Prospectus Part A Dated April 30, 1999
INSURED MUNICIPAL SECURITIES TRUST
NEW YORK NAVIGATOR INSURED
SERIES 13
- --------------------------------------------------------------------------------
The Trust is a unit investment trust designated Series 13 ("New York
Navigator Trust") with an underlying portfolio of long-term insured tax-exempt
bonds and was formed to preserve capital and to provide interest income which,
in the opinions of bond counsel to the respective issuers, is, with certain
exceptions, currently exempt from regular federal income tax under existing law
and from New York State and City personal income tax. There can be no assurance
that the Trust's investment objectives will be achieved. Although the Supreme
Court has determined that Congress has the authority to subject the interest on
bonds such as the Bonds in the Trust to federal income taxation, existing law
excludes such interest from regular federal income tax. Such interest income
may, however, be a specific preference item for purposes of the federal
individual and corporate alternative minimum tax. (See "Description of
Portfolio" in this Part A for a list of those Bonds, if any, which pay interest
income subject to the federal individual alternative minimum tax.) In addition,
capital gains are subject to tax. (See "Tax Status" and "The Trust--Portfolio"
in Part B of this Prospectus.) The Sponsors are Reich & Tang Distributors, Inc.
and Gruntal & Co., L.L.C. (sometimes referred to as the "Sponsor" or the
"Sponsors"). The value of the Units of the Trust will fluctuate with the value
of the underlying bonds. Minimum purchase: 1 Unit.
This Prospectus consists of two parts. Part A contains the Summary of
Essential Information as of December 31, 1998 (the "Evaluation Date"), a summary
of certain specific information regarding the Trust and audited financial
statements of the Trust, including the related portfolio, as of the Evaluation
Date. Part B of this Prospectus contains a general summary of the Trust. Part A
of this Prospectus may not be distributed unless accompanied by Part B.
Investors should retain both parts of this Prospectus for future reference. The
Securities and Exchange Commission ("SEC") maintains a website that contains
reports, proxy and information statements and other information regarding the
Trust which is filed electronically with the SEC. The SEC's Internet address is
http:www.sec.gov. Offering materials for the sale of these units available
through the Internet are not being offered directly or indirectly to residents
of a particular state nor is an offer of these units through the Internet
specifically directed to any person in a state by, or on behalf of, the issuer.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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THE TRUST. The Trust seeks to achieve its investment objectives
through investment in a fixed, diversified portfolio of long-term insured
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bonds (the "Bonds") issued by or on behalf of states, municipalities and public
authorities which, because of irrevocable insurance, were rated "AAA" by
Standard & Poor's Rating Services, a division of The McGraw-Hill Companies. All
of the Bonds in the Trust were rated "AAA" by Standard & Poor's Corporation at
the time originally deposited in the Trust (see "Portfolio"). This rating
results from insurance relating only to the Bonds in the Trust and not to Units
of the Trust. The insurance does not remove market risk, as it does not
guarantee the market value of the Units. For a discussion of the significance of
such ratings, see "Description of Bond Ratings" in Part B of this Prospectus.
Some of the aggregate principal amount of the Bonds in the Trust may
be "Zero Coupon Bonds," which are original issue discount bonds that provide for
payment at maturity at par value, but do not provide for the payment of current
interest (for the amount of Zero Coupon Bonds in each Trust, and the cost of
such Bonds to that Trust, see "Description of Portfolio" in this Part A). The
payment of interest and preservation of capital are, of course, dependent upon
the continuing ability of the issuers of the Bonds or the insurer thereof to
meet their obligations.
Investment in the Trust should be made with an understanding of the
risks which an investment in long-term fixed rate debt obligations may entail,
including the risk that the value of the underlying portfolio will decline with
increases in interest rates, and that the value of Zero Coupon Bonds is subject
to greater fluctuation than coupon bonds in response to such changes in interest
rates. A Trust designated as a long-term trust must have a dollar-weighted
average portfolio maturity of more than ten years. (See "Portfolio" in Part B of
this Prospectus.)
Each Unit in the Trust represents a 1/3308th undivided interest in the
principal and net income of the Trust. The principal amount of Bonds deposited
in the Trust per Unit is reflected in the Summary of Essential Information. (See
"Organization" in Part B of this Prospectus.) The Units being offered hereby are
issued and outstanding Units which have been purchased by the Sponsors in the
secondary market.
INSURANCE. Each of the Bonds in the New York Navigator Trust is
insured by a municipal bond guaranty insurance policy obtained by the Sponsors
(the "Navigator Sponsor-Insured Bonds") from MBIA Insurance Corporation ("MBIA
Corp.") covering regularly scheduled payments of principal thereof and interest
thereon when such amounts become due for payment but shall not have been paid.
For discussion of the effect of an occurrence of non-payment of principal or
interest on any Bonds in the New York Navigator Trust see "Portfolio
Supervision" in Part B of this Prospectus. The premiums for the Navigator
Sponsor-Insured Bonds are obligations of the Sponsors. Additionally, some of the
Bonds in the New York Navigator Trust may be Pre- Insured Bonds (as described
below). The premium for the Pre-Insured Bonds is an obligation of the issuers,
underwriters or prior owners of those Bonds. The insurance policy or policies
relating to the Navigator Sponsor-Insured Bonds provides that, to the extent
that Bonds are both Pre-Insured Bonds and Navigator Sponsor-Insured Bonds,
coverage is effective after a claim has been made upon the insurer of the
Pre-Insured Bonds.
Some of the Bonds in the New York Navigator Trust may additionally be
insured by a municipal bond guaranty insurance policy obtained by issuers,
underwriters or prior owners of the Bonds ("Pre-Insured Bonds") and issued by
one of the insurance companies described under "Insurance on the Bonds" in Part
B of this Prospectus (the "Insurance Companies").
None of the insurance will cover accelerated payments of principal or
penalty interest or premiums unrelated to taxability of interest on the
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Bonds. The insurance relates only to the prompt payment of principal of and
interest on the securities in the portfolios, and does not remove market risks
nor does it guarantee the market value of Units in the Trusts. The terms of the
insurance are more fully described herein. No representation is made herein as
to any Bond insurer's ability to meet its obligations under a policy of
insurance relating to any of the Pre-Insured Bonds. In addition, investors
should be aware that subsequent to the Date of Deposit the rating of the
claims-paying ability of the insurer of an underlying Pre-Insured Bond may be
downgraded.
All of the Bonds in the New York Navigator Trust are covered by
insurance obtained by the Sponsors from MBIA Corp. and 18.2% of the Bonds in the
New York Navigator Trust are Pre-Insured Bonds. The approximate percentage of
the aggregate principal amount of the Portfolio that is insured by each
Insurance Company with respect to Pre-Insured Bonds is as follows: Financial
Security Assurance Inc. ("Financial Security"), 16.3%; and Municipal Bond
Insurance Association ("MBIA"), 1.9%.
PUBLIC OFFERING PRICE. The secondary market Public Offering Price of
each Unit is equal to the aggregate offering price of the Bonds in such Trust
divided by the number of Units outstanding, plus a sales charge of 3.8% of the
Public Offering Price, or 3.950% of the net amount invested in Bonds per Unit.
In addition, accrued interest to the expected date of settlement is added to the
Public Offering Price. If Units had been purchased on the Evaluation Date, the
Public Offering Price per Unit would have been $1046.56 plus accrued interest of
$8.15 under the monthly distribution plan, $12.96 under the semi-annual
distribution plan and $13.14 under the annual distribution plan, for a total of
$1,054.71, $1,059.52 and $1,059.70, respectively. The Public Offering Price per
Unit can vary on a daily basis in accordance with fluctuations in the aggregate
bid price of the Bonds. (See "Public Offering--Offering Price" in Part B of this
Prospectus.)
ESTIMATED LONG TERM RETURN AND ESTIMATED CURRENT RETURN. Units of each
Trust are offered to investors on a "dollar price" basis (using the computation
method described under "Public Offering--Offering Price" in Part B) as
distinguished from a "yield price" basis often used in offerings of tax exempt
bonds (involving the lesser of the yield as computed to maturity of bonds or to
an earlier redemption date). Since they are offered on a dollar price basis, the
rate of return on an investment in Units of each Trust is measured in terms of
"Estimated Current Return" and "Estimated Long Term Return".
Estimated Long Term Return is calculated by: (1) computing the yield
to maturity or to an earlier call date (whichever results in a lower yield) for
each Bond in the Trust's portfolio in accordance with accepted bond practices,
which practices take into account not only the interest payable on the Bond but
also the amortization of premiums or accretion of discounts, if any; (2)
calculating the average of the yields for the Bonds in the Trust's portfolio by
weighing each Bond's yield by the market value of the Bond and by the amount of
time remaining to the date to which the Bond is priced (thus creating an average
yield for the portfolio of the Trust); and (3) reducing the average yield for
the portfolio of the Trust in order to reflect estimated fees and expenses of
the Trust and the maximum sales charge paid by investors. The resulting
Estimated Long Term Return represents a measure of the return to investors
earned over the estimated life of the Trust. (For the Estimated Long Term Return
to Certificateholders under the monthly, semi-annual and annual distribution
plans, see "Summary of Essential Information".)
Estimated Current Return is a measure of the Trust's cash flow.
Estimated Current Return is computed by dividing the Estimated Net Annual
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Interest Income per Unit by the Public Offering Price per Unit. In contrast to
the Estimated Long Term Return, the Estimated Current Return does not take into
account the amortization of premium or accretion of discount, if any, on the
Bonds in the portfolio of the Trust. Moreover, because interest rates on Bonds
purchased at a premium are generally higher than current interest rates on newly
issued bonds of a similar type with comparable rating, the Estimated Current
Return per Unit may be affected adversely if such Bonds are redeemed prior to
their maturity.
The Estimated Net Annual Interest Income per Unit of the Trust will
vary with changes in the fees and expenses of the Trustee and the Evaluator
applicable to the Trust and with the redemption, maturity, sale or other
disposition of the Bonds in the Trust. The Public Offering Price will vary with
changes in the bid prices of the Bonds. Therefore, there is no assurance that
the present Estimated Current Return or Estimated Long Term Return will be
realized in the future. (For the Estimated Current Return to Certificateholders
under the monthly, semi-annual and annual distribution plans, see "Summary of
Essential Information". See "Estimated Long Term Return and Estimated Current
Return" in Part B of this Prospectus.)
A schedule of cash flow projections is available from the Sponsors
upon request.
DISTRIBUTIONS. Distributions of interest income, less expenses, will
be made by the Trust either monthly, semi-annually or annually depending upon
the plan chosen by the Certificateholder. Certificateholders purchasing Units in
the secondary market will initially receive distributions in accordance with the
elections of the prior owner and may thereafter change the plan as provided
under "Interest and Principal Distributions" in Part B of this Prospectus.
Distributions of principal, if any, will be made semi-annually on June 15 and
December 15 of each year. (See "Rights of Certificateholders--Interest and
Principal Distributions" in Part B of this Prospectus. For estimated monthly,
semi-annual and annual interest distributions, see "Summary of Essential
Information.")
MARKET FOR UNITS. The Sponsors, although not obligated to do so,
intend to maintain a secondary market for the Units at a price based on the
aggregate bid price of the Bonds in the Trust portfolio. The reoffer price will
be based on the aggregate bid price of the Bonds plus a sales charge of 3.8% of
the Public Offering Price (3.950% of the net amount invested), plus net accrued
interest. If a market is not maintained a Certificateholder will be able to
redeem his or her Units with the Trustee at a price based on the aggregate bid
price of the Bonds. (See "Sponsor Repurchase" and "Public Offering--Offering
Price" in Part B of this Prospectus.)
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176548.1
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INSURED MUNICIPAL SECURITIES TRUST
NEW YORK NAVIGATOR INSURED
SERIES 13
SUMMARY OF ESSENTIAL INFORMATION AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
<S> <C> <C>
Date of Deposit*: January 21, 1993 Weighted Average Life to
Principal Amount of Bonds ... $3,110,000 Maturity: 8.8 Years.
Number of Units ............. 3,308 Minimum Value of Trust:
Fractional Undivided Inter- Trust may be terminated if
est in Trust per Unit ..... 1/3308 value of Trust is less than
Principal Amount of $1,600,000 in principal
Bonds per Unit ............ $940.15 amount of Bonds.
Secondary Market Public Mandatory Termination Date:
Offering Price** The earlier of December 31,
Aggregate Bid Price 2041 or the disposition of
of Bonds in Trust ....... $3,333,945+++ the last Bond in the Trust.
Divided by 3,308 Units .... $1,007.84 Trustee***: The Chase
Plus Sales Charge of 3.8% Manhattan Bank.
of Public Offering Price $38.72 Trustee's Annual Fee: Monthly
Public Offering Price plan $1.14 per $1,000; semi-
per Unit ................ $1,046.56+ annual plan $.67 per $1,000;
Redemption and Sponsors' and annual plan is $.40 per
Repurchase Price $1,000.
per Unit .................. $1,007.84+ Evaluator: Kenny S&P
+++ Evaluation Services.
++++ Evaluator's Fee for Each
Excess of Secondary Market Evaluation: Minimum of $8
Public Offering Price plus $.25 per each issue of
over Redemption and Bonds in excess of 50 issues
Sponsors' Repurchase (treating separate maturities
Price per Unit ............ $38.72++++ as separate issues).
Difference between Public Sponsors: Reich & Tang
Offering Price per Unit Distributors, Inc. and
and Principal Amount per Gruntal & Co., L.L.C.
Unit Premium/(Discount) ... $124.55 Sponsors' Annual Fee: Maximum
Evaluation Time: 4:00 p.m. of $.25 per $1,000 principal
New York Time. amount of Bonds (see "Trust
Minimum Principal Distribution: Expenses and Charges" in
$1.00 per Unit. Part B of this Prospectus).
</TABLE>
<TABLE>
<CAPTION>
PER UNIT INFORMATION BASED UPON INTEREST DISTRIBUTION PLAN ELECTED
<S> <C> <C> <C>
Monthly Semi-Annual Annual
Option Option Option
------ ------ ------
Gross annual interest income# ......... $58.40 $58.40 $58.40
Less estimated annual fees and
expenses ............................ 2.31 1.83 --
Estimated net annual interest ------ ------ ------
income (cash)# ...................... $56.09 $56.57 $58.40
Estimated interest distribution# ...... 4.67 28.29 58.40
Estimated daily interest accrual# ..... .1558 .1571 .1622
Estimated current return#++ ........... 5.36% 5.40% 5.58%
Estimated long term return++ .......... 2.49% 2.54% 2.51%
Record dates .......................... 1st of Dec. 1 and Dec. 1
each month June 1
Interest distribution dates ........... 15th of Dec. 15 and Dec. 15
each month June 15
</TABLE>
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Footnotes to Summary of Essential Information
* The Date of Deposit is the date on which the Trust Agreement was
signed and the deposit of the Bonds with the Trustee made.
** Certain amounts distributable as of December 31, 1998, may be reported
in the Summary of Essential Information as if they had been
distributed at year-end.
*** The Trustee maintains its principal executive office at 270 Park
Avenue, New York, New York 10017 and its unit investment trust office
at 4 New York Plaza, New York, New York 10004 (tel. no.:
1-800-882-9898). For information regarding redemption by the Trustee,
see "Trustee Redemption" in Part B of this Prospectus.
+ Plus accrued interest to the expected date of settlement
(approximately three business days after purchase) of $8.15 monthly,
$12.96 semi-annually and $13.14 annually.
++ The estimated current return and estimated long term return are
increased for transactions entitled to a discount (see "Employee
Discounts" in Part B of this Prospectus), and are higher under the
semi-annual and annual options due to lower Trustee's fees and
expenses.
+++ Based solely upon the bid side evaluation of the underlying Bonds
(including, where applicable, undistributed cash from the principal
account). Upon tender for redemption, the price to be paid will be
calculated as described under "Trustee Redemption" in Part B of this
Prospectus.
++++ See "Comparison of Public Offering Price, Sponsor's Repurchase Price
and Redemption Price" in Part B of this Prospectus.
# Does not include income accrual from original issue discount bonds, if
any.
FINANCIAL AND STATISTICAL INFORMATION
Selected data for each Unit outstanding for the periods listed below:
<TABLE>
<CAPTION>
Distribu-
Distributions of Interest tions of
During the Period (per Unit) Principal
--------------------------- During
Net Asset* Semi- the
Units Out- Value Monthly Annual Annual Period
Period Ended standing Per Unit Option Option Option (Per Unit)
- ------------ ---------- ---------- ------- ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1996 3,624 $1,028.69 $58.92 $59.50 -0- -0-
December 31, 1997 3,449 1,037.80 57.74 58.19 -0- $14.84
December 31, 1998 3,308 1,038.49 57.10 57.63 -0- 1.53
</TABLE>
- ---------------
* Net Asset Value per Unit is calculated by dividing net assets as
disclosed in the "Statement of Net Assets" by the number of Units
outstanding as of the date of the Statement of Net Assets. See Note 5
of Notes to Financial Statements for a description of the components
of Net Assets.
A-6
176548.1
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INFORMATION REGARDING THE TRUST
AS OF DECEMBER 31, 1998
DESCRIPTION OF PORTFOLIO*
The portfolio of the Trust consists of 8 issues representing
obligations of 5 issuers located in the state of New York and one in Puerto
Rico. The Sponsors have not participated as a sole underwriter or manager,
co-manager or member of underwriting syndicates from which any of the initial
aggregate principal amount of the Bonds were acquired. None of the Bonds are
obligations of state and local housing authorities; none are hospital revenue
bonds; none were issued in connection with the financing of nuclear generating
facilities; and none are "mortgage subsidy" bonds. All of the Bonds in the Trust
are subject to redemption prior to their stated maturity dates pursuant to
sinking fund or optional call provisions. The Bonds may also be subject to other
calls, which may be permitted or required by events which cannot be predicted
(such as destruction, condemnation, termination of a contract, or receipt of
excess or unanticipated revenues). Four of the issues representing $1,810,000 of
the principal amount of the Bonds are general obligation bonds. All four of the
remaining issues representing $1,300,000 of the principal amount of the Bonds
are payable from the income of a specific project or authority and are not
supported by the issuer's power to levy taxes. The portfolio is divided for
purpose of issue as follows: Assistance Corporation 1, Transit Facility 2 and
Water 1. For an explanation of the significance of these factors see "The
Trust--Portfolio" in Part B of this Prospectus.
As of December 31, 1998, $1,195,000 (approximately 38.4% of the
aggregate principal amount of the Bonds) were original issue discount bonds. Of
these original issue discount bonds, none were Zero Coupon Bonds. Zero Coupon
Bonds do not provide for the payment of any current interest and provide for
payment at maturity at par value unless sooner sold or redeemed. The market
value of Zero Coupon Bonds is subject to greater fluctuations than coupon bonds
in response to changes in interest rates. None of the aggregate principal amount
of the Bonds in the Trust were purchased at a "market" discount from par value
at maturity, approximately 61.6% were purchased at a premium and none were
purchased at par. For an explanation of the significance of these factors see
"Discount and Zero Coupon Bonds" in Part B of this Prospectus.
None of the Bonds in the Trust are subject to the federal individual
alternative minimum tax under the Tax Reform Act of 1986. See "Tax Status" in
Part B of this Prospectus.
- -------------
* Changes in the Trust Portfolio: From January 1, 1999 to March 19, 1999,
$110,000 of the principal amount of the Bond in portfolio no. 5 was sold
and is no longer contained in the Trust. $60,000 of the principal amount
of the Bond in portfolio no. 3 was called and is no longer contained in the
Trust. 111 Units were redeemed from the Trust.
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176548.1
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Report of Independent Accountants
To the Sponsor, Trustee and Certificateholders of
Insured Municipal Securities Trust, New York Navigator
Insured Series 13
In our opinion, the accompanying statement of net assets, including the
portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Insured Municipal Securities Trust,
New York Navigator Insured Series 13 (the "Trust") at December 31, 1998, the
results of its operations, the changes in its net assets and the financial
highlights for the three years then ended, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Trust's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1998 by correspondence with the
Trustee, provide a reasonable basis for the opinion expressed above.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, MA
March 19, 1999
<PAGE>
<TABLE>
<CAPTION>
Insured Municipal Securities Trust,
New York Navigator Insured Series 13
Portfolio
December 31, 1998
- -------------------------------------------------------------------------------------------------------------
Aggregate Coupon Rate/
Portfolio Principal Name of Issuer and Ratings Date(s) of
No. Amount Title of Bonds (1) Maturity (2)
--- ------ -------------- --- ------------
<S> <C> <C> <C> <C>
1 $ 450,000 N.Y. State Genl. Oblig. Serial Bonds AAA 6.800%
(MBIA Corp.) 3/01/2011
2 500,000 N.Y. State Local Gov. Assis. Corp. (A Pub. AAA 6.250
Benefit Corp. of the State of N.Y.) Rev. Bonds 4/01/2018
Series 1992C (MBIA Corp.)
3 60,000 Metro. Trans. Auth. of N.Y. Transit Facs. Rev. AAA 5.500
Bonds Series G (MBIA Corp.) 7/01/2016
4 235,000 Metro. Trans. Auth. of N.Y. Transit Facs. 1987 AAA 6.000
Serv. Cntrct. Rev. Bonds Series 6 (MBIA Corp.) 7/01/2021
5 465,000 N.Y. City Genl. Oblig. Rev. Bonds Fiscal 1993 AAA 6.750
Series B (MBIA Corp.) 10/01/2015
6 505,000 N.Y. City Muni. Wtr. Finc. Auth. Wtr. & Swr. Sys. AAA 6.000
Rev. Bonds Fiscal 1993 Series A (MBIA Corp.) 6/15/2017
7 500,000 Suffolk Cnty. N.Y. Pub. Imprvmnt. Gen. Oblig. AAA 6.375
Rev. Serial Bonds Series 1992B (MBIA Corp.) 11/01/2014
8 395,000 Cmmnwlth. of P.R. Pub. Imprvmnt. Genl. Oblig. AAA 6.000
Rev. Rfndg. Bonds Series 1992A (MBIA Corp.) 7/01/2014
------------
$ 3,110,000 Total Investments (Cost $3,160,392)
============
</TABLE>
Redemption
Feature (2)(4)
Portfolio S.F.-Sinking Fund Market
No. Ref.-Refunding Value (3)
--- -------------- ---------
1 No Sinking Fund $495,491
3/01/02 @ 102 Ref.
2 4/01/13 @ 100 S.F. 548,035
4/01/02 @ 102 Ref.
3 No Sinking Fund 60,000
1/01/99 @ 100 Ref.
4 7/01/16 @ 100 S.F. 248,543
7/01/01 @ 100 Ref.
5 No Sinking Fund 520,082
10/01/02 @ 101.5 Ref.
6 6/15/12 @ 100 S.F. 539,830
6/15/02 @ 101.5 Ref.
7 No Sinking Fund 556,430
11/01/02 @ 102 Ref.
8 7/01/11 @ 100 S.F. 425,521
7/01/02 @ 101.5 Ref.
----------
$3,393.932
==========
See accompanying footnotes to portfolio and notes to financial statements.
<PAGE>
Insured Municipal Securities Trust,
New York Navigator Insured Series 13
Footnotes to Portfolio
- --------------------------------------------------------------------------------
1. All ratings are by Kenny S&P Evaluation Services, a business unit of
J.J. Kenny Company, Inc., a subsidiary of The McGraw-Hill Companies,
Inc. A brief description of the ratings symbols and their meaning is set
forth under "Description of Bond Ratings" in Part B of the Prospectus.
2. See "The Trust - Portfolio" in Part B of the Prospectus for an
explanation of redemption features. See "Tax Status" in Part B of the
Prospectus for a statement of the Federal tax consequences to a
Certificateholder upon the sale, redemption or maturity of a bond.
3. At December 31, 1998, the net unrealized appreciation of all the bonds
was comprised of the following:
Gross unrealized appreciation $ 233,540
-
Gross unrealized depreciation ---------------
Net unrealized appreciation $ 233,540
---------------
4. The Bonds may also be subject to other calls, which may be permitted or
required by events which cannot be predicted (such as destruction,
condemnation, termination of a contract, or receipt of excess or
unanticipated revenues).
The accompanying notes form an integral part of the financial statements.
<PAGE>
Insured Municipal Securities Trust,
New York Navigator Insured Series 13
Statement of Net Assets
December 31, 1998
- --------------------------------------------------------------------------------
Investments in Securities,
at Market Value (Cost $3,160,392) $ 3,393,932
--------------
Other Assets
Accrued Interest 53,069
--------------
Total Other Assets 53,069
Liabilities
Advance from Trustee 11,679
--------------
Total Liabilities 11,679
--------------
Excess of Other Assets over Total Liabilities 41,390
--------------
Net Assets (3,308 Units of Fractional Undivided
Interest Outstanding, $1,038.49 per Unit) $ 3,435,322
==============
The accompanying notes form an integral part of the financial statements.
<PAGE>
Insured Municipal Securities Trust,
New York Navigator Insured Series 13
Statement of Operations
- --------------------------------------------------------------------------------
For the Years Ended December 31,
1998 1997 1996
---- ---- ----
Investment Income
Interest $ 198,689 $ 213,734 $ 236,044
--------- --------- ---------
Expenses
Trustee's Fees 5,091 5,341 5,552
Evaluator's Fee 2,436 2,020 2,667
Sponsor's Advisory Fee 811 906 988
--------- --------- ---------
Total Expenses 8,338 8,267 9,207
--------- --------- ---------
Net Investment Income 190,351 205,467 226,837
Realized and Unrealized Gain (Loss)
Realized Gain (Loss)
on Investments 7,805 (4,159) 8,782
Unrealized Appreciation
(Depreciation) on Investments 1,011 85,898 (65,114)
-------- ---------- ----------
Net Gain (Loss) on Investments 8,816 81,739 (56,332)
-------- ---------- ----------
Net Increase in Net Assets
Resulting From Operations $ 199,167 $ 287,206 $ 170,505
========= ========== =========
The accompanying notes form an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
Insured Municipal Securities Trust,
New York Navigator Insured Series 13
Statement of Changes in Net Assets
- ----------------------------------------------------------------------------------------------------------------
For the Years Ended December 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Operations
Net Investment Income $ 190,351 $ 205,467 $ 226,837
Realized Gain (Loss)
on Investments 7,805 (4,159) 8,782
Unrealized Appreciation
(Depreciation) on Investments 1,011 85,898 (65,114)
----------- ----------- -----------
Net Increase in
Net Assets Resulting
From Operations 199,167 287,206 170,505
----------- ----------- -----------
Distributions to Certificateholders
Investment Income 191,575 214,659 226,389
Principal 5,061 40,799 ----
Redemptions
Interest 1,594 2,889 5,281
Principal 144,993 177,470 352,314
----------- ----------- -----------
Total Distributions
and Redemptions 343,223 435,817 583,984
----------- ----------- -----------
Total (Decrease) (144,056) (148,611) (413,479)
Net Assets
Beginning of Year 3,579,378 3,727,989 4,141,468
----------- ----------- -----------
End of Year (Including
Undistributed Net Investment
Income of $41,370, $44,188,
and $56,269, Respectively) $ 3,435,322 $ 3,579,378 $ 3,727,989
============ ============ ============
The accompanying notes form an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Insured Municipal Securities Trust,
New York Navigator Insured Series 13
Financial Highlights
- --------------------------------------------------------------------------------------------------------------------
Selected data for a unit of the Trust outstanding: *
For the years ended December 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net Asset Value, Beginning of Year** $ 1,037.80 $ 1,028.69 $ 1,042.40
---------- ---------- ----------
Interest Income 58.80 60.43 62.13
Expenses (2.47) (2.34) (2.42)
---------- ---------- ----------
Net Investment Income 56.33 58.09 59.71
---------- ---------- ----------
Net Gain or Loss on Investments(1) 3.03 24.06 (12.44)
---------- ---------- ----------
Total from Investment Operations 59.36 82.15 47.27
---------- ---------- ----------
Less Distributions
to Certificateholders
Income 56.70 60.69 59.59
Principal 1.50 11.53 ----
for Redemptions
Interest .47 .82 1.39
---------- ---------- ----------
Total Distributions 58.67 73.04 60.98
---------- ---------- ----------
Net Asset Value, End of Year** $ 1,038.49 $ 1,037.80 $ 1,028.69
========== ========== ==========
</TABLE>
(1) Net gain or loss on investments is a result of changes in outstanding units
since January 1, 1998, 1997 and 1996, respectively, and the dates of net
gain and loss on investments.
- --------
* Unless otherwise stated, based upon average units outstanding during
the year of 3,379 ([3,308 + 3,449]/2) for 1998, 3,537 ([3,449 +
3,624]/2) for 1997 and of 3,799 ([3,624 + 3,973]/2) for 1996.
** Based upon actual units outstanding
The accompanying notes form an integral part of the financial statements.
<PAGE>
Insured Municipal Securities Trust,
New York Navigator Insured Series 13
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. Organization
Insured Municipal Securities Trust, New York Navigator Insured Series
13 (the "Trust") was organized on January 21, 1993 by Bear, Stearns &
Co. Inc. and Gruntal & Co., Incorporated under the laws of the State
of New York by a Trust Indenture and Agreement, and is registered
under the Investment Company Act of 1940. The Trust was formed to
preserve capital and to provide interest income.
Effective September 28, 1995, Reich & Tang Distributors, Inc. ("Reich
& Tang") has become the successor sponsor (the "Sponsor") to certain
of the unit investment trusts previously sponsored by Bear, Stearns &
Co. Inc. As successor Sponsor, Reich & Tang has assumed all of the
obligations and rights of Bear, Stearns & Co. Inc., the previous
sponsor.
2. Summary of Significant Accounting Policies
The following is a summary of significant accounting policies
consistently followed by the Trust in preparation of its financial
statements. The policies are in conformity with generally accepted
accounting principles ("GAAP"). The preparation of financial
statements in accordance with GAAP requires management to make
estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual amounts could differ
from those estimates.
Interest Income
Interest income is recorded on the accrual basis. The discount on the
zero-coupon bonds is accreted by the interest method over the
respective lives of the bonds. The accretion of such discount is
included in interest income; however, it is not distributed until
realized in cash upon maturity or sale of the respective bonds.
Security Valuation
Investments are carried at market value which is determined by Kenny
S&P Evaluation Services, a business unit of J.J. Kenny Company, Inc.,
a subsidiary of The McGraw-Hill Companies, Inc. The market value of
the portfolio is based upon the bid prices for the bonds at the end
of the year, which approximates the fair value of the security at
that date, except that the market value on the date of deposit
represents the cost to the Trust based on the offering prices for
investments at that date. The difference between cost (including
accumulated accretion of original issue discount on zero-coupon
bonds) and market value is reflected as unrealized appreciation
(depreciation) of investments. Securities transactions are recorded
on the trade date. Realized gains (losses) from securities
transactions are determined on the basis of average cost of the
securities sold or redeemed.
<PAGE>
Insured Municipal Securities Trust,
New York Navigator Insured Series 13
Notes to Financial Statements
- --------------------------------------------------------------------------------
3. Income Taxes
No provision for federal income taxes has been made in the
accompanying financial statements because the Trust intends to
continue to qualify for the tax treatment applicable to Grantor
Trusts under the Internal Revenue Code. Under existing law, if the
Trust so qualifies, it will not be subject to federal income tax on
net income and capital gains that are distributed to unitholders.
4. Trust Administration
The Chase Manhattan Bank (the "Trustee") has custody of assets and
responsibility for the accounting records and financial statements of
the Trust and is responsible for establishing and maintaining a
system of internal control related thereto. The Trustee is also
responsible for all estimates of expenses and accruals reflected in
the Trust's financial statements.
The Trust Indenture and Agreement provides for interest distributions
as often as monthly (depending upon the distribution plan elected by
the Certificateholders).
The Trust Indenture and Agreement further requires that principal
received from the disposition of bonds, other than those bonds sold
in connection with the redemption of units, be distributed to
Certificateholders.
The Trust Indenture and Agreement also requires the Trust to redeem
units tendered. For the years ended December 31, 1998, 1997 and 1996,
141, 175 and 349 units were redeemed, respectively.
The Trust pays an annual fee for trustee services rendered by the
Trustee that ranges from $.40 to $1.14 per $1,000 of outstanding
investment principal. In addition, a minimum fee of $8.00 is paid to
a service bureau for each portfolio valuation. A maximum fee of $.25
per $1,000 of outstanding investment principal is paid to the
Sponsor. For the years ended December 31, 1998, 1997 and 1996, the
"Trustee's Fees" are comprised of Trustee fees of $3,149, $3,273 and
$3,608 and other expenses of $1,942, $2,068 and $1,944, respectively.
The other expenses include professional, printing and miscellaneous
fees.
<PAGE>
Insured Municipal Securities Trust,
New York Navigator Insured Series 13
Notes to Financial Statements
- --------------------------------------------------------------------------------
5. Net Assets
At December 31, 1998 the net assets of the Trust represented the
interest of Certificateholders as follows:
Original cost to Certificateholders $ 4,098,076
Less Initial Gross Underwriting Commission 200,806
---------------
3,897,270
Accumulated Cost of Securities Sold,
Matured or Called (736,878)
Net Unrealized Appreciation 233,540
Undistributed Net Investment Income 41,370
Undistributed Proceeds From Investments 20
---------------
Total $ 3,435,322
===============
The original cost to Certificateholders, less the initial gross
underwriting commission, represents the aggregate initial public
offering price net of the applicable sales charge on 4,000 units of
fractional undivided interest of the Trust as of the date of deposit.
6. Concentration of Credit Risk
Since the Trust invests a portion of its assets in municipal bonds,
it may be affected by economic and political developments in the
municipalities. Certain debt obligations held by the Trust may be
entitled to the benefit of insurance, standby letters of credit or
other guarantees of banks or other financial institutions.
<PAGE>
This module replaces an
earlier one
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.
INSURED MUNICIPAL SECURITIES TRUST
Prospectus Part B
Dated: April 30, 1999
THE TRUST
Organization. "Insured Municipal Securities Trust" (the "Trust")
consists of the "unit investment trust" 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 Agreement** (collectively, the "Trust Agreement"), dated the Date
of Deposit, among Reich & Tang Distributors, Inc. or, depending on the
particular Trust, among Reich & Tang Distributors, Inc. and Gruntal & Co.,
L.L.C., as Co-Sponsors (the Sponsor or Co-Sponsors, if applicable, are referred
to herein as the "Sponsor"), Kenny S&P Evaluation Services, a business unit of
J.J. Kenny Company, Inc., a subsidiary of The McGraw-Hill Companies, as
Evaluator and The Chase Manhattan Bank, as Trustee. The name of the Sponsor for
a particular Trust is contained in the "Summary of Additional Information" in
Part A.
On the Date of Deposit, the Sponsor deposited with the Trustee
long-term insured bonds, and/or delivery statements relating to contracts for
the purchase of certain such bonds (the "Bonds") and cash or an irrevocable
letter of credit issued by a major commercial bank in the amount required for
such purchases. Thereafter, the Trustee, in exchange for the Bonds so deposited,
delivered to the Sponsor the Certificates evidencing the ownership of all Units
of the Trust. The Trust consists of the Bonds described under "The Trust" in
Part A, the interest (including, where applicable, earned original issue
discount) on which, in the opinions of bond counsel to the respective issuers
given at the time of original delivery of the Bonds, is exempt from regular
federal income tax under existing law.
Each "Unit" outstanding on the Evaluation Date represented an undivided
interest or pro rata share in the principal and interest of the -------- * This
Part B relates to the outstanding series of Insured Municipal Securities Trust,
Insured Municipal Securities Discount Trust, Insured Municipal Securities New
York Navigator Insured Trust and/or Insured Municipal Securities New Jersey
Navigator Insured Trust 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.
112677.9
<PAGE>
Trust in the ratio of one Unit to the principal amount of Bonds in the Trust on
such date as specified in Part A of this Prospectus. 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, or until the termination of the Trust Agreement.
Objectives. The Trust, one of a series of similar but separate unit
investment trusts formed by the Sponsor, offers investors the opportunity to
participate in a portfolio of long-term insured tax-exempt bonds with a greater
diversification than they might be able to acquire themselves. The objectives of
the Trust are to preserve capital and to provide interest income (including,
where applicable, earned original issue discount) which, in the opinions of bond
counsel given at the time of original delivery of the Bonds, is exempt from
regular Federal income tax under existing law and exempt from state and local
income tax to the extent indicated herein when received by persons subject to
state and local taxation in a state in which the issuers of the Bonds are
located. Such interest income may, however, be subject to the corporate
alternative minimum taxes and to state and local taxes. (See "Description of
Portfolio" in Part A for a list of those Bonds which pay interest income subject
to federal individual alternative minimum tax. See also "Tax Status".)
Consistent with such objectives, the Sponsor has obtained bond insurance
guaranteeing the scheduled payment of principal and interest on certain of the
Bonds and have purchased, as to the remainder of each Trust Portfolio, Bonds
which are already covered by insurance. (See "Insurance on the Bonds".) An
investor will realize taxable income upon maturity or early redemption of the
market discount bonds in a Trust portfolio and will realize, where applicable,
tax-exempt income to the extent of the earned portion of interest, including
original issue discount earned on the Bonds in a Trust portfolio. Investors
should be aware that there is no assurance the Trust's objectives will be
achieved as these objectives are dependent on the continuing ability of the
issuers of the Bonds to meet their interest and principal payment requirements,
on the abilities of the Insurance Companies to meet their obligations under the
policies of insurance issued on the Bonds, on the continuing satisfaction of the
conditions required for the exemption of interest thereon from regular federal
income tax and on the market value of the Bonds, which can be affected by
fluctuations in interest rates and other factors.
Since disposition of Units prior to final liquidation of each 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.
Portfolio. All of the Bonds in the Trust were rated "AAA" by Standard &
Poor's Ratings Services, a division of The McGraw-Hill Companies ("Standard &
Poor's") at the time originally deposited in the Trust. (See "Insurance on the
Bonds.") The "AAA" rating was assigned to the Bonds by Standard & Poor's because
each Bond was insured by a municipal bond guaranty insurance policy issued by a
company whose claims-paying ability was rated "AAA" by Standard & Poor's at that
time. In the event of a downgrading of the claims-paying ability of one of the
insurers, as of the Evaluation Date, the Bonds in the Trust which are insured by
that company would no longer be rated
112677.9
-2-
<PAGE>
"AAA" by Standard & Poor's. The Units of Trusts containing the downgraded
bonds are no longer rated "AAA."
For information regarding (i) the number of issues in the Trust, (ii)
the range of fixed maturities of the Bonds, (iii) the number of issues payable
from the income of a specific project or authority and (iv) the number of issues
constituting general obligations of a government entity, see "Information
Regarding the Trust" and "Portfolio" in Part A of this Prospectus.
When selecting Bonds for a Trust, the following factors, among others,
were considered by the Sponsor: (i) the quality of the Bonds and whether such
Bonds, whether Sponsor-Insured or Pre-Insured, were rated "AAA" by Standard &
Poor's, (ii) the yield and price of the Bonds relative to other tax-exempt
securities of comparable quality and maturity, (iii) income to the
Certificateholders of the Trust, (iv) whether a bond was insured, or insurance
was available for the Bonds at a reasonable cost, (v) in connection with Bonds
for which bond insurance was obtained by the Sponsor, the quality of the Bonds
and whether they were rated, without regard to such bond insurance, "A" or
better by either Standard & Poor's or Moody's Investors Service, Inc.
("Moody's"), and (vi) the diversification of the Trust portfolio, as to purpose
of issue and location of issuer, taking into account the availability in the
market of issues which meet the Trust's quality, rating, yield and price
criteria. Subsequent to the Date of Deposit, a Bond may cease to be rated or its
rating may be reduced below that specified above. Neither event requires an
elimination of such Bond from a Trust but may be considered in the Sponsor's
determination to direct the Trustee to dispose of the Bond. (See "Portfolio
Supervision".) For an interpretation of the bond ratings see "Description of
Bond Ratings".
Housing Bonds. Some of the aggregate principal amount of the Bonds may
consist of obligations of state and local housing authorities whose revenues are
primarily derived from mortgage loans to rental housing projects for low to
moderate income families. Since such obligations are usually not general
obligations of a particular state or municipality and are generally payable
primarily or solely from rents and other fees, adverse economic developments
including failure or inability to increase rentals, fluctuations of interest
rates, and increasing construction and operating costs may reduce revenues
available to pay existing obligations. See "Description of Portfolio" in Part A
for the amount of rental housing bonds contained therein.
Hospital Revenue Bonds. Some of the aggregate principal amount of the
Bonds may consist of hospital revenue bonds. Ratings of hospital bonds are often
initially based on feasibility studies which contain projections of occupancy
levels, revenues and expenses. Actual experience may vary considerably from such
projections. A hospital's gross receipts and net income will be affected by
future events and conditions including, among other things, demand for hospital
services and the ability of the hospital to provide them, physicians' confidence
in hospital management capability, economic developments in the service area,
competition, actions by insurers and governmental agencies and the increased
cost and possible unavailability of malpractice insurance. Additionally, a major
portion of hospital revenue typically is derived from third-party payors and
government programs such as Medicare and Medicaid. Both private third-party
payors and government programs have undertaken cost containment measures
designed to limit payments. Furthermore, government programs are subject to
statutory and regulatory changes, retroactive rate adjustments, administrative
rulings and government
-3-
<PAGE>
funding restrictions, all of which may materially decrease the rate of program
payments for health care facilities. There can be no assurance that payments
under governmental programs will remain at levels comparable to present levels
or will, in the future, be sufficient to cover the costs allocable to patients
participating in such programs. In addition, there can be no assurance that a
particular hospital or other health care facility will continue to meet the
requirements for participation in such programs.
The health care delivery system is undergoing considerable alteration
and consolidation. Consistent with that trend, the ownership or management of a
hospital or health care facility may change, which could result in (i) an early
redemption of bonds, (ii) alteration of the facilities financed by the Bonds or
which secure the Bonds, (iii) a change in the tax exempt status of the Bonds or
(iv) an inability to produce revenues sufficient to make timely payment of debt
service on the Bonds. Future legislation or changes in the areas noted above,
among other things, would affect all hospitals to varying degrees and,
accordingly, any adverse change in these areas may affect the ability of such
issuers to make payment of principal and interest on such bonds. See
"Description of Portfolio" in Part A for the amount of hospital revenue bonds
contained therein.
Nuclear Power Facility Bonds. Certain Bonds may have been issued in
connection with the financing of nuclear generating facilities. Electric
utilities which own or operate nuclear power plants are exposed to risks
inherent in the nuclear industry. These risks include exposure to new
requirements resulting from extensive federal and state regulatory oversight,
public controversy, decommissioning costs, and spent fuel and radioactive waste
disposal issues. While nuclear power construction risks are no longer of
paramount concern, the emerging issue is radioactive waste disposal. In
addition, nuclear plants typically require substantial capital additions and
modifications throughout their operating lives to meet safety, environmental,
operational and regulatory requirements and to replace and upgrade various plant
systems. The high degree of regulatory monitoring and controls imposed on
nuclear plants could cause a plant to be out of service or on limited service
for long periods. When a nuclear facility owned by an investor-owned utility or
a state or local municipality is out of service or operating on a limited
service basis, the utility operator or its owners may be liable for the recovery
of replacement power costs. Risks of substantial liability also arise from the
operation of nuclear facilities and from the use, handling, and possible
radioactive emissions associated with nuclear fuel. Insurance may not cover all
types or amounts of loss which may be experienced in connection with the
ownership and operation of a nuclear plant and severe financial consequences
could result from a significant accident or occurrence. The Nuclear Regulatory
Commission has promulgated regulations mandating the establishment of funded
reserves to assure financial capability for the eventual decommissioning of
licensed nuclear facilities. These funds are to be accrued from revenues in
amounts currently estimated to be sufficient to pay for decommissioning costs.
The Sponsor is unable to predict whether any such actions or whether any such
proposals or litigation, if enacted or instituted, will have an adverse impact
on the revenues available to pay the debt service on the Bonds in the portfolio
issued to finance such nuclear projects. See "Description of Portfolio" in Part
A for the amount of bonds issued to finance nuclear generating facilities
contained therein.
Mortgage Subsidy Bonds. Certain Bonds may be "mortgage subsidy bonds"
which are obligations of which all or a significant portion of the proceeds are
to be used directly or indirectly for mortgages on owner-occupied
-4-
112677.9
<PAGE>
residences. Section 103A of the Internal Revenue Code of 1954, as amended,
provided as a general rule that interest on "mortgage subsidy bonds" will not be
exempt from Federal income tax. An exception is provided for certain "qualified
mortgage bonds." Qualified mortgage bonds are bonds that are used to finance
owner-occupied residences and that meet numerous statutory requirements. These
requirements include certain residency, ownership, purchase price and target
area requirements, ceiling amounts for state and local issuers, arbitrage
restrictions and (for bonds issued after December 31, 1984) certain information
reporting, certification, public hearing and policy statement requirements. In
the opinions of bond counsel to the issuing governmental authorities, interest
on all the Bonds in a Trust that might be deemed "mortgage subsidy bonds" will
be exempt from Federal income tax when issued. See "Description of Portfolio" in
Part A for the amount of mortgage subsidy Bonds contained therein.
Mortgage Revenue Bonds. Certain Bonds may be "mortgage revenue bonds."
Under the Internal Revenue Code of 1986, as amended (the "Code") (and under
similar provisions of the prior tax law) "mortgage revenue bonds" are
obligations the proceeds of which are used to finance owner-occupied residences
under programs which meet numerous statutory requirements relating to residency,
ownership, purchase price and target area requirements, ceiling amounts for
state and local issuers, arbitrage restrictions, and certain information
reporting certification, and public hearing requirements. There can be no
assurance that additional federal legislation will not be introduced or that
existing legislation will not be further amended, revised, or enacted after
delivery of these Bonds or that certain required future actions will be taken by
the issuing governmental authorities, which action or failure to act could cause
interest on the Bonds to be subject to Federal income tax. If any portion of the
Bond proceeds are not committed for the purpose of the issue, Bonds in such
amount could be subject to earlier mandatory redemption at par, including issues
of Zero Coupon Bonds (see "Discount and Zero Coupon Bonds"). See "Description of
Portfolio" in Part A for the amount of mortgage revenue bonds contained therein.
Private Activity Bonds. The portfolio of the Trust may contain other
Bonds which are "private activity bonds" (often called Industrial Revenue Bonds
if issued prior to 1987) which would be primarily of two types: (i) Bonds for a
publicly owned facility which a private entity may have a right to use or manage
to some degree, such as an airport, seaport facility or water system and (ii)
facilities deemed owned or beneficially owned by a private entity but which were
financed with tax-exempt bonds of a public issuer, such as a manufacturing
facility or a pollution control facility. In the case of the first type, bonds
are generally payable from a designated source of revenues derived from the
facility and may further receive the benefit of the legal or moral obligation of
one or more political subdivisions or taxing jurisdictions. In most cases of
project financing of the first type, receipts or revenues of the issuer are
derived from the project or the operator or from the unexpended proceeds of the
bonds. Such revenues include user fees, service charges, rental and lease
payments, and mortgage and other loan payments.
The second type of issue will generally finance projects which are
owned by or for the benefit of, and are operated by, corporate entities.
Ordinarily, such private activity bonds are not general obligations of
governmental entities and are not backed by the taxing power of such entities,
and are solely dependent upon the creditworthiness of the corporate user of the
project or corporate guarantor.
112677.9
-5-
<PAGE>
The private activity bonds in the Trust have generally been issued
under bond resolutions, agreements or trust indentures pursuant to which the
revenues and receipts payable under the issuer's arrangements with the users or
the corporate operator of a particular project have been assigned and pledged to
the holders of the private activity bonds. In certain cases, a mortgage on the
underlying project has been assigned to the holders of the private activity
bonds or a trustee as additional security. In addition, private activity bonds
are frequently directly guaranteed by the corporate operator of the project or
by another affiliated company. See "Description of Portfolio" in Part A for the
amount of private activity bonds contained therein.
Litigation. Litigation challenging the validity under state
constitutions of present systems of financing public education has been
initiated in a number of states. Decisions in some states have been reached
holding such school financing in violation of state constitutions. In addition,
legislation to effect changes in public school financing has been introduced in
a number of states. The Sponsor is unable to predict the outcome of the pending
litigation and legislation in this area and what effect, if any, resulting
changes in the sources of funds, including proceeds from property taxes applied
to the support of public schools, may have on the school bonds in a Trust.
To the Sponsor's knowledge, there was no litigation pending as of the
initial Date of Deposit with respect to any Bonds which might reasonably be
expected to have a material adverse effect on a Trust. Subsequent to the Date of
Deposit, litigation may be initiated on a variety of grounds with respect to
Bonds in a Trust. Such litigation, as, for example, suits challenging the
issuance of pollution control revenue bonds under recently-enacted environmental
protection statutes, may affect the validity of such Bonds or the tax-free
nature of the interest thereon. The Sponsor is unable to predict whether any
such litigation may be instituted or, if instituted, whether it might have a
material adverse effect on a Trust.
Other Factors. The Bonds in the Trust, despite their optional
redemption provisions which generally do not take effect until 10 years after
the original issuance dates of such bonds (often referred to as "ten year call
protection"), do contain provisions which require the issuer to redeem such
obligations at par from unused proceeds of the issue within a stated period. In
recent periods of declining interest rates there have been increased redemptions
of bonds, particularly housing bonds, pursuant to such redemption provisions. In
addition, the Bonds in the Trusts are also subject to mandatory redemption in
whole or in part at par at any time that voluntary or involuntary prepayments of
principal on the underlying collateral are made to the trustee for such bonds or
that the collateral is sold by the bond issuer. Prepayments of principal tend to
be greater in periods of declining interest rates; it is possible that such
prepayments could be sufficient to cause a bond to be redeemed substantially
prior to its stated maturity date, earliest call date or sinking fund redemption
date.
The Bonds may also be subject to other calls, which may be permitted or
required by events which cannot be predicted (such as destruction, condemnation,
or termination of a contract).
In 1976 the federal bankruptcy laws were amended so that an authorized
municipal debtor could more easily seek federal court protection to assist in
reorganizing its debts so long as certain requirements were met.
112677.9
-6-
<PAGE>
Historically, very few financially troubled municipalities have sought court
assistance for reorganizing their debts; notwithstanding, the Sponsor is unable
to predict to what extent financially troubled municipalities may seek court
assistance in reorganizing their debts in the future and, therefore, what
effect, if any, the applicable federal bankruptcy law provisions will have on
the Trusts.
The Trust may also include "moral obligation" bonds. Under statutes
applicable to such bonds, if any issuer is unable to meet its obligations, the
repayment of such bonds becomes a moral commitment but not a legal obligation of
the state or municipality in question. See "Description of Portfolio" in Part A
of this Prospectus for the amount of moral obligation bonds contained therein.
Certain of the Bonds in the Trust are subject to redemption prior to
their stated maturity dates pursuant to sinking fund or call provisions. A
sinking fund is a reserve fund appropriated specifically toward the retirement
of a debt. A callable bond is one which is subject to redemption or refunding
prior to maturity at the option of the issuer. A refunding is a method by which
a bond is redeemed at or before maturity from the proceeds of a new issue of
bonds. In general, call provisions are more likely to be exercised when the
offering side evaluation of a bond is at a premium over par than when it is at a
discount from par. A listing of the sinking fund and call provisions, if any,
with respect to each of the Bonds is contained under "Portfolio".
Certificateholders will realize a gain or loss on the early redemption of such
Bonds, depending upon whether the price of such Bonds is at a discount from or
at a premium over par at the time Certificateholders purchase their Units.
Neither the Sponsor nor the Trustee shall be liable in any way for any
default, failure or defect in any of the Bonds. Because certain of the Bonds
from time to time may be redeemed or will mature in accordance with their terms
or may be sold under certain circumstances, no assurance can be given that a
Trust will retain its present size and composition for any length of time. The
proceeds from the sale of a Bond or the exercise of any redemption or call
provision will be distributed to Certificateholders on the next distribution
date, except to the extent such proceeds are applied to meet redemptions of
Units. (See "Trustee Redemption".)
Puerto Rico Bonds. Certain of the Bonds in the Trust may be general
obligations and/or revenue bonds of issuers located in Puerto Rico. Such bonds
will be affected by general economic conditions in Puerto Rico. The economy of
Puerto Rico is fully integrated with that of the mainland United States. During
fiscal year 1998, approximately 90% of Puerto Rico's exports were to the United
States mainland, which was also the source of 61% of Puerto Rico's imports. In
fiscal 1998, Puerto Rico experienced a $8.5 billion positive adjusted
merchandise trade balance. The dominant sectors of the Puerto Rico economy are
manufacturing and services. Gross product in fiscal 1993 was $25.1 billion
($24.5 billion in 1992 prices) and gross product in fiscal 1997 was $32.1
billion ($27.7 billion in 1992 prices). This represents an increase in gross
product of 27.7% from fiscal 1993 to 1997 (13.0% in 1992 prices). According to
the Labor Department's Household Employment Survey, during fiscal 1998, total
employment increased 0.8% over fiscal 1997. The preliminary figures of gross
product for fiscal 1998, released in November 1998, was $34.7 billion ($28.5
billion in 1992 prices). This represents an increase of 8.1% (3.1% in 1992
prices) over fiscal 1997. This preliminary growth rate is 0.1% above the
original base line forecast for
112677.9
-7-
<PAGE>
fiscal 1998. The Planning Board's gross product forecast for fiscal 1999, made
in February 1998, projected an increase of 2.7% over fiscal 1998. According to
the Labor Department's Household Employment Survey, during the first five months
of fiscal 1999, total employment decreased 1.2% over the same period for fiscal
1998. Total monthly employment averaged 1,124,800 during the first five months
of fiscal 1999, compared to 1,138,400 over the same period in fiscal 1998. The
seasonally adjusted unemployment rate for November 1998 was 13.3%.
Discount And Zero Coupon Bonds. Some of the Bonds in a Trust may be
original issue discount bonds. The original issue discount, which is the
difference between the initial purchase price of the Bonds and the face value,
is deemed to accrue on a daily basis and the accrued portion will be treated as
tax-exempt interest income for regular federal income tax purposes. Upon sale or
redemption, any gain realized that is in excess of the earned portion of
original issue discount will be taxable as capital gain. (See "Tax Status".) The
current value of an original issue discount bond reflects the present value of
its face amount at maturity. The market value tends to increase more slowly in
early years and in greater increments as the Bonds approach maturity. Of these
original issue discount bonds, some of the aggregate principal amount of the
Bonds in the Trust may be Zero Coupon Bonds. (See "Description of Portfolio" in
Part A.) Zero Coupon Bonds do not provide for the payment of any current
interest and provide for payment at maturity at face value unless sooner sold or
redeemed. The market value of Zero Coupon Bonds is subject to greater
fluctuations than coupon bonds in response to changes in interest rates. Zero
Coupon Bonds generally are subject to redemption at compound accredit value
based on par value at maturity. Because the issuer is not obligated to make
current interest payments, Zero Coupon Bonds may be less likely to be redeemed
than coupon bonds issued at a similar interest rate, although certain zero
coupon housing bonds may be subject to mandatory call provisions.
Some of the Bonds in the Trust may have been purchased at a "market"
discount from par value at maturity. This is because the coupon interest rates
on the discount bonds at the time they were purchased and deposited in each
Trust were lower than the current market interest rates for newly issued bonds
of comparable rating and type. At the time of issuance, the discount Bonds were
for the most part issued at then current coupon interest rates. The current
yields (coupon interest income as a percentage of market price) of discount
bonds will be lower than the current yields of comparably rated bonds of similar
type newly issued at current interest rates because discount bonds tend to
increase in market value as they approach maturity and the full principal amount
becomes payable. Gain on the disposition of a Bond purchased at a market
discount generally will be treated as ordinary income, rather than capital gain,
to the extent of accrued market discount. A discount bond held to maturity will
have a larger portion of its total return in the form of capital gain and less
in the form of tax-exempt interest income than a comparable bond newly issued at
current market rates. Under the provisions of the Internal Revenue Code in
effect on the date of this Prospectus, any income attributable to market
discount will be taxable but will not be realized until maturity, redemption or
sale of the Bonds or Units. However, the Administration's 1999 Budget proposals
would require accrual basis taxpayers to accrue market discount income with
respect to obligations acquired after the date that the proposal is enacted.
Discount Bonds with a large term to maturity tend to have a higher current yield
and a lower current market value than otherwise comparable bonds with a shorter
term to maturity. If interest rates rise, the value of discount bonds will
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decrease; and if interest rates decline, the value of discount bonds will
increase. The discount does not necessarily indicate a lack of market confidence
in the issuer.
Year 2000 Issue. The Trust, like other businesses and entities, could
be adversely affected if the computer systems used by the Sponsor and Trustee or
other service providers to the Trust do not properly process and calculate
date-related information and data from and after January 1, 2000. This is
commonly known as the "Year 2000 Problem." The Sponsor and Trustee are taking
steps that they believe are reasonably designed to address the Year 2000 Problem
with respect to computer systems that they use and to obtain reasonable
assurances that comparable steps are being taken by the Trusts' other service
providers. However, there can be no assurance that the Year 2000 Problem will be
properly or timely resolved as to avoid any adverse impact to the Trust. At this
time, it is generally believed that municipal issuers may be more vulnerable to
Year 2000 issues or problems than will other issuers.
Insurance On The Bonds. Each of the Bonds in the Trust is insured by a
municipal bond guaranty insurance policy obtained by either the Sponsor with
respect to Bonds which were not insured prior to their deposit in the Trust
("Sponsor-Insured Bonds") or the issuer, underwriter or prior owner of the Bonds
("Pre-Insured Bonds"), and issued by one of the insurance companies described
under "Insurance on the Bonds" in Part B (the "Insurance Companies"). The
insurance policies are non-cancellable and will continue in force so long as the
Bonds are outstanding and the insurers remain in business. The insurance
policies guarantee the timely payment of principal and interest on the Bonds but
do not guarantee the market value of the Bonds or the value of the Units. No
representation is made herein as to any Bond insurer's ability to meet its
obligations under a policy of insurance relating to any of the Bonds. An
insurance company that is required to pay interest and/or principal in respect
of any Bond will succeed and be subrogated to the Trustee's right to collect
such interest and/or principal from the issuer and to other related rights of
the Trustee with respect to any such Bond.
Such insurance covers the scheduled payment of principal thereof and
interest thereon when such amounts shall become due for payment but shall not
have been paid by the issuer or any other insurer thereof. The insurance, unless
obtained by MBIA Insurance Corporation ("MBIA Corp."), will also cover any
accelerated payments of principal and any increase in interest payments or
premiums, if any, payable upon mandatory redemption of the Bonds if interest on
any Bonds is ultimately deemed to be subject to regular federal income tax.
Insurance obtained from MBIA Corp. only guarantees the full and complete
payments required to be made by or on behalf of an issuer of small industrial
revenue bonds and pollution control revenue bonds if there occurs an event which
results in the loss of tax-exempt status of the interest on such Bonds,
including principal, interest or premiums payments, if any, as and when
required. To the extent, therefore, that Bonds are only covered by insurance
obtained from MBIA Corp., such Bonds will not be covered for the full and
complete payments required to be made by or on behalf of an issuer of other than
small industrial revenue bonds or pollution control revenue bonds if there
occurs an event which results in the loss of tax-exempt status of the interest
on such Bonds. None of the insurance will cover accelerated payments of
principal or penalty interest or premiums unrelated to taxability of interest on
the Bonds. The insurance relates only to the prompt payment of principal of and
interest on the securities in the portfolios, and does not remove market risks
nor does it guarantee the market value of Units in the
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Trusts. The terms of the insurance are more fully described herein. No
representation is made herein as to any Bond insurer's ability to meet its
obligations under a policy of insurance relating to any of the Pre-Insured
Bonds. In addition, investors should be aware that subsequent to the Date of
Deposit the rating of the claims-paying ability of the insurer of an underlying
Pre-Insured Bond may be down-graded.
Navigator Insured Trusts
Sponsor-Insured Bonds. Each of the Bonds in the Navigator Trusts is
insured by a financial guaranty insurance policy obtained by the Sponsor (the
"Navigator Sponsor-Insured Bonds") from MBIA Corp. covering regularly scheduled
payments of principal thereof and interest thereon when such amounts become due
for payment but have not been paid. Such amounts shall be reduced by any amounts
received by the holders or the owners of the Bonds from any trustee for the Bond
issuers, any other Bond insurers or any other source other than MBIA Corp. MBIA
Corp. has issued such policy or policies covering each of the Bonds in the
Navigator Trusts and each such policy will remain in force until the payment in
full of such Bonds, whether or not such Bonds continue to be held in the
Navigator Trusts. The insurer's policies relating to small industrial
development bonds and pollution control revenue bonds also guarantee any
accelerated payments required to be made by or on behalf of an issuer of Bonds
pursuant to the terms of the Bonds if there occurs an event which results in the
loss of the tax-exempt status of the interest on such Bonds, including
principal, interest or premium payments, if any, as and when required. Such
insurance does not cover for any accelerated payments required to be made by or
on behalf of an issuer of other than small industrial revenue bonds or pollution
control revenue bonds if there occurs an event which results in the loss of the
tax exempt status of the interest on such Bonds nor will the insurance cover
accelerated payments of principal or penalty interest or premiums unrelated to
taxability of interest on any of the Bonds, including pollution control revenue
bonds or small industrial development bonds. In the event of such an
acceleration, the payments guaranteed by MBIA Corp. shall be made in such
amounts and at such times as such payments would have been made absent any such
acceleration. The insurance relates only to the prompt payment of principal of
and interest on the securities in the Navigator Portfolios and does not remove
market risk nor does it guarantee the market value of Units in the Navigator
Trusts. The terms of the insurance are more fully described herein. For
discussion of the effect of an occurrence of non-payment of principal or
interest on any Bonds in the Navigator Trusts see "Portfolio Supervision" in
Part B. No representation is made herein as to any bond insurer's ability to
meet its obligations under a policy of insurance relating to any of the Bonds in
the Navigator Trusts. In addition, investors should be aware that subsequent to
the Date of Deposit the rating of the claims-paying ability of MBIA Corp. may be
downgraded, which may result in a downgrading of the rating of the Units in the
Navigator Trusts. The premiums for the Navigator Sponsor-Insured Bonds are
obligations of the Sponsor. Additionally, some of the Bonds in the Navigator
Trusts may be Pre-Insured Bonds (as described below). The premium for the
Pre-Insured Bonds is an obligation of the issuers, underwriters or prior owners
of those Bonds. The insurance policy or policies relating to the Navigator
Sponsor-Insured Bonds provides that, to the extent that Bonds are both
Pre-Insured Bonds and Navigator Sponsor-Insured Bonds, coverage is effective
after a claim has been made upon the insurer of the Pre-Insured Bonds.
Upon notification from the trustee for any bond issuer or any holder or
owner of the Bonds that such trustee or paying agent has
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insufficient funds to pay any principal or interest in full when due, MBIA Corp.
will be obligated to deposit funds promptly with Citibank, N.A., New York, New
York, as fiscal agent for MBIA Corp., sufficient to fully cover the deficit. If
notice of nonpayment is received on or after the due date, MBIA Corp. will
provide for payment within one business day following receipt of the notice.
Upon payment by MBIA Corp. of any Bonds, coupons, or interest payments, MBIA
Corp. shall succeed to the rights of the owner of such Bonds, coupons or
interest payments with respect thereto.
Pre-Insured Bonds. Some of the Bonds in the Trusts which are insured
under policies obtained by the Bond issuers, underwriters or prior owners of the
Bonds ("Pre-Insured Bonds") are insured either by Ambac Assurance Corporation
("Ambac"), Capital Guaranty Insurance Company ("Capital Guaranty"), Connie Lee
Insurance Company ("Connie Lee"), Financial Guaranty Insurance Company
("Financial Guaranty"), Financial Security Assurance, Inc. ("Financial
Security") or Municipal Bond Insurance Association ("MBIA"), MBIA
Corp.(collectively the "Insurance Companies"). The cost of this insurance is
borne by the respective issuers, underwriters or prior owners of the Pre-
Insured Bonds. The percentage of each Portfolio insured by each insurance
company, if any, is set forth under "Insurance" in Part A of this Prospectus.
Ambac is a Wisconsin-domiciled stock insurance corporation, regulated
by the Office of the Commissioner of Insurance of the State of Wisconsin and
licensed to do business in 50 states, the District of Columbia, the Territory of
Guam and the Commonwealth of Puerto Rico, with admitted assets of approximately
$3,290,000,000 (unaudited), and statutory capital of approximately
$1,920,000,000 (unaudited) as of December 31, 1998. Statutory capital consists
of Ambac's policyholders' surplus and statutory contingency reserve. Standard &
Poor's, Moody's and Fitch IBCA, Inc. ("Fitch") have each assigned a triple-A
financial strength rating to Ambac.
Ambac has obtained a ruling from the Internal Revenue Service to the
effect that the insuring of an obligation by Ambac will not affect the treatment
for federal income tax purposes of interest on such obligation and that
insurance proceeds representing maturing interest paid by Ambac under policy
provisions substantially identical to those contained in its municipal bond
insurance policy shall be treated for federal income tax purposes in the same
manner as if such payments were made by issuer of the Bonds.
Connie Lee Insurance Company ("Connie Lee"), a Wisconsin stock
insurance corporation, is wholly-owned subsidiary of Connie Lee Holdings, Inc.
(formerly Construction Loan Insurance Corporation, and herein, "Holdings"). On
December 18, 1997, Ambac acquired all of the outstanding capital stock of
Holdings. Holdings and Connie Lee are now wholly-owned subsidiaries of Ambac.
Connie Lee, which guaranteed bonds issued primarily for college and hospital
infrastructure projects, is not expected to write any new business. Ambac and
Connie Lee have arrangements in place to assure that Connie Lee maintains a
level of capital sufficient to support Connie Lee's outstanding obligations and
for Connie Lee insured bonds to retain their triple-A rating.
As of December 31, 1998, the qualified statutory capital of Connie Lee
was $234,425,505 (unaudited) and total admitted assets were $136,289,581, as
reported to the Commissioner of Insurance of the State of Wisconsin.
As of the Evaluation Date, the claims-paying ability of Connie Lee has
been rated "AAA" by Standard & Poor's.
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Financial Guaranty is a wholly-owned subsidiary of FGIC Corporation
(the "Corporation"), a Delaware holding company. The Corporation is a subsidiary
of General Electric Capital Corporation ("GE Capital"). Neither the Corporation
nor GE Capital is obligated to pay the debts of or the claims against Financial
Guaranty. Financial Guaranty is a monoline financial guaranty insurer domiciled
in the State of New York and subject to regulation by the State of New York
Insurance Department. As of December 31, 1998, the total capital and surplus of
Financial Guaranty was $1,258,215,191. Financial Guaranty prepares financial
statements on the basis of both statutory accounting principles and generally
accepted accounting principles. Copies of such financial statements may be
obtained by writing to Financial Guaranty at 115 Broadway, New York, New York
10006, Attention: Communications Department (telephone number: 212-312-3000) or
to the New York State Insurance Department at 25 Beaver Street, New York, New
York 10004-2319, Attention: Financial Condition Property/Casualty Bureau
(telephone number: 212-480-5187.
In addition, Financial Guaranty is currently licensed to write
insurance in all 50 states and the District of Columbia.
Financial Security is a wholly owned subsidiary of Financial Security
Assurance Holdings Ltd. ("Holdings"), a New York Stock Exchange listed company.
Major shareholders of Holdings include Fund American Enterprises Holdings, Inc.,
MediaOne Capital Corporation, formerly US WEST Capital Corporation, The Tokio
Marine and Fire Insurance Co., Ltd. and XL Capital Ltd. No shareholder of
Holdings is obligated to pay any debt of Financial Security or any claim under
any insurance policy issued by Financial Security or to make any additional
contribution to the capital of Financial Security.
Pursuant to an intercompany agreement, liabilities on financial
guaranty insurance written or reinsured from third parties by Financial Security
or any of its insurance company subsidiaries are reinsured among such companies
on an agreed upon percentage substantially proportional to their respective
capital, surplus and reserves, subject to applicable statutory risk limitations.
In addition, Financial Security reinsures a portion of its liabilities under
certain of its financial guaranty insurance policies with other reinsurers under
various quota-share treaties and on a transaction-by- transaction basis. Such
reinsurance is utilized by Financial Security as a risk management device and to
comply with certain statutory and rating agency requirements; it does not alter
or limit Financial Security's obligations under any financial guaranty insurance
policy. As of December 31, 1998, total shareholders equity of Financial Security
and its wholly-owned subsidiaries was (unaudited) $1,104,591,000 and total
unearned premium reserves was (unaudited) $504,603,000.
As of the Evaluation Date, Financial Security's claims-paying ability
has been rated "AAA" by Standard & Poor's, Fitch IBCA, Inc., Japan Rating and
Investment Information, Inc. and Standard & Poor's (Australia) Pty. Ltd. and
"Aaa" by Moody's Investors Service.
MBIA Corp. is domiciled in the State of New York and licensed to do
business in and subject to regulation under the laws of all 50 states, the
District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the
Northern Mariana Islands, the Virgin Islands of the United States and the
Territory of Guam. MBIA Corp. has two European branches, one in the Republic of
France and the other in the Kingdom of Spain.
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As of December 31, 1997, MBIA Corp. had admitted assets of $5.3 billion
(audited), total liabilities of $3.5 billion (audited), and total capital and
surplus of $1.8 billion (audited) prepared in accordance with statutory
accounting practices prescribed or permitted by insurance regulatory
authorities. As of December 31, 1998, MBIA Corp. had admitted assets of $6.5
billion (unaudited), total liabilities of $4.2 billion (unaudited), and total
capital and surplus of $2.3 billion (unaudited).
As of the Evaluation Date, the claims-paying ability of MBIA Corp. has
been rated "AAA" by Standard & Poor's and Fitch, and Aaa by Moody's.
Insured Municipal Securities Trust
Sponsor-Insured Bonds. For those Bonds which are not covered by an
insurance policy obtained by the issuers of such Bonds, the Sponsor has obtained
bond insurance from either BIG, Financial Guaranty, MBIA or MBIA Corp. in an
effort to protect Certificateholders against nonpayment of principal and
interest in respect of such Bonds (the "Sponsor-Insured Bonds"). The bond
insurance on the Sponsor-Insured Bonds covers the Sponsor-Insured Bonds
deposited in a Trust at the time that they are physically delivered to the
Trustee (in the case of bearer bonds) or registered in the name of the Trustee
or its nominee or delivered along with an assignment (in the case of registered
bonds) or registered in the name of the Trustee or its nominee (in the case of
bonds held in book-entry form). Accordingly, although contracts to purchase
Sponsor-Insured Bonds are not covered by the bond insurance obtained by the
Sponsor, such Bonds will be insured when they are deposited in the Trust. When
selecting Bonds for a Trust prior to obtaining insurance thereon, the Sponsor
considers the factors listed under "Portfolio", among others. The insurers of
the Sponsor-Insured Bonds apply their own standards in determining whether to
insure the Sponsor-Insured Bonds. To the extent that the standards of such
insurers are more restrictive than those of the Sponsor, the Sponsor's
investment criteria have been limited to the more restrictive standards.
Pre-Insured Bonds. The Bonds which are insured under policies obtained
by the Bond issuers are insured by Ambac, Financial Guaranty, Financial
Security, or MBIA Corp. (collectively, the "Insurance Companies") on the date
the Bonds were originally deposited in the Trust. The cost of this insurance is
borne by the respective issuers of the Pre-Insured Bonds. The percentage of the
Portfolio insured by each Insurance Company, if any, is set forth under
"Insurance" in Part A.
Ratings. As of the Date of Deposit for each of the respective Trusts,
Standard & Poor's had rated the claims-paying ability of each of the above
insurance companies "AAA" and had rated each of the Bonds in the Portfolio "AAA"
because the insurance companies had insured the Bonds. The assignment of such
"AAA" ratings was due to Standard & Poor's assessment of the creditworthiness of
the insurance companies and their ability to pay claims on their policies of
insurance. Subsequently, the rating of the claims-paying ability of the insurer
of an underlying Bond may cease to be rated or may be downgraded which may
result in a downgrading of the rating of the Units in the Trust. For a
discussion of the rating of the claims-paying ability of each of the Bond
insurers see "Insurance On The Bonds". For a list of Bond Ratings as of the
Evaluation Date see the "Portfolio" in Part A of this Prospectus. For a
discussion of the rating assigned to the Units of the Trusts, see "the Trust" in
Part A of this Prospectus. The percentage of each
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Trust portfolio insured by each Insurance Company, if any, is set forth under
"Insurance" in Part A.
The foregoing information relating to the above insurance companies is
from published documents and other public sources and/or information provided by
such insurance companies. No representation is made herein as to the accuracy or
adequacy of such information or as to the absence of material adverse changes in
such information subsequent to the dates thereof, but the Sponsor is not aware
that the information herein is inaccurate or incomplete.
RISK CONSIDERATIONS
Special Factors Affecting the Navigator Trusts. The Sponsor believes
the information summarized below describes some of the more significant events
relating to the Navigator Trusts. Sources of such information are the official
statements of issuers located in the states of the Navigator Trusts which have
been issued in connection with the debt offerings of such states, as well as
other publicly available documents and information. While the Sponsor has not
independently verified such information, they have no reason to believe it is
not correct in all material respects.
New York Navigator Trust
The information set forth below is derived from the official statements
and/or preliminary drafts of official statements prepared in connection with the
issuance of State and City municipal bonds. The Fund has not independently
verified this information.
Economic Trends. Over the long term, the State of New York (the
"State") and the City of New York (the "City") face serious economic problems.
The City accounts for approximately 41% of the State's population and personal
income, and the City's financial health affects the State in numerous ways. The
State historically has been one of the wealthiest states in the nation. For
decades, however, the State has grown more slowly than the nation as a whole,
gradually eroding its relative economic affluence. Statewide, urban centers have
experienced significant changes involving migration of the more affluent to the
suburbs and an influx of generally less affluent residents. Regionally, the
older Northeast cities have suffered because of the relative success that the
South and the West have had in attracting people and business. The City has also
had to face greater competition as other major cities have developed financial
and business capabilities which make them less dependent on the specialized
services traditionally available almost exclusively in the City.
The State has for many years had a very high State and local tax burden
relative to other states. The State and its localities have used these taxes to
develop and maintain their transportation networks, public schools and colleges,
public health systems, other social services and recreational facilities.
Despite these benefits, the burden of State and local taxation, in combination
with the many other causes of regional economic dislocation, has contributed to
the decisions of some businesses and individuals to relocate outside, or not
locate within, the State.
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Notwithstanding the numerous initiatives that the State and its
localities may take to encourage economic growth and achieve balanced budgets,
reductions in Federal spending could materially and adversely affect the
financial condition and budget projections of the State and its localities.
New York City. The City, with a population of approximately 7.4
million, is an international center of business and culture. Its non-manufac
turing economy is broadly based, with the banking and securities, life
insurance, communications, publishing, fashion design, retailing and
construction industries accounting for a significant portion of the City's total
employment earnings. Additionally, the City is the nation's leading tourist
destination. The City's manufacturing activity is conducted primarily in apparel
and printing.
For each of the 1981 through 1998 fiscal years, the City had an
operating surplus, before discretionary transfers, and achieved balanced
operating results as reported in accordance with then applicable generally
accepted accounting principles ("GAAP"), after discretionary transfers. The City
has been required to close substantial gaps between forecast revenues and
forecast expenditures in order to maintain balanced operating results. There can
be no assurance that the City will continue to maintain balanced operating
results as required by State law without tax or other revenue increases or
reductions in City services or entitlement programs, which could adversely
affect the City's economic base.
As required by law, the City prepares a four-year annual financial
plan, which is reviewed and revised on a quarterly basis and which includes the
City's capital, revenue and expense projections and outlines proposed
gap-closing programs for years with projected budget gaps. The City's current
financial plan projects a surplus in the 1999 fiscal year, before discretionary
transfers, and budget gaps for each of the 2000, 2001 and 2002 fiscal years.
This pattern of current year surplus operating results and projected subsequent
year budget gaps has been consistent through the entire period since 1982,
during which the City has achieved surplus operating results, before
discretionary transfers, for each fiscal year.
The City depends on aid from the State both to enable the City to
balance its budget and to meet its cash requirements. There can be no assurance
that there will not be reductions in State aid to the City from amounts
currently projected; that State budgets will be adopted by the April 1 statutory
deadline, or interim appropriations enacted; or that any such reductions or
delays will not have adverse effects on the City's cash flow or expenditures. In
addition, the Federal budget negotiation process could result in a reduction in
or a delay in the receipt of Federal grants which could have additional adverse
effects on the City's cash flow or revenues.
The Mayor is responsible for preparing the City's financial plan,
including the City's current financial plan for the 1999 through 2002 fiscal
years (the "1999-2002 Financial Plan" or "Financial Plan"). The City's
projections set forth in the Financial Plan are based on various assumptions and
contingencies which are uncertain and which may not materialize. Such
assumptions and contingencies include the condition of the regional and local
economies, the provision of State and Federal aid and the impact on City
revenues and expenditures of any future Federal or State policies affecting the
City.
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Implementation of the Financial Plan is dependent upon the City's
ability to market its securities successfully. The City's financing program for
fiscal years 1999 through 2002 contemplates the issuance of $5.2 billion of
general obligation bonds and $5.4 billion of bonds to be issued by the New York
City Transitional Finance Authority (the "Finance Authority") to finance City
capital projects. The Finance Authority was created as part of the City's effort
to assist in keeping the City's indebtedness within the forecast level of the
constitutional restrictions on the amount of debt the City is authorized to
incur. In addition, the City issues revenue and tax anticipation notes to
finance its seasonal working capital requirements. The success of projected
public sales of City bonds and notes, New York City Municipal Water Finance
Authority ("Water Authority") bonds and Finance Authority bonds will be subject
to prevailing market conditions. The City's planned capital and operating
expenditures are dependent upon the sale of its general obligation bonds and
notes, and the Water Authority and Finance Authority bonds. Future developments
concerning the City and public discussion of such developments, as well as
prevailing market conditions, may affect the market for outstanding City general
obligation bonds and notes.
For the 1998 fiscal year, the City had an operating surplus, before
discretionary and other transfers, and achieved balanced operating results,
after discretionary and other transfers, in accordance with GAAP. The 1998
fiscal year is the eighteenth year that the City has achieved an operating
surplus, before discretionary and other transfers, and balanced operating
results, after discretionary and other transfers.
On November 18, 1998, the City released the Financial Plan for the 1999
through 2002 fiscal years, which relates to the City and certain entities which
receive funds from the City. The Financial Plan is a modification to the
financial plan submitted to the Control Board on June 26, 1998 (the "June
Financial Plan"). The Financial Plan projects revenues and expenditures for the
1999 fiscal year balanced in accordance with GAAP, and projects gaps of $2.2
billion, $2.9 billion and $2.4 billion for the 2000 through 2002 fiscal years,
respectively, after implementation of a gap closing program to reduce agency
expenditures by $200 million in the 1999 fiscal year and approximately $80
million in each of fiscal years 2000 through 2002.
Changes since the June Financial Plan include: (i) an increase in
projected tax revenues of $288 million and $8 million in fiscal years 1999 and
2000, respectively, and a decrease in projected tax revenues of $23 million and
$66 million in fiscal years 2001 and 2002, respectively; (ii) an increase in
planned expenditures for health insurance of approximately $60 million in each
of fiscal years 1999 through 2002; (iii) a decrease in projected pension
expenditures due to higher than planned increases in the value of the assets of
the retirement systems of $67 million, $171 million, $264 million and $372
million in the fiscal years 1999 through 2002, respectively; (iv) other agency
spending increases of $76 million, $101 million, $78 million, and $70 million in
fiscal years 1999 through 2002, respectively; and (v) an increase in agency
expenditures of $227 million, $295 million, $295 million and $294 million in
fiscal years 1999 through 2002, respectively, due to a reduction in the agency
gap closing program.
The 1999-2002 Financial Plan includes a proposed discretionary transfer
in the 1999 fiscal year of $465 million to pay debt service due in fiscal year
2000. In addition, the Financial Plan reflects enacted and proposed tax
reduction programs totaling $429 million, $604 million and $606 million in
fiscal years 2000 through 2002, respectively, including the
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elimination of the City sales tax on all clothing as of December 1, 1999, the
extension of current tax reductions for owners of cooperative and condominium
apartments starting in fiscal year 2000 and a personal income tax credit for
child care and for resident holders of Subchapter S corporations starting in
fiscal year 2000, which are subject to State legislative approval, and reduction
of the commercial rent tax commencing in fiscal year 2000.
The Financial Plan assumes (i) approval by the Governor and the State
Legislature of the extension of the 14% personal income tax surcharge, which is
scheduled to expire on December 31, 1999, and which is projected to provide
revenue of $183 million, $524 million and $544 million in the 2000, 2001 and
2002 fiscal years, respectively; and (ii) collection of the projected rent
payments for the City's airports, totaling $6 million, $365 million, $155
million and $185 million in the 1999 through 2002 fiscal years, respectively, a
substantial portion of which may depend on the successful completion of
negotiations with The Port Authority of New York and New Jersey (the "Port
Authority") or the enforcement of the City's rights under the existing leases
through pending legal actions. The Financial Plan provides no additional wage
increases for City employees after their contracts expire in fiscal years 2000
and 2001. In addition, the economic and financial condition of the City may be
affected by various financial, social, economic and political factors which
could have a material effect on the City.
In January, the Mayor is expected to publish a Modification (the
"January Modification") to the Financial Plan for the City's 1999 through 2003
fiscal years and a preliminary budget for the City's fiscal year 2000. The
January Modification will include changes since the Financial Plan and the
City's program to address the currently forecast $2.2 billion gap in fiscal year
2000. As in prior years, the City's gap-closing program could include a program
to substantially reduce projected agency spending and City proposals for
increased Federal and State aid and other non-tax revenues.
The 1998 modification of the City's financial plan and the 1999-2002
Financial Plan include a proposed discretionary transfer in the 1998 fiscal year
of approximately $2.0 billion to pay debt service due in the 1999 fiscal year,
and a proposed discretionary transfer in the 1999 fiscal year of $416 million to
pay debt service due in fiscal year 2000, included in the Budget Stabilization
Accounts for the 1998 and 1999 fiscal years, respectively. In addition, the
Financial Plan reflects proposed tax reduction programs totaling $237 million,
$537 million, $657 million and $666 million in fiscal years 1999 through 2002,
respectively, including the elimination of the City sales tax on all clothing as
of December 1, 1999, a City-funded acceleration of the State funded personal
income tax reduction for the 1999 through 2001 fiscal years, the extension of
current tax reductions for owners of cooperative and condominium apartments
starting in fiscal year 2000 and a personal income tax credit for child care and
for resident holders of Subchapter S corporations, which are subject to State
legislative approval, and reduction of the commercial rent tax commencing in
fiscal year 2000.
On June 5, 1998, the City Council adopted a budget which re-allocated
expenditures from those provided in the Executive Budget in the amount of $409
million. The re-allocated expenditures, which include $116 million from the
Budget Stabilization Account, $82 million from debt service, $45 million from
pension contributions, $54 million from social services spending and $112
million from other spending, were re-allocated to uses set forth in the City
Council's adopted budget. Such uses include a revised tax reduction program at a
revenue cost in the 1999 fiscal year of $45 million,
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additional expenditures for various programs of $199 million and provision of
$165 million to retire high interest debt. The revised tax reduction program in
the City Council's adopted budget assumes the expiration of the 12.5% personal
income tax surcharge, rather than the implementation of the personal income tax
reduction program proposed in the Executive budget. The changes reflected in the
City Council's adopted budget would increase the gaps forecast between revenues
and expenditures in the future years of the Financial Plan.
On June 5, 1998, in accordance with the City Charter, the Mayor
certified to the City Council revised estimates of the City's revenues (other
than property tax) for fiscal year 1999. Consistent with this certification, the
property tax levy was estimated by the Mayor to require an increase to realize
sufficient revenue from this source to produce a balanced budget within
generally accepted accounting principles. On June 8, 1998, the City Council
adopted a property tax levy that was $237.7 million lower than the levy
estimated to be required by the Mayor. The City Council, however, maintained
that the revenue to be derived from the levy it adopted would be sufficient to
achieve a balanced budget because the property tax reserve for uncollectibles
could be reduced. Property tax bills for fiscal year 1999 are expected to be
mailed in the near future by the City's Department of Finance at the rates
adopted by the City Council for fiscal year 1998, subject to later adjustment.
On July 16, 1998, Standard & Poor's revised its rating of City bonds
upward from BBB+ to A-. Moody's rating of City bonds was revised in February
1998 to A3 from Baa1. Moody's, Standard & Poor's and Fitch currently rate the
City's outstanding general obligations bonds A3, A- and A-, respectively.
New York State and its Authorities. The State Financial Plan for the
1998-1999 fiscal year projects balance on a cash basis for the 1998-1999 fiscal
year, as modified on July 30, 1998, with a closing balance in the General Fund
of $1.67 billion. The State Financial Plan contains projections of a potential
imbalance in the 1999-2000 fiscal year of $1.3 billion, assuming implementation
of unspecified efficiency actions, the receipt of funds from the tobacco
settlement and the application of certain reserves established in the 1998-1999
State Financial Plan. The Executive Budget submitted in February 1998 contained
projections at that time of a potential imbalance in the 2000-2001 fiscal year
of $3.72 billion, assuming implementation of unspecified efficiency initiatives
and other actions in the 2000-2001 fiscal year.
The 1999-2002 Financial Plan is based on numerous assumptions,
including the condition of the City's and the region's economy and a modest
employment recovery and the concomitant receipt of economically sensitive tax
revenues in the amounts projected. The 1999-2002 Financial Plan is subject to
various other uncertainties and contingencies relating to, among other factors,
the extent, if any, to which wage increases for City employees exceed the annual
wage costs assumed for the 1999 through 2002 fiscal years; continuation of
projected interest earnings assumptions for pension fund assets and current
assumptions with respect to wages for City employees affecting the City's
required pension fund contributions; the willingness and ability of the State to
provide the aid contemplated by the Financial Plan and to take various other
actions to assist the City; the ability of State agencies to maintain balanced
budgets; the willingness of the Federal government to provide the amount of
Federal aid contemplated in the Financial
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Plan; the impact on City revenues and expenditures of Federal and State welfare
reform and any future legislation affecting Medicare or other entitlement
programs; adoption of the City's budgets by the City Council in substantially
the forms submitted by the Mayor; the ability of the City to implement cost
reduction initiatives, and the success with which the City controls
expenditures; the impact of conditions in the real estate market on real estate
tax revenues; the City's ability to market its securities successfully in the
public credit markets; and unanticipated expenditures that may be incurred as a
result of the need to maintain the City's infrastructure. Certain of these
assumptions have been questioned by the City Comptroller and other public
officials.
The Legislature passed a State budget for the 1998-1999 fiscal year on
April 18, 1998, and on April 26, 1998 the Governor vetoed certain of the
increased spending in the State budget passed by the Legislature. The
Legislature did not override any of the Governor's vetoes. The State Financial
Plan for the 1998-1999 fiscal year, as modified on July 30, 1998, projects
balance on a cash basis for the 1998-1999 fiscal year, with a closing balance in
the General Fund of $1.67 billion. The State Financial Plan contains projections
of a potential imbalance in the 1999-2000 fiscal year of $1.3 billion, assuming
implementation of $600 million of unspecified efficiency actions, the receipt of
$250 million in funds from the tobacco settlement and the application of certain
reserves established in the 1998-1999 State Financial Plan. The Executive Budget
submitted in February 1998 contained projections at that time of a potential
imbalance in the 2000-2001 fiscal year of $3.72 billion, assuming implementation
of $800 million of unspecified efficiency initiatives in the 2000-2001 fiscal
year and $250 million in funds from the tobacco settlement. The State Financial
Plan for the 1998-1999 fiscal year includes multi-year tax reductions and
significant increases in spending which will affect the 2000-2001 fiscal year.
The various elements of the State and local tax and assessment reductions
enacted during the last several fiscal years will reduce projected revenues by
more than $4 billion in the 2002-2003 fiscal year as measured from the current
1998-1999 base.
On July 23, 1998, the New York State Comptroller issued a report which
noted that a significant cause for concern is the budget gaps in the 1999-2000
and 2000-2001 fiscal years, which the State Comptroller projected at $1.8
billion and $5.5 billion, respectively, after excluding the uncertain receipt by
the State of $250 million of funds from the tobacco settlement assumed for each
of such fiscal years, as well as the unspecified actions assumed in the State's
projections. The State Comptroller also stated that if the securities industry
or economy slows, the size of the gaps would increase.
Standard & Poor's rates the State's general obligation bonds A, and
Moody's rates the State's general obligation bonds A2. On August 28, 1997,
Standard & Poor's revised its rating on the State's general obligation bonds
from A- to A.
Litigation. A number of court actions have been brought involving State
finances. The court actions in which the State is a defendant generally involve
State programs and miscellaneous tort, real property, and contract claims. While
the ultimate outcome and fiscal impact, if any, on the State of those
proceedings and claims are not currently predictable, adverse determinations in
certain of them might have a material adverse effect upon the State's ability to
carry out the 1999-2002 Financial Plan. The City
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has estimated that its potential future liability on account of outstanding
claims against it as of June 30, 1998 amounted to approximately $3.5 billion.
New Jersey Navigator Trust
New Jersey Risk Factors
State Finance. New Jersey is the ninth largest state in population and
the fifth smallest in land area. With an average of 1,071 people per square
mile, it is the most densely populated of all the states. The State's economic
base is diversified, consisting of a variety of manufacturing, construction and
service industries, supplemented by rural areas with selective commercial
agriculture. Historically, New Jersey's average per capita income has been well
above the national average, and in 1998 the State ranked second among the states
in per capital personal income ($32,779).
The Trust is susceptible to political, economic or regulatory factors
affecting issuers of the New Jersey securities. The following information
provides only a brief summary of some of the complex factors affecting the
financial situation in New Jersey (the "State") and is derived from sources that
are generally available to investors and is believed to be accurate. It is based
in part on information obtained from various State and local agencies in New
Jersey. No independent verification has been made of any of the following
information.
The New Jersey Economic Policy Council, a statutory arm of the New
Jersey Department of Commerce and Economic Development, has reported in New
Jersey Economic Indicators, a monthly publication of the New Jersey Department
of Labor, Division of Labor Market and Demographic Research, that in 1988 and
1989 employment in New Jersey's manufacturing sector failed to benefit from the
export boom experienced by many Midwest states and the State's service sectors,
which had fueled the State's prosperity since 1982, lost momentum. In the
meantime, the prolonged fast growth in the State in the mid 1980s resulted in a
tight labor market situation, which has led to relatively high wages and housing
prices. This means that, while the incomes of New Jersey residents are
relatively high, the State's business sector has become more vulnerable to
competitive pressures.
The onset of the national recession (which officially began in July
1990 according to the National Bureau of Economic Research) caused an
acceleration of New Jersey's job losses in construction and manufacturing. In
addition, the national recession caused an employment downturn in such
previously growing sectors as wholesale trade, retail trade, finance, utilities
and trucking and warehousing. Reflecting the downturn, the rate of unemployment
in the State rose from a low of 3.6% during the first quarter of 1989 to an
estimated 4.7% in June 1998, which is above the national average of 4.5% in June
1998. Economic recovery is likely to be slow and uneven in New Jersey, with
unemployment receding at a correspondingly slow pace, due to the fact that some
sectors may lag as a result of continued excess capacity. In addition, employers
even in rebounding sectors can be expected to remain cautious about hiring until
they become convinced that improved business will be sustained. Also, certain
firms will continue to merge or downsize to increase profitability.
Debt Service. The primary method for State financing of capital
projects is through the sale of the general obligation bonds of the State.
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These bonds are backed by the full faith and credit of the State tax revenues
and certain other fees are pledged to meet the principal and interest payments
and, if provided, redemption premium payments, if any, required to repay the
bonds. As of June 30, 1996, there was a total authorized bond indebtedness of
approximately $10.31 billion, of which $3.69 billion was issued and outstanding,
$4.76 billion was retired (including bonds for which provisions for payment have
been made through the sale and issuance of refunding bonds) and $1.86 billion
was unissued. The debt service obligation of such outstanding indebtedness was
$446.9 million for Fiscal Year 1997 and was $501 million for Fiscal Year
1998-1999.
On June 25, 1997, the New Jersey Economic Development Authority (EDA)
issued State Pension Funding Bonds (PFB) in the amount of $2.803 billion to
finance a portion of the unfunded accrued liability of the State administered
retirement systems. Under the authorizing legislation the bonds are limited
obligations of the EDA and are not a legal debt or liability of the State. The
following section, New Jersey Budget and Appropriation System, contains a full
description of the PFB.
New Jersey Budget and Appropriation System. The State operates on a
fiscal year beginning July 1 and ending June 30. At the end of Fiscal Year 1993
there was a surplus of $937.4 million. In 1994, New Jersey closed its fiscal
year with a surplus of $926.0 million, in 1995 New Jersey closed its fiscal year
with a surplus of $569.2, in 1996 New Jersey closed its fiscal year with a
surplus of $442.0 million and in 1997 New Jersey closed its fiscal year with a
surplus of $276.2 million, and in 1998 New Jersey closed its fiscal year with a
surplus of $1.25 billion.
In order to provide additional revenues to balance future budgets, to
redistribute school aid and to contain real property taxes, on June 27, 1990,
and July 12, 1990, former Governor Florio signed into law legislation which was
estimated to raise approximately $2.8 billion in additional taxes (consisting of
$1.5 billion in sales and use taxes and $1.3 billion in income taxes), the
biggest tax hike in New Jersey history. There can be no assurance that receipts
and collections of such taxes will meet such estimates.
The first part of the tax hike took effect on July 1, 1990, with the
increase in the State's sales and use tax rate from 6% to 7% and the elimination
of exemptions for certain products and services not previously subject to the
tax, such as telephone calls, paper products (which has since been reinstated),
soaps and detergents, janitorial services, alcoholic beverages and cigarettes.
At the time of enactment, it was projected that these taxes would raise
approximately $1.5 billion in additional revenue. Projections and estimates and
receipts from sales and use taxes, however, have been subject to variance in
recent fiscal years.
The second part of the tax hike took effect on January 1, 1991, in the
form of an increased state income tax on individuals. At the time of enactment,
it was projected that this increase would raise approximately $1.3 billion in
additional income taxes to fund a new school aid formula, a new homestead rebate
program and state assumption of welfare and social services costs. Projections
and estimates of receipts from income taxes, however, have also been subject to
variance in recent fiscal years. Under the legislation, income tax rates
increased from their previous range of 2% to 3.5% to a new range of 2% to 7%,
with the higher rates applying to married couples with incomes exceeding $70,000
who file joint returns, and to individuals filing single returns with incomes of
more than $35,000.
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The Florio administration had contended that the income tax package
would help reduce local property tax increases by providing more state aid to
municipalities. Under the income tax legislation, the State would assume
approximately $289 million in social services costs that previously were paid by
counties and municipalities and funded by property taxes. In addition, under the
new formula for funding school aid, an extra $1.1 billion was proposed to be
sent by the State to school districts beginning in 1991, thus reducing the need
for property tax increases to support education programs.
Effective July 1, 1992, the State's sales and use tax rate decreased
from 7% to 6%. Effective January 1, 1994, an across-the-board 5% reduction in
the income tax rates was enacted and effective January 1, 1995, further
reductions ranging from 1% to 10% in income tax rates took effect. Governor
Whitman recently signed into law further reductions up to 15% for some taxpayers
effective January 1, 1996, thus reducing income taxes by up to 30% for most
taxpayers within three years.
On June 30, 1998, Governor Whitman signed the New Jersey Legislature's
$18.123 billion budget for Fiscal Year 1999. The balanced budget, which includes
$701 million in surplus, is $1.3 billion more than the 1998 budget. Projections
and estimates of receipts from taxes have been subject to variance in recent
years as a result of several factors, most recently a significant slowdown in
the national, regional and State economies, sluggish employment and
uncertainties in taxpayer behavior as a result of actual and proposed changes in
Federal tax laws.
On June 25, 1997, the New Jersey Economic Development Authority (EDA)
issued State Pension Funding Bonds (PFB) in the amount of $2.803 billion to
finance a portion of the unfunded accrued liability of the State- administered
retirement systems. Under the authorizing legislation, the bonds are limited
obligations of the EDA and contain a statement that they are not a legal debt or
liability of the State. This is true even though the principal and interest on
the bonds will be paid through annual State appropriations from the General
Fund. Because the pension bonds are issued by an authority, they are not General
Obligation (G.O.) Bonds which are backed by the "full faith and credit" of the
State. G.O. bonds would require voter approval.
The PFB sold at an average interest rate of 7.64% after the State
purchased insurance against default. In concept, the proceeds of the PFB are
invested with the anticipation that the interest rate on investment earnings
will at least equal and, hopefully, exceed the interest rate cost of the bonds,
thereby lowering future State costs to fund the retirement systems. However,
there is always a risk of uncertainty in investing funds.
The unfunded accrued liability of the several State-administered
retirement systems is $3.2 billion, according to the actuarial valuations
prepared by Fiscal Year 1998. Of that amount, $2.75 billion is funded from the
sale of the Pension Bonds. The balance, an estimated $450 million, was made
available through the passage of companion legislation. That law authorized a
one-time accounting change in the value of the assets of the retirement systems
to full-market value as of the valuation reports applicable to Fiscal Year 1998.
This one-time revaluation from the current market- related value of assets
(which recognizes 20% of full-market) to full-market value, immediately
recognizes all capital gains up to the validation date, resulting in an
increased value of the accumulated assets of the retirement systems. The assets
of the retirement systems at full-market value are
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approximately $2.4 billion greater than they are when measured at their
market-related value.
Debt Ratings. For many years, both Moody's Investors Service, Inc., and
Standard & Poor's Corporation have rated New Jersey general obligation bonds
"Aaa" and "AAA", respectively. Currently, however, Moody's Investors Service,
Inc. rates New Jersey general obligation bonds Aa1 and Standard & Poor's Ratings
Group rates such bonds AA+. On July 3, 1991, however, Standard & Poor's
Corporation downgraded New Jersey general obligation bonds to "AA+." On June 4,
1992 Standard & Poor's Corporation placed New Jersey general obligation bonds on
Credit Watch with negative implications, citing as its principal reason for its
caution the unexpected denial by the Federal Government of New Jersey's request
for $450 million in retroactive Medicaid payments for psychiatric hospitals.
These funds were critical to closing a $1 billion gap in the State's $15 billion
budget for fiscal year 1992 which ended on June 30, 1992. Under New Jersey state
law, the gap in the current budget must be closed before the new budget year
begins on July 1, 1992. Standard & Poor's Corporation suggested the State could
close fiscal 1992's budget gap and help fill fiscal 1993's hole by a reversion
of $700 million of pension contributions to its general fund under a proposal to
change the way the State calculates its pension liability. On July 6, 1992,
Standard & Poor's Corporation reaffirmed its "AA+" rating for New Jersey general
obligation bonds and removed the debt from its Credit Watch list, although it
stated that New Jersey's long-term financial outlook is negative. Standard &
Poor's Corporation was concerned that the State was entering the 1993 fiscal
year that began July 1, 1992 with a slim $26 million surplus and remained
concerned about whether the sagging State economy would recover quickly enough
to meet lawmakers' revenue projections. It also remained concerned about the
recent federal ruling leaving in doubt how much the State was due in retroactive
Medicaid reimbursements and a ruling by a federal judge, now on appeal, of the
State's method for paying for uninsured hospital patients. However, on July 27,
1994, Standard & Poor's announced that it was changing the State's outlook from
negative to stable due to a brightening of the State's prospects as a result of
Governor Whitman's effort to trim spending and cut taxes, coupled with an
improving economy. Standard & Poor's reaffirmed its "AA+" rating at the same
time. There can be no assurance that these ratings will continue or that
particular bond issues may not be adversely affected by changes in the State or
local economic and political conditions.
On August 24, 1992, Moody's Investors Service, Inc. downgraded New
Jersey general obligation bonds to "Aa1", stating that the reduction reflected a
developing pattern of reliance on nonrecurring measures to achieve budgetary
balance, four years of financial operations marked by revenue shortfalls and
operating deficits, and the likelihood that serious financial pressures would
persist. On August 5, 1994, Moody's reaffirmed its "Aa1" rating, citing on the
positive side New Jersey's broad-based economy, high income levels, history of
maintaining a positive financial position and moderate (although rising) debt
ratios, and, on the negative side, a continued reliance on one-time revenue and
a dependence on pension-related savings to achieve budgetary balance.
Capital Construction. In addition to payment from bond proceeds,
capital construction can also be funded by appropriation of current revenues on
a pay-as-you go basis. Capital Construction expenditures for Fiscal Year 1995
represent 1.9% of the total Fiscal Year 1995 expenditures. In Fiscal Year 1995,
total Capital Construction expenditures were $289.8 million,
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a decrease of $83.4 million from Fiscal Year 1994. This amount reflects a
reduction of $136.4 million in capital projects and an increase of $53.0 million
in expenditures to the Transportation Trust Fund Authority.
All appropriations for capital projects and all proposals for State
bond authorizations are subject to the review and recommendation of the New
Jersey Commission on Capital Budgeting and Planning. This permanent commission
was established in November 1975, and is charged with the preparation of the
State Capital Improvement Plan, which contains proposals for State spending for
capital projects.
Lease Financing. The State has entered into a number of leases relating
to the financing of certain real property and equipment. The State leases the
State Tax Processing Building and the Richard J. Hughes Justice Complex in
Trenton, both from the Mercer County Improvement Authority (the "Authority"). On
August 8, 1991 the Authority defeased outstanding bonds originally issued to
finance construction of the Richard J. Hughes Justice Complex through the
issuance of custody receipts (the "Custody Receipts") in the aggregate principal
amount of $95,760,000. The rental is sufficient to cover the debt service on the
Authority's Custody Receipts. Maximum annual rental payments on these leases,
including debt service, maintenance and payments in lieu of taxes, will be
approximately $11 million. The State's obligation to pay the rentals is subject
to appropriations being made by the State Legislature. The Custody Receipts will
mature in the years 1992 through 2018.
The State has also entered into a lease agreement, as lessee, with the
New Jersey Economic Development Authority, as lessor (the "EDA") to lease (i)
office buildings that are presently under construction and, when finished, are
expected to house the New Jersey Division of Motor Vehicles, New Jersey Network
(the State's public television station) and a branch of the United States Postal
Service and (ii) a parking facility that is also under construction, all of
which were financed by the EDA's $114,391,434.70 initial aggregate principal
amount of Trenton Office Complex Revenue Bonds, 1980 Series dated December 1,
1989. The State has also entered into a lease agreement, as lessee, with the EDA
to lease approximately 13 acres of real property and certain infrastructure
improvements thereon located in the City of Newark. This property is in a
geographical area generally bounded by McCarter Highway, Mulberry Street and
Saybrook Place and its purchase was financed by $21,510,000 aggregate principal
amount of New Jersey Economic Development Authority Revenue Bonds, New Jersey
Performing Arts Center Site Acquisition Project, 1991 Series, issued on August
20, 1991. The rental payments required to be made by the State under such lease
agreements are sufficient to cover debt service on such bonds and other amounts
payable to the EDA, including certain administrative expenses of the EDA, and
such rental payments are subject to annual appropriation by the State
Legislature. Maximum annual debt service on such bonds is approximately
$12,200,000. All of such bonds are still outstanding and mature in the years
1992 through 2012.
The State has also entered into a sublease with the EDA to lease two
parking lots, certain infrastructure improvements and related elements located
at Liberty State Park in the City of Jersey City. These parking lots and
improvements have been financed by a $13,683,767.50 aggregate principal amount
of New Jersey Economic Development Authority Lease Rental Bonds, 1992 Series
(Liberty State Park Project) dated March 15, 1992. The rental payments that will
be required to be made by the State under such sublease agreement will be
sufficient to cover debt service on such bonds and other amounts
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payable to the EDA, and such rental payments will be subject to appropriation by
the State Legislature.
In 1981, the Governor signed into law a bill creating the New Jersey
Building Authority (the "Building Authority") having the power to construct
facilities for leasing to the State (P.L. 1981, c. 120). The law provides for
leasing to the State on a basis similar to that described above. The Building
Authority is authorized to have not more than $250 million of its notes and
bonds outstanding exclusive of refunded bonds and notes, provided that if the
Building Authority issues bonds or notes to finance the total cost of a project
based on estimates prepared by an independent consultant and the consultant
determines later that the costs of the project as initially approved have
increased, the Building Authority may issue additional bonds or notes to finance
the increased cost notwithstanding the $250 million limitation. In 1985 the
Building Authority issued $129,635,000 of 1985 Series Bonds for five office
building projects in the Trenton area. During April 1987 the Building Authority
issued $103,760,000 of the 1987 Series Bonds to refund the outstanding term
bonds of the 1985 issue. On April 6, 1989 the Building Authority issued
$49,752,390.30 of 1989 Series Bonds for the renovation and historical
restoration of portions of the State Capital Complex in Trenton. On October 9,
1991 the Building Authority issued $74,999,815.75 of State Building Revenue
Bonds, 1991 Series (Garden State Savings Bonds, 1991A), as capital appreciation
bonds, under the Garden State Savings Act of 1991, for the continued renovation
and historical restoration of portions of the State Capital Complex in Trenton
and for the construction of a structured parking facility. As of December 31,
1991 the total amount of Building Authority Bonds outstanding was
$238,687,206.05. Outstanding Building Authority bonds are secured by annual
rentals from the State which are subject to annual appropriations by the State
Legislature. The State's combined annual rental payment for all leases with the
Building Authority will be (i) approximately $17.5 million per year for the
years ending June 15, 1992 through 1998, 2012 and 2013 and (ii) approximately
$31.0 million per year for the years ending June 15, 1999 through 2011.
Beginning in April 1984, the State, acting through the Director of the
Division of Purchase and Property, entered into a series of lease purchase
agreements which provide for the acquisition of equipment and real property to
be used by various departments and agencies of the State. To date, the State has
completed nine lease purchase agreements which have resulted in issuance of
Certificates of Participation totaling $541,085,000. A Certificate of
Participation evidences a proportionate interest of the owner thereof in the
lease payments to be made by the State under the terms of the agreement. As of
December 31, 1991, $305,400,000 Certificates of Participation remain
outstanding. The agreements relating to these transactions provide for
semiannual rental payments. The State's obligation to pay rentals due under
these leases is subject to annual appropriations being made by the State
Legislature. The final maturity of the outstanding Certificates of Participation
is December 15, 2013. The majority of proceeds from these transactions have been
or will be used to acquire equipment for the State and its agencies. The rentals
payable by the State will be made from monies appropriated by the State
Legislature. The State intends to continue to use this financing technique for a
substantial portion of its future equipment requirements.
"Moral Obligation" Financing. Aside from its general obligation bonds,
the State's "moral obligation" backs certain obligations issued by the
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New Jersey Housing and Mortgage Finance Agency, the South Jersey Port
Corporation and the Higher Education Assistance Authority.
New Jersey Housing and Mortgage Finance Agency. Neither the New Jersey
Housing and Mortgage Finance Agency nor its predecessors, the New Jersey Housing
Finance Agency and the New Jersey Mortgage Finance Agency, have had a deficiency
in a debt service reserve fund which required the State to appropriate funds to
meet its "moral obligation". It is anticipated that this agency's revenues will
continue to be sufficient to cover debt service on its bonds.
South Jersey Port Corporation. The State provides the South Jersey Port
Corporation (the "Corporation") with funds to cover all debt service and
property tax requirements, when earned revenues are anticipated to be
insufficient to cover these obligations.
Higher Education Assistance Authority. The Higher Education Assistance
Authority has issued $24,996,064 aggregate principal amount of revenue bonds,
the interest on which has been capitalized to but not including January 1, 1993.
After the period of capitalized interest has ended, it is anticipated that the
authority's revenues will be sufficient to cover debt service on its bonds.
Below are listed State appropriations made since 1986 which covered
deficiencies in revenues of the Corporation, for debt service and property tax
payments.
<TABLE>
<CAPTION>
Appropriation for Appropriation for
Calendar Year Debt Service Property Tax
------------- ----------------- -----------------
<S> <C> <C>
1986................................................ $ 0 $1,647,216.00
1987................................................ 0 1,647,216.00
1988................................................ 0 1,647,216.00
1989................................................ 1,281,793.58 1,745,917.00
1990................................................ 2,362,850.67 1,850,000.00
1991................................................ 2,770,851.00 1,850,000.00
</TABLE>
On April 2, 1987, the Corporation issued $31,580,000 aggregate
principal amount of Revenue Bonds, 1987 Series C (the "Series C Bonds"), a
portion of the proceeds of which will be used (i) on January 1, 1995, to refund
all of the Corporation's Marine Terminal Revenue Bonds, 1985 Refunding Series
and (ii) to pay interest on the Series C Bonds until January 1, 1995. Because of
the funded escrow, it is expected that there will not be any need for the State
to provide funds to pay debt service on the Series C Bonds through January 1,
1995. Also, in addition to the bonded indebtedness of the Corporation set forth
above, on April 2, 1987, the Corporation issued $10,295,000 Marine Terminal
Revenue Bonds, 1987 Series D, to provide funds for financing a portion of the
costs of various capital improvements. On February 10, 1989, the Corporation
issued $4,085,000 Marine Terminal Revenue Bonds, 1989 Series E, to provide funds
for financing a portion of the costs of various capital improvements and
additions to the Corporation's marine terminal facilities. On November 21, 1989,
the Corporation issued $3,655,000 Marine Terminal Revenue Bonds, 1989 Series F,
to provide for the costs of
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acquiring land in the City of Camden, for the purpose of expanding the
Corporation's marine terminal facilities.
Municipal Finance. New Jersey's local finance system is regulated by
various statutes designed to assure that all local governments and their issuing
authorities remain on a sound financial basis. Regulatory and remedial statutes
are enforced by the Division of Local Government Services (the "Division") in
the State Department of Community Affairs.
Counties and Municipalities. The Local Budget Law (N.J.S.A. 40A:4-1 et
seq.) imposes specific budgetary procedures upon counties and municipalities
("local units"). Every local unit must adopt an operating budget which is
balanced on a cash basis, and items of revenue and appropriation must be
examined by the Director of the Division (the "Director"). The accounts of each
local unit must be independently audited by a registered municipal accountant.
State law provides that budgets must be submitted in a form promulgated by the
Division and further provides for limitations on estimates of tax collection and
for reserves in the event of any shortfalls in collections by the local unit.
The Division reviews all municipal and county annual budgets prior to adoption
for compliance with the Local Budget Law. The Director is empowered to require
changes for compliance with law as a condition of approval; to disapprove
budgets not in accordance with law; and to prepare the budget of a local unit,
within the limits of the adopted budget of the previous year with suitable
adjustments for legal compliance, if the local unit is unwilling to prepare a
budget in accordance with law. This process insures that every municipality and
county annually adopts a budget balanced on a cash basis, within limitations on
appropriations or tax levies, respectively, and making adequate provision for
principal of and interest on indebtedness falling due in the fiscal year,
deferred charges and other statutory expenditure requirements. The Director also
oversees changes to local budgets after adoption as permitted by law, and
enforces regulations pertaining to execution of adopted budgets and financial
administration. In addition to the exercise of regulatory and oversight
functions, the Division offers expert technical assistance to local units in all
aspects of financial administration, including revenue collection and cash
management procedures, contracting procedures, debt management and
administrative analysis.
The local Government Cap Law (N.J.S.A. 40A:4-45.1 et seq.) (the "Cap
Law") generally limits the year-to-year increase of the total appropriations of
any municipality and the tax levy of any county to either 5% or an index rate
determined annually by the Director, whichever is less. However, where the index
percentage rate exceeds 5%, the Cap law permits the governing body of any
municipality or county to approve the use of a higher percentage rate up to the
index rate. Further, where the index percentage rate is less than 5%, the Cap
Law also permits the governing body of any municipality or county to approve the
use of a higher percentage rate up to 5%. Regardless of the rate utilized,
certain exceptions exist to the Cap Law's limitation on increases in
appropriations. The principal exceptions to these limitations are municipal and
county appropriations to pay debt service requirements; to comply with certain
other State or federal mandates; amounts approved by referendum; and, in the
case of municipalities only, to fund the preceding year's cash deficit or to
reserve for shortfalls in tax collections. The Cap Law, scheduled to expire on
December 31, 1990, was re-enacted with amendments and made a permanent part of
the Municipal Finance System.
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State law also regulates the issuance of debt by local units. The Local
Budget Law limits the amount of tax anticipation notes that may be issued by
local units and requires the repayment of such notes within three months of the
end of the fiscal year (six months in the case of the counties) in which issued.
The local Bond Law (N.J.S.A. 40A:2-1 et seq.) governs the issuance of bonds and
notes by the local units. No local unit is permitted to issue bonds for the
payment of current expenses (other than Fiscal Year Adjustment Bonds described
more fully below). Local units may not issue bonds to pay outstanding bonds,
except for reflecting purposes, and then only with the approval of the Local
Finance Board. Local units may issue bond anticipation notes for temporary
periods not exceeding in the aggregate approximately ten years from the date of
first issue. The debt that any local unit may authorize is limited to a
percentage of its equalized valuation basis, which is the average of the
equalized value of all taxable real property and improvements within the
geographic boundaries of the local unit, as annually determined by the Director
of the Division of Taxation, for each of the three most recent years. In the
calculation of debt capacity, the local Bond Law and certain other statutes
permit the deduction of certain classes of debt ("statutory deductions") from
all authorized debt of the local unit ("gross capital debt") in computing
whether a local unit has exceeded its statutory debt limit. Statutory deductions
from gross capital debt consist of bonds or notes (i) authorized for school
purposes by a regional school district or by a municipality or a school district
with boundaries coextensive with such municipality to the extent permitted under
certain percentage limitations set forth in the School Bond Law (as hereinafter
defined); (ii) authorized for purposes which are self-liquidating, but only to
the extent permitted by the Local Bond Law; (iii) authorized by a public body
other than local unit the principal of and interest on which is guaranteed by
the local unit, but only to the extent permitted by law; (iv) that are bond
anticipation notes; (v) for which provision for payment has been made; or (vi)
authorized for any other purpose for which a deduction is permitted by law.
Authorized net capital debt (gross capital debt minus statutory deductions) is
limited to 3.5% of the equalized valuation basis in the case of municipalities
and 2% of the equalized valuation basis in the case of counties. The debt limit
of a county or municipality, with certain exemptions, may be exceeded only with
the approval of the Local Finance Board.
Chapter 75 of the Pamphlet Laws of 1991 signed into law on March 28,
1991 requires certain municipalities and permits all other municipalities to
adopt the State fiscal year in place of the existing calendar fiscal year.
Municipalities that change fiscal years must adopt a six month transition budget
for January to June. Since expenditures would be expected to exceed revenues
primarily because state aid for the calendar year would not be received by the
municipality until after the end of the transition year budget, the act
authorizes the issuance of Fiscal Year Adjustment Bonds to fund the one time
deficit for the six month transition budget. The act provides that the deficit
in the six month transition budget may be funded initially with bond
anticipation notes based on the estimated deficit in the six month transition
budget. Notes issued in anticipation of Fiscal Year Adjustment Bonds, including
renewals, can only be issued for up to one year unless the Local Finance Board
permits the municipality to renew them for a further period of time. The Local
Finance Board must confirm the actual deficit experienced by the municipality.
The municipality then may issue Fiscal Year Adjustment Bonds to finance the
deficit on a permanent basis. The purpose of the Act is to assist municipalities
that are heavily dependent on state aid and that have had to issue tax
anticipation notes to fund operating cash flow deficits each year. While the act
does not authorize counties to
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change their fiscal years, it does provide that counties with cash flow deficits
may issue Fiscal Year Adjustment Bonds as well.
State law authorizes State officials to supervise fiscal administration
in any municipality which is in default on its obligations; which experiences
severe tax collection problems for two successive years; which has a deficit
greater than 4% of its tax levy for two successive years; which has failed to
make payments due and owing to the State, county, school district or special
district for two consecutive years; which has an appropriation in its annual
budget for the liquidation of debt which exceeds 25% of its total operating
appropriations (except dedicated revenue appropriations) for the previous budget
year; or which has been subject to a judicial determination of gross failure to
comply with the Local Bond Law, the Local Budget Law or the Local Fiscal Affairs
Law which substantially jeopardizes its fiscal integrity. State officials are
authorized to continue such supervision for as long as any of the conditions
exist and until the municipality operates for a fiscal year without incurring a
cash deficit.
There are 567 municipalities and 21 counties in New Jersey. During
1987, 1988, and 1989 no county exceeded its statutory debt limitations or
incurred a cash deficit in excess of 4% of its tax levy. The number of
municipalities which have a cash deficit greater than 4% of their tax levies was
five for 1987, zero for 1988, and six for 1989. The number of municipalities
which exceeded statutory debt limits was six, five, and one as of December 31,
1987, 1988, and 1989, respectively. No New Jersey municipality or county has
defaulted on the payment of interest or principal on any outstanding debt
obligation since the 1930's.
School Districts. All New Jersey school districts are coterminous with
the boundaries of one or more municipalities. They are characterized by the
manner in which the board of education, the governing body of the school
district, takes office. Type I school districts, most commonly found in cities,
have a board of education appointed by the mayor or the chief executive officer
of the municipality constituting the school district. In a Type II school
district, the board of education is elected by the voters of the district.
Nearly all regional and consolidated school districts are Type II school
districts.
School Budgets. In every school district having a board of school
estimate, the board of school estimate examines the budget request and fixes the
appropriation amounts for the next year's operating budget after a public
hearing at which the taxpayers and other interested persons shall have an
opportunity to raise objections and to be heard with respect to the budget. This
board, whose composition is fixed by statute, certifies the budget to the
municipal governing bodies and to the local board of education. If either
disagrees, they must appeal to the State Commissioner of Education (the
"Commissioner") to request changes.
The Quality Education Act of 1990 (N.J.S.A. 18A:7D-1 et seq.) limits
the annual increase of a school district's net current expense budget. The
Commissioner certifies the allowable amount of increase for each school district
but may grant a higher level of increase in certain limited instances. A school
district may also submit a proposal to the voters to raise amounts above the
allowable amount of increase. If defeated, such a proposal is subject to further
review or appeal only if the Commissioner determines that additional funds are
required to provide a thorough and efficient education.
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The Quality Education Act has been declared unconstitutional by the New
Jersey Supreme Court in 1994. The Supreme Court, while retaining jurisdiction
over this issue, has stated that the State was required to address the "special
education needs" of 30 special needs districts for which funding was required in
addition to that necessary to achieve parity for richer districts. The Supreme
Court stated that it will not immediately intervene if substantial equivalence
of the special needs districts and wealthier districts is achieved by the State
for the 1997-1998 school year. The Court further ordered the State to adopt a
law assuring such substantial equivalence by September 1996.
In May, 1997, in its further review of school funding, the Supreme
Court in Abbott by Abbott v. Burke, 149 N.J. 145 (1997), held that the
Comprehensive Educational Improvement and Financing Act ("Act") which was
enacted by the legislature in response to previous state Supreme Court orders
was unconstitutional as it applied to special needs districts.
The Court held that the Act's funding levels were insufficient and
failed to address problems of dilapidated, unsafe and overcrowded facilities. As
interim relief pending legislative solution, the Court ordered increased funding
on parity with per-pupil expenditures for regular education, required the State
Commissioner of Education to ensure that increased funding be put to optimal
educational use, required the State, commencing September 1997, to provide
special needs districts with money to enable such districts with sufficient
money to spend at the level of average budgeted per-pupil expenditures in
successful districts and remanded the case for a determination of immediate
implementation of programs to meet the needs of at-risk children.
As a result of this decision, the State's 1998 fiscal year budget
provided for an additional $246 million to special needs districts. Much of this
funding is attributable to the State Pension Fund Bonds sale.
In Type I or Type II school districts which have failed monitoring over
a period of time by the State because of continued educational deficiencies, and
are implementing an approved corrective action plan, the Commissioner is
required to determine the cost to the school district of the implementation of
those portions of the corrective action plan which are directly responsive to
the district's deficiencies as identified in the monitoring process. Where
appropriate, the Commissioner is required to reallocate funds within the
district's budget to support the corrective action plan. The Commissioner is
also required to determine the amount of additional revenue needed to implement
the corrective action plan, and to recertify the budget for the district.
In State operated school districts the State District Superintendent
has the responsibility for the development of the budget subject to appeal by
the governing body of the municipality to the Commissioner and the Director of
the Division of Local Government Services in the State Department of Community
Affairs. Based upon his review, the Director is required to certify the amount
of revenues which can be raised locally to support the budget of the State
operated district. Any difference between the amount which the Director
certifies, and the total amount of local revenues required by the budget
approved by the Commissioner, is to be paid by the State in the fiscal year in
which the expenditures are made subject to the availability of appropriations.
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School District Bonds. School district bonds and temporary notes are
issued in conformity with N.J.S.A 18A:24-1 et seq. (the "School Bond Law"),
which closely parallels the Local Bond Law. Although school districts are
exempted from the 5% down payment provision generally applied to bonds issued by
municipalities and counties, they are subject to debt limits (which vary
depending on the type of school system provided) and to State regulation of
their borrowing. The debt limitation on school district bonds depends upon the
classification of the school district but may be as high as 4% of the average
equalized valuation basis of the constituent municipality. In certain cases
involving school districts in cities with populations exceeding 100,000 the debt
limit is 8% of the average equalized valuation basis of the constituent
municipality, and in cities with populations in excess of 80,000 the debt limit
is 6% of the aforesaid average equalized valuation.
School bonds are authorized by (i) an ordinance adopted by the
governing body of a municipality within a Type I school district; (ii) adoption
of a proposal by resolution by the board of education of a Type II school
district having a board of school estimate; or (iii) adoption of a proposal by
resolution by the board of education and approval of the proposal by the legal
voters of any other Type II school district. If school bonds will exceed the
school district borrowing capacity, a school district (other than a regional
school district) may use the balance of the municipal borrowing capacity. If the
total amount of debt exceeds the school district's borrowing capacity and any
available remaining municipal borrowing capacity, the Commissioner and the Local
Finance Board must approve the proposed authorization before it is submitted to
the voters. All authorizations of debt in a Type II school district without a
board of school estimate require an approving referendum, except where, after
hearing, the Commissioner and the State Board of Education determine that the
issuance of such debt is necessary to meet the constitutional obligation to
provide a thorough and efficient system of public schools. When such obligations
are issued, they are issued by, and in the name of, the school district.
In Type I and II school districts with a board of school estimate, that
board examines the capital proposal of the board of education and certifies the
amount of bonds to be authorized. When it is necessary to exceed the borrowing
capacity of the municipality, the approval of a majority of the legally
qualified voters of the municipality is required, together with the approval of
the Commissioner and the Local Finance Board. When such bonds are issued for a
Type I school district, they are issued by the municipality and identified as
school bonds. When bonds are issued by a Type II school district having a board
of school estimate, they are issued by, and in the name of, the school district.
All authorizations of debt must be reported to the Division of Local
Government Services by a supplemental debt statement prior to final approval.
School District Lease Purchase Financings. In 1982, school districts
were given an alterative to the traditional method of bond financing capital
improvements pursuant to N.J.S.A. 18A:20-4.2(f) (the "Lease Purchase Law"). The
Lease Purchase Law permits school districts to acquire a site and school
building through a lease purchase agreement with a private lessor corporation.
For Type II school districts, the lease purchase agreement does not require
voter approval. The rent payments attributable to the lease purchase agreement
are subject to annual appropriation by the school district and are required,
pursuant to N.J.A.C. 6:22-A-1.2(h), to be included in the
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annual current expense budget of the school district. Furthermore, the rent
payments attributable to the lease purchase agreement do not constitute debt of
the school district and therefore do not impact on the school district's debt
limitation. Lease purchase agreements in excess of five years require the
approval of the Commissioner and the Local Finance Board.
Qualified Bonds. In 1976, legislation was enacted (P.L. 1976, c. 38 and
c. 39) which provides for the issuance by municipalities and school districts of
"qualified bonds." Whenever a local board of education or the governing body of
a municipality determines to issue bonds, it may file an application with the
Local Finance Board, and, in the case of a local board of education, the
Commissioner, to qualify bonds pursuant to P.L. 1976, c. 38 or c. 39. Upon
approval of such an application and after receipt of a certificate stating the
name and address of the paying agent for such bonds, the maturity schedule,
interest rates and payment dates, the State Treasurer shall, in the case of
qualified bonds for school districts, withhold from the school aid payable to
such municipality or school district and in the case of qualified bonds for
municipalities, withhold from the amount of business personal property tax
replacement revenues, gross receipts; tax revenues, municipal purposes tax
assistance fund distributions, State urban aid, State revenue sharing, and any
other funds appropriated as State aid and not otherwise dedicated to specific
municipal programs, payable to such municipalities, an amount sufficient to
cover debt service on such bonds. These "qualified bonds" are not direct,
guaranteed or moral obligations of the State, and debt service on such bonds
will be provided by the State only if the above mentioned appropriations are
made by the State. Total outstanding indebtedness for "qualified bonds"
consisted of $103,720,500 by various school districts as of June 30, 1992 and
$830,037,105 by various municipalities as of June 30, 1992.
New Jersey School Bond Reserve Act. The New Jersey School Bond Reserve
Act (N.J.S.A. 18A:56-17 et seq.) establishes a school bond reserve within the
constitutionally dedicated Fund for the Support of Free Public Schools. Under
this law the reserve is maintained at an amount equal to 1.5% of the aggregate
outstanding bonded indebtedness of counties, municipalities or school districts
for school purposes (exclusive of bonds whose debt service is provided by State
appropriations), but not in excess of monies available in such Fund. If a
municipality, county or school district is unable to meet payment of the
principal of or interest on any of its school bonds, the trustee of the school
bond reserve will purchase such bonds at the face amount thereof or pay the
holders thereof the interest due or to become due. On June 30, 1991, the book
value of the Fund's assets aggregated $59,352,429 and the reserve, computed as
of June 30, 1991, amounted to $19,668,349. There has never been an occasion to
call upon this Fund.
Local Financing Authorities. The Local Authorities Fiscal Control Law
(N.J.S.A. 40A:5A-l et seq.) provides for State supervision of the fiscal
operations and debt issuance practices of independent local authorities and
special taxing districts by the State Department of Community Affairs. The Local
Authorities Fiscal Control Law applies to all autonomous public bodies created
by counties or municipalities, which are empowered to issue bonds, to impose
facility or service charges, or to levy taxes in their districts. This
encompasses most autonomous local authorities (sewerage, municipal utilities,
parking, pollution control, improvement, etc.) and special taxing districts
(fire, water, etc.). Authorities which are subject to differing State or federal
financial restrictions are exempted, but only to the extent of that difference.
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Financial control responsibilities over local authorities and special
districts are assigned to the Local Finance Board and the Director of the
Division of Local Government Services. The Local Finance Board exercises
approval power over the creation of new authorities and special districts as
well as their dissolution. The Local Finance Board also reviews, conducts public
hearings and issues findings and recommendations on any proposed project
financing of an authority or district, and on any proposed financing agreement
between a municipality or county and an authority or special district. The Local
Finance Board prescribes minimum audit requirements to be followed by
authorities and special districts in the conduct of their annual audits. The
Director reviews and approves annual budgets of authorities and special
districts.
Litigation. The State is a party in numerous legal proceedings
pertaining to matters incidental to the performance of routine governmental
operations. Such litigation includes, but is not limited to, claims asserted
against the State arising from alleged torts, alleged breaches of contracts,
condemnation proceedings and other alleged violations of State and Federal laws.
Included in the State's outstanding litigation are cases which challenge the
following: the funding of teacher's pension funds; the hospital assessment
authorized by the Health Care Reform Act of 1992; the State's role in a consent
order concerning the construction of a resource facility in Passaic County; the
State's actions regarding alleged chromium contamination of State-owned property
in Hudson County; the constitutionality of annual A- 901 hazardous and solid
waste licensure renewal fees collected by the Department of Environmental
Protection and Energy; the State's funding formula that attempts to close the
spending gap between poor urban school districts and wealthy suburban districts;
the use by the State assessments on certain insurances to retire debt of the
Market Transition Fund, the manner in which mental health services are provided
to inmates with serious mental disorders who are confined within the facilities
of the Department of Corrections; the spousal impoverishment provisions of the
Medicare Catastrophic Coverage Act; Medicaid hospital reimbursements since
February 1995; and the efforts to revitalize Atlantic City through the design
and construction of a highway and tunnel. Adverse judgments in these and other
matters could have the potential for either a significant loss of revenue or a
significant unanticipated expenditure by the State.
At any given time, there are various numbers of claims and cases
pending against the State, State agencies and employees seeking recovery of
monetary damages that are primarily paid out of the fund created pursuant to the
New Jersey Tort Claims Act. In addition at any given time, there are various
numbers of contract claims against the State and State agencies seeking recovery
of monetary damages. The state is unable to estimate its exposure for these
claims.
PUBLIC OFFERING
Offering Price. The secondary market Public Offering Price per Unit is
computed by adding to the aggregate bid price of the Bonds in the Trust divided
by the number of Units outstanding, an amount based on the applicable sales
charge times the aggregate offering price of the Bonds (see "Public Offering
Price" in Part A for the applicable sales charge for the Trust). A proportionate
share of accrued interest on the Bonds to the expected date of settlement for
the Units is added to the Public Offering Price. Accrued interest is the
accumulated and unpaid interest on a Bond from
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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 of this Prospectus. This daily rate is net of estimated fees and
expenses. The Public Offering Price can vary on a daily basis from the amount
stated in Part A in accordance with fluctuations in the prices of the Bonds 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 Bonds
from investment dealers or brokers (including the Sponsor) that customarily deal
in tax-exempt obligations or from any other reporting service or source of
information which the Evaluator deems appropriate.
The sales charge computed by the Evaluator is based upon the number of
years remaining to maturity of each Bond. Bonds will be deemed to mature on
their stated maturity dates unless bonds have been called for redemption, funds
have been placed in escrow to redeem them on an earlier call date or are subject
to a "mandatory put," in which case the maturity will be deemed to be such other
date.
The table below sets forth the various sales charges based on the
length of maturity of each Bond:
As Percent of Public
Time to Maturity Offering Price
- ------------------ --------------------
less than 6 months 0%
6 mos. to 1 year 1%
over 1 yr. to 2 yrs. 1 1/2%
over 2 yrs. to 4 yrs. 2 1/2%
over 4 yrs. to 8 yrs. 3 1/2%
over 8 yrs. to 15 yrs. 4 1/2%
over 15 years 5 1/2%
Accrued Interest. An amount of accrued interest which represents
accumulated unpaid or uncollected interest on a Bond from the last day on which
interest was paid thereon will be added to the Public Offering Price and paid by
the Certificateholder at the time Units are purchased. Since the Trust normally
receives the interest on Bonds twice a year and the interest on the Bonds in the
Trust is accrued on a daily basis (net of estimated fees and expenses), the
Trust will always have an amount of interest accrued but not actually received
and distributed to Certificateholders. 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 a 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, Inc. and its affiliates, Gruntal & Co., L.L.C. and of any
underwriter of a Trust, pursuant to employee benefit arrangements, may purchase
Units of a Trust at a price equal to the offering side evaluation of the
underlying securities in a Trust during the initial offering period and at the
bid side thereafter, divided by the number of Units outstanding plus a reduced
charge. Such arrangements result in less selling effort and selling
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expenses than sales to employee groups of other companies. Resales or transfers
of Units purchased under the employee benefit arrangements may only be made
through the Sponsor's secondary market, so long as it is being maintained.
Distribution Of Units. Certain banks and thrifts will make Units of the
Trust available to their customers on an agency basis. A portion of the sales
charge paid by their customers is retained by or remitted to the banks. Under
the Glass-Steagall Act, banks are prohibited from underwriting Units; however,
the Glass-Steagall Act does permit certain agency transactions and the banking
regulators have indicated that these particular agency transactions are
permitted under such Act. In addition, state securities laws on this issue may
differ from the interpretations of federal law expressed herein and banks and
financial institutions may be required to register as dealers pursuant to state
law.
The Sponsor intends to qualify the Units 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 (a) 4% of the Public Offering Price
for the Insured Municipal Securities Trust Series, (b) $25.00 per Unit for the
Insured Municipal Securities Trust Discount Series or (c) $33.00 per Unit, for
the Insured Municipal Securities Navigator Trust, subject to the Sponsor's right
to change the dealers' concession from time to time. In addition, for
transactions of 1,000,000 Units or more, the Sponsor intends to negotiate the
applicable sales charge and such charge will be disclosed to any such purchaser.
Such Units may then be distributed to the public by the dealers at the Public
Offering Price then in effect. The Sponsor reserves the right to reject, in
whole or in part, any order for the purchase of Units. The Sponsor reserves the
right to change the discounts from time to time.
Sponsor's Profits. The Sponsor will receive a gross commission on all
Units sold in the secondary market equal to the applicable sales charge on each
transaction. (See "Offering Price".) In addition, in maintaining a market for
the Units (see "Sponsor Repurchase") the Sponsor will realize
profits or sustain losses in the amount of any difference between the price at
which they buy Units and the price at which they resell such Units.
Comparison of Public Offering Price, Sponsor's Repurchase Price And
Redemption Price. The secondary market Public Offering Price of Units will be
determined on the basis of the current bid prices of the Bonds in the Trust,
plus the applicable sales charge. The value at which Units may be resold in the
Secondary Market or redeemed will be determined on the basis of the current bid
prices of the Bonds without any sales charge. On the Evaluation Date, the Public
Offering Price and the Sponsor's initial Repurchase Price per Unit (each based
on the bid side evaluation of the Bonds in the Trust) each exceeded the
Redemption Price and the Sponsor's secondary market Repurchase Price per Unit
(based upon the current bid side evaluation of the Bonds in the Trust) by the
amounts shown under "Summary of Essential Information" in Part A of this
Prospectus. For this reason, among others (including fluctuations in the market
prices of such Bonds and the fact that the Public Offering Price includes the
applicable sales charge), the amount realized by a Certificateholder upon any
redemption of Sponsor repurchase of Units may be less than the price paid for
such Units.
ESTIMATED LONG TERM RETURN AND ESTIMATED CURRENT RETURN
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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".
Estimated Long Term Return is calculated by: (i) computing the yield to
maturity or to an earlier call date (whichever results in a lower yield) for
each Bond in a Trust's portfolio in accordance with accepted bond practices,
which practices take into account not only the interest payable on the Bond but
also the amortization of premiums or accretion of discounts, if any; (ii)
calculating the average of the yields for the Bonds in each Trust's portfolio by
weighing each Bond's yield by the market value of the Bond and by the amount of
time remaining to the date to which the Bond is priced (thus creating an average
yield for the portfolio of each Trust); and (iii) reducing the average yield for
the portfolio of each Trust in order to reflect estimated fees and expenses of
that Trust and the maximum sales charge paid by Unitholders. The resulting
Estimated Long Term Return represents a measure of the return to Unitholders
earned over the estimated life of each Trust. The Estimated Long Term Return as
of the day prior to the Evaluation Date is stated for the Trust under "Summary
of Essential Information" in Part A.
Estimated Current Return is computed by dividing the Estimated Net
Annual Interest Income per Unit by the Public Offering Price per Unit. In
contrast to the Estimated Long Term Return, the Estimated Current Return does
not take into account the amortization of premium or accretion of discount, if
any, on the Bonds in the portfolios of the Trust. Moreover, because interest
rates on Bonds purchased at a premium are generally higher than current interest
rates on newly issued bonds of a similar type with comparable rating, the
Estimated Current Return per Unit may be affected adversely if such Bonds are
redeemed prior to their maturity. On the day prior to the Evaluation Date, the
Estimated Net Annual Interest Income per Unit divided by the Public Offering
Price resulted in the Estimated Current Return stated for the Trust under
"Summary of Essential Information" in Part A.
The Estimated Net Annual Interest Income per Unit of the Trust will
vary with changes in the fees and expenses of the Trustee and the Evaluator
applicable to the Trust and with the redemption, maturity, sale or other
disposition of the Bonds in the Trust. The Public Offering Price will vary with
changes in the bid prices of the Bonds. Therefore, there is no assurance that
the present Estimated Current Return or Estimated Long Term Return will be
realized in the future.
A schedule of cash flow projections is available from the Sponsor upon
request.
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 or more Units and will bear appropriate
notations on their faces indicating which plan of distribution has been selected
by the Certificateholder. Certificates are transferable by presentation and
surrender to the Trustee properly endorsed and/or accompanied by a written
instrument or 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
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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 the Trust is
credited by the Trustee to an Interest Account and a deduction is made to
reimburse the Trustee without interest for any amounts previously advanced.
Proceeds representing principal received from the maturity, redemption, sale or
other disposition of the Bonds are credited to a Principal Account.
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 one-twelfth,
one-half or all of such Certificateholder's pro rata share of the Estimated Net
Annual Interest Income in the Interest Account, depending upon the applicable
plan of distribution. Distributions from the Principal Account (other than
amounts representing failed contracts, as previously discussed) will be computed
as of each semi-annual Record Date, and will be made to the Certificateholders
on or shortly after the next semi-annual Payment Date. Proceeds representing
principal received from the disposition of any of the Bonds between a Record
Date and a Payment Date which are not used for redemptions of Units will be held
in the Principal Account and not distributed until the second succeeding
semi-annual Payment Date. No distributions will be made to Certificateholders
electing to participate in the Total Reinvestment Plan. Persons who purchase
Units between a Record Date and a Payment Date will receive their first
distribution on the second Payment Date after such purchase.
Because interest payments are not received by the Trust at a constant
rate throughout the year, interest distributions may be more or less than the
amount credited to the Interest Account as of a given Record Date. For the
purpose of minimizing fluctuations in the distributions from the Interest
Account, the Trustee will advance sufficient funds, without interest, as may be
necessary to provide interest distributions of approximately equal amounts. All
funds in respect of the Bonds 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, and, to the extent funds are not sufficient therein, from the
Principal Account, amounts necessary to pay the expenses of the Trust (as
determined on the basis set forth under "Trust Expenses and Charges"). The
Trustee also may withdraw from said accounts such amounts, if any, as it deems
necessary to establish a reserve for any applicable taxes or other governmental
charges that may be payable out of the Trust. Amounts so withdrawn shall not be
considered a part of the Trust's assets until such time as the Trustee shall
return all or any part of such amounts to the appropriate accounts. In addition,
the Trustee may withdraw from the Interest and Principal Accounts such amounts
as may be necessary to cover purchases of Replacement Bonds and redemptions of
Units by the Trustee.
The estimated monthly, semi-annual or annual interest distribution per
Unit will initially be in the amount shown under Summary of Essential
Information and will change and may be reduced as Bonds mature or are redeemed,
exchanged or sold, or as expenses of the Trust fluctuate. No
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distribution need be made from the Principal Account until the balance therein
is an amount sufficient to distribute $1.00 per Unit.
Distribution Elections. Interest is distributed monthly, semi-annually
or annually, depending upon the distribution plan applicable to the Unit
purchased. Record Dates are the first day of each month for monthly
distributions, the first day of each June and December for semi-annual
distributions and the first day of each December for annual distributions.
Payment Dates will be the fifteenth day of each month following the respective
Record Dates.
Certificateholders purchasing Units in the secondary market will
initially receive distributions in accordance with the election of the prior
owner. Every October each Certificateholder may change his distribution election
by notifying the Trustee in writing of such change between October 1 and
November 1 of each year. (Certificateholders deciding to change their election
should contact the Trustee by calling the number listed on the back cover hereof
for information regarding the procedures that must be followed in connection
with this written notification of the change of election.) Failure to notify the
Trustee on or before November 1 of each year will result in a continuation of
the plan for the following 12 months.
Records. The Trustee shall furnish Certificateholders, in connection
with each distribution, a statement of the amount of interest, if any, and the
amount of other receipts, if any, which are being distributed, expressed in each
case as a dollar amount per Unit. Within a reasonable time after the end of each
calendar year the Trustee will furnish to each person who at any time during the
calendar year was a Certificateholder of record, a statement showing (i) as to
the Interest Account: interest received (including amounts representing interest
received upon any disposition of Bonds and earned original issue discount, if
any), amounts paid for purchases of Replacement Bonds 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 Unit outstanding on the last business day of such calendar year; (ii) as to
the Principal Account: the dates of disposition of any Bonds and the net
proceeds received therefrom (including any unearned original issue discount but
excluding any portion representing accrued interest), deductions for payments of
applicable taxes and fees and expenses of the Trust, amounts paid for purchases
of Replacement Bonds 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 Unit outstanding
on the last business day of such calendar year; (iii) a list of the Bonds held
and the number of Units outstanding on the last business day of such calendar
year; (iv) the Redemption Price per Unit based upon the last computation thereof
made such calendar year; and (v) amounts actually distributed to
Certificateholders during such calendar year from the Interest and Principal
Accounts, separately stated, expressed both as total dollar amounts representing
the pro rata share of each Unit outstanding on the last business day of such
calendar year.
The Trustee shall keep available for inspection by Certificateholders
at all reasonable times during usual business hours, books of record and account
of its transactions as Trustee, including records of the names and addresses of
Certificateholders, Certificates issued or held, a current list of Bonds in the
portfolio and a copy of the Trust Agreement.
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TAX STATUS
All Bonds acquired by each Trust were accompanied by copies of opinions
of bond counsel to the issuing governmental authorities given at the time of
original delivery of the Bonds to the effect that the interest thereon is exempt
from regular Federal income tax. Such interest may, however, be subject to the
federal corporate alternative minimum tax and to state and local taxes. Neither
the Sponsor nor the Trustee nor their respective counsel have made any review of
the proceedings relating to the issuance of the Bonds or the bases for such
opinion and express no opinion as to these matters, and neither the Trustee nor
the Sponsor nor their respective counsel has made an independent examination or
verification that the federal income tax status of the Bonds has not been
altered since the time of the original delivery of those opinions.
In rendering the opinion set forth below, counsel has examined the
Agreement, the final form of Prospectus dated the date hereof (the "Prospectus")
and the documents referred to therein, among others, and has relied on the
validity of said documents and the accuracy and completeness of the facts set
forth therein.
In the opinion of Battle Fowler LLP, counsel for the Sponsor, under
existing law:
The Trusts will be classified as grantor trusts for Federal income
tax purposes and are not associations taxable as corporations for federal
income tax purposes under the Internal Revenue Code of 1986 (the "Code"),
and income received by the Trusts that consists of interest excludable from
federal gross income under the Code will be excludable from the federal
gross income of the Certificateholders of such Trusts.
Each Certificateholder will be considered the owner of a pro rata
portion of the assets of the Trust. Thus, each Certificateholder will be
considered to have received its pro rata share of Bond interest when it is
received by that Trust, and the net income distributable to
Certificateholders that is exempt from federal income tax when received by
that Trust will constitute tax-exempt income when received by the
Certificateholders.
Gain realized on a sale or redemption of the Bonds or on a sale of a
Unit is, however, includable in gross income for federal income tax
purposes, generally as capital gain. Such gain does not include any amount
received in respect to accrued interest, earned original issue discount and
accrued market discount. Gain on the disposition of a Bond or a Unit
purchased at a market discount generally will be treated as ordinary
income, rather than capital gain, to the extent of accrued market discount.
Such gain may be long- or short-term depending on the holding period of the
Units, assuming that the Units are held as capital assets. Capital losses
are deductible to the extent of capital gains; in addition, up to $3,000 of
capital losses of non-corporate Certificateholders ($1,500 for married
persons filing separately) may be deducted against ordinary income. Capital
assets held by individuals will qualify for long-term capital gain
treatment if held for more than one year and more than 18 months,
respectively, and will be subject to a reduced tax rate of 20% rather than
the regular maximum tax rate of 39.6%.
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Each Certificateholder will realize taxable gain or loss when the
Trust disposes of a Bond (whether by sale, exchange, redemption or payment
at maturity), as if the Certificateholder had directly disposed of its pro
rata share of such Bond. The gain or loss is measured by the difference
between (i) the tax cost of such pro rata share and (ii) the amount
received therefor. For this purpose, a Certificateholder's per Unit tax
cost for each Bond is determined by allocating the total tax cost of each
Unit among all the Bonds held in the Trust (in accordance with the portion
of the Trust comprised by each Bond). In order to determine the amount of
taxable gain or loss, the Certificateholder's amount received is similarly
allocated at that time. The Certificateholder may exclude from the amount
received any amounts that represent accrued interest or the earned portion
of any original issue discount but may not exclude amounts attributable to
market discount. Thus, when a Bond is disposed of by a Trust at a gain,
taxable gain will equal the difference between (i) the amount received and
(ii) the amount paid plus any accrued original issue discount. Gain on the
disposition of a Bond purchased at a market discount generally will be
treated as ordinary income, rather than capital gain, to the extent of
accrued market discount. No deduction is allowed for the amortization of
bond premium on tax-exempt bonds, such as the Bonds, in computing regular
federal income tax.
Discount generally accrues based on the principle of compounding of
accrued interest, not on a straight-line or ratable method, with the result
that the amount of earned original issue discount is less in the earlier
years and more in the later years of a bond term. The tax basis of a
discount bond is increased by the amount of accrued, tax-exempt original
issue discount thus determined. This method of calculation will produce
higher capital gains (or lower losses) to a Certificateholder, as compared
to the results produced by the straight-line method of accounting for
original issue discount, upon an early disposition of a Bond by the Trust
or of a Unit by a Certificateholder.
A Certificateholder may also realize taxable gain or loss when a
Unit is sold or redeemed. The amount received is allocated among all the
Bonds in a particular Trust in the same manner as when that Trust disposes
of Bonds, and the Certificateholder may exclude accrued interest and the
earned portion of any original issue discount (but not amounts attributable
to market discount). The return of a Certificateholder's tax cost is
otherwise a tax-free return of capital.
A portion of Social Security benefits is includable in gross income
for taxpayers whose modified adjusted gross income combined with a portion
of their Social Security benefits exceeds a base amount. The base amount is
$25,000 for an individual, $32,000 for a married couple filing a joint
return and zero for married persons filing separate returns. Interest on
tax-exempt bonds is to be added to adjusted gross income for purposes of
computing the amount of Social Security benefits that are includable in
gross income and determining whether an individual's income exceeds the
base amount above which a portion of the benefits would be subject to tax.
Corporate Certificateholders are required to include in federal
corporate alternative minimum taxable income 75% of the amount by which the
adjusted current earnings (which will include tax-exempt interest) of the
corporation exceeds alternative minimum taxable income
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(determined without regard to this item). In addition, in certain cases,
Subchapter S corporations with accumulated earnings and profits from
Subchapter C years will be subject to a minimum tax on excess passive
investment income which includes tax-exempt interest.
Under federal law, interest on Navigator Trust-held Bonds issued by
authority of the Government of Puerto Rico is exempt from regular federal
income tax, and state and local income tax in the United States and Puerto
Rico.
The New York Navigator Insured Trust is not subject to the New York
State Franchise Tax on Business Corporations or the New York City General
Corporation Tax. Under the personal income tax laws of the State and City
of New York, the income of the New York Navigator Insured Trust will be
treated as the income of the Certificateholders. Interest on the Bonds of
the New York Navigator Insured Trust that is exempt from tax under the laws
of the State and City of New York when received by the Trust will retain
its status as tax-exempt interest to its Certificateholders. In addition,
non-residents of New York City will not be subject to the New York City
personal income tax on gains derived with respect to their Units of the New
York Navigator Insured Trust. Non-residents of New York State will not be
subject to New York State personal income tax on such gains unless the
Units are employed in a business, trade or occupation carried on in New
York State. A New York State or New York City resident should determine its
basis and holding periods for its Units in the same manner for New York
State and New York City tax purposes as for federal tax purposes. For
corporations doing business in New York State, interest earned on state and
municipal obligations that are exempt from federal income tax, including
obligations of New York State, its political subdivisions and
instrumentalities, must be included in calculating New York State and New
York City entire net income for purposes of calculating New York State and
New York City franchise (income) tax.
The Insured Municipal Securities Trust is not subject to the New
York State Franchise Tax on Business Corporations or the New York City
General Corporation Tax. For a Certificateholder who is a New York
resident, however, a pro rata portion of all or part of the income of the
Trust will be treated as the income of the Certificateholder under the
income tax laws of the State and City of New York. Similar treatment may
apply in other states.
The exemption of interest on municipal obligations for federal income
tax purposes does not necessarily result in exemption under the income tax laws
of any state or political subdivision. In general, municipal bond interest
exempt from federal income tax is taxable income to residents of the State or
City of New York under the tax laws of those jurisdictions unless the bonds are
issued by the State of New York or one of its political subdivisions or by the
Commonwealth of Puerto Rico or one of its political subdivisions. For
corporations doing business in New York State, interest earned on state and
municipal obligations that are exempt from federal income tax, including
obligations of New York State, its political subdivisions and instrumentalities,
must be included in calculating New York State and New York City entire net
income for purposes of calculating New York State and New York City franchise
(income) tax. The laws of the several states and local taxing authorities vary
with respect to the taxation of such obligations and each
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Certificateholder is advised to consult his own tax advisor as to the tax
consequences of his Certificates under state and local tax laws.
Any proceeds received pursuant to the terms of the insurance on the
Bonds that represent maturing interest on defaulted obligations will be
excludable from federal gross income if, and to the same extent that, such
interest would have been so excludable if paid by the issuers of such defaulted
obligations.
In the opinion of Zeller and Bryant, special counsel to the Sponsor on
New Jersey tax matters, which opinion is made in reliance upon certain
information and based on certain assumptions respecting the New Jersey Navigator
Trust, under existing New Jersey law applicable to individuals who are New
Jersey residents and New Jersey estates and trusts:
(1) The New Jersey Navigator Trust will be
recognized as a trust and not as an association taxable as a
corporation. The New Jersey Navigator Trust will not be
subject to the New Jersey Corporation Business Tax or the
New Jersey Corporation Income Tax.
(2) The income of the New Jersey Navigator Trust
will be treated as income of the Certificateholders who are
individuals, estates or trusts under the New Jersey Gross
Income Tax Act, N.J.S.A. 54A: 1-1 et seq. (the "Act").
Interest on the Bonds that is exempt from tax under the Act
when received by the New Jersey Navigator Trust will retain
its status as tax-exempt interest under the Act when
distributed to Certificateholders who are individuals,
estates or trusts.
(3) Certificateholders, who are individuals,
estates, or trusts will not be subject to the Act on any
gain realized when the New Jersey Navigator Trust disposes
of a Bond (whether by sale, exchange, redemption, or payment
at maturity). Any loss realized on such disposition may not
be utilized to offset gains realized by such
Certificateholder on the disposition of assets the gain on
which is subject to the New Jersey Gross Income Tax.
(4) The sale, exchange or redemption of a Unit by
a Certificateholder shall be treated as a sale or exchange
of a Certificateholder's pro rata interest in the assets in
the New Jersey Navigator Trust at the time of the
transaction and any gain will be exempt from tax under the
Act to the extent that the price received by the selling
Certificate-holder who is an individual, estate or trust
does not exceed the Redemption Price. To the extent that the
amount received by the Certificateholder exceeds the
Redemption Price, any such gain will not be exempt from tax
under the Act.
(5) All proceeds representing interest on
defaulted obligations derived by Certificateholders who are
individuals, estates or trusts from an insurance policy,
either paid directly to the Certificateholder or through the
New Jersey Navigator Trust, are exempt from tax under the
Act.
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(6) The Units of the New Jersey Navigator Trust
may be taxable in the estates of New Jersey residents under
the New Jersey Transfer Inheritance Tax Law or the New
Jersey Estate Tax Laws.
(7) If a Certificateholder is a corporation
subject to the New Jersey Corporation Business Tax or New
Jersey Corporation Income Tax, interest from the Bonds in
the New Jersey Navigator Trust which is allocable to such
corporation will be includable in its entire net income for
purposes of the New Jersey Corporation Business Tax or New
Jersey Corporation Income Tax, less any interest expense
incurred to carry such investment to the extent such
interest expense has not been deducted in computing Federal
taxable income. Net gains derived by such corporation on the
disposition of the Bonds by the New Jersey Navigator Trust
or on the disposition of its Units will be included in its
entire net income for purposes of the New Jersey Corporation
Business Tax or New Jersey Corporation Income Tax. Any
proceeds paid under the insurance policy issued to the
Trustee of the New Jersey Navigator Trust with respect to
the Bonds or under individual policies obtained by issuers
of Bonds which represent maturing interest or maturing
principal on defaulted obligations held by the Trustee will
be included in its entire net income for purposes of the New
Jersey Corporation Business Tax or New Jersey Corporation
Income Tax if, and to the same extent as, such interest or
proceeds would have been so included if paid by the issuer
of the defaulted obligations.
In the case of Bonds that are Industrial Revenue Bonds ("IRBs") or
certain types of private activity bonds, the opinions of bond counsel to the
respective issuing authorities indicate that interest on such Bonds is exempt
from regular federal income tax. However, interest on such Bonds will not be
exempt from regular federal income tax for any period during which such Bonds
are held by a substantial user of the facilities financed by the proceeds of
such Bonds or by a related person thereof within the meaning of the Code.
Therefore, interest on any such Bonds allocable to a Certificateholder who is
such a substantial user or related person thereof will not be tax-exempt.
Furthermore, in the case of IRBs that qualify for the small issue exemption, the
small issue exemption will not be available or will be lost if, at any time
during the three-year period beginning on the later of the date the facilities
are placed in service or the date of issue, all outstanding tax-exempt IRBs,
together with a proportionate share of any present issue, of an owner or
principal user (or related person) of the facilities exceeds $40,000,000. In the
case of IRBs issued under the $10,000,000 small issue exemption, interest on
such IRBs will become taxable if the face amount of the IRBs plus certain
capital expenditures exceeds $10,000,000.
In addition, a Bond can lose its tax-exempt status as a result of other
subsequent but unforeseeable events such as prohibited arbitrage activities by
the issuer of the Bond or the failure of the Bond to continue to satisfy the
conditions required for the exemption of interest thereon from regular federal
income tax. No investigation has been made as to the current or future owners or
users of the facilities financed by the Bonds, the amount of such persons'
outstanding tax-exempt IRBs, or the facilities themselves, and no assurance can
be given that future events will not affect the tax-
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exempt status of the Bonds. Investors should consult their tax advisors for
advice with respect to the effect of these provisions on their particular tax
situation.
Interest on indebtedness incurred or continued to purchase or carry the
Units is not deductible for regular federal income tax purposes. However, such
interest is deductible for New York State and New York City income tax purposes
by corporations that are required to include interest on the Bonds in New York
State and New York City entire net income for purposes of calculating New York
State and City franchise (income) taxes. In addition, under rules used by the
Internal Revenue Service for determining when borrowed funds are considered used
for the purpose of purchasing or carrying particular assets, the purchase of
Units may be considered to have been made with borrowed funds even though the
borrowed funds are not directly traceable to the purchase of Units. Also, in the
case of certain financial institutions that acquire Units, in general no
deduction is allowed for interest expense allocable to the Units.
From time to time, proposals have been introduced before Congress to
restrict or eliminate the federal income tax exemption for interest on debt
obligations similar to the Bonds in the Trust, and it can be expected that
similar proposals may be introduced in the future. In particular, Congress may
consider the adoption of some form of flat tax, which could have an adverse
impact on the value of tax-exempt bonds.
In South Carolina v. Baker, the U.S. Supreme Court held that the
federal government may constitutionally require states to register bonds they
issue and subject the interest on such bonds to federal income tax if not
registered, and that there is no constitutional prohibition against the federal
government's taxing the interest earned on state or other municipal bonds. The
Supreme Court decision affirms the authority of the federal government to
regulate and control bonds such as the Bonds in the Trust and to tax interest on
such bonds in the future. The decision does not, however, affect the current
exemption from taxation of the interest earned on the Bonds in the Trust in
accordance with Section 103 of the Code.
The opinions of bond counsel or special tax counsel to the issuing
governmental authorities to the effect that interest on the Bonds is exempt from
regular federal income tax may be limited to law existing at the time the Bonds
were issued, and may not apply to the extent that future changes in law,
regulations or interpretations affect such Bonds. Investors are advised to
consult their own tax advisors for advice with respect to the effect of any
legislative changes.
LIQUIDITY
Sponsor Repurchase. The Sponsor, although not obligated to do so,
intends to maintain a secondary market for the Units 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 Bonds in the Trust portfolio, determined by the Evaluator on a
daily basis, and will be the same as the redemption price. The aggregated bid
price, determined by the Evaluator on a daily basis, is 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
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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, Inc. 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.
Prospectuses relating to certain other bond trusts indicate an
intention by the respective Sponsor, subject to change, to repurchase units on
the basis of a price higher than the bid prices of the bonds in the trusts.
Consequently, depending on the prices actually paid, the secondary market
repurchase price of other trusts may be computed on a somewhat more favorable
basis than the repurchase price offered by the Sponsor for units of this Trust,
although in all bond trusts, the purchase price of a unit depends primarily on
the value of the bonds in the trust portfolio.
Units purchased by the Sponsor in the secondary market may be
re-offered for sale by the Sponsor at a price based on the aggregate bid price
of the Bonds in the Trust plus the applicable sales charge (see "Public Offering
Price" in Part A) plus net accrued interest. Any Units that are purchased by the
Sponsor in the secondary market also may be redeemed by the Sponsor if it
determines such redemption to be in its best interest.
The Sponsor may, under certain circumstances, as a service to
Certificateholders, elect to purchase any Units tendered to the Trustee for
redemption (see "Trustee Redemption"). Factors which the Sponsor will consider
in making a determination will include the number of Units of all 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
redemptions of Units the Trustee must dispose of Bonds, and if such disposition
cannot be made by the redemption date (seven calendar days after tender), the
Sponsor may elect to purchase such Units. Such purchase shall be made by payment
to the Certificateholder not later than the close of business on the redemption
date of an amount equal to the Redemption Price on the date of tender.
Trustee Redemption. Units may also be tendered to the Trustee for
redemption at its corporate trust office as set forth in Part A of this
Prospectus, upon proper delivery of Certificates representing such Units and
payment of any relevant tax. At the present time there are no specific taxes
related to the redemption of Units. No redemption fee will be charged by the
Sponsor or the Trustee. Units redeemed by the Trustee will be canceled.
Certificates representing Units to be redeemed must be delivered to the
Trustee and must be properly endorsed or accompanied by proper instruments of
transfer with signature guaranteed (or by providing satisfactory indemnity, as
in the case of lost, stolen or mutilated Certificates). Thus, redemptions of
Units cannot be 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.
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Within three business days following a tender for redemption, the
Certificateholder will be entitled to receive in cash an amount for each Unit
tendered equal to the Redemption Price per Unit computed as of the Evaluation
Time 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 Bonds in order to make funds
available for redemptions. Such sales, if required, could result in a sale of
Bonds by the Trustee at a loss. To the extent Bonds 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 the
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 Bonds
in the Trust based on the bid prices of such Bonds and (iii) interest accrued
thereon, less (a) amounts representing taxes or other governmental charges
payable out of 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 Bonds in the Trust (i) on the basis of current bid prices of the
Bonds obtained from dealers or brokers who customarily deal in bonds comparable
to those held by the Trust, (ii) on the basis of bid prices for bonds comparable
to any Bonds for which bid prices are not available, (iii) by determining the
value of the Bonds by appraisal, or (iv) by any combination of the above. The
Evaluator will determine the aggregate current bid price evaluation of the Bonds
in the Trust, taking into account the market value of the Bonds insured under
the Bond Insurance Policy, in the manner described as set forth under "Public
Offering--Offering Price". Insurance does not guarantee the market value of the
Bonds or the Units, and while Bond insurance represents an element of market
value in regard to insured Bonds, its exact effect, if any, on market value
cannot be predicted.
The Trustee is irrevocably authorized in its discretion, if the Sponsor
does not elect to purchase a Unit tendered for redemption or if the Sponsor
tenders a Unit for redemption, in lieu of redeeming such Unit, to sell such Unit
in the over-the-counter market for the account of the tendering
Certificateholder at prices which will return to the Certificateholder an amount
in cash, net after deducting brokerage commissions, transfer taxes and other
charges, equal to or in excess of the Redemption Price for such Unit. The
Trustee will pay the net proceeds of any such sale to the Certificateholder on
the day he would otherwise be entitled to receive payment of the Redemption
Price.
The Trustee reserves the right to suspend the right of redemption and
to postpone the date of payment of the Redemption Price per Unit for any period
during which the New York Stock Exchange is closed, other than customary weekend
and holiday closings, or trading on that Exchange is restricted or during which
(as determined by the Securities and Exchange Commission) an emergency exists as
a result of which disposal or evaluation of
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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.
TRUST ADMINISTRATION
Portfolio Supervision. Except for the purchase of Replacement Bonds or
as discussed herein, the acquisition of any Bonds for the Trust other than Bonds
initially deposited by the Sponsor is prohibited. Although it is the Sponsor's
and Trustee's intention not to dispose of Bonds insured pursuant to the Bond
Insurance in the event of default, nevertheless, the Sponsor may direct the
Trustee to dispose of Bonds upon (i) default in payment of principal or interest
on such Bonds, (ii) institution of certain legal proceedings with respect to the
issuers of such Bonds, (iii) default under other documents adversely affecting
debt service on such Bonds, (iv) default in payment of principal or interest on
other obligations of the same issuer or guarantor, (v) with respect to revenue
Bonds, decline in revenues and income of any facility or project below the
estimated levels calculated by proper officials charged with the construction or
operation of such facility or project or (vi) decline in price or the occurrence
of other market or credit factors that in the opinion of the Sponsor would make
the retention of such Bonds in the Trust detrimental to the interests of the
Certificateholders. If a default in the payment of principal or interest on any
of the Bonds occurs and if the Sponsor fails to instruct the Trustee to sell or
hold such Bonds, the Trust Agreement provides that the Trustee may sell such
Bonds. The Trustee shall not be liable for any depreciation or loss by reason of
any sale of bonds or by reason of the failure of the Sponsor to give directions
to the Trustee.
The Sponsor is authorized by the Trust Agreement to direct the Trustee
to accept or reject certain plans for the refunding or refinancing of any of the
Bonds. Any bonds received in exchange or substitution will be held by the
Trustee subject to the terms and conditions of the Agreement to the same extent
as the Bonds originally deposited. Within five days after such deposit, notice
of such exchange and deposit shall be given by the Trustee to each
Certificateholder registered on the books of the Trustee, including an
identification of the Bonds eliminated and the Bonds substituted therefor.
Trust Agreement, Amendment And Termination. The Trust Agreement may be
amended by the Trustee, the Sponsor and the Evaluator without the consent of any
of the Certificateholders: (i) to cure any ambiguity or to correct or supplement
any provision which may be defective or inconsistent; (ii) to change any
provision thereof as may be required by the Securities and Exchange Commission
or any successor governmental agency; or (iii) to make such other provisions in
regard to matters arising thereunder as shall not adversely affect the interests
of the Certificateholders.
The Trust Agreement may also be amended in any respect, or performance
of any of the provisions thereof may be waived, with the consent of the holders
of Certificates evidencing 66-2/3% of the Units then outstanding for the purpose
of modifying the rights of Certificateholders;
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provided that no such amendment or waiver shall reduce any Certificateholder's
interest in the 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 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 the 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 Bonds 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 the
Trust. The 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 Bond remaining in the Trust, and, after paying all expenses and
charges incurred by the Trust, distribute to each Certificateholder, upon
surrender for cancellation of his Certificate for Units, his pro rata share of
the Interest and Principal Accounts.
The Sponsors. The Sponsor, Reich & Tang Distributors, Inc. ("Reich &
Tang") (successor to the Unit Investment Trust division of Bear, Stearns & Co.
Inc.), a Delaware limited partnership, is engaged in the brokerage business and
is a member of the National Association of Securities Dealers, Inc. Reich & Tang
is also a registered investment adviser. Reich & Tang maintains its principal
business offices at 600 Fifth Avenue, New York, New York 10020. The sole
shareholder of the Sponsor, Reich & Tang Asset Management, Inc. ("RTAM Inc.") is
wholly owned by NEIC Holdings, Inc. which, effective December 29, 1997, was
wholly owned by NEIC Operating Partnership, L.P. ("NEICOP"). Subsequently, on
March 31, 1998, NEICOP changed its name to Nvest Companies, L.P. ("Nvest"). The
general partners of Nvest are Nvest Corporation and Nvest, L.P. Nvest, L.P. is
owned approximately 99% by public unitholders and its general partner is Nvest
Corporation. Nvest, with a principal place of business at 399 Boylston Street,
Boston, MA 02116, is a holding company of firms engaged in the securities and
investment advisory business. These affiliates in the aggregate are investment
advisors or managers to over 80 registered investment companies. Reich & Tang is
Sponsor (and Co-Sponsor, as the case may be) for numerous series of unit
investment trusts, including New York Municipal Trust, Series 1 (and Subsequent
Series), Municipal Securities Trust, Series 1 (and Subsequent Series), 1st
Discount Series (and Subsequent Series), Multi-State Series 1 (and Subsequent
Series), Mortgage Securities Trust, Series 1 (and Subsequent Series), Insured
Municipal Securities Trust, Series 1 (and Subsequent Series), and 5th Discount
Series (and Subsequent Series), Equity Securities Trust, Series 1, Signature
Series, Gabelli Communications Income Trust (and Subsequent Series) and Schwab
Trusts.
For certain other Trusts as set forth in the "Summary of Essential
Information" in Part A, the Sponsors are Reich & Tang and Gruntal & Co., L.L.C.,
both of whom have entered into an Agreement Among Co-Sponsors pursuant to which
both parties have agreed to act as Co-Sponsors for the Trust. Reich
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& Tang has been appointed by Gruntal & Co., L.L.C. as agent for purposes of
taking any action required or permitted to be taken by the Sponsor under the
Trust Agreement. If the Sponsors are unable to agree with respect to action to
be taken jointly by them under the Trust Agreement and they cannot agree as to
which Sponsor shall act as sole Sponsor, then Reich & Tang shall act as sole
Sponsor. If one of the Sponsors fails to perform its duties under the Trust
Agreement or becomes incapable of acting or becomes bankrupt or its affairs are
taken over by public authorities, that Sponsor may be discharged under the Trust
Agreement and a new Sponsor may be appointed or the remaining Sponsor may
continue to act as Sponsor.
Gruntal & Co., L.L.C., a Delaware limited liability company, operates a
regional securities broker/dealer from its main office in New York City and
branch offices in nine states. The firm is very active in the marketing of
investment companies and has signed dealer agreements with many mutual fund
groups. Further, through its Syndicate Department, Gruntal & Co., L.L.C. has
underwritten a large number of Closed-End Funds and has been Co- Manager on the
following offerings: Cigna High Income Shares; Dreyfus New York Municipal
Income, Inc.; Franklin Principal Maturity Trust and Van Kampen Merritt Limited
Term High Income Trust. The Sponsor is liable for the performance of its
obligations arising from its responsibilities under the Trust Agreement, but
will be under no liability to Certificateholders for taking any action, or
refraining from taking any action, in good faith pursuant to the Trust
Agreement, or for errors in judgment except in cases of its own willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations and duties.
The information included herein is only for the purpose of informing
investors as to the financial responsibility of the Sponsor and its ability to
carry out its contractual obligations. The Sponsor will be under no liability to
Certificateholders for taking any action, or refraining from taking any action,
in good faith pursuant to the Trust Agreement, or for errors in judgment except
in cases of its own wilful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations and duties.
Unless the Sponsor otherwise directs, the accounts of the Trust shall
be audited not less than annually by independent public accountants selected by
the Sponsor. The expenses of the audit shall be an expense of the Trust. So long
as the Sponsor maintains a secondary market, the Sponsor will bear any audit
expense which exceeds $.50 per 1,000 Units. Certificateholders covered by the
audit during the year may receive a copy of the audited financials upon request.
The Sponsor may resign at any time by delivering to the Trustee an
instrument of resignation executed by the Sponsor.
If at any time the Sponsor shall resign or fail to perform any of its
duties under the Trust Agreement or becomes incapable of acting or becomes
bankrupt or its affairs are taken over by public authorities, then the Trustee
may either (i) appoint a successor Sponsor; (ii) terminate the Trust Agreement
and liquidate the Trust; or (iii) continue to act as Trustee without terminating
the Trust Agreement. Any successor Sponsor appointed by the Trustee shall be
satisfactory to the Trustee and, at the time of appointment, shall have a net
worth of at least $1,000,000.
The Trustee. For certain of the Trusts, as set forth in the "Summary of
Essential Information" in Part A, the Trustee is The Chase
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Manhattan Bank with its principal executive office located at 270 Park Avenue,
New York, New York 10017 (800) 428-8890 and its unit investment trust office at
4 New York Plaza, New York, New York 10004. The Trustee is subject to
supervision by the Superintendent of Banks of the State of New York, the Federal
Deposit Insurance Corporation and the Board of Governors of the Federal Reserve
System.
The Trustee must be a banking corporation organized under the laws of
the United States or any state which is authorized under such laws to exercise
corporate trust powers and must have at all times an aggregate capital, surplus
and undivided profits of not less than $5,000,000. The duties of the Trustee are
primarily ministerial in nature. The Trustee did not participate in the
selection of Securities for the portfolio of the Trust.
The Trustee shall not be liable or responsible in any way for taking
any action, or for refraining from taking any action, in good faith pursuant to
the Trust Agreement, or for errors in judgment; or for any disposition of any
moneys, bonds or Certificates in accordance with the Trust Agreement, except in
cases of its own willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations and duties; provided, however, that the Trustee
shall not in any event be liable or responsible for any evaluation made by the
Evaluator. In addition, the Trustee shall not be liable for any taxes or other
governmental charges imposed upon or in respect of the Bonds or the 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 Bonds pursuant to the Trust Agreement.
For further information relating to the responsibilities of the Trustee
under the Trust Agreement, reference is made to the material set forth under
"Rights of Certificateholders".
The Trustee may resign by executing an instrument in writing and filing
the same with the Sponsor, and mailing a copy of a notice of resignation to all
Certificateholders. In such an event, the Sponsor is obligated to appoint a
successor Trustee as soon as possible. In addition, if the Trustee becomes
incapable of acting or becomes bankrupt or its affairs are taken over by public
authorities, the Sponsor may remove the Trustee and appoint a successor as
provided in the Trust Agreement. Notice of such removal and appointment shall be
mailed to each Certificateholder by the Sponsor. If upon resignation of the
Trustee no successor has been appointed and has accepted the appointment within
thirty days after notification, the retiring Trustee may apply to a court of
competent jurisdiction for the appointment of a successor. The resignation or
removal of the Trustee becomes effective only when the successor Trustee accepts
its appointment as such or when a court of competent jurisdiction appoints a
successor Trustee. Upon execution of a written acceptance of such appointment by
such successor Trustee, all the rights, powers, duties and obligations of the
original Trustee shall vest in the successor.
Any corporation into which the Trustee may be merged or with which it
may be consolidated, or any corporation resulting from any merger or
consolidation to which the Trustee shall be a party, shall be the successor
Trustee. The Trustee must always be a banking corporation organized under the
laws of the United States or any State and have at all times an aggregate
capital, surplus and undivided profits of not less than $2,500,000.
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The Evaluator. The Evaluator is Kenny S&P Evaluation Services, a
division of a business unit of J.J. Kenny Company, Inc., a subsidiary of The
McGraw-Hill Companies, 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 premiums
on the Sponsor-Insured Bonds, 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" bonds 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 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 of this Prospectus. The Sponsor's fee may exceed the
actual cost of providing portfolio supervisory services for this Trust, but at
no time will the total amount received for portfolio supervisory services
rendered to all series of the Municipal Securities Trust in any calendar year
exceed the aggregate cost to the Sponsor of supplying such services in such
year. (See "Portfolio Supervision".)
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 of this Prospectus. 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 Bonds 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 of this Prospectus.
The Trustee's and Evaluator's fees are payable monthly as of the Record
Date from the Interest Account 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:
(i) 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; (ii) fees of the Trustee
for any extraordinary services performed under the Trust Agreement; (iii)
indemnification of the Trustee for any loss or liability accruing to it without
gross negligence, bad faith or willful misconduct on its part, arising out of or
in connection with its acceptance or administration of the Trust; (iv)
indemnification of the Sponsor for any losses, liabilities and expenses incurred
in acting as Sponsor of the Trust without gross negligence, bad faith or willful
misconduct on its part; and (v) all taxes and other governmental charges imposed
upon the Bonds or any part of 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. In addition, the Trustee is empowered
to sell Bonds 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. So long as the Sponsor
maintains a secondary market, the Sponsor will bear any audit expense which
exceeds 50 cents per Unit. Certificateholders covered by the audit during the
year may receive a copy of the audited financial statements upon request.
EXCHANGE PRIVILEGE AND CONVERSION OFFER
Certificateholders will be able to elect to exchange any or all of
their Units of this Trust for Units of one or more of any available series of
Equity Securities Trust, Insured Municipal Securities Trust, Municipal
Securities Trust, New York Municipal Trust or Mortgage Securities Trust (the
"Exchange Trusts") subject to a reduced sales charge as set forth in the
prospectus of the Exchange Trust (the "Exchange Privilege"). Unit owners of any
registered unit investment trust for which there is no active secondary market
in the units of such trust (a "Redemption Trust") will be able to elect to
redeem such units and apply the proceeds of the redemption to the purchase of
available Units of one or more series of an Exchange Trust (the "Conversion
Trusts") at the Public Offering Price for units of the Conversion Trust subject
to a reduced sales charge as set forth in the prospectus of the Conversion Trust
(the "Conversion Offer"). Under the Exchange Privilege, the Sponsor's repurchase
price during the initial offering period of the Units being surrendered will be
based on the market value of the Securities in the Trust portfolio or on the
aggregate offer price of the Bonds in the other
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Trust Portfolios; and, after the initial offering period has been completed,
will be based on the aggregate bid price of the securities in the particular
Trust portfolio. Under the Conversion Offer, units of the Redemption Trust must
be tendered to the trustee of such trust for redemption at the redemption price
determined as set forth in the relevant Redemption Trust's prospectus. Units in
an Exchange or Conversion Trust will be sold to the Certificateholder at a price
based on the aggregate offer price of the securities in the Exchange or
Conversion trust portfolio (or for units of Equity Securities Trust, based on
the market value of the underlying securities in the trust portfolio) during the
initial public offering period of the Exchange or Conversion Trust; and after
the initial public offering period has been completed, based on the aggregate
bid price of the securities in the Exchange or Conversion Trust Portfolio if its
initial offering has been completed plus accrued interest (or for units of
Equity Securities Trust, based on the market value of the underlying securities
in the trust portfolio) and a reduced sales charge.
Except for Certificateholders who wish to exercise the Exchange
Privilege or Conversion Offer within the first five months of their purchase of
Units of the Exchange or Redemption Trust, any purchaser who purchases Units
under the Exchange Privilege or Conversion Offer will pay a lower sales charge
than that which would be paid for the Units by a new investor. For
Certificateholders who wish to exercise the Exchange Privilege or Conversion
Offer within the first five months of their purchase of Units of the Exchange or
Redemption Trust, the sales charge applicable to the purchase of units of an
Exchange or Conversion Trust shall be the greater of (i) the reduced sales
charge or (ii) an amount which when coupled with the sales charge paid by the
Certificateholder upon his original purchase of Units of the Exchange or
Redemption Trust would equal the sales charge applicable in the direct purchase
of units of an Exchange Trust.
In order to exercise the Exchange Privilege the Sponsor must be
maintaining a secondary market in the units of the available Exchange Trust. The
Conversion Offer is limited only to unit owners of any Redemption Trust.
Exercise of the Exchange Privilege and the Conversion Offer by
Certificateholders is subject to the following additional conditions: (i) at the
time of the Certificateholder's election to participate in the Exchange
Privilege or Conversion Offer, there must be units of the Exchange or Conversion
Trust available for sale, either under the initial primary distribution or in
the Sponsor's secondary market, (ii) exchanges will be effected in whole units
only, (iii) Units of the Mortgage Securities Trust may only be acquired in
blocks of 1,000 Units and (iv) Units of the Equity Securities Trust may only be
acquired in blocks of 100 Units. Certificateholders will not be permitted to
advance any funds in excess of their redemption in order to complete the
exchange. Any excess proceeds received from a Certificateholder for exchange or
from units being redeemed per conversion will be remitted to such
Certificateholder.
The Sponsor reserves the right to suspend, modify or terminate the
Exchange Privilege and/or the Conversion Offer. The Sponsor will provide
Certificateholders of the Trust with 60 days' prior written notice of any
termination or material amendment to the Exchange Privilege and/or the
Conversion Offer, provided that no notice need be given if (i) the only material
effect of an amendment is to reduce or eliminate the sales charge payable at the
time of the exchange, to add one or more series of the Trust eligible for the
Exchange Privilege or the Conversion Offer, to add any new unit investment trust
sponsored by Reich & Tang or a sponsor controlled by
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or under common control with Reich & Tang or to delete a series which has been
terminated from eligibility for the Exchange Privilege and/or the Conversion
Offer, (ii) there is a suspension of the redemption of units of an Exchange or
Conversion Trust under Section 22(e) of the Investment Company Act of 1940, or
(iii) an Exchange Trust temporarily delays or ceases the sale of its units
because it is unable to invest amounts effectively in accordance with its
investment objectives, policies and restrictions. During the 60-day notice
period prior to the termination or material amendment of the Exchange Privilege
described above, the Sponsor will continue to maintain a secondary market in the
units of all Exchange Trusts that could be acquired by the affected
Certificateholders. Certificateholders may, during this 60-day period, exercise
the Exchange Privilege in accordance with its terms then in effect.
To exercise the Exchange Privilege, a Certificateholder should notify
the Sponsor of his desire to exercise his Exchange Privilege. To exercise the
Conversion Offer, a unit owner of a Redemption Trust should notify his retail
broker of his desire to redeem his Redemption Trust Units and use the proceeds
from the redemption to purchase Units of one or more of the Conversion Trusts.
If Units of a designated, outstanding series of an Exchange or Conversion Trust
are at the time available for sale and such Units may lawfully be sold in the
state in which the Certificateholder is a resident, the Certificateholder will
be provided with a current prospectus or prospectuses relating to each Exchange
or Conversion Trust in which he indicates an interest. He may then select the
Trust or Trusts into which he desires to invest the proceeds from his sale of
Units. The exchange transaction will operate in a manner essentially identical
to a secondary market transaction except that units may be purchased at a
reduced sales charge. The conversion transaction will be handled entirely
through the unit owner's retail broker. The retail broker must tender the units
to the trustee of the Redemption Trust for redemption and then apply the
proceeds to the redemption toward the purchase of units of a Conversion Trust at
a price based on the aggregate offer or bid side evaluation per Unit of the
Conversion Trust, depending on which price is applicable, plus accrued interest
and the 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 retail a
portion of the sales charge.
Tax Consequences of the Exchange Privilege and the Conversion Offer. A
surrender of Units pursuant to the Exchange Privilege or the Conversion Offer
will constitute a "taxable event" to the Certificateholder under the Internal
Revenue Code. The Certificateholder will realize a tax gain or loss that will be
of a long-, mid- or short-term capital or ordinary income nature dependent on
the length of time the Units have been held and other factors. (See "Tax
Status".) A Certificateholder's tax basis in the Units acquired pursuant to the
Exchange Privilege or Conversion Offer will be equal to the purchase price of
such Units. Investors should consult their own tax advisors as to the tax
consequences to them of exchanging or redeeming units and participating in the
Exchange Privilege or Conversion Offer.
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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 Chase Manhattan Bank. Certain matters relating to New Jersey
tax law have been passed upon by Zeller and Bryant, as special New Jersey
counsel to the Sponsor.
Independent Accountants. The financial statements of the Trusts for the
years ended December 31, 1996, 1997 and 1998 included in Part A of this
Prospectus have been examined by PricewaterhouseCoopers LLP, independent
accountants. The financial statements have been so included in reliance on their
report given upon the authority of said firm as experts in accounting and
auditing.
Performance Information. Total returns, average annualized returns or
cumulative returns for various periods of this Trust may be included from time
to time in advertisements, sales literature and reports to current or
prospective investors. Total return shows changes in Unit price during the
period plus reinvestment of dividends and capital gains, divided by the original
public offering price as of the date of calculation. Average annualized returns
show the average return for stated periods of longer than a year. Sales material
may also include an illustration of the cumulative results of like annual
investments during an accumulation period and like annual withdrawals during a
distribution period. Figures for actual portfolios will reflect all applicable
expenses and, unless otherwise stated, the maximum sales charge. No provision is
made for any income taxes payable. Returns may also be shown on a combined
basis. Trust performance may be compared to performance on a total return basis
of the Dow Jones Industrial Average, the S&P 500 Composite Price Stock Index, or
performance data from Lipper Analytical Services, Inc. and Morningstar
Publications, Inc. or from publications such as Money, The New York Times, U.S.
News and World Report, Business Week, Forbes or Fortune. As with other
performance data, performance comparisons should not be considered
representative of a Trust's relative performance for any future period.
DESCRIPTION OF BOND RATINGS*
Standard & Poor's Ratings Services. A brief description of the
applicable Standard & Poor's rating symbols and their meanings is as follows:
A Standard & Poor's corporate or municipal bond rating is a current
assessment of the creditworthiness of an obligor with respect to a specific debt
obligation. This assessment of creditworthiness may take into consideration
obligors such as guarantors, insurers, or lessees.
- --------------
* As described by Standard & Poor's.
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The bond rating is not a recommendation to purchase or sell a security,
inasmuch as it does not comment as to market price.
The ratings are based on current information furnished to Standard &
Poor's by the issuer and obtained by Standard & Poor's from other sources it
considers reliable. The ratings may be changed, suspended or withdrawn as a
result of changes in, or unavailability of, such information.
The ratings are based, in varying degrees, on the following
considerations:
(i) Likelihood of default-capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in accordance
with the terms of the obligation.
(ii) Nature of and provisions of the obligation.
(iii) Protection afforded by, and relative position of, the obligation
in the event of bankruptcy, reorganization or other arrangement under the
laws of bankruptcy and other laws affecting creditors' rights.
AAA -- This is the highest rating assigned by Standard & Poor's to a
debt obligation and indicates an extremely strong capacity to pay principal and
interest.
AA -- Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and they differ from AAA
issues only in small degrees.
A -- Bonds rated A have a strong capacity to pay principal and
interest, although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
BBB -- Bonds rated BBB are regarded as having an adequate capacity to
pay principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.
Plus (+) or Minus (-): To provide more detailed indications of credit
quality, the ratings from "AA" to "BB" may be modified by the addition of a plus
or minus sign to show relative standing within the major rating categories.
NR: Indicates that no rating has been requested, that there is
insufficient information on which to base a rating or that S&P does not rate a
particular type of obligation as a matter of policy.
Provisional Ratings (Prov.) following a rating indicates the rating is
provisional, which assumes the successful completion of the project being
financed by the issuance of the bonds being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion, makes no comment on the likelihood of,
or the risk of default upon failure of, such completion. Accordingly, the
investor should exercise his own judgment with respect to such likelihood and
risk.
112677.9
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DESCRIPTION OF RATING ON THE UNITS*
A Standard & Poor's rating on the units of an investment trust
(hereinafter referred to collectively as "units" and "fund") is a current
assessment of creditworthiness with respect to the investments held by such
fund. This assessment takes into consideration the financial capacity of the
issuers and of any guarantors, insurers, lessees, or mortgagors with respect to
such investments. The assessment, however, 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 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.
Funds rated "AAA" are composed exclusively of assets that are rated
"AAA" by Standard & Poor's or have, in the opinion of Standard & Poor's, credit
characteristics comparable to assets that are rated "AAA", or certain short-term
investments. 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 very strong.
- --------
* As described by Standard & Poor's Corporation.
112677.9
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<TABLE>
<CAPTION>
<S> <C> <C>
INDEX INSURED
MUNICIPAL SECURITIES TRUST
Title Page (Unit Investment Trust)
Prospectus
Summary of Essential Information..............................................A-5
Financial and Statistical Information.........................................A-6 Dated: April 30, 1998
Information Regarding the Trust...............................................A-7
Audit and Financial Information...............................................F-1 Sponsor:
Reich & Tang Distributors, Inc.
The Trust.................................................................... 1 600 Fifth Avenue
Risk Considerations........................................................... 14 New York, New York 10020
Public Offering............................................................... 33 (212) 830-5200
Estimated Long Term Return and
Estimated Current Return.................................................... 35
Rights of Certificateholders.................................................. 36 (and for certain Trusts:)
Tax Status.................................................................... 39 Gruntal & Co., L.L.C.
Liquidity..................................................................... 44 One Liberty Plaza
Trust Administration.......................................................... 47 New York, New York 10005
Trust Expenses and Charges.................................................... 51 212-267-8800
Exchange Privilege and Conversion
Offer....................................................................... 52 Trustee:
Other Matters................................................................. 55
Description of Bond Ratings................................................... 55 The Chase Manhattan Bank
Description of Rating on the Units............................................ 57 4 New York Plaza
New York, New York 10004
Parts A and B of this Prospectus do not 800-882-9898
contain all of the information set forth in
the registration statement and exhibits Evaluator:
relating thereto, filed with the Securities
and Exchange Commission, Washington, D.C., Kenny S&P
under the Securities Act of 1933, and to Evaluation Services
which reference is made. 65 Broadway
New York, New York 10006
</TABLE>
* * *
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 of this Prospectus; and any
information or representation not contained herein must not be relied upon as
having been authorized by the Trust, the Trustee, the Evaluator, or the Sponsor.
The Trust is registered as a unit investment trust under the Investment Company
Act of 1940. Such registration does not imply that the Trust or any of its Units
have been guaranteed, sponsored, recommended or approved by the United States or
any state or any agency or officer thereof.
112677.9
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