As filed with the Securities and Exchange Commission on April 29, 1996
Registration No. 33-48009
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 4
To
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT
TRUSTS REGISTERED ON FORM N-8B-2
A. Exact name of trust: MORTGAGE SECURITIES TRUST,
CMO SERIES 10
B. Name of depositors: REICH & TANG DISTRIBUTORS L.P.
GRUNTAL & CO., INCORPORATED
C. Complete address of depositors' principal executive offices:
REICH & TANG DISTRIBUTORS L.P. Gruntal & Co., Incorporated
600 Fifth Avenue 14 Wall Street
New York, NY 10020 New York, NY 10005
D. Name and complete address of agent for service:
PETER J. DeMARCO BARRY RICHTER Copy of comments to:
Executive Vice Executive Vice-President MICHAEL R. ROSELLA, ESQ.
President Gruntal & Co., Battle Fowler LLP
Reich & Tang Incorporated 75 East 55th Street
Distributors L.P. 14 Wall Street New York, NY 10022
600 Fifth Avenue New York, NY 10005 (212) 856-6858
New York, NY 10020
It is proposed that this filing become effective (check appropriate box)
/ / immediately upon filing pursuant to paragraph (b) of Rule 485
/x/ on April 30, 1996 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)
/ / on ( date ) pursuant to paragraph (a) of Rule 485
345506.1
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MORTGAGE SECURITIES TRUST,
CMO SERIES 10
CROSS-REFERENCE SHEET
Pursuant to Rule 404 of Regulation C
under the Securities Act of 1933
(Form N-8B-2 Items required by Instruction as
to the Prospectus in Form S-6)
Form N-8B-2 Form S-6
Item Number Heading in Prospectus
I. Organization and General Information
1. (a) Name of trust................... Front Cover of Prospectus
(b) Title of securities issued...... "
2. Name and address of each depositor.. The Sponsors
3. Name and address of trustee......... The Trustee
4. Name and address of principal
underwriters...................... The Sponsors
5. State of organization of trust...... Organization
6. Execution and termination of
trust agreement................... Trust Agreement, Amendment and
Termination
7. Changes of name..................... Not Applicable
8. Fiscal year......................... "
9. Litigation.......................... None
II. General Description of the Trust and Securities of the Trust
10. (a) Registered or bearer
securities...................Certificates
(b) Cumulative or distributive
securities...................Interest and Principal Distributions
(c) Redemption......................Trustee Redemption
(d) Conversion, transfer, etc.......Certificates, Sponsors Repurchase,
Trustee Redemption, Exchange
Privilege and Conversion Offer
(e) Periodic payment plan...........Not Applicable
(f) Voting rights...................Trust Agreement, Amendment and
Termination
(g) Notice to certificateholders....Records, Portfolio, Trust Agreement,
Amendment and Termination, The
Sponsors, The Trustee
(h) Consents required...............Trust Agreement, Amendment and
Termination
(i) Other provisions................Tax Status
11. Type of securities Objectives, Portfolio, Description
comprising units.................. of Portfolio
12. Certain information regarding
periodic payment certificates.....Not Applicable
13. (a) Load, fees, expenses, etc.......Summary of Essential Information,
Offering Price, Volume and Other
Discounts, Sponsors' and
Underwriters' Profits, Total
Reinvestment Plan, Trust Expenses
and Charges
(b) Certain information regarding
periodic payment certificates...Not Applicable
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Form N-8B-2 Form S-6
Item Number Heading in Prospectus
(c) Certain percentages.............Summary of Essential Information,
Offering Price, Total
Reinvestment Plan
(d) Price differences...............Volume and Other Discounts
(e) Other loads, fees, expenses.....Certificates
(f) Certain profits receivable
by depositors, principal
underwriters, trustee or
affiliated persons..............Sponsors' and Underwriters' Profits
(g) Ratio of annual charges
to income.......................Not Applicable
14. Issuance of trust's securities......Organization, Certificates
15. Receipt and handling of payments
from purchasers...................Organization
16. Acquisition and disposition of
underlying securities.............Organization, Objectives, Portfolio,
Portfolio Supervision
17. Withdrawal or redemption............Comparison of Public Offering Price,
Sponsors' Repurchase Price and
Redemption Price, Sponsors
Repurchase, Trustee Redemption
18. (a) Receipt, custody and
disposition of income...........Distribution Elections, Interest and
Principal Distributions, Records,
Total Reinvestment Plan
(b) Reinvestment of distributions...Total Reinvestment Plan
(c) Reserves or special funds.......Interest and Principal Distributions
(d) Schedule of distributions.......Not Applicable
19. Records, accounts and reports.......Records, Total Reinvestment Plan
20. Certain miscellaneous provisions
of trust agreement................Trust Agreement, Amendment and
Termination
(a) Amendment....................... "
(b) Termination..................... "
(c) and (d) Trustee, removal and
successor.......................The Trustee
(e) and (f) Depositor, removal
and successor...................The Sponsors
21. Loans to security holders...........Not Applicable
22. Limitations on liability............The Sponsors, The Trustee,
The Evaluator
23. Bonding arrangements................Part II--Item A
24. Other material provisions
of trust agreement................Not Applicable
III. Organization, Personnel and Affiliated Persons of Depositor
25. Organization of depositor...........The Sponsors
26. Fees received by depositor..........Not Applicable
27. Business of depositor...............The Sponsors
28. Certain information as to
officials and affiliated
persons of depositor..............Part II--Item C
29. Voting securities of depositor......Not Applicable
30. Persons controlling depositor....... "
31. Payments by depositor for certain
services rendered to trust........ "
32. Payment by depositor for certain
other services rendered to trust.. "
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Form N-8B-2 Form S-6
Item Number Heading in Prospectus
33. Remuneration of employees of
depositor for certain services
rendered to trust................... "
34. Remuneration of other persons for
certain services rendered to trust.. "
IV. Distribution and Redemption of Securities
35. Distribution of trust's
securities by states..............Distribution of Units
36. Suspension of sales of
trust's securities................Not Applicable
37. Revocation of authority
to distribute..................... "
38. (a) Method of distribution..........Distribution of Units, Total
Reinvestment Plan
(b) Underwriting agreements......... "
(c) Selling agreements.............. "
39. (a) Organization of principal
underwriters....................The Sponsors
(b) N.A.S.D. membership of
principal underwriters.......... "
40. Certain fees received by
principal underwriters............Not Applicable
41. (a) Business of principal
underwriters....................The Sponsors
(b) Branch offices of principal
underwriters....................Not Applicable
(c) Salesmen of principal
underwriters.................... "
42. Ownership of trust's
securities by certain persons..... "
43. Certain brokerage commissions
received by principal
underwriters...................... "
44. (a) Method of valuation.............Summary of Essential Information,
Offering Price, Accrued Interest,
Volume and Other Discounts,
Total Reinvestment Plan,
Distribution of Units
(b) Schedule as to offering price...Not Applicable
(c) Variation in offering price
to certain persons..............Distribution of Units, Total
Reinvestment Plan, Volume and
Other Discounts
45. Suspension of redemption rights.....Trustee Redemption
46. (a) Redemption valuation............Comparison of Public Offering Price,
Sponsors' Repurchase Price and
Redemption Price, Trustee
Redemption
(b) Schedule as to
redemption price................Not Applicable
47. Maintenance of position in
underlying securities.............Comparison of Public Offering Price,
Sponsors' Repurchase Price and
Redemption Price, Sponsors
Repurchase, Trustee Redemption
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Form N-8B-2 Form S-6
Item Number Heading in Prospectus
V. Information Concerning the Trustee or Custodian
48. Organization and regulation
of trustee........................The Trustee
49. Fees and expenses of trustee........Trust Expenses and Charges
50. Trustee's lien...................... "
VI. Information Concerning Insurance of Holders of Securities
51. Insurance of holders of
trust's securities................Not Applicable
VII. Policy of Registrant
52. (a) Provisions of trust agreement
with respect to selection or
elimination of underlying
securities......................Objectives, Portfolio, Portfolio
Supervision
(b) Transactions involving
elimination of underlying
securities......................Not Applicable
(c) Policy regarding substitution
or elimination of underlying
securities......................Objectives, Portfolio, Portfolio
Supervision, Substitution of
Bonds
(d) Fundamental policy not
otherwise covered...............Not Applicable
53. Tax status of trust.................Tax Status
VIII. Financial and Statistical Information
54. Trust's securities during
last ten years.................... Not Applicable
55. Hypothetical account for issuers
of periodic payment plans......... "
56. Certain information regarding
periodic payment certificates..... "
57. Certain information regarding
periodic payment plans............ "
58. Certain other information
regarding periodic payment plans.. "
59. Financial Statements
(Instruction 1(c) to Form S-6)...... Statement of Financial Condition
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Note: Part A of This Prospectus May Not Be
Distributed Unless Accompanied by Part B.
MORTGAGE SECURITIES TRUST
CMO SERIES 10
The Trust consists of one (1) unit investment trust designated
Mortgage Series Trust, CMO Series 10 Short-Intermediate Portfolio (the "Trust").
The Trust consists of an underlying portfolio of collateralized mortgage
obligations ("CMOs" or "Securities") and was formed to obtain safety of capital
and provide a high level of current distributions of interest income. The Trust
seeks to obtain a higher yield than fixed income investments with comparable AAA
ratings. The Trust seeks to achieve its objectives through investment in a fixed
portfolio of CMOs which may have been issued as debt obligations of a trust or
corporation or which may represent certificated interests of beneficial
ownership in pools of mortgage-backed securities. All of the CMOs in the
portfolio are backed by underlying mortgage-backed securities which are pledged
as collateral to secure payment of principal and interest on the CMOs. Each of
these underlying mortgage-backed securities is guaranteed as to the payment of
principal and interest by the Government National Mortgage Association ("GNMA"),
the Federal National Mortgage Association ("FNMA") or the Federal Home Loan
Mortgage Corporation ("FHLMC"). All of the CMOs in the Trust are issued by GNMA,
FNMA or FHLMC or are otherwise rated AAA by Standard & Poor's and, therefore,
the Units of the Trust are rated AAA by Standard & Poor's Corporation. The Units
of the Trust are not, however, guaranteed by GNMA, FNMA, FHLMC, the United
States or any of its agencies. The full faith and credit of the United States is
pledged to the payment of all amounts guaranteed by GNMA. However, payments
guaranteed by FNMA and FHLMC are not guaranteed by the United States and neither
the CMOs in the Trust nor any underlying Fannie Maes or Freddie Macs constitute
a debt obligation of the United States or any of its agencies. The Sponsors are
Reich & Tang Distributors L.P. (successor Sponsor to Bear, Stearns & Co. Inc.)
and Gruntal & Co., Incorporated. The value of the Units will fluctuate with the
value of the CMOs in the portfolio. Both the Estimated Current Return and the
Estimated Long Term Return are subject to fluctuations with changes in portfolio
composition, principal payments and prepayments, changes in the market value of
the CMOs in the portfolio and changes in fees and expenses. Minimum purchase:
1,000 Units.
This Prospectus consists of two parts. Part A contains the Summary
of Essential Information, including descriptive material relating to the Trust
as of December 31, 1995 (the "Evaluation Date"), a summary of certain specific
information regarding the Trust and audited financial statements of the Trust,
including the Portfolio as of the Evaluation Date. Part B of this Prospectus
contains general information about the Trust. Part A may not be distributed
unless accompanied by Part B of this Prospectus.
Investors Should Read and Retain Both Parts
of This Prospectus for Future Reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus Part A Dated April 30, 1996
<PAGE>
THE TRUST. The Trust is a unit investment trust designated Mortgage
Securities Trust, CMO Series 10 Short-Intermediate Portfolio (the "Trust"). The
Trust was formed to obtain safety of capital and a high level of current
distributions of interest income through investment in a fixed portfolio of
CMOs. A CMO is a multiclass bond backed by a pool of mortgage pass-through
securities or mortgage loans. CMOs are also known as "real estate mortgage
investment conduits" (REMICs). As a result of the 1986 Tax Reform Act, most CMOs
are issued in REMIC form to create a certain tax advantage for the issuer. The
terms CMO and REMIC are used interchangeably. The Trust seeks to obtain a higher
yield than fixed income investments with comparable AAA ratings.
The Trust may invest in one or more types of CMOs including:
standard bonds which accrue interest at a fixed rate, payable at regular
intervals from issuance to maturity or repayment of principal, if earlier;
compound interest bonds upon which interest will accrue but will not be payable
(but will be added to the principal amount of the compound interest bonds),
until all bonds issued by the same issuer in the same series of CMOs, but which
have an earlier stated maturity date than the compound interest bonds, have been
paid in full; adjustable rate bonds upon which the interest rate may increase or
decrease at one or more future dates; floating rate bonds upon which interest
accrues at a floating rate that may be related directly or inversely (although
not necessarily proportionately) to an index; planned amortization bonds or
targeted amortization bonds that are expected to receive payments in reduction
of their outstanding principal amount in specified amounts and on specified
dates in a manner designed to provide as much assurance as possible that those
bonds will be repaid within the period of time specified in the prospectus,
offering circular or other documents pursuant to which the bonds were offered
for sale; bonds entitled to receive payments of principal only; and support
class bonds whose function is to support the amortization schedule of the
planned amortization bonds or targeted amortization bonds. (See "The
Trust--Portfolio" in Part B of this Prospectus.)
All of the CMOs in the Trust are backed by underlying
mortgage-backed securities which are pledged as collateral to secure payment of
principal and interest on the CMOs. Each of these mortgage-backed securities is
guaranteed as to the payment of principal and interest by either the Government
National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA") or the Federal Home Loan Mortgage Corporation ("FHLMC").
All of the CMOs in the Trust are issued by GNMA, FNMA or FHLMC or are otherwise
rated AAA by Standard & Poor's Corporation ("Standard & Poor's") and therefore,
the Units of the Trust are rated AAA by Standard & Poor's. There can be no
assurance that the Trust's investment objectives can be achieved. Investments in
the Trust should be made with an understanding of the risks inherent in an
investment in CMOs. (See "The Trust--Risk Considerations" in this Part A.) Each
Unit of the Trust represent an undivided interest in the principal and net
income of the Trust in the ratio of one thousand Units for the indicated
principal amount of Securities in that Trust. (See "The Trust--Organization" in
Part B of this Prospectus.) (For the specific number of Units in the Trust, see
"Summary of Essential Information" in this Part A.)
Generally, CMOs are designed to provide a substantial degree of
prepayment and reinvestment risk protection as compared to other mortgage
related securities. The CMOs may have been issued as debt obligations of a trust
or corporation or as certificated interests representing beneficial ownership in
a pool of mortgage-backed securities (See "The Trust--The Securities" in Part B
of this Prospectus for further description and examples) which trust,
corporation or pool may have been established for the sole purpose of issuing
CMOs by any of GNMA, FNMA or FHLMC or by a private business organization. Such
private business organizations are typically single-
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purpose corporations established by mortgage-banking institutions for the sole
purpose of issuing CMOs. Any CMOs in the Trust that have been issued by private
business organizations have been rated AAA by Standard & Poor's. The sole assets
of the issuers of the CMOs are the underlying mortgage-backed securities. If the
collateral securing the Securities of these issuers is insufficient to make
payments on those Securities, it is unlikely that any other assets of these
issuers will be available for payment of the deficiency. The underlying
mortgage-backed securities which are pledged as collateral to secure the payment
of principal and interest on the CMOs may be (i) "fully modified pass-through"
mortgage-backed certificates, guaranteed by GNMA ("Ginnie Maes"), (ii) mortgage
pass-through certificates guaranteed by FNMA ("Fannie Maes") or (iii) mortgage
participation certificates guaranteed by FHLMC ("Freddie Macs"). The full faith
and credit of the United States is pledged to the payment of all amounts
guaranteed by GNMA. However, payments guaranteed by FNMA and FHLMC are not
guaranteed by the United States and neither the CMOs in the Trust nor any
underlying Fannie Maes or Freddie Macs constitute a debt or obligation of the
United States or any of its agencies. The Units of the Trust, as such, are not
guaranteed by any of GNMA, FNMA, FHLMC, the United States or any of its
agencies. Additionally, CMOs that are issued by GNMA, FNMA or FHLMC or by any
entity established by GNMA, FNMA or FHLMC are guaranteed as to payment of
principal and interest by GNMA, FNMA or FHLMC, respectively. The guaranty
obligations of GNMA with respect to any Ginnie Maes or any CMOs are supported by
the full faith and credit of the United States. However, the guaranty of
obligations of FNMA and FHLMC with respect to any Fannie Maes or Freddie Macs or
any CMOs are obligations of FNMA and FHLMC only (limited by their respective
credit capabilities) and are not supported by the full faith and credit of the
United States or any other governmental entity.
CMO Structure. CMOs are generally issued as a series of different
classes. An issue of CMOs generally is backed by a larger number of mortgages
than a pool of Ginnie Maes, Fannie Maes or Freddie Macs, thus allowing greater
statistical prediction of prepayment characteristics. Interest and principal
payments on the mortgages underlying any series will first be applied to meet
the interest payment requirements of each class in the series other than any
class in respect of which interest accrues but is not paid or any "principal
only" class. Principal payments on the underlying mortgages are thereafter
generally applied to pay the principal amount of the class that has the earliest
maturity date. Once that class is retired, the principal payments on the
underlying mortgages are applied to the class with the next earliest maturity
date. This is repeated until all classes are paid. Therefore, while each class
of CMOs remains subject to prepayment as the underlying mortgages prepay,
structuring several classes of CMOs in the stream of principal payments allows a
more predictable estimate of the period of time when any one class is likely to
be repaid. The estimate can be even closer with a class of planned amortization
bonds or targeted amortization bonds. The amortization schedule for these CMOs
is structured so that, at specified prepayment rates within a range, their
principal will be repaid at specified times and in specified amounts. However,
if any series of CMOs contains a class of planned amortization bonds or targeted
amortization bonds, then the other classes in that series may not be retired in
an order of priority determined strictly with reference to their maturity dates.
These other classes are often referred to as "support classes"
because their function is to support the amortization schedule of the planned
amortization bonds or targeted amortization bonds. If the rate of prepayment on
the underlying mortgages is faster than assumed, then classes with maturity
dates later than the planned amortization bonds or targeted amortization bonds
may be retired earlier than estimated to ensure that the planned amortization
bonds or targeted amortization bonds receive the principal payments required by
their amortization schedule. Similarly, if the rate of prepayments is slower
than anticipated, then earlier support classes may be retired later
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than estimated. Hence, support classes of a series that contains planned
amortization bonds or targeted amortization bonds have less predictable
prepayment characteristics than classes of a series that does not. This lack of
predictability regarding prepayments also causes support class bonds to have
greater market value fluctuation than other classes of a CMO. (See "Description
of Portfolio" in this Part A for the number of planned amortization bonds,
targeted amortization bonds or support class bonds in the Trust portfolio.) The
rate of prepayment on the underlying mortgages of a CMO will most likely decline
as interest rates increase. If the rate of prepayment declines, the weighted
average life of the support class bonds will most likely increase and, in some
cases, the decline will impact the yield and market value of these Securities.
This may cause an investor's principal in a support class bond to be outstanding
for a longer period of time than initially anticipated. Conversely, if interest
rates decline, prepayments on the underlying mortgages will most likely
increase, and the weighted average life of the support class bonds may be
shorter than anticipated. A holder of a support class bond in these situations
may be unable to reinvest the proceeds of these principal distributions at an
effective interest rate equal to the specified coupon rate on the original
support class bond. Therefore, an investor expecting to earn a fixed return for
a fixed number of years may find the life of a support class investment
decreases as interest rates fall and increases as they rise. Investors should be
aware that the Federal Financial Institutions Examination Council recently
announced that certain high-risk CMO tranches are generally not suitable
investments for depository institutions.
Some of the CMOs in the Trust may be either a class of Guaranteed
REMIC Certificates ("REMIC Certificate") issued by FNMA or a class of REMIC
Certificates issued by FHLMC. A FNMA REMIC Certificate represents a beneficial
ownership interest in a certain class of a FNMA REMIC Trust consisting of Fannie
Maes, each of which in turn represents a beneficial interest in a pool of first
lien, single-family, fixed-rate residential mortgage loans. FNMA REMIC
Certificates are issued pursuant to trust agreements executed by FNMA in both
its corporate capacity and its capacity as trustee. A FNMA REMIC Certificate
evidences a beneficial ownership interest in the distribution of principal and
interest on the underlying Fannie Maes, subject to certain limits and in an
order of distribution established for the particular FNMA REMIC Trust. Each FNMA
REMIC Certificate is backed by the guaranty obligation of FNMA to distribute on
a timely basis required installments of principal and interest and to distribute
the principal balance of the FNMA REMIC Certificate in full no later than an
established final distribution date, notwithstanding insufficiency of funds from
the underlying Fannie Maes. A FHLMC REMIC Certificate represents a beneficial
ownership interest in a certain class of a pool of Freddie Macs, each of which
in turn represents undivided interests in discrete pools of fixed-rate, first
lien, residential mortgages or participations therein purchased by FHLMC. FHLMC
REMIC Certificates are issued pursuant to multiclass mortgage participation
certificate agreements executed by FHLMC. A FHLMC REMIC Certificate evidences a
beneficial ownership interest in the distributions of principal and interest on
the underlying Freddie Macs, subject to certain limits and in an order of
distribution established for the particular FHLMC REMIC pool. Each FHLMC REMIC
Certificate is backed by the guaranty obligation of FHLMC to distribute required
interest payments on a timely basis and to distribute required principal
payments as principal payments on the underlying Freddie Macs are required to be
made. Except with respect to certain issues of "Gold" PCs, FHLMC generally does
not guarantee timely payment of principal but does guarantee ultimate payment.
Both FNMA REMIC Certificates and FHLMC REMIC Certificates pay interest monthly.
(See "The Trust--The Securities" in Part B of this Prospectus for a description
of FHLMC Gold PCs.)
If FNMA or FHLMC were unable to fulfill its guarantees,
distributions to holders of REMIC Certificates such as the Trust would consist
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solely of payments and other recoveries upon the mortgages underlying the
pledged Fannie Maes or Freddie Macs, respectively, and, accordingly,
delinquencies and defaults would diminish distributions to the holders. (See
"Description of the Portfolio" in this Part A for the number of FNMA REMIC
Certificates and FHLMC REMIC Certificates in the Trust portfolio.)
Some of the CMOs in the Trust may be a class of compound interest
bonds or principal only bonds. Interest on compound interest bonds is accrued
and is added to principal. Such interest is not paid until all classes of CMOs
issued in the same series with earlier final distributions dates are paid in
full. Principal only bonds entitle the holder to no payments of interest but the
holder will receive cash flow from the amortization of principal and
prepayments. Both compound interest bonds and principal only bonds sell at a
deep discount from par. The Sponsors believe that a portfolio with a limited
amount of compound interest bonds and principal only bonds will assist the Trust
in achieving their objective of preserving capital. Since the principal only
bond will accrue to par if held to maturity, the holder of such a bond would
receive a full return of his or her initial investment upon maturity of the
bond. In addition, compound interest bonds also assist in the preservation of
capital as interest which accrues on these bonds is added to principal. (See
"Description of the Portfolio" in this Part A for the amount of Securities in
the Trust that are a class of compound interest bonds or principal only bonds.)
Risk Considerations. An investment in Units of the Trust should be
made with an understanding of risks which an investment in fixed rate CMOs may
entail, including the risk that the value of the portfolio and, hence, the value
of the Units will decline with increases in interest rates and that the life of
the CMOs in the portfolio depends on the actual prepayments received on the
underlying mortgage-backed securities, the timing of which cannot be determined
but which may be sooner or later than anticipated, especially if interest rates
decline. Mortgage prepayment rates are likely to fluctuate significantly from
time to time as they have in recent years and at a rate faster or slower than
that initially assumed. The rate of prepayments depends on a variety of
geographic, social and other functions, including prevailing market interest
rates and general economic factors. The potential for appreciation, which could
otherwise be expected to result from a decline in interest rates, may be limited
by any increased prepayments by mortgagors. Investors should also note that
prepayments of principal on CMOs purchased at a premium over par will result in
some loss on investment while prepayments on CMOs purchased at a discount from
par will result in some gain on investment. Also, if interest rates rise, the
prepayment risk of higher yielding, premium CMOs and the prepayment benefit for
lower yielding, discount CMOs will be reduced. (See "The Trust--Life of the
Securities and of the Trust" in Part B of this Prospectus.) In addition, a
number of factors, including the extent of prepayments of principal on the
underlying mortgage-backed securities, affect the availability of funds for
payment of principal of bonds on any payment date and, therefore, the timing of
principal payments on each class of such bonds.
While all of the mortgage-backed securities underlying each of the
CMOs in the Trust are guaranteed as to the payment of principal and interest by
GNMA, FNMA or FHLMC, the CMOs in the Trust represent obligations solely of the
issuers of those CMOs and are not themselves insured or guaranteed by GNMA, FNMA
or FHLMC, or any other governmental agency. If a default were to occur with
respect to any of the CMOs, there can be no assurance that the collateral
securing such bonds would be sufficient to pay the principal and interest then
due.
CMOs are generally not listed on a national securities exchange or
on the National Association of Securities Dealers Automated Quotation System,
Inc. Whether or not CMOs are listed on a national securities exchange, the
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principal trading market for the CMOs will generally be in the over-the-counter
market. As a result the existence of a liquid trading market for CMOs may depend
on whether dealers will make a market in CMOs. There can be no assurance that a
market will be made for any of the CMOs in the Trust, that any market for the
CMOs in the Trusts' portfolio will be maintained or of the liquidity of the CMOs
in the Trust in any markets made. The price at which the CMOs in the Trusts may
be sold to meet redemptions and the value of the Trust will be adversely
affected if trading markets for the CMOs in the Trust are limited or absent.
(See "The Trusts--Liquidity" in Part B of this Prospectus.) In addition, the
Trust may be restricted under the Investment Company Act of 1940 from selling
securities to the Sponsors. However, taking into account the foregoing and other
factors, the Sponsors believe that the nature of the GNMA, FNMA or FHLMC
guarantees of any securities that have been issued by them, respectively, and
the nature of the Ginnie Maes, Fannie Maes or Freddie Macs securities payments
of principal and interest due on the Securities make the Securities adequately
marketable for purposes of redemptions of Units by the Trustee (see "Redemption"
in Part B of this Prospectus).
Investors should note that all of the CMOs in the Trust have been
issued by trusts, corporations or other entities that have elected to be treated
as Real Estate Mortgage Investment Conduits ("REMICs"). As such,
Certificateholders will be required to include in income their respective pro
rata share of interest on each Security (whether or not the Security has
original issue discount) as interest accrues, whether or not the
Certificateholder is an accrual method taxpayer. (See "Tax Status" in Part B of
this Prospectus.)
The principal amount of Securities actually deposited in the Trust
is affected by the prepayment estimate or factor for each CMO. If the prepayment
estimate or factor is adjusted because the level of actual prepayments increases
with respect to a particular CMO prior to the settlement date of the Securities,
the actual principal amount of Securities deposited in a Trust may be less than
the amount noted above and the excess of any cash returned to the Trust as a
result of these prepayments will be held in the Trust's principal account. Cash
balances maintained in the principal account do not generate income for the
Trust.
Educational material regarding CMOs is available upon request, from
the Sponsor.
PUBLIC OFFERING PRICE. The secondary market Public Offering Price
per 1,000 Units of the Trust is equal to the aggregate bid side evaluation of
the underlying Securities in a Trust divided by the number of Units outstanding
times 1,000, plus a sales charge of 3.5% of the Public Offering Price per 1,000
Units or 3.627% of the net amount invested in Securities per 1,000 Units of the
Short-Intermediate Portfolio. In addition, accrued interest to the expected date
of settlement is added to the Public Offering Price. If the Units of the
Short-Intermediate Portfolio had been purchased on the Evaluation Date, the
Public Offering Price per 1,000 Units would have been $436.19, plus accrued
interest of $1.55, for a total of $437.74. The Public Offering Price per 1,000
Units may vary on a daily basis in accordance with the fluctuations in the
aggregate bid price of the Bonds. (See "Public Offering" in Part B of this
Prospectus.)
The figures above assume a purchase of 1,000 Units. The price of a
single Unit, or any multiple thereof, is calculated by dividing the Public
Offering Price per 1,000 Units by 1,000 and multiplying by the number of Units.
DISTRIBUTIONS. Distributions of principal and interest income,
less expenses, will be made by the Trust monthly on the 20th of each month.
A-6
112439.1
<PAGE>
(See "Rights of Certificateholders--Interest and Principal Distributions" in
Part B of this Prospectus. For the estimated amount of distributions see
"Summary of Essential Information" for the Trust in this Part A.)
ESTIMATED LONG TERM RETURN AND ESTIMATED CURRENT RETURN. Estimated
Long Term Return for the Trust is calculated by: (1) computing the yield to
maturity for each CMO in the Trust's portfolio in accordance with accepted CMO
practices, which practices take into account not only the interest payable on
the CMO but also the amortization of premiums or accretion of discounts, if any,
and estimates of projected prepayments; (2) calculating the average of the
yields for the CMOs in the Trust's portfolio by weighing each CMO's yield by the
market value of the CMO and by the amount of time remaining to the date to which
the CMO is priced (thus creating an average yield for the portfolio of the
Trust); and (3) reducing the average yield for the portfolio of the Trust in
order to reflect estimated fees and expenses of the Trust and the maximum sales
charge paid by Certificateholders. The resulting Estimated Long Term Return
represents a measure of the return to Certificateholders earned over the
estimated life of the Trust. (For the Estimated Long Term Return to
Certificateholders, see "Summary of Essential Information" for the Trust. See
"Estimated Long Term Return and Estimated Current Return" in Part B of this
Prospectus.)
Estimated Current Return for the Trust is computed by dividing the
Estimated Net Annual Interest Income per 1,000 Units by the Public Offering
Price per 1,000 Units. In contrast to the Estimated Long Term Return, the
Estimated Current Return does not take into account estimates of prepayments or
the amortization of premium or accretion of discount, if any, on the CMOs in the
portfolio of the Trust. For the Estimated Net Annual Interest Income to
Certificateholders, see "Summary of Essential Information" in Part A.
If the CMOs in the Trust are priced at a discount, the Estimated
Current Return will generally be lower relative to the Estimated Long Term
Return, whereas if the CMOs are priced at a premium, the Estimated Current
Return will generally be higher relative to the Estimated Long Term Return. This
is because Estimated Current Return reflects primarily the interest rate on the
CMOs, while Estimated Long Term Return reflects yield and timing of principal
payments, and thus increases when the principal returned is greater than the
price paid for the CMOs (discount) and decreases when the principal returned is
lower than the price paid (premium). Estimated Long Term Return is calculated
using an estimated average life for the CMOs in the Trust. Estimated average
life is an essential factor in the calculation of Estimated Long Term Return.
When the Trust has a shorter average life than is estimated, Estimated Long Term
Return will be higher if the Trust contains CMOs priced at a discount and lower
if the CMOs are priced at a premium. Conversely, when the Trust has a longer
average life than is estimated, Estimated Long Term Return will be lower if the
CMOs are priced at a discount and higher if the CMOs are priced at a premium. To
calculate estimated average life several assumptions are made to derive an
estimated prepayment rate for the mortgages underlying the Ginnie Maes, Fannie
Maes or Freddie Macs that may back the CMOs in the Portfolio; the calculation of
estimated prepayment rates is based upon actual recent prepayments and analysis
of several factors including, among other things, the spread between present
market interest rates and the rate on the mortgages and the housing environment.
The estimated prepayment rate that is derived is then applied to retire the
principal amount of each CMO class of the same series as each CMO in the Trust,
including those CMOs in the Trust, according to the specific principal reduction
schedule of each series. For a more detailed explanation of the calculation of
estimated average life, see "Estimated Long Term Return and Estimated Current
Return" in Part B of this Prospectus. The estimated average life for the Trust
is subject to change with alterations in the data used in any of the underlying
assumptions. The actual average lives of the
A-7
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<PAGE>
CMOs in the Trust portfolio and the actual long term returns will be different
from the estimated average lives and the estimated long term returns.
The Estimated Net Annual Interest Income per 1,000 Units of the
Trust will vary with changes in the fees and expenses of the Trustee and the
Evaluator applicable to the Trust and with the redemption, prepayment, maturity,
sale or other disposition of the CMOs in the Trust. The Secondary Market Public
Offering Price will vary with changes in the bid prices of the CMOs. Therefore,
there is no assurance that the present Estimated Current Return or Estimated
Long Term Return will be realized in the future.
Market for Units. The Sponsors, although not obligated to do so,
presently maintain and intend to continue to maintain a secondary market for the
Units at prices based on the aggregate bid side evaluation of the Securities in
the Trust. The reoffer price will be based on the aggregate bid side evaluation
of the Securities, divided by the number of Units outstanding times 1,000, plus
a sales charge of 3.5% (3.627% of the net amount invested), plus net accrued
interest for the Trust. If a market is not maintained a Certificateholder will
be able to redeem his or her Units with the Trustee at a price based on the
aggregate bid side evaluation of the Securities. (See "Sponsor Repurchase" in
Part B of this Prospectus.)
Total Reinvestment Plan. Distributions from the Trust are made to
Certificateholders monthly. The Certificateholder has the option, however, of
either receiving his interest check, together with any principal payments, from
the Trustee or participating in a reinvestment program offered by the Sponsors
in shares of The Treasurer's Fund, Inc., U.S. Treasury Money Market Portfolio
(the "Fund"). Gabelli-O'Connor Fixed Income Mutual Funds Management Co. serves
as the investment advisor of the Fund and GOC Fund Distributors, Inc. serves as
distributor for the Fund. Participation in the reinvestment option is
conditioned on the Fund's lawful qualification for sale in the state in which
the Certificateholder is a resident. The Plan is not designed to be a complete
investment program. See "Total Reinvestment Plan" in Part B of this Prospectus.
The shares of the Fund are not rated by Standard & Poor's.
A-8
112439.1
<PAGE>
MORTGAGE SECURITIES TRUST
CMO SERIES 10, SHORT-INTERMEDIATE PORTFOLIO
SUMMARY OF ESSENTIAL INFORMATION AS OF DECEMBER 31, 1995##
Date of Deposit:* June 18, 1992 Evaluation Time: 4.00 p.m.
Principal Amount of New York Time.
Securities ................ $5,477,335 Minimum Principal Distribution:
Principal Amount of Secu- $1 per 1,000 Units.
rities per 1,000 Units..... $416.37 Weighted Average Life to
Number of Units ............. 13,154,845 Maturity: 1.4 years
Fractional Undivided Inter- Minimum Value of Trust:
est in Trust per Unit ..... 1/13154845 Trust may be terminated if
Secondary Market Public less than $6,400,000 in
Offering Price**+ principal amount of
Aggregate Bid Price of Securities.
Securities in Trust ..... $5,537,099 Mandatory Termination Date:
Divided by 13,154,845 Units The earlier of December 31,
times $1,000 ............ $420.92 2041 or the disposition of the
Plus Sales Charge of 3.5% last Security in the Trust.
of Public Offering Price $15.27 Trustee: The Chase Manhattan
Public Offering Price Bank, N.A.
per 1,000 Units.......... $436.19 Trustee's Annual Fee:
Redemption and Sponsors' $.84 per $1,000.
Repurchase Price Evaluator: Kenny S&P
per 1,000 Units+ .......... $420.92+++# Evaluation Services.
Excess of Public Offering Evaluator's Fee for Each
Price over Redemption and Evaluation: $10 per
Sponsors' Repurchase Price evaluation.
per 1,000 Units#........... $15.27 Sponsors: Reich & Tang
Difference between Public Distributors L.P.
Offering Price per 1,000 and Gruntal & Co.,
Units and Principal Incorporated
Amount per 1,000 Units Sponsors' Annual Fee: Maximum
Premium/(Discount) ........ $19.82 of $.25 per $1,000 principal
amount of Securities (see
"Trust Expense and Charges"
in Part B of this Prospectus).
PER 1,000 UNIT INFORMATION
Gross annual interest income (cash)............................. $30.61
Less estimated annual fees and expenses......................... 1.14
Estimated net annual interest income (cash)..................... 29.47
Estimated interest distribution................................. 2.46
Estimated daily interest accrual................................ .08
Estimated current return++(1)................................... 6.76%
Estimated long term return++(1)................................. 5.90%
Record dates.................................................... 1st of
each month
Interest distribution dates..................................... 20th of
each month
A-9
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<PAGE>
Footnotes to Summary of Essential Information
* The Date of Deposit is the date on which the Trust Agreement was signed
and the deposit of the Bonds with the Trustee made.
** Per 1,000 Units.
+ Plus accrued interest.
++ The estimated current return and estimated long term return are increased
for transactions entitled to a discount (see "Volume and Other Discounts"
in Part B of this Prospectus).
+++ Based solely upon the bid side evaluation of the underlying Securities.
Upon tender for redemption, the price to be paid will be calculated as
described under "Trustee Redemption" in Part B of this Prospectus.
# See "Comparison of Public Offering Price, Sponsors' Repurchase Price and
Redemption Price" in Part B of this Prospectus.
(1) Estimated current return represents annual interest income after estimated
annual expenses divided by the Public Offering Price, including for the
Short-Intermediate Portfolio, a 3.5% maximum sales charge. Estimated long
term return is the net annual percentage return based on the yield on each
underlying Security in the Trust weighted to reflect market value and
estimated average life. The estimated weighted average life to maturity of
the Trust is an estimate based upon various assumptions discussed more
fully under "Estimated Long Term Return and Estimated Current Return" in
Part B of this Prospectus. Estimated long term return is adjusted for
estimated expenses and the maximum public offering price but not for
delays in the Trust's distribution of income. Estimated current return
shows current annual cash return to investors while estimated long term
return shows the return on Units held to estimated average life,
reflecting prepayments of principal, maturities, discounts and premiums on
underlying Securities. Actual returns will vary with purchase price,
payments and prepayments of principal on the underlying Ginnie Maes,
Fannie Maes or Freddie Macs which back the Securities, and changes in
Trust income after expenses. These returns do not include the effects of
any delay in payments to Unitholders and a calculation which includes
those effects would be lower. See "Estimated Long Term Return and
Estimated Current Return" in Part B of this Prospectus.
## The proceeds from securities called on January 1, 1995 and certain amounts
distributable as of December 31, 1994 are reported in the Summary of
Essential Information as if they had been distributed as of December 31,
1994.
A-10
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<PAGE>
INFORMATION REGARDING THE TRUST
AS OF DECEMBER 31, 1995
Description of the Portfolio*
The Trust consists of 3 issues of CMOs. The Sponsors have not
participated as a sole underwriter or manager, co-manager or member of an
underwriting syndicate from which any of the initial aggregate principal amount
of the CMOs in the Portfolio were acquired. None of the CMOs have been issued by
entities created by GNMA, approximately 36.1% of the aggregate principal amount
of the CMOs in the Portfolio have been issued by entities created by FNMA,
approximately 63.9% of the aggregate principal amount have been issued by
entities created by FHLMC and none have been issued by private issuers. All of
the CMOs in the Trust have been issued by trusts, corporations or other entities
that have elected to be treated as Real Estate Mortgage Investment Conduits. The
CMOs in the Trust have stated final distribution dates ranging from August 15,
2018 through April 25, 2020 and estimated average lives (based upon estimated
prepayment rates) ranging from .5 to 4.4 years.
$5,477,335 of the principal amount of the Securities in the Trust
are planned amortization bonds or targeted amortization bonds. None of the
Securities in the Trust are plain vanilla bonds. None of the principal amount of
the Securities are support class bonds that are part of a series that contains
planned amortization bonds or targeted amortization bonds. $1,977,335 of the
principal amount of the Securities in the Trust are FNMA REMIC Certificates.
$3,500,000 of the principal amount of the Securities in the Trust are FHLMC
REMIC Certificates. None of the principal amount of the Securities in the Trust
are a class of compound interest bonds or principal only bonds.
As of December 31, 1995, approximately 72.6% of the aggregate
principal amount of the Securities in the Trust were acquired at a discount from
par, approximately 27.4% of the Securities in the Trust were acquired at a
premium and none were acquired at par. A Certificateholder may receive more or
less than his original purchase price upon disposition of his Units because the
value of the Units fluctuates with the value of the underlying Securities.
- --------
* Changes in the Trust Portfolio: From January 1, 1996 to March 22, 1996,
there has been a paydown on the securities in portfolio nos. 1 and 2 and
$230,213 and $174,510.39 of the principal amounts of the securities,
respectively, are no longer contained in the Trust. $80,000 principal
amount of the securities in portfolio no. 3 was sold and is no longer
contained in the Trust. 703,029 Units were redeemed from the Trust.
A-11
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<PAGE>
FINANCIAL AND STATISTICAL INFORMATION
Selected data for each Unit of the Trust outstanding for the periods listed
below:
SHORT-INTERMEDIATE PORTFOLIO
Distribu-
tions of
Principal
Distributions During
Net Asset* of Interest the
Value During the Period
Units Out- Per 1,000 Period (per (Per 1,000
Period Ended standing Units 1,000 Units) Units)
December 31, 1993 16,499,019 $859.15 $69.19 $118.00
December 31, 1994 15,524,964 524.10 48.37 313.19
December 31, 1995 13,154,845 429.29 34.03 113.14
- --------
* Net Asset Value per 1,000 Units is calculated by dividing net assets as
disclosed in the "Statement of Net Assets" by the number of units
outstanding as of the date of the Statement of Net Assets. See Note 5 of
Notes to Financial Statements for a description of the components of Net
Assets.
A-12
112439.1
<PAGE>
Independent Auditor's Report
The Sponsor, Trustee and Certificateholders
Mortgage Securities Trust, CMO Series 10 Short-Intermediate:
We have audited the accompanying statement of net assets, including the
portfolio, of Mortgage Securities Trust, CMO Series 10 Short-Intermediate as of
December 31, 1995, and the related statements of operations, and changes in net
assets for the three years then ended. These financial statements are the
responsibility of the Trustee (see note 2). Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1995, by correspondence with
the Trustee. An audit also includes assessing the accounting principles used and
significant estimates made by the Trustee, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mortgage Securities Trust, CMO
Series 10 Short-Intermediate as of December 31, 1995, and the results of its
operations and the changes in its net assets for the three years then ended in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
New York, New York
March 31, 1996
<PAGE>
Statement of Net Assets
December 31, 1995
Investments in marketable securities,
at market value (cost $5,325,276) $ 5,536,988
Excess of other assets over total liabilities 110,213
------------
Net assets 13,154,845 units of fractional undivided
interest outstanding, $0.43 per unit) $ 5,647,201
------------
------------
See accompanying notes to financial statements.
<PAGE>
Statements of Operations
Year ended December 31,
1995 1994 1993
------------ ------------ ------------
Investment income - interest $ 497,909 767,656 1,157,643
------------ ------------ ------------
Expenses:
Trustee's fees 18,271 19,656 27,361
Evaluator's fees 1,288 - -
Sponsor's advisory fee - - -
------------ ------------ ------------
Total expenses 19,559 19,656 27,361
------------ ------------ ------------
Investment income, net 478,350 748,000 1,130,282
------------ ------------ ------------
Realized and unrealized gain (loss)
on investments:
Realized loss on securities
sold (5,347) (51,978) (91,714)
Unrealized appreciation
(depreciation) for the period 262,954 (269,135) 221,290
------------ ------------ ------------
Net gain (loss)
on investments 257,607 (321,113) 129,576
------------ ------------ ------------
Net increase in net
assets resulting
from operations $ 735,957 426,887 1,259,858
============ ============ ============
See accompanying notes to financial statements.
<PAGE>
Statements of Changes in Net Assets
Year ended December 31,
1995 1994 1993
------------ ------------ ------------
Operations:
Investment income, net $ 478,350 748,000 1,130,282
Realized loss on securities
sold (5,347) (51,978) (91,714)
Unrealized appreciation
(depreciation) for the period 262,954 (269,135) 221,290
------------ ------------ ------------
Net increase in net
assets resulting
from operations 735,957 426,887 1,259,858
------------ ------------ ------------
Distributions to Certificateholders:
Investment income 469,786 779,532 1,146,673
Principal 1,620,338 5,042,124 1,954,502
Redemptions:
Interest - 1,662 32,255
Principal 1,135,206 642,139 67,119
------------ ------------ ------------
Total distributions
and redemptions 3,225,330 6,465,457 3,200,549
------------ ------------ ------------
Total decrease (2,489,373) (6,038,570) (1,940,691)
Net assets at the beginning
of period 8,136,574 14,175,144 16,115,835
------------ ------------ ------------
Net assets at end of period
(including undistributed net
investment income of $50,381 ,
$41,817, and $75,011) $ 5,647,201 8,136,574 14,175,144
============ ============ ============
See accompanying notes to financial statements.
<PAGE>
MORTGAGE SECURITIES TRUST, CMO SERIES 10 SHORT-INTERMEDIATE
Notes to Financial Statements
December 31, 1995, 1994, and 1993
(1) Organization
Mortgage Securities Trust, CMO Series 10 Short-Intermediate (Trust) was
organized on June 18, 1992 (date of deposit) by Bear, Stearns & Co. Inc.
and Gruntal & Co., Incorporated (Co-Sponsors) under the laws of the State
of New York by a Trust Indenture and Agreement, and is registered under
the Investment Company Act of 1940. Effective September 28, 1995, Reich &
Tang Distributors L.P. (Reich & Tang) has become the successor sponsor
(Sponsor) to certain of the unit investments trusts previously sponsored
by Bear, Stearns & Co. Inc. and Gruntal & Co., Incorporated. As successor
Sponsor, Reich & Tang has assumed all of the obligations and rights of
Bear Stearns & Co. Inc., and Gruntal & Co., Incorporated the previous
sponsors.
(2) Summary of Significant Accounting Policies
Effective September 2, 1995, United States Trust Company of New York was
merged into Chase Manhattan Bank (National Association) (Chase).
Accordingly, Chase is the successor trustee of the unit investment trusts.
The Trustee has custody of and responsibility for the accounting records
and financial statements of the Trust and is responsible for establishing
and maintaining a system of internal control related thereto.
The Trustee is also responsible for all estimates of expenses and accruals
reflected in the Trust's financial statements. The accompanying financial
statements have been adjusted to record the unrealized appreciation
(depreciation) of investments and to record interest income and expenses
on the accrual basis.
Investments are carried at market value which is determined by Kenny S&P
Evaluation Services (Evaluator). The market value of the portfolio is
based upon the bid prices for the bonds at the end of the year, except
that the market value on the date of deposit represents the cost to the
Trust based on the offering prices for investments at that date. The
difference between cost and market value is reflected as unrealized
appreciation (depreciation) of investments. Securities transactions are
recorded on the trade date. Realized gains (losses) from securities
transactions are determined on the basis of average cost of the securities
sold or redeemed.
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Trustee to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
F-5
<PAGE>
MORTGAGE SECURITIES TRUST, CMO SERIES 10 SHORT-INTERMEDIATE
Notes to Financial Statements
(3) Income Taxes
The Trust is not subject to Federal income taxes as
provided for by the Internal Revenue Code.
(4) Trust Administration
The fees and expenses of the Trust are incurred and
paid on the basis set forth under "Trust Expenses and
Charges" in Part B of this Prospectus.
The Trust Indenture and Agreement provides for
interest distributions on a monthly basis.
See "Financial and Statistical Information" in Part A
of this Prospectus for the amounts of per unit
distributions during the years ended December 31,
1995, 1994 and 1993.
The Trust Indenture and Agreement further requires
that principal received from the disposition of
securities, other than those securities 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. 2,370,119 and 974,055
units were redeemed during the years ended December
31, 1995 and 1994, respectively. 76,706 units were
redeemed during the year ended December 31, 1993.
(5) Net Assets
At December 31, 1995, the net assets of the Trust
represented the interest of Certificateholders as
follows:
Original cost to Certificateholders $ 16,575,725
Less initial gross underwriting commission (580,150)
------------
15,995,575
Cost of securities sold or called (10,670,299)
Net unrealized appreciation 211,712
Undistributed net investment income 50,381
Undistributed proceeds from securities sold 59,832
------
Total $ 5,647,201
=========
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 16,575,725 units of fractional undivided
interest of the Trust as of the date of deposit.
F-6
<PAGE>
<TABLE>
MORTGAGE SECURITIES TRUST, CMO SERIES 10 SHORT-INTERMEDIATE
Portfolio
December 31, 1995
<CAPTION>
Estimated
Coupon/ First
Port- Securities Final Distribution
folio Principal Contracted Distribution Date(s) Market
No. Amount for (3) Date (unaudited)(1) Value (2)
- --- ------------ -------------------------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
1 $ 2,000,000 Federal Home Loan Mortgage 6.950% 7/15/98 $ 2,011,176
Corporation Multiclass Mortgage 2/15/2020
Participation Certficates
(Guaranteed) Series 1101-KC
2 1,977,335 Federal National Mortgage 7.500 11/25/96 1,992,443
Association Guaranteed REMIC 4/25/2020
Pass-Through Certificates Fannie
Mae REMIC Trust 1991-Class 108-H
3 1,500,000 Federal Home Loan Mortgage 7.700 12/25/98 1,533,369
Corporation Multiclass Mortgage 7/15/2018
Participation Certficates
(Guaranteed) Series 1244-F
------------ ------------
$ 5,477,335 $ 5,536,988
============ ============
</TABLE>
See accompanying footnotes to portfolio and notes to financial
statements.
<PAGE>
MORTGAGE SECURITIES TRUST, CMO SERIES 10 SHORT-INTERMEDIATE
Footnotes to Portfolio
December 31, 1995
(1) See "The Trust - Portfolio" in Part B of this Prospectus for an
explanation of redemption features. See "Tax Status" in Part B of this
Prospectus for a statement of the Federal tax consequences to a
Certificateholder upon the sale, redemption or maturity of a security.
(2) At December 31, 1995, the net unrealized appreciation of all the
securities was comprised of gross unrealized appreciation of $211,712.
(3) The annual interest income, based upon securities held at December 31,
1995, to the Trust is $402,800.
(4) All of the CMO's in the portfolio are backed by underlying mortgage-backed
securities which are pledged as collateral to secure payment of principal
and interest on the CMO's. The CMO's in the Trust are issued by the
Federal National Mortgage Association ("FNMA") and the Federal Home Loan
Mortgage Corporation ("FHLMC"). The Units of the Trust are not, however,
guaranteed by FNMA, FHLMC, the United States and neither the CMOs in the
Trust nor any underlying FNMA's or FHLMC's constitute a debt obligation of
the United States or any of its agencies.
F-8
<PAGE>
Note: Part B of This Prospectus
May Not Be Distributed unless
Accompanied by Part A
Please Read and Retain Both Parts of This
Prospectus for Future Reference.
MORTGAGE SECURITIES TRUST
CMO SERIES
Prospectus Part B
Dated: April 30, 1996
THE TRUST
Organization
"Mortgage Securities Trust CMO Series" (the "Trust") consists of
the "unit investment trusts" designated as set forth in Part A.* The Trust
was created under the laws of the State of New York pursuant to the Trust
Indenture and Agreements** (the "Trust Agreement"), dated the Date of
Deposit, among Reich & Tang Distributors L.P., as successor Sponsor to Bear,
Stearns & Co. Inc., or depending on the particular Trust, among Reich & Tang
Distributors L.P. and Gruntal & Co., Incorporated as Co-Sponsors (the Sponsor
or Co-Sponsors, if applicable, are referred to herein as the "Sponsor"), The
Chase Manhattan Bank, N.A., as Trustee, and Kenny S&P Evaluation Services, a
division of J.J. Kenny Co., Inc., as Evaluator. The name of the Sponsor for a
particular Trust is contained in the "Summary of Additional Information" in
Part A.
The Trust contains different issues of collateralized mortgage
obligations ("CMOs" or "Securities"). On the Date of Deposit the Sponsor
deposited with the Trustee the underlying Securities as set forth in Part A,
including delivery statements relating to contracts for the purchase of such
Securities, and cash or an irrevocable letter of credit issued by a major
commercial bank in the amount required for such purchases. Thereafter, the
Trustee delivered to the Sponsor units of interest ("Units") representing the
entire ownership of the Trust. Each "Unit" of a Trust outstanding on the
Evaluation Date represents an undivided interest or pro rata share in the
principal and interest of the Trust in the ratio of one Unit for the indicated
principal amount of Securities in that Trust on such date as specified in
Part A of this Prospectus. Certificateholders will have the right to have
their Units redeemed (see "Redemption") at a price based on the aggregate bid
side evaluation of the Securities. To the extent that any Units are redeemed
by the Trustee, the fractional undivided interest or pro rata share in the
Trust represented by each unredeemed Unit will increase, although the actual
interest in the Trust represented by such fraction will remain unchanged.
Units will remain outstanding until redeemed upon tender to the Trustee by
Certificateholders, which may include the Sponsor or the underwriters (the
"Underwriters"), or until the termination of the Trust Agreement.
- --------
* This Part B relates to the outstanding series of Short-Intermediate
Portfolio, Intermediate Portfolio or Long-Intermediate Portfolio as
reflected in Part A attached hereto.
** References in this Prospectus to the Trust Agreement are qualified in
their entirety by the Trust Indenture and Agreement which is
incorporated herein.
1427.3
<PAGE>
Objectives
The Trust offers investors the opportunity to participate in a
portfolio of collateralized mortgage obligations with a greater degree of
safety and diversification than they might be able to acquire themselves. The
objectives of the Trust are to obtain safety of capital and a high level of
current distribution of interest income through investment in a fixed
portfolio of CMOs. The Trust seeks to obtain a higher yield than fixed income
investments with comparable AAA ratings. These CMOs may have been issued as
debt obligations of a trust or corporation or as certificated interests
representing beneficial ownership in pools of mortgage-backed securities. All
of the CMOs in the Trust are backed by underlying mortgage-backed securities
which are pledged as collateral to secure payment of principal and interest on
the CMOs. Each of these mortgage-backed securities is guaranteed by either
the Government National Mortgage Association ("GNMA"), the Federal National
Mortgage Association ("FNMA"), or the Federal Home Loan Mortgage Corporation
("FHLMC"). All of the CMOs in the Trust are issued by GNMA, FNMA or FHLMC or
are otherwise rated AAA by Standard & Poor's and, therefore, the Units of the
Trust are rated AAA by Standard & Poor's Corporation. However, neither GNMA,
FNMA, FHLMC, the United States or any of its agencies guarantees payment on
Units of the Trust. The full faith and credit of the United States is pledged
to the payment of all amounts guaranteed by GNMA. However, payments
guaranteed by FNMA and FHLMC are not guaranteed by the United States and
neither the CMOs in the Trust nor any underlying Fannie Maes or Freddie Macs
constitute a debt obligation of the United States or any of its agencies.
Investors should be aware that there is no assurance that the
Trust's objectives will be achieved. An investment in Units of the Trust
should be made with an understanding of the risks which an investment in a
fixed portfolio of fixed rate CMOs may entail, including the risk that the
value of a Trust portfolio and hence of the Units will decline with increases
in interest rates. It should also be noted that the potential for
appreciation on the Securities which would otherwise be expected to result
from a decline in interest rates, may tend to be limited by any increased
prepayments including selling the property, refinancing the mortgage or
otherwise paying off the loan in whole or in part by mortgagors as interest
rates decline. In addition, prepayments of principal on Securities purchased
at a premium over par will result in some loss on investment, while
prepayments on Securities purchased at a discount from par will result in some
gain on investment. The Sponsor cannot predict future economic policies or
their consequences or, therefore, the course or extent of any similar
fluctuations in the future. Educational materials regarding CMOs, including a
discussion of risk factors, investment features of CMOs and questions an
investor should ask before investing are available, upon request, from the
Sponsor.
Since disposition of Units prior to final liquidation of the Trust
may result in an investor receiving less than the amount paid for such Units
(see "Comparison of Public Offering Price, Sponsor's Repurchase Price and
Redemption Price"), the purchase of a Unit should be looked upon as a long-
term investment. Neither the Trust nor the Total Reinvestment Plan are
designed to be complete investment programs.
Portfolios
The portfolios of the Trust consist of the Securities described in
"Description of Portfolio" in Part A.
In selecting Securities for deposit in the Trust, the Sponsor
considered the following factors, among others: (i) the types of CMOs
available, (ii) the yield and price of the Securities relative to other
comparable mortgage-backed securities, (iii) the estimated average lives and
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prepayment schedules of the Securities, (iv) the payment provisions applicable
to the Securities, and (v) whether the Securities were issued after July 18,
1984 if interest thereon is United States source income.
The Trust consists of the Securities listed under "Portfolio" in
Part A as long as they may continue to be held from time to time in the Trust
together with accrued and undistributed interest thereon and undistributed and
uninvested cash realized from the disposition or redemption of Securities (see
"Trust Administration--Portfolio Supervision").
A CMO is a multiclass bond backed by a pool of mortgage pass-
through securities or mortgage loans. CMOs are also known as "real estate
mortgage investment conduits" (REMICs). As a result of the 1986 Tax Reform
Act, most CMOs are issued in REMIC form to create a certain tax advantage for
the issuer. The terms CMO and REMIC are used interchangeably. CMOs generally
are bond-like tranches of the cash flow from a mortgage pool. An issue of
CMOs generally is backed by a larger number of mortgages than a pool of Ginnie
Maes, Fannie Maes or Freddie Macs, thus allowing greater statistical
prediction of prepayment characteristics. CMOs also differ from regular
mortgage-backed securities in that the cash flow on the mortgage pool are
applied to the various classes of any series of CMOs in the order specified by
that series, rather than to each CMO in the series pro rata.
The Securities
The Securities in the Long-Intermediate Trust portfolio consist of
support class bonds, described below. The Securities in the Intermediate
Trust Portfolio may consist primarily of planned amortization or targeted
amortization bonds. The Securities in the Short-Intermediate Portfolio may
consist of one or more of several classes of CMOs, including:
Standard (Plain Vanilla) Bonds: This class of CMO accrues
interest at a fixed rate on its outstanding principal amount. The interest is
payable monthly, quarterly or semi-annually as specified. Holders of Standard
Bonds receive only interest until all CMOs issued in the same series with
earlier final distribution dates have been paid in full. In addition, some
Standard Bonds may be issued as a support class to Planned Amortization Bonds
or Targeted Amortization Bonds (see below).
Compound Interest Bonds: Interest accrues upon this class of CMO
but is not payable until all classes of CMOs issued in the same series with
earlier final distribution dates have been paid in full. Interest that
accrues but is not paid is added to the principal amount of the Compound
Interest Bond.
Adjustable Rate Bonds: Interest rates on this class of CMO may
increase or decrease at one or more specified dates according to the
documentation governing their issuance.
Floating Rate Bonds: Interest rates on these classes of CMOs vary
directly or inversely (although not necessarily proportionately) in relation
to generally accepted market interest rate indices. The interest rate is
usually capped to limit the extent of over-collateralization with mortgage-
backed securities required in order to ensure that there is sufficient cash
flow to service all the classes of CMOs in that series.
Planned Amortization Bonds or Targeted Amortization Bonds and
Support Bonds: Planned Amortization or Target Amortization classes of CMOs
receive payments of principal according to a planned schedule to the extent
that prepayments on the underlying mortgage-backed securities occur within a
broad time period (the "Protection Period"). The principal is reduced only in
specified amounts at specified times resulting in greater predictability of
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principal payments for the Planned Amortization Bonds or Targeted Amortization
Bonds. The greater predictability of cash flows for Planned Amortization and
Target Amortization Bonds is achieved by creating other classes of bonds
commonly called "support classes." Support classes generally receive
principal payments on any payment date only if scheduled payments have been
made on specified Planned Amortization and/or Target Amortization classes.
Support classes absorb the variability of principal cash flows from the
underlying mortgage-backed securities. For instance, if prepayments on the
underlying mortgage-backed securities occur at a rate greater or less than
that provided for by the Protection Period, then the excess or deficiency of
cash flows generated is absorbed by the support classes of CMOs in the
particular series until the principal amount of each of the other classes has
been paid in full, resulting in less predictability of cash flows for the
support classes. Accordingly, the support classes are subject to a higher
level of risk than the Planned Amortization or Target Amortization Bonds
because the support classes have a higher degree of average life variability.
Because the support classes have a higher degree of average life variability,
they generally pay a higher yield.
Principal Only Bonds: This class of stripped CMOs has the right
to all principal payments from the underlying mortgage-backed securities.
Principal Only Bonds sell at a deep discount. The return on a Principal Only
Bond increases the faster prepayments are received at par. The return on a
Principal Only Bond decreases if the rate of prepayment is slow. Slow
prepayment can also cause great delays in recognizing gains.
Pledged as collateral to secure the payment of interest and
principal on each type of CMO in the Portfolio will be Ginnie Maes, Fannie
Maes or Freddie Macs, guaranteed by GNMA, FNMA and FHLMC, respectively. The
Units of the Trust, however, will not be guaranteed by GNMA, FNMA, FHLMC, the
United States or any of its agencies. The Trust may contain CMOs, the
collateral pledged to secure which, are mortgages referred to as "Relocation
Mortgages." Relocation Mortgages are issued expressly to finance home
purchases by transferred employees. Since such mortgages are related to the
relocation of the individual rather than housing activity and mortgages rates
generally, the anticipated prepayment rate for them is different than other
individual mortgage-backed securities. Historically, prepayment speeds with
respect to Relocation Mortgages are faster and less interest rate sensitive
than traditional single family mortgages. Therefore, with respect to any CMOs
in the Trust supported by such Relocation Mortgages, the Trust would expect to
receive prepayment of principal on such instruments at a faster rate than that
with respect to other CMOs in the Trust.
GNMA. The Government National Mortgage Association is a wholly-
owned corporate instrumentality of the United States within the Department of
Housing and Urban Development. The National Housing Act of 1943, as amended,
authorizes GNMA to guarantee the timely payment of the principal of, and
interest on, certificates which are based on and backed by a pool of mortgage
loans insured by the Federal Housing Administration ("FHA"), or partially
guaranteed by the Veteran's Administration ("VA"). In order to meet its
obligations under such guaranty, GNMA may issue its general obligations to the
United States Treasury in an amount which is at any time sufficient to enable
GNMA, with no limitations as to amount, to perform its obligations under its
guaranty. In the event it is called upon at any time to make good its
guaranty, GNMA has the full power and authority to borrow from the Treasury of
the United States, if necessary, amounts sufficient to make payments of
principal and interest on the Ginnie Maes.
Ginnie Maes. Ginnie Maes are mortgage-backed securities of the
"fully modified pass-through" type, the terms of which provide for timely
monthly payments by the issuers to the registered holders of their pro rata
shares of the scheduled principal payments, whether or not collected by the
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issuers, on account of the mortgages backing such Ginnie Maes, plus any
prepayment of principal of such mortgages received, and interest (net of
servicing and guarantee charges) on the aggregate unpaid principal balance of
such Ginnie Maes, whether or not interest on account of such mortgages has
been collected by the issuers. Ginnie Maes will be guaranteed as to timely
payment of principal and interest by GNMA. The full faith and credit of the
United States is pledged to the payment of all amounts which may be required
to be paid under the guaranty.
FNMA. The Federal National Mortgage Association is a Federally
chartered, privately-owned corporation organized and existing under the
Federal National Mortgage Association Charter Act. FNMA was originally
established in 1938 as a United States government agency to provide
supplemental liquidity to the mortgage market but was transformed into a
stockholder owned and privately managed corporation by legislation enacted in
1968. The Secretary of Housing and Urban Development exercises general
regulatory power over FNMA. FNMA nevertheless maintains certain relationships
with the U.S. Government. Although thirteen members of its board of directors
are authorized to be elected by the shareholders, five are appointed by the
President of the United States. The President can also remove board members,
including those elected by the shareholders. Although the Secretary of the
Treasury has discretionary authority to lend FNMA up to $2.25 billion
outstanding at any time, neither the United States nor any agency thereof is
obligated to finance FNMA's obligations or to assist FNMA in any other matter,
and obligations issued by FNMA are not guaranteed by and do not constitute a
debt or obligation of the United States or of any agency or instrumentality
thereof other than FNMA. FNMA provides funds to the mortgage market primarily
by purchasing home mortgage loans from lenders, thereby replenishing funds for
additional lending. FNMA acquires funds to purchase home mortgage loans from
many capital market investors which may not ordinarily invest in mortgages
thereby expanding the total amount of funds available for housing.
Fannie Maes. Fannie Maes are certificates of beneficial interest
evidencing pro rata undivided ownership interests in pools of residential
mortgages either previously owned by FNMA or purchased by it in connection
with the formation of a pool. FNMA guarantees the full and timely payment of
principal and interest (adjusted to the pass-through rate) on the mortgage
loans in the pool, whether or not received by FNMA or recovered by it in
foreclosure. If FNMA were unable to fulfill its guaranty, distributions to
holders of Fannie Maes would consist solely of payments and other recoveries
upon the underlying mortgages, and, accordingly, delinquencies and default
would diminish distributions to the holders. The obligations of FNMA under
its guaranty are solely those of FNMA and are not backed by the full faith and
credit of the United States. Moreover, neither the United States nor any of
its agencies is obligated to finance the operations of FNMA or to assist it.
FHLMC. The Federal Home Loan Mortgage Corporation is a corporate
instrumentality of the United States created pursuant to the Emergency Home
Finance Act of 1970 (the "FHLMC Act"). FHLMC's common stock is owned by the
Federal Home Loan Banks. FHLMC was established primarily for the purpose of
increasing the availability of mortgage credit for the financing of urgently
needed housing. It seeks to provide an enhanced degree of liquidity for
residential mortgage investments primarily by assisting in the development of
secondary markets for conventional mortgages. The principal activity of FHLMC
currently consists of the purchase of first lien, conventional residential
mortgage loans or participation interests in such mortgage loans and the
resale of the mortgage loans so purchased in the form of mortgage securities,
primarily Freddie Macs. All mortgage loans purchased by FHLMC must meet
certain standards set forth in the FHLMC Act. Mortgages retained by FHLMC are
financed with debt and equity capital.
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Freddie Macs. Freddie Macs represent an undivided interest in a
pool of first lien, residential mortgages and mortgage participations
("Mortgages" or "PCs") purchased by FHLMC. PCs include "Gold PCs," "Original
PCs," "ARM PCs," "Gold Giant PCs," "Original Giant PCs," and "ARM Giant PCs."
PCs may include whole loans, participation interests in whole loans and
undivided interest in whole loans or participations comprising other PCs. For
example, Gold PCs, Original PCs and ARM PCs represent undivided interests in
discrete pools consisting of Mortgages. Gold Giant PCs, Original Giant PCs
and ARM Giant PCs represent beneficial ownership interests in discrete pools
consisting of PCs. In the case of Original PCs FHLMC guarantees the timely
payment of interest at the rate provided for by Freddie Macs on the unpaid
principal balance outstanding on the underlying mortgage loans in the PCs
represented by the Freddie Macs, whether or not received, and also guarantees
collection of all principal on the underlying mortgage loans, without any
offset or deduction, but does not guarantee the timely payment of scheduled
principal. Unlike Original PCs, Gold PCs guarantee the timely payment of both
interest and scheduled principal, thus producing a more predictable payment
stream. Gold PCs also offer a shorter payment delay than that of conventional
mortgage pass-through securities (FHLMC advances payment to Gold PC holders 14
days after the borrower's scheduled principal and interest payments are due),
and a shorter period (approximately 45 days) between the first day of the
month in which the Gold PCs are issued and the initial payment date. Freddie
Macs are not guaranteed by the United States or by any Federal Home Loan Bank
and do not constitute debts or obligations of the United States or any Federal
Home Loan Bank. The obligations of FHLMC under its guarantee are obligations
solely of FHLMC and are not backed by, nor entitled to, the full faith and
credit of the United States. If FHLMC were unable to fulfill its guaranty,
distributions to holders of Freddie Macs would consist solely of payments and
other recoveries upon the underlying mortgages, and, accordingly,
delinquencies and defaults would diminish distributions to the holders.
Special Features of Market Discount Securities
Certain of the Securities in the Trust may have been valued at a
market discount. Securities trade at less than par value because the interest
rates on the Securities are lower than interest on comparable obligations
being issued at currently prevailing interest rates. The current returns of
Securities trading at a market discount are lower than the current returns of
comparably rated obligations of a similar type issued at currently prevailing
interest rates because discount securities tend to increase in market value as
they approach maturity and the full principal amount becomes payable. If
currently prevailing interest rates for newly issued and otherwise comparable
securities increase, the market discount of previously issued securities will
become deeper, and if currently prevailing interest rates for newly issued
comparable securities decline, the market discount of previously issued
securities will be reduced, other things, including, without limitation,
credit quality and rate of prepayment, being equal. Investors should also
note that the value of the Securities valued at a market discount will
increase faster than the Securities valued at a market premium if interest
rates decrease. Conversely, if interest rates increase, the value of the
Securities valued at a market discount will decrease faster than the
Securities valued at a premium. In addition, if interest rates rise, the
prepayment risk of higher yielding premium Securities, and the prepayment
benefit for lower yielding, discount Securities will be reduced. Market
discount attributable to interest rate changes does not indicate a lack of
market confidence in the issue.
Special Features of Market Premium Securities
Certain of the Securities in the Trust may have been valued at a
market premium. Securities trade at a premium because the interest rates on
the Securities are higher than interest on comparable obligations being issued
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at currently prevailing interest rates. The current returns of Securities
trading at a market premium are higher than the current returns of comparably
rated obligations of a similar type issued at currently prevailing interest
rates because premium securities tend to decrease in market value as they
approach maturity when the principal amount becomes payable. Because part of
the purchase price is returned not at maturity but through current income
payments, an early redemption of a premium security at par will result in a
reduction in yield. If currently prevailing interest rates for newly issued
and otherwise comparable securities increase, the market premium of previously
issued securities will decline and if currently prevailing interest rates for
newly issued comparable securities decline the market premium of previously
issued securities will increase, other things, including, without limitation,
credit quality and rate of prepayment, being equal. Market premium
attributable to interest rate changes does not indicate market confidence in
the issue.
Neither the Sponsor nor the Trustee shall be liable in any way for
any default, failure or defect in any of the Securities. Because certain of
the Securities from time to time may be redeemed or will mature in accordance
with their terms or may be sold under certain circumstances, no assurance can
be given that the Trust will retain its present size and composition for any
length of time. The proceeds from the sale of a Security or the exercise of
any redemption or call provision will be distributed to Certificateholders
except to the extent such proceeds are applied to meet redemptions of Units
(see "Trustee Redemption").
Liquidity
The Securities in the Trust have been registered, or are exempt
from registration, under the Securities Act of 1933 and, therefore, may be
sold by a Trust at any time to provide funds for purposes of redemption of
Units. However, the Securities are generally not listed on a national
securities exchange or on the National Association of Securities Dealers
Automated Quotation System, Inc. Whether or not the Securities are listed,
the principal trading market for the Securities will generally be in the over-
the-counter market. As a result, the existence of a liquid trading market for
the Securities may depend on whether dealers will make a market in the
Securities. There can be no assurance that a market will be made for any of
the Securities, that any market for the Securities will be maintained or of
the liquidity of the Securities in any markets made. In addition, the Trust
may be restricted under the Investment Company Act of 1940 from selling
Securities to the Sponsor. The price at which the Securities may be sold to
meet redemptions and the value of the Trust will be adversely affected if
trading markets for the Securities are limited or absent. However, taking
into account the foregoing and other factors, the Sponsor believes that the
nature of the GNMA, FNMA or FHLMC guarantees of any Securities that have been
issued by them, respectively, and the nature of the Ginnie Maes, Fannie Maes
or Freddie Macs security payments of principal and interest due on the
Securities make the Securities adequately marketable for purposes of
redemption of Units by the Trustee (see "Redemption").
Limited Assets and Limited Liability
Except as indicated under "Description of Portfolio" in Part A and
except for any Securities that were issued by GNMA, FNMA or FHLMC, the issuers
of the Securities are limited purpose corporations, trusts or other entities
("Limited Purpose Issuers"), organized solely for the purpose of issuing
Ginnie Mae, Fannie Mae or Freddie Mac-collateralized CMOs. None of the
securities issued by the Limited Purpose Issuers (including the Securities
deposited in the Trust) are guaranteed by the parent company or any other
affiliate of any Limited Purpose Issuer. Consequently, holders of these
securities (including the Trust) must rely upon payments on the Ginnie Maes,
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Fannie Maes or Freddie Macs and upon any other collateral securing the
securities (including the Securities deposited in the Trust) for the payment
of principal and interest due on the Securities. If the collateral securing
the securities of each Limited Purpose Issuer is insufficient to make payments
on those securities, it is unlikely that any other asset of the Limited
Purpose Issuer will be available for payment of the deficiency. The
collateral securing the CMOs of each Issuer (including the Securities
deposited in the Trust) will be held by the CMO Trustee as security for the
CMOs of that Issuer. Although payment of principal of and interest on Ginnie
Maes, Fannie Maes and Freddie Macs securing the Securities is guaranteed by
GNMA, FNMA and FHLMC, respectively, the CMOs (including the Securities
deposited in the Trust except for any Securities which have been issued
directly or indirectly by GNMA, FNMA or FHLMC) represent obligations solely of
the Issuers and are not insured or guaranteed by GNMA, FNMA or FHLMC or any
other governmental agency. A default with respect to the securities of a
particular Issuer (including the Securities of the Issuer deposited in the
Trust) may not necessarily result from a corresponding default with respect to
the underlying Ginnie Maes, Fannie Maes or Freddie Macs.
For any Securities that have been issued by issuers other than
GNMA, FNMA or FHLMC, the Sponsor has obtained representations from the issuer
that it has received an opinion of counsel to the effect that it is not an
investment company or that it has been exempted from the definition of an
investment company by order of the Securities and Exchange Commission. With
respect to any Securities of issuers that have been exempted from the
definition of an investment company by order of the Securities and Exchange
Commission, the value of the Securities will not exceed more than 5%
individually, or 10% in the aggregate, of the total value of the Securities in
the Trust.
Life of the Securities and of the Trust
CMOs are generally issued as a series of different classes. An
issue of CMOs tends to be backed by a larger number of mortgages than a pool
of Ginnie Maes, Fannie Maes or Freddie Macs, thus allowing greater statistical
prediction of prepayment characteristics. However, mortgage prepayment rates
are likely to fluctuate significantly from time to time and investors should
consider the associated risks. (See "Risk Considerations" in Part A.)
Interest and principal payments on the mortgages underlying any series will
first be applied to meet the interest payment requirements of each class in
the series other than any class in respect of which interest accrues but is
not paid or any principal only class. Then, principal payments on the
underlying mortgages are generally applied to pay the principal amount of the
class that has the earliest maturity date. Once that class is retired, the
principal payments on the underlying mortgages are applied to the class with
the next earliest maturity date. This is repeated until all classes are paid.
Therefore, while each class of CMOs, remains subject to prepayment as the
underlying mortgages prepay, structuring several classes of CMOs in the stream
of principal payments allows a more predictable estimate of the period of time
when any one class is likely to be repaid. The estimate can be even closer
with a class of planned amortization bonds or targeted amortization bonds.
The amortization schedule for these CMOs is structured so that, at specified
prepayment rates within a relatively wide range, their principal will be
repaid at specified times and in specified amounts. However, if any series of
CMOs contains a class of planned amortization bonds or targeted amortization
bonds, then the other classes in that series may not be retired in an order of
priority determined strictly with reference to their maturity dates.
These other classes are often referred to as "support classes"
because their function is to support the amortization schedule of the planned
amortization bonds or targeted amortization bonds. If the rate of prepayments
on the underlying mortgages is faster than assumed, then classes with maturity
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dates later than the planned amortization bonds or targeted amortization bonds
may be retired earlier than estimated to ensure that the planned amortization
bonds or targeted amortization bonds receive the principal payments required
by their amortization schedule. Similarly, if the rate of prepayments is
slower than anticipated, earlier support classes may be retired later than
estimated. Hence, support classes of a series that contains planned
amortization bonds or targeted amortization bonds have less predictable
prepayment characteristics than classes of a series that does not. This lack
of predictability regarding prepayments also causes support class bonds to
have greater market value fluctuation than other classes of a CMO (see
"Description of Portfolios" in each Part A for the number of planned
amortization bonds, target amortization bonds and support bonds contained in
the Trust portfolios). With respect to the Long-Intermediate Portfolio, this
fluctuation may be substantial, both in the amount of income earned and in the
timing of principal distributions. This fluctuation may adversely affect the
repurchase and redemption prices of Units of the Long-Intermediate Portfolio.
The rate of prepayment on the underlying mortgages of a CMO will most likely
decline as interest rates increase. If the rate of prepayment declines, the
weighted average life of the support class bonds will most likely increase
and, in some cases, the decline will impact the yield and market value of
these Securities. This may cause an investor's principal in a support class
bond to be outstanding for a longer period of time than initially anticipated.
Conversely, if interest rates decline, prepayments on the underlying mortgages
will most likely increase, and the weighted average life of the support class
bonds may be shorter than anticipated. A holder of a support class bond in
these situations may be unable to reinvest the proceeds of these principal
distributions at an effective interest rate equal to the specified coupon rate
on the original support class bond. Therefore, an investor expecting to earn
a fixed return for a fixed number of years may find the life of a support
class investment decreases as interest rates fall and increases as they rise.
In contrast, Ginnie Maes, Fannie Maes or Freddie Macs, estimation
of repayment is more difficult as the cash flow on the underlying mortgages is
simply passed through on a pro rata basis to the holders. However, any
estimate of the prepayment period for any class of CMO is based upon certain
assumptions as to the prepayment speed of the underlying mortgages, which
assumptions may prove to be inaccurate over time. See "Estimated Long Term
Return and Estimated Current Return."
All of the mortgages in the pools relating to the Ginnie Maes,
Fannie Maes or Freddie Macs backing the Securities in the Trust are subject to
prepayment without any significant premium or penalty at the option of the
mortgagors (i.e., the homeowners). Because certain of the Securities from
time to time may be redeemed or prepaid or will mature in accordance with
their terms or may be sold under certain circumstances described herein, no
assurance can be given that the Trust will retain for any length of time its
present size and composition (see "Redemption").
While the mortgages on the 1 to 4 family dwellings underlying
Ginnie Maes, Fannie Maes or Freddie Macs which may back the Securities are
amortized over a period of up to 30 years, it has been the experience of the
mortgage industry that the average life of comparable mortgages, owing to
prepayments, is considerably less. Prepayments on mortgages are commonly
measured relative to a prepayment standard or model. The prepayment model of
the Public Securities Association (the "Prepayment Model") represents an
assumed rate of prepayment each month relative to the then outstanding
principal balance of a pool of new mortgage loans. 100% of the Prepayment
Model assumes prepayment rates of 0.2% per annum of the then outstanding
principal balance of such mortgage loans in the first month of the life of the
mortgage loans and an additional 0.2% per annum in each month thereafter until
the 30th month. Beginning in the 30th month and in each month thereafter
during the life of the mortgage loans, 100% of the Prepayment Model assumes a
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constant prepayment rate of 6% per annum. The principal repayment behavior of
any individual mortgage will likely vary from these assumptions. The extent
of this variation will depend on a variety of factors, including the
relationship between the coupon rate on a mortgage and prevailing mortgage
origination rates. As prevailing mortgage origination rates increase in
relationship to a mortgage coupon rate, the likelihood of prepayment of that
mortgage decreases. Conversely, during periods in which prevailing mortgage
origination rates are significantly less than a mortgage coupon rate,
prepayment of that mortgage becomes increasingly likely. Research analysts
use complex formulae to scrutinize the prepayments of mortgage pools in an
attempt to predict more accurately the average life of any particular class of
mortgage-backed bonds. The basis for the calculation of estimated average
life and the relationship of this calculation for Estimated Long Term Return
is more fully described under "Estimated Long Term Return and Estimated
Current Return."
Generally speaking, a number of factors, including mortgage market
interest rates and homeowners' mobility, will affect the average life of the
Ginnie Maes, Fannie Maes or Freddie Macs which back the Securities in the
Trust and, accordingly, there can be no assurance that the prepayment levels
which will be actually realized will conform to the estimated levels. Changes
in prepayment patterns, as reported by each of GNMA, FNMA and FHLMC on a
periodic basis, if generally applicable to the mortgage pools related to
specific CMOs could influence yield assumptions used in pricing the
securities. Shifts in prepayment patterns are influenced by changes in
housing cycles and mortgage refinancing and are also subject to certain
limitations on the gathering of the data; it is impossible to predict how new
statistics will affect the yield assumptions that determine mortgage industry
rooms and pricing of CMOs. Moreover, there is no assurance that the pools of
mortgage loans relating to the Securities in the Trust will conform to
prepayment experience as reported by GNMA, FNMA or FHLMC on a periodic basis
or the prepayment experience of other mortgage lenders.
While the value of CMOs generally fluctuates inversely with
changes in interest rates, it should also be noted that the potential for
appreciation on CMOs, which could otherwise be expected to result from a
decline in interest rates, may tend to be limited by any increased prepayments
by mortgagors as interest rates decline (except for Principal Only Bonds whose
yield increases with the speed at which payments of principal are received at
par). Accordingly, the termination of the Trust might be accelerated as a
result of prepayments made as described above. In addition, it is possible
that, in the absence of a secondary market for the Units or otherwise,
redemption of Units may occur in sufficient numbers to reduce a Portfolio to a
size resulting in the termination of the Trust (termination for this reason
would be delayed if additional Units are issued). Early termination of a
Trust may have important consequences to Certificateholders, e.g., the extent
that Units were purchased with a view to an investment of longer duration, the
overall investment program of the investor may require readjustment, or the
overall return on investment may be less or greater than anticipated,
depending in part on whether the purchase price paid for Units represented the
payment of an overall premium or a discount, respectively, above or below the
stated principal amounts of the underlying mortgages.
PUBLIC OFFERING
Offering Price
The secondary market Public Offering Price per 1,000 Units of the
Trust is computed by adding to the aggregate bid price of the Securities in
the Trust divided by the number of Units outstanding times 1,000, an amount
equal to (a) for the Short-Intermediate Portfolio, 3.627% of the aggregate bid
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price of the Securities per 1,000 Units which is equal to 3.5% of the Public
Offering Price per 1,000 Units, (b) for the Intermediate Portfolio, 3.896% of
the aggregate bid price of the Securities per 1,000 Units which is 3.75% of
the Public Offering Price per 1,000 Units and (c) for the Long-Intermediate
Portfolio, 4.167% of the aggregate offering price of the Securities per 1,000
Units which is equal to 4% of the Public Offering Price per 1,000 Units. A
proportionate share of accrued interest on the Securities is added to the
Public Offering Price. Accrued interest is the accumulated and unpaid
interest on Securities from the last day on which interest was paid and is
accounted for daily by the Trust at the initial daily rate set forth under
"Summary of Essential Information" in Part A. The Public Offering Price can
vary on a daily basis from the amount stated in this Prospectus in accordance
with fluctuations in the prices of the Securities and the price to be paid by
each investor will be computed as of the date the Units are purchased. The
aggregate bid price evaluation of the Bonds is determined in the manner set
forth under "Trustee Redemption."
The Evaluator may obtain current bid or offering prices for the
Securities from investment dealers or brokers (including the Sponsor) that
customarily deal in CMOs or from any other report service or source of
information which the Evaluator deems appropriate.
Accrued Interest
Accrued interest is the accumulation of unpaid interest on a
Security from the last day on which interest thereon was paid. Interest on
Securities in the Trust is actually paid monthly to the Trust. However,
interest on Securities in the Trust is accounted for daily on an accrual
basis. Because of this, a Trust always has an amount of interest earned but
not yet collected by the Trustee because of non-collected coupons. For this
reason, the Public Offering Price of Units will have added to it the
proportionate share of accrued and undistributed interest to Date of
Settlement.
A Certificateholder will not recover his proportionate share of
accrued interest until the Units are sold or redeemed, or the Trust is
terminated. At that time, the Certificateholder will receive his
proportionate share of the accrued interest computed to the Settlement Date in
the case of sale or termination and to the date of tender in the case of
redemption.
Employee Discounts
Employees (and their immediate families) of Reich & Tang
Distributors L.P. and its affiliates, Gruntal & Co., Incorporated and of any
underwriter of a Trust, pursuant to employee benefit arrangements, may
purchase Units of a Trust at a price equal to the bid side evaluation of the
underlying securities in the Trust divided by the number of Units outstanding
plus a reduced sales charge of $10.00 per Unit. Such arrangements result in
less selling effort and selling expenses than sales to employee groups of
other companies. Resales or transfers of Units purchased under the employee
benefit arrangements may only be made through the Sponsor's secondary market,
so long as it is being maintained.
Distribution of Units
Certain banks and thrifts will make Units of the Trust available
to their customers on an agency basis. A portion of the sales charge paid by
their customers is retained by or remitted to the banks. Under the Glass-
Steagall Act, banks are prohibited from underwriting Units; however, the
Glass-Steagall Act does permit certain agency transactions and the banking
regulators have indicated that these particular agency transactions are
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permitted under such Act. In addition, state securities laws on this issue
may differ from the interpretations of federal law expressed herein and banks
and financial institutions may be required to register as dealers pursuant to
state law.
The Sponsor intends to qualify the Units for sale in substantially
all States through the Underwriters and through dealers who are members of the
National Association of Securities Dealers, Inc. Units may be sold to dealers
at prices which represent a concession of up to $25 per 1,000 Units, subject
to the Sponsor's right to change the dealers' concession from time to time.
In addition, for transactions of 1,000,000 Units or more, the Sponsor intends
to negotiate the applicable sales charge and such charge will be disclosed to
any such purchaser. Such Units may then be distributed to the public by the
dealers at the Public Offering Price then in effect. The Sponsor reserves the
right to reject, in whole or in part, any order for the purchase of Units.
The Sponsor reserves the right to change the discounts from time to time.
Sponsor's and Underwriters' Profits
The Sponsor will receive a gross commission equal to (a) for the
Short-Intermediate Portfolio, 3.5% of the Public Offering Price per 1,000
Units (equivalent to 3.627% of the net amount invested in the Securities),
(b) for the Intermediate Portfolio, 3.75% of the Public Offering Price per
1,000 Units (equivalent to 3.896% of the net amount invested in the
Securities) and (c) for the Long-Intermediate Portfolio, 4% of the Public
Offering Price per 1,000 Units (equivalent to 4.167% of the net amount
invested in the Securities). In addition, in maintaining a market for the
Units (see "Sponsor's Repurchase") the Sponsor will realize profits or sustain
losses in the amount of any difference between the price at which they buy
Units and the price at which they resell such Units.
Participants in the Total Reinvestment Plan can designate a broker
as the recipient of a dealer concession (see "Total Reinvestment Plan").
Comparison of Public Offering Price, Sponsor's
Repurchase Price and Redemption Price
The secondary market Public Offering Price of the Units will be
determined on the basis of the current bid prices of the Securities in the
Trust, plus the applicable sale charges. The value at which Units may be
resold in the secondary market will be determined on the basis of the
aggregate bid side evaluation of the Securities. On the Evaluation Date, the
Public Offering Price per 1,000 Units and the Sponsor's Repurchase Price per
1,000 Units (each based on the bid side evaluation of the Securities) each
exceeded the Redemption Price per 1,000 Units and the Sponsor's secondary
market Repurchase Price per 1,000 Units (based on the current bid side
evaluation of the Securities) by the amounts shown under "Summary of Essential
Information" in Part A.
ESTIMATED LONG TERM RETURN AND ESTIMATED CURRENT RETURN
The rate of return on an investment in Units of the Trust is
measured in terms of "Estimated Current Return" and "Estimated Long Term
Return" as described below.
The Estimated Net Annual Interest Income per 1,000 Units for the
Trust, set forth under "Summary of Essential Information", shows the return
based on $1.00 principal amount per Unit after deducting estimated annual fees
and expenses. This figure will change as Securities mature, are prepaid,
exchanged, redeemed, pair or sold, as replacements or Additional Securities
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are purchased and deposited in the Trust or as the expenses of the Trust
change.
In actual operation, payments received in respect of the mortgages
underlying the Ginnie Maes, Fannie Maes or Freddie Macs which in turn back the
Securities will consist of a portion representing interest and a portion
representing principal. Although the aggregate monthly payment made by the
obligor on each mortgage remains constant (aside from optional prepayments of
principal), in the early years the larger proportion of each payment will
represent interest, while in later years, the proportion representing interest
will decline and the proportion representing principal will increase, although
the interest rate remains constant. Moreover, by reason of optional
prepayments, payments in the earlier years on mortgages may be substantially
in excess of those required by the amortization schedules of these mortgages;
conversely, payments in later years may be substantially less since the
aggregate unpaid principal balances of the underlying mortgages and, hence,
the related Ginnie Maes, Fannie Maes or Freddie Macs may have been greatly
reduced--ultimately even sufficiently reduced to accelerate termination of the
Trust. To the extent that those Securities bearing the higher interest rate
represented in the Portfolio are prepaid faster than other Securities, the net
annual interest per 1,000 Units and the return on the Units can be expected to
decline. Monthly payments to the Certificateholders will reflect all of the
foregoing factors.
Interest on the Securities in the Trust, less estimated fees of
the Trustee and Sponsor and certain other expenses, is expected to accrue per
1,000 Units at the daily rate (based on a 360-day year) shown under "Summary
of Essential Information". The actual daily rate will vary as Securities are
prepaid, exchanged, redeemed, paid or sold or as the expenses of the Trust
change.
The Estimated Current Return and the Estimated Long Term Return
for each Trust on the Evaluation Date are set forth under "Summary of
Essential Information" in Part A. Estimated Long Term Return is calculated
by: (1) computing the yield to maturity for each CMO in the Trust's portfolio
in accordance with accepted CMO practices, which practices take into account
not only the interest payable on the CMO but also the amortization of premiums
or accretion of discounts, if any, and estimated appropriate prepayments;
(2) calculating the average of yields for the CMOs in the Trust's portfolio by
weighing each CMOs' yield by the market value of the CMO and by the amount of
time remaining to the date to which the CMO is priced (thus creating an
average yield for the portfolio of the Trust); and (3) reducing the average
yield for the portfolio of the Trust in order to reflect estimated fees and
expenses of the Trust and the maximum sales charge paid by Certificateholders.
The resulting Estimated Long Term Return represents a measure of the return to
Certificateholders earned over the estimated life of the Trust.
Estimated Current Return for each Portfolio is computed by
dividing the Estimated Net Annual Interest Income per 1,000 Units by the
Public Offering Price per 1,000 Units. In contrast to the Estimated Long Term
Return, the Estimated Current Return does not take into account the
amortization of premium or accretion of discount, if any, on the CMOs in the
portfolio of the Trust.
The calculation of an estimated average life for any Security in
the Trust is a two stage process. First, several assumptions are made to
derive an estimated prepayment rate for the mortgages underlying the Ginnie
Maes, Fannie Maes or Freddie Macs which back the Securities. Based upon
historical prepayment data provided by GNMA, FNMA or FHLMC an assumption is
made as to how the prepayment behavior of the mortgages will be affected as
they amortize. However, because historical prepayment data afford only a
limited basis upon which to analyze prepayment behavior, the Sponsor has
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developed an econometric model that allows an analysis of several other
important variables. The principal variables are the spread between present
market interest rates and the interest rate on the mortgages and the turnover
rate in the housing market. Finally, the Sponsor uses this model's prepayment
predictions to derive an estimated prepayment rate for the mortgage pool,
expressed in terms of the PSA Prepayment Model, from which an estimated
average life an estimated prepayment schedule can be projected for the Ginnie
Maes, Fannie Maes or Freddie Macs themselves. While the various estimates
made in this first stage are subjected to rigorous analysis, investors should
be aware that they are based upon reported statistical relations that may not
remain constant and assumptions about the future of an uncertain economic
environment.
The second stage in determining the estimated average life of any
Security in the Trust involves the use of a formula to apply the estimated
rate of principal payments on the mortgage pool to amortize the Ginnie Maes,
Fannie Maes or Freddie Macs which back the Securities and to retire the
principal amount of each CMO class of the same series, including the Security
itself, according to the specific principal reduction schedule of that series.
This results in an estimate of the point at which the principal of any
Security will begin to be paid and how long it will take for the principal to
be fully paid. If any Security was issued in a series that contains planned
amortization bonds or targeted amortization bonds, then the estimated rate of
principal payments on the underlying mortgages will be applied to the other
classes in that series in a manner that takes account of the amortization
schedule of the planned amortization bonds or targeted amortization bonds.
This results in less predictable prepayment characteristics for those other
classes. The estimated average life for the Trust provided under the "Summary
of Essential Information" is subject to change with alterations in the data
used in any of the underlying assumptions. The actual average lives of the
Securities and the actual long term returns will be different from the
estimated average lives and the Estimated Long Term Returns.
Both Estimated Current Return and Estimated Long Term Return are
subject to fluctuation with changes in Portfolio composition, principal
payments and prepayments and changes in market value of the underlying
Securities and changes in fees and expenses, including sales charges, and
therefore can be materially different than the figures set forth under the
Summary of Essential Information. The size of any difference between
Estimated Current Return and Estimated Long Term Return can also be expected
to fluctuate at least as frequently. In addition, both return figures may not
be directly comparable to yield figures used to measure other investments, and
since the return figures are based on certain assumptions and variables the
actual returns received by a Certificateholder may be higher or lower. The
Estimated Long Term Return and Estimated Current Return calculations do not
take into account certain delays in distributions of income and the timing of
other receipts and distributions on Units and may, depending on maturities,
over or understate the impact of sales charges. Both of these factors may
result in lower figures.
In addition to the Public Offering Price, the price of a Unit
includes accrued interest on the Securities. Securities deposited in the
Trust include an item of accrued but unpaid interest up to the date of
delivery of the Securities. Certificateholders pay for this additional
accrued interest when they purchase Units. In addition, interest accruing
after the date of delivery of the Securities is added to the Public Offering
Price. Accrued interest earns no return.
The payment dates of the Securities may vary and therefore accrued
interest at any time may be greater than the amount of interest actually
received by the Trust and distributed to Certificateholders. Therefore,
accrued interest (if any) is always added to the value of the Units. If a
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Certificateholder sells all or a portion of his Units, he will receive his
proportionate share of the accrued interest from the purchaser of his Units.
Similarly, if a Certificateholder redeems all or a portion of his Units, the
Redemption Price per Unit will include accrued interest on the Securities.
RIGHTS OF CERTIFICATEHOLDERS
Certificates
Ownership of Units of the Trust is evidenced by registered
Certificates executed by the Trustee and the Sponsor. Certificates may be
issued in denominations of one thousand or more Units. Certificates are
transferable by presentation and surrender to the Trustee properly endorsed
and/or accompanied by a written instrument or instruments of transfer.
Although no such charge is presently made or contemplated, the Trustee may
require a Certificateholder to pay $2.00 for each Certificate reissued or
transferred and any governmental charge that may be imposed in connection with
each such transfer or interchange. Mutilated, destroyed, stolen or lost
Certificates will be replaced upon delivery of satisfactory indemnity and
payment of expenses incurred.
Interest and Principal Distributions
Interest received by each Trust is credited by the Trustee to an
Interest Account for the Trust. Proceeds representing principal received from
the maturity, redemption, sale or other disposition of the Securities are
credited to the Principal Account of the Trust.
Distributions to each Certificateholder from the Interest Account
are computed as of the close of business on each Record Date for the following
Payment Date and consist of an amount substantially equal to such Certificate-
holder's pro rata share of the amount of interest received on the Securities
during such month in the Interest Account less amounts deducted or estimated
to be deducted as discussed below. Distributions from the Principal Account
of each Trust (other than amount representing failed contracts, as previously
discussed) will be computed as of each monthly Record Date, and will be made
to the Certificateholders of that Trust on the next monthly Payment Date.
Proceeds representing principal received from the disposition of any of the
Securities between a Record Date and a Payment Date which are not used for
redemptions of Units will be held in the Principal Account and not distributed
until the second succeeding monthly Payment Date. No distributions will be
made to Certificateholders electing to participate in the Total Reinvestment
Plan. Persons who purchase Units between a Record Date and a Payment Date
will receive their first distribution on the second Payment Date after such
purchase. All funds in respect of the Securities received and held by the
Trustee prior to distribution to Certificateholders may be of benefit to the
Trustee and do not bear interest to Certificateholders.
As of the first day of each month, the Trustee will deduct from
the Interest Account of each Trust, and, to the extent funds are not
sufficient therein, from the Principal Account of the Trust, amounts necessary
to pay the expenses of the Trust (as determined on the basis set forth under
"Trust Expenses and Charges"). The Trustee also may withdraw from said
accounts such amounts, if any, as it deems necessary to establish a reserve
for any applicable taxes or other governmental charges that may be payable out
of the Trust. Amounts so withdrawn shall not be considered a part of the
Trust's assets until such time as the Trustee shall return all or any part of
such amounts to the appropriate accounts. In addition, the Trustee may
withdraw from the Interest and Principal Accounts such amounts as may be
necessary to cover purchases of Replacement Securities and redemptions of
Units by the Trustee.
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The estimated monthly distribution per 1,000 Units will be in the
approximate amount shown under "Summary of Essential Information" in Part A
and will change and may be reduced as Securities are prepaid or are redeemed,
exchanged or sold, or as expenses of the Trust fluctuate. No distribution
need be made from the Principal Account until the balance therein is an amount
sufficient to distribute $1 per 1,000 Units.
Records
The Trustee shall furnish Certificateholders in connection with
each distribution a statement of the amount of interest, if any, and the
amount of the receipts, if any, which are being distributed, expressed in each
case as a dollar amount per 1,000 Units. Within a reasonable time after the
end of each calendar year the Trustee will furnish to each person who at any
time during the calendar year was a Certificateholder of record, a statement
showing (a) as to the Interest Account: interest received, amounts paid for
purchases of Replacement Securities and redemptions of Units, if any,
deductions for applicable taxes and fees and expenses of the Trust, and the
balance remaining after such distributions and deductions, expressed both as a
total dollar amount and as a dollar amount representing the pro rata share of
each 1,000 Units outstanding on the last business day of such calendar year;
(b) as to the Principal Amount: the dates of disposition of any Securities
and the net proceeds received therefrom, deductions for payments of applicable
taxes and fees and expenses of the Trust, amounts paid for purchases of
Replacement Securities and redemptions of Units, if any, and the balance
remaining after such distributions and deductions, expressed both as a total
dollar amount and as a dollar amount representing the pro rata share of each
1,000 Units outstanding on the last business day of such calendar year; (c) a
list of the Securities held and the number of Units outstanding on the last
business day of such calendar year; (d) the Redemption Price per 1,000 Units
based upon the last computation thereof made during such calendar year; and
(e) amounts actually distributed to Certificateholders during such calendar
year from the Interest and Principal Accounts, separately stated, of the
Trust, expressed both as total dollar amounts and as dollar amounts
representing the pro rata share of each 1,000 Units outstanding on the last
business day of such calendar year.
The Trustee shall keep available for inspection by
Certificateholders at all reasonable times during usual business hours, books
or record and account of its transactions as Trustee, including records of the
names and address of Certificateholders, Certificates issued or held, a
current list of Securities in the Portfolio and a copy of the Trust Agreement.
TAX STATUS
The Sponsor believes that (i) each Security the interest on which
is United States source income (which is the case for most Securities issued
by United States issuers) was or will have been issued after July 18, 1984,
(ii) each Security is a regular interest in a REMIC, as defined in Sections
860A-G of the Code, and (iii) interest on any Security issued by a non-United
States issuer is not subject to any foreign withholding taxes under current
law. There can be no assurance, however, that foreign withholding taxes will
not be imposed on interest on Securities issued by non-United States issuers
in the future.
Neither the Sponsor nor Battle Fowler LLP has made or will make a
review of the facts and circumstances relating to the issuance of any
Security.
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Based on the foregoing, in the opinion of Battle Fowler LLP,
special counsel for the Sponsor, under existing law:
The Trust is not an association taxable as a corporation for
Federal income tax purposes, and income received by the Trust will be
treated as the income of the Certificateholder in the manner set forth
below.
Each Certificateholder will be considered the owner of a pro rata
portion of each Security in the Trust under the grantor trust rules of
Sections 671-679 of the Internal Revenue Code of 1986, as amended (the
"Code"). In order to determine the face amount of the Certificate-
holder's pro rata portion of each Security on the initial Date of
Deposit, see Principal Amount of Securities under "Portfolio." The
total cost to a Certificateholder of his Units, including sales charges,
is allocated among his or her pro rata portion of each Security (in
proportion to the fair market values thereof on the date the
Certificateholder purchases his Units) in order to determine his tax
cost for his pro rata portion of each Security. In order for a
Certificateholder who purchases his Units on the initial Date of Deposit
to determine the fair market value of his pro rata portion of each
Security on such date, see Cost of Securities to Trust under
"Portfolio."
A Certificateholder will be required to include in income his or
her respective pro rata share of interest on each Security (whether or
not the Security has original issue discount, as discussed below) as
interest accrues, whether or not the Certificateholder is an accrual
method taxpayer. An individual Certificateholder who itemizes
deductions may deduct his pro rata share of fees and expenses of the
Trust only to the extent that such amount together with the
Certificateholder's other miscellaneous deductions exceeds 2% of his
adjusted gross income and subject to overall restrictions on itemized
deductions set forth in Section 68 of the Code.
The Trust may contain Securities which were originally issued at a
discount ("original issue discount"). In general, original issue
discount is defined as the difference between the price at which a
security was issued and its stated redemption price at maturity.
Original issue discount on a Security will accrue as interest over the
life of the Security under a formula based on the compounding of
interest. Such formula requires the adoption by the issuer of the
Securities of certain prepayment assumptions, discussed in more detail
in "Estimated Long Term Return and Estimated Current Return."
Certificateholders are urged to consult their own tax advisers. In the
case of a Certificateholder who purchases Units in a trust holding a
Security that was originally issued at a discount, the amount of
original issue discount that will accrue will be reduced if the
Certificateholder purchases the Units at a price that reflects a lower
yield for the Security than the yield thereon at the time of the
original issuance of such Security. Each Certificateholder will be
required to include in income in each year the amount of original issue
discount which accrues during the year on his pro rata portion of any
Security originally issued at a discount. The amount of original issue
discount so included in income in respect of a Certificateholder's pro
rata portion of a Security is added to the Certificateholder's tax cost
therefor.
If a Certificateholder's tax cost for his pro rata portion of a
Security exceeds the redemption price at maturity thereof, the
Certificateholder will be considered to have purchased his pro rata
portion of the Security at a "premium." The Certificateholder (except
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in the case of a dealer in securities or one who holds debt obligations
primarily for sale to customers in the ordinary course of his trade or
business) may elect to amortize the premium prior to the maturity of the
Security. The amount amortized in any year should be applied to offset
the Certificateholder's interest from the Security and should result in
an adjustment to basis (i.e., a reduction of the Certificateholder's tax
cost) for his pro rata portion of the Security.
A Certificateholder will recognize taxable gain or loss when all
or part of his pro rata portion of a Security is disposed of for an
amount greater or less than his original tax cost therefor plus any
accrued original issue discount or minus any amortized premium. Any
such taxable gain or loss will be capital gain or loss, except in the
case of a dealer, and except as provided for in the next paragraph.
Any gain from the disposition of a Certificateholder's pro rata
portion of a Security issued after July 18, 1984 and acquired by the
Certificateholder at "market discount" (i.e., if the Certificateholder's
original cost for his pro rata portion of the Security (plus any
original issue discount which has accrued thereon) is less than its
stated redemption price at maturity) will be treated as ordinary income
to the extent the gain does not exceed the accrued market discount. The
deduction of capital losses is subject to limitations. A Certificate-
holder will be considered to have disposed of all or part of his pro
rata portion of each Security when he sells or redeems all or some of
his Units. A Certificateholder will also be considered to have disposed
of all or part of his pro rata portion of a Security when all or part of
the Security is sold by the Trust or is redeemed or paid at maturity.
Units that are owned by Certificateholders, other than a dealer in
securities or one who holds debt obligations primarily for sale to
customers in the ordinary course of his trade or business, are capital
assets and generally produce capital gains and losses upon their sale or
disposition. Gain realized upon the sale or disposition of an interest
in a REMIC, however, will be ordinary income to the extent of unaccrued
original issue discount as determined by a prescribed formula.
Under the income tax laws of the State and City of New York, the
Trust is not an association taxable as a corporation and income received
by the Trust will be treated as the income of the Certificateholders in
the same manner as for Federal income tax purposes.
Notwithstanding the foregoing, a Certificateholder who is not a
citizen or resident of the United States or a United States domestic
corporation (a "Foreign Certificateholder") will generally not be
subject to United States Federal income taxes, including withholding
taxes, or information reporting, on the interest income (including any
original issue discount) on, or any gain from the sale or other
disposition of, his pro rata portion of any Security provided that
(i) the interest income or gain is not effectively connected with the
conduct by the Foreign Certificateholder of a trade or business within
the United States, (ii) if the interest is United States source income
(which is the case on most Securities issued by United States issuers),
the Security is issued after July 18, 1984 and the Foreign Certificate-
holder does not own, actually or constructively, 10% or more of the
total combined voting power of all classes of voting stock of the issuer
of the Security and is not a controlled foreign corporation related
(within the meaning of Section 864(d)(4) of the Code) to the issuer of
the Security, (iii) with respect to any gain, the Foreign
Certificateholder (if an individual) is not present in the United States
for 183 days or more during the taxable year and does not have a "tax
home" (as defined in Section 911(d)(3) of the Code) in the United
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States, and the gain is not attributable to an office or fixed place of
business maintained by such individual in the United States, and
(iv) the Foreign Certificateholder provides the required certification
of his status and of the matters contained in clauses (i), (ii) and
(iii) above. Foreign Certificateholders should consult their own tax
advisers with respect to United States Federal income tax consequences
of ownership of Units.
After the end of each calendar year, the Trustee will furnish to
each Certificateholder an annual statement containing information relating to
the interest received by the Trust on the Securities, the gross proceeds
received by the Trust from the disposition of any Security (resulting from
redemption or payment at maturity of any Security or the sale by the Trust of
any Security), and the fees and expenses paid by the Trust. The Trustee will
also furnish annual information returns to each Certificateholder and to the
Internal Revenue Service.
The foregoing discussion relates only to United States Federal
and, to a limited extent, New York State and City income taxes.
Certificateholders may be subject to taxation in New York or in other
jurisdictions (including a Foreign Certificateholder's country of residence)
and should consult their own tax advisers in this regard.
Tax-Exempt Investors
Entities that generally qualify for an exemption from federal
income tax, such as many pension trusts, are nevertheless taxed under Section
511 of the Code on "unrelated business taxable income." Unrelated business
taxable income is income from a trade or business regularly carried on by the
tax-exempt entity that is unrelated to the entity's exempt purpose. Unrelated
business taxable income generally does not include interest income or gain
from the sale of investment property, unless such income is derived from
property that is debt-financed or such gain is derived from property that is
dealer property. A tax-exempt entity's interest income from the Trust and
gain from the sale of Units in the Trust or the Trust's sale of Securities is
not expected to constitute unrelated business income to such tax-exempt entity
unless the acquisition of the Unit itself is debt-financed or constitutes
dealer property in the hands of the tax-exempt entity.
Before investing in the Trust, the trustee or investment manager
of an employee benefit plan (e.g., a pension or profit sharing retirement
plan) should consider among other things (i) whether the investment is prudent
under ERISA, taking into account the needs of the plan and all of the facts
and circumstances of the investment in the Trust; (ii) whether the investment
satisfies the diversification requirement of Section 404(a)(1)(C) of ERISA;
and (iii) whether the assets of the Trust are deemed "plans assets" under
ERISA and the Department of Labor regulations regarding the definition of
"plan assets."
Prospective tax-exempt investors are urged to consult their own
advisors prior to investing in the Trust.
LIQUIDITY
Sponsor Repurchase
The Sponsor, although not obligated to do so, intends to maintain
a secondary market for the Units and continuously to offer to repurchase the
Units. The Sponsor's secondary market repurchase price after the initial
public offering is completed will be based on the aggregate bid price of the
Securities in the Trust and will be the same as the redemption price. The
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aggregate bid price will be determined by the Evaluator on a daily basis after
the initial public offering is completed and computed on the basis set forth
under "Trustee Redemption". Certificateholders who wish to dispose of their
Units should inquire of the Sponsor as to current market prices prior to
making a tender for redemption. The Sponsor may discontinue repurchase of
Units if the supply of Units exceeds demand, or for other business reasons.
The date of repurchase is deemed to be the date on which Certificates
representing Units are physically received in proper form by Reich & Tang
Distributors L.P., 600 Fifth Avenue, New York, New York 10020, on behalf of
the Sponsor. Units received after 4 P.M., New York Time, will be deemed to
have been repurchased on the next business day. In the event a market is not
maintained for the Units, a Certificateholder may be able to dispose of Units
only by tendering them to the Trustee for redemption.
Units purchased by the Sponsor in the secondary market may be
reoffered for sale by the Sponsor at a price based on the aggregate bid price
of the Securities in the Trust plus (a) for the Short-Intermediate Portfolio,
a 3.5% sales charge (3.627% of the net amount invested) plus net accrued
interest, (b) for the Intermediate Portfolio, a 3.75% sales charge (3.896% of
the net amount invested) plus net accrued interest and (c) for the Long-
Intermediate Portfolio, a 4% Sales Charge (4.167% of the net amount invested)
plus net accrued interest. Any Units that are purchased by the 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 "Trust Redemption"). Factors which the Sponsor will consider
in making a determination will include the number of Units of the Trust which
it has in inventory, its estimate of the salability and the time required to
sell such Units and general market conditions. For example, if in order to
meet redemption of Units the Trustee must dispose of Securities, and if such
disposition cannot be made by the redemption date (seven calendar days after
render), the Sponsor may elect to purchase such Units. Such purchase shall be
made by payment to the Certificateholder not later than the close of business
on the redemption date of an amount equal to the Redemption Price on the date
of tender.
Trustee Redemption
Units may also be tendered to the Trustee for redemption at its
corporate trust office at 770 Broadway, New York, New York 10003, upon proper
delivery of Certificates representing such Units and payment of any relevant
tax. At the present time there are no specific taxes related to the
redemption of Units. No redemption fee will be charged by the Sponsor or the
Trustee. Units redeemed by the Trustee will be canceled.
Certificate representing Units to be redeemed must be delivered to
the Trustee and must be properly endorsed or accompanied by proper instruments
of transfer with signature guaranteed (or by providing satisfactory indemnity,
as in the case of lost, stolen or mutilated Certificates). Thus, redemptions
of Units cannot be effected until Certificates representing such Units have
been delivered by the person seeking redemption. (See "Certificates".)
Certificateholders must sign exactly as their names appear on the faces of
their Certificates. In certain instances the Trustee may require additional
documents such as, but not limited to, trust instruments, certificates of
death, appointments as executor or administrator or certificates of corporate
authority.
Within seven calendar days following a tender for redemption, or,
if such seventh day is not a business day, on the first business day prior
thereto, the Certificateholder will be entitled to receive in cash an amount
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for each Unit tendered equal to the Replacement Price per Unit computed as of
the Evaluation Time set forth under "Summary of Essential Information" in
Part A on the date of tender. The "date of tender" is deemed to be the date
on which Units are received by the Trustee, except that with respect to Units
received after the close of trading on the New York Stock Exchange, the date
of tender is the next day on which such Exchange is open for trading, and
such Units will be deemed to have been tendered to the Trustee on such day for
redemption at the Redemption Price computed on that day.
Accrued interest paid on redemption shall be withdrawn from the
Interest Account, or, if the balance therein is insufficient, from the
Principal Account. All other amounts paid on redemption shall be withdrawn
from the Principal Account. The Trustee is empowered to sell Securities in
order to make funds available for redemptions. Such sales, if required, could
result in a sale of Securities by the Trustee at a loss. To the extent
Securities are sold, the size and diversity of the Trust will be reduced.
The Redemption Price per Unit is the pro rata share of each Unit
in a Trust determined by the Trustee on the basis of (i) the cash on hand in
the Trust or moneys in the process of being collected, (ii) the value of the
Securities in the Trust based on the bid prices of such Securities and
(iii) interest accrued thereon, less (a) amounts representing taxes or other
governmental charges payable out of the Trust, (b) the accrued expenses of the
Trust and (c) cash allocated for the distribution to Certificateholders of
record as of the business day prior to the evaluation being made. The
Evaluator may determine the value of the Securities in the Trust (i) if the
Securities are listed on a national securities exchange (CMOs are usually not
so listed), based on the closing sale prices on that exchange (unless the
Evaluator deems these prices inappropriate as a basis for valuation), (ii) if
the Securities are not so listed or, if so listed and the principal market
therefor is other than on the exchange or there are no closing sale prices on
the exchange, based on the closing sale prices on the over-the-counter market
(unless the Evaluator deems these prices inappropriate as a basis for
evaluation), (iii) if closing sale prices are unavailable, (a) on the basis of
current bid or offering prices for the Securities, (b) if bid or offering
prices are not available for any Securities, on the basis of current bid or
offering prices for comparable securities, (c) by appraising the value of the
Securities on the bid or offering side of the market or (d) by any combination
of the above. The Evaluator may obtain current price information as to the
Securities from investment dealers or brokers (including the Sponsor) which
customarily deal in this type of security.
While the Sponsor believes that Securities of the type included in
the Trust involve minimal risk of loss of principal, due to variations in
interest rates the market value of these Securities, and Redemption Price per
Unit (particularly of the Long-Intermediate Portfolio), can be expected to
fluctuate during the period of an investment in the Trust.
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 Certificate-
holder 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
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customary weekend and holiday closings, or trading on that Exchange is
restricted or during which (as determined by the Securities and Exchange
Commission) an emergency exists as a result of which disposal or evaluation of
the Bonds is not reasonably practicable, or for such other periods as the
Securities and Exchange Commission may by order permit. The Trustee and the
Sponsor is not liable to any person or in any way for any loss or damage which
may result from any such suspension or postponement.
A Certificateholder who wishes to dispose of his Units should
inquire of his bank or broker in order to determine if there is a current
secondary market price in excess of the Redemption Price.
TOTAL REINVESTMENT PLAN
Distributions of interest and principal, if any, from the Trust
are made to Certificateholders monthly. The Certificateholder has the option,
however, of either receiving his interest check, together with any principal
payments, from the Trustee or participating in a reinvestment program offered
by the Sponsor in shares of The Treasurer's Fund, Inc., U.S. Treasury Money
Market Portfolio (the "Fund"). Participation in the reinvestment option is
conditioned on the Fund's lawful qualification for sale in the state in which
the Certificateholder is a resident.
Upon enrollment in the reinvestment option, the Trustee will
direct interest and/or principal distributions, if any, to the Fund. The Fund
seeks to maximize current income and to maintain liquidity and a stable net
asset value by investing in short term U.S. Treasury Obligations which have
effective maturities of one year or less. For more complete information
concerning the Fund, including charges and expenses, the Certificateholder
should fill out and mail the card attached to the inside back cover of this
Prospectus. The prospectus for the Fund will be sent to Certificateholders.
The Certificateholder should read the prospectus for the Fund carefully before
deciding to participate. The shares of the Fund are not rated by Standard &
Poor's.
TRUST ADMINISTRATION
Portfolio Supervision
The Trust is a unit investment trust and is not an actively
managed fund. Traditional methods of investment management for a managed fund
typically involve frequent changes in a portfolio of securities on the basis
of economic, financial and market analyses. The portfolios of the Trust,
however, will not be actively managed and therefore the adverse financial
condition of an issuer will not require the sale of its Securities from the
Portfolios. However, the Sponsor may direct the disposition of Securities
upon default in payment of amounts due on any of the Securities, institution
of certain legal proceedings, default in payment of amounts due on other
securities of the same issuer or guarantor, or decline in price or the
occurrence of other market or credit factors that in the opinion of the
Sponsor would make the retention of these Securities detrimental to the
interest of the Certificateholders. If a default in the payment of amounts
due on any Security occurs and if the Sponsor fails to give instructions to
sell or hold that Security, the Indenture provides that the Trustee, within 30
days of that failure by the Sponsor, shall sell the Security.
The Sponsor is required to instruct the Trustee to reject any
offer made by an issuer of any of the Securities to issue new Securities in
exchange or substitution for any Securities pursuant to a refunding or
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refinancing plan, except that the Sponsor may instruct the Trustee to accept
or reject any offer or to take any other action with respect thereto as the
Sponsor may deem proper if (a) the issuer is in default with respect to these
Securities or (b) in the written opinion of the Sponsor the issuer will
probably default with respect to these Securities in the reasonably
foreseeable future. Any Securities so received in exchange or substitution
will be held by the Trustee subject to the terms and conditions of the
Indenture to the same extent as Securities originally deposited thereunder.
Within five days after the deposit of Securities in exchange or substitution
for underlying Securities, the Trustee is required to give notice thereof to
each Certificateholder, identifying the Securities eliminated and the
Securities substituted therefor. Except as stated herein, the acquisition by
the Trust of any securities other than the Securities initially deposited is
prohibited.
Trust Agreement, Amendment and Termination
The Trust Agreement may be amended by the Trustee, the Sponsor and
the Evaluator without the consent of any of the Certificateholders; (1) to
cure any ambiguity or to correct or supplement any provision which may be
defective or inconsistent; (2) to change any provision thereof as may be
required by the Securities and Exchange Commission or any successor
governmental agency; or (3) to make such other provisions in regard to matters
arising thereunder as shall not adversely affect the interests of the
Certificateholders.
The Trust Agreement may also be amended in any respect, or
performance of any of the provisions thereof may be waived, with the consent
of the holders of Certificates evidencing 66-2/3% of the Units then
outstanding for the purpose of modifying the rights of Certificateholders;
provided that no such amendment or waiver shall reduce any Certificateholder's
interest in a Trust without his consent or reduce the percentage of Units
required to consent to any such amendment or waiver without the consent of the
holders of all Certificates. The Trust Agreement may not be amended, without
the consent of the holders of all Certificates in a Trust then outstanding, to
increase the number of Units issuable or to permit the acquisition of any
bonds in addition to or in substitution for those initially deposited in such
Trust, except in accordance with the provisions of the Trust Agreement. The
Trustee shall promptly notify Certificateholders, in writing, of the substance
of any such amendment.
The Trust Agreement provides that the Trust shall terminate upon
the maturity, redemption or other disposition, as the case may be, of the last
of the Securities held in the Trust but in no event is it to continue beyond
the end of the calendar year preceding the fiftieth anniversary of the
execution of the Trust Agreement. If the value of the Trust shall be less
than the minimum amount set forth under "Summary of Essential Information" in
Part A, the Trustee may, in its discretion, and shall when so directed by the
Sponsor, terminate such Trust. Each Trust may also be terminated at any time
with the consent of the holders of Certificates representing 100% of the Units
then outstanding. In the event of termination, written notice thereof will be
sent by the Trustee to all Certificateholders. Within a reasonable period
after termination, the Trustee must sell any Securities remaining in the
terminated Trust, and, after paying all expenses and charges incurred by the
Trust, distribute to each Certificateholder, upon surrender for calculation of
his Certificate for Units, his pro rata share of the Interest and Principal
Accounts.
The Sponsor
The Sponsor, Reich & Tang Distributors L.P. (successor to the Unit
Investment Trust Division of Bear, Stearns & Co. Inc.), a Delaware limited
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partnership, is engaged in the brokerage business and is a member of the
National Association of Securities Dealers, Inc. Reich & Tang is also a
registered investment adviser. Reich & Tang maintains its principal business
offices at 600 Fifth Avenue, New York, New York 10020. Reich & Tang Asset
Management L.P. ("RTAM LP"), a registered investment adviser, having its
principal place of business at 399 Boylston Street, Boston, MA 02116, is the
99% limited partner of the Sponsor. RTAM LP is 99.5% owned by New England
Investment Companies, LP ("NEIC LP") and Reich & Tang Asset Management, Inc.,
a wholly owned subsidiary of NEIC LP, owns the remaining .5% interest of RTAM
LP and is its general partner. NEIC LP's general partner is New England
Investment Companies, Inc. ("NEIC"), a holding company offering a broad array
of investment styles across a wide range of asset categories through ten
investment advisory/management affiliates and two distribution affiliates.
These affiliates in the aggregate are investment advisers or managers to over
57 registered investment companies. Reich & Tang is the successor sponsor for
numerous series of unit investment trusts, including, New York Municipal
Trust, Series 1 (and Subsequent Series), Municipal Securities Trust, Series 1
(and Subsequent Series), 1st Discount Series (and Subsequent Series), Multi-
State Series 1 (and Subsequent Series), Insured Municipal Securities Trust,
Series 1 (and Subsequent Series), 5th Discount Series (and Subsequent Series),
and Equity Securities Trust, Series 1, Signature Series, Gabelli
Communications Income Trust (and Subsequent Series).
For certain other Trusts as set forth in the "Summary of Essential
Information" in Part A, the Co-Sponsors are Reich & Tang and Gruntal & Co.,
Incorporated, both of whom have entered into an Agreement Among Co-Sponsors
pursuant to which both parties have agreed to act as Co-Sponsors for the
Trust. Reich & Tang has been appointed by Gruntal & Co., Incorporated as
agent for purposes of taking any action required or permitted to be taken by
the Sponsors under the Trust Agreement. If the Sponsors are unable to agree
with respect to action to be taken jointly by them under the Trust Agreement
and they cannot agree as to which Sponsor shall act as sole Sponsor, then
Reich & Tang shall act as sole Sponsor. If one of the Sponsors fails to
perform its duties under the Trust Agreement or becomes incapable of acting or
becomes bankrupt or its affairs are taken over by public authorities, that
Sponsor may be discharged under the Trust Agreement and a new Sponsor may be
appointed or the remaining Sponsor may continue to act as Sponsor.
Gruntal & Co., Incorporated, a Delaware corporation, operates a
securities broker/dealer from its main office in New York City and branch
offices in ten states and the District of Columbia. The firm is active in the
marketing of investment companies and has signed dealer agreements with many
major mutual fund groups. Further, through its Syndicate Department, Gruntal
& Co., Incorporated has underwritten a large number of Closed-End Funds and
has been Co-Manager on the following offerings: Cigna High Income Shares;
Dreyfus New York Municipal Income, Inc.; Franklin Principal Maturity Trust;
and Van Kampen Meritt Limited Term High Income Trust.
The information included herein is only for the purpose of
informing investors as to the financial responsibility of the Sponsor and
their ability to carry out their contractual obligations.
The Sponsor is liable for the performance of their obligations
arising from their responsibilities under the Trust Agreement, but will be
under no liability to Certificateholders for taking any action, or refraining
from taking any action, in good faith pursuant to the Trust Agreement, or for
errors in judgment except in cases of their own willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations and duties.
The Sponsor may resign at any time by delivering to the Trustee an
instrument of resignation executed by the Sponsor.
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If at any time either of the Sponsor shall resign or fail to
perform any of its duties under the Trust Agreement or becomes incapable of
acting or becomes bankrupt or its affairs are taken over by public
authorities, then the Trustee may either (a) appoint a successor Sponsor;
(b) terminate the Trust Agreement and liquidate the Trust; or (c) continue to
act as Trustee without terminating the Trust Agreement. Any successor Sponsor
appointed by the Trust shall be satisfactory to the Trustee and, at the time
of appointment, shall have a net worth of at least $1,000,000.
The Trustee
The Trustee is The Chase Manhattan Bank (National Association), a
national banking association with its principal executive office located at
1 Chase Manhattan Plaza, New York, New York 10081 and its unit investment
trust office at 770 Broadway, New York, New York 10003 (800) 882-9898. The
Trustee is subject to the supervision by the Comptroller of the Currency, the
Federal Deposit Insurance Corporation and the Board of Governors of the
Federal Reserve System.
The Trustee shall not be liable or responsible in any way for
taking any action, or for refraining from taking any action, in good faith
pursuant to the Trust Agreement, or for errors in judgment; or for any
disposition of any moneys, Securities or Certificates in accordance with the
Trust Agreement, except in cases of its own willful misfeasance, bad faith,
gross negligence or reckless disregard of its obligations and duties;
provided, however, that the Trustee shall not in any event be liable or
responsible for any evaluation made by the Evaluator. In addition, the
Trustee shall not be liable for any taxes or other governmental charges
imposed upon or in respect of the Securities or the Trust which it may be
required to pay under current or future law of the United States or any other
taxing authority having jurisdiction. The Trustee shall not be liable for
depreciation or loss incurred by reason of the sale by the Trustee of any of
the Securities pursuant to the Trust Agreement.
For further information relating to the responsibilities of the
Trustee under the Trust Agreement, reference is made to the material set forth
under "Rights of Certificateholders.
The Trustee may resign by executing an instrument in writing and
filing the same with the 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.
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The Evaluator
The Evaluator is Kenny S&P Evaluation Services, a division of J.J.
Kenny Co., Inc. with main offices located at 65 Broadway, New York, New York
10006. The Evaluator is a wholly-owned subsidiary of McGraw-Hill, Inc. The
Evaluator is a registered investment advisor and also provides financial
information services.
The Trustee, the Sponsor and the Certificateholders may rely on
any evaluation furnished by the Evaluator and shall have no responsibility for
the accuracy thereof. Determinations by the Evaluator under the Trust
Agreement shall be made in good faith upon the basis of the best information
available to it, provided, however, that the Evaluator shall be under no
liability to the Trustee, the Sponsor or Certificateholders for errors in
judgment, except in cases of its own willful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations and duties.
The Evaluator may resign or may be removed by the Sponsor and
Trustee, and the Sponsor and the Trustee are to use their best efforts to
appoint a satisfactory successor. Such resignation or removal shall become
effective upon the acceptance of appointment by the successor Evaluator. If
upon resignation of the Evaluator no successor has accepted appointment within
thirty days after notice of resignation, the Evaluator may apply to a court of
competent jurisdiction for the appointment of a successor.
TRUST EXPENSES AND CHARGES
At no cost to the Trust, the Sponsor has borne the expenses of
creating and establishing the Trust, including the cost of initial preparation
and execution of the Trust Agreement, registration of the Trust and the Units
under the Investment Company Act of 1940 and the Securities Act of 1933, the
initial preparation and printing of the Certificates, legal expenses,
advertising and selling expenses, expenses of the Trustee including, but not
limited to, an amount equal to interest accrued on certain "when issued"
securities since the date of settlement for the Units, initial fees and other
out-of-pocket expenses. The fees of the Evaluator, however, incurred during
the Initial Public Offering are paid directly by the Trust.
The Sponsor will not charge the Trust a fee for its services as
such. (See "Sponsor's and Underwriters' Profits.")
The Sponsor will receive for portfolio supervisory services to the
Trust an Annual Fee in the amount set forth under "Summary of Essential
Information" in Part A. The Sponsor's fee may exceed the actual cost of
providing portfolio supervisory services for the Trust, but at no time will
the total amount received for portfolio supervisory services rendered to all
series of the Mortgage Securities Trust in any calendar year exceed the
aggregate cost to the Sponsor of supplying such services in such year. (See
"Portfolio Supervision.") Pursuant to the Agreement Among Co-Sponsors, Reich
& Tang Distributors L.P. shall receive the entire Sponsor's fee set forth in
the "Summary of Essential Information" in Part A.
The Trustee will receive for its ordinary recurring services to
the Trust an annual fee in the amount set forth under "Summary of Essential
Information" in Part A. For a discussion of the services performed by the
Trustee pursuant to its obligations under the Trust Agreement, see "Trust
Administration" and "Rights of Certificateholders."
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The Evaluator will receive, for each daily evaluation of the
Securities in the Trust after the initial public offering is completed, a fee
in the amount set forth under "Summary of Essential Information" in Part A.
The Trustee's and Evaluator's fees applicable to the Trust are
payable monthly as of the Record Date from the Interest Account of such Trust
to the extent funds are available and then from the Principal Account. Both
fees may be increased without approval of the Certificateholders by amounts
not exceeding proportionate increases in consumer prices for services as
measured by the United States Department of Labor's Consumer Price Index
entitled "All Services Less Rent."
The following additional charges are or may be incurred by the
Trust: all expenses (including counsel fees) of the Trustee incurred and
advances made in connection with its activities under the Trust Agreement,
including the expenses and costs of any action undertaken by the Trustee to
protect the Trust and the rights and interests of the Certificateholders; fees
of the Trustee for any extraordinary services performed under the Trust
Agreement; indemnification of the Trustee for any loss or liability accruing
to it without gross negligence, bad faith or willful misconduct on its part,
arising out of or in connection with its acceptance or administration of the
Trust; indemnification of the Sponsor for any losses, liabilities and expenses
incurred in acting as sponsors of the Trust without gross negligence, bad
faith or willful misconduct on its part; and all taxes and other governmental
charges imposed upon the Securities or any part of the Trust (no such taxes or
charges are being levied, made or, to the knowledge of the Sponsor,
contemplated). The above expenses, including the Trustee's fees, when paid by
or owing to the Trustee are secured by a first lien on the Trust to which such
expenses are charged. In addition, the Trustee is empowered to sell
Securities in order to make funds available to pay all expenses.
The accounts of the 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
Exchange Privilege
Certificateholders may elect to exchange any or all of their Units
of these Trusts for Units of one or more of any available series of Insured
Municipal Securities Trust, Municipal Securities Trust, New York Municipal
Trust, Mortgage Securities Trust or Equity Securities Trust (the "Exchange
Trusts") at a reduced sales charge as set forth below. Under the Exchange
Privilege, the Sponsor's repurchase price during the initial offering period
of the Units being surrendered will be based on the market value of the
Securities in the Trust portfolio or on the aggregate offer price of the Bonds
in the other Trust Portfolios; and, after the initial offering period has been
completed, will be based on the aggregate bid price of the Bonds in the
particular Trust portfolio. Units in an Exchange Trust then will be sold to
the Certificateholder at a price based on the aggregate offer price of the
Bonds in the Exchange Trust portfolio (or for units of Equity Securities
Trust, based on the market value of the underlying Securities in the Equity
Trust portfolio) during the initial public offering period of the Exchange
Trust; and after the initial public offering period has been completed,
based on the aggregate bid price of the Bonds in the Exchange Trust portfolio
if its initial offering has been completed, plus accrued interest (or for
units of Equity Securities Trust, based on the market value of the underlying
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securities in the Equity Trust portfolio) and a reduced sales charge as set
forth below.
Except for certificateholders who wish to exercise the Exchange
Privilege within the first five months of their purchase of Units of a Trust,
the sales charge applicable to the purchase of units of an Exchange Trust
shall be approximately 1.5% of the price of each Exchange Trust unit (or 1,000
Units for the Mortgage Securities Trust or 100 Units for the Equity Securities
Trust). For certificateholders who wish to exercise the Exchange Privilege
within the first five months of their purchase of Units of a Trust, the sales
charge applicable to the purchase of units of an Exchange Trust shall be the
greater of (i) 1.5% of the price of each Exchange Trust unit (or 1,000 Units
for the Mortgage Securities Trust or 100 Units for the Equity Securities
Trust), or (ii) an amount which when coupled with the sales charge paid by the
certificateholder upon his original purchase of Units of the Trust at least
equals the sales charge applicable in the direct purchase of units of an
Exchange Trust. The Exchange Privilege is subject to the following
conditions:
1. The Sponsor must be maintaining a secondary market in both the
Units of the Trust held by the Certificateholder and the Units of the
available Exchange Trust. While the Sponsor has indicated its intention
to maintain a market in the Units of the Trust sponsored by it, the
Sponsor is under no obligation to continue to maintain a secondary
market and therefore there is no assurance that the Exchange Privilege
will be available to a Certificateholder at any specific time in the
future. At the time of the Certificateholder's election to participate
in the Exchange Privilege, there also must be Units of the Exchange
Trust available for sale, either under the initial primary distribution
or in the Sponsor's secondary market.
2. Exchanges will be effected in whole units only. Any excess
proceeds from the Units surrendered for exchange will be remitted and
the selling Certificateholder will not be permitted to advance any new
funds in order to complete an exchange. Units of the Mortgage
Securities Trust may only be acquired in blocks of 1,000 Units. Units
of the Equity Securities Trust may only be acquired in blocks of 100
Units.
3. The Sponsor reserves the right to suspend, modify or terminate
the Exchange Privilege. The Sponsor will provide Certificateholders of
the Trust with 60 days prior written notice of any termination or
material amendment to the Exchange Privilege, provided that, no notice
need be given if (i) the only material effect of an amendment is to
reduce or eliminate the sales charge payable at the time of the
exchange, to add one or more series of the Trust eligible for the
Exchange Privilege or to delete a series which has been terminated from
eligibility for the Exchange Privilege, (ii) there is a suspension of
the redemption of units of an Exchange Trust under Section 22(e) of the
Investment Company Act of 1940, or (iii) an Exchange Trust temporarily
delays or ceases the sale of its units because it is unable to invest
amounts effectively in accordance with its investment objectives,
policies and restrictions. During the 60 day notice period prior to the
termination or material amendment of the Exchange Privilege described
above, the Sponsor will continue to maintain a secondary market in the
units of all Exchange Trusts that could be acquired by the affected
certificateholders. Certificateholders may, during this 60 day period,
exercise the Exchange Privilege in accordance with its terms then in
effect. In the event the Exchange Privilege is not available to a
Certificateholder at the time he wishes to exercise it, the Certificate-
holder will immediately be notified and no action will be taken with
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respect to his Units without further instructions from the Certificate-
holder.
To exercise the Exchange Privilege, a Certificateholder should
notify the Sponsor of his desire to exercise his Exchange Privilege. If Units
of a designated, outstanding series of an Exchange Trust are at the time
available for sale and such Units may lawfully be sold in the state in which
the Certificateholder is a resident, the Certificateholder will be provided
with a current prospectus or prospectuses relating to each Exchange Trust in
which he indicates an interest. He may then select the Trust or Trusts into
which he desires to invest the proceeds from his sale of Units. The exchange
transaction will operate in a manner essentially identical to a secondary
market transaction except that units may be purchased at a reduced sales
charge.
Example: Assume that after the initial public offering has been completed, a
Certificateholder has five units of a Trust with a current value of $700 per
unit which he has held for more than five months and the Certificateholder
wishes to exchange the proceeds for units of a secondary market Exchange Trust
with a current price of $725 per unit. The proceeds from the Certificate-
holder's original units will aggregate $3,500. Since only whole units of an
Exchange Trust may be purchased under the Exchange Privilege, the Certificate-
holder would be able to acquire four units (or 4,000 Units of the Mortgage
Securities Trust or 400 Units of the Equity Securities Trust) for a total cost
of $2,943.50 ($2,900 for units and $43.50 for the sales charge). The
remaining $556.50 would be remitted to the Certificateholder in cash. If the
Certificateholder acquired the same number of units at the same time in a
regular secondary market transaction, the price would have been $3,059.50
($2,900 for units and $159.50 for the sales charge, assuming a 5 1/2% sales
charge times the public offering price).
The Conversion Offer
Unit owners of any registered unit investment trust for which
there is no active secondary market in the units of such trust (a "Redemption
Trust") may elect to redeem such units and apply the proceeds of the
redemption to the purchase of available Units of one or more series of
Municipal Securities Trust, Insured Municipal Securities Trust, Mortgage
Securities Trust, New York Municipal Trust or Equity Securities Trust (the
"Conversion Trusts") at the Public Offering Price for units of the Conversion
Trust based on a reduced sales charge as set forth below. Under the
Conversion Offer, units of the Redemption Trust must be tendered to the
trustee of such trust for redemption at the redemption price, which is based
upon the market value of the underlying securities in the Trust portfolio or
the aggregate bid side evaluation of the underlying bonds in such trust and is
generally about 1 1/2% to 2% lower than the offering price for such bonds.
The purchase price of the units will be based on the aggregate offer price of
the underlying bonds in the Conversion Trust portfolio during its initial
public offering period, or at a price based on the aggregate bid price of the
underlying bonds if the initial public offering of the Conversion Trust has
been completed, plus accrued interest and a sales charge as set forth below.
If the participant elects to purchase units of the Equity Securities Trust
under the Conversion Offer, the purchase price of the units will be based, at
all times, on the market value of the underlying securities in the Trust
portfolio plus a sales charge.
Except for Certificateholders who wish to exercise the Conversion
Offer within the first five months of their purchase of units of a Redemption
Trust, the sales charge applicable to the purchase of Units of the Conversion
Trust shall be 1.5% per Unit (or per 1,000 Units for the Mortgage Securities
Trust or per 100 Units for the Equity Securities Trust). For certificate-
holders who wish to exercise the Conversion Offer within the first five months
-29-
1427.3
<PAGE>
of their purchase of units of a Redemption Trust, the sales charge applicable
to the purchase of Units of a Conversion Trust shall be the greater of
(i) 1.5% per Unit (or per 1,000 Units for the Mortgage Securities Trust or per
100 Units for the Equity Securities Trust) or (ii) an amount which when
coupled with the sales charge paid by the certificateholder upon his original
purchase of units of the Redemption Trust at least equals the sales charge
applicable in the direct purchase of Units of a Conversion Trust. The
Conversion Offer is subject to the following limitations:
1. The Conversion Offer is limited only to unit owners of any
Redemption Trust, defined as a unit investment trust for which there is
no active secondary market at the time the Certificateholder elects to
participate in the Conversion Offer. At the time of the unit owner's
election to participate in the Conversion Offer, there also must be
available units of a Conversion Trust, either under a primary
distribution or in the Sponsor's secondary market.
2. Exchanges under the Conversion Offer will be effected in whole
units only. Unit owners will not be permitted to advance any new funds
in order to complete an exchange under the Conversion Offer. Any excess
proceeds from units being redeemed will be returned to the unit owner.
Units of the Mortgage Securities Trust may only be acquired in blocks of
1,000 units. Units of the Equity Securities Trust may only be acquired
in blocks of 100 Units.
3. The Sponsor reserves the right to modify, suspend or
terminate the Conversion Offer at any time without notice to unit owners
of Redemption Trusts. In the event the Conversion Offer is not
available to a unit owner at the time he wishes to exercise it, the unit
owner will be notified immediately and no action will be taken with
respect to his units without further instruction from the unit owner.
The Sponsor also reserves the right to raise the sales charge based on
actual increases in the Sponsor's costs and expenses in connection with
administering the program, up to a maximum sales charge of $20 per unit
(or per 1,000 units for the Mortgage Securities Trust or per 100 Units
for the Equity Securities Trust).
To exercise the Conversion Offer, a unit owner of a Redemption
Trust should notify his retail broker of his desire to redeem his Redemption
Trust Units and use the proceeds from the redemption to purchase Units of one
or more of the Conversion Trusts. If Units of a designated, outstanding
series of a Conversion Trust are at that time available for sale and if such
Units may lawfully be sold in the state in which the unit owner is a resident,
the unit owner will be provided with a current prospectus or prospectuses
relating to each Conversion Trust in which he indicates an interest. He then
may select the Trust or Trusts into which he decides to invest the proceeds
from the sale of his Units. The transaction will be handled entirely through
the unit owner's retail broker. The retail broker must tender the units to
the trustee of the Redemption Trust for redemption and then apply the proceeds
of the redemption toward the purchase of units of a Conversion Trust at a
price based on the aggregate offer or bid side evaluation per Unit of the
Conversion Trust, depending on which price is applicable, plus accrued
interest and the applicable sales charge. The certificates must be
surrendered to the broker at the time the redemption order is placed and the
broker must specify to the Sponsor that the purchase of Conversion Trust Units
is being made pursuant to the Conversion Offer. The unit owner's broker will
be entitled to retain $5 of the applicable sales charge.
Example: Assume that a unit owner has five units of a Redemption Trust which
he has held for more than five months with a current redemption price of $675
per unit based on the aggregate bid price of the underlying bonds and the unit
owner wishes to participate in the Conversion Offer and exchange the proceeds
-30-
1427.3
<PAGE>
for units of a secondary market Conversion Trust with a current price of $750
per Unit. The proceeds for the unit owner's redemption of units will
aggregate $3,375. Since only whole units of a Redemption Trust may be
purchased under the Conversion Offer, the unit owner will be able to acquire
four units of the Conversion Trust (or 4,000 units of the Mortgage Securities
Trust or 400 Units of the Equity Securities Trust) for a total cost of $3,045
($3,000 for units and $45 for the sales charge). The remaining $330 would be
remitted to the unit owner in cash. If the unit owner acquired the same
number of Conversion Trust units at the same time in a regular secondary
market transaction, the price would have been $3,165 ($3,000 for units and
$165 for the sales charge, assuming a 5 1/2% sales charge times the public
offering price).
Description Of The Exchange Trusts And The Conversion Trusts
Municipal Securities Trust and New York Municipal Trust may be
appropriate investment vehicles for an investor who is more interested in tax-
exempt income. The interest income from New York Municipal Trust is, in
general, also exempt from New York State and local New York income taxes,
while the interest income from Municipal Securities Trust is subject to
applicable New York State and local New York taxes, except for that portion of
the income which is attributable to New York obligations in the Trust
portfolio, if any. The interest income from each State Trust of the Municipal
Securities Trust, Multi-State Series is, in general, exempt from state and
local taxes when held by residents of the state where the issuers of bonds in
such State Trusts are located. The Insured Municipal Securities Trust
combines the advantages of providing interest income free from regular federal
income tax under existing law with the added safety of irrevocable insurance.
Insured Navigator Series further combines the advantages of providing interest
income free from regular federal income tax and state and local taxes when
held by residents of the state where issuers of bonds in such state trusts are
located with the added safety of irrevocable insurance. Mortgage Securities
Trust offers an investment vehicle for investors who are interested in
obtaining safety of capital and a high level of current distribution of
interest income through investment in a fixed portfolio of collateralized
mortgage obligations. Equity Securities Trust offers investors an opportunity
to achieve capital appreciation together with a high level of current income.
Tax Consequences of the Exchange Privilege
and the Conversion Offer
A surrender of units pursuant to the Exchange Privilege or the
Conversion Offer will constitute a "taxable event" to the Certificateholder
under the Internal Revenue Code. The Certificateholder will realize a tax
gain or loss that will be of a long- or short-term capital or ordinary income
nature depending on the length of time the units have been held and other
factors. (See "Tax Status".) A Certificateholder's tax basis in the Units
acquired pursuant to the Exchange Privilege or Conversion Offer will be equal
to the purchase price of such Units. Investors should consult their own tax
advisors as to the tax consequences to them of exchanging or redeeming units
and participating in the Exchange Privilege or Conversion Offer.
Rating of Units
Standard & Poor's has rated the Units of the Trust AAA. This is
the highest rating assigned by Standard & Poor's (see Description of Standard
& Poor's Ratings). Standard & Poor's has been compensated by the Sponsor for
its service in rating the Units.
-31-
1427.3
<PAGE>
OTHER MATTERS
Legal Opinions
The legality of the Units offered hereby and certain matters
relating to federal tax law have been passed upon by Battle Fowler LLP,
75 East 55th Street, New York, New York 10022 as counsel for the Sponsor.
Carter, Ledyard & Milburn, Two Wall Street, New York, New York 10005 have
acted as counsel for the Trustee.
Independent Auditors
The financial statements of the Trust or Trusts included in Part A
of this Prospectus as of the dates set forth in Part A, have been examined by
KPMG Peat Marwick LLP, independent certified public accountants, for the
periods indicated in its reports appearing herein. The financial statements
examined by KPMG Peat Marwick have been so included in reliance on its report
given upon the authority of said firm as experts in accounting and auditing.
DESCRIPTION OF RATINGS*
Standard & Poor's Corporation
A Standard & Poor's rating on the units of an investment trust
(hereinafter referred to collectively as "units" and "trust") is a current
assessment of creditworthiness with respect to the investments held by such
trust. This assessment takes into consideration the financial capacity of the
issuers and of any guarantors, issuers, lessees, or mortgagors with respect to
such investments. The assessment, however, does not take into account the
extent to which trust expenses or portfolio asset sales for less than the
Trust's purchase price will reduce payment to the unit holder of the interest
and principal required to be paid on the portfolio assets. In addition, the
rating is not a recommendation to purchase, sell or hold units, inasmuch as
the rating does not comment as to market price of the units or suitability for
a particular investor.
Trusts rated AAA are composed exclusively of assets that, together
with their credit support are rated AAA by Standard & Poor's. Standard &
Poor's defines its AAA rating for such assets as the highest rating assigned
by Standard & Poor's to a debt obligation. Capacity to pay interest and repay
principal is extremely strong.
- --------
* As described by the rating companies themselves.
-32-
1427.3
<PAGE>
==============================================================================
I am the owner of __________ units of Mortgage Securities Trust, CMO Series
_______ Short-Intermediate/Intermediate/Long-Intermediate Portfolio.
I would like to learn more about The Treasurer's Fund, Inc., U.S. Treasury
Money Market Portfolio including charges and expenses. I understand that my
request for more information about this fund in no way obligates me to
participate in the reinvestment option, and that this request form is not an
offer to sell. Please send me more information, including a copy of the
current prospectus of The Treasurer's Fund, Inc.
Date ______________________ 19__
Registered Holder (Print) Registered Holder (Print)
Registered Holder Signature Registered Holder Signature
(The signatures if joint tenancy)
My Brokerage Firm's Name
Street Address
City, State & Zip Code
Broker's Name Broker's No.
===============================================================================
MAIL TO:
THE TREASURER'S FUND, INC.
19 OLD KINGS HIGHWAY SOUTH
DARIEN, CONNECTICUT 06820
1427.1
<PAGE>
INDEX
Title Page MORTGAGE SECURITIES TRUST
Part A CMO SERIES
Risk Considerations...................A-6 (Unit Investment Trust)
Summary of Essential
Information........................A-10
Information Regarding the Trust......A-11
Financial and Statistical Prospectus
Information........................A-12
Audit and Financial Information
Report of Independent Auditors......F-1
Statement of Net Assets.............F-2 Dated: April 30, 1996
Statement of Operations.............F-3
Statement of Changes in Net
Assets............................F-4 Sponsor:
Notes to Financial Statements.......F-5 Reich & Tang Distributors L.P.
Portfolio...........................F-6 600 Fifth Avenue
New York, New York 10020
Part B 212-830-5200
The Trust........................... 1
Public Offering.................... 10 (and for certain Trusts:)
Estimated Long Term Return and
Estimated Current Return.......... 13 Gruntal & Co., Incorporated
Rights of Certificateholders........ 15 14 Wall Street
Tax Status.......................... 16 New York, New York 10005
Liquidity ......................... 19 212-267-8800
Total Reinvestment Plan............. 22
Trust Administration................ 22
Trust Expenses and Charges.......... 26
Exchange Privilege and
Conversion Offer.................. 27 Trustee:
Other Matters....................... 32 The Chase Manhattan Bank, N.A.
Description of Ratings.............. 32 770 Broadway
New York, New York 10003
800-882-9898
Parts A and B of this Prospectus
do not contain all of the information
set forth in the registration
statement and exhibits relating Evaluator:
thereto, filed with the Securities and Kenny S&P Evaluation Services,
Exchange Commission, Washington, D.C. a division of J.J. Kenny Co., Inc.
under the Securities Act of 1933, and 65 Broadway
the Investment Company Act of 1940, New York, New York 10006
and to which reference is made.
* * *
This Prospectus does not constitute an offer to sell, or a
solicitation of an offer to buy, securities in any state to any person to whom
it is not lawful to make such offer in such state.
No person is authorized to give any information or to make any
representations not contained in Parts A and B in this Prospectus; and any
information or representation not contained herein must not be relied upon as
having been authorized by the Trust, the Trustee, the Evaluator, or the
Sponsor. The Trust is registered as a unit investment trust under the
Investment Company Act of 1940. Such registration does not imply that the
Trust or any of its Units have been guaranteed, sponsored, recommended or
approved by the United States or any state or any agency or officer thereof.
1427.3
<PAGE>
PART II
ADDITIONAL INFORMATION NOT REQUIRED
IN PROSPECTUS
CONTENTS OF REGISTRATION STATEMENT
This Post-Effective Amendment to the Registration Statements on Form S-6
comprises the following papers and documents:
The facing sheet on Form S-6.
The Cross-Reference Sheet.
The Prospectus consisting of pages.
Signatures.
Consent of Independent Auditors.
Consent of Counsel (included in Exhibits 99.3.1 and 99.3.1.1).
Consent of the Evaluator and Confirmation of Ratings of Standard & Poor's
Corporation (included in Exhibit 99.5.1).
The following exhibits:
99.1.1 -- Form of Reference Trust Agreement, as amended (filed as Exhibit
1.1 to Amendment No. 1 to Form S-6 Registration Statement No.
33-48009 of Mortgage Securities Trust, CMO Series 10 on June
18, 1992 and incorporated herein by reference).
*99.1.1.1 -- Trust Indenture and Agreement for Mortgage Securities Trust, CMO
Series 1 (and Subsequent Series).
99.1.3.4 -- Certificate of Formation and Agreement among Limited Partners,
as amended, of Reich & Tang Distributors L.P. (filed as Exhibit
99.1.3.4 to Post-Effective Amendment No. 10 to Form S-6
Registration Statements Nos. 2-98914, 33-00376, 33-00856 and
33-01869 of Municipal Securities Trust, Series 28, 39th
Discount Series, Series 29 & 40th Discount Series and Series 30
& 41st Discount Series, respectively, on October 31, 1995 and
incorporated herein by reference).
99.1.3.6 -- Certificate of Incorporation of Gruntal & Co., Incorporated, as
amended (filed as Exhibit 1.3.6 to Post-Effective Amendment No. 7
to Form S-6 Registration Statement No. 33-28384 of Insured
Municipal Securities Trust Series 20 on April 25, 1996 and
incorporated herein by reference).
99.1.3.7 -- By-Laws of Gruntal & Co., Incorporated, as amended (filed as
Exhibit 1.3.7 to Post-Effective Amendment No. 7 to Form S-6
Registration Statement No. 33-28384 of Insured Municipal
Securities Trust, Series 20 on April 25, 1996 and incorporated
herein by reference).
99.1.4 -- Form of Agreement Among Underwriters (filed as Exhibit 1.4 to
Amendment No. 1 to Form S-6 Registration Statement No. 33-28384
of Insured Municipal Securities Trust, 47th Discount Series and
Series 20 on June 16, 1989 and incorporated herein by
reference).
99.2.1 -- Form of Certificate (filed as Exhibit 2.1 to Amendment No. 2 to
Form S-6 Registration Statement No. 33-36316 of Mortgage
II-1
345506.1
<PAGE>
Securities Trust, CMO Series 1 on November 1, 1990 and
incorporated herein by reference).
99.3.1 -- Opinion of Battle Fowler LLP as to the legality of the
securities being registered, including their consent to the
delivery thereof and to the use of their name under the
headings "Tax Status" and "Legal Opinions" in the Prospectus,
and to the filing of their opinion regarding the tax status
(filed as Exhibit 3.1 to Amendment No. 1 to Form S-6
Registration Statement No. 33-48009 of Mortgage Securities
Trust, CMO Series 10 on June 18, 1992 and incorporated herein
by reference).
*99.5.1 -- Consent of the Evaluator and Confirmation of Ratings of
Standard & Poor's Corporation.
99.6.0 -- Power of Attorney of Reich & Tang Distributors L.P., the
Depositor, by its officers and a majority of its Directors
(filed as Exhibit 99.6.0 to Amendment No. 1 to Form S-6
Registration Statement No. 33-62627 of Equity Securities Trust,
Series 6, Signature Series, Gabelli Entertainment and Media
Trust on November 16, 1995 and incorporated herein by
reference).
99.6.1 -- Power of Attorney of Gruntal & Co., Incorporated, by its officers
and a majority of its Directors (filed as Exhibit 6.1 to
Post-Effective Amendment No. 7 to Form S-6 Registration Statement
No. 33-28384 of Insured Municipal Securities Trust, Series 20 on
April 25, 1996 and incorporated herein by reference).
99.7.0 -- Form of Agreement Among Co-Sponsors (filed as Exhibit 7.0 to
Post-Effective Amendment No. 7 to Form S-6 Registration Statement
No. 33-28384 of Insured Municipal Securities Trust, Series 20 on
April 25, 1996 and incorporated herein by reference).
*27 -- Financial Data Schedule(s) (for EDGAR filing only).
- --------
* Being filed by this Amendment.
II-2
345506.1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant, Mortgage Securities Trust, CMO Series 10 certifies that it has met
all of the requirements for effectiveness of this Post-Effective Amendment to
the Registration Statement pursuant to Rule 485(b) under the Securities Act of
1933. The registrant has duly caused this Post-Effective Amendment to the
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York and State of New York on
the 17th day of April, 1996.
MORTGAGE SECURITIES TRUST, CMO SERIES 10
(Registrant)
REICH & TANG DISTRIBUTORS L.P.
(Depositor)
By: Reich & Tang Asset Management, Inc.,
as general partner
By: PETER J. DeMARCO
(Authorized Signatory)
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statements has been signed below
by the following persons, who constitute the principal officers and a majority
of the directors of Reich & Tang Asset Management, Inc., the general partner
of Reich & Tang Distributors L.P., the Depositor, in the capacities and on the
dates indicated.
Name Title Date
PETER S. VOSS President, Chief Executive Officer )
and Director )
G. NEAL RYLAND Executive Vice President, Treasurer ) April 17, 1996
and Chief Financial Officer )
EDWARD N. WADSWORTH Clerk )
RICHARD E. SMITH III Director )By: PETER J. DeMARCO
STEVEN W. DUFF Director ) Attorney-in-Fact*
BERNADETTE N. FINN Vice President )
LORRAINE C. HYSLER Secretary )
RICHARD DE SANCTIS Vice President and Treasurer )
- ---------------
* Executed copies of Powers of Attorney were filed as Exhibit 6.0 to
Amendment No. 1 to Registration Statement No. 33-62627 on November 16,
1995.
II-3
345506.1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant, Mortgage Securities Trust, CMO Series 10 certifies that it has met
all of the requirements for effectiveness of this Post-Effective Amendment to
the Registration Statement pursuant to Rule 485(b) under the Securities Act of
1933. The registrant has duly caused this Post-Effective Amendment to the
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York and State of New York on
the 17th day of April, 1996.
MORTGAGE SECURITIES TRUST, CMO SERIES 10
(Registrant)
GRUNTAL & CO., INCORPORATED
(Depositor)
By: BARRY RICHTER
(Authorized Signatory)
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below
by the following persons, who constitute the principal officers and a majority
of the directors of Gruntal & Co., Incorporated, the Depositor, in the
capacities and on the dates indicated.
Name Title Date
ROBERT P. RITTEREISER Chief Executive Officer, )
President and Director ) April 17, 1996
LIONEL G. HEST Executive Vice President, )
General Counsel, Secretary )
and Director )
BARRY RICHTER Executive Vice President and )By: BARRY RICHTER
Director ) Attorney-in-Fact*
- ---------------
* An executed copy of the power of attorney was filed as Exhibit 6.1 to
Post-Effective Amendment No. 7 to Registration Statement No. 33-28384 on
April 25, 1996.
II-4
345506.1
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in these Post-Effective Amendments to the Registration
Statements of our reports on the financial statements of Mortgage Securities
Trust, Collateralized Mortgage Obligation Series 10 Short-Intermediate included
herein and to the reference to our firm under the heading "Independent Auditors"
in the Prospectus which is part of this Registration Statement.
KPMG PEAT MARWICK LLP
New York, New York
April 17, 1996
II-5
<PAGE>
EXHIBIT INDEX
Exhibit Description Page No.
99.1.1 Form of Reference Trust Agreement, as amended (filed
as Exhibit 1.1 to Amendment No. 1 to Form S-6
Registration Statement No. 33-48009 of Mortgage
Securities Trust, CMO Series 10 on June 18, 1992 and
incorporated herein by reference).
99.1.1.1 Trust Indenture and Agreement for Mortgage Securities
Trust, CMO Series 1 (and Subsequent Series).............
99.1.3.4 Certificate of Formation and Agreement among Limited
Partners, as amended, of Reich & Tang Distributors
L.P. (filed as Exhibit 99.1.3.4 to Post-Effective
Amendment No. 10 to Form S-6 Registration Statements
Nos. 2-98914, 33-00376, 33-00856 and 33-01869 of
Municipal Securities Trust, Series 28, 39th Discount
Series, Series 29 & 40th Discount Series and Series
30 & 41st Discount Series, respectively, on October
31, 1995 and incorporated herein by reference).
99.1.3.6 Certificate of Incorporation of Gruntal & Co.,
Incorporated, as amended (filed as Exhibit 1.3.6 to
Post-Effective Amendment No. 7 to Form S-6
Registration Statement No. 33-28384 of Insured
Municipal Securities Trust Series 20 on April 25,
1996 and incorporated herein by reference).
99.1.3.7 By-Laws of Gruntal & Co., Incorporated, as amended
(filed as Exhibit 1.3.7 to Post-Effective Amendment
No. 7 to Form S-6 Registration Statement No. 33-28384
of Insured Municipal Securities Trust, Series 20 on
April 25, 1996 and incorporated herein by reference).
99.1.4 Form of Agreement Among Underwriters (filed as
Exhibit 1.4 to Amendment No. 1 to Form S-6
Registration Statement No. 33-28384 of Insured
Municipal Securities Trust, 47th Discount Series and
Series 20 on June 16, 1989 and incorporated herein
by reference).
99.2.1 Form of Certificate (filed as Exhibit 2.1 to
Amendment No. 2 to Form S-6 Registration Statement
No. 33-36316 of Mortgage Securities Trust, CMO
Series 1 on November 1, 1990 and incorporated herein
by reference).
99.3.1 Opinion of Battle Fowler LLP as to the legality of
the securities being registered, including their
consent to the delivery thereof and to the use of
their name under the headings "Tax Status" and
"Legal Opinions" in the Prospectus, and to the
filing of their opinion regarding the tax status
(filed as Exhibit 3.1 to Amendment No. 1 to Form S-6
Registration Statement No. 33-48009 of Mortgage
Securities Trust, CMO Series 10 on June 18, 1992 and
incorporated herein by reference).
-1-
345506.1
<PAGE>
Exhibit Description Page No.
99.5.1 Consent of the Evaluator and Confirmation of Ratings
of Standard & Poor's Corporation....................
99.6.0 Power of Attorney of Reich & Tang Distributors L.P.,
the Depositor, by its officers and a majority of its
Directors (filed as Exhibit 99.6.0 to Amendment No.
1 to Form S-6 Registration Statement No. 33-62627 of
Equity Securities Trust, Series 6, Signature Series,
Gabelli Entertainment and Media Trust on November
16, 1995 and incorporated herein by reference).
99.6.1 Power of Attorney of Gruntal & Co., Incorporated, by
its officers and a majority of its Directors (filed
as Exhibit 6.1 to Post-Effective Amendment No. 7 to
Form S-6 Registration Statement No. 33-28384 of
Insured Municipal Securities Trust, Series 20 on
April 25, 1996 and incorporated herein by reference).
99.7.0 Form of Agreement Among Co-Sponsors (filed as Exhibit
7.0 to Post-Effective Amendment No. 7 to Form S-6
Registration Statement No. 33-28384 of Insured
Municipal Securities Trust, Series 20 on April 25,
1996 and incorporated herein by reference).
27 Financial Data Schedule(s) (for EDGAR filing only).
-2-
345506.1
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND> The schedule contains summary financial information
extracted from the financial statements and
supporting schedules as of the end of the most
current period and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000888123
<NAME> CMO S/INTER SERIES 10
<SERIES>
<NUMBER> 1
<NAME> CMO S/INTER Series 10
<S> <C>
<FISCAL-YEAR-END> Dec-31-1995
<PERIOD-START> Jan-01-1995
<PERIOD-END> Dec-31-1995
<PERIOD-TYPE> Year
<INVESTMENTS-AT-COST> 5325276
<INVESTMENTS-AT-VALUE> 5536988
<RECEIVABLES> 33566
<ASSETS-OTHER> 76647
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 110213
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 5647201
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 50381
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2638481
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 211712
<NET-ASSETS> 5647201
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 497909
<OTHER-INCOME> 0
<EXPENSES-NET> 19559
<NET-INVESTMENT-INCOME> 478350
<REALIZED-GAINS-CURRENT> (5347)
<APPREC-INCREASE-CURRENT> 262954
<NET-CHANGE-FROM-OPS> 735957
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 469786
<DISTRIBUTIONS-OF-GAINS> 1620338
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 2370
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 41817
<ACCUMULATED-GAINS-PRIOR> 176895
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 524.10
<PER-SHARE-NII> 34.03
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 113.14
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 429.29
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
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</TABLE>
MORTGAGE SECURITIES TRUST
CMO SERIES 1 (and Subsequent Series)
TRUST INDENTURE AND AGREEMENT
Among
BEAR, STEARNS & CO. INC.;
GRUNTAL & CO., INCORPORATED
As Depositors
UNITED STATES TRUST COMPANY OF NEW YORK
As Trustee
and
STANDARD & POOR'S CORPORATION
As Evaluator
------------------
Dated: ________, 19__
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TRUST INDENTURE AND AGREEMENT
MORTGAGE SECURITIES TRUST
CMO SERIES 1 (and Subsequent Series)
TABLE OF CONTENTS
Page
ARTICLE I - DEFINITIONS; CERTIFICATES .......................................2
Section 1.1 Definitions............................................2
Section 1.2 Form of Certificate....................................4
ARTICLE II - DEPOSIT OF SECURITIES; DECLARATION OF TRUST;
FORM AND ISSUANCE OF CERTIFICATES..........................7
Section 2.1 Initial Deposit of Securities..........................7
Section 2.2 Declaration of Trust...................................7
Section 2.3 Issue of Certificates..................................7
Section 2.4 Form of Certificates...................................7
Section 2.5 Certain Contracts Satisfactory.........................7
Section 2.6 Additional Deposit of
Securities...........................................8
ARTICLE III - ADMINISTRATION OF TRUST........................................8
Section 3.1 Cost...................................................8
Section 3.2 Interest Account.......................................9
Section 3.3 Principal Account......................................9
Section 3.4 Reserve Account...................................... 10
Section 3.5 Distributions........................................ 10
Section 3.6 Distribution Statements.............................. 13
Section 3.7 Sale of Securities................................... 15
Section 3.8 Counsel.............................................. 15
Section 3.9 Notice and Sale by Trustee........................... 16
Section 3.10 Trustee Not to Amortize.............................. 16
Section 3.11 Action by Trustee Regarding
Securities......................................... 16
Section 3.12 Notice of Change in Principal
Account............................................ 16
Section 3.13 Limited Replacement of Special
Securities......................................... 16
Section 3.14 Deposit of Additional
Securities......................................... 18
ARTICLE IV - EVALUATION OF SECURITIES; EVALUATOR........................... 20
Section 4.1 Evaluation of Securities............................. 20
Section 4.2 Compensation of Evaluator............................ 21
Section 4.3 Liability of Evaluator............................... 21
Section 4.4 Resignation, Removal and Other
Matters............................................ 22
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ARTICLE V - TRUST EVALUATION; REDEMPTION, PURCHASE,
TRANSFER, INTERCHANGE OR REPLACEMENT OF
CERTIFICATES............................................. 23
Section 5.1 Trust Evaluation..................................... 23
Section 5.2 Redemptions by Trustee; Purchase
by Depositor....................................... 24
Section 5.3 Transfer or Interchange of
Certificates....................................... 27
Section 5.4 Certificates Mutilated,
Destroyed, Stolen or Lost.......................... 27
ARTICLE VI - TRUSTEE; REMOVAL OF DEPOSITORS................................ 28
Section 6.1 General Definition of Trustee's
Liabilities, Rights and
Duties; Removal of Depositors...................... 28
Section 6.2 Books, Records and Reports........................... 31
Section 6.3 Indenture and List of Securities
on File............................................ 32
Section 6.4 Compensation......................................... 32
Section 6.5 Removal and Resignation of the
Trustee............................................ 33
Section 6.6 Qualifications of Trustee............................ 35
ARTICLE VII - DEPOSITORS................................................... 35
Section 7.1 Power of Attorney.................................... 35
Section 7.2 Succession........................................... 36
Section 7.3 Resignation of a Depositor........................... 36
Section 7.4 Liability of Depositors and
Indemnification.................................... 37
Section 7.5 Compensation......................................... 38
ARTICLE VIII - RIGHTS OF CERTIFICATEHOLDERS................................ 38
Section 8.1 Beneficiaries of Trust............................... 38
Section 8.2 Rights, Terms and Conditions......................... 39
ARTICLE IX - ADDITIONAL COVENANTS; MISCELLANEOUS PROVISIONS................ 39
Section 9.1 Amendments........................................... 39
Section 9.2 Termination.......................................... 40
Section 9.3 Construction......................................... 42
Section 9.4 Registration of Certificates......................... 42
Section 9.5 Written Notice....................................... 42
Section 9.6 Severability......................................... 43
Section 9.7 Dissolution of Depositors Not to
Terminate.......................................... 43
Section 9.8 References........................................... 43
This Table of Contents does not constitute part of the Indenture.
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MORTGAGE SECURITIES TRUST
CMO SERIES 1
(A UNIT INVESTMENT TRUST)
AND
SUBSEQUENT SERIES
TRUST INDENTURE AND AGREEMENT
DATED NOVEMBER 1, 1990
This Trust Indenture and Agreement ("Indenture") dated November 1,
1990, among Bear, Stearns & Co. Inc. ("Bear Stearns"), Gruntal & Co.,
Incorporated ("Gruntal"), as Depositors, United States Trust Company of New
York, as Trustee and Standard & Poor's Corporation, as Evaluator.
WITNESSETH THAT:
In consideration of the premises and of the mutual agreements herein
contained, the Depositors, the Trustee and the Evaluator agree as follows:
INTRODUCTION
The Depositors, concurrently with the execution and delivery hereof,
are establishing Mortgage Securities Trust, CMO Series 1, wherein certain
interest bearing obligations will be deposited by the Depositors, to be held by
the Trustee in trust for the use and benefit of the registered holders of
certificates of ownership to be issued as hereinafter provided. The parties
hereto are entering into this Indenture for the purpose of establishing certain
of the terms, covenants and conditions of Mortgage Securities Trust, CMO Series
1 and of each additional series of such Trust which may be established from time
to time hereafter. For Mortgage Securities Trust, CMO Series 1 and each
subsequent series of Mortgage Securities Trust, CMO Series (as to which this
Indenture is to be applicable), the parties hereto shall execute a separate
Reference Trust Agreement incorporating by reference this Indenture and
effecting any amendment, supplement or variation from or to this Indenture with
respect to the related series and specifying for that series (i) the Securities
deposited in trust and the number of Units delivered by the Trustee in exchange
for the Securities pursuant to Section 2.3; (ii) the initial fractional
undivided interest represented by each Unit; (iii) the First Record Date; (iv)
the First Payment Date; (v) the First Settlement Date; (vi) the Evaluator's fee;
(vii) the liquidation amount for purposes of Section 6.01(g);
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(viii) the Trustee's fee and (ix) any other change or addition contemplated or
permitted by this Indenture.
ARTICLE I
DEFINITIONS; CERTIFICATES
Section 1.1 Definitions: Whenever used in this Indenture the
following words and phrases, unless the context clearly indicates otherwise,
shall have the following meanings:
(1) "Additional Securities" shall have the meaning
ascribed to it in Section 3.14.
(2) "Business Day" shall mean any day other than Saturday, Sunday,
or, in the City of New York, a legal holiday or a day on which banking
institutions are authorized by law to close.
(3) "Certificate" shall mean any one of the certificates
substantially in the form hereinafter recited executed by the Trustee and
the Depositors evidencing ownership of an undivided fractional interest in
the Trust.
(4) "Certificateholder" shall mean the registered holder of any
Certificate as recorded on the books of the Trustee, his legal
representative and heir or the successor of any corporation, partnership
or legal entity which is a registered holder of any Certificate, and as
such shall be deemed a beneficiary of the trust created by this Indenture
to the extent of his pro rata share thereof.
(5) "Contract Securities" shall mean Securities which are to be
acquired by the Trust pursuant to contracts, including (i) Securities
listed in Schedule A to the Reference Trust Agreement, contracts for the
purchase thereof which have been assigned to the Trustee and cash or an
irrevocable letter of credit issued by a commercial bank in the amount
required for such purchase which has been delivered to the Trustee and
(ii) Securities which the Depositors have contracted to purchase for the
Trust pursuant to Section 3.13 or Section 3.14.
(6) "Deposit Certificate" shall have the meaning ascribed to it in
Section 2.6.
(7) "Depositors" shall mean Bear, Stearns & Co. Inc. ("Bear Stearns")
or its successors and Gruntal & Co., Incorporated ("Gruntal") or its
successors or any successor Depositor appointed as herein provided.
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(8) "Evaluator" shall mean Standard & Poor's Corporation, or its
successors or any successor evaluator appointed as herein provided.
(9) "First Payment Date" shall mean the date specified in Part II of
the Reference Trust Agreement.
(10) "First Record Date" shall mean the date specified in Part II of
the Reference Trust Agreement.
(11) "First Settlement Date" shall mean the date specified in Part
II of the Reference Trust Agreement.
(12) "Indenture" shall mean this Trust Indenture and Agreement as
originally executed or, if amended as herein provided, as so amended.
(13) "Interest Account" shall mean that account established by the
Trustee as the Interest Account pursuant to Section 3.2 hereof.
(14) "Monthly Income Distribution" shall have the meaning ascribed
to it in Section 3.5 hereof.
(15) "Payment Date" shall mean the date specified in Part II of the
Reference Trust Agreement.
(16) "Plan Units" shall mean fractional units offered by the
Depositors pursuant to the reinvestment plans described in the final
prospectus of the Trust filed within the appropriate registration forms
under the Securities Act of 1933, and for which Plan Units the Trustee is
acting as Trustee.
(17) "Prepayment Experience" shall mean the percentage of reduction
in the principal amount of a Security during the last month for which the
current outstanding principal amount of such Security is publicly
available.
(18) "Principal Account" shall mean that account established by the
Trustee as the Principal Account pursuant to Section 3.3 hereof.
(19) "Record Date" shall mean the date specified in Part II of the
Reference Trust Agreement.
(20) "Redemption Form" shall mean the form provided by the Trustee
at the request of holders of Plan Units for the purpose of redeeming such
Units, as such form may be reasonably acceptable to the Depositors and the
Trustee from time to time.
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(21) "Reference Trust Agreement" shall mean the indenture, as the
same may be amended or supplemented from time to time, for the particular
series of Mortgage Securities Trust, CMO Series, into which the terms of
this Indenture are incorporated.
(22) "Reserve Account" shall mean that account established by the
Trustee, if any, as the Reserve Account pursuant to Section 3.4 hereof.
(23) "Securities" shall mean the collateralized mortgage obligations
of the Government National Mortgage Association, the Federal National
Mortgage Association, the Federal Home Loan Mortgage Corporation and other
corporation or entity, including Contract Securities, (i) which are listed
in Schedule A to the Reference Trust Agreement, (ii) which have been
received by the Trust in exchange, substitution or replacement pursuant to
Section 3.13 hereof, or (iii) which are deposited with the Trustee
pursuant to Section 3.14, as may from time to time continue to be held as
part of the Trust.
(24) "Trust" shall mean the trust created by this Indenture, which
shall consist of the Securities held pursuant and subject to this
Indenture together with all undistributed interest received or accrued
thereon, and any undistributed cash realized from the sale, redemption,
liquidation, or maturity thereof. Such amounts as may be on deposit in any
Reserve Account hereinafter established shall be excluded from the
definition of the Trust.
(25) "Trustee" shall mean United States Trust Company of New York,
or its successors or any successor Trustee appointed as herein provided.
(26) "Unit" shall mean the fractional undivided interest in and
ownership of the Trust initially specified in Part II of the Reference
Trust Agreement and increased by the number of additional Units which are
specified in a supplement or amendment to the Reference Trust Agreement or
in a Deposits Certificate pursuant to Section 3.14 or as decreased by any
redemption of Units by the Trustee pursuant to Section 5.2.
Section 1.2 Form of Certificate. The form of Certificate evidencing
ownership of fractional undivided interests in each Trust established hereunder
shall be substantially as follows:
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<PAGE>
No.________
CERTIFICATE OF OWNERSHIP
-- evidencing --
A Fractional Undivided Interest
-- in --
MORTGAGE SECURITIES TRUST
CMO SERIES
__________________________
UNITS
__________________________
CUSIP
This is to certify that _______________________________________ is the owner and
registered holder of this Certificate evidencing the ownership of _____ units of
fractional undivided interest in the above named Trust created under the laws of
the State of New York pursuant to the Trust Indenture and Agreement among Bear,
Stearns & Co. Inc. (and such other Depositors, if any, identified therein) as
Depositors, United States Trust Company of New York as Trustee, and Standard &
Poor's Corporation as Evaluator (the "Indenture"), a copy of which is available
at the office of the Trustee. This Certificate is issued under and is subject to
the terms, provisions and conditions of the Indenture to which the holder of
this Certificate by virtue of the acceptance hereof asserts and is bound, a
summary of which Indenture is contained in the Prospectus relating to the Trust.
This Certificate is transferable and interchangeable by the registered holder in
person or by his duly authorized attorney at the Trustee's office upon surrender
of this Certificate properly endorsed or accompanied by a written instrument of
transfer or other documents that the Trustee may require for transfer in form
satisfactory to the Trustee and payment of the fees and expenses as provided in
the Indenture.
Witness the facsimile signature of a duly authorized officer of the
Agent for the Depositors (referred to in the Indenture) and the manual signature
of an authorized signature of the Trustee.
Date: AGENT FOR THE DEPOSITORS
_____________________________
Authorized Signatory
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<PAGE>
UNITED STATES TRUST COMPANY OF
NEW YORK, Trustee
By: __________________________
Authorized Officer
ASSIGNMENT
For Value Received, _____________________________________________
hereby sells, assigns and transfers unto __________________________________
the within Certificate and does hereby irrevocably constitute and appoint
___________________________________________________________________________
attorney, to transfer the within Certificate on the books of the Trustee, with
full power of substitution in the premises.
Date:
Notice: The signature(s) to this assignment must correspond with the
name(s) as written above upon the face of this Certificate in every
particular, without alteration or enlargement or any change whatever.
________________________________
Signature Guaranteed
[end of certificate)
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<PAGE>
ARTICLE II
DEPOSIT OF SECURITIES; DECLARATION OF TRUST;
FORM AND ISSUANCE OF CERTIFICATES
Section 2.1 Initial Deposit of Securities: Except as provided in the
second sentence to this Section 2.1, the Depositors, concurrently with the
execution and delivery of the Reference Trust Agreement, have deposited with the
Trustee in trust the Securities listed in Schedule A to the Reference Trust
Agreement in bearer form or registered in the name of the Trustee, or its
nominee, or duly endorsed in blank or accompanied by all necessary instruments
of assignment and transfer in proper form to be held, managed and applied by the
Trustee as herein provided. The Depositors shall deliver the Securities listed
in said Schedule A which were not actually delivered concurrently with the
execution and delivery of the Reference Trust Agreement, to the Trustee within
90 days after said execution and delivery, or if the contract to buy such
Security between the Depositors and seller is terminated by the seller thereof
for any reason beyond the control of the Depositors, the Depositors shall
forthwith take the remedial action specified in Section 3.13. The Depositors
have also delivered to the Trustee a certified check or checks, cash or cash
equivalents or an irrevocable letter or letters of credit issued by a commercial
bank or banks in an amount sufficient to consummate the purchase of such
Securities.
Section 2.2 Declaration of Trust: The Trustee declares that it holds
and will hold the Trust as Trustee in trust upon the trusts herein set forth for
the use and benefit of all present and future Certificateholders.
Section 2.3 Issue of Certificates: The Trustee hereby acknowledges
receipt of the deposit referred to in Section 2.1, and simultaneously with the
receipt of said deposit, has executed Certificates substantially in the form
above recited evidencing the ownership of the number of Units specified in Part
II of the Reference Trust Agreement.
Section 2.4 Form of Certificates: Each Certificate referred to in
Section 2.3 or 2.6 is, and each Certificate hereafter issued shall be, in
substantially the form hereinabove recited, numbered serially for
identification, in fully registered form, transferable only on the books of the
Trustee as herein provided, executed manually by an authorized officer of the
Trustee and in facsimile by an Associate or Managing Director of Bear, Stearns &
Co. Inc., on behalf of the Depositors.
Section 2.5 Certain Contracts Satisfactory: The Depositors approve,
and upon execution and delivery of any supplement or amendment to the Reference
Trust Agreement or any Deposit Certificate shall be deemed to approve, as
satisfactory
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<PAGE>
in form and substance the contracts to be assumed by the Trustee with regard to
any Securities listed in Schedule A to the Reference Trust Agreement or, if
applicable, in Schedule A to any supplement or amendment to the Reference Trust
Agreement or in any Deposit Certificate, and authorize the Trustee on behalf of
the Trust to assume such contracts and otherwise to carry out the terms and
provisions thereof or to take other appropriate action in order to complete the
deposit of the Securities covered thereby into the Trust.
Section 2.6 Additional Deposit of Securities: Subsequent to the
execution and delivery of the Reference Trust Agreement and the initial deposit
of the Securities pursuant to Suction 2.1. hereof, the Depositors may deposit,
in accordance with the provisions of Section 3.14, Additional Securities (as
defined in Section 3.14) which are listed on Schedule A to any supplement or
amendment to the Reference Trust Agreement or a certificate (a "Deposit
Certificate") relating to the deposit of such Additional Securities, by
executing and delivering to the Trustee the applicable supplement or amendment
to the Reference Trust Agreement or Deposit Certificate, together with a
certified check or checks, cash or cash equivalents, or an irrevocable letter or
letters of credit issued by a commercial bank or banks in an amount sufficient
to consummate the purchase of such Additional Securities, and the Trustee shall
acknowledge that the Securities, contracts to purchase Securities, cash, cash
equivalents, certified check or letter of credit have been deposited in the
Trust pursuant to Section 3.14. Such acknowledgment shall be evidenced by
executing and delivering to the parties hereto such supplement or amendment to
the Reference Trust Agreement or such Deposit Certificate. Upon its execution of
such supplement or amendment to the Reference Trust Agreement or Deposit
Certificate, the Trustee shall register in the name of or on the order of the
Depositors in exchange thereof, and shall execute Certificates substantially in
the form above recited representing the ownership of the aggregate number of
Units specified in such supplement or amendment to the Reference Trust Agreement
or Deposit Certificate.
ARTICLE III
ADMINISTRATION OF TRUST
Section 3.1 Cost: The cost of the preparation, printing and
execution of the Certificates and this Indenture, the initial fees of the
Trustee and its counsel, and the initial fees of the Evaluator and other
reasonable expenses in connection therewith, shall be paid by the Depositors,
provided, however, that the liability on the part of the Depositors for such
initial costs, fees and expenses shall not include any fees, costs or other
expenses incurred in connection herewith after the
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<PAGE>
execution of this Indenture and the initial deposit of Securities pursuant to
Section 2.1, except for fees, costs or expenses incurred in connection with any
deposit of Additional Securities pursuant to Section 3.14.
Section 3.2 Interest Account: The Trustee shall collect the interest
on the Securities as it becomes payable (including all interest accrued but
unpaid prior to the date of deposit of the Securities in trust and including
that part of the proceeds of the sale, liquidation, redemption or maturity of
any Securities and including all moneys representing penalties for the failure
to make timely payments on the Securities, or as liquidated damages for default
or breach of any condition or term of the Securities or of any instrument
underlying such Securities) and credit such interest to a separate account to be
known as the "Interest Account".
Section 3.3 Principal Account: (a) The Securities and all moneys
(except moneys held by the Trustee pursuant to subsection (b) hereof), other
than amounts credited to the Interest Account, received by the Trustee in
respect of the Securities shall be credited to a separate account to be known as
the "Principal Account".
(b) Moneys and/or irrevocable letters of credit required to purchase
Contract Securities or deposited to secure such purchases are hereby declared to
be held specially by the Trustee for such purchases and shall not be deemed to
be part of the Principal Account until (i) the Depositors fail to purchase
timely a Contract Security and have not given the Failed Contract Notice (as
defined in Section 3.13) at which time the moneys and/or letters of credit
attributable to the Contract Security not purchased by the Depositors shall be
credited to the Principal Account; or (ii) the Depositors have given the Trustee
the Failed Contract Notice at which time the moneys and/or letters of credit
attributable to failed contracts referred to in such Notice shall be credited to
the Principal Account; provided, however, that if the Depositors also notify the
Trustee in the Failed Contract Notice that they have purchased or entered into a
contract to purchase a New Security (as defined in Section 3.13), the Trustee
shall not credit such moneys and/or letters of credit to the Principal Account
unless the New Security shall also have failed or is not delivered by the
Depositors within two business days after the settlement date of such New
Security, in which event the Trustee shall forthwith credit such moneys and/or
letters of credit to the Principal Account. The Trustee shall in any case
forthwith credit to the Principal Account, and/or cause the Depositors to
deposit in the Principal Account, the difference, if any, between the purchase
price of the failed Contract Security and the purchase price of the New
Security, together with any sales charge and accrued interest applicable to
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<PAGE>
such difference and distribute such moneys to Certificateholders pursuant to
Section 3.5.
Section 3.4 Reserve Account: From time to time the Trustee may
withdraw from the cash on deposit in the Interest Account or the Principal
Account such amounts as it, in its sole discretion, shall deem requisite to
establish a reserve for any applicable taxes or other governmental charges that
may be payable out of or by the Trust. Such amounts so withdrawn shall be
credited to separate account which shall be known as the "Reserve Account". The
Trustee shall not be required to distribute to the Certificateholders any of the
amounts in the Reserve Account; provided, however, that if it shall, in its sole
discretion, determine that such amounts are no longer necessary for payment of
any applicable taxes or other governmental charges, then it shall promptly
deposit such amounts in the appropriate account from which withdrawn or, if the
Trust has been terminated or is in the process of termination, the Trustee shall
distribute to each Certificateholder such holder's interest in the Reserve
Account in accordance with Section 9.2.
Section 3.5 Distributions:
On or before each Record Date, the Trustee shall:
(a) Deduct from the Interest Account or, to the extent funds
are not available in such Account, from the Principal Account, and
pay to itself individually the amounts that it is at the time
entitled to receive pursuant to Section 6.4.
(b) Deduct from the Interest Account, or, to the extent funds
are not available in such Account, from the Principal Account, and
pay to the Evaluator the amount that it is at the time entitled to
receive pursuant to Section 4.2.
(c) Deduct from the Interest Account, or, to the extent funds
are not available in such Account, from the Principal Account, and
pay an amount equal to the unpaid fees and expenses, if any, of
counsel pursuant to Section 3.8 as certified to it by the
Depositors.
(d) Deduct from the Interest Account, or to the extent funds
are not available in such Account, from the Principal Account,
one-twelfth of the estimated annual amount that the Depositors are
entitled to receive pursuant to Section 7.5 and hold such amount
without interest until such time as it is payable to the Depositors
as set forth below; provided that the Trustee shall deduct from the
Interest Account when making the first monthly distribution, or to
the extent
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<PAGE>
funds are not available in such Account, from the Principal Account,
an amount equal to a fraction of the estimated annual amount that
the Depositors are entitled to receive pursuant to Section 7.5 in
which the numerator is the number of months or fraction thereof that
Units in the Trust have been owned by a Certificateholder other than
the Depositors and the denominator is twelve.
On or before the first Payment Date after the conclusion of each
calendar year, the Trustee shall, upon certification in satisfactory form to the
Trustee, upon which the Trustee may rely, distribute to the Depositors from the
amount so held pursuant to the immediately preceding paragraph the amounts that
the Depositors are at the time entitled to receive pursuant to Section 7.5 on
account of their services theretofore performed and expenses theretofore
incurred.
The Trustee shall, as of each monthly Record Date, compute the
amount distributable to Certificateholders on the next monthly Payment Date
(such amount being hereinafter referred to as the "Monthly Income Distribution")
which amount shall be equal to the sum of (i) the amount of all principal and
interest received (except for any amounts counted under paragraph (ii) in
connection with the calculation of the Monthly Income Distribution for the
previous month) on the Securities during the month prior to such Record Date and
(ii) the amount of interest due the Trust from Securities which have declared a
record date and which has not been received by the Trust prior to the Record
Date but which is expected to be received prior to the Payment Date, minus the
aggregate amount of fees, expenses, losses or liabilities incurred and advances
made or estimated to be incurred or made subsequent to the last date of the
immediately preceding month and on or prior to the end of the month in which the
calculation of the Monthly Income Distribution is made, divided by the number of
Units outstanding on such Record Date; provided, however, that the Trustee may
adjust the amount of the foregoing calculation in order to reflect differences
in principal and interest on Securities actually received or fees, expenses,
losses, liabilities or advances actually incurred or made in a prior period from
the amounts estimated.
The Trustee shall distribute by mail to each Certificateholder, at
the post office address appearing on the registration books of the Trustee, such
holder's pro rata share of the Monthly Income Distribution, computed as of each
monthly Record Date on or shortly after the twentieth day of the month of
computation to the Certificateholder of record on such date of computation.
On each monthly Payment Date or within a reasonable period of time
thereafter, the Trustee shall distribute by mail
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<PAGE>
to each Certificateholder of record at the close of business on the preceding
Record Date, at the post office address appearing on the registration books of
the Trustee, such holder's pro rata share of the cash balance of the Principal
Account computed as of the Record Date. The Trustee shall not be required to
make a distribution from the Principal Account unless the cash balance on
deposit therein available for distribution shall be sufficient to permit
distribution of at least $1.00 per 1,000 Units.
If the Depositors (i) fail to replace any failed Special Security or
(ii) are unable or fail to enter into any contract for the purchase of any New
Security in accordance with Section 3.13, the Trustee shall distribute to all
Certificate-holders the principal, accrued interest and sales charge
attributable to such Special Securities at the next Monthly Payment Date which
is more than thirty days after the expiration of the Purchase Period (as defined
in Section 3.13) or at such earlier time or in such manner as the Trustee in its
sole discretion deems to be in the best interest of the Certificate-holders.
If any contract for a New Security in replacement of a Special
Security shall fail, the Trustee shall distribute the principal, accrued
interest and sales charge attributable to the Special Security to the
Certificateholders at the next Monthly Payment Date which is more than thirty
days after the date on which the contract in respect of such New Security failed
or at such earlier time or in such earlier manner as the Trustee in its sole
discretion determines to be in the best interest of the Cer-tificateholders.
If, at the end of the Purchase Period, less than all moneys
attributable to a failed Special Security have been applied or allocated by the
Trustee pursuant to a contract to purchase New Securities, the Trustee shall
distribute the remaining moneys to Certificateholders at the next Monthly
Payment Date which is more than thirty days after the end of the Purchase Period
or at such earlier time thereafter as the Trustee in its sole discretion deems
to be in the best interest of the Certificateholders.
The amounts to be distributed to each Certificateholder shall be
that pro rata share of the cash balance of the Interest and Principal Accounts,
computed as set forth above, as shall be represented by the Units evidenced by
the outstanding Certificate or Certificates registered in the name of such
Certificateholder.
In the computation of each such share, fractions of less than one
cent shall be omitted. After any such distribution provided for above, any cash
balance remaining in the Interest Account or the Principal Account shall be held
in the same manner
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as other amounts subsequently deposited in each such accounts, respectively.
For the purpose of distribution, as herein provided, the holders of
record on the registration books of the Trustee at the close of business on each
Record Date shall be conclusively entitled to such distribution, and no
liability shall attach to the Trustee by reason of payment to any such
registered Certifi-cateholder of record. Nothing herein shall be construed to
prevent the payment of amounts from the Interest Account and the Principal
Account to individual Certificateholders by means of one check, draft or other
proper instrument, provided that the appropriate statement of such distribution
shall be furnished therewith as provided in section 3.6 hereof.
Section 3.6 Distribution Statements: With each distribution from the
Interest or Principal Accounts the Trustee shall set forth, either in the
instrument by means of which payment of such distribution is made or in an
accompanying statement, the amount being distributed from each such account
expressed as a dollar amount per 1,000 Units.
In the event that the issuer of any of the Securities shall fail to
make payment when due of any interest or principal and such failure results in a
change in the amount which would otherwise be paid as a distribution of interest
the Trustee shall, with the first such distribution to each Certificateholder
following such failure, set forth in an accompanying statement (a) the name of
the issuer and the Security, (b) the amount of the reduction in the distribution
per 1,000 Units resulting from such failure, (c) the percentage of the aggregate
principal amount of Securities which such Security represents, and (d) to the
extent then determined, information regarding any disposition or legal action
with respect to such Securities.
Within a reasonable period of time after the last business day of
each calendar year, the Trustee shall furnish to each person who at any time
during such calendar year was a Certificateholder a statement setting forth,
with respect to such calendar year:
(A) as to the Interest Account:
(1) the amount of interest received on the
Securities,
(2) the amounts paid for purchases of New Securities pursuant
to Section 3.13, and for redemptions of Units pursuant to Section 5.2,
(3) the deductions for applicable taxes and fees
and expenses of the Trustee, the Evaluator and counsel
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pursuant to Section 3.8, the annual audit fees referred to in Section 6.2
and the annual fee of the Depositors for portfolio supervisory services
pursuant to Section 7.5, and
(4) the balance remaining after such distributions and
deductions, expressed both as a total dollar amount and as a dollar amount
per 1,000 Units outstanding on the last business day of such calendar
year;
(B) as to the Principal Account:
(1) the date and the net proceeds received from the sale,
maturity, liquidation or redemption of any of the Securities, excluding
any portion thereof credited to the Interest Account,
(2) the amounts paid for purchases of New Securities pursuant
to Section 3.13, and for redemptions of Units pursuant to Section 5.2,
(3) the deductions for payment of applicable taxes and fees
and expenses of the Trustee, the Evaluator and counsel pursuant to Section
3.8, the annual audit fees referred to in Section 6.4 and the annual fee
of the Depositors for portfolio supervisory services pursuant to Section
7.5, and
(4) the balance remaining after such distributions and
deductions, expressed both as a total dollar amount and as a dollar amount
per 1,000 Units outstanding on the last business day of such calendar
year; and
(C) the following information:
(1) a list of Securities disposed of or acquired during such
calendar year and a list of Securities as of the last business day of such
calendar year,
(2) the number of Units outstanding on the last
business day of such calendar year,
(3) the Net Asset Value per 1,000 Units based on the last Trust
Evaluation made during such calendar year, and
(4) the amounts actually distributed to Certifi-cateholders during
such calendar year from the Interest and Principal Accounts, separately
stated, expressed both as total dollar amounts and as dollar amounts per
1,000 Units outstanding on the Record Dates for such distributions, and
the status of such distributions for Federal income tax purposes.
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Section 3.7 Sale of Securities: In order to maintain the sound
investment character of the Trust, the Depositors may direct the Trustee to sell
or liquidate Securities at such prices and times and in such manner as shall be
determined by the Depositors, provided that the Depositors have determined that
any one or more of the following conditions exist:
(a) that there has been a default on such Securities
in the payment of principal or interest when due and payable;
(b) that any action or proceeding has been instituted at law or in
equity seeking to restrain or enjoin the payment of principal or interest on any
such Security or that there exists any other legal question or impediment
affecting such Securities or the payment of principal or interest thereon;
(c) that there has occurred any breach of covenant or warranty in
any trust indenture or other document relating to the issuer or guarantor of the
Securities which would adversely affect either immediately or contingently the
payment of principal, interest or par or stated liquidation value of the
Securities, or their general credit standing, or otherwise impair the sound
investment character of such Securities;
(d) that there has been a default in the payment of principal of or
premium, if any, on or interest on any other outstanding obligations of the
issuer or guarantor of such Securities; or
(e) that the price of any such Securities has declined to such an
extent, or such other market or credit factor exists, that in the opinion of the
Depositors the retention of such Securities would be detrimental to the
interests of the Certifi-cateholders.
Upon receipt of such direction from the Depositors, upon which the
Trustee shall rely, the Trustee shall proceed to sell the specified Securities
in accordance with such direction. The Trustee shall not be liable or
responsible in any way for depreciation or loss incurred by reason of any sale
made pursuant to any such direction, or by reason of the failure of the
Depositors to give any such direction, and in the absence of such direction the
Trustee shall have no duty to sell any Securities under this Section 3.7 except
to the extent otherwise required by Section 3.9 of this Indenture. All proceeds
from the disposition of Securities pursuant to this Section 3.7 which represent
accrued interest thereon shall be deposited in the Interest Account and the
balance thereof in the Principal Account and shall thereafter be distributed in
accordance with Section 3.5.
Section 3.8 Counsel: The Depositors may employ from time to time as
they may deem necessary a firm of attorneys for
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any legal services that may be required in connection with the disposition of
Securities pursuant to Section 3.7. The fees and expenses of such counsel shall
be paid by the Trustee from the Interest and Principal Accounts as provided for
in Section 3.5(c) hereof.
Section 3.9 Notice and Sale by Trustee: If at any time the principal
of or interest on any of the Securities shall be in default and not paid or
provision for payment thereof shall not have been duly made, the Trustee shall
notify the Depositors thereof. If within thirty days after such notification the
Depositors have not given any instruction in writing to sell or to hold or have
not taken any other action in connection with such Securities, the Trustee shall
sell such Securities forthwith, and the Trustee shall not be liable or
responsible in any way for depreciation or loss incurred by reason of such sale.
Section 3.10 Trustee Not to Amortize: Nothing in this Indenture, or
otherwise, shall be construed to require the Trustee to make any adjustments
between the Interest and Principal Accounts by reason of any premium or discount
in respect of any of the securities.
Section 3.11 Action by Trustee Regarding Securities: In the event
that the Trustee shall have been notified at any time of any action to be taken
or proposed to be taken by holders of the Securities (including but not limited
to the making of any demand, direction, request, giving of any notice, consent
or waiver or the voting with respect to any amendment or supplement to any
indenture or other instrument under or pursuant to which the Securities have
been issued) the Trustee shall promptly notify the Depositors and shall
thereupon take such action or refrain from taking such action as the Depositors
shall in writing direct; provided, however, that if the Depositors shall not
within five business days of the giving of such notice to the Depositors direct
the Trustee to take or refrain from taking any action, the Trustee shall take
such action as it, in its sole discretion, shall deem advisable. Neither the
Depositors nor the Trustee shall be liable to any person for any action or
failure to take action with respect to this Section 3.11.
Section 3.12 Notice of Change in Principal Account: The Trustee
shall give prompt written notice to the Depositors and the Evaluator of all
amounts credited to or withdrawn from the Principal Account pursuant to any
provisions of this Article III, and the balance of such account after giving
effect to such credit or withdrawal.
Section 3.13 Limited Replacement of Special Securities: If any
contract in respect of Contract Securities other than a contract to purchase a
New Security (as defined below), including those purchased on a when, as and if
issued
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basis, shall have failed due to any occurrence, act or event beyond the control
of the Depositors or the Trustee (such failed Contract Securities being herein
called the "Special Securities"), the Depositors shall notify the Trustee (such
notice being herein called the "Failed Contract Notice") of its inability to
deliver the failed Special Security to the Trustee after it is notified in
writing that the Special Security will not be delivered by the seller thereof to
the Depositors. Prior to, or simultaneously with, giving the Trustee the Failed
Contract Notice, or within a maximum of twenty days after giving such Notice
(such twenty day period being herein called the "Purchase Period"), the
Depositors shall, if possible, purchase or enter into the contract, if any, to
purchase an obligation to be held as a Security hereunder (herein called the
"New Security") as part of the Trust in replacement of the failed Special
Security, subject to the satisfaction of all of the following conditions in the
case of each purchase or contract to purchase:
(a) The New Securities (i) shall be collateralized mortgage
obligations of the Federal National Mortgage Association, the Government
National Mortgage Association, the Federal Home Loan Mortgage Corporation
or any corporation or other entity, issued after July 18, 1984 if interest
thereon is United States source income, (ii) shall have fixed maturities
not later than those of the Special securities which it replaces, (iii)
shall be payable as to principal, premium, if any, and interest in United
States currency, (iv) shall bear fixed interest at a rate not less than
that of the Special Security which they replace, and shall be purchased at
a price that results in a yield to maturity at least equal to that of the
Special Security it replaces on the date the Special Security was
deposited in the Trust, and (v) shall not be a when, as and if issued
Security.
(b) The New Securities, if not issued by GNMA, FNMA or FHLMC, shall
be rated in the category AAA by Standard & Poor's.
(c) The purchase price of the New Securities (exclusive of accrued
interest) shall not exceed the principal attributable to the Special
Securities.
(d) The New Securities will be delivered to the Trustee within 90
days of the Date of Deposit.
(e) The Depositors shall furnish a notice to the Trustee (which may
be part of the Failed Contract Notice) in respect of the New Security
purchased or to be purchased that shall (i) identify the New Securities,
(ii) state that the contract to purchase, if any, entered into by the
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Depositors is satisfactory in form and substance, and (iii) state that the
foregoing conditions of clauses (a) through (c) have been satisfied with
respect to the New Securities.
Upon satisfaction of the foregoing conditions with respect to any
New Security, the Depositors shall pay the purchase price for the New Security
from their own resources or, if the Trustee has credited any moneys and/or
letters of credit attributable to the failed Special Security to the Principal
Account, the Trustee shall pay the purchase price of the New Security upon
directions from the Depositors from the moneys and/or letters of credit so
credited to the Principal Account. If the Depositors have paid the purchase
price, and, in addition, the Trustee has credited moneys of the Depositors to
the Principal Account, the Trustee shall forthwith return to the Depositors the
portion of such moneys that is not properly distributable to Certificateholders
pursuant to Section 3.5.
Whenever a New Security is acquired by the Depositors pursuant to
the provisions of this Section 3.13, the Trustee shall, within five days
thereafter, mail to all Certificate-holders notices of such acquisition,
including an identification of the failed Special Securities and the New
Securities acquired. The Trustee shall not be liable or responsible in any way
for depreciation or loss incurred by reason of any purchase made pursuant to any
such directions and in the absence of such directions the Trustee shall have no
duty to purchase any New Securities under this Indenture. The Depositors shall
not be liable for any failure to instruct the Trustee to purchase any New
Securities or for errors of judgment in respect of this Section 3.13; provided,
however, that this provision shall not protect the Depositors against any
liability to which they would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of their duties or
by reason of their reckless disregard of their obligations and duties hereunder.
Section 3.14 Deposit of Additional Securities.
(a) The Depositors, from time to time during the 90 day period
following the Date of Deposit, may deposit additional securities (or may assign
contracts for the purchase of additional Securities and deposit a letter or
letters of credit, in an amount sufficient to cover the purchase price of the
additional Securities to be deposited, provided that such additional Securities
are deposited in the Trust within 90 days of the Date of Deposit) ("Additional
Securities") with the Trustee and the Trustee shall execute and deliver to or on
the order of the Depositors in exchange therefor the number of Units specified
in a supplement or amendment to the Reference Trust Indenture which may be
executed in connection with such deposit or in a Deposit Certificate delivered
in connection therewith.
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Additional Securities shall, if deposited on or prior to the 90th day following
the Date of Deposit, maintain, to the extent practicable the original
proportionate relationship among the face amounts of each Security in the Trust
established on the Date of Deposit (the "Original Proportionate Relationship"),
subject to any change in such proportionate relationship in accordance with
Section 3.7. Additional securities deposited (or purchased with a letter or
letters of credit deposited) may be purchased in round lots, and if the amount
of the deposit is insufficient to acquire round lots of each Security to be
acquired, Additional securities may be deposited in the order of the Security in
the Trust most under-represented immediately before the deposit with respect to
the Original Proportionate Relationship. The Trustee shall have no
responsibility or liability for maintaining the composition of the Trust.
(b) If Securities of an issue of Securities originally deposited (an
"Original Issue") are unavailable or cannot be purchased at reasonable prices or
their purchase is prohibited or restricted by law, regulation or policies
applicable to the Trust or the Depositors at the time of a subsequent deposit
under Subsection 3.14(a), in lieu of the portion of the deposit that would
otherwise be represented by those Securities, the Depositors may deposit (i)
Securities of another Original Issue or (ii) "Replacement Securities" complying
with the conditions of paragraphs (c) and (d) of this Section.
(c) Replacement Securities shall meet each of the following
conditions: They shall (1) be collateralized mortgage obligations issued by the
Government National Mortgage Association, the Federal National Mortgage
Association, the Federal Home Loan Mortgage Corporation or other corporation or
entity, and (2) not be when, as and if issued collateralized mortgage
obligations.
(d) A Replacement Security must:
(i) have a fixed maturity or disposition date no
later than that of the Security of the original Issue it
replaces;
(ii) be deposited with the Trustee at a price that results in
a yield to maturity and a current return, in each case as of the date when the
Replacement Security is deposited with or purchased by the Trustee, which are
equivalent (taking into consideration current market conditions and the relative
creditworthiness of the underlying obligation) to the yield to maturity and the
current return of the Security of the Original Issue it replaces;
(iii) bear fixed interest (not contingent upon
income or other factors); and
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(iv) if not issued by GNMA, FNMA or FHLMC, be rated AAA by
Standard & Poor's.
(e) Execution of a supplement or amendment to the Reference Trust
Agreement or a Deposit Certificate shall be deemed a certification by the
Depositors that the purchase of the Securities specified in such supplement or
amendment or Deposit Certificate complies with the conditions specified in this
section, as applicable. The Deposit Certificate shall be deemed to restate the
representations, agreements and certifications of the Depositors made in the
Memorandum of Closing for the Trust to which the deposit relates as though the
representations, agreements and certifications were made with respect to the
supplement or amendment to the Reference Trust Agreement or the Deposit
Certificate and the deposit of Securities with the Trustee. The supplement or
amendment to the Reference Trust Agreement or Deposit Certificate shall also be
deemed to constitute, for value received, the sale, assignment and transfer to
the Trustee of all right, title and interest in and to the Additional Securities
identified in the supplement or amendment to the Reference Trust Agreement or
Deposit Certificate and to irrevocably constitute and appoint the Trustee as the
Depositors' attorney in all matters respecting such Securities with full power
of substitution in the premises. The supplement or amendment to the Reference
Trust Agreement or the Deposit Certificate shall include an acknowledgment by
the Trustee that it has delivered to the Depositors the number of Units
specified in the supplement or amendment to the Reference Trust Agreement or in
the Deposit Certificate. Any Additional Securities received by the Trustee shall
be deposited in the Trust and shall be subject to the terms and conditions of
this Indenture to the same extent as the securities originally deposited
hereunder. Any contract to purchase Additional Securities pursuant to this
Section 3.14 that is declared by the Depositors to have failed due to reasons
beyond the control of the Depositors or the Trustee, shall be immediately
replaced by the Depositors with a contract to purchase New Securities pursuant
to Section 3.13.
ARTICLE IV
EVALUATION OF SECURITIES; EVALUATOR
Section 4.1 Evaluation of Securities: The Evaluator shall determine
separately and promptly furnish to the Trustee and the Depositors upon request
the value of each issue of Securities (treating issues with separate maturities
as separate issues) as of the close of trading on the New York Stock Exchange on
the bid side of the market on the days on which the Trust Evaluation is required
by Section 5.1, and, in addition, as of the close of trading on the New York
Stock Exchange on the offering side of the market until such time as the
Evaluator and
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Trustee have been informed by the Depositors that the initial public offering
has been completed and thereafter if the secondary market for the Units is
maintained based on offering side values, such additional evaluation being made
as of the last business day of each calendar week effective for transactions
during the following week commencing with the week after the initial public
offering has been completed. If the Securities are listed on a national
securities exchange, the current bid or offering side evaluation shall be
determined on the basis of the closing sale price on such exchange (unless the
Evaluator deems such price inappropriate as a basis for valuation). If the
Securities are not so listed or, if so listed and the principal market therefor
is other than on such exchange or there is no such closing sale price available,
the current bid or offering price evaluation shall be based on the closing sale
prices of such Securities on the over-the-counter market (unless the Evaluator
deems such prices inappropriate as a basis for valuation), or, if no such
closing sale prices are available (i) on the basis of current bid or offering
prices for the Securities, (ii) if bid or offering prices are not available for
any Securities, on the basis of current bid or offering prices for comparable
obligations, (iii) by determining the value of the Securities on the bid or
offering side of the market by appraisal or (iv) by any combination of the
above.
For each evaluation, the Evaluator shall also determine and furnish
to the Trustee and the Depositors the aggregate of (a) the value of all
Securities on the basis of such evaluation and (b) on the basis of the
information furnished to the Evaluator by the Trustee pursuant to Section 3.12,
cash on hand in the Trust.
For the purpose of this Section 4.1, the Evaluator may obtain
current bid or offering prices for the Securities from investment dealers or
brokers (including the Depositors) that customarily deal in collateralized
mortgage obligations or from any other reporting service or source of
information which the Evaluator deems appropriate.
Section 4.2 Compensation of Evaluator: As compensation for its
services hereunder, the Evaluator shall be paid the fee specified in Part II of
the Reference Trust Agreement.
Section 4.3 Liability of Evaluator: The Trustee, the Depositors and
the Certificateholders may rely on any evaluation furnished by the Evaluator and
shall have no responsibility for the accuracy thereof. The determinations made
by the Evaluator hereunder shall be made in good faith upon the basis of the
best information available to it. The Evaluator shall be under no liability to
the Trustee, the Depositors or the Certificate-holders for errors in judgment or
any action taken in good faith,
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provided, however, that this provision shall not protect the Evaluator against
any liability to which it would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its duties or
by reason of its reckless disregard of its obligations and duties hereunder.
Section 4.4 Resignation, Removal and Other Matters:
(a) The Evaluator may resign and be discharged hereunder, by
executing an instrument in writing resigning as the Evaluator and filing the
same with the Depositors and the Trustee not less than sixty days before the
date specified in such instrument when, subject to Section 4.4(c), such
resignation is to take effect. Upon receiving such notice of resignation, the
Depositors and the Trustee shall use their best efforts to appoint a successor
Evaluator having qualifications and at a rate of compensation satisfactory to
the Depositors and the Trustee. Such appointment shall be made by written
instrument executed by the Depositors and the Trustee, in duplicate, one copy of
which shall be delivered to the resigning Evaluator and one copy to the
successor Evaluator. The Depositors or the Trustee may remove the Evaluator at
any time upon thirty days' written notice and appoint a successor Evaluator
having qualifications and at a rate of compensation satisfactory to the
Depositors and the Trustee. Such appointment shall be made by written instrument
executed by the Depositors and the Trustee, in duplicate, one copy of which
shall be delivered to the Evaluator so removed and one copy to the successor
Evaluator. Notice of such resignation or removal and appointment of a successor
Evaluator shall be mailed by the Trustee to each Certificateholder.
(b) If the Evaluator resigns and no successor Evaluator shall have
been appointed and have accepted appointment within thirty days after receipt of
the notice of resignation by the Depositors and the Trustee, the Evaluator may
forthwith apply to a court of competent jurisdiction for the appointment of a
successor Evaluator. Such court may thereupon, after such notice, if any, as it
may deem proper, appoint a successor Evaluator.
(c) Any successor Evaluator appointed hereunder shall execute,
acknowledge and deliver to the Depositors and the Trustee an instrument
accepting such appointment hereunder, and such successor Evaluator without any
further act, deed or conveyance shall become vested with all the rights, powers,
duties and obligations of its predecessor hereunder with like effect as if
originally named the Evaluator herein and shall be bound by all the terms and
conditions of this Indenture. Any resignation or removal of the Evaluator and
appointment of a successor Evaluator pursuant to this Section 4.4 shall become
effective upon such acceptance of appointment.
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(d) Any corporation into which the Evaluator hereunder may be merged
or with which it may be consolidated, or any corporation resulting from any
merger or consolidation to which the Evaluator hereunder shall be a party, shall
be the successor Evaluator under this Indenture without the execution or filing
of any paper, instrument or further act to be done on the part of the parties
hereto, anything herein, or in any agreement relating to such merger or
consolidation, by which the Evaluator may seek to retain certain powers, rights
and privileges theretofore obtaining for any period of time following such
merger or consolidation, to the contrary notwithstanding.
ARTICLE V
TRUST EVALUATION; REDEMPTION, PURCHASE, TRANSFER, INTERCHANGE OR
REPLACEMENT OF CERTIFICATES
Section 5.1 Trust Evaluation: The Trustee shall make an evaluation
of the Trust (herein called a "Trust Evaluation") as of the closing of trading
on the New York Stock Exchange, (i) on the last business day of each of the
months of December and June, (ii) on the day on which any Unit is tendered for
redemption to the Depositors for repurchase unless such tender shall occur
subsequent to the close of trading on the New York Stock Exchange, in which
event on the business day next following such day, and on each business day
after the initial public offering has been completed, and (iii) on any other day
desired by the Trustee or requested by the Depositors. Each Trust Evaluation
shall take into account and itemize separately:
(1) the cash on hand in the Trust (other than cash declared held
specially for purchase of Contract Securities) or moneys in the process of
being collected from matured interest coupons or Securities matured or
called for redemption prior to maturity,
(2) the value of each issue of the Securities (including Contract
Securities) on the bid side of the market as determined by the Evaluator
pursuant to Section 4.1, and
(3) accrued but unpaid interest on the Securities.
During the period in any month prior to the time when the current outstanding
principal amount of any Security is publicly available, the outstanding
principal amount of any such Security and the Trustee's calculation of accrued
interest will be based upon the Prepayment Experience with respect to such
Security applied to the principal amount outstanding at the end of the last
month for which the current outstanding principal amount of
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such security is publicly available. For each such Trust Evaluation there shall
be deducted from the sum of the above:
(1) amounts representing any applicable taxes or governmental
charges payable out of the Trust and for which no deductions shall have
previously been made for the purpose of addition to the Reserve Account,
(2) amounts representing accrued expenses of the Trust including but
not limited to unpaid fees and expenses (including legal and auditing
expenses) of the Trustee, the Evaluator and counsel pursuant to Section
3.8 on or prior to the date of evaluation, and
(3) cash held for distribution to Certificateholders of record as of
a date prior to the evaluation then being made.
The value of the pro rata share of each 1,000 Units determined on the basis of
any such Trust Evaluation is referred to herein as the "Net Asset Value" per
1,000 Units.
Section 5.2 Redemptions by Trustee; Purchase by Depositors: Any
Certificate tendered for redemption by a Certi-ficateholder or his duly
authorized attorney to the Trustee at its corporate trust office, or any Plan
Unit tendered to the Trustee for redemption by the registered holder thereof
pursuant to the Redemption Form, shall be redeemed by the Trustee on the seventh
calendar day following the day on which tender for redemption is made, provided
that if such day of redemption is not a business day, then such Certificate
shall be redeemed on the first business day prior thereto (such seventh calendar
day or first business day prior thereto being herein called the "Redemption
Date"). Subject to payment by such Certificateholder of any tax or other
governmental charges which may be imposed thereon, such redemption is to be made
by payment on the Redemption Date of cash equivalent to the Net Asset Value per
Unit or Plan Unit determined by the Trustee as of the closing of trading on the
New York Stock Exchange, on the date of tender, multiplied by the number of
Units represented by such Certificate or Redemption Form (herein called the
"Redemption Price"). Certificates or Redemption Forms received for redemption by
the Trustee on any day after the close of trading on the New York Stock Exchange
will be held by the Trustee until the next day on which the New York Stock
Exchange is open for trading and will be deemed to have been tendered on such
day for redemption at the Redemption Price computed on that day.
The Trustee may in its discretion, and shall when so directed by the
Depositors in writing, suspend the right of redemption or postpone the date of
payment of the Redemption
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Price for more than seven calendar days following the day on which tender for
redemption is made:
(1) for any period during which the New York Stock Exchange is
closed other than customary weekend and holiday closings or during which
trading on the New York Stock Exchange is restricted;
(2) for any period during which an emergency exists as a result of
which disposal by the Trust of the Securities is not reasonably
practicable or it is not reasonably practicable fairly to determine in
accordance herewith the value of the Securities; or
(3) for such other periods as the Securities and
Exchange Commission may by order permit,
and the Trustee shall not be liable to any person or in any way for any loss or
damage which may result from any such suspension or postponement.
Not later than the close of business on the day of tender of a
Certificate or Redemption Form for redemption by a Certificateholder other than
the Depositors, the Trustee shall notify the Depositors of such tender. The
Depositors shall have the right to purchase such Certificate or Redemption Form
by notifying the Trustee of its election to make such purchase as soon as
practicable thereafter, but in no event subsequent to the close of business on
the second business day after the day on which such Certificate or Redemption
Form was tendered for redemption. Such purchase shall be made by payment for
such Certificate or Redemption Form by the Depositors to the certifi-cateholder
or Plan Unit holder not later than the close of business on the Redemption Date
of an amount equal to the Redemption Price which would otherwise be payable by
the Trustee to such Certificateholder or Plan Unit holder.
Any Certificate or Redemption Form so purchased by the Depositors
may, at the option of the Depositors, be tendered to the Trustee for redemption
at the corporate trust office of the Trustee in the manner provided in the first
paragraph of this Section 5.2.
If the Depositors do not elect to purchase any Certificate or
Redemption Form tendered to the Trustee for redemption, or if a Certificate or
Redemption Form is being tendered by the Depositors for redemption, that portion
of the Redemption Price which represents interest shall be withdrawn from the
Interest Account to the extent funds are available. The balance paid on any
redemption, including accrued interest, if any, shall be withdrawn from the
Principal Account to the extent that funds are available for such purpose. If
such available
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balance shall be insufficient, the Trustee shall sell such Securities from among
those designated on the current list for such purpose as provided below and in
the manner, in its discretion, as it shall deem advisable or necessary in order
to fund the Principal Account for purposes of such redemption. Sales of
Securities by the Trustee shall be made in such manner as the Trustee shall
determine, subject to any minimum face amount limitations on sale which shall
have been specified by the Depositors and agreed to by the Trustee. In the event
that funds are withdrawn from the Principal Account or Securities are sold for
payment of any portion of the Redemption Price representing accrued interest,
the Principal Account shall be reimbursed when sufficient funds are next
available in the Interest Account for such funds so applied.
The Depositors shall maintain with the Trustee a current list of
Securities designated to be sold for the purpose of redemption of Certificates
or Redemption Forms tendered for redemption and not purchased by the Depositors,
and for payment of expenses hereunder, provided that if the Depositors shall for
any reason fail to maintain such a list, the Trustee, in its sole discretion,
may designate a current list of Securities for such purposes. The net proceeds
of any sales of Securities from such list representing principal shall be
credited to the Principal Account and the proceeds of such sales representing
accrued interest shall be credited to the Interest Account.
Neither the Trustee nor the Depositors shall be liable or
responsible in any way for depreciation or loss incurred by reason of any sale
of Securities made pursuant to this Section 5.2.
Certificates evidencing Units, or Redemption Forms evidencing Plan
Units, redeemed pursuant to this Section 5.2 shall be cancelled by the Trustee
and the Units or Plan Units evidenced by such Certificates or Redemption Forms
shall be terminated by such redemptions. In the event that a Certificate shall
be tendered representing a number of Units greater than those requested to be
redeemed by the Certificateholder, the Trustee shall issue to each
Certificateholder, upon payment of any tax or charges of the character referred
to in the second paragraph to Section 5.3, a new Certificate evidencing the
Units representing the balance of the Certificate so tendered.
Notwithstanding the foregoing provisions of this Section 5.2, the
Trustee is hereby irrevocably authorized in its discretion, in the event that
the Depositors do not elect to purchase any Certificate or Redemption Form
tendered to the Trustee for redemption, or in the event that a Certificate or
Redemption Form is being tendered by the Depositors for redemption, in lieu of
redeeming Units or Plan Units tendered for redemption, to sell such Units or
Plan Units in the over-the-
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counter market or by private sale for the account of tendering Unit or Plan Unit
holders at prices which will return to the Unit or Plan Unit holders amounts in
cash, net after deducting brokerage commissions, transfer taxes and other
charges, equal to or in excess of the Redemption Prices which such Unit or Plan
Unit holders would otherwise be entitled to receive on redemption pursuant to
this Section 5.2. The Trustee shall pay to the Unit or Plan Unit holders the net
proceeds of any such sale on the day they would otherwise be entitled to receive
payment of the Redemption Price hereunder.
Section 5.3 Transfer or Interchange of Certificates: A Certificate
may be transferred by the registered holder thereof by presentation and
surrender of such Certificate at the corporate trust office of the Trustee
properly endorsed or accompanied by a written instrument or instruments of
transfer in form satisfactory to the Trustee and executed by the
Certificate-holder or his authorized attorney, whereupon a new registered
Certificate or Certificates for the same number of Units executed by the Trustee
and the Depositor will be issued in exchange and substitution therefor.
Certificates issued pursuant to this Indenture are interchangeable for one or
more other Certificates in an equal aggregate number of Units and all
Certificates issued shall be issued in denominations of 1,000 Units or any
multiple thereof as may be requested by the Certificateholder. The Trustee may
deem and treat the person in whose name any Certificate shall be registered upon
the books of the Trustee as the owner of such Certificate for all purposes
hereunder and the Trustee shall not be affected by any notice to the contrary,
nor be liable to any person or in any way for so deeming or treating the person
in whose name any certificate shall be so registered.
A sum sufficient to pay any tax or other governmental charge that
may be imposed in connection with any such transfer or interchange shall be paid
by the Certificateholder to the Trustee. The Trustee may require a
certificateholder to pay $2.00 for each new Certificate issued on any such
transfer or interchange.
All Certificates cancelled pursuant to this Indenture shall be
disposed of by the Trustee without liability on its part.
Section 5.4 Certificates Mutilated, Destroyed, Stolen or Lost: In
case any Certificate shall become mutilated or be destroyed, stolen or lost, the
Trustee shall execute and deliver a new Certificate in exchange and substitution
therefor upon the holder's furnishing the Trustee with proper identification and
indemnity satisfactory to the Trustee, and complying with such other reasonable
regulations and conditions as the Trustee may prescribe and paying such expenses
as the Trustee may incur. Any mutilated Certificate shall be duly surrendered
and cancelled
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before any new Certificate shall be issued in exchange and substitution
therefor. Upon the issuance of any new Certificate a sum sufficient to pay any
tax or other governmental charge and the fees and expenses of the Trustee may be
imposed. Any such new Certificate issued pursuant to this section shall
constitute complete and indefeasible evidence of ownership in the Trust, as if
originally issued, whether or not the lost, stolen or destroyed Certificate
shall be found at any time.
In the event the Trust has terminated or is in the process of
termination, the Trustee may, instead of issuing a new Certificate in exchange
and substitution for any Certificate which shall have become mutilated or shall
have been destroyed, stolen or lost, make the distributions in respect of such
mutilated, destroyed, stolen or lost Certificate (without surrender thereof
except in the case of a mutilated Certificate) as provided in Section 9.2 hereof
if the Trustee is furnished with such security or indemnity as it may require to
hold it harmless, and in the case of destruction, loss or theft of a
Certificate, evidence to the satisfaction of the Trustee of the destruction,
loss or theft of such Certificate and of the ownership thereof.
ARTICLE VI
TRUSTEE; REMOVAL OF DEPOSITORS
Section 6.1 General Definition of Trustee's Liabilities, Rights and
Duties; Removal of Depositors: In addition to and notwithstanding the other
duties, rights, privileges and liabilities of the Trustee otherwise set forth
herein, the liabilities of the Trustee are further defined as follows:
(a) all moneys deposited with or received by the Trustee hereunder
shall be held by the Trustee without interest in trust as part of the
Trust or the Reserve Account until required to be disbursed in accordance
with the provisions of this Indenture and such moneys will be segregated
by separate recordation on the trust ledgers of the Trustee so long as
such practice preserves a valid preference under applicable law, or if
such preference is not so preserved the Trustee shall handle such moneys
in such other manner as shall constitute the segregation and holding
thereof in trust within the meaning of the Investment Company Act of 1940;
(b) the Trustee shall be under no liability for any action taken in
good faith on any appraisal, paper, order, list, demand, request, consent,
affidavit, notice, opinion, direction, evaluation, endorsement,
assignment, resolution,
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draft or other document, whether or not of the same kind prima facie
properly executed, or for the disposition of moneys, securities or
Certificates pursuant to this Indenture, or in respect of any evaluation
which the Trustee is required to make or is required or permitted to have
made by others under this Indenture or otherwise except by reason of its
gross negligence, lack of good faith or willful misconduct, provided that
the Trustee shall not in any event be liable or responsible for any
evaluation made by the Evaluator. The Trustee may construe any of the
provisions of this Indenture, insofar as the same may appear to be
ambiguous or inconsistent with any other provisions hereof, and any
construction of any such provisions hereof by the Trustee in good faith
shall be binding upon the parties hereto. The Trustee shall in no event be
deemed to have assumed or incurred any liability, duty or obligation to
any Certificateholder, the Evaluator or the Depositors, other than as
expressly provided for herein;
(c) the Trustee shall not be responsible for or in respect of the
recitals herein, the validity or sufficiency of this Indenture or for the
due execution hereof by the Depositors or the Evaluator, or for the form,
character, genuineness, sufficiency, value or validity of any Securities
(except that the Trustee shall be responsible for the exercise of due care
in determining the genuineness of Securities delivered to it pursuant to
contracts for the purchase of such Securities) or for or in respect of the
validity or sufficiency of the Certificates or of the due execution
thereof by the Depositors, and the Trustee shall in no event assume or
incur any liability, duty or obligation to any Certificateholder, the
Evaluator or the Depositors other than as expressly provided for herein.
The Trustee shall not be responsible for or in respect of the validity of
any signature by or on behalf of the Depositors or the Evaluator;
(d) the Trustee shall not be under any obligation to appear in,
prosecute or defend any action, which in its opinion may involve it in
expense or liability, unless as often as required, it shall be furnished
with reasonable security and indemnity against such expense or liability
as it may require, and any pecuniary cost of the Trustee from such actions
shall be deductible from and a charge against the Interest and Principal
Accounts. The Trustee shall in its discretion undertake such action as it
may deem necessary at any and all times to protect the Trust and the
rights and interests of the Certificateholders pursuant to the terms of
this Indenture, provided, however, that the expenses and costs of such
actions, undertakings or proceedings shall be reimbursable to the Trustee
from the Interest and Principal Accounts, and the payment of such
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costs and expenses shall be secured by a lien on the Trust
prior to the interests of the Certificateholders;
(e) the Trustee may employ agents, attorneys, accountants and
auditors and shall not be answerable for the default or misconduct of any
such agents, attorneys, accountants or auditors if such agents, attorneys,
accountants or auditors shall have been selected with reasonable care. The
Trustee shall be fully protected in respect of any action under this
Indenture taken, or suffered, in good faith by it in accordance with the
opinion of counsel. The fees and expenses charged by such agents,
attorneys, accountants or auditors shall constitute an expense of the
Trustee reimbursable from the Interest and Principal Accounts as set forth
in Section 3.5 hereof;
(f) other than as provided in Article VII hereunder, if at any time
there is only one Depositor acting hereunder and said Depositor shall
resign or fail to undertake or perform or become incapable of undertaking
or performing any of the duties which by the terms of this Indenture are
required by it to be undertaken or performed and no express provision is
made for action to be taken by the Trustee in such event, or said
Depositor shall be adjudged a bankrupt or insolvent, or a receiver of such
Depositor or of its property shall be appointed, or any public officer
shall take charge or control of such Depositor or of its property or
affairs for the purpose of rehabilitation, conservation or liquidation,
then in any such case, the Trustee may do any one or more of the
following: (1) appoint a successor Depositor who shall act hereunder in
all respects in place of the Depositor, who shall be compensated
semi-annually, at rates deemed by the Trustee to be reasonable under the
circumstances, by deduction from the Interest Account or from the
Principal Account, but no such deduction shall be made exceeding such
reasonable amount as the Securities and Exchange Commission may prescribe
in accordance with Section 26(a)(2)(C) of the Investment Company Act of
1940; (2) continue to act in the capacity of Trustee hereunder in its own
absolute discretion without appointing any successor Depositor; or (3)
terminate this Indenture and the Trust created hereby and liquidate the
Trust, all in the manner provided in Section 9.2;
(g) if the value of the Trust as shown by any evaluation by the
Trustee pursuant to Section 5.1 hereof shall be less than the liquidation
amount specified in Part II of the Reference Trust Agreement, the Trustee
may in its discretion, and shall, when so directed by the Depositors,
terminate this Indenture and the Trust created hereby and liquidate the
Trust, all in the manner provided in Section 9.2;
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(h) in no event shall the Trustee be liable for any taxes or other
governmental charges imposed upon or in respect of the Securities or upon
the interest thereon or upon it as Trustee hereunder or upon or in respect
of the Trust which it may be required to pay under any present or future
law of the United States of America or any other taxing authority having
jurisdiction in the premises. For all such taxes and charges and for any
expenses, including counsel fees, which the Trustee may sustain or incur
with respect to such taxes or charges, the Trustee shall be reimbursed and
indemnified out of the Interest and Principal Accounts of the Trust, and
the payment of such amounts so paid by the Trustee shall be secured by a
prior lien on the Trust;
(i) the Trustee, except by reason of its gross negligence, lack of
good faith, reckless disregard of its obligations hereunder or willful
misconduct, shall not be liable for any action taken or suffered to be
taken by it in good faith and believed by it to be authorized or within
the discretion or rights or powers conferred upon it by this Indenture;
(j) notwithstanding anything in this Indenture to the contrary, the
Trustee is authorized and empowered to enter into any safekeeping
arrangement or arrangements it deems necessary or appropriate for holding
the Securities then owned by the Trust and the Trustee is authorized and
empowered in its sole right to amend, supplement or terminate any
safekeeping arrangement or arrangements made under this provision.
Section 6.2 Books, Records and Reports: The Trustee shall keep
proper books of record and account of all the transactions under this Indenture
at its corporate trust office including a record of the name and address of, and
the Certificates issued by the Trust and held by, every Certificate-holder, and
such books and records shall be open to inspection by any Certificateholder at
all reasonable times during the usual business hours, and such books and records
shall be made available to the Depositors upon the request of the Depositors
including, but not limited to, a record of the name and address of, and the
Certificates issued by the Trust and held by, every Certificateholder.
The Trustee shall cause audited statements as to the assets and
income of each Trust to be prepared on an annual basis by independent public
accountants selected by the Depositors, provided, however, if the cost to a
Trust for preparation of such statements shall exceed an amount equivalent to
$.50 per 1,000 Units on an annual basis then the Trustee shall not be required
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to have such statements prepared. Such audited statements will be made available
to Certificateholders upon request.
To the extent permitted under the Investment Company Act of 1940,
the Trustee shall pay, or reimburse to the Depositors or others, the costs of
the preparation of documents and information with respect to each Trust required
by law or regulation in connection with the maintenance of a secondary market in
units of each Trust. Such costs may include but are not limited to accounting
and legal fees, blue sky registration and filing fees, printing expenses and
other reasonable expenses related to documents required under Federal and state
securities laws.
The Trustee shall make such annual or other reports as may from time
to time be required under any applicable state or federal statute or rule or
regulation thereunder.
Section 6.3 Indenture and List of Securities on File: The Trustee
shall keep a certified copy or duplicate original of this Indenture on file at
its corporate trust office available for inspection at all reasonable times
during the usual business hours by any Certificateholder and the Trustee shall
keep and so make available for inspection a current list of the Securities.
Section 6.4 Compensation: For services performed under this
Indenture the Trustee shall be paid at the rate per annum set forth in Part II
of the Reference Trust Agreement which shall be computed on the basis of the
greatest principal amount of Securities in the Trust at any time during the
period with respect to which such compensation is being computed. The Trustee
may from time to time adjust its compensation as set forth above provided that
the total adjustment upward does not, at the time of such adjustment, exceed the
percentage of the total increase, after the date hereof, in consumer prices for
services as measured by the United States Department of Labor Consumer Price
Index entitled "All Services Less Rent," or, if such index shall cease to be
published, then as measured by the available index most nearly comparable to
such index. The consent or concurrence of any Certificateholder hereunder shall
not be required for any such adjustment or increase; however, the consent of the
Depositors shall be required. Such compensation shall be charged by the Trustee
against the Interest and Principal Accounts on or before the Payment Date on
which such period terminates; provided, however, that such compensation shall be
deemed to provide only for the usual normal and recurring functions undertaken
as Trustee pursuant to this Indenture.
The Trustee shall charge the Interest and Principal Accounts as
provided for in Section 3.5(a) for any and all expenses, including the fees of
counsel which may be retained by
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the Trustee in connection with its activities hereunder, and disbursements
incurred hereunder and any extraordinary services performed by the Trustee
hereunder. The Trustee shall be indemnified and held harmless against any loss
or liability accruing to it without negligence, bad faith or willful misconduct
on its part, arising out of or in connection with the acceptance or
administration of this trust, including the costs and expenses (including
counsel fees) of defending itself against any claim of liability in the
premises. If the cash balances in the Interest and Principal Accounts shall be
insufficient to provide for amounts payable pursuant to this Section 6.4, the
Trustee shall have the power to sell (i) Securities from the current list of
Securities designated to be sold pursuant to Section 5.2 hereof, or (ii) if no
such Securities have been so designated, such Securities as the Trustee may see
fit to sell in its own discretion, and to apply the proceeds of any such sale in
payment of the amounts payable pursuant to this Section 6.4. The Trustee shall
not be liable or responsible in any way for depreciation or loss incurred by
reason of any sale of Securities made pursuant to this Section 6.4. Any moneys
payable to the Trustee pursuant to this section shall be secured by a prior lien
on the Trust.
Section 6.5 Removal and Resignation of the Trustee; Successor: The
following provisions shall provide for the removal and resignation of the
Trustee and the appointment of any successor Trustee.
(a) Any resignation or removal of the Trustee and appointment of a
successor pursuant to this section shall not become effective until
acceptance of appointment by the successor Trustee as provided in
subsection (b) hereof.
(b) The Trustee or any trustee hereafter appointed may resign and be
discharged of the trust created by this Indenture by executing an
instrument in writing resigning as such Trustee, filing the same with the
Depositors and mailing a copy of a notice of resignation to all
Certifi-cateholders then on record not less than sixty days before the
date specified in such instrument when, subject to Section 6.5(d), such
resignation is to take effect. Upon receiving such notice of resignation,
the Depositors shall use their best efforts to promptly appoint a
successor Trustee as hereinafter provided, by written instrument, in
duplicate, one copy of which shall be delivered to the resigning Trustee
and one copy to the successor Trustee. In case at any time the Trustee
shall become incapable of acting or shall be deemed incapable of acting by
the written consent of holders of Certificates evidencing 66-2/3% of the
outstanding Units of the Trust, or shall be adjudged bankrupt or
insolvent, or a receiver of the Trustee or of its property shall be
appointed, or any public officer shall
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take charge or control of the Trustee or of its property or affairs for
the purposes of rehabilitation, conservation, or liquidation, or in the
event the Depositors determine that the Trustee has materially failed to
perform its duties under this Indenture and the interests of
Certificateholders have been substantially impaired as a result, and such
failure has continued for a period of sixty days following the Trustee's
receipt of notice of such determination by the Depositors, then in any
such case the Depositors may remove the Trustee and appoint a successor
Trustee by written instrument, in duplicate, one copy of which shall be
delivered to the Trustee so removed and one copy to the successor Trustee;
provided that notice of such removal and appointment of a successor shall
be given to each Certifi-cateholder then of record.
(c) Any successor Trustee appointed hereunder shall execute,
acknowledge and deliver to the Depositors and the retiring Trustee an
instrument accepting such appointment hereunder, and such successor
Trustee without any further act, deed or conveyance shall become vested
with all the rights, powers, duties and obligations of its predecessor
hereunder with like effect as if originally named Trustee herein and shall
be bound by all the terms and conditions of this Indenture. Upon the
request of such successor Trustee, the Depositors and the retiring Trustee
shall, upon payment of any amounts due the retiring Trustee or provision
therefor to the satisfaction of such retiring Trustee, execute and deliver
an instrument acknowledged by it transferring to such successor Trustee
all the rights and powers of the retiring Trustee; and the retiring
Trustee shall transfer, deliver and pay over to the successor Trustee all
Securities and moneys at the time held by it hereunder, together with all
necessary instruments of transfer and assignment or other documents
properly executed necessary to effect such transfer and such of the
records or copies thereof maintained by the retiring Trustee in the
administration hereof as may be requested by the successor Trustee, and
shall thereupon be discharged from all duties and responsibilities under
this Indenture. The retiring Trustee shall, nevertheless, retain a lien
upon all Securities and moneys at the time held by it hereunder to secure
any amounts then due the retiring Trustee hereunder.
(d) In case at any time the Trustee shall resign and no successor
Trustee shall have been appointed and have accepted appointment within
thirty days after notice of resignation has been received by the
Depositors, the retiring Trustee may forthwith apply to a court of
competent jurisdiction for the appointment of a successor Trustee. Such
court may thereupon, after such notice, if any, as it may deem proper and
prescribe, appoint a successor Trustee.
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(e) Any corporation into which any Trustee hereunder may be merged
or with which it may consolidate, or any corporation resulting from any
merger or consolidation to which any Trustee hereunder shall be a party,
shall be the successor Trustee under this Indenture without the execution
or filing of any paper, instrument or further act to be done on the part
of the parties hereto, anything herein, or in any agreement relating to
such merger or consolidation, by which any such Trustee may seek to retain
certain powers, rights and privileges theretofore obtaining for any period
of time following such merger or consolidation, to the contrary
notwithstanding.
Section 6.6 Qualifications of Trustee: The Trustee, or any successor
thereof, shall be a corporation organized and doing business under the laws of
the United States or any state thereof, which is authorized under such laws to
exercise corporate trust powers and having at all times an aggregate capital,
surplus, and undivided profits of not less than $2,500,000.
ARTICLE VII
DEPOSITORS
Section 7.1 Power of Attorney: (a) At all times prior to the
termination of this Indenture and while the Depositors shall continue to act
jointly hereunder, there shall be maintained on file with the Trustee a power of
attorney executed in favor of Bear Stearns by Gruntal constituting and
appointing Bear Stearns as the true and lawful agent and attorney-in-fact of
Gruntal to execute and deliver for and on behalf of Gruntal, as a Depositor of
any Trust created hereunder, all notices, opinions, certificates, lists,
demands, directions, instruments or other documents or agreements provided or
permitted to be executed by the Depositors hereunder or to take other action in
respect thereof. Such power of attorney shall also appoint Bear Stearns as the
true and lawful agent and attorney-in-fact of Gruntal to receive, on behalf of
Gruntal as a Depositor of any Trust created hereunder, all notices, opinions,
certificates, lists, demands, directions, instruments or other documents to be
provided to the Depositors hereunder. Such power of attorney shall continue in
effect until written notice of revocation thereof has been received by the
Trustee. Prior to the receipt of such notice of revocation, the Trustee shall be
entitled to rely conclusively upon such power of attorney as authorizing Bear
Stearns to give any and all notices, opinions, certificates, lists, demands,
directions, instruments or other documents or agreements provided or permitted
to be executed by the Depositors hereunder or to take other action in respect
thereof on behalf of Gruntal.
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(b) In the event that the power of attorney referred to in Section
7.1(a) shall be revoked by written notice given by Gruntal and it shall not be
replaced within one business day by another power of attorney conforming with
the requirements of said Section 7.1(a), the Depositors shall be deemed to have
been unable to reach agreement with respect to action to be taken jointly by
them hereunder and thereupon Gruntal shall be discharged hereunder upon the
expiration of such one-day period and thereupon Bear Stearns shall act hereunder
without the necessity of any other or further action on their part or on the
part of the Trustee.
Section 7.2 Succession: The covenants, provisions and agreements
herein contained shall in every case be binding upon any successor to the
business of the Depositors. In the event of the death, resignation or withdrawal
of any partner of either of the Depositors or of any successor Depositor which
may be a partnership, the deceased, resigning or withdrawing partner shall be
relieved of all further liability hereunder if at the time of such death,
resignation or withdrawal such Depositor maintains a net worth (determined in
accordance with generally accepted accounting principles) of at least
$1,000,000. In the event of an assignment by any Depositor to a successor
corporation or partnership as permitted by the next following sentence, such
Depositor and, if such Depositor is a partnership, its partners shall be
relieved of all further liability under this Indenture. The Depositors may
transfer all or substantially all of their assets to a corporation or
partnership which carries on the business of that Depositor, if at the time of
such transfer such successor duly assumes all the obligations of said Depositor
under this Indenture and if at such time such successor maintains a net worth of
at least $1,000,000 (determined in accordance with generally accepted accounting
principles).
Section 7.3 Resignation of a Depositor: If at any time, any
Depositor desires to resign its position as Depositor hereunder, it may resign
by delivering to the Trustee an instrument of resignation executed by such
Depositor. Such resignation shall become effective upon the expiration of thirty
days from the date on which such instrument is delivered to the Trustee. Upon
effective resignation hereunder, the resigning Depositor shall be discharged and
shall no longer be liable in any manner hereunder except as to acts or omissions
occurring prior to such resignation and any successor Depositor appointed by the
Trustee pursuant to Section 6.1(f) shall thereupon perform all duties and be
entitled to all rights under this Indenture. The successor Depositor shall not
be under any liability hereunder for occurrences or omissions prior to the
execution of such instrument.
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Section 7.4 Liability of Depositors and Indemnification:
(a) No Depositor shall be under any liability to any other
Depositor, the Trust or the Certificateholders for any action or for
refraining from the taking of any action in good faith pursuant to this
Indenture, or for errors in judgment or for depreciation or loss incurred
by reason of the purchase or sale of any Securities, provided, however,
that this provision shall not protect the Depositors against any liability
to which they would otherwise be subject by reason of willful misfeasance,
bad faith or gross negligence in the performance of their duties or by
reason of their reckless disregard of their obligations and duties
hereunder. The Depositors may rely in good faith on any paper, order,
notice, list, affidavit, receipt, evaluation, opinion, endorsement,
assignment, draft or any other document of any kind prima facie properly
executed and submitted to them by the Trustee, the Trustee's counsel, the
Evaluator or any other person for any matters arising hereunder. The
Depositors shall in no event be deemed to have assumed or incurred any
liability, duty, or obligation to any Certificateholder, the Evaluator or
the Trustee other than as expressly provided for herein.
(b) The Trust shall pay and hold the Depositors harmless from and
against any loss, liability or expense incurred in acting as Depositors of
the Trust other than by reason of wilful misfeasance, bad faith or gross
negligence in the performance of their duties or by reason of the reckless
disregard of their obligations and duties hereunder, including the costs
and expenses of the defense against any claim or liability in the
premises. The Depositors shall not be under any obligation to appear in,
prosecute or defend any legal action which in their opinion may involve
them in any expense or liability, provided, however, that the Depositors
may, in their discretion, undertake any such action which they may deem
necessary or desirable in respect of this Indenture and the rights and
duties of the parties hereto and the interests of the Certi-ficateholders
hereunder and, in such event, the legal expenses and costs of any such
action and any liability resulting therefrom shall be expenses, costs and
liabilities of the Trust and shall be paid directly by the Trustee out of
the Interest and Principal Accounts as provided by Section 3.5.
(c) None of the provisions of this Indenture shall be deemed to
protect or purport to protect the Depositors against any liability to the
Trust or to the Certificate-holders to which the Depositors would
otherwise be subject by reason of willful misfeasance, bad faith or gross
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negligence in the performance of their duties, or by reason of the
Depositors' reckless disregard of their obligations and duties under this
Indenture.
(d) Notwithstanding the discharge of a Depositor of the Trust in
accordance with Section 6.1(f) or Section 7.1(b), such Depositor shall
continue to be fully liable in accordance with the provisions hereof in
respect of action taken or refrained from under this Agreement by the
Depositors before the date of such discharge or by the undischarged
Depositors before or after the date of such discharge, as fully and to the
same extent as if no discharge has occurred.
Section 7.5 Compensation: The Depositors shall receive at the times
set forth in Section 3.5 as compensation for performing portfolio supervisory
services, such amount and for such periods as specified in Part II of the
Reference Trust Agreement. The computation of such compensation shall be made on
the basis of the principal amount of Securities in the Trust at the beginning of
each calendar year period. At no time, however, will the total amount received
by the Depositors for services rendered to all series of the Mortgage Securities
Trust in any calendar year exceed the aggregate cost to them of supplying such
services in such year. Such rate may be increased by the Trustee from time to
time, without the consent or approval of any Certi-ficateholder or the
Depositors, by amounts not exceeding the proportionate increase during the
period from the date of such Reference Trust Agreement to the date of any such
increase, in consumer prices as published either under the classification "All
Services Less Rent" in the Consumer Price Index published by the United States
Department of Labor, or, if such Index is no longer published, a similar index.
In the event that any amount of the compensation paid to the
Depositors pursuant to Section 3.5 is found to be an improper charge against the
Trust, the Depositors shall reimburse the Trust in such amount. An improper
charge shall be established if a final judgment or order for reimbursement of
the Trust shall be rendered against the Depositors and such judgment or order
shall not be effectively stayed or a final settlement is established in which
the Depositors agree to reimburse the Trust for amounts paid to the Depositors
pursuant to this Section 7.5.
ARTICLE VIII
RIGHTS OF CERTIFICATEHOLDERS
Section 8.1 Beneficiaries of Trust: By the purchase and acceptance
or other lawful delivery and acceptance of any Certificate the Certificateholder
shall be deemed to be a
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beneficiary of the trust created by this Indenture and vested with all right,
title and interest in the Trust to the extent of the Unit or Units set forth and
evidenced by such Certificate, subject to the terms and conditions of this
Indenture and of such Certificate.
Section 8.2 Rights, Terms and Conditions: In addition to the other
rights and powers set forth in the other provisions and conditions of this
Indenture the Certificateholders shall have the following rights and powers and
shall be subject to the following terms and conditions:
(a) A Certificateholder may at any time tender his Certificate or
Certificates to the Trustee for redemption in accordance with Section 5.2.
(b) The death or incapacity of any Certificateholder shall not
operate to terminate this Indenture or the Trust, nor entitle his legal
representatives or heirs to claim an accounting or to take any action or
proceeding in any court of competent jurisdiction for a partition or
winding up of the Trust, nor otherwise affect the rights, obligations and
liabilities of the parties hereto or any of them. Each Cer-tificateholder
expressly waives any right he may have under any rule of law, or the
provisions of any statute, or otherwise, to require the Trustee at any
time to account, in any manner other than as expressly provided in this
Indenture, in respect of the Securities or moneys from time to time
received, held and applied by the Trustee hereunder.
(c) No Certificateholder shall have any right to vote or in any
manner otherwise control the operation and management of the Trust, or the
obligations of the parties hereto, nor shall anything herein set forth, or
contained in the terms of the Certificates, be construed so as to
constitute the Certificateholders from time to time as partners; nor shall
any Certificateholder ever be under any liability to any third persons by
reason of any action taken by the parties to this Indenture for any other
cause whatsoever.
ARTICLE IX
ADDITIONAL COVENANTS; MISCELLANEOUS PROVISIONS
Section 9.1 Amendments: This Indenture may be amended from time to
time by the parties hereto or their respective successors, without the consent
of any of the Certificateholders (a) to cure any ambiguity or to correct or
supplement any provision contained herein which may be defective or inconsistent
with any other provision contained herein; (b) to change any
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provision required by the Securities and Exchange commission or any successor
governmental agency to be changed; or (c) to make such other provision in regard
to matters or questions arising hereunder as shall not adversely affect the
interests of the Certificateholders; provided, however, that the parties hereto
may not amend this Indenture so as to (1) increase the number of Units above the
number set forth in Part II of the Reference Trust Agreement except as provided
in Section 3.14 hereof or such lesser amount as may be outstanding at any time
during the term of this Indenture or (2) subject to Sections 3.7, 3.13 and 3.14,
permit the deposit or acquisition hereunder of securities either in addition to
or in replacement of any of the Securities.
This Indenture may also be amended from time to time by the
Depositors and the Trustee (or the performance of any of the provisions of this
Agreement may be waived) with the expressed written consent of holders of
Certificates evidencing 66-2/3% of the Units at the time outstanding under the
Indenture for the purpose of adding any provisions to or changing in any manner
or eliminating any of the provisions of this Indenture or of modifying in any
manner the rights of the holders of Certificates, save for the termination of
the Trust as set forth in Section 9.2 below; provided, however, that no such
amendment or waiver shall (i) reduce the interest in the Trust represented by
Units evidenced by any Certificate without the consent of the holder of such
Certificate, (ii) reduce the aforesaid percentage of Units, the holders of which
are required to consent to any such amendment, without the consent of the
holders of all Certificates then outstanding or (iii) affect the duties,
obligations and responsibilities of the Trustee without its consent.
Promptly after the execution of any such amendment the Trustee shall
furnish written notification to all then outstanding Certificateholders of the
substance of such amendment.
Section 9.2 Termination: This Indenture and the Trust created hereby
shall terminate upon the maturity, redemption, sale or other disposition as the
case may be of the last Securities held hereunder unless sooner terminated as
hereinbefore specified and may be terminated at any time by written consent of
all the holders of Certificates; provided that in no event shall the Trust
continue beyond the end of the calendar year preceding the fiftieth anniversary
of the execution of this Indenture.
Written notice of any termination, specifying the time or times at
which the Certificateholders may surrender their Certificates for cancellation
shall be given by the Trustee to each Certificateholder at his address appearing
on the registration books of the Trustee. Within a reasonable period of
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time after such termination the Trustee shall fully liquidate the Securities
then held, if any, and shall:
(a) deduct from the Interest Account or, to the extent that funds
are not available in such account, from the Principal Account and pay to
itself individually an amount equal to the sum of
(1) its accrued compensation for its ordinary
recurring services,
(2) any compensation due it for its extraordinary
services, and
(3) any other costs, expenses, advances or indemnities
as provided herein;
(b) deduct from the Interest Account or, to the extent that funds
are not available in such account, from the Principal Account and pay
accrued and unpaid fees of the Evaluator and counsel pursuant to Section
3.8;
(c) deduct from the Interest Account or the Principal Account any
amounts which may be required to be deposited in the Reserve Account to
provide for payment of any applicable taxes or other governmental charges
and any other amounts which may be required to meet expenses incurred
under this Indenture;
(d) distribute to each Certificateholder, upon surrender for
cancellation of his Certificate or Certificates, such holder's pro rata
share of the balance of the Interest Account;
(e) distribute to each Certificateholder, upon surrender for
cancellation of his Certificate or Certificates, such holder's pro rata
share of the balance of the Principal Account; and
(f) together with such distribution to each Certifi-cateholder as
provided for in (d) and (e), furnish to each such Certificateholder a
final distribution statement as of the date of the computation of the
amount distributable to Certificateholders, setting forth the data and
information in substantially the form and manner provided for in Section
3.6 hereof.
The amounts to be so distributed to each Certificate-holder shall be
that pro rata share of the balance of the total Interest and Principal Accounts
as shall be represented by the Units therein evidenced by the outstanding
Certificate or Certificates held of record by such Certificateholder.
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The Trustee shall be under no liability with respect to moneys held
by it in the Interest, Reserve and Principal Accounts upon termination except to
hold the same in trust without interest until disposed of in accordance with the
terms of this Indenture.
In the event that all of the Certificateholders shall not surrender
their Certificates for cancellation within six months after the time specified
in the above-mentioned written notice, the Trustee shall give a second written
notice to the remaining Certificateholders to surrender their Certificates for
cancellation and receive the liquidation distribution with respect thereto. If
within one year after the second notice all the Certificates shall not have been
surrendered for cancellation, the Trustee may take steps to contact the
remaining Certificateholders concerning surrender of their Certificates and the
cost thereof shall be paid out of the moneys and other assets which remain in
trust hereunder.
Section 9.3 Construction: This Indenture is executed and delivered
in the State of New York, and all local laws or rules of construction of such
State shall govern the rights of the parties hereto and the Certificateholders
and the interpretation of the provisions hereof.
Section 9.4 Registration of Certificates: The Depositors agree and
undertake to register the Certificates with the Securities and Exchange
Commission or other applicable governmental agency pursuant to applicable
Federal or State statutes, if such registration shall be required, and to do all
things that may be necessary or required to comply with this provision during
the term of the Trust created hereunder, and the Trustee shall incur no
liability or be under any obligation or expense in connection therewith.
Section 9.5 Written Notice: Any notice, demand, direction or
instruction to be given to the Depositors hereunder shall be in writing and
shall be duly given if mailed or delivered to: Bear, Stearns & Co. Inc., 245
Park Avenue, New York, N.Y. 10167, and to Gruntal & Co., Incorporated, 14 Wall
Street, New York, N.Y. 10005 or at such other address as shall be specified by
the Depositors to the Trustee in writing. Any notice, demand, direction or
instruction to be given to the Trustee shall be in writing and shall be duly
given if mailed or delivered to the Trustee, 770 Broadway, New York, New York
10003, Attention: Corporate Trust and Agency Division or such other address as
shall be specified to the Depositors by the Trustee in writing. Any notice,
demand, direction or instruction to be given to the Evaluator hereunder shall be
in writing and shall be duly given if mailed to the Evaluator at 25 Broadway,
New York, New York 10004. Any notice to be given to the Certificateholders shall
be duly given if mailed or delivered to each
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Certificateholder at the address of such holder appearing on the registration
books of the Trustee.
Section 9.6 Severability: If any one or more of the covenants,
agreements, provisions or terms of this Indenture shall be held contrary to any
express provision of law or contrary to policy or express law, though not
expressly prohibited, or against public policy, or shall for any reason
whatsoever be held invalid, then such covenants, agreements, provisions or terms
shall be deemed severable from the remaining covenants, agreements, provisions
or terms of this Indenture and shall in no way affect the validity or
enforceability of the other provisions of this Indenture or of the Certificates
or the rights of the holders thereof.
Section 9.7 Dissolution of Depositors Not to Terminate: The
dissolution of one or all of the Depositors from or for any cause whatsoever
shall not operate to terminate this Indenture or the Trust.
Section 9.8 References: The words "herein", "hereby", "herewith",
"hereof", "hereinafter", "hereunder", "hereinabove", "hereafter", "heretofore"
and similar words or phrases of reference and association shall refer to this
Indenture in its entirety. Words importing singular number shall include the
plural number in each case and vice versa, and words importing persons shall
include corporations and associations, as well as natural persons.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed as of the date first above written.
[Signatures and acknowledgments on separate pages.]
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BEAR, STEARNS & CO. INC.
Depositor
______________________________
Managing Director
ATTEST:
_______________________________
Managing Director
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
I, ______________________________________ a Notary Public in and for
the said County in the State aforesaid, do hereby certify that
____________________________ personally known to me to be the same person whose
name is subscribed to the foregoing instrument and personally known to me to be
a Managing Director of Bear, Stearns & Co. Inc., a corporation, appeared before
me this day in person, and acknowledged that he signed and delivered the said
instrument as his free and voluntary act as such Managing Director and as the
free and voluntary act of said Bear, Stearns & Co. Inc., for the uses and
purposes therein set forth.
GIVEN under my hand and notarial seal this ___ day of ______________,
19__.
________________________________
Notary Public
(SEAL)
My Commission expires:
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GRUNTAL & CO., INCORPORATED
Depositor
______________________________
Senior Vice President
ATTEST:
______________________________
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
I, _____________________________ a Notary Public in and for the said
County in the State aforesaid, do hereby certify that ________________________
personally known to me to be the same person whose name is subscribed to the
foregoing instrument and personally known to me to be a Senior Vice President of
Gruntal & Co., Incorporated, a corporation, appeared before me this day in
person, and acknowledged that he signed and delivered the said instrument as his
free and voluntary act as a Senior Vice President and as a free and voluntary
act of said Gruntal & Co., Incorporated, for the uses and purposes therein set
forth.
GIVEN under my hand and notarial seal this ___ day of ______________,
19__.
______________________________
Notary Public
(SEAL)
My Commission expires:
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UNITED STATES TRUST COMPANY OF NEW YORK
Trustee
_________________________________________
Assistant Vice President
(SEAL)
ATTEST:
_________________________________________
Assistant Secretary
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On this day of , 19 , before me personally came __________________
to me known, who being by me duly sworn, said that he is an Assistant Vice
President of United States Trust Company of New York, one of the corporations
described in and which executed the foregoing instrument; that he knows the seal
of said corporation; that the seal affixed to the said instrument is such
corporate seal; that it was so affixed by authority of the Board of Directors of
said corporation; and that he signed his name thereto by like authority.
__________________________________
Notary Public
(SEAL)
My Commission expires:
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<PAGE>
STANDARD & POOR'S CORPORATION
Evaluator
_________________________________
Vice President
(SEAL)
ATTEST:
______________________________
Vice President
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On this day of __________________, 19 , before me personally
appeared _______________________, to me known, who, being by me duly sworn, said
that he is Vice President of Standard & Poor's Corporation, one of the
corporations described in and which (by facsimile) executed the foregoing
instrument; that he knows the seal of said corporation; that the seal affixed to
the said instrument is such corporate seal; that it was so affixed by authority
of the Board of Directors of said corporation, and that he signed his name (by
facsimile) thereto by like authority.
_____________________________
Notary Public
(SEAL)
My Commission expires:
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J.J. Kenny Frank A. Ciccotto, Jr.
65 Broadway Vice President
New York, NY 10006-2551 Tax-Exempt Evaluations
Tel 212 770 4422
Fax 212 797 8681
STANDARD & POOR'S
A Division of The McGraw Hill Companies
April 30, 1996
Reich & Tang Distributors L.P.
600 Fifth Avenue
New York, NY 10020
Gruntal & Co., Inc.
14 Wall Street
New York, NY 10005
Re: Mortgage Securities Trust
CMO Series 10 (Short-Intermediate Portfolio)
Gentlemen:
We have examined the post-effective Amendment to the Registration
Statement File No. 33-48009 for the above-captioned trust. We hereby acknowledge
that Kenny S&P Evaluation Services, a division of J.J. Kenny Co., Inc. is
currently acting as the evaluator for the trust. We hereby consent to the use in
the Amendment of the reference to Kenny S&P Evaluation Services, a division of
J.J. Kenny Co., Inc. as evaluator.
In addition, we hereby confirm that the ratings indicated in the
above-referenced Amendment to the Registration Statement for the respective
bonds comprising the trust portfolio are the ratings indicated in our KENNYBASE
database.
You are hereby authorized to file a copy of this letter with the
Securities and Exchange Commission.
Sincerely,
Frank A. Ciccotto
FAC/trh
<PAGE>
Managed Fund Ratings
25 Broadway
New York, NY 10004-1064
Tel 212 208 8000
Fax 212 208 8034
STANDARD & POOR'S
A division of The McGraw-Hill Companies
April 30, 1996
Reich & Tang Distributors L.P.
600 5th Avenue
New York, NY 10020
Gruntal Co., Incorporated
14 Wall Street
New York, NY 10005
Re: Mortgage Securities Trust, CMO Series 10 (Short-Intermediate Portfolio)
It is our understanding that you have filed with the Securities and
Exchange Commission a Post Effective Amendment to the above captioned fund, SEC
file number 33-48009.
Since the portfolio is composed solely of securities covered by bond
insurance policies that insure against default in the payment of principal and
interest on the securities for so long as they remain outstanding and such
policies have been issued by one or more insurance companies which have been
assigned "AAA" claims paying ability ratings by Standard & Poor's, we reaffirm
the assignment of a "AAA" rating to the units of the trust and a "AAA" rating to
the securities contained in the trust.
You have permission to use the name of Standard & Poor's Ratings
Services, a division of The McGraw-Hill Companies, Inc. and the above-assigned
ratings in connection with your dissemination of information relating to these
units, provided that it is understood that the ratings are not "market" ratings
nor recommendations to buy, hold or sell the units of the trust or the
securities in the trust. Further, it should be understood that the rating on the
units does not take into account the extent to which fund expenses or portfolio
asset sales for less than the fund's purchase price will reduce payment to the
unit holders of the interest and principal required to be paid on the portfolio
assets. Standard & Poor's reserves the right to advise its own clients,
subscribers, and the public of the ratings. Standard & Poor's relies on the
sponsor and its counsel, accountants and other experts for the accuracy and
completeness of the information submitted in connection with the ratings.
Standard & Poor's does not independently verify the truth or accuracy of any
such information.
The letter evidences our consent to the use of the name of Standard &
Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc. in
connection with the rating assigned to the units in the amendment referred to
above. However, this letter should not be construed as a consent by us, within
the meaning of Section 7 of the Securities Act of 1933, to the use of the name
of Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies,
Inc. in connection with the ratings assigned to the securities contained in the
trust. You are hereby authorized to file a copy of this letter with the
Securities and Exchange Commission.
We are pleased to have had the opportunity to be of service to you. If
we can be of further help, please do not hesitate to call upon us.
Sincerely,
Sanford B. Bragg
Managing Director
/lv
