be
realized in the future. (For the Estimated Current Return to Certificateholders
under the monthly, semi-annual and annual distribution plans, see "Summary of
Essential Information." See "Estimated Long Term Return and Estimated Current
Return" in Part B of this Prospectus.)
A schedule of cash flow projections is available from the Sponsor upon
request.
DISTRIBUTIONS. Distributions of interest income, less expenses, will
be made by the Trust either monthly, semi-annually or annually depending upon
the plan of distribution applicable to the Unit purchased. A purchaser of a Unit
in the secondary market will actually receive distributions in accordance with
the distribution plan chosen by the prior owner of such Unit and may thereafter
change the plan as provided under "Interest and Principal Distributions" in Part
B of this Prospectus. Distributions of principal, if any, will be made
semi-annually on June 15 and December 15 of each year. (See "Rights of
Certificateholders--Interest and Principal Distributions" in Part B of this
Prospectus. For estimated monthly, semi-annual and annual interest
distributions, see "Summary of Essential Information.")
MARKET FOR UNITS. The Sponsors, although not obligated to do so,
intends to maintain a secondary market for the Units at prices based on the
aggregate bid price of the Bonds in the Trust portfolio. The secondary market
repurchase price is based on the aggregate bid price of the Bonds in the Trust
portfolio, and the reoffer price is based on the aggregate bid price of the
Bonds plus a sales charge of 2.67% for the California Trust, 2.26% for the New
York Trust and 3.60% for the Virginia Trust of the Public Offering Price (2.75%
for the California Trust, 2.31% for the New York Trust and 3.73% for the
Virginia Trust of the net amount invested) plus net accrued interest. If a
market is not maintained, a Certificateholder will be able to redeem his or her
Units with the Trustee at a price also based on the aggregate bid price of the
Bonds. (See "Sponsor Repurchase" and "Public Offering--Offering Price" in Part B
of this Prospectus.)
For additional information regarding the Public Offering Price and
Estimated Current Return and Estimated Long Term Return for Units of each State
Trust, descriptions of interest and principal distributions, repurchase and
redemption of Units and other essential information regarding the Trusts, please
refer to the Summary of Essential Information for the particular State Trust on
one of the immediately succeeding pages.
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MUNICIPAL SECURITIES TRUST
MULTI-STATE SERIES 41
CALIFORNIA TRUST
SUMMARY OF ESSENTIAL INFORMATION AS OF JUNE 30, 1998
Date of Deposit*: September 25, 1991 Minimum Principal Distribution:
Principal Amount of Bonds . $1,365,000 $1.00 per Unit.
Number of Units ........... 1,377 Weighted Average Life
Fractional Undivided Inter- to Maturity: 3.6 Years.
est in Trust per Unit .... 1/1377 Minimum Value of Trust:
Principal Amount of Trust may be terminated if value
Bonds per Unit ........... $991.29 of Trust is less than $1,200,000
Secondary Market Public in principal amount of Bonds.
Offering Price** Mandatory Termination Date:
Aggregate Bid Price The earlier of December 31, 2040
of Bonds in Trust ...... $1,353,746+++ or the disposition of the last
Divided by 1,377 Units ... $983.11 Bond in the Trust.
Plus Sales Charge of Trustee***: The Chase Manhattan
2.67% of Public Bank.
Offering Price .......... $27.00 Trustee's Annual Fee: Monthly
Public Offering Price plan $1.05 per $1,000; semi-
per Unit ................ $1,010.11+ annual plan $.60 per $1,000; and
Redemption and Sponsors' annual plan is $.35 per $1,000.
Repurchase Price Evaluator: Kenny S&P Evaluation
per Unit ................. $983.11+ Services.
+++ Evaluator's Fee for Each
++++ Evaluation: Minimum of $5 plus
Excess of Secondary Market $.25 per each issue of Bonds in
Public Offering Price excess of 50 issues (treating
over Redemption and separate maturities as separate
Sponsors' Repurchase issues).
Price per Unit ........... $27.00++++ Sponsors: Reich & Tang
Difference between Public Distributors, Inc. and Gruntal &
Offering Price per Unit Co., L.L.C.
and Principal Amount per Sponsors' Annual Fee: Maximum of
Unit Premium/(Discount) .. $18.82 $.25 per $1,000 principal amount
Evaluation Time: 4:00 p.m. of Bonds (see "Trust Expenses
New York Time. and Charges" in Part B of this
Prospectus).
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PER UNIT INFORMATION BASED UPON INTEREST DISTRIBUTION PLAN ELECTED
Monthly Semi-Annual Annual
Option Option Option
------- ----------- ------
<S> <C> <C> <C>
Gross annual interest income# ......... $61.25 $61.25 $61.25
Less estimated annual fees and
expenses ............................ 2.63 2.21 1.87
Estimated net annual interest ------ ------ ------
income (cash)# ...................... $58.62 $59.04 $59.38
Estimated interest distribution# ...... 4.89 29.52 59.38
Estimated daily interest accrual# ..... .1628 .1640 .1649
Estimated current return#++ ........... 5.80% 5.84% 5.88%
Estimated long term return++ .......... 2.58% 2.63% 2.66%
Record dates .......................... 1st of Dec. 1 and Dec. 1
each month June 1
Interest distribution dates ........... 15th of Dec. 15 and Dec. 15
each month June 15
</TABLE>
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MUNICIPAL SECURITIES TRUST
MULTI-STATE SERIES 41
NEW YORK TRUST
SUMMARY OF ESSENTIAL INFORMATION AS OF JUNE 30, 1998
<S> <C>
Date of Deposit*: September 25, 1991 Minimum Principal Distribution:
Principal Amount of Bonds . $3,595,000 $1.00 per Unit.
Number of Units ........... 3,747 Weighted Average Life
Fractional Undivided Inter- to Maturity: 2.2 Years.
est in Trust per Unit .... 1/3747 Minimum Value of Trust:
Principal Amount of Trust may be terminated if value of
Bonds per Unit ........... $959.43 Trust is less than $2,000,000 in
Secondary Market Public principal amount of Bonds.
Offering Price** Mandatory Termination Date:
Aggregate Bid Price The earlier of December 31, 2040 or
of Bonds in Trust ....... $3,879,098+++ the disposition of the last Bond in
Divided by 3,747 Units ... $1,035.25 the Trust.
Plus Sales Charge of Trustee***: The Chase Manhattan
2.26% of Public Bank.
Offering Price .......... $23.96 Trustee's Annual Fee: Monthly
Public Offering Price plan $.96 per $1,000; semi-annual
per Unit ................ $1,059.21+ plan $.50 per $1,000; and annual
Redemption and Sponsors' plan is $.32 per $1,000.
Repurchase Price Evaluator: Kenny S&P Evaluation
per Unit ................. $1,035.25+ Services.
+++ Evaluator's Fee for Each
++++ Evaluation: Minimum of $5 plus
Excess of Secondary Market $.25 per each issue of Bonds in
Public Offering Price excess of 50 issues (treating
over Redemption and separate maturities as separate
Sponsors' Repurchase issues).
Price per Unit ........... $23.96++++ Sponsors: Reich & Tang
Difference between Public Distributors, Inc. and Gruntal &
Offering Price per Unit Co., L.L.C.
and Principal Amount per Sponsors' Annual Fee: Maximum of
Unit Premium/(Discount) .. $99.78 $.25 per $1,000 principal amount
Evaluation Time: 4:00 p.m. of Bonds (see "Trust Expenses
New York Time. and Charges" in Part B of this
Prospectus).
</TABLE>
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PER UNIT INFORMATION BASED UPON INTEREST DISTRIBUTION PLAN ELECTED
Monthly Semi-Annual Annual
Option Option Option
-------- ----------- ------
<S> <C> <C> <C>
Gross annual interest income# ......... $67.93 $67.93 $67.93
Less estimated annual fees and
expenses ............................ 1.93 1.55 1.65
Estimated net annual interest ------ ------ ------
income (cash)# ...................... $66.00 $66.38 $66.28
Estimated interest distribution# ...... 5.50 33.19 66.28
Estimated daily interest accrual# ..... .1833 .1844 .1841
Estimated current return#++ ........... 6.23% 6.27% 6.41%
Estimated long term return ++ ......... 2.74% 2.78% 2.77%
Record dates .......................... 1st of Dec. 1 and Dec. 1
each month June 1
Interest distribution dates ........... 15th of Dec. 15 and Dec. 15
each month June 15
</TABLE>
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MUNICIPAL SECURITIES TRUST
MULTI-STATE SERIES 41
VIRGINIA TRUST
SUMMARY OF ESSENTIAL INFORMATION AS OF JUNE 30, 1998
<S> <C>
Date of Deposit*: September 25, 1991 Minimum Principal Distribution:
Principal Amount of Bonds . $1,935,000 $1.00 per Unit.
Number of Units ........... 2,013 Weighted Average Life
Fractional Undivided Inter- to Maturity: 8.8 Years.
est in Trust per Unit .... 1/2013 Minimum Value of Trust:
Principal Amount of Trust may be terminated if value
Bonds per Unit ........... $961.25 of Trust is less than $1,200,000
Secondary Market Public in principal amount of Bonds.
Offering Price** Mandatory Termination Date:
Aggregate Bid Price The earlier of December 31, 2040
of Bonds in Trust ....... $2,074,258+++ or the disposition of the last
Divided by 2,013 Units ... $1,030.43 Bond in the Trust.
Plus Sales Charge of Trustee***: The Chase Manhattan
3.6% of Public Bank.
Offering Price .......... $38.48 Trustee's Annual Fee: Monthly
Public Offering Price plan $1.05 per $1,000; semi-annual
per Unit ................ $1,068.91+ plan $.60 per $1,000; and annual
Redemption and Sponsors' plan is $.35 per $1,000.
Repurchase Price Evaluator: Kenny S&P Evaluation
per Unit ................. $1,030.43+ Services.
Evaluator's Fee for Each
Evaluation: Minimum of $5 plus
Excess of Secondary Market $.25 per each issue of Bonds in
Public Offering Price excess of 50 issues (treating
over Redemption and separate maturities as separate
Sponsors' Repurchase issues).
Price per Unit ........... $38.48++++ Sponsors: Reich and Tang
Difference between Public Distributors, Inc. and Gruntal &
Offering Price per Unit Co., L.L.C.
and Principal Amount per Sponsors' Annual Fee: Maximum of
Unit Premium/(Discount) .. $107.66 $.25 per $1,000 principal amount
Evaluation Time: 4:00 p.m. of Bonds (see "Trust Expenses and
New York Time. Charges" in Part B of this
Prospectus).
</TABLE>
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<CAPTION>
PER UNIT INFORMATION BASED UPON INTEREST DISTRIBUTION PLAN ELECTED
Monthly Semi-Annual Annual
Option Option Option
------- ----------- ------
<S> <C> <C> <C>
Gross annual interest income# ......... $65.79 $65.79 $65.79
Less estimated annual fees and
expenses ............................ 2.34 1.83 1.30
Estimated net annual interest ------ ------ ------
income (cash)# ...................... $63.45 $63.96 $64.49
Estimated interest distribution# ...... 5.29 31.98 64.49
Estimated daily interest accrual# ..... .1763 .1777 .1791
Estimated current return#++ ........... 5.94% 5.98% 6.03%
Estimated long term return ++ ......... 2.74% 2.79% 2.84%
Record dates .......................... 1st of Dec. 1 and Dec. 1
each month June 1
Interest distribution dates ........... 15th of Dec. 15 and Dec. 15
each month June 15
</TABLE>
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Footnotes to Summary of Essential Information
* The Date of Deposit is the date on which the Trust Agreement was signed
and the deposit of the Bonds with the Trustee made.
** Certain amounts distributable as of June 30, 1998 may be reported in the
Summary of Essential Information as if they had been distributed as of
year-end.
*** The Trustee maintains its principal executive office at 270 Park Avenue,
New York, New York 10017 and its unit investment trust office at 4 New
York Plaza, New York, New York 10004 (tel. no.: 1-800-882-9898). For
information regarding redemption by the Trustee, see "Trustee Redemption"
in Part B of this Prospectus.
+ Plus accrued interest to expected date of settlement (approximately three
business days after purchase) of $10.74 monthly, $15.66 semi-annually and
$45.46 annually for the California Trust, $10.47 monthly, $16.01
semi-annually and $50.19 annually for the New York Trust, and $11.58
monthly, $16.94 semi-annually and $49.53 annually for the Virginia Trust.
++ The estimated current return and estimated long term return are increased
for transactions entitled to a discount (see "Employee Discounts" in Part
B of this Prospectus), and are higher under the semi-annual and annual
options due to lower Trustee's fees and expenses.
+++ Based solely upon the bid side evaluation of the underlying Bonds
(including, where applicable, undistributed cash from the
principal account). Upon tender for redemption, the price to be
paid will be calculated as described under "Trustee Redemption"
in Part B of this Prospectus.
++++ See "Comparison of Public Offering Price, Sponsor's Repurchase Price and
Redemption Price" in Part B of this Prospectus.
# Does not include accrual from original issue discount bonds, if any.
<TABLE>
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FINANCIAL AND STATISTICAL INFORMATION
Selected data for each Unit outstanding for the periods listed below:
Distribu-
Distributions of Interest tions of
During the Period (per Unit) Principal
---------------------------- During
Net Asset* Semi- the
Units Out- Value Monthly Annual Annual Period
Period Ended standing Per Unit Option Option Option (Per Unit)
- ------------ ---------- ---------- ------- ------ ------ ----------
California Trust
- ----------------
<S> <C> <C> <C> <C> <C> <C>
June 30, 1996 1,650 $1,043.69 $63.97 $64.41 $65.36 $18.18
June 30, 1997 1,551 1,023.36 61.54 62.03 63.41 20.84
June 30, 1998 1,377 1,000.78 60.07 60.54 62.02 19.84
New York Trust
- --------------
June 30, 1996 4,722 $1,059.05 $67.93 $68.46 -0- -0-
June 30, 1997 4,467 1,055.16 66.88 67.34 $68.83 $4.35
June 30, 1998 3,747 1,049.05 66.25 66.70 -0- -0-
Virginia Trust
- --------------
June 30, 1996 2,295 $1,067.81 $65.07 $65.65 -0- $23.04
June 30, 1997 2,126 1,059.72 64.59 65.18 $65.77 9.20
June 30, 1998 2,013 1,046.61 63.92 64.53 65.14 5.80
</TABLE>
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* Net Asset Value per Unit is calculated by dividing net assets as disclosed
in the "Statement of Net Assets" by the number of Units outstanding as of
the date of the Statement of Net Assets. See Note 5 of Notes to Financial
Statements for a description of the components of Net Assets.
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INFORMATION REGARDING THE TRUSTS
AS OF JUNE 30, 1998
DESCRIPTION OF PORTFOLIOS*
- -------------------------
California Trust
- ----------------
Each Unit in the California Trust consists of a 1/1337th undivided
interest in the principal and net income of the Trust in the ratio of one Unit
for each $991.29 of principal amount of the Bonds currently held in the Trust.
The Sponsor has not participated as a sole underwriter or manager, co-manager or
member of an underwriting syndicate from which any of the initial aggregate
principal amount of the Bonds were acquired. The portfolio of the California
Trust consists of 7 issues of 6 issuers located in California and 1 in Puerto
Rico. None of the Bonds are obligations of state and local housing authorities;
38.5% are hospital revenue bonds; and none were issued in connection with the
financing of nuclear generating facilities. None of the Bonds are mortgage
subsidy bonds. All of the Bonds are subject to redemption prior to their stated
maturity dates pursuant to sinking fund or call provisions. The Bonds may also
be subject to other calls, which may be permitted or required by events which
cannot be predicted (such as destruction, condemnation, termination of a
contract, or receipt of excess or unanticipated revenues). None of the Bonds are
general obligation bonds. Seven issues representing $1,365,000 of the principal
amount of the Bonds are payable from the income of a specific project or
authority and are not supported by the issuer's power to levy taxes. The
portfolio is divided for purpose of issue as follows: Convention Center 1,
Electric 3, Hospital 2 and Transportation 1. For an explanation of the
significance of these factors see "The State Trusts--Portfolios" in Part B of
this Prospectus.
As of June 30, 1998, $275,000 (approximately 20.1% of the aggregate
principal amount of the Bonds) were original issue discount bonds. Of these
original issue discount bonds, $150,000 (approximately 11.0% of the aggregate
principal amount of the Bonds) were Zero Coupon Bonds. Zero Coupon Bonds do not
provide for the payment of any current interest and provide for payment at
maturity at par value unless sooner sold or redeemed. The market value of Zero
Coupon Bonds is subject to greater fluctuations than coupon bonds in response to
changes in interest rates. None of the aggregate principal amount of the Bonds
in the Trust were purchased at a "market" discount from par value at maturity,
approximately 73.3% were purchased at a premium and approximately 6.6% were
purchased at par. For an explanation of the significance of these factors see
"The Portfolios--Discount and Zero Coupon Bonds" in Part B of this Prospectus.
None of the Bonds in the California Trust are subject to the Federal
individual alternative minimum tax under the Tax Reform Act of 1986. See "Tax
Status" in Part B of this Prospectus.
- --------
* Changes in the Trust Portfolio: From July 1, 1998 to September 15, 1998,
$30,000 of the principal amount of the Bond in portfolio No. 1 was sold and
is no longer contained in the Trust. 20 Units were redeemed from the Trust.
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New York Trust*
- --------------
Each Unit in the New York Trust consists of a 1/3747th undivided
interest in the principal and net income of the Trust in the ratio of one Unit
for each $959.43 of principal amount of the Bonds currently held in the Trust.
The Sponsor has not participated as a sole underwriter or manager, co-manager or
member of an underwriting syndicate from which any of the initial aggregate
principal amount of the Bonds were acquired. The portfolio of the New York Trust
consists of 12 issues of 12 issuers located in New York. None of the Bonds are
obligations of state and local housing authorities; approximately 11.4% are
hospital revenue bonds; and none were issued in connection with the financing of
nuclear generating facilities. None of the Bonds are mortgage subsidy bonds. All
of the Bonds are subject to redemption prior to their stated maturity dates
pursuant to sinking fund or call provisions. The Bonds may also be subject to
other calls, which may be permitted or required by events which cannot be
predicted (such as destruction, condemnation, termination of a contract, or
receipt of excess or unanticipated revenues). One issue representing $170,000 of
the principal amount of the Bonds is a general obligation bond. All eleven of
the remaining issues representing $3,425,000 of the principal amount of the
Bonds are payable from the income of a specific project or authority and are not
supported by the issuer's power to levy taxes. The portfolio is divided for
purpose of issue as follows: Assistance Corporation 1, College 1, Correctional
Facility 1, Education 1, Highway Improvement 1, Hospital 1, Mental Health
Facility 1, Processing Center 1, Transit Facility 1 and University 3. For an
explanation of the significance of these factors see "The State
Trusts--Portfolios" in Part B of this Prospectus.
As of June 30, 1997, $1,400,000 (approximately 38.9% of the aggregate
principal amount of the Bonds) were original issue discount bonds. Of these
original issue discount bonds, none were Zero Coupon Bonds. Zero Coupon Bonds do
not provide for the payment of any current interest and provide for payment at
maturity at par value unless sooner sold or redeemed. The market value of Zero
Coupon Bonds is subject to greater fluctuations than coupon bonds in response to
changes in interest rates. None of the aggregate principal amount of the Bonds
in the Trust were purchased at a "market" discount from par value at maturity,
approximately 61.1% were purchased at a premium and none were purchased at par.
For an explanation of the significance of these factors see "The
Portfolios--Discount and Zero Coupon Bonds" in Part B of this Prospectus.
None of the Bonds in the New York Trust are subject to the federal
individual alternative minimum tax under the Tax Reform Act of 1986. See "Tax
Status" in Part B of this Prospectus.
- --------
* Changes in the Trust Portfolio: From July 1, 1998 to September 15, 1998, 1
Unit was redeemed from the Trust.
A-10
766992.1
<PAGE>
Virginia Trust
- --------------
Each Unit in the Virginia Trust consists of a 1/2013th undivided
interest in the principal and net income of the Trust in the ratio of one Unit
for each $961.25 of principal amount of the Bonds currently held in the Trust.
The Sponsor has not participated as a sole underwriter or manager, co-manager or
member of an underwriting syndicate from which any of the initial aggregate
principal amount of the Bonds were acquired. The portfolio of the Virginia Trust
consists of 7 issues of 6 issuers located in Virginia and 1 in Puerto Rico.
Approximately 25.8% of the Bonds are obligations of state and local housing
authorities; approximately 33.9% are hospital revenue bonds; and none were
issued in connection with the financing of nuclear generating facilities. None
of the Bonds in the trust are mortgage subsidy bonds. All of the Bonds are
subject to redemption prior to their stated maturity dates pursuant to sinking
fund or call provisions. The Bonds may also be subject to other calls, which may
be permitted or required by events which cannot be predicted (such as
destruction, condemnation, termination of a contract, or receipt of excess or
unanticipated revenues). One issue representing $60,000 of the principal amount
of the Bonds is a general obligation bond. All six of the remaining issues
representing $1,875,000 of the principal amount of the Bonds are payable from
the income of a specific project or authority and are not supported by the
issuer's power to levy taxes. The portfolio is divided for purpose of issue as
follows: Electric 1, Hospital 2, Resource Recovery 1, Multi-Family Housing 1 and
Sewer 1. For an explanation of the significance of these factors see "The State
Trusts--Portfolios" in Part B of this Prospectus.
As of June 30, 1998, $600,000 (approximately 31.0% of the aggregate
principal amount of the Bonds) were original issue discount bonds. None of the
aggregate principal amount of the Bonds in the Trust were purchased at a
"market" discount from par value at maturity, approximately 47.0% were purchased
at a premium and approximately 22.0% were purchased at par. For an explanation
of the significance of these factors see "The Portfolios--Discount and Zero
Coupon Bonds" in Part B of this Prospectus.
None of the Bonds in the Virginia Trust are subject to the federal
individual alternative minimum tax under the Tax Reform Act of 1986. See "Tax
Status" in Part B of this Prospectus.
A-11
766992.1
<PAGE>
Report of Independent Accountants
To the Sponsor, Trustee and Certificateholders of
Municipal Securities Trust, Multi-State Series 41
In our opinion, the accompanying statement of net assets, including the
portfolios of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of each of the portfolios of Municipal
Securities Trust, Multi-State Series 41 (the "Trust") at June 30, 1998, the
results of their operations, the changes in their net assets and the financial
highlights for the three years then ended, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Trust's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which 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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at June 30, 1998 by correspondence with the Trustee,
provide a reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Boston, MA
September 22, 1998
<PAGE>
<TABLE>
<CAPTION>
Municipal Securities Trust, Multi-State Series 41,
California Trust
Portfolio
June 30, 1998
- --------------------------------------------------------------------------------
Redemption
Aggregate Coupon Rate/ Feature (2)(4)
Portfolio Principal Name of Issuer and Title Ratings Date(s) of S.F.-Sinking Fund Market
No. Amount of Bonds (1) Maturity(2) Ref.-Refunding Value(3)
<S> <C> <C> <C> <C> <C> <C>
1 $400,000 Calif. Hlth. Facs. A 6.950% 10/01/05 @ 100 S.F. $442,448
Fincg. Auth. Hosp. Rev. 10/01/2021 10/01/01 @ 102 Ref.
Bonds (San Diego Hosp.
Assoc.) Series 1991A
2 125,000 Calif. Hlth. Facs. AA- 6.750 7/01/11 @ 100 S.F. 136,855
Fincg. Auth. Rev. Bonds 7/01/2021 7/01/01 @ 102 Ref.
(St. Joseph Hlth. Sys.)
Series 1991A
3 170,000 Los Angeles Calif. AAA 7.000 8/15/19 @ 100 S.F. 178,675
Cnvntn. & Exhib. Cntr. 8/15/2020 8/15/99 @ 101.5 Ref.
Auth. Rfndg. Rev. Bonds
Certs. of Part. Series
1989A
4 90,000 Los Angeles Calif. Aaa* 6.750 7/01/07 @ 100 S.F. 98,724
Trans. Commsn. Sales Tax 7/01/2011 7/01/01 @ 102 Ref.
Rev. Bonds Series 1991A
5a 160,000 So. Calif. Publ. Pwr. A 7.000 7/01/06 @ 100 S.F. 171,016
Auth. Multiple Prjt. 7/01/2009 7/01/00 @ 102 Ref.
Rev. Bonds Series 1989
5b 240,000 So. Calif. Pub. Wwr. AAA 7.000 7/01/06 @ 100 S.F. 258,933
Auth. Multiple Prjt. 7/01/2009 7/01/00 @ 102 Ref.
Rev. Bonds Series 1989
6 30,000 P.R. Elec. Pwr. Auth. BBB+ 7.125 No Sinking Fund 31,339
Pwr. Rev. Bonds 7/01/2014 7/01/99 @ 101.5 Ref.
Series O
7 150,000 Redding Cal. Elec. Sys. AAA 0.000 7/01/15 @ 75.356 S.F. 35,750
Rev. Certs. of Part. 7/01/1999 7/01/99 @ 24.786 Ref.
Series 1989A (MBIA Corp.)
--------------- -----------------
$1,365,000 Total Investments (Cost (3) $1,256,751) $1,353,740
=============== =================
</TABLE>
See accompanying footnotes to portfolio and notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
Municipal Securities Trust, Multi-State Series 41,
New York Trust
Portfolio
June 30, 1998
- --------------------------------------------------------------------------------
Redemption
Aggregate Coupon Rate/ Feature (2)(4)
Portfolio Principal Name of Issuer and Title Ratings Date(s) of S.F.-Sinking Fund Market
No. Amount of Bonds (1) Maturity(2) Ref.-Refunding Value(3)
<S> <C> <C> <C> <C> <C> <C>
1 $30,000 N.Y. State Dorm. Auth. Aaa* 7.625% 7/01/06 @ 100 S.F. $32,707
City Univ. Sys. 7/01/2020 7/01/00 @ 102 Ref.
Consldtd. Rev. Bonds
Series 1990A
2 155,000 Dorm. Auth. of the State Baa1* 7.600 7/01/06 @ 100 S.F. 168,626
of N.Y. Rev. Bonds 7/01/2020 7/01/00 @ 102 Ref.
Upstate Cmmnty. Cllgs.
1990A Issue
3 230,000 N.Y. State Dorm. Auth. Aaa* 7.700 5/15/06 @ 100 S.F. 250,116
State Univ. Ed. Facs. 5/15/2012 5/15/00 @ 102 Ref.
Rev. Bonds Series 1990A
4 500,000 N.Y. Local Gov. Asst. AAA 7.000 4/01/16 @ 100 S.F. 547,935
Corp. (A Pub. Benefit 4/01/2021 4/01/01 @ 102 Ref.
Corp. of the State of
N.Y.) Rev. Bonds Series
1991C
5 310,000 N.Y. State Mental Hlth. A3* 7.375 No Sinking Fund 328,352
Servs. Facs. Improvement 2/15/2014 8/15/99 @ 102 Ref.
Rev. Bonds Series 1989B
6a 75,000 N.Y. State Med. Care AAA 7.750 2/15/08 @ 100 S.F. 83,270
Facs. Finc. Agncy. 8/15/2011 2/15/01 @ 102 Ref.
Mental Hlth. Svs. Facs.
Imprvmt. Rev. Bonds
Series 1991A
6b 25,000 N.Y. State Med. Care A3* 7.750 2/15/08 @ 100 S.F. 27,479
Facs. Finc. Agncy. 8/15/2011 2/15/01 @ 102 Ref.
Mental Hlth. Svs. Facs.
Imprvmt. Rev. Bonds
Series 1991A
7 500,000 N.Y. State Thruway Auth. AAA 7.250 1/01/04 @ 100 S.F. 547,645
Local Hwy. & Bridge 1/01/2010 1/01/01 @ 102 Ref.
Serv. Cntrct. Bonds
Series 1991
</TABLE>
See accompanying footnotes to portfolio and notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
Municipal Securities Trust, Multi-State Series 41,
New York Trust
Portfolio
June 30, 1998
- --------------------------------------------------------------------------------
Redemption
Aggregate Coupon Rate/ Feature (2)(4)
Portfolio Principal Name of Issuer and Title Ratings Date(s) of S.F.-Sinking Fund Market
No. Amount of Bonds (1) Maturity(2) Ref.-Refunding Value(3)
<S> <C> <C> <C> <C> <C> <C>
8 $400,000 N.Y. State Urb. Dev. Baa1* 6.000% 1/01/18 @ 100 S.F. $412,264
Corp. Correc. Facs. Rev. 1/01/2019 1/01/00 @ 100 Ref.
Bonds 1989 Series G
9 500,000 N.Y. State Urb. Dev. Baa1* 7.375 1/01/02 @ 100 S.F. 547,984
Corp. Prjt. Rev. Bonds 1/01/2021 1/01/01 @ 102 Ref.
(Univ. of Rochester
Cntr. for Electro-Optic
Imaging Grant) Series
1991
10 200,000 N.Y. State Urb. Dev. Baa1* 8.000 1/01/01 @ 100 S.F. 222,140
Corp. Prjt. Rev. Bonds 1/01/2020 1/01/01 @ 102 Ref.
(Clarkson Cntr. for
Advance Materials
Processing Grant) Series
1990
11 500,000 Metro. Trans. Auth. Aaa* 6.000 7/01/17 @ 100 S.F. 519,845
Trans. Facs. 1987 Serv. 7/01/2019 7/01/00 @ 100 Ref.
Cntrct. Bonds Series 3
12 170,000 NY City Gen. Oblig. Rev. AAA 8.250 No Sinking Fund 194,934
Bonds 1991 Ser. F 11/15/2018 11/15/01 @ 101.5 Ref.
-------------- -----------------
$3,595,000 Total Investments (Cost (3) $3,541,964) $3,883,297
============== =================
</TABLE>
See accompanying footnotes to portfolio and notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
Municipal Securities Trust, Multi-State Series 41,
Virginia Trust
Portfolio
June 30, 1998
- --------------------------------------------------------------------------------
Redemption
Aggregate Coupon Rate/ Feature (2)(4)
Portfolio Principal Name of Issuer and Title Ratings Date(s) of S.F.-Sinking Fund Market
No. Amount of Bonds (1) Maturity(2) Ref.-Refunding Value(3)
<S> <C> <C> <C> <C> <C> <C>
1 $500,000 Va. Hsg. Dev. Auth. AA+ 7.100% 5/01/05 @ 100 S.F. $528,724
Multi.-Fam. Hsg. Rev. 5/01/2013 5/01/01 @ 102 Ref.
Bonds Series 1991F
2 230,000 Arlington Cnty. Va. Ind. Aaa* 7.125 9/01/12 @ 100 S.F. 254,799
Dev. Auth. Hosp. Rev. 9/01/2021 9/01/01 @ 102 Ref.
Bonds (The Arlington
Hosp.) Series 1991A
3 425,000 Augusta Cnty. Va. Ind. A* 7.000 9/01/13 @ 100 S.F. 468,456
Dev. Auth. Hosp. Rev. 9/01/2021 9/01/01 @ 102 Ref.
Bonds (Augusta Hosp. Corp.
Prjt.) Series 1991
4 180,000 Fairfax Cnty. Va. Econ. A+ 7.750 2/01/05 @ 100 S.F. 188,941
Dev. Auth. Res. Rec. Rev. 2/01/2011 2/01/99 @ 103 Ref.
Bonds (Ogden Martin Sys.
of Fairfax Inc. Prjt.)
Series 1988A (AMT)
5 60,000 Richmond Va. Genl. Oblig. Aaa* 6.250 1/15/12 @ 100 S.F. 64,316
Publ. Imprvmt. Rev. Bonds 1/15/2021 1/15/01 @ 102 Ref.
Series 1991A
6 140,000 Upper Occoquan Va. Swg. AAA 6.500 7/01/12 @ 100 S.F. 152,256
Auth. Rgnl. Swrg. Sys. 7/01/2017 7/01/01 @ 102 Ref.
Rev. Bonds Series 1991
(MBIA Corp.)
7 400,000 P.R. Elec. Pwr. Auth. Rev. BBB+ 6.000 No Sinking Fund 406,960
Bonds 1989 Series O 7/01/2010 7/01/99 @ 100 Ref.
--------------- -----------------
$1,935,000 Total Investments (Cost (3) $1,914,555) $2,064,452
=============== =================
</TABLE>
See accompanying footnotes to portfolio and notes to financial statements.
<PAGE>
Municipal Securities Trust, Multi-State Series 41,
Footnotes to Portfolios
- --------------------------------------------------------------------------------
(1) All ratings are by Kenny S&P Evaluation Services, a business unit of
J.J. Kenny Company, Inc., a subsidiary of The McGraw-Hill Companies,
Inc., except for those identified by an asterisk (*) which are by
Moody's Investors Service, Inc. A brief description of the ratings
symbols and their meanings is set forth under "Description of Bond
Ratings" in Part B of the Prospectus.
(2) See "The Trust -- Portfolio" in Part B of the Prospectus for an
explanation of redemption features. See "Tax Status" in Part B of the
Prospectus for a statement of the Federal tax consequences to a
Certificateholder upon the sale, redemption or maturity of a bond.
(3) At June 30, 1998, the net unrealized appreciation of all bonds was
comprised of the following:
<TABLE>
<CAPTION>
California New York Virginia
Trust Trust Trust
<S> <C> <C> <C>
Gross unrealized appreciation $96,989 $341,333 $152,804
Gross unrealized depreciation -- -- (2,907)
------- -------- --------
Net unrealized appreciation $96,989 $341,333 $149,897
======= ======== ========
</TABLE>
(4) The Bonds may also be subject to other calls, which may be permitted or
required by events which cannot be predicted (such as destruction,
condemnation, termination of a contract, or receipt of excess or
unanticipated revenues).
The accompanying notes form an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
Municipal Securities Trust, Multi-State Series 41
Statement of Net Assets
June 30, 1998
- --------------------------------------------------------------------------------
California Trust New York Trust Virginia Trust
<S> <C> <C> <C>
Investments in Securities,
at Market Value (Cost
$1,256,751, $3,541,964 and
$1,914,555, Respectively) $ 1,353,740 $ 3,883,297 $ 2,064,452
------------ ------------ ------------
Other Assets
Accrued Interest 33,536 98,830 45,020
------------ ------------ ------------
Total Other Assets 33,536 98,830 45,020
------------ ------------ ------------
Liabilities
Advance from Trustee 9,198 51,347 2,648
------------ ------------ ------------
Total Liabilities 9,198 51,347 2,648
------------ ------------ ------------
Excess of Other Assets over Total Liabilities 24,338 47,483 42,372
------------ ------------ ------------
Net Assets (1,377, 3,747 and 2,013 Units
of Fractional Undivided Interest
Outstanding, $1,000.78, $1,049.05
and $1,046.61 per Unit, Respectively) $ 1,378,078 $ 3,930,780 $ 2,106,824
============ ============ ============
</TABLE>
The accompanying notes form an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
Municipal Securities Trust, Multi-State Series 41,
California Trust
Statement of Operations
- --------------------------------------------------------------------------------
For the Years Ended June 30,
1998 1997 1996
<S> <C> <C> <C>
Investment Income
Interest $ 93,154 $ 104,684 $ 124,180
------------ ----------- -----------
Expenses
Trustee's Fees 2,398 2,982 3,080
Evaluator's Fee 1,482 1,364 1,375
Sponsor's Advisory Fee 408 445 723
------------ ----------- -----------
Total Expenses 4,288 4,791 5,178
------------ ----------- -----------
Net Investment Income 88,866 99,893 119,002
------------ ----------- -----------
Realized and Unrealized Gain (Loss)
Realized Gain on
Investments 10,187 7,393 105,826
Unrealized Appreciation
(Depreciation) on Investments (15,493) (7,106) (123,995)
------------ ----------- -----------
Net Gain (Loss) on Investments (5,306) 287 (18,169)
------------ ----------- -----------
Net Increase
in Net Assets
Resulting From Operations $ 83,560 $ 100,180 $ 100,833
============ =========== ===========
</TABLE>
The accompanying notes form an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
Municipal Securities Trust, Multi-State Series 41,
New York Trust
Statement of Operations
- --------------------------------------------------------------------------------
For the Years Ended June 30,
1998 1997 1996
<S> <C> <C> <C>
Investment Income
Interest $ 262,297 $ 317,665 $ 334,386
----------- ----------- -----------
Expenses
Trustee's Fees 6,104 5,774 6,207
Evaluator's Fee 1,484 1,364 1,375
Sponsor's Advisory Fee 1,140 1,203 1,205
----------- ----------- -----------
Total Expenses 8,728 8,341 8,787
----------- ----------- -----------
Net Investment Income 253,569 309,324 325,599
----------- ----------- -----------
Realized and Unrealized Gain (Loss)
Realized Gain on
Investments 43,597 21,099 17,279
Unrealized Appreciation
(Depreciation) on Investments (60,295) (20,110) 8,008
----------- ----------- -----------
Net Gain (Loss) on Investments (16,698) 989 25,287
----------- ----------- -----------
Net Increase
in Net Assets
Resulting From Operations $ 236,871 $ 310,313 $ 350,886
=========== =========== ===========
</TABLE>
The accompanying notes form an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
Municipal Securities Trust, Multi-State Series 41,
Virginia Trust
Statement of Operations
- --------------------------------------------------------------------------------
For the Years Ended June 30,
1998 1997 1996
<S> <C> <C> <C>
Investment Income
Interest $ 136,177 $ 150,212 $ 155,713
----------- ----------- -----------
Expenses
Trustee's Fees 3,415 3,742 3,476
Evaluator's Fee 1,478 1,364 1,375
Sponsor's Advisory Fee 548 564 602
----------- ----------- -----------
Total Expenses 5,441 5,670 5,453
----------- ----------- -----------
Net Investment Income 130,736 144,542 150,260
----------- ----------- -----------
Realized and Unrealized Gain (Loss)
Realized Gain on
Investments 12,855 16,819 17,036
Unrealized Appreciation
(Depreciation) on Investments (26,693) (14,136) (26,643)
----------- ----------- -----------
Net Gain (Loss) on Investments (13,838) 2,683 (9,607)
----------- ----------- -----------
Net Increase
in Net Assets
Resulting From Operations $ 116,898 $ 147,225 $ 140,653
=========== =========== ===========
</TABLE>
The accompanying notes form an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
Municipal Securities Trust, Multi-State Series 41,
California Trust
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
For the Years Ended June 30,
1997 1996 1995
<S> <C> <C> <C>
Operations
Net Investment Income $ 88,866 $ 99,893 $ 119,002
Realized Gain
on Investments 10,187 7,393 105,826
Unrealized Appreciation
(Depreciation) on Investments (15,493) (7,106) (123,995)
------------ ------------ -------------
Net Increase in
Net Assets Resulting
From Operations 83,560 100,180 100,833
------------ ------------ -------------
Distributions to Certificateholders
Investment Income 87,591 99,139 121,900
Principal 27,939 32,654 29,997
Redemptions
Interest 3,202 1,401 10,520
Principal 173,986 101,839 482,521
------------ ------------ -------------
Total Distributions
and Redemptions 292,718 235,033 644,938
------------ ------------ -------------
Total (Decrease) (209,158) (134,853) (544,105)
Net Assets
Beginning of Year 1,587,236 1,722,089 2,266,194
------------ ------------ -------------
End of Year (Including
Undistributed Net Investment
Income of $37,416, $39,343
and $39,990, Respectively) $ 1,378,078 $ 1,587,236 $ 1,722,089
============ ============ ============
</TABLE>
The accompanying notes form an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
Municipal Securities Trust, Multi-State Series 41,
New York Trust
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
For the Years Ended June 30,
1998 1997 1996
<S> <C> <C> <C>
Operations
Net Investment Income $ 253,569 $ 309,324 $ 325,599
Realized Gain
on Investments 43,597 21,099 17,279
Unrealized Appreciation
(Depreciation) on Investments (60,295) (20,110) 8,008
----------- ------------ -------------
Net Increase in
Net Assets Resulting
From Operations 236,871 310,313 350,886
----------- ------------ -------------
Distributions to Certificateholders
Investment Income 253,197 318,374 328,613
Principal ---- 9,363 ----
Redemptions
Interest 16,602 4,645 2,058
Principal 749,678 265,380 146,228
----------- ------------ -------------
Total Distributions
and Redemptions 1,017,477 597,762 476,899
----------- ------------ -------------
Total (Decrease) (782,606) (287,449) (126,013)
Net Assets
Beginning of Year 4,713,386 5,000,835 5,126,848
----------- ------------ -------------
End of Year (Including
Undistributed Net Investment
Income of $51,680, $67,910
and $81,605, Respectively) $ 3,930,780 $ 4,713,386 $ 5,000,835
============ ============ ============
</TABLE>
The accompanying notes form an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
Municipal Securities Trust, Multi-State Series 41
Virginia Trust
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
For the Years Ended June 30,
1998 1997 1996
<S> <C> <C> <C>
Operations
Net Investment Income $ 130,736 $ 144,542 $ 150,260
Realized Gain
on Investments 12,855 16,819 17,036
Unrealized Appreciation
(Depreciation) on Investments (26,693) (14,136) (26,643)
------------ ------------ -------------
Net Increase in
Net Assets Resulting
From Operations 116,898 147,225 140,653
------------ ------------ -------------
Distributions to Certificateholders
Investment Income 131,776 144,966 151,002
Principal 11,896 19,559 53,107
Redemptions
Interest 1,609 3,197 1,617
Principal 117,768 177,143 111,216
------------ ------------ -------------
Total Distributions
and Redemptions 263,049 344,865 316,942
------------ ------------ -------------
Total (Decrease) (146,151) (197,640) (176,289)
Net Assets
Beginning of Year 2,252,975 2,450,615 2,626,904
------------ ------------ -------------
End of Year (Including
Undistributed Net Investment
Income of $32,563, $35,212,
and $38,833, Respectively) $ 2,106,824 $ 2,252,975 $ 2,450,615
============ ============ ============
</TABLE>
The accompanying notes form an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
Municipal Securities Trust, Multi-State Series 41
Financial Highlights
- --------------------------------------------------------------------------------
Selected data for a unit of the Trust outstanding:*
For the years ended June 30,
1998 1997 1996
<S> <C> <C> <C>
California Trust
Net Asset Value, Beginning of Year** $ 1,023.36 $ 1,043.69 $ 1,075.55
---------- ---------- ----------
Interest Income 63.63 65.41 66.11
Expenses (2.93) (2.99) (2.76)
---------- ---------- ----------
Net Investment Income 60.70 62.42 63.35
---------- ---------- ----------
Net Gain or Loss on Investments(1) (2.18) .47 (8.75)
---------- ---------- ----------
Total from Investment Operations 58.52 62.89 54.60
---------- ---------- ----------
Less Distributions
to Certificateholders
Income 59.83 61.94 64.89
Principal 19.08 20.40 15.97
for Redemptions
Interest 2.19 .88 5.60
---------- ---------- ----------
Total Distributions 81.10 83.22 86.46
---------- ---------- ----------
Net Asset Value, End of Year** $ 1,000.78 $ 1,023.36 $ 1,043.69
========== ========== ==========
</TABLE>
(1) Net gain or loss on investments is a result of changes in outstanding
units since July 1, 1997, 1996 and 1995, respectively, and the dates of net
gain and loss on investments.
- ----------------
* Unless otherwise stated, based upon average units outstanding during
the year of 1,464 ([1,551 + 1,377]/2) for 1998, 1,601 ([1,650 +
1,551]/2) for 1997 and of 1,879 ([2,107 + 1,879]/2) for 1996, for the
California Trust.
** Based upon actual units outstanding
The accompanying notes form an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
Municipal Securities Trust, Multi-State Series 41
Financial Highlights
- --------------------------------------------------------------------------------
Selected data for a unit of the Trust outstanding:*
For the years ended June 30,
1998 1997 1996
<S> <C> <C> <C>
New York Trust
Net Asset Value, Beginning of Year** $ 1,055.16 $ 1,059.05 $ 1,055.12
---------- ---------- ----------
Interest Income 63.87 69.14 69.80
Expenses (2.13) (1.82) (1.83)
---------- ---------- ----------
Net Investment Income 61.74 67.32 67.97
---------- ---------- ----------
Net Gain or Loss on Investments(1) (2.16) 1.13 4.99
---------- ---------- ----------
Total from Investment Operations 59.58 68.45 72.96
---------- ---------- ----------
Less Distributions
to Certificateholders
Income 61.55 69.29 68.60
Principal ---- 2.04 ----
for Redemptions
Interest 4.04 1.01 .43
---------- ---------- ----------
Total Distributions 65.69 72.34 69.03
---------- ---------- ----------
Net Asset Value, End of Year** $ 1,049.05 $ 1,055.16 $ 1,059.05
========== ========== ==========
</TABLE>
(1) Net gain or loss on investments is a result of changes in outstanding
units since July 1, 1997, 1996 and 1995, respectively, and the dates of net
gain and loss on investments.
- ------------------
* Unless otherwise stated, based upon average units outstanding during
the year of 4,107 ([4,467 + 3,747]/2) for 1998, 4,595 ([4,722 +
4,467]/2) for 1997 and of 4,791 ([4,859 + 4,722]/2) for 1996, for the
New York Trust.
** Based upon actual units outstanding
The accompanying notes form an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
Municipal Securities Trust, Multi-State Series 41
Financial Highlights
- --------------------------------------------------------------------------------
Selected data for a unit of the Trust outstanding:*
For the years ended June 30,
1998 1997 1996
<S> <C> <C> <C>
Virginia Trust
Net Asset Value, Beginning of Year** $ 1,059.72 $ 1,067.81 $ 1,095.46
---------- ---------- ----------
Interest Income 65.79 67.95 66.36
Expenses (2.63) (2.57) (2.32)
---------- ---------- ----------
Net Investment Income 63.16 65.38 64.04
---------- ---------- ----------
Net Gain or Loss on Investments(1) (6.08) 2.41 (4.02)
---------- ---------- ----------
Total from Investment Operations 57.08 67.79 60.02
---------- ---------- ----------
Less Distributions
to Certificateholders
Income 63.66 65.58 64.35
Principal 5.75 8.85 22.63
for Redemptions
Interest .78 1.45 .69
---------- ---------- ----------
Total Distributions 70.19 75.88 87.67
---------- ---------- ----------
Net Asset Value, End of Year** $ 1,046.61 $ 1,059.72 $ 1,067.81
========== ========== ==========
</TABLE>
(1) Net gain or loss on investments is a result of changes in outstanding
units since July 1, 1997, 1996 and 1995, respectively, and the dates of net
gain and loss on investments.
- ------------------
* Unless otherwise stated, based upon average units outstanding during
the year of 2,070 ([2,126 + 2,013]/2) for 1998, 2,211 ([2,295 +
2,126]/2) for 1997 and of 2,347 ([2,398 + 2,295]/2) for 1996, for the
Virginia Trust.
** Based upon actual units outstanding
The accompanying notes form an integral part of the financial statements.
<PAGE>
Municipal Securities Trust, Multi-State Series 41
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. Organization
Municipal Securities Trust, Multi-State Series 41, (the "Trust") was
organized on September 25, 1991 by Bear, Stearns & Co. Inc. and Gruntal
& Co., LLC under the laws of the State of New York by a Trust Indenture
and Agreement, and is registered under the Investment Company Act of
1940. The Trust was formed to preserve capital and to provide interest
income.
Effective September 28, 1995, Reich & Tang Distributors, Inc. ("Reich &
Tang") has become the successor sponsor (the "Sponsor") to certain of
the unit investment trusts previously sponsored by Bear, Stearns & Co.
Inc. As successor Sponsor, Reich & Tang has assumed all of the
obligations and rights of Bear, Stearns & Co. Inc., the previous
sponsor. Effective September 2, 1995, United States Trust Company of
New York was merged into The Chase Manhattan Bank ("Chase" or the
"Trustee"). Accordingly, Chase is the successor trustee of the Trust.
2. Summary of Significant Accounting Policies
The following is a summary of significant accounting policies
consistently followed by the Trust in preparation of its financial
statements. The policies are in conformity with generally accepted
accounting principles ("GAAP"). The preparation of financial statements
in accordance with GAAP requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the
financial statements. Actual amounts could differ from those estimates.
Interest Income
Interest income is recorded on the accrual basis. The discount on the
zero-coupon bonds is accreted by the interest method over the
respective lives of the bonds. The accretion of such discount is
included in interest income; however, it is not distributed until
realized in cash upon maturity or sale of the respective bonds.
Security Valuation
Investments are carried at market value which is determined by Kenny
S&P Evaluation Services, a business unit of J.J. Kenny Company, Inc., a
subsidiary of The McGraw-Hill Companies, Inc. The market value of the
portfolio is based upon the bid prices for the bonds at the end of the
year, which approximates the fair value of the security at that date,
except that the market value on the date of deposit represents the cost
to the Trust based on the offering prices for investments at that date.
The difference between cost (including accumulated accretion of
original issue discount on zero-coupon bonds) and market value is
reflected as unrealized appreciation (depreciation) of investments.
Securities transactions are recorded on the trade date. Realized gains
(losses) from securities transactions are determined on the basis of
average cost of the securities sold or redeemed.
<PAGE>
Municipal Securities Trust, Multi-State Series 41
Notes to Financial Statements
- --------------------------------------------------------------------------------
3. Income Taxes
No provision for federal income taxes has been made in the accompanying
financial statements because the Trust intends to continue to qualify
for the tax treatment applicable to Grantor Trusts under the Internal
Revenue Code. Under existing law, if the Trust so qualifies, it will
not be subject to federal income tax on net income and capital gains
that are distributed to unitholders.
4. Trust Administration
The Trustee has custody of assets and responsibility for the accounting
records and financial statements of the Trust and is responsible for
establishing and maintaining a system of internal control related
thereto. The Trustee is also responsible for all estimates of expenses
and accruals reflected in the Trust's financial statements.
The Trust Indenture and Agreement provides for interest distributions
as often as monthly (depending upon the distribution plan elected by
the Certificateholders).
The Trust Indenture and Agreement further requires that principal
received from the disposition of bonds, other than those bonds sold in
connection with the redemption of units, be distributed to
Certificateholders.
The Trust Indenture and Agreement also requires the Trust to redeem
units tendered. For the year ended June 30, 1998, 174, 720 and 113
units were redeemed by the California, New York and Virginia Trusts,
respectively. For the year ended June 30, 1997, 99, 255 and 169 units
were redeemed by the California, New York and Virginia Trusts,
respectively. For the year ended June 30, 1996, 457, 137 and 103 units
were redeemed by the California, New York and Virginia Trusts,
respectively.
The Trust pays an annual fee for trustee services rendered by the
Trustee that ranges from $.35 to $1.05, $.32 to $.96 and $.35 to $1.05
per $1,000 of outstanding investment principal for the California, New
York and Virginia Trusts, respectively. In addition, a minimum fee of
$5.00 is paid to a service bureau for each portfolio valuation. A
maximum fee of $.25 per $1,000 of outstanding investment principal is
paid to the Sponsor for each Trust. For the year ended June 30, 1998,
the "Trustee's Fees" are comprised of Trustee fees of $1,512, $3,344
and $2,076, and other expenses of $886, $2,760 and $1,339 for the
California, New York and Virginia Trusts, respectively. For the year
ended June 30, 1997, the "Trustee's Fees" are comprised of Trustee fees
of $1,677, $3,825 and $2,260, and other expenses of $1,305, $1,949 and
$1,482 for the California, New York and Virginia Trusts, respectively.
For the year ended, June 30, 1996, the "Trustee's Fees" are comprised
of Trustee fees of $2,039, $3,775 and $2,189, and other expenses of
$1,041, $2,432 and $1,287 for the California, New York and Virginia
Trusts, respectively. The other expenses include professional, printing
and miscellaneous fees.
<PAGE>
<TABLE>
<CAPTION>
Municipal Securities Trust, Multi-State Series 41
Notes to Financial Statements
- --------------------------------------------------------------------------------
5. Net Assets
At June 30, 1998, the net assets of the Trust represented the interest of
Certificateholders as follows: California New York Virginia
Trust Trust Trust
<S> <C> <C> <C>
Original cost to Certificateholders $ 3,054,212 $ 5,030,128 $ 3,095,008
Less Initial Gross Underwriting Commission 149,656 246,476 151,655
------------ ------------ ------------
2,904,556 4,783,652 2,943,353
Accumulated Cost of Securities Sold,
Matured or Called (1,660,891) (1,241,688) (1,028,798)
Net Unrealized Appreciation 96,989 341,333 149,897
Undistributed Net Investment Income 37,416 51,680 32,563
Undistributed (Distributions in Excess of)
Proceeds From Investments 8 (4,197) 9,809
------------ ------------ ------------
Total $ 1,378,078 $ 3,930,780 $ 2,106,824
============ ============ ============
</TABLE>
The original cost to Certificateholders, less the initial gross
underwriting commission, represents the aggregate initial public
offering price net of the applicable sales charge on 3,000, 5,000 and
3,000 units of fractional undivided interest of the California Trust,
New York Trust and Virginia Trust, respectively, as of the date of
deposit.
Undistributed net investment income includes accumulated accretion of
original issue discount of $13,086 for the California Trust.
6. Concentration of Credit Risk
Since the Trust invests a portion of its assets in municipal bonds, it
may be affected by economic and political developments in the
municipalities. Certain debt obligations held by the Trust may be
entitled to the benefit of insurance, standby letters of credit or
other guarantees of banks or other financial institutions.
Note: Part B of This Prospectus May Not Be
Distributed Unless Accompanied by Part A.
Please Read and Retain Both Parts
of the Prospectus for Future Reference.
MUNICIPAL SECURITIES TRUST
MULTI-STATE SERIES
(Multiplier Portfolio)
Prospectus Part B
Dated: October 28, 1998
THE TRUST
---------
Organization. "Municipal Securities Trust," Multi-State Series
(the "Trust") consists of several separate "unit investment trusts," which may
include California Trust, New York Trust and/or Virginia Trust (collectively,
the "State Trusts") designated as set forth in Part A. The State Trusts were
created under the laws of the State of New York pursuant to the Trust Indenture
and Agreement* (collectively, the "Trust Agreement"), dated the Date of Deposit,
among Reich & Tang Distributors, Inc., as Sponsor, or depending on the
particular Trust, among Reich & Tang Distributors, Inc. and Gruntal & Co.,
L.L.C., as Co-Sponsors (the Sponsors or Co-Sponsors, if applicable, are referred
to herein as the "Sponsor"), Kenny S&P Evaluation Services, a business unit of
J.J. Kenny Company, Inc., a subsidiary of The McGraw-Hill Companies, as
Evaluator, and The Chase Manhattan Bank, as Trustee. The name of the Trustee for
a particular State Trust is contained in the "Summary of Essential Information"
in Part A. For a description of the Trustee for a particular State Trust, see
"Trust Administration--The Trustee." Each State Trust will be administered as a
distinct entity with separate certificates, expenses, books and records.
On the Date of Deposit the Sponsor deposited with the Trustee
long-term bonds, including delivery statements relating to contracts for the
purchase of certain such bonds (the "Bonds"), and cash or irrevocable letters of
credit issued by a major commercial bank in the amount required for such
purchases. Thereafter, the Trustee, in exchange for the Bonds so deposited,
delivered to the Sponsor the Certificates evidencing the ownership of all Units
of the State Trusts. The Trust consists of the interest-bearing bonds described
under "The Trust" in Part A of this Prospectus, the interest on which is, in the
opinions of bond counsel to the respective issuers given at the time of original
delivery of the Bonds, exempt from regular Federal income tax under existing
law.
- ---------------------------
* References in this Prospectus to the Trust Agreement are qualified in
their entirety by the respective Trust Indentures and Agreements which
are incorporated herein by reference.
82600.9
<PAGE>
Each "Unit" outstanding on the Evaluation Date represented an
undivided interest or pro rata share in the principal and interest of each State
Trust in the ratio of one Unit to the principal amount of Bonds in such State
Trust on such date as specified in Part A of this Prospectus. To the extent that
any Units of a State Trust are redeemed by the Trustee, the fractional undivided
interest or pro rata share in such State Trust represented by each unredeemed
Unit of such State Trust will increase, although the actual interest in such
State Trust represented by such fraction will remain unchanged. Units will
remain outstanding until redeemed upon tender to the Trustee by
Certificateholders, which may include the Sponsor, or until the termination of
the Trust Agreement.
Objectives. Each State Trust is one of a series of similar but
separate unit investment trusts formed by the Sponsor which offers investors the
opportunity to participate in a portfolio of long-term tax-exempt bonds, which
may include deep "market" discount and original issue discount bonds, with a
greater diversification than they might be able to acquire themselves. The
objectives of each State Trust are to preserve capital and to provide interest
income which, in the opinions of bond counsel to the respective issuers given at
the time of original delivery of the Bonds, is, with certain exceptions,
currently exempt from regular Federal income tax and from present income taxes
of the State for which such Trust is named for residents thereof. Such interest
income may, however, be subject to the federal alternative minimum tax and to
state and local taxes in other jurisdictions. Investors should be aware that
there is no assurance the State Trusts' objectives will be achieved because
these objectives are dependent on the continuing ability of the issuers of the
Bonds to meet their interest and principal payment requirements, on the
continuing satisfaction of the conditions required for the exemptions of
interest thereon from regular Federal income tax and on the market value of the
Bonds, which can be affected by fluctuations in interest rates and other
factors.
Since disposition of Units prior to final liquidation of a
State Trust may result in an investor receiving less than the amount paid for
such Units (see "Comparison of Public Offering Price, Sponsor's Repurchase Price
and Redemption Price"), the purchase of a Unit should be looked upon as a
long-term investment. The State Trusts are not designed to be complete
investment programs.
The Portfolios--General. All of the Bonds in the State Trusts
were rated "A" or better by Standard & Poor's Ratings Services, A Division of
The McGraw-Hill Companies ("Standard & Poor's") or Moody's Investors Service,
Inc. ("Moody's") at the time originally deposited in the State Trust. For a list
of the ratings of each Bond on the Evaluation Date, see each "Portfolio" in Part
A of this Prospectus.
For information regarding (i) the number of issues in each
State Trust, (ii) the range of fixed maturity of the Bonds, (iii) the number of
issues payable from the income of a specific project or authority and (iv) the
number of issues constituting general obligations of a government entity, see
"The Trust" and "Description of Portfolio" for each State Trust in Part A of
this Prospectus.
When selecting Bonds for the State Trusts, the following
factors, among others, were considered by the Sponsor on the Date of Deposit:
(i) the quality of the Bonds and whether such Bonds were rated "A" or better by
Standard & Poor's or Moody's, (ii) the yield and price of the Bonds relative
82600.9
-2-
<PAGE>
to other tax-exempt securities of comparable quality and maturity, (iii) income
to the Certificateholders of the State Trusts, (iv) the diversification of each
State Trust's portfolio, as to purpose of issue and location of issuer, taking
into account the availability in the market of issues which meet such State
Trust's quality, rating, yield and price criteria and (v) the existence of
"market" discount and original issue discount. Subsequent to the Evaluation
Date, a Bond may cease to be rated or its rating may be reduced below that
specified above. Neither event requires an elimination of such Bond from a State
Trust but may be considered in the Sponsor's determination to direct the Trustee
to dispose of the Bond. See "Portfolio Supervision." For an interpretation of
the bond ratings, see "Description of Bond Ratings."
Housing Bonds. Some of the aggregate principal amount of the
Bonds may consist of obligations of state and local housing authorities whose
revenues are primarily derived from mortgage loans to rental housing projects
for low to moderate income families. Since such obligations are usually not
general obligations of a particular state or municipality and are generally
payable primarily or solely from rents and other fees, adverse economic
developments including failure or inability to increase rentals, fluctuations of
interest rates, and increasing construction and operating costs may reduce
revenues available to pay existing obligations. See "Description of Portfolio"
in Part A for the amount of housing bonds contained therein.
Hospital Revenue Bonds. Some of the aggregate principal amount
of the Bonds may consist of hospital revenue bonds. Ratings of hospital bonds
are often initially based on feasibility studies which contain projections of
occupancy levels, revenues and expenses. Actual experience may vary considerably
from such projections. A hospital's gross receipts and net income will be
affected by future events and conditions including, among other things, demand
for hospital services and the ability of the hospital to provide them,
physicians' confidence in hospital management capability, economic developments
in the service area, competition, actions by insurers and governmental agencies
and the increased cost and possible unavailability of malpractice insurance.
Additionally, a major portion of hospital revenue typically is derived from
third-party payors and government programs such as Medicare and Medicaid. Both
private third-party payors and government programs have undertaken cost
containment measures designed to limit payments. Furthermore, government
programs are subject to statutory and regulatory changes, retroactive rate
adjustments, administrative rulings and government funding restrictions, all of
which may materially decrease the rate of program payments for health care
facilities. There can be no assurance that payments under governmental programs
will remain at levels comparable to present levels or will, in the future, be
sufficient to cover the costs allocable to patients participating in such
programs. In addition, there can be no assurance that a particular hospital or
other health care facility will continue to meet the requirements for
participation in such programs.
The health care delivery system is undergoing considerable
alteration and consolidation. Consistent with that trend, the ownership or
management of a hospital or health care facility may change, which could result
in (i) an early redemption of bonds, (ii) alteration of the facilities financed
by the Bonds or which secure the Bonds, (iii) a change in the tax exempt status
of the Bonds or (iv) an inability to produce revenues sufficient to make timely
payment of debt service on the Bonds. Future legislation or changes in the areas
noted above, among other things, would affect all hospitals to varying degrees
and, accordingly, any adverse change in these
82600.9
-3-
<PAGE>
areas may affect the ability of such issuers to make payment of principal and
interest on such bonds. See "Description of Portfolio" in Part A for the amount
of hospital revenue bonds contained therein.
Nuclear Power Facility Bonds. Certain Bonds may have been
issued in connection with the financing of nuclear generating facilities.
Electric utilities which own or operate nuclear power plants are exposed to
risks inherent in the nuclear industry. These risks include exposure to new
requirements resulting from extensive federal and state regulatory oversight,
public controversy, decommissioning costs, and spent fuel and radioactive waste
disposal issues. While nuclear power construction risks are no longer of
paramount concern, the emerging issue is radioactive waste disposal. In
addition, nuclear plants typically require substantial capital additions and
modifications throughout their operating lives to meet safety, environmental,
operational and regulatory requirements and to replace and upgrade various plant
systems. The high degree of regulatory monitoring and controls imposed on
nuclear plants could cause a plant to be out of service or on limited service
for long periods. When a nuclear facility owned by an investor-owned utility or
a state or local municipality is out of service or operating on a limited
service basis, the utility operator or its owners may be liable for the recovery
of replacement power costs. Risks of substantial liability also arise from the
operation of nuclear facilities and from the use, handling, and possible
radioactive emissions associated with nuclear fuel. Insurance may not cover all
types or amounts of loss which may be experienced in connection with the
ownership and operation of a nuclear plant and severe financial consequences
could result from a significant accident or occurrence. The Nuclear Regulatory
Commission has promulgated regulations mandating the establishment of funded
reserves to assure financial capability for the eventual decommissioning of
licensed nuclear facilities. These funds are to be accrued from revenues in
amounts currently estimated to be sufficient to pay for decommissioning costs.
The Sponsor is unable to predict whether any such actions or whether any such
proposals or litigation, if enacted or instituted, will have an adverse impact
on the revenues available to pay the debt service on the Bonds in the portfolio
issued to finance such nuclear projects. See "Description of Portfolio" in Part
A for the amount of bonds issued to finance nuclear generating facilities
contained therein.
Mortgage Subsidy Bonds. Certain Bonds may be "mortgage subsidy
bonds" which are obligations of which all or a significant portion of the
proceeds are to be used directly or indirectly for mortgages on owner-occupied
residences. Section 103A of the Internal Revenue Code of 1986, as amended,
provided as a general rule that interest on "mortgage subsidy bonds" will not be
exempt from Federal income tax. An exception is provided for certain "qualified
mortgage bonds." Qualified mortgage bonds are bonds that are used to finance
owner-occupied residences and that meet numerous statutory requirements. These
requirements include certain residency, ownership, purchase price and target
area requirements, ceiling residency, ownership, purchase price and target area
requirements, ceiling amounts for state and local issuers, arbitrage
restrictions and (for bonds issued after December 31, 1984) certain information
reporting, certification, public hearing and policy statement requirements. In
the opinions of bond counsel to the issuing governmental authorities, interest
on all the Bonds in a Trust that might be deemed "mortgage subsidy bonds" will
be exempt from Federal income tax when issued. See "Description of Portfolio" in
Part A for the amount of mortgage subsidy Bonds contained therein.
82600.9
-4-
<PAGE>
Mortgage Revenue Bonds. Certain Bonds may be "mortgage revenue
bonds." Under the Internal Revenue Code of 1954, as amended (the "Code") (and
under similar provisions of the prior tax law) "mortgage revenue bonds" are
obligations the proceeds of which are used to finance owner-occupied residences
under programs which meet numerous statutory requirements relating to residency,
ownership, purchase price and target area requirements, ceiling amounts for
state and local issuers, arbitrage restrictions, and certain information
reporting certification, and public hearing requirements. There can be no
assurance that additional federal legislation will not be introduced or that
existing legislation will not be further amended, revised, or enacted after
delivery of these Bonds or that certain required future actions will be taken by
the issuing governmental authorities, which action or failure to act could cause
interest on the Bonds to be subject to Federal income tax. If any portion of the
Bonds proceeds are not committed for the purpose of the issue, Bonds in such
amount could be subject to earlier mandatory redemption at par, including issues
of Zero Coupon Bonds (see "Discount and Zero Coupon Bonds"). See "Description of
Portfolio" in Part A for the amount of mortgage revenue bonds contained therein.
Private Activity Bonds. The portfolio of the Trust may contain
other Bonds which are "private activity bonds" (often called Industrial Revenue
Bonds ("IRBs") if issued prior to 1987) which would be primarily of two types:
(i) Bonds for a publicly owned facility which a private entity may have a right
to use or manage to some degree, such as an airport, seaport facility or water
system and (ii) facilities deemed owned or beneficially owned by a private
entity but which were financed with tax-exempt bonds of a public issuer, such as
a manufacturing facility or a pollution control facility. In the case of the
first type, bonds are generally payable from a designated source of revenues
derived from the facility and may further receive the benefit of the legal or
moral obligation of one or more political subdivisions or taxing jurisdictions.
In most cases of project financing of the first type, receipts or revenues of
the issuer are derived from the project or the operator or from the unexpended
proceeds of the bonds. Such revenues include user fees, service charges, rental
and lease payments, and mortgage and other loan payments.
The second type of issue will generally finance projects which
are owned by or for the benefit of, and are operated by, corporate entities.
Ordinarily, such private activity bonds are not general obligations of
governmental entities and are not backed by the taxing power of such entities,
and are solely dependent upon the creditworthiness of the corporate user of the
project or corporate guarantor.
The private activity bonds in the Trust have generally been
issued under bond resolutions, agreements or trust indentures pursuant to which
the revenues and receipts payable under the issuer's arrangements with the users
or the corporate operator of a particular project have been assigned and pledged
to the holders of the private activity bonds. In certain cases, a mortgage on
the underlying project has been assigned to the holders of the private activity
bonds or a trustee as additional security. In addition, private activity bonds
are frequently directly guaranteed by the corporate operator of the project or
by another affiliated company. See "Description of Portfolio" in Part A for the
amount of private activity bonds contained therein.
Litigation. Litigation challenging the validity under state
constitutions of present systems of financing public education has been
82600.9
-5-
<PAGE>
initiated in a number of states. Decisions in some states have been reached
holding such school financing in violation of state constitutions. In addition,
legislation to effect changes in public school financing has been introduced in
a number of states. The Sponsor is unable to predict the outcome of the pending
litigation and legislation in this area and what effect, if any, resulting
change in the sources of funds, including proceeds from property taxes applied
to the support of public schools, may have on the school bonds in the State
Trusts.
Legal Proceedings Involving the Trusts. The Sponsor has not
been notified or made aware of any litigation pending with respect to any Bonds
which might reasonably be expected to have a material effect on the State Trusts
other than that which is discussed under "The State Trusts" herein. Such
litigation as, for example, suits challenging the issuance of pollution control
revenue bonds under recently enacted environmental protection statutes, may
affect the validity of such Bonds or the tax-free nature of the interest
thereon. At any time after the date of this Prospectus, litigation may be
instituted on a variety of grounds with respect to the Bonds in the State
Trusts. The Sponsor is unable to predict whether any such litigation may be
instituted or, if instituted, whether it will have a material adverse effect on
a State Trust.
Other Factors. The Bonds in the State Trusts, despite their
optional redemption provisions which generally do not take effect until 10 years
after the original issuance dates of such bonds (often referred to as "ten year
call protection"), do contain provisions which require the issuer to redeem such
obligations at par from unused proceeds of the issue within a stated period. In
recent periods of declining interest rates there have been increased redemptions
of bonds, particularly housing bonds, pursuant to such redemption provisions. In
addition, the Bonds in the State Trusts are also subject to mandatory redemption
in whole or in part at par at any time that voluntary or involuntary prepayments
of principal on the underlying collateral are made to the trustee for such bonds
or that the collateral is sold by the bond issuer. Prepayments of principal tend
to be greater in periods of declining interest rates; it is possible that such
prepayments could be sufficient to cause a bond to be redeemed substantially
prior to its stated maturity date, earliest call date or sinking fund redemption
date.
The Bonds may also be subject to other calls, which may be
permitted or required by events which cannot be predicted (such as destruction,
condemnation, or termination of a contract).
In 1976 the federal bankruptcy laws were amended so that an
authorized municipal debtor could more easily seek federal court protection to
assist in reorganizing its debts so long as certain requirements were met.
Historically, very few financially troubled municipalities have sought court
assistance for reorganizing their debts; notwithstanding, the Sponsors are
unable to predict to what extent financially troubled municipalities may seek
court assistance in reorganizing their debts in the future and, therefore, what
effect, if any, the applicable federal bankruptcy law provisions will have on
the State Trusts.
The State Trusts may also include "moral obligation" bonds.
Under statutes applicable to such bonds, if an issuer is unable to meet its
obligations, the repayment of such bonds becomes a moral commitment but not a
legal obligation of the state or municipality in question. See "Portfolio" and
"Information Regarding the State Trust" for each State Trust in Part A of
82600.9
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<PAGE>
this Prospectus for the amount of moral obligation bonds contained in each State
Trust's portfolio.
Certain of the Bonds in the State Trusts are subject to
redemption prior to their stated maturity dates pursuant to sinking fund or call
provisions. A sinking fund is a reserve fund appropriated specifically toward
the retirement of a debt. A callable bond is one which is subject to redemption
or refunding prior to maturity at the option of the issuer. A refunding is a
method by which a bond is redeemed at or before maturity from the proceeds of a
new issue of bonds. In general, call provisions are more likely to be exercised
when the offering side evaluation of a bond is at a premium over par than when
it is at a discount from par. A listing of the sinking fund and call provisions,
if any, with respect to each of the Bonds in each State Trust is contained under
the "Portfolio" for such State Trust in Part A of this Prospectus.
Certificateholders will realize a gain or loss on the early redemption of such
Bonds, depending upon whether the price of such Bonds is at a discount from or
at a premium over par at the time the Certificateholders purchase their Units.
Neither the Sponsor nor the Trustee shall be liable in any way
for any default, failure or defect in any of the Bonds. Because certain of the
Bonds from time to time may be redeemed or will mature in accordance with their
terms or may be sold under certain circumstances, no assurance can be given that
the State Trusts will retain their present size and composition for any length
of time. The proceeds from the sale of a Bond in a State Trust or from the
exercise of any redemption or call provision will be distributed to
Certificateholders of such State Trust, except to the extent such proceeds are
applied to meet redemptions of Units. See "Trustee Redemption."
Puerto Rico Bonds. Certain of the Bonds in the Trust may be
general obligations and/or revenue bonds of issuers located in Puerto Rico which
will be affected by general economic conditions in Puerto Rico. The economy of
Puerto Rico is fully integrated with that of the United States mainland. During
fiscal 1997, approximately 88% of Puerto Rico's exports went to the United
States mainland, which was also the source of approximately 62% of Puerto Rico's
imports. In fiscal 1997, Puerto Rico experienced a $2.7 billion positive
adjusted merchandise trade balance. The dominant sectors of the Puerto Rico
economy are manufacturing and services. The manufacturing sector has experienced
a basic change over the years as a result of increased emphasis on higher wage,
high technology industries, such as pharmaceuticals, electronics, computers,
microprocessors, professional and scientific instruments, and certain high
technology machinery and equipment. The services sector, including finance,
insurance, real estate, wholesale and retail trade, and hotel and related
services, also plays a major role in the economy. It ranks second only to
manufacturing in contribution to the gross domestic product and leads all
sectors in providing employment. In recent years, the services sector has
experienced significant growth in response to the expansion of the manufacturing
sector. Puerto Rico's more than decade- long economic expansion continued
throughout the five-year period from fiscal 1993 through fiscal 1997. Almost
every sector of the economy participated and record levels of employment were
achieved. Factors behind this expansion included government-sponsored economic
development programs, periodic declines in the exchange value of the United
States dollar, increases in the level of federal transfers, and the relatively
low cost of borrowing. Gross product in fiscal 1993 was $25.1 billion ($24.5
billion in 1992 prices) and gross product in fiscal 1997 was $32.1 billion
($27.7 billion in 1992 prices). This represents an increase in gross product of
27.7% from fiscal 1993 to 1997
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(13.0% in 1992 prices). Since fiscal 1985, personal income, both aggregate and
per capita, has increased consistently each fiscal year. In fiscal 1997,
aggregate personal income was $32.1 billion ($30.0 billion in 1992 prices) and
personal income per capita was $8,509 ($7,957 in 1992 prices). Personal income
includes transfer payments to individuals in Puerto Rico under various social
programs. Total federal payments to Puerto Rico, which include transfers to
local government entities and expenditures of federal agencies in Puerto Rico,
in addition to federal transfer payments to individuals, are lower on a per
capita basis in Puerto Rico than in any state. Transfer payments to individuals
in fiscal 1997 were $7.3 billion, of which $5.2 billion, or 71.6%, represented
entitlements to individuals who had previously performed services or made
contributions under programs such as Social Security, Veterans' Benefits,
Medicare and U.S. Civil Service retirement pensions. Average employment
increased from 999,000 in fiscal 1993, to 1,128,300 in fiscal 1997. Average
unemployment decreased from 16.8% in fiscal 1993, to 13.1% in fiscal 1997.
According to the Labor Department's Household Employment Survey, during the
first eight months of fiscal 1998, total employment increased 0.4% over the same
period in fiscal 1997. Total monthly employment averaged 1,129,000 during the
first eight months of fiscal 1998, compared to 1,124,500 in the same period of
fiscal 1997. The Planning Board's gross product forecast for fiscal 1998
projected an increase of 3.0% over fiscal 1997.
Discount and Zero Coupon Bonds. The State Trust portfolios may
contain original issue discount bonds. The original issue discount, which is the
difference between the initial purchase price of the Bonds and the face value,
is deemed to accrue on a daily basis and the accrued portion will be treated as
tax-exempt interest income for regular Federal income tax purposes. Upon sale or
redemption, any gain realized that is in excess of the earned portion of
original issue discount will be taxable as capital gain. See "Tax Status." The
current value of an original issue discount bond reflects the present value of
its face amount at maturity. The market value tends to increase more slowly in
early years and in greater increments as the Bonds approach maturity. Of these
original issue discount bonds, a portion of the aggregate principal amount of
the Bonds in each State Trust may be Zero Coupon Bonds. Zero Coupon Bonds do not
provide for the payment of any current interest and provide for payment at
maturity at face value unless sooner sold or redeemed. The market value of Zero
Coupon Bonds is subject to greater fluctuations than coupon bonds in response to
changes in interest rates. Zero Coupon Bonds generally are subject to redemption
at compound accredited value based on par value at maturity. Because the issuer
is not obligated to make current interest payments, Zero Coupon Bonds may be
less likely to be redeemed than coupon bonds issued at a similar interest rate.
See "Description of Portfolios" in Part A for the aggregate principal amount of
original issue discount bonds in each State Trust's portfolio.
The State Trust portfolios may also contain Bonds that were
purchased at deep "market" discount from par value at maturity. This is because
the coupon interest rates on the discount Bonds at the time they were purchased
and deposited in the State Trusts were lower than the current market interest
rates for newly issued bonds of comparable rating and type. At the time of
issuance, the discount Bonds were for the most part issued at then current
coupon interest rates. The current returns (coupon interest income as a
percentage of market price) of discount bonds will be lower than the current
returns of comparably rated bonds of similar type newly issued at current
interest rates because discount bonds tend to increase in market value as they
approach maturity and the full principal amount becomes payable. A discount
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bond held to maturity will have a larger portion of its total return in the form
of capital gain and less in the form of tax-exempt interest income than a
comparable bond newly issued at current market rates. Gain on the disposition of
a Bond purchased at a market discount generally will be treated as ordinary
income, rather than capital gain, to the extent of accrued market discount.
Discount bonds with a longer term to maturity tend to have a higher current
yield and a lower current market value than otherwise comparable bonds with a
shorter term to maturity. If interest rates rise, the value of the bonds will
decrease; and if interest rates decline, the value of the bonds will increase.
The discount does not necessarily indicate a lack of market confidence in the
issuer.
Year 2000 Issue. The Trust, like other businesses and
entities, could be adversely affected if the computer systems used by the
Sponsor and Trustee or other service providers to the Trust do not properly
process and calculate date-related information and data from and after January
1, 2000. This is commonly known as the "Year 2000 Problem." The Sponsor and
Trustee are taking steps that they believe are reasonably designed to address
the Year 2000 Problem with respect to computer systems that they use and to
obtain reasonable assurances that comparable steps are being taken by the
Trusts' other service providers. However, there can be no assurance that the
Year 2000 Problem will be properly or timely resolved as to avoid any adverse
impact to the Trust.
THE STATE TRUSTS
----------------
The Sponsor believes the information summarized below
describes some of the more significant events relating to the State Trusts.
Sources of such information are the official statements of the issuers located
in the states of the State Trusts which have been issued in connection with debt
offerings by such states, as well as other publicly available documents and
information. While the Sponsor has not independently verified such information,
it has no reason to believe it is not correct in all material respects.
California Trust
California Economy. Beginning in the 1990-91 fiscal year,
California faced the worst economic, fiscal and budget conditions since the
1930s. Construction, manufacturing (especially aerospace), exports and financial
services, among others, were severely affected. Job losses were the worst of any
post-war recession, estimated to exceed 800,000.
The recession seriously affected State tax revenues. It also
caused increased expenditures for health and welfare programs. The State also
faced a structural imbalance in its budget with the largest programs supported
by the General Fund -- K-12 schools and community colleges, health, welfare and
corrections -- growing at rates higher than the growth rates for the principal
revenue sources of the General Fund. (The General Fund, the State's main
operating fund, consists of revenues which are not required to be credited to
any other fund.) The State experienced recurring budget deficits. The State
Controller reported that expenditures exceeded revenues for four of the six
fiscal years ending with 1992-93, and were essentially equal in 1993- 94.
According to the Department of Finance, the State suffered a continuing budget
deficit of approximately $2.8 billion in the Special Fund for Economic
Uncertainties. (Special Funds account for revenues obtained from specific
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revenue sources, and which are legally restricted to expenditures for specified
purposes.) The 1993-94 Budget Act incorporated a Deficit Reduction Plan to repay
this deficit over two years. The original budget for 1993-94 reflected revenues
which exceeded expenditures by approximately $2.8 billion. As a result of
continuing recession, the excess of revenues over expenditures for the 1993-94
fiscal year was less than $300 million. The accumulated budget deficit at June
30, 1994 was not able to be retired by June 30, 1995 as planned. When the
economy failed to recover sufficiently in 1993-94, a second two-year plan was
implemented in 1994-95. The accumulated budget deficits over the past several
years, together with expenditures for school funding which have not been
reflected in the budget, and the reduction of available internal borrowable
funds, have combined to significantly deplete the State's cash resources to pay
its ongoing expenses. In order to meet its cash needs, the State has had to rely
for several years on a series of external borrowings, including borrowings past
the end of a fiscal year. At the end of its 1995-96 fiscal year, however, the
State did not borrow moneys into "1995- 96 Budget" the subsequent fiscal year.
For a discussion of the 1995-96 State Budget, 1996-97 State Budget, the 1997-98
State Budget and the Proposed 1998- 99 State Budget, see the sub-captions
"1995-96 Budget," "1996-97 Budget," "Proposed 1997-98 Budget" and "Proposed
1998-99 State Budget," respectively, herein.
Many California counties continue to be under severe fiscal
stress. Such stress has impacted smaller, rural counties and larger urban
counties, such as Los Angeles and Orange County, which declared bankruptcy in
1994. Orange County has implemented significant reductions in services and
personnel, and continues to face fiscal constraints in the aftermath of its
bankruptcy. However, California has experienced recent economic expansion with
growth in employment and in early 1998 the state recorded its lowest
unemployment rate since 1990. There can be no assurance this growth trend will
continue.
1995-96 Budget
The state began the 1995-96 Fiscal Year with strengthening
revenues based on an improving economy and the smallest nominal "budget gap" to
be closed in many years.
The 1995-96 Budget Act, signed by the Governor on August 3,
1995, projected General Fund revenues and transfers of $44.1 billion, about $2.2
billion higher than projected revenues in 1994-95. The Budget Act projected
Special Fund revenues of $12.7 billion, an increase from $12.1 billion projected
in 1994-95.
The Department of Finance released updated projections for the
1995-96 fiscal year in May, 1996, estimating that revenues and transfers to be
$46.1 billion, approximately $2 billion over the original fiscal year estimate.
Expenditures also increased, to an estimated $45.4 billion, as a result of the
requirement to expend revenues for schools under Proposition 98, and, among
other things, failure of the federal government to budget new aid for illegal
immigrant costs which had been counted on to allow reductions in costs.
The principal features of the Budget Act were as follows:
1. Proposition 98 funding for schools and community
colleges increased by about $1 billion (General Fund) and $1.2
billion
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total above revised 1994-95 levels. Because of higher than
projected revenues in 1994-95, an additional $543 million is
appropriated to the 1994-95 Proposition 98 entitlement. A
significant component of this amount was a block grant of
about $54 per pupil for any one-time purpose. Per-pupil
expenditures increased by another $126 in 1995-96 to $4,435. A
full 2.7% cost of living allowance was funded for the first
time in several years. The budget compromise anticipated a
settlement of the CTA v. Gould litigation.
2. Cuts in health and welfare costs totaling about
$900 million, some of which would require federal legislative
approval.
3. A 3.5% increase in funding for the University of
California ($90 million General Fund) and the California State
University system ($24 million General Fund), with no
increases in student fees.
4. The updated Budget assumes receipt of $494 million
in new federal aid for costs of illegal immigrants, in excess
of federal government commitments.
5. General Fund support for the Department of
Corrections is increased by about 8 percent over 1994-95,
reflecting estimates of increased prison population. This
amount is less than was proposed in the 1995 Governor's
Budget.
1996-97 Budget
The 1996-97 Budget Act was signed by the Governor on July 15,
1996, and projected General Fund revenues and transfers of approximately $47.64
billion and General Fund expenditures of approximately $47.25 billion. The
Governor vetoed about $82 million of appropriations (both General Fund and
Special Fund) and the State has implemented its regular cash flow borrowing
program with the issuance of $3.0 billion of Revenue Anticipation Notes to
mature on or before June 30, 1997. The 1996-97 Budget Act appropriated a budget
reserve in the Special Fund for Economic Uncertainties of $305 million, as of
June 30, 1997.
The Budget Act contained appropriations totaling $47.251
billion, a 4.0 percent increase over the final estimated 1995-96 expenditures.
Special Fund expenditures are budgeted at $12.6 billion.
The following were the principal features of the 1996-97
Budget Act:
1. Proposition 98 funding for schools and community
college districts increased by almost $1.6 billion (General
Fund) and $1.65 billion total above revised 1995-96 level
periods. Almost half of this money was budgeted to fund
class-size reduction in kindergarten and grades 1-3.
2. Proposed cuts in health and welfare totaling $660
million. All of these cuts required federal law changes
(including welfare reform), federal waivers, or federal budget
appropriations in order to be achieved. The 1996-97 Budget Act
assumes approval/action by October, 1996, with the savings to
be
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achieved beginning in November, 1996. The 1996-97 Budget Act
was based on continuation of previously approved assistance
levels for Aid to Families with Dependent Children and other
health and welfare programs, which had been reduced in prior
years, including suspension of State authorized cost of living
increases.
3. A 4.9 percent increase in funding for the
University of California ($130 million General Fund) and the
California State University system ($101 million General
Fund), with no increases in student fees, maintaining the
second year of the Governor's four-year "Compact" with the
State's higher education units.
4. General Fund support for the Department of
Corrections was increased by about 7 percent over the prior
year, reflecting estimates of increased prison population.
5. With respect to aid to local governments, the
principal new programs included in the 1996-97 Budget Act are
$100 million in grants to cities and counties for law
enforcement purposes, and budgeted $50 million for competitive
grants to local governments for programs to combat juvenile
crime.
The 1996-97 Budget Act did not contain any tax increases. As
noted, there was a reduction in corporate taxes. In addition, the Legislature
approved another one-year suspension of the Renters Tax Credit, saving $520
million in expenditures.
1997-98 Budget
On January 9, 1997, the Governor announced his proposed
1997-98 State budget detailing plans to cut welfare, increase education spending
and provide certain tax cuts to businesses and banks. The total spending plan in
the amount of approximately $66.6 billion represents an increase of
approximately 4% from the 1996-97 State Budget, with an increase in the State's
General Fund to approximately $50.3 billion. The Governor announced a proposal
to restructure the State's welfare system, placing strict time limits on the
provision of assistance and introducing penalties, and included a plan to
increase spending for elementary and secondary schools.
On August 11, 1997, the State Legislature approved a 1997-98
State Budget of approximately $68 billion which included approximately $32
billion for public schools, an increase of approximately $4 billion over the
prior year. The Budget also included approximately $100 million for local law
enforcement and approximately $75 million in spending to subsidize hospitals
that care for large numbers of uninsured patients, as well as approximately $40
million for legal immigrants and an increase of approximately $223 million in
welfare spending, including job training. The education portion of the State
Budget, approved by the Legislature for 1997-98, included approximately $850
million to expand the class-size reduction program and full statutory funding of
the Revenue Limit COLA comprising a 2.65% COLA, consistent with the May
Revision. Revenue Limit Equalization is as funded in the amount of approximately
$261 million for the school district revenue limit equalization for 1996-97.
The final State Budget was signed by the Governor on August
18, 1997 after using his line-item veto authority to veto, with reservation
until an acceptable school testing bill is passed, a significant amount of
education
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funding from the State Budget approved by the Legislature. Vetoes which would be
restored if a testing bill acceptable to the Governor is passed include
approximately $955,000 in Department of Education spending, and approximately
$900 million in local assistance. Vetoes not relating to the testing issue, but
which need legislation in order to restore the vetoed funds, included more than
$20 million in Department of Education spending. The final State Budget also
provided approximately $377 million for child care programs administered by the
Department of Education and the Department of Social Services, approximately
$160 million for welfare-to-work programs, approximately $25 million in adult
education funding and approximately $50 million to California community
colleges, approximately $100 million to cities and counties to enhance local law
enforcement, approximately $55 million in federal funds to local government for
the construction of detention facilities and approximately $1.2 billion in
deferred general fund contributions to the Public Employees Retirement System.
The final State Budget did not include the Governor's proposed 10% tax cut for
banks and corporations.
Proposed 1998-99 Budget
In 1997, California experienced employment growth exceeding
3%, approximately 400,000 new jobs, and income rose by more than 7%. The State's
unemployment rate fell during 1997 to a low of 5.8% in November. In fiscal year
1996-97, the State's General Fund collections grew by over 6% to reach $49.2
billion, and revenue for the 1997-98 and 1998-99 fiscal years is expected to
reach $52.9 billion and $55.4 billion respectively. This represents an annual
growth of $3.7 billion (7.5 percent) for 1997-98 and $2.5 billion (4.7 percent)
for 1998-99.
The 1998-99 Governor's Budget provides $50 million in General
Fund and $200 million in a proposed bond issue to capitalize the Infrastructure
and Development Bank, which will provide capital to local governments to help
businesses locate and expand in California, and $3 million for the small
business loan guarantee program. The Budget also includes an Early Childhood
Development Initiative, which is designed to improve the health and development
of children from birth to age three and provides additional funds for anti-gang
programs and for the apprehension of sexual predators. The Budget proposes an
approximately $7 billion investment plan to maintain and build the State's
system of schools, water supply, prisons, natural resources, and other
infrastructure.
In addition, the Budget includes approximately $40 billion to
be devoted to California's 999 school districts and 58 county offices of
education, resulting in estimated total per-pupil expenditures from all sources
of $6,620 in fiscal year 1997-98 and $6,749 in 1998-99. Projected state revenues
will contribute to a 7% increase in Proposition 98 General Fund support for K-12
education in 1998-99. This level of resources results in K- 12 Proposition 98
per-pupil expenditures of $5,636 in 1998-99, up from $5,114 in 1996-97 and
$5,414 in 1997-98. In addition, approximately $350 million has been allocated to
lengthen the school year to 180 days while maintaining sufficient funds for
staff development days. The State Budget includes a 2.22% COLA for revenue
limit, special education, and child development in an amount of $657.4 million
which includes school district and county office of education apportionments
($470.6 million), summer school ($4.0 million), special education ($57.8
million), child development ($14.6 million), class size reduction ($33.6
million), and categorical program COLA and growth ($73.7 million); enrollment
growth funding of $564.5 million; class size reduction funding in the amount of
$547 billion for all pupils in grades K-3 at $818 per
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pupil; and approximately $2 billion in state bonds for the 1998 election and
$2.0 billion for each two years thereafter in 2000, 2002, and 2004 and an
additional $135 million for deferred maintenance to be matched locally.
Future Budgets
It cannot be predicted what actions will be taken in the
future by the State Legislature and the Governor to deal with changing State
revenues and expenditures. The State budget will be affected by national and
state economic conditions and other factors.
THE FOREGOING DISCUSSION IS BASED ON OFFICIAL STATEMENTS AND
OTHER INFORMATION PROVIDED BY THE STATE OF CALIFORNIA. THE STATE HAS INDICATED
THAT ITS DISCUSSION OF BUDGETARY INFORMATION IS BASED ON ESTIMATES AND
PROJECTIONS OF REVENUES AND EXPENDITURES FOR THE CURRENT FISCAL YEAR AND MUST
NOT BE CONSTRUED AS STATEMENTS OF FACT; THE ESTIMATES AND PROJECTIONS ARE BASED
UPON VARIOUS ASSUMPTIONS WHICH MAY BE AFFECTED BY NUMEROUS FACTORS, INCLUDING
FUTURE ECONOMIC CONDITIONS IN THE STATE AND THE NATION, AND THERE CAN BE NO
ASSURANCE THAT THE ESTIMATES WILL BE ACHIEVED.
Voter Initiative
"Proposition 218" or the "Right to Vote on Taxes Act" (the
"Proposition") was approved by the California electorate at the November, 1996
general election. Officially titled "Voter Approval For Local Government Taxes,
Limitation on Fees, Assessments and Charges Initiative Constitutional
Amendment," the Act was approved by a majority of the voters voting at the
election and adds Articles XIIIC and XIIID to the California Constitution.
The Proposition, among other things, requires local
governments to follow certain procedures in imposing or increasing any fee or
charge as defined. "Fee" or "charge" is defined to mean "any levy other than an
ad valorem tax, a special tax or an assessment imposed by an agency upon a
parcel or upon a person as an incident of property ownership, including user
fees or charges for a property related service."
The procedure required by the Proposition to impose or
increase any fee or charge include a public hearing upon the proposed fee or
charge and the opportunity to present written protests by the owners of the
parcels subject to the proposed fee or charge. If written protests against the
proposed fee or charge are presented by a majority of owners of the identified
parcels, the local government shall not impose the fee or charge.
The Proposition further provides as follows:
"Except for fees or charges for sewer, water, and
refuse collection services, no property related fee or charge shall be imposed
or increased unless and until such fee or charge is submitted and approved by a
majority vote of the property owners of the property subject to the fee or
charge or, at the option of the agency, by a two-thirds vote of the electorate
residing in the affected area."
Additionally, the Proposition provides, with respect
to standby charges, as follows:
"No fee or charge may be imposed for a service unless that
service is actually used by, or immediately available to, the owner of the
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property in question. Fees or charges based on potential or future use of a
service are not permitted. Standby charges, whether characterized as charges or
assessments, shall be classified as assessments and shall not be imposed without
compliance with Section 4 of this Article."
The Proposition provides that beginning July 1, 1997, all fees
or charges shall comply with the Proposition's requirements.
The Proposition is silent with respect to future increases of
pre-existing fees or charges which are pledged to payment of indebtedness or
obligations previously incurred by the local government. Presumably, the
Proposition cannot preempt outstanding contractual obligations protected by the
contract impairment clause of the federal constitution. However, with respect to
any given situation or case, litigation may be the method which will settle any
question concerning the authority of a local government to increase fees or
charges outside of the strictures of the Proposition in order to meet
contractual obligations.
Proposition 218 also contains a new provision subjecting
"matters of reducing or repealing any local tax, assessments and charges" to the
initiative power. This means that no city or local agency revenue source is safe
from reduction or repeal pursuant to the initiative process.
Litigation concerning various elements of the Proposition may
ultimately ensue and clarifying legislation may be enacted.
Future Initiatives
Articles XIIIA, XIIIB, XIIIC and XIIID were each adopted as
measures that qualified for the ballot pursuant to the State's initiative
process. From time to time, other initiative measures could be adopted which
could affect revenues of the State or public agencies within the State.
State Appropriations Limit
The State is subject to an annual appropriations limit imposed
by Article XIIIB of the State Constitution (the "Appropriations Limit"), and is
prohibited from spending "appropriations subject to limitation" in excess of the
Appropriations Limit. Article XIIIB, originally adopted in 1979, was modified
substantially by Propositions 98 and 111 in 1988 and 1990, respectively.
"Appropriations subject to limitation" are authorizations to spend "proceeds of
taxes," which consist of tax revenues and certain other funds, including
proceeds from regulatory licenses, user charges or the other fees to the extent
that such proceeds exceed the reasonable cost of providing the regulation,
product or service. The Appropriations Limit is based on the limit for the prior
year, adjusted annually for certain changes, and is tested over consecutive
two-year periods. Any excess of the aggregate proceeds of taxes received over
such two-year period above the combined Appropriation Limits for those two years
is divided equally between transfers to K-12 districts and refunds to taxpayers.
Exempted from the Appropriations Limit are debt Service costs
of certain bonds, court or federally mandated costs, and, pursuant to
Proposition 111, qualified capital outlay projects and appropriations or
revenues derived from any increase in gasoline taxes and motor vehicle weight
fees above January 1, 1990 levels. Some recent initiatives were structured to
create new tax revenues dedicated to specific uses and expressly exempted from
the
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Article XIIIB limits. The Appropriations Limit may also be exceeded in cases of
emergency arising from civil disturbance or natural disaster declared by the
Governor and approved by two-thirds of the Legislature. If not so declared and
approved, the Appropriations Limit for the next three years must be reduced by
the amount of the excess.
Article XIIIB, as amended by Proposition 98 on November 8,
1988, also establishes a minimum level of state funding for school and community
college districts and requires that excess revenues up to a certain limit be
transferred to schools and community college districts instead of returned to
the taxpayers. Determination of the minimum level of funding is based on several
tests set forth in Proposition 98. During fiscal year 1991-1992 revenues were
smaller than expected, thus reducing the payment owed to schools in 1991-1992
under alternate "test" provisions. In response to the changing revenue
situation, and to fully fund the Proposition 98 guarantee in the 1991- 1992 and
1992-1993 fiscal years without exceeding it, the Legislature enacted legislation
to reduce 1991-92 appropriations. The amount budgeted to schools, but which
exceeded the reduced appropriation, was treated as a non-Proposition 98
short-term loan in 1991-92. As part of the 1992-93 Budget, $1.083 billion of the
amount budgeted to K-12 schools was designated to "repay" the prior year loan,
thereby reducing cash outlays in 1992-93 by that amount. To maintain per-average
daily attendance ("ADA") funding, the 1992-93 Budget included loans to schools
and to community colleges, to be repaid from future Proposition 98 entitlements.
The 1993-94 Budget also provided new loans to K- 12 schools and community
colleges to maintain ADA funding. These loans have been combined with the
1992-93 fiscal year loans into one loan of $1.760 billion, to be repaid from
future years' Proposition 98 entitlements, and conditioned upon maintaining
current funding levels per pupil at K-12 schools.
A Sacramento County Superior Court in California Teachers'
Association, et al. v Gould, et al., ruled that the 1992-93 loans to K-12
schools and community colleges violate Proposition 98. As part of the
negotiations leading to the 1995-96 Budget Act, an oral agreement was reached to
settle this case. The parties reached a conditional final settlement of the case
in April, 1996. The settlement required adoption of legislation satisfactory to
the parties to implement its terms.
The settlement provided, among other things, that both the
State and K-12 schools share in the repayment of prior years' emergency loans to
schools. Of the total $1.76 billion in loans, the State was obligated to repay
$935 million by forgiveness of the amount owed, while schools were required to
repay $825 million. The State's share of the repayment is reflected as
expenditures above the current Proposition 98 base circulation. The schools'
share of the repayment counts as appropriations toward satisfying the
Proposition 98 guarantee, or from "below" the current base. Repayments are
spread over the eight-year period beginning 1994-95 through 2002-03.
Because of the complexities of Article XIIIB, the ambiguities
and possible inconsistencies in its terms, the applicability of its exceptions
and exemptions and the impossibility of predicting future appropriations, the
Sponsor cannot predict the impact of this or related legislation on the bonds in
the Trust Portfolio. Other Constitutional amendments affecting state and local
taxes and appropriations have been proposed from time to time. If any such
initiatives are adopted, the state could be pressured to provide additional
financial assistance to local governments or appropriate revenues as mandated by
such initiatives. Propositions such as Proposition 98 and others that may be
adopted in the future, may place increasing pressure on the
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State's budget over future years, potentially reducing resources available for
other State programs, especially to the extent that the Article XIIIB spending
limit would restrain the State's ability to fund other such programs by raising
taxes.
State Indebtedness
As of August 1, 1998, the State had over $15.9 billion
aggregate amount of its general obligation bonds outstanding. General obligation
bond authorizations in an aggregate amount of approximately $4.8 billion
remained unissued as of August 1, 1998. As of April 1, 1998 the State Finance
Committee had authorized the issuance of approximately $2.6 billion of general
obligation commercial paper notes, but as of that date only $1.3 billion
aggregate principal amount of which was issued and outstanding. The State also
builds and acquires capital facilities through the use of lease purchase
borrowing. As of April 1, 1998, the State had approximately $6.5 billion of
outstanding General Fund-supported Lease-Purchase Debt.
In addition to the general obligation bonds, State agencies
and authorities had approximately $22.49 billion aggregate principal amount of
revenue bonds and notes outstanding as of April 1, 1998. Revenue bonds represent
both obligations payable from State revenue-producing enterprises and projects,
which are not payable from the General Fund, and conduit obligations payable
only from revenues paid by private users of facilities financed by such revenue
bonds. Such enterprises and projects include transportation projects, various
public works and exposition projects, educational facilities (including the
California State University and University of California systems), housing,
health facilities and pollution control facilities.
Litigation
The State is a party to numerous legal proceedings. In
addition, the State is involved in certain other legal proceedings that, if
decided against the State, might require the State to make significant future
expenditures or impair future revenue sources. Examples of such cases include
challenges to certain vehicle license fees and challenges to the State's use of
Public Employee Retirement System funds to offset future State and local pension
contributions. Other cases which could significantly impact revenue or
expenditures involve challenges of payments of wages under the Fair Labor
Standards Act, the method of determining gross insurance premiums involving
health insurance, property tax challenges, and challenges of transfer of moneys
from State Treasury special fund accounts to the State's General Fund pursuant
to its Budget Acts for certain fiscal years. Because of the prospective nature
of these proceedings, it is not presently possible to predict the outcome of
such litigation or estimate the potential impact on the ability of the State to
pay debt service on its obligation.
Ratings
During 1996, the ratings of California's general obligation
bonds were upgraded by the following rating agencies. Standard & Poor's Ratings
Group upgraded its rating of such debt to A+; the same rating has been assigned
to such debt by Fitch Investors Service. Moody's Investors Service has assigned
such debt an A1 rating. Any explanation of the significance of such ratings may
be obtained only from the rating agency furnishing such
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ratings. There is no assurance that such ratings will continue for any given
period of time or that they will not be revised downward or withdrawn entirely
if, in the judgment of the particular rating agency, circumstances so warrant.
The Sponsor believes the information summarized above
describes some of the more significant aspects relating to the California Trust.
The sources of such information are Preliminary Official Statements and Official
Statements relating to the State's general obligation bonds and the State's
revenue anticipation notes, or obligations of other issuers located in the State
of California, or other publicly available documents. Although the Sponsor has
not independently verified this information, it has no reason to believe that
such information is not correct in all material respects.
New York Trust
Special Factors Affecting New York. The information set forth
below is derived from the official statements and/or preliminary drafts of
official statements prepared in connection with the issuance of New York State
and New York City municipal bonds. The Sponsors have not independently verified
this information.
Economic Trends
Over the long term, the State of New York (the "State") and
the City of New York (the "City") face serious potential economic problems. The
City accounts for approximately 41% of the State's population and personal
income, and the City's financial health affects the State in numerous ways. The
State historically has been one of the wealthiest states in the nation. For
decades, however, the State has grown more slowly than the nation as a whole,
gradually eroding its relative economic affluence. Statewide, urban centers have
experienced significant changes involving migration of the more affluent to the
suburbs and an influx of generally less affluent residents. Regionally, the
older Northeast cities have suffered because of the relative success that the
South and the West have had in attracting people and business. The City has also
had to face greater competition as other major cities have developed financial
and business capabilities which make them less dependent on the specialized
services traditionally available almost exclusively in the City.
The State has for many years had a very high State and local
tax burden relative to other states. The State and its localities have used
these taxes to develop and maintain their transportation networks, public
schools and colleges, public health systems, other social services and
recreational facilities. Despite these benefits, the burden of State and local
taxation, in combination with the many other causes of regional economic
dislocation, has contributed to the decisions of some businesses and individuals
to relocate outside, or not locate within, the State.
Notwithstanding the numerous initiatives that the State and
its localities may take to encourage economic growth and achieve balanced
budgets, reductions in Federal spending could materially and adversely affect
the financial condition and budget projections of the State and its localities.
New York City
The City, with a population of approximately 7.4 million, is
an international center of business and culture. Its non-manufacturing economy
is broadly based, with the banking and securities, life insurance,
communications, publishing, fashion design, retailing and construction
industries accounting for a significant portion of the City's total employment
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earnings. Additionally, the City is the nation's leading tourist destination.
The City's manufacturing activity is conducted primarily in apparel and
printing.
For each of the 1981 through 1997 fiscal years, the City had
an operating surplus, before discretionary transfers, and achieved balanced
operating results as reported in accordance with then applicable generally
accepted accounting principles ("GAAP"), after discretionary transfers. The City
has been required to close substantial gaps between forecast revenues and
forecast expenditures in order to maintain balanced operating results. There can
be no assurance that the City will continue to maintain balanced operating
results as required by State law without tax or other revenue increases or
reductions in City services or entitlement programs, which could adversely
affect the City's economic base.
As required by law, the City prepares a four-year annual
financial plan, which is reviewed and revised on a quarterly basis and which
includes the City's capital, revenue and expense projections and outlines
proposed gap- closing programs for years with projected budget gaps. The City's
current financial plan projects a surplus in each of the 1998 and 1999 fiscal
years, before discretionary transfers, and budget gaps for each of the 2000,
2001 and 2002 fiscal years. This pattern of current year surplus operating
results and projected subsequent year budget gaps has been consistent through
the entire period since 1982, during which the City has achieved surplus
operating results, before discretionary transfers, for each fiscal year.
The City depends on aid from the State of New York (the
"State") both to enable the City to balance its budget and to meet its cash
requirements. There can be no assurance that there will not be reductions in
State aid to the City from amounts currently projected; that State budgets will
be adopted by the April 1 statutory deadline, or interim appropriations enacted;
or that any such reductions or delays will not have adverse effects on the
City's cash flow or expenditures. In addition, the Federal budget negotiation
process could result in a reduction in or a delay in the receipt of Federal
grants which could have additional adverse effects on the City's cash flow or
revenues.
The Mayor is responsible for preparing the City's financial
plan, including the City's current financial plan for the 1999 through 2002
fiscal years (the "1999-2002 Financial Plan" or "Financial Plan"). The City's
projections set forth in the Financial Plan are based on various assumptions and
contingencies which are uncertain and which may not materialize. Such
assumptions and contingencies include the condition of the regional and local
economies, the provision of State and Federal aid and the impact on City
revenues and expenditures of any future Federal or State policies affecting the
City.
Implementation of the Financial Plan is dependent upon the
City's ability to market its securities successfully. The City's financing
program for fiscal years 1999 through 2002 contemplates the issuance of $5.2
billion of general obligation bonds and $5.4 billion of bonds to be issued by
the New York City Transitional Finance Authority (the "Finance Authority") to
finance City capital projects. The Finance Authority was created as part of the
City's effort to assist in keeping the City's indebtedness within the forecast
level of the constitutional restrictions on the amount of debt the City is
authorized to incur. In addition, the City issues revenue and tax anticipation
notes to finance its seasonal working capital requirements. The success of
projected public sales of City bonds and notes, New York City Municipal Water
Finance Authority ("Water Authority") bonds and Finance Authority bonds will be
subject to prevailing market conditions. The City's
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planned capital and operating expenditures are dependent upon the sale of its
general obligation bonds and notes, and the Water Authority and Finance
Authority bonds. Future developments concerning the City and public discussion
of such developments, as well as prevailing market conditions, may affect the
market for outstanding City general obligation bonds and notes.
For the 1997 fiscal year, the City had an operating surplus,
before discretionary transfers, and achieved balanced operating results, after
discretionary transfers, in accordance with GAAP. The 1997 fiscal year is the
seventeenth year that the City has achieved an operating surplus, before
discretionary transfers, and balanced operating results, after discretionary
transfers. The most recent quarterly modification to the City's financial plan
for the 1998 fiscal year, submitted to the Control Board on April 30, 1998 (the
"1998 Modification"), projects a balanced budget in accordance with GAAP for the
1998 fiscal year.
On April 24, 1998, the City released the Financial Plan for
the 1999 through 2002 fiscal years, which relates to the City and certain
entities which receive funds from the City, and which is based on the Executive
Budget and Budget Message for the City's 1999 fiscal year (the "Executive
Budget"). The Financial Plan is consistent with the Executive Budget and has not
been revised to reflect changes subsequent to the date of the Financial Plan.
The Executive Budget and Financial Plan project revenues and expenditures for
the 1999 fiscal year balanced in accordance with GAAP, and project gaps of $1.5
billion, $2.1 billion and $1.6 billion for the 2000, 2001 and 2002 fiscal years,
respectively.
Changes since the June Financial Plan include: (i) an increase
in projected tax revenues of $1.3 billion, $1.1 billion, $955 million, $897
million and $1.7 billion in the 1998 through 2002 fiscal years, respectively;
(ii) a reduction in assumed State aid of $283 million in the 1998 fiscal year
and of between $134 million and $142 million in each of the 1999 through 2002
fiscal years, reflecting the adopted budget for the State's 1998 fiscal year;
(iii) a delay in the assumed collection of $350 million of projected rent
payments for the City's airports in the 1999 fiscal year to fiscal years 2000
through 2002; (iv) a reduction in projected debt service expenditures totaling
$197 million, $361 million, $204 million and $226 million in the 1998 through
2001 fiscal years, respectively; (v) an increase in the Board of Education (the
"BOE") spending of $266 million, $26 million, $58 million and $193 million in
the 1999 through 2002 fiscal years, respectively; (vi) an increase in
expenditures for the City's proposed drug initiatives totaling $68 million in
the 1998 fiscal year and of between $167 million and $193 million in each of the
1999 through 2002 fiscal years; (vii) other agency net spending initiatives
totaling $112 million, $443 million, $281 million, $273 million and $677 million
in fiscal years 1998 through 2002, respectively; and (viii) reduced pension
costs of $116 million, $168 million and $404 million in fiscal years 2000
through 2002, respectively. The Financial Plan also sets forth gap-closing
actions for the 1998 through 2002 fiscal years, which include: (i) additional
agency actions totaling $176 million, $595 million, $516 million, $494 million
and $552 million in fiscal years 1998 through 2002, respectively, and (ii)
assumed additional Federal and State aid of $100 million in each of fiscal years
1999 through 2002.
The 1998 Modification and the 1999-2002 Financial Plan include
a proposed discretionary transfer in the 1998 fiscal year of approximately $2.0
billion to pay debt service due in the 1999 fiscal year, and a proposed
discretionary transfer in the 1999 fiscal year of $416 million to pay debt
service due in fiscal year 2000, included in the Budget Stabilization Accounts
for the 1998 and 1999 fiscal years, respectively. In addition, the Financial
Plan reflects proposed tax reduction programs totaling $237 million, $537
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million, $657 million and $666 million in fiscal years 1999 through 2002,
respectively, including the elimination of the City sales tax on all clothing as
of December 1, 1999, a City-funded acceleration of the State funded personal
income tax reduction for the 1999 through 2001 fiscal years, the extension of
current tax reductions for owners of cooperative and condominium apartments
starting in fiscal year 2000 and a personal income tax credit for child care and
for resident holders of Subchapter S corporations, which are subject to State
legislative approval, and reduction of the commercial rent tax commencing in
fiscal year 2000.
The Financial Plan assumes (i) approval by the Governor and
the State Legislature of the extension of the 14% personal income tax surcharge,
which is scheduled to expire on December 31, 1999, and the extension of which is
projected to provide revenue of $172 million, $500 million and $514 million in
the 2000, 2001 and 2002 fiscal years, respectively, and of the extension of the
12.5% personal income tax surcharge, which is scheduled to expire on December
31, 1998, and the extension of which is projected to provide revenue of $201
million, $546 million, $568 million and $593 million in the 1999 through 2002
fiscal years, respectively; (ii) collection of the projected rent payments for
the City's airports, totaling $15 million, $365 million, $155 million and $185
million in the 1999 through 2002 fiscal years, respectively, which may depend on
the successful completion of negotiations with The Port Authority of New York
and New Jersey (the "Port Authority") or the enforcement of the City's rights
under the existing leases through pending legal actions; and (iii) State
approval of the repeal of the Wicks Law relating to contracting requirements for
City construction projects and the additional State funding assumed in the
Financial Plan and State and Federal approval of the State and Federal
gap-Closing actions assumed in the Financial Plan. The Financial Plan provides
no additional wage increases for City employees after their contracts expire in
fiscal years 2000 and 2001. In addition, the economic and financial condition of
the City may be affected by various financial, social, economic and political
factors which could have a material effect on the City.
On June 5, 1998, the City Council adopted a budget which
reallocated expenditures from those provided in the Executive Budget in the
amount of $409 million. The re-allocated expenditures, which include $116
million from the Budget Stabilization Account, $82 million from debt service,
$45 million from pension contributions, $54 million from social services
spending and $112 million from other spending, were re-allocated to uses set
forth in the City Council's adopted budget. Such uses include a revised tax
reduction program at a revenue cost in the 1999 fiscal year of $45 million,
additional expenditures for various programs of $199 million and provision of
$165 million to retire high interest debt. The revised tax reduction program in
the City Council's adopted budget assumes the expiration of the 12.5% personal
income tax surcharge, rather than the implementation of the personal income tax
reduction program proposed in the Executive Budget. The changes reflected in the
City Council's adopted budget would increase the gaps forecast between revenues
and expenditures in the future years of the Financial Plan.
On June 5, 1998, in accordance with the City Charter, the
Mayor certified to the City Council revised estimates of the City's revenues
(other than property tax) for fiscal year 1999. Consistent with this
certification, the property tax levy was estimated by the Mayor to require an
increase to realize sufficient revenue from this source to produce a balanced
budget within generally accepted accounting principles. On June 8, 1998, the
City Council adopted a property tax levy that was $237.7 million lower than the
levy estimated to be required by the Mayor. The City Council, however,
maintained that the revenue to be derived from the levy it adopted would be
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sufficient to achieve a balanced budget because the property tax reserve for
uncollectibles could be reduced. Property tax bills for fiscal year 1999 are
expected to be mailed in the near future by the City's Department of Finance at
the rates adopted by the City Council for fiscal year 1998, subject to later
adjustment.
On July 16, 1998, Standard & Poor's revised its rating of City
bonds upward from BBB+ to A-. Moody's rating of City bonds was revised in
February 1998 to A3 from Baa1. Moody's, Standard & Poor's and Fitch currently
rate the City's outstanding general obligation bonds A3, A- and A-,
respectively.
New York State and its Authorities
The Legislature passed a State budget for the 1998-1999 fiscal
year on April 18, 1998, and on April 26, 1998 the Governor vetoed certain of the
increased spending in the State budget passed by the Legislature. The
Legislature did not override any of the Governor's vetoes. The State Financial
Plan for the 1998-1999 fiscal year, as modified on July 30, 1998, projects
balance on a cash basis for the 1998-1999 fiscal year, with a closing balance in
the General Fund of $1.67 billion. The State Financial Plan contains projections
of a potential imbalance in the 1999-2000 fiscal year of $1.3 billion, assuming
implementation of $600 million of unspecified efficiency actions, the receipt of
$250 million in funds from the tobacco settlement and the application of certain
reserves established in the 1998- 1999 State Financial Plan. The Executive
Budget submitted in February 1998 contained projections at that time of a
potential imbalance in the 2000-2001 fiscal year of $3.72 billion, assuming
implementation of $800 million of unspecified efficiency initiatives in the
2000-2001 fiscal year and $250 million in funds from the tobacco settlement. The
State Financial Plan for the 1998-1999 fiscal year includes multi-year tax
reductions and significant increases in spending which will affect the 2000-2001
fiscal year. The various elements of the State and local tax and assessment
reductions enacted during the last several fiscal years will reduce projected
revenues by more than $4 billion in the 2002-2003 fiscal year as measured from
the current 1998-1999 base.
On July 23, 1998, the New York State Comptroller issued a
report which noted that a significant cause for concern is the budget gaps in
the 1999-2000 and 2000-2001 fiscal years, which the State Comptroller projected
at $1.8 billion and $5.5 billion, respectively, after excluding the uncertain
receipt by the State of $250 million of funds from the tobacco settlement
assumed for each of such fiscal years, as well as the unspecified actions
assumed in the State's projections. The State Comptroller also stated that if
the securities industry or economy slows, the size of the gaps would increase.
Standard & Poor's rates the State's general obligation bonds
A, and Moody's rates the State's general obligation bonds A2. On August 28,
1997, Standard & Poor's revised its rating on the State's general obligation
bonds from A- to A.
Litigation
The court actions in which the State is a defendant generally
involve State programs and miscellaneous tort, real property, and contract
claims. While the ultimate outcome and fiscal impact, if any, on the State of
those proceedings and claims are not currently predictable, adverse
determinations in certain of them might have a material adverse effect upon the
State's ability to carry out the 1999-2002 Financial Plan. The City has
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estimated that its potential future liability on account of outstanding claims
against it as of June 30, 1997 amounted to approximately $3.5 billion.
Virginia Trust
Virginia Risk Factors. Investors should be aware of certain
factors that might affect the financial condition of issuers of Virginia
municipal securities.
Bonds in the Virginia Trust may include primarily debt
obligations of the subdivisions of the Commonwealth of Virginia issued to obtain
funds for various public purposes, including the construction of a wide range of
public facilities such as airports, bridges, highways, schools, streets and
water and sewer works. Other purposes for which bonds may be issued include the
obtaining of funds to lend to public or private institutions for the
construction of facilities such as educational, hospital, housing, and solid
waste disposal facilities. The latter are generally payable from private sources
which, in varying degrees, may depend on local economic conditions, but are not
necessarily affected by the ability of the Commonwealth of Virginia and its
political subdivisions to pay their debts. Therefore, the general risk factors
as to the credit of the State or its political subdivision discussed herein may
not be relevant to the Virginia Trust.
To the extent bonds of the Commonwealth of Virginia are
included in the Virginia Issues, information on the financial condition of the
Commonwealth is noted. The Constitution of Virginia limits the ability of the
Commonwealth to create debt. The Constitution requires a balanced budget. The
Commonwealth has maintained a high level of fiscal stability for many years due
in large part to conservative financial operations and diverse sources of
revenue. The economy of the Commonwealth of Virginia is based primarily on
manufacturing, the government sector (including defense), agriculture, mining
and tourism. Defense installations are concentrated in Northern Virginia, the
location of the Pentagon, and the Hampton Roads area, including the Cities of
Newport News, Hampton, Norfolk and Virginia Beach, the locations of, among other
installations, the Army Transportation Center (Ft. Eustis), the Langley Air
Force Base, Norfolk Naval Base and the Oceana Naval Air Station, respectively.
Any substantial reductions in defense spending generally or in particular areas,
including base closings, could adversely affect the state and local economies.
The Commonwealth currently has a Standard & Poor's rating of
AAA and a Moody's rating of Aaa on its general obligation bonds. There can be no
assurance that the economic conditions on which these ratings are based will
continue or that particular bond issues may not be adversely affected by changes
in economic or political conditions. Further, the credit of the Commonwealth is
not material to the ability of political subdivisions and private entities to
make payments on the obligations described below.
General obligations of cities, towns and counties in Virginia
are payable from the general revenues of the entity, including ad valorem tax
revenues on property within the jurisdiction. The obligation to levy taxes could
be enforced by mandamus, but such a remedy may be impracticable and difficult to
enforce. Under section 15.1-227.61 of the Code of Virginia of 1950, as amended,
a holder of any general obligation bond in default may file an affidavit setting
forth such default with the Governor. If, after investigating, the Governor
determines that such default exists, he is directed to order the State
Comptroller to withhold State funds appropriated and payable to the entity and
apply the amount so withheld to unpaid principal and interest. The Commonwealth,
however, has no obligation to provide any additional funds necessary to pay such
principal and interest.
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Revenue bonds issued by Virginia political subdivisions
include (i) revenue bonds payable exclusively from revenue producing
governmental enterprises and (ii) industrial revenue bonds, college and hospital
revenue bonds and other "private activity bonds" which are essentially
non-governmental debt issues and which are payable exclusively by private
entities such as non-profit organizations and business concerns of all sizes.
State and local governments have no obligation to provide for payment of such
private activity bonds and in many cases would be legally prohibited from doing
so. The value of such private activity bonds may be affected by a wide variety
of factors relevant to particular localities or industries, including economic
developments outside of Virginia.
Virginia municipal securities that are lease obligations are
customarily subject to "non-appropriation" clauses which allow the municipality,
or other public entity, to terminate its lease obligations if moneys to make the
lease payments are not appropriated for that purpose. See "Objectives". Legal
principles may restrict the enforcement of provisions in lease financing
limiting the municipal issuer's ability to utilize property similar to that
leased in the event that debt service is not appropriated.
PUBLIC OFFERING
---------------
Offering Price. The secondary market Public Offering Price per
Unit of each Trust is computed by adding a sales charge to the aggregate bid
price of the Bonds in such Trust divided by the number of Units thereof
outstanding. The method used by the Evaluator for computing the sales charge for
secondary market purchases shall be based upon the number of years remaining to
maturity of each Bond in the portfolio. Bonds will be deemed to mature on their
stated maturity dates unless bonds have been called for redemption, funds have
been placed in escrow to redeem them on an earlier call date or are subject to a
"mandatory put," in which case the maturity will be deemed to be such other
date.
The table below sets forth the various sales charges based on
the length of maturity of each Bond:
As Percent of Public
Time to Maturity Offering Price
- ---------------- --------------------
less than 6 months 0%
6 mos. to 1 year 1%
over 1 yr. to 2 yrs. 1 1/2%
over 2 yrs. to 4 yrs. 2 1/2%
over 4 yrs. to 8 yrs. 3 1/2%
over 8 yrs. to 15 yrs. 4 1/2%
over 15 years 5 1/2%
A proportionate share of accrued interest on the Bonds to the
expected date of settlement for the Units is added to the Public Offering Price.
Accrued interest is the accumulated and unpaid interest on Bonds from the last
day on which interest was paid and is initially accounted for daily
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by each Trust at the daily rate set forth under "Summary of Essential
Information" for each Trust in Part A of this Prospectus. This daily rate is net
of estimated fees and expenses. The secondary market Public Offering Price can
vary on a daily basis from the amount stated on the cover of Part A of this
Prospectus in accordance with fluctuations in the prices of the Bonds. The price
to be paid by each investor will be computed on the basis of an evaluation made
as of the day the Units are purchased. The aggregate bid price evaluation of the
Bonds is determined in the manner set forth under "Trustee Redemption."
The Evaluator may obtain current prices for the Bonds from
investment dealers or brokers (including the Sponsors) that customarily deal in
tax-exempt obligations or from any other reporting service or source of
information which the Evaluator deems appropriate.
Accrued Interest. An amount of accrued interest which
represents accumulated unpaid or uncollected interest on a bond from the last
day on which interest was paid thereon will be added to the Public Offering
Price and paid by the Certificateholder at the time Units are purchased. Since
each Trust normally receives the interest on the Bonds twice a year and the
interest on the Bonds is accrued on a daily basis (this daily rate is net of
estimated fees and expenses), each Trust will always have an amount of interest
earned but uncollected by, or unpaid to, the Trustee. A Certificateholder will
not recover his proportionate share of accrued interest until the Units of a
Trust are sold or redeemed, or such Trust is terminated. At that time, the
Certificateholder will receive his proportionate share of the accrued interest
computed to the settlement date in the case of sale or termination and to the
date of tender in the case of redemption.
Employee Discounts. Employees (and their families) of Reich &
Tang Distributors, Inc. (and its affiliates) and of any underwriter of any
Trust, pursuant to employee benefit arrangements, may purchase Units of a State
Trust at a price equal to the bid side evaluation of the underlying securities
in such State Trust divided by the number of Units outstanding plus a reduced
sales charge. Such arrangements result in less selling effort and selling
expenses than sales to employee groups of other companies. Resales or transfers
of Units purchased under the employee benefit arrangements may only be made
through the Sponsor's secondary market, so long as it is being maintained.
Distribution of Units. Certain banks and thrifts will make
Units of the Trust available to their customers on an agency basis. A portion of
the sales charge paid by their customers is retained by or remitted to the
banks. Under the Glass-Steagall Act, banks are prohibited from underwriting
Units; however, the Glass-Steagall Act does permit certain agency transactions
and the banking regulators have indicated that these particular agency
transactions are permitted under such Act. In addition, state securities laws on
this issue may differ from the interpretations of federal law expressed herein
and banks and financial institutions may be required to register as dealers
pursuant to state law.
The Sponsor intends to qualify the Units of each State Trust
for sale in only the State for which such Trust is named and certain other
states through dealers who are members of the National Association of Securities
Dealers, Inc. Units may be sold to dealers at prices which represent a
concession of up to $33.00 per Unit, subject to the Sponsor's right to change
the dealers' concession from time to time. In addition, for transactions of
1,000,000 Units or more, the Sponsor intends to negotiate the applicable sales
charge and such charge will be disclosed to any such purchaser. Such Units may
then be distributed to the public by the dealers at the Public Offering
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Price then in effect. The Sponsor reserves the right to reject, in whole or in
part, any order for the purchase of Units. The Sponsor reserves the right to
change the discounts from time to time.
Sponsor's Profits. The Sponsor will receive a gross commission
on all Units sold in the secondary market equal to the applicable sales charge
in each transaction (see "Offering Price"). In addition, in maintaining a market
for the Units (see "Sponsor Repurchase"), the Sponsor will realize profits or
sustain losses in the amount of any difference between the price at which it
buys Units and the price at which it resells such Units.
Comparison of Public Offering Price, Sponsor's Repurchase
Price and Redemption Price. The secondary market Public Offering Price of Units
of each State Trust will be determined on the basis of the current bid prices of
the Bonds in such State Trust plus the applicable sales charge. Value at which
Units may be resold in the secondary market or redeemed will be determined on
the basis of the current bid prices of such Bonds without any sales charge. On
the Evaluation Date, the Public Offering Price per Unit of each State Trust
(based on the bid price of the Bonds in such State Trust plus the sales charge)
each exceeded the Repurchase and Redemption Price per Unit (based upon the bid
price of the Bonds in each State Trust without the sales charge) by the amounts
shown under "Summary of Essential Information" for each State Trust in Part A of
this Prospectus. For this reason, among others (including fluctuations in the
market prices of such Bonds and the fact that the Public Offering Price includes
the applicable sales charge), the amount realized by a Certificateholder upon
any redemption of Units may be less than the price paid for such Units.
ESTIMATED LONG TERM RETURN AND ESTIMATED CURRENT RETURN
-------------------------------------------------------
The rate of return on an investment in Units of each Trust is
measured in terms of "Estimated Current Return" and "Estimated Long Term
Return".
Estimated Long Term Return is calculated by: (i) computing the
yield to maturity or to an earlier call date (whichever results in a lower
yield) for each Bond in a Trust's portfolio in accordance with accepted bond
practices, which practices take into account not only the interest payable on
the Bond but also the amortization of premiums or accretion of discounts, if
any; (ii) calculating the average of the yields for the Bonds in each Trust's
portfolio by weighing each Bond's yield by the market value of the Bond and by
the amount of time remaining to the date to which the Bond is priced (thus
creating an average yield for the portfolio of each Trust); and (iii) reducing
the average yield for the portfolio of each Trust in order to reflect estimated
fees and expenses of that Trust and the maximum sales charge paid by
Certificateholders. The resulting Estimated Long Term Return represents a
measure of the return to Certificateholders earned over the estimated life of
each Trust. The Estimated Long Term Return as of the day prior to the Evaluation
Date is stated for each Trust under "Summary of Essential Information" in Part
A.
Estimated Current Return is computed by dividing the Estimated
Net Annual Interest Income per Unit by the Public Offering Price per Unit. In
contrast to the Estimated Long Term Return, the Estimated Current Return does
not take into account the amortization of premium or accretion of discount, if
any, on the Bonds in the portfolios of each Trust. Moreover, because interest
rates on Bonds purchased at a premium are generally higher than current interest
rates on newly issued bonds of a similar type with comparable rating, the
Estimated Current Return per Unit may be affected adversely if such Bonds
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are redeemed prior to their maturity. On the day prior to the Evaluation Date,
the Estimated Net Annual Interest Income per Unit divided by the Public Offering
Price resulted in the Estimated Current Return stated for each Trust under
"Summary of Essential Information" in Part A.
The Estimated Net Annual Interest Income per Unit of each
Trust will vary with changes in the fees and expenses of the Trustee and the
Evaluator applicable to each Trust and with the redemption, maturity, sale or
other disposition of the Bonds in each Trust. The Public Offering Price will
vary with changes in the bid prices of the Bonds. Therefore, there is no
assurance that the present Estimated Current Return or Estimated Long Term
Return will be realized in the future.
A schedule of cash flow projections is available from the
Sponsor upon request.
RIGHTS OF CERTIFICATEHOLDERS
----------------------------
Certificates. Ownership of Units of each State Trust is
evidenced by registered Certificates executed by the Trustee and the Sponsor.
Certificates may be issued in denominations of one or more Units and will bear
appropriate notations on their faces indicating which plan of distribution has
been selected by the Certificateholder. Certificates are transferable by
presentation and surrender to the Trustee properly endorsed and/or accompanied
by a written instrument or instrument of transfer. Although no such charge is
presently made or contemplated, the Trustee may require a Certificateholder to
pay $2.00 for each Certificate reissued or transferred and any governmental
charge that may be imposed in connection with each such transfer or interchange.
Mutilated, destroyed, stolen or lost Certificates will be replaced upon delivery
of satisfactory indemnity and payment of expenses incurred.
Interest and Principal Distributions. Interest received by
each State Trust is credited by the Trustee to the Interest Account of such
Trust and a deduction is made to reimburse the Trustee without interest for any
amounts previously advanced. Proceeds representing principal received by each
State Trust from the maturity, redemption, sale or other disposition of Bonds
are credited to the Principal Account of such State Trust.
Distributions to each Certificateholder of each State Trust
from the Interest Account of such State Trust are computed as of the close of
business on each Record Date for the following Payment Date and consist of an
amount substantially equal to one-twelfth, one-half or all of such
Certificateholder's pro rata share of the Estimated Net Annual Interest Income
in such Interest Account, depending upon the applicable plan of distribution.
Distributions from the Principal Account of each State Trust will be computed as
of each semi-annual Record Date, and will be made to the Certificateholders of
such State Trust on or shortly after the next semi-annual Payment Date. Proceeds
representing principal received from the disposition of any of the Bonds between
a Record Date and a Payment Date which are not used for redemptions of Units
will be held in the appropriate Principal Account and not distributed until the
second succeeding semi-annual Payment Date. No distributions will be made to
Certificateholders electing to participate in the Total Reinvestment Plan,
except as provided thereunder. Persons who purchase Units between a Record Date
and a Payment Date will receive their first distribution on the second Payment
Date after such purchase.
Because interest payments are not received by the State Trust
at a constant rate throughout the year, interest distributions may be more or
less
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than the amount credited to the Interest Account as of a given Record Date. For
the purpose of minimizing fluctuations in the distributions from the Interest
Account, the Trustee will advance sufficient funds as may be necessary to
provide interest distributions of approximately equal amounts. The Trustee shall
be reimbursed, without interest, for these advances to the Interest Account.
Funds which are available for future distributions, investment in the Total
Reinvestment Plan, payments of expenses and redemptions are in accounts which
are non-interest bearing to Certificateholders and are available for use by the
Trustee pursuant to normal banking procedures.
As of the first day of each month, the Trustee will deduct
from the Interest Account and, to the extent funds are not sufficient therein,
from the Principal Account, amounts necessary to pay the expenses of the Trust
(as determined on the basis set forth under "Trust Expenses and Charges"). The
Trustee also may withdraw from said accounts such amounts, if any, as it deems
necessary to establish a reserve for any applicable taxes or other governmental
charges that may be payable out of the Trust. Amounts so withdrawn shall not be
considered a part of the Trust's assets until such time as the Trustee shall
return all or any part of such amounts to the appropriate accounts. In addition,
the Trustee may withdraw from the Interest and Principal Accounts such amounts
as may be necessary to cover redemptions of Units by the Trustee.
The estimated monthly, semi-annual or annual interest
distribution per Unit of each State Trust initially will be in the amounts shown
under "Summary of Essential Information" in Part A and will change and be
reduced as Bonds mature or are redeemed, exchanged or sold, or as expenses of
each State Trust fluctuate. No distribution need be made from a Principal
Account until the balance therein is an amount sufficient to distribute $1.00
per Unit.
Distribution Elections. Interest is distributed monthly,
semi-annually or annually, depending upon the distribution applicable to the
Unit Purchased. Record Dates for interest distributions will be the first day of
each month for monthly distributions, the first day of each June and December
for semi-annual distributions and the first day of each December for annual
distributions. Payment Dates will be the fifteenth day of each month following
the respective Record Dates. Certificateholders purchasing Units in the
secondary market will initially receive distributions in accordance with the
election of the prior owner. Every October each Certificateholder may change his
distribution election by notifying the Trustee in writing of such change between
October 1 and November 1 of each year. (Certificateholders deciding to change
their election should contact the Trustee by calling the number listed on the
back cover hereof for information regarding the procedures that must be followed
in connection with this written notification of the change of election.) Failure
to notify the Trustee on or before November 1 of each year will result in a
continuation of the plan for the following 12 months.
Records. The Trustee shall furnish Certificateholders, in
connection with each distribution, a statement of the amount of interest, if
any, and the amount of other receipts, if any, which are being distributed,
expressed in each case as a dollar amount per Unit. Within a reasonable time
after the end of each calendar year, the Trustee will furnish to each person who
at any time during the calendar year was a Certificateholder of record of a
State Trust, a statement showing (i) as to the Interest Account of such State
Trust: interest received (including any earned original issue discount and
amounts representing interest received upon any disposition of Bonds and earned
original discount, if any), amounts paid for redemption of Units, if any,
deductions for applicable taxes and fees and expenses of such State
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Trust, and the balance remaining after such distributions and deductions,
expressed both as a total dollar amount and as a dollar amount representing the
pro rata share of each Unit outstanding on the last business day of such
calendar year; (ii) as to such State Trust's Principal Account: the dates of
disposition of any Bonds and the net proceeds received therefrom (including any
unearned original issue discount but excluding any portion representing accrued
interest), deductions for payments of applicable taxes and fees and expenses of
such State Trust, amounts paid for redemption of Units, if any, and the balance
remaining after such distributions and deductions, expressed both as a total
dollar amount and as a dollar amount representing the pro rata share of each
Unit outstanding on the last business day of such calendar year; (iii) a list of
the Bonds held in such State Trust and the number of Units thereof outstanding
on the last business day of such calendar year; (iv) the Redemption Price per
Unit of such State Trust based upon the last computation thereof made during
such calendar year; and (v) amounts actually distributed to Certificateholders
of such State Trust during such calendar year from the Interest and Principal
Accounts, separately stated, expressed both as total dollar amounts and as
dollar amounts representing the pro rata share of each Unit outstanding on the
last business day of such calendar year.
The Trustee shall keep available for inspection by
Certificateholders, at all reasonable times during usual business hours, books
of record and account of its transactions as Trustee, including records of the
names and addresses of Certificateholders, Certificates issued or held, a
current list of Bonds in the portfolio and a copy of the Trust Agreement.
TAX STATUS
----------
All Bonds acquired by the State Trusts were accompanied by
copies of opinions of bond counsel to the issuing governmental authorities given
at the time of original delivery of the Bonds to the effect that the interest
thereon is exempt from regular Federal income tax and from the respective State
income taxes. Such interest may, however, be subject to the federal alternative
minimum tax and to state and local taxes in other jurisdictions. Neither the
Sponsor nor the Trustee nor their respective counsel have made any review of the
proceedings relating to the issuance of the Bonds or the bases for such opinions
and express no opinion as to these matters, and neither the Trustee nor the
Sponsor nor their respective counsel have made an independent examination or
verification that the Federal income tax status of the Bonds has not been
altered since the time of the original delivery of those opinions.
In rendering the opinion set forth below, counsel has examined
the Agreement, the final form of Prospectus dated the date hereof (the
"Prospectus") and the documents referred to therein, among others, and has
relied on the validity of said documents and the accuracy and completeness of
the facts set forth therein.
In the opinion of Battle Fowler LLP, counsel for the Sponsor,
under existing law:
The State Trusts are not associations taxable as corporations
for federal income tax purposes under the Internal Revenue Code of 1986
(the "Code"), and income received by each State Trust that consists of
interest excludable from federal gross income under the Code will be
excludable from the federal gross income of the Certificateholders of
such State Trust.
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Each Certificateholder of a State Trust will be considered the
owner of a pro rata portion of that State Trust under Section 676(a) of
the Code. Thus, each Certificateholder of a State Trust will be
considered to have received its pro rata share of Bond interest when it
is received by the State Trust, and the entire amount of net income
distributable to Certificateholders of a State Trust that is exempt
from Federal income tax when received by that State Trust will
constitute tax-exempt income when received by the Certificateholders.
Gain (other than any earned original issue discount) realized
on sale or redemption of the Bonds or on sale of a Unit is, however,
includible in gross income for Federal income tax purposes, generally
as capital gain, although gain on the disposition of a Bond or a Unit
purchased at a market discount generally will be treated as ordinary
income, rather than capital gain, to the extent of accrued market
discount. (It should be noted in this connection that such gain does
not include any amounts received in respect of accrued interest.) Such
gain may be long- or short-term gain depending on the holding period of
the Units, assuming that the Units are held as a capital asset. Capital
losses are deductible to the extent of capital gains; in addition, up
to $3,000 of capital losses of non-corporate Certificateholders ($1,500
for married persons filing separately) may be deducted against ordinary
income. Capital assets held by individuals will qualify for long-term
capital gain treatment if held for more than one year, respectively,
and will be subject to reduced tax rates of 28% and 20%, respectively,
rather than the "regular" maximum tax rate of 39.6%.
Each Certificateholder of a State Trust will realize taxable
gain or loss when that State Trust disposes of a Bond (whether by sale,
exchange, redemption or payment at maturity), as if the
Certificateholder had directly disposed of its pro rata share of such
Bond. The gain or loss is measured by the difference between (i) the
tax cost of such pro rata share and (ii) the amount received therefor.
The Certificateholder's tax cost for each Bond is determined by
allocating the total tax cost of each Unit among all the Bonds held in
the State Trust (in accordance with the portion of the State Trust
comprised by each Bond). In order to determine the amount of taxable
gain or loss, the Certificateholder's amount received is similarly
allocated at that time. The Certificateholder may exclude from the
amount received any amounts that represent accrued interest or the
earned portion of any original issue discount but may not exclude
amounts attributable to market discount. Thus, when a Bond is disposed
of by State Trust at a gain, taxable gain will equal the difference
between (i) the amount received and (ii) the amount paid plus any
accrued original issue discount. Gain on the disposition of a Bond
purchased at a market discount generally will be treated as ordinary
income, rather than capital gain, to the extent of accrued market
discount. No deduction is allowed for the amortization of bond premium
on tax-exempt bonds, such as the Bonds, in computing regular Federal
income tax.
Discount generally accrues based on the principle of
compounding of accrued interest, not on a straight-line or ratable
method, with the result that the amount of earned original issue
discount is less in the earlier years and more in the later years of a
bond term. The tax basis of a discount bond is increased by the amount
of accrued, tax-exempt original issue discount thus determined. This
method of calculation will produce higher capital gains (or lower
losses) to a Certificateholder, as compared to the results produced by
the straight-line method of accounting for original issue discount,
upon an early
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disposition of a Bond by a State Trust or of a Unit by a
Certificateholder.
A Certificateholder may also realize taxable income or loss
when a Unit of a State Trust is sold or redeemed. The amount received
is allocated among all the Bonds in that State Trust in the same manner
as when the State Trust disposes of Bonds, and the Certificateholder
may exclude accrued interest and the earned portion of any original
issue discount (but not amounts attributable to market discount). The
return of a Certificateholder's tax cost is otherwise a tax-free return
of capital.
A portion of Social Security benefits is includible in gross
income for taxpayers whose "modified adjusted gross income" combined
with a portion of their benefits exceeds a base amount. The base amount
is $25,000 for an individual, $32,000 for a married couple filing a
joint return and zero for married persons filing separate returns.
Interest on tax-exempt bonds is to be added to adjusted gross income
for purposes of computing the amount of Social Security benefits that
are includible in gross income and determining whether an individual's
income exceeds the base amount above which a portion of the benefits
would be subject to tax.
Corporate Certificateholders are required to include in
federal corporate alternative minimum taxable income 75% of the amount
by which the adjusted current earnings (which will include tax-exempt
interest) of the corporation exceeds alternative minimum taxable income
(determined without regard to this item). In addition, in certain
cases, Subchapter S corporations with accumulated earnings and profits
from Subchapter C years will be subject to a minimum tax on excess
"passive investment income" which includes tax-exempt interest.
Under federal law, interest on Bonds in each State Trust
issued by authority of the Government of Puerto Rico is exempt from
regular Federal income tax and state and local income taxes in the
United States and Puerto Rico.
The State Trusts are not subject to the New York State
Franchise Tax on Business Corporations or the New York City General Corporation
Tax.
Messrs. Battle Fowler LLP are also of the opinion that under
the personal income tax laws of the State and City of New York, the income of
each State Trust will be treated as the income of the Certificateholders.
Interest on the Bonds that is exempt from tax under the laws of the State and
City of New York when received by the New York Trust will retain its status as
tax-exempt interest of the Certificateholders. In addition, non-residents of New
York City will not be subject to the City personal income tax on gains derived
with respect to their Units. Non-residents of New York State will not be subject
to New York State personal income tax on such gains unless the Units are
employed in a business, trade or occupation carried on in New York State. A New
York State or New York City resident should determine its basis and holding
period for its Units in the same manner for New York State and New York City tax
purposes as for federal tax purposes. For corporations doing business in New
York State, interest earned on state and municipal obligations that are exempt
from Federal income tax, including obligations of New York State, its political
subdivisions and instrumentalities, must be included in calculating New York
State and New York City entire net income for purposes of computing New York
State and New York City franchise (income) tax.
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The exemption of interest on municipal obligations for Federal
income tax purposes does not necessarily result in exemption under the income
tax laws of any state or local government. The laws of such states and local
governments vary with respect to the taxation of such obligations. See "Rights
of Certificateholders" in this Part B.
In the opinion of Brown & Wood LLP, special counsel to the
Sponsor for California tax matters, under existing California law applicable to
individuals who are California residents:
The California Trust will not be treated as an association
taxable as a corporation, and the income of the California Trust will
be treated as the income of the Certificateholders. Accordingly,
interest on Bonds received by the California Trust that is exempt from
personal income taxes imposed by or under the authority of the State of
California will be treated for California income tax purposes in the
same manner as if received directly by the Certificateholders.
Each Certificateholder of the California Trust will recognize
gain or loss when the California Trust disposes of a Bond (whether by
sale, exchange, redemption or payment at maturity) or upon the
Certificateholder's sale or other disposition of a Unit. The amount of
gain or loss for California income tax purposes will generally be
calculated pursuant to the Internal Revenue Code of 1986, as amended,
certain provisions of which are incorporated by reference under
California law.
In the opinion of Hunton & Williams, special counsel to the
Sponsors for Virginia tax matters, under existing Virginia law applicable to
individuals who are Virginia residents and assuming that the Virginia Trust is a
grantor trust under the grantor trust rules of Sections 671-679 of the Code:
The Virginia Trust will be taxable as a grantor trust for
Virginia income tax purposes with the result that income of the
Virginia Trust will be treated as income of the Certificateholders of
the Virginia Trust. Consequently, the Virginia Trust will not be
subject to any income or corporate franchise tax imposed by the
Commonwealth of Virginia, or its subdivisions, agencies or
instrumentalities.
Interest on the Bonds in the Virginia Trust that is exempt
from Virginia income tax when received by the Virginia Trust will
retain its tax exempt status in the hands of the Certificateholders of
the Virginia Trust.
A Certificateholder of the Virginia Trust will realize a
taxable event when the Virginia Trust disposes of a Bond (whether by
sale, exchange, redemption or payment at maturity) or when the
Certificateholder redeems or sells his Units, and taxable gain for
Federal income tax purposes may result in taxable gain for Virginia
income tax purposes. Certain Bonds, however, may have been issued under
Acts of the Virginia General Assembly which provide that all income
from such Bond, including any profit from the sale thereof, shall be
free from all taxation by the Commonwealth of Virginia. To the extent
that any such profit is exempt from Virginia income tax, any such
profit received by the Virginia Trust will retain its tax exempt status
in the hands of the Certificateholders of the Virginia Trust.
In the case of Bonds that are industrial revenue bonds
("IRBs") or certain types of private activity bonds, the opinions of bond
counsel to the respective issuing authorities indicate that interest on such
Bonds is exempt
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from regular Federal income tax. However, interest on such Bonds will not be
exempt from regular Federal income tax for any period during which such Bonds
are held by a "substantial user" of the facilities financed by the proceeds of
such Bonds or by a "related person" thereof within the meaning of the Code.
Therefore, interest on any such Bonds allocable to a Certificateholder who is
such a "substantial user" or "related person" thereof will not be tax-exempt.
Furthermore, in the case of IRBs that qualify for the "small issue" exemption,
the "small issue" exemption will not be available or will be lost if, at any
time during the three-year period beginning on the later of the date the
facilities are placed in service or the date of issue, all outstanding
tax-exempt IRBs, together with a proportionate share of any present issue, of an
owner or principal user (or related person) of the facilities exceeds
$40,000,000. In the case of IRBs issued under the $10,000,000 "small issue"
exemption, interest on such IRBs will become taxable if the face amount of such
IRBs plus certain capital expenditures exceeds $10,000,000.
In addition, a Bond can lose its tax-exempt status as a result
of other subsequent but unforeseeable events such as prohibited "arbitrage"
activities by the issuer of the Bond or the failure of the Bond to continue to
satisfy the conditions required for the exemption of interest thereon from
regular Federal income tax. No investigation has been made as to the current or
future owners or users of the facilities financed by the Bonds, the amount of
such persons' outstanding tax-exempt IRBs, or the facilities themselves, and no
assurance can be given that future events will not affect the tax-exempt status
of the Bonds. Investors should consult their tax advisors for advice with
respect to the effect of these provisions on their particular tax situation.
Interest on indebtedness incurred or continued to purchase or
carry the Units is not deductible for regular Federal income tax purposes. In
addition, under rules used by the Internal Revenue Service for determining when
borrowed funds are considered used for the purpose of purchasing or carrying
particular assets, the purchase of Units may be considered to have been made
with borrowed funds even though the borrowed funds are not directly traceable to
the purchase of Units. Also, in the case of certain financial institutions that
acquire Units, in general no deduction is allowed for interest expense allocable
to the Units.
From time to time, proposals have been introduced before
Congress to restrict or eliminate the Federal income tax exemption for interest
on debt obligations similar to the Bonds in the State Trusts, and it can be
expected that similar proposals may be introduced in the future. In particular,
Congress may consider the adoption of some form of "flat tax" which could have
an adverse impact on the value of tax-exempt bonds.
In South Carolina v. Baker, the U.S. Supreme Court held that
the federal government may constitutionally require states to register bonds
they issue and subject the interest on such bonds to Federal income tax if not
registered, and that there is no constitutional prohibition against the federal
government's taxing the interest earned on state or other municipal bonds. The
Supreme Court decision affirms the authority of the federal government to
regulate and control bonds such as the Bonds in the Trust and to tax interest on
such bonds in the future. The decision does not, however, affect the current
exemption from taxation of the interest earned on the Bonds in the Trust in
accordance with Section 103 of the Code.
The opinions of bond counsel to the issuing governmental
authorities to the effect that interest on the Bonds is exempt from regular
Federal income tax may be limited to law existing at the time the Bonds were
issued, and may not apply to the extent that future changes in law,
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regulations or interpretations affect such Bonds. Investors are advised to
consult their own tax advisors for advice with respect to the effect of any
legislative changes.
LIQUIDITY
---------
Sponsor Repurchase. The Sponsor, although not obligated to do
so, intends to maintain a secondary market for the Units of each State Trust and
continuously to offer to repurchase the Units of the Trusts. The Sponsor's
secondary market repurchase price will be based on the aggregate bid price of
the Bonds in each State Trust portfolio, determined by the Evaluator on a daily
basis, and will be the same as the redemption price. (See "Trustee Redemption.")
Certificateholders who wish to dispose of their Units should inquire of the
Sponsor as to current market prices prior to making a tender for redemption. The
Sponsor may discontinue repurchases of Units of a State Trust if the supply of
Units exceeds demand, or for other business reasons. The date of repurchase is
deemed to be the date on which Certificates representing Units of a State Trust
are physically received in proper form by the Sponsor, Reich & Tang
Distributors, Inc., 600 Fifth Avenue, New York, N.Y. 10020. Units received after
4:00 p.m., New York Time, will be deemed to have been repurchased on the next
business day. In the event a market is not maintained for the Units of a State
Trust, a Certificateholder may be able to dispose of Units only by tendering
them to the Trustee for redemption.
Prospectuses relating to certain other bond trusts indicate an
intention by the Sponsor, subject to change, to repurchase units of those funds
on the basis of a price higher than the bid prices of the Bonds in the Trusts.
Consequently, depending upon the prices actually paid, the secondary market
repurchase price of other trusts may be computed on a somewhat more favorable
basis than the repurchase price offered by the Sponsor for Units of these State
Trusts, although in all bond trusts, the purchase price per unit depends
primarily on the value of the bonds in the trust portfolio.
Units purchased by the Sponsor in the secondary market may be
re-offered for sale by the Sponsor at a price based on the aggregate bid price
of the Bonds in a State Trust plus the applicable sales charge plus net accrued
interest. Any Units that are purchased by the Sponsor in the secondary market
also may be redeemed by the Sponsor if it determines such redemption to be in
its best interest.
The Sponsor may, under certain circumstances, as a service to
Certificateholders, elect to purchase any Units tendered to the Trustee for
redemption (see "Trustee Redemption"). For example, if in order to meet
redemptions of Units the Trustee must dispose of Bonds, and if such disposition
cannot be made by the redemption date (seven calendar days after tender), the
Sponsor may elect to purchase such Units. Such purchase shall be made by payment
to the Certificateholder not later than the close of business on the redemption
date of an amount equal to the Redemption Price on the date of tender.
Trustee Redemption. Units may also be tendered to the Trustee
for redemption at its corporate trust office as set forth in Part A of this
Prospectus, upon proper delivery of Certificates representing such Units and
payment of any relevant tax. At the present time there are no specific taxes
related to the redemption of Units. No redemption fee will be charged by the
Sponsor or the Trustee. Units redeemed by the Trustee will be canceled.
Certificates representing Units to be redeemed must be
delivered to the Trustee and must be properly endorsed or accompanied by proper
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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 three business days following a tender for redemption,
the Certificateholder will be entitled to receive in cash an amount for each
Unit tendered equal to the Redemption Price per Unit computed as of the
Evaluation Time on the date of tender. The "date of tender" is deemed to be the
date on which Units are received by the Trustee, except that, with respect to
Units received after the close of trading on the New York Stock Exchange, the
date of tender is the next day on which such Exchange is open for trading, and
such Units will be deemed to have been tendered to the Trustee on such day for
redemption at the Redemption Price computed on that day.
Accrued interest paid on redemption shall be withdrawn from
the appropriate Interest Account, or, if the balance therein is insufficient,
from the appropriate Principal Account. All other amounts paid on redemption
shall be withdrawn from the appropriate Principal Account. The Trustee is
empowered to sell Bonds in order to make funds available for redemptions. Such
sales, if required, could result in a sale of Bonds by the Trustee at a loss. To
the extent Bonds in a State Trust are sold, the size and diversity of such Trust
will be reduced.
The Redemption Price per Unit of a State Trust is the pro rata
share of each Unit in such State Trust determined by the Trustee on the basis of
(i) the cash on hand in such Trust or monies in the process of being collected,
(ii) the value of the Bonds in such State Trust based on the bid prices of such
Bonds and (iii) interest accrued thereon, less (a) amounts representing taxes or
other governmental charges payable out of such State Trust, (b) the accrued
expenses of such State Trust and (c) cash allocated for distribution to
Certificateholders of record of such State Trust as of the business day prior to
the evaluation being made. The Evaluator may determine the value of the Bonds in
such State Trust for purposes of redemption (i) on the basis of current bid
prices of the Bonds obtained from dealers or brokers who customarily deal in
bonds comparable to those held by such State Trust, (ii) on the basis of bid
prices for bonds comparable to any Bonds for which bid prices are not available,
(iii) by determining the value of the Bonds by appraisal, or (iv) by any
combination of the above.
The Trustee is irrevocably authorized in its discretion, if
the Sponsor does not elect to purchase a Unit tendered for redemption or if the
Sponsor tenders a Unit for redemption, in lieu of redeeming such Unit, to sell
such Unit in the over-the-counter market for the account of the tendering
Certificateholder at prices which will return to the Certificateholder an amount
in cash, net after deducting brokerage commissions, transfer taxes and other
charges, equal to or in excess of the Redemption Price for such Unit. The
Trustee will pay the net proceeds of any such sale to the Certificateholder on
the day he would otherwise be entitled to receive payment of the Redemption
Price.
The Trustee reserves the right to suspend the right of
redemption and to postpone the date of payment of the Redemption Price per Unit
for any period during which the New York Stock Exchange is closed, other than
customary weekend and holiday closings, or trading on that Exchange is
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restricted or during which (as determined by the Securities and Exchange
Commission) an emergency exists as a result of which disposal or evaluation of
the Bonds is not reasonably practicable, or for such other periods as the
Securities and Exchange Commission may by order permit. The Trustee and the
Sponsor are not liable to any person or in any way for any loss or damage which
may result from any such suspension or postponement.
A Certificateholder who wishes to dispose of his Units should
inquire of his bank or broker in order to determine if there is a current
secondary market price in excess of the Redemption Price.
TRUST ADMINISTRATION
--------------------
Portfolio Supervision. The Sponsor may direct the Trustee to
dispose of Bonds in a State Trust upon (i) default in payment of principal or
interest on such Bonds, (ii) institution of certain legal proceedings with
respect to the issuers of such Bonds, (iii) default under other documents
adversely affecting debt service on such Bonds, (iv) default in payment of
principal or interest on other obligations of the same issuer or guarantor, (v)
with respect to revenue Bonds, decline in revenues and income of any facility or
project below the estimated levels calculated by proper officials charged with
the construction or operation of such facility or project, or (vi) decline in
price or the occurrence of other market or credit factors that in the opinion of
the Sponsor would make the retention of such Bonds in such State Trust
detrimental to the interests of the Certificateholders. If a default in the
payment of principal or interest on any of the Bonds occurs and if the Sponsor
fails to instruct the Trustee to sell or hold such Bonds, the Trust Agreement
provides that the Trustee may sell such Bonds.
The Sponsor is authorized by the Trust Agreement to direct the
Trustee to accept or reject certain plans for the refunding or refinancing of
any of the Bonds. Any bonds received in exchange or substitution will be held by
the Trustee subject to the terms and conditions of the Trust Agreement to the
same extent as the Bonds originally deposited. Within five days after such
deposit in a State Trust, notice of such exchange and deposit shall be given by
the Trustee to each Certificateholder of such Trust registered on the books of
the Trustee, including an identification of the Bonds eliminated and the Bonds
substituted therefor. Except as previously stated in the discussion regarding
Failed Bonds, the acquisition by a State Trust of any securities other than the
Bonds initially deposited is prohibited.
Trust Agreement, Amendment and Termination. The Trust
Agreement may be amended by the Trustee, the Sponsor and the Evaluator without
the consent of any of the Certificateholders: (i) to cure any ambiguity or to
correct or supplement any provision which may be defective or inconsistent; (ii)
to change any provision thereof as may be required by the Securities and
Exchange Commission or any successor governmental agency; or (iii) to make such
other provisions in regard to matters arising thereunder as shall not adversely
affect the interests of the Certificateholders.
The Trust Agreement may also be amended in any respect, or
performance of any of the provisions thereof may be waived, with the consent of
the holders of Certificates evidencing 66-2/3% of the Units then outstanding of
each State Trust affected by such amendment for the purpose of modifying the
rights of Certificateholders; provided that no such amendment or waiver shall
reduce any Certificateholder's interest in a State Trust without his consent or
reduce the percentage of Units required to consent to any such amendment or
waiver without the consent of the holders of all Certificates. The Trust
Agreement may not be amended, without the consent of the holders of
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all Certificates in a State Trust then outstanding, to increase the number of
Units issuable by such State Trust or to permit the acquisition of any bonds in
addition to or in substitution for those initially deposited in such State
Trust, except in accordance with the provisions of the Trust Agreement. The
Trustee shall promptly notify Certificateholders, in writing, of the substance
of any such amendment.
The Trust Agreement provides that each State Trust shall
terminate upon the maturity, redemption or other disposition, as the case may
be, of the last of the Bonds held in such State Trust, but in no event is it to
continue beyond the end of the calendar year preceding the fiftieth anniversary
of the execution of the Trust Agreement. If the value of a State Trust shall be
less than the minimum amount set forth under "Summary of Essential Information
in Part A" for such State Trust, the Trustee may, in its discretion, and shall
when so directed by the Sponsor, terminate such State Trust. Each State Trust
may also be terminated at any time with the consent of the holders of
Certificates representing 100% of the Units of such State Trust then
outstanding. In the event of termination of a State Trust, written notice
thereof will be sent by the Trustee to all Certificateholders of such State
Trust. Within a reasonable period after termination, the Trustee must sell any
Bonds remaining in the terminated State Trust, and, after paying all expenses
and charges incurred by such State Trust, distribute to each Certificateholder
thereof, upon surrender for cancellation of his Certificate for Units, his pro
rata share of the Interest and Principal Accounts of such State Trust.
The Sponsors. The Sponsor, Reich & Tang Distributors, Inc.
("Reich & Tang"), a Delaware corporation, is engaged in the brokerage business
and is a member of the National Association of Securities Dealers, Inc. Reich &
Tang is also a registered investment adviser. Reich & Tang maintains its
principal business offices at 600 Fifth Avenue, New York, New York 10020. The
sole shareholder of the Sponsor, Reich & Tang Asset Management, Inc. ("RTAM
Inc.") is wholly owned by NEIC Holdings, Inc. which, effective December 29,
1997, was wholly owned by NEIC Operating Partnership, L.P. ("NEICOP").
Subsequently, on March 31, 1998, NEICOP changed its name to Nvest Companies,
L.P. ("Nvest"). The general partners of Nvest are Nvest Corporation and Nvest,
L.P. Nvest, L.P. is owned approximately 99% by public unitholders and its
general partner is Nvest Corporation. Nvest, with a principal place of business
at 399 Boylston Street, Boston, MA 02116, is a holding company of firms engaged
in the securities and investment advisory business. These affiliates in the
aggregate are investment advisors or managers to over 80 registered investment
companies. Reich & Tang is Sponsor (and Co-Sponsor, as the case may be) for
numerous series of unit investment trusts, including New York Municipal Trust,
Series 1 (and Subsequent Series), Municipal Securities Trust, Series 1 (and
Subsequent Series), 1st Discount Series (and Subsequent Series), Multi-State
Series 1 (and Subsequent Series), Mortgage Securities Trust, Series 1 (and
Subsequent Series), Insured Municipal Securities Trust, Series 1 (and Subsequent
Series) and 5th Discount Series (and Subsequent Series), Equity Securities
Trust, Series 1, Signature Series, Gabelli Communications Income Trust (and
Subsequent Series) and Schwab Trusts.
For certain other Trusts as set forth in the "Summary of
Essential Information" in Part A, the Sponsors are Reich & Tang and Gruntal &
Co., L.L.C., both of whom have entered into an Agreement Among Co-Sponsors
pursuant to which both parties have agreed to act as Co-Sponsors for the Trust.
Reich & Tang has been appointed by Gruntal & Co., L.L.C. as agent for purposes
of taking any action required or permitted to be taken by the Sponsor under the
Trust Agreement. If the Sponsors are unable to agree with respect to action to
be taken jointly by them under the Trust Agreement and they cannot agree as to
which Sponsor shall act as sole Sponsor, then Reich & Tang shall act as
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sole Sponsor. If one of the Sponsors fails to perform its duties under the Trust
Agreement or becomes incapable of acting or becomes bankrupt or its affairs are
taken over by public authorities, that Sponsor may be discharged under the Trust
Agreement and a new Sponsor may be appointed or the remaining Sponsor may
continue to act as Sponsor.
Gruntal & Co., L.L.C., a Delaware limited liability company,
operates a regional securities broker/dealer from its main office in New York
City and branch offices in nine states. The firm is very active in the marketing
of investment companies and has signed dealer agreements with many mutual fund
groups. Further, through its Syndicate Department, Gruntal & Co., L.L.C. has
underwritten a large number of Closed-End Funds and has been Co-Manager on the
following offerings: Cigna High Income Shares; Dreyfus New York Municipal
Income, Inc.; Franklin Principal Maturity Trust and Van Kampen Merritt Limited
Term High Income Trust. The Sponsor is liable for the performance of its
obligations arising from its responsibilities under the Trust Agreement, but
will be under no liability to Certificateholders for taking any action, or
refraining from taking any action, in good faith pursuant to the Trust
Agreement, or for errors in judgment except in cases of its own willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations and duties.
The information included herein is only for the purpose of
informing investors as to the financial responsibility of the Sponsor and its
ability to carry out its contractual obligations. The Sponsor will be under no
liability to Certificateholders for taking any action, or refraining from taking
any action, in good faith pursuant to the Trust Agreement, or for errors in
judgment except in cases of its own willful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations and duties.
The Sponsor may resign at any time by delivering to the
Trustee an instrument of resignation executed by the Sponsor.
If at any time the Sponsor shall resign or fail to perform any
of its duties under the Trust Agreement or becomes incapable of acting or
becomes bankrupt or its affairs are taken over by public authorities, then the
Trustee may either (i) appoint a successor Sponsor; (ii) terminate the Trust
Agreement and liquidate the Trust; or (iii) continue to act as Trustee without
terminating the Trust Agreement. Any successor Sponsor appointed by the Trustee
shall be satisfactory to the Trustee and, at the time of appointment, shall have
a net worth of at least $1,000,000.
The Trustee. For certain of the State Trusts, as set forth in
the "Summary of Essential Information" in Part A, the Trustee is The Chase
Manhattan Bank with its principal executive office located at 270 Park Avenue,
New York, New York 10017 (800) 428-8890 and its unit investment trust office at
4 New York Plaza, New York, New York 10004. The Trustee is subject to
supervision by the Superintendent of Banks of the State of New York, the Federal
Deposit Insurance Corporation and the Board of Governors of the Federal Reserve
System.
The Trustee must be a banking corporation organized under the
laws of the United States or any state which is authorized under such laws to
exercise corporate trust powers and must have at all times an aggregate capital,
surplus and undivided profits of not less than $5,000,000. The duties of the
Trustee are primarily ministerial in nature. The Trustee did not participate in
the selection of Securities for the portfolio of the Trust.
The Trustee shall not be liable or responsible in any way for
taking any action, or for refraining from taking any action, in good faith
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pursuant to the Trust Agreement, or for errors in judgment; or for any
disposition of any moneys, Bonds or Certificates in accordance with the Trust
Agreement, except in cases of its own willful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations and duties; provided,
however, that the Trustee shall not in any event be liable or responsible for
any evaluation made by the Evaluator. In addition, the Trustee shall not be
liable for any taxes or other governmental charges imposed upon or in respect of
the Bonds or the Trusts which it may be required to pay under current or future
law of the United States or any other taxing authority having jurisdiction. The
Trustee shall not be liable for depreciation or loss incurred by reason of the
sale by the Trustee of any of the Bonds pursuant to the Trust Agreement.
For further information relating to the responsibilities of
the Trustee under the Trust Agreement, reference is made to the material set
forth under "Rights of Certificateholders."
The Trustee may resign by executing an instrument in writing
and filing the same with the Sponsor, and mailing a copy of a notice of
resignation to all Certificateholders. In such an event, the Sponsor is
obligated to appoint a successor Trustee as soon as possible. In addition, if
the Trustee becomes incapable of acting or becomes bankrupt or its affairs are
taken over by public authorities, the Sponsor may remove the Trustee and appoint
a successor as provided in the Trust Agreement. Notice of such removal and
appointment shall be mailed to each Certificateholder by the Sponsor. If upon
resignation of the Trustee no successor has been appointed and has accepted the
appointment within thirty days after notification, the retiring Trustee may
apply to a court of competent jurisdiction for the appointment of a successor.
The resignation or removal of the Trustee becomes effective only when the
successor Trustee accepts its appointment as such or when a court of competent
jurisdiction appoints a successor Trustee. Upon execution of a written
acceptance of such appointment by such successor Trustee, all the rights,
powers, duties and obligations of the original Trustee shall vest in the
successor.
Any corporation into which the Trustee may be merged or with
which it may be consolidated, or any corporation resulting from any merger or
consolidation to which the Trustee shall be a party, shall be the successor
Trustee. The Trustee must always be a banking corporation organized under the
laws of the United States or any state and have at all times an aggregate
capital, surplus and undivided profits of not less than $2,500,000.
The Evaluator. The Evaluator is Kenny S&P Evaluation Services,
a business unit of J. J. Kenny Company, Inc., a subsidiary of The McGraw-Hill
Companies, Inc. with main offices located at 65 Broadway, New York, New York
10006. The Evaluator is a wholly-owned subsidiary of McGraw-Hill, Inc. The
Evaluator is a registered investment advisor and also provides financial
information services.
The Trustee, the Sponsor and Certificateholders may rely on
any evaluation furnished by the Evaluator and shall have no responsibility for
the accuracy thereof. Determinations by the Evaluator under the Trust Agreement
shall be made in good faith upon the basis of the best information available to
it, provided, however, that the Evaluator shall be under no liability to the
Trustee, the Sponsor, or Certificateholders for errors in judgment, except in
cases of its own willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations and duties.
The Evaluator may resign or may be removed by the Sponsor and
Trustee, and the Sponsor and the Trustee are to use their best efforts to
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appoint a satisfactory successor. Such resignation or removal shall become
effective upon the acceptance of appointment by the successor Evaluator. If upon
resignation of the Evaluator no successor has accepted appointment within thirty
days after notice of resignation, the retiring Evaluator may apply to a court of
competent jurisdiction for the appointment of a successor.
TRUST EXPENSES AND CHARGES
--------------------------
At no cost to the State Trusts, the Sponsor has borne the
expenses of creating and establishing the State Trusts, including the cost of
initial preparation and execution of the Trust Agreement, registration of the
State Trusts and the Units under the Investment Company Act of 1940 and the
Securities Act of 1933, preparation and printing of the Certificates, legal and
auditing expenses, advertising and selling expenses, initial fees and expenses
of the Trustee and other out-of-pocket expenses. The fees of the Evaluator,
however, incurred during the initial public offering, are paid directly by the
Trustee.
The Sponsor will not charge the State Trust a fee for its
services as such. See "Sponsor's Profits."
The Trustee will receive for its ordinary recurring services
to each State Trust an annual fee in the amount set forth under "Summary of
Essential Information" in Part A. For a discussion of the services performed by
the Trustee pursuant to its obligations under the Trust Agreement, see "Trust
Administration" and "Rights of Certificateholders."
The Evaluator will receive for each daily evaluation of the
Bonds in the Trust a fee in the amount set forth under "Summary of Essential
Information" in Part A, which fee shall be allocated pro rata among each State
Trust.
The Trustee's and Evaluator's fees applicable to a State Trust
are payable monthly as of the Record Date from such State Trust's Interest
Account to the extent funds are available and then from such Trust's Principal
Account. Both fees may be increased without approval of the Certificateholders
by amounts not exceeding proportionate increases in consumer prices for services
as measured by the United States Department of Labor's Consumer Price Index
entitled "All Services Less Rent."
The following additional charges are or may be incurred by any
or all of the State Trusts: (i) all expenses (including counsel and auditing
fees) of the Trustee incurred in connection with its activities under the Trust
Agreement, including the expenses and costs of any action undertaken by the
Trustee to protect a State Trust and the rights and interests of the
Certificateholders; (ii) fees of the Trustee for any extraordinary services
performed under the Trust Agreement; (iii) indemnification of the Trustee for
any loss or liability accruing to it without gross negligence, bad faith or
willful misconduct on its part, arising out of or in connection with its
acceptance or administration of a State Trust; (iv) indemnification of the
Sponsor for any loss, liabilities and expenses incurred in acting as Sponsor of
a State Trust without gross negligence, bad faith or willful misconduct on its
part; and (v) all taxes and other governmental charges imposed upon the Bonds or
any part of a State Trust (no such taxes or charges are being levied, made or,
to the knowledge of the Sponsor, contemplated). The above expenses, including
the Trustee's fees, when paid by or owing to the Trustee, are secured by a first
lien on the State Trust to which such expenses are allocable. In addition, the
Trustee is empowered to sell Bonds of a State
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Trust in order to make funds available to pay all expenses of such State Trust.
Unless the Sponsor otherwise directs, the accounts of the
Trust shall be audited not less than annually by independent public accountants
selected by the Sponsor. The expenses of the audit shall be an expense of the
Trust. So long as the Sponsor maintains a secondary market, the Sponsor will
bear any audit expense which exceeds $.50 per 1,000 Units. Certificateholders
covered by the audit during the year may receive a copy of the audited
financials upon request.
EXCHANGE PRIVILEGE AND CONVERSION OFFER
---------------------------------------
Certificateholders will be able to elect to exchange any or
all of their Units of this Trust for Units of one or more of any available
series of Equity Securities Trust, Insured Municipal Securities Trust, Municipal
Securities Trust, New York Municipal Trust or Mortgage Securities Trust (the
"Exchange Trusts") subject to a reduced sales charge as set forth in the
prospectus of the Exchange Trust (the "Exchange Privilege"). Unit owners of any
registered unit investment trust for which there is no active secondary market
in the units of such trust (a "Redemption Trust") will be able to elect to
redeem such units and apply the proceeds of the redemption to the purchase of
available Units of one or more series of an Exchange Trust (the "Conversion
Trusts") at the Public Offering Price for units of the Conversion Trust subject
to a reduced sales charge as set forth in the prospectus of the Conversion Trust
(the "Conversion Offer"). Under the Exchange Privilege, the Sponsor's repurchase
price during the initial offering period of the Units being surrendered will be
based on the market value of the Securities in the Trust portfolio or on the
aggregate offer price of the Bonds in the other Trust Portfolios; and, after the
initial offering period has been completed, will be based on the aggregate bid
price of the securities in the particular Trust portfolio. Under the Conversion
Offer, units of the Redemption Trust must be tendered to the trustee of such
trust for redemption at the redemption price determined as set forth in the
relevant Redemption Trust's prospectus. Units in an Exchange or Conversion Trust
will be sold to the Certificateholder at a price based on the aggregate offer
price of the securities in the Exchange or Conversion trust portfolio (or for
units of Equity Securities Trust, based on the market value of the underlying
securities in the trust portfolio) during the initial public offering period of
the Exchange or Conversion Trust; and after the initial public offering period
has been completed, based on the aggregate bid price of the securities in the
Exchange or Conversion Trust Portfolio if its initial offering has been
completed plus accrued interest (or for units of Equity Securities Trust, based
on the market value of the underlying securities in the trust portfolio) and a
reduced sales charge.
Except for Certificateholders who wish to exercise the
Exchange Privilege or Conversion Offer within the first five months of their
purchase of Units of the Exchange or Redemption Trust, any purchaser who
purchases Units under the Exchange Privilege or Conversion Offer will pay a
lower sales charge than that which would be paid for the Units by a new
investor. For Certificateholders who wish to exercise the Exchange Privilege or
Conversion Offer within the first five months of their purchase of Units of the
Exchange or Redemption Trust, the sales charge applicable to the purchase of
units of an Exchange or Conversion Trust shall be the greater of (i) the reduced
sales charge or (ii) an amount which when coupled with the sales charge paid by
the Certificateholder upon his original purchase of Units of the Exchange or
Redemption Trust would equal the sales charge applicable in the direct purchase
of units of an Exchange Trust.
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In order to exercise the Exchange Privilege the Sponsor must
be maintaining a secondary market in the units of the available Exchange Trust.
The Conversion Offer is limited only to unit owners of any Redemption Trust.
Exercise of the Exchange Privilege and the Conversion Offer by
Certificateholders is subject to the following additional conditions: (i) at the
time of the Certificateholder's election to participate in the Exchange
Privilege or Conversion Offer, there must be units of the Exchange or Conversion
Trust available for sale, either under the initial primary distribution or in
the Sponsor's secondary market, (ii) exchanges will be effected in whole units
only, (iii) Units of the Mortgage Securities Trust may only be acquired in
blocks of 1,000 Units and (iv) Units of the Equity Securities Trust may only be
acquired in blocks of 100 Units. Certificate holders will not be permitted to
advance any funds in excess of their redemption in order to complete the
exchange. Any excess proceeds received from a Certificateholder for exchange or
from units being redeemed per conversion will be remitted to such
Certificateholder.
The Sponsor reserves the right to suspend, modify or terminate
the Exchange Privilege and/or the Conversion Offer. The Sponsor will provide
Certificateholders of the Trust with 60 days' prior written notice of any
termination or material amendment to the Exchange Privilege and/or the
Conversion Offer, provided that no notice need be given if (i) the only material
effect of an amendment is to reduce or eliminate the sales charge payable at the
time of the exchange, to add one or more series of the Trust eligible for the
Exchange Privilege or the Conversion Offer, to add any new unit investment trust
sponsored by Reich & Tang or a sponsor controlled by or under common control
with Reich & Tang, or to delete a series which has been terminated from
eligibility for the Exchange Privilege and/or the Conversion Offer, (ii) there
is a suspension of the redemption of units of an Exchange or Conversion Trust
under Section 22(e) of the Investment Company Act of 1940, or (iii) an Exchange
Trust temporarily delays or ceases the sale of its units because it is unable to
invest amounts effectively in accordance with its investment objectives,
policies and restrictions. During the 60-day notice period prior to the
termination or material amendment of the Exchange Privilege described above, the
Sponsor will continue to maintain a secondary market in the units of all
Exchange Trusts that could be acquired by the affected Certificateholders.
Certificateholders may, during this 60-day period, exercise the Exchange
Privilege in accordance with its terms then in effect.
To exercise the Exchange Privilege, a Certificateholder should
notify the Sponsor of his desire to exercise his Exchange Privilege. To exercise
the Conversion Offer, a unit owner of a Redemption Trust should notify his
retail broker of his desire to redeem his Redemption Trust Units and use the
proceeds from the redemption to purchase Units of one or more of the Conversion
Trusts. If Units of a designated, outstanding series of an Exchange or
Conversion Trust are at the time available for sale and such Units may lawfully
be sold in the state in which the Certificateholder is a resident, the
Certificateholder will be provided with a current prospectus or prospectuses
relating to each Exchange or Conversion Trust in which he indicates an interest.
He may then select the Trust or Trusts into which he desires to invest the
proceeds from his sale of Units. The exchange transaction will operate in a
manner essentially identical to a secondary market transaction except that units
may be purchased at a reduced sales charge. The conversion transaction will be
handled entirely through the unit owner's retail broker. The retail broker must
tender the units to the trustee of the Redemption Trust for redemption and then
apply the proceeds to the redemption toward the purchase of units of a
Conversion Trust at a price based on the aggregate offer or bid side evaluation
per Unit of the Conversion Trust, depending on which price is applicable, plus
accrued interest and the
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applicable sales charge. The certificates must be surrendered to the broker at
the time the redemption order is placed and the broker must specify to the
Sponsor that the purchase of Conversion Trust Units is being made pursuant to
the Conversion Offer. The unit owner's broker will be entitled to retain a
portion of the sales charge.
Tax Consequences of the Exchange Privilege and the Conversion
Offer. A surrender of Units pursuant to the Exchange Privilege or the Conversion
Offer will constitute a "taxable event" to the Certificateholder under the
Internal Revenue Code. The Certificateholder will realize a tax gain or loss
that will be of a long-, mid- or short-term capital or ordinary income nature
dependent on the length of time the Units have been held and other factors. (See
"Tax Status".) A Certificateholder's tax basis in the Units acquired pursuant to
the Exchange Privilege or Conversion Offer will be equal to the purchase price
of such Units. Investors should consult their own tax advisors as to the tax
consequences to them of exchanging or redeeming units and participating in the
Exchange Privilege or Conversion Offer.
OTHER MATTERS
-------------
Legal Opinions. The legality of the Units originally offered
and certain matters relating to federal and New York tax law have been passed
upon by Battle Fowler LLP, 75 East 55th Street, New York, New York 10022, or
Berger Steingut Tarnoff & Stern, 600 Madison Avenue, New York, New York 10022,
as counsel for the Sponsor. Certain matters relating to California tax law have
been passed upon by Brown & Wood LLP, as special California counsel to the
Sponsor. Certain matters relating to Virginia tax law have been passed upon by
Hunton & Williams, as special Virginia counsel to the Sponsor. Carter, Ledyard &
Milburn, Two Wall Street, New York, New York 10005 have acted as counsel for The
Chase Manhattan Bank.
Independent Accountants. The financial statements of the
Trusts for the years ended December 31, 1996, 1997 and 1998 included in Part A
of this Prospectus have been examined by PricewaterhouseCoopers LLP, independent
accountants. The financial statements have been so included in reliance on their
report given upon the authority of said firm as experts in accounting and
auditing.
Performance Information. Total returns, average annualized
returns or cumulative returns for various periods of this Trust may be included
from time to time in advertisements, sales literature and reports to current or
prospective investors. Total return shows changes in Unit price during the
period plus reinvestment of dividends and capital gains, divided by the original
public offering price as of the date of calculation. Average annualized returns
show the average return for stated periods of longer than a year. Sales material
may also include an illustration of the cumulative results of like annual
investments during an accumulation period and like annual withdrawals during a
distribution period. Figures for actual portfolios will reflect all applicable
expenses and, unless otherwise stated, the maximum sales charge. No provision is
made for any income taxes payable. Returns may also be shown on a combined
basis. Trust performance may be compared to performance on a total return basis
of the Dow Jones Industrial Average, the S&P 500 Composite Price Stock Index, or
performance data from Lipper Analytical Services, Inc. and Morningstar
Publications, Inc. or from publications such as Money, The New York Times, U.S.
News and World Report, Business Week, Forbes or Fortune. As with other
performance data, performance comparisons should not be considered
representative of a Trust's relative performance for any future period.
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DESCRIPTION OF BOND RATINGS*
---------------------------
Standard & Poor's Ratings Services. A brief description of the
applicable Standard & Poor's Corporation rating symbols and their meanings is as
follows:
A Standard & Poor's corporate or municipal bond rating is a
current assessment of the creditworthiness of an obligor with respect to a
specific debt obligation. This assessment of creditworthiness may take into
consideration obligors such as guarantors, insurers, or lessees.
The bond rating is not a recommendation to purchase or sell a
security, inasmuch as it does not comment as to market price.
The ratings are based on current information furnished to
Standard & Poor's by the issuer and obtained by Standard & Poor's from other
sources it considers reliable. The ratings may be changed, suspended or
withdrawn as a result of changes in, or unavailability of, such information.
The ratings are based, in varying degrees, on the following
considerations:
(i) Likelihood of default-capacity and
willingness of the obligor as to the timely
payment of interest and repayment of
principal in accordance with the terms of
the obligation.
(ii) Nature of and provisions of the obligation.
(iii) Protection afforded by, and relative
position of, the obligation in the event of
bankruptcy, reorganization or other
arrangement under the laws of bankruptcy and
other laws affecting creditors' rights.
AAA -- This is the highest rating assigned by Standard &
Poor's to a debt obligation and indicates an extremely strong capacity to pay
principal and interest.
AA -- Bonds rated AA also qualify as high-quality debt
obligations. Capacity to pay principal and interest is very strong, and they
differ from AAA issues only in small degrees.
A -- Bonds rated A have a strong capacity to pay principal and
interest, although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
BBB -- Bonds rated BBB are regarded as having an adequate
capacity to pay principal and interest. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay principal and interest for
bonds in this category than for bonds in the A category.
Plus (+) or Minus (-): To provide more detailed indications of
credit quality, the ratings from "AA" to "BB" may be modified by the addition
of a plus or minus sign to show relative standing within the major rating
categories.
- --------
* As described by the rating agencies.
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Provisional Ratings -- (Prov.) following a rating indicates
the rating is provisional, which assumes the successful completion of the
project being financed by the issuance of the bonds being rated and indicates
that payment of debt service requirements is largely or entirely dependent upon
the successful and timely completion of the project. This rating, however, while
addressing credit quality subsequent to completion, makes no comment on the
likelihood of, or the risk of default upon failure of, such completion.
Accordingly, the investor should exercise his own judgment with respect to such
likelihood and risk.
Moody's Investors Service. A brief description of the
applicable Moody's Investors Service, Inc.'s rating symbols and their meanings
is as follows:
Aaa -- Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high
quality by all standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may be
other elements which make the long term risks appear somewhat larger than in Aaa
securities.
A -- Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa -- Bonds which are rated Baa are considered as medium
grade obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Those bonds in the A and Baa group which Moody's believes
possess the strongest investment attributes are designated by the symbol A 1 and
Baa 1. Other A bonds comprise the balance of the group. These rankings (i)
designate the bonds which offer the maximum in security within their quality
group, (ii) designate bonds which can be bought for possible upgrading in
quality and (iii) additionally afford the investor an opportunity to gauge more
precisely the relative attractiveness of offerings in the market place.
Moody's applies numerical modifiers, 1, 2, and 3 in each
generic rating classification from Aa through B in its corporate bond rating
system. The modifier 1 indicates that the security ranks in the higher end of
its generic rating category; the modifier 2 indicates a mid-range ranking; and
the modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.
Con-Bonds for which the security depends upon the completion
of some act or the fulfillment of some condition are rated conditionally. These
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are debt obligations secured by (i) earnings of projects under construction,
(ii) earnings of projects unseasoned in operating experience, (iii) rentals
which begin when facilities are completed, or (iv) payments to which some other
limiting condition attaches. Rating denotes probable credit stature upon
completion of construction or elimination of basis of condition.
* * *
82600.9
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<TABLE>
<CAPTION>
INDEX * * *
----- MUNICIPAL SECURITIES TRUST
Title Page MULTI-STATE SERIES
<S> <C> <C>
Summary of Essential Information.................................... A-5 (A Unit Investment Trust)
Financial and Statistical Information............................... A-6
Information Regarding the Trust..................................... A-7 Prospectus
----------
Audit and Financial Information.........................................F-1
Dated: October 28, 1998
The Trust........................................................... 1
The State Trusts.................................................... 9 Sponsor:
Public Offering..................................................... 24
Estimated Long Term Return and Estimated Reich & Tang Distributors,
Current Return.................................................... 26 Inc.
Rights of Certificateholders........................................ 27 600 Fifth Avenue
Tax Status.......................................................... 29 New York, N.Y. 10020
Liquidity........................................................... 34 212-830-5200
Trust Administration................................................ 36
Trust Expenses and Charges.......................................... 40 (and for certain Trusts:)
Exchange Privilege and Conversion Offer............................. 41 Gruntal & Co., L.L.C.
Other Matters....................................................... 43 One Liberty Plaza
Description of Bond Ratings......................................... 44 New York, New York 10006
(212) 267-8800
Parts A and B of this Prospectus do
not contain all of the information set forth in Trustee:
the registration statement and exhibits relating
thereto, filed with the Securities and Exchange The Chase Manhattan Bank
Commission, Washington, D.C., under the 4 New York Plaza
Securities Act of 1933, and to which reference is New York, N.Y. 10004
made. 800-882-9898
Evaluator:
Kenny S&P Evaluation
Services
65 Broadway
New York, N.Y. 10006
</TABLE>
This Prospectus does not constitute an offer to sell, or a
solicitation of any offer to buy securities in any state to any person to whom
it is not lawful to make such offer in such state.
* * *
No person is authorized to give any information or to make any
representations not contained in Parts A and B of this Prospectus; and any
information or representation not contained herein must not be relied upon as
having been authorized by the Trust, the Trustee, the Evaluator, or the Sponsor.
The Trust is registered as a unit investment trust under the Investment Company
Act of 1940. Such registration does not imply that the Trust or any of its Units
have been guaranteed, sponsored, recommended or approved by the United States or
any state or any agency or officer thereof.
82600.9
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