<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 24, 1994
REGISTRATION NO. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT
TRUSTS REGISTERED ON FORM N-8B-2
------------------------------------
A. EXACT NAME OF TRUST:
Insured Municipal Securities Trust, Series 32 (Long), New York
Navigator Insured Series 16 and New Jersey Navigator Insured Series
12; and Municipal Securities Trust, Series 55 (Intermediate)
B. NAME OF DEPOSITORS:
<TABLE>
<S> <C>
Bear, Stearns & Co. Inc. Gruntal & Co., Incorporated
</TABLE>
C. COMPLETE ADDRESS OF DEPOSITORS' PRINCIPAL EXECUTIVE OFFICES:
<TABLE>
<S> <C>
Bear, Stearns & Co. Inc. Gruntal & Co., Incorporated
245 Park Avenue 14 Wall Street
New York, New York 10167 New York, New York 10005
</TABLE>
D. NAME AND COMPLETE ADDRESS OF AGENT FOR SERVICE:
<TABLE>
<S> <C> <C>
COPY OF COMMENTS TO:
PETER J. DEMARCO ROBERT SABLOWSKY MICHAEL R. ROSELLA, ESQ.
Managing Director Executive Vice-President Battle Fowler
Bear, Stearns & Co. Inc. Gruntal & Co., Incorporated 280 Park Avenue
245 Park Avenue 14 Wall Street New York, New York 10017
New York, New York 10167 New York, New York 10005 (212) 856-6858
</TABLE>
E. TITLE AND AMOUNT OF SECURITIES BEING REGISTERED:
An indefinite number of Units of Insured Municipal Securities Trust,
Series 32 (Long), New York Navigator Insured Series 16 and New Jersey
Navigator Insured Series 12; and Municipal Securities Trust, Series 55
(Intermediate) is being registered under the Securities Act of 1933
pursuant to Section 24(f) of the Investment Company Act of 1940, as
amended, and Rule 24f-2 thereunder.
F. PROPOSED MAXIMUM AGGREGATE OFFERING PRICE TO THE PUBLIC OF THE SECURITIES
BEING REGISTERED:
Indefinite
G. AMOUNT OF FILING FEE:
$500 (as required by Rule 24f-2)
H. APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after the effective date of the Registration
Statement.
/ / Check if it is proposed that this filing will become effective
immediately upon filing pursuant to Rule 487.
THE REGISTRANT HEREBY AMENDS THE REGISTRATION STATEMENT ON SUCH DATE OR DATES AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
INSURED MUNICIPAL SECURITIES TRUST
SERIES 32 (LONG)
NEW YORK NAVIGATOR INSURED SERIES 16 AND NEW JERSEY NAVIGATOR INSURED SERIES 12
AND MUNICIPAL SECURITIES TRUST, SERIES 55 (INTERMEDIATE)
CROSS-REFERENCE SHEET
PURSUANT TO RULE 404 OF REGULATION C
UNDER THE SECURITIES ACT OF 1933
(FORM N-8B-2 ITEMS REQUIRED BY INSTRUCTION AS
TO THE PROSPECTUS IN FORM S-6)
<TABLE>
<CAPTION>
FORM N-8B-2 FORM S-6
ITEM NUMBER HEADING IN PROSPECTUS
----------------------------------------------------- ------------------------------------------------------
I. ORGANIZATION AND GENERAL INFORMATION
<S> <C> <C>
1. (a) Name of trust.................................... Front cover of Prospectus
(b) Title of securities issued....................... Front cover of Prospectus
2. Name and address of each depositor................... The Sponsors
3. Name and address of trustee.......................... The Trustee
4. Name and address of principal underwriters........... The Sponsors
5. State of organization of trust....................... Organization
6. Execution and termination of trust agreement......... Trust Agreement, Amendment and Termination
7. Changes of name...................................... Not Applicable
8. Fiscal year.......................................... Not Applicable
9. Litigation........................................... None
II. GENERAL DESCRIPTION OF THE TRUST AND SECURITIES OF THE TRUST
10. (a) Registered or bearer securities.................. Certificates
Interest and Principal Distributions
(b) Cumulative or distributive securities............
Trustee Redemption
(c) Redemption.......................................
Certificates, Sponsors Repurchase, Trustee Redemption,
(d) Conversion, transfer, etc........................ Exchange Privilege and Conversion Offer
Not Applicable
(e) Periodic payment plan............................
Trust Agreement, Amendment and Termination
(f) Voting rights....................................
Records, Portfolio, Trust Agreement, Amendment and
(g) Notice to certificateholders..................... Termination, The Sponsors, The Trustee
Trust Agreement, Amendment and Termination
(h) Consents required................................
Tax Status
(i) Other provisions.................................
11. Type of securities comprising units.................. Objectives, Portfolio, Description of Portfolio
12. Certain information regarding periodic payment Not Applicable
certificates.......................................
13. (a) Load, fees, expenses, etc........................ Summary of Essential Information, Offering Price,
Volume and Other Discounts, Sponsors' and
Underwriters' Profits, Total Reinvestment Plan,
Trust Expenses and Charges
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
FORM N-8B-2 FORM S-6
ITEM NUMBER HEADING IN PROSPECTUS
----------------------------------------------------- ------------------------------------------------------
<S> <C> <C>
(b) Certain information regarding periodic payment
certificates.................................... Not Applicable
(c) Certain percentages.............................. Summary of Essential Information, Offering Price,
Total Reinvestment Plan
(d) Price differences................................ Volume and Other Discounts
(e) Other loads, fees, expenses...................... Certificates
(f) Certain profits receivable by depositors,
principal underwriters, trustees or affiliated
persons......................................... Sponsors' and Underwriters' Profits
(g) Ratio of annual charges to income................ Not Applicable
14. Issuance of trust's securities....................... Organization, Certificates
15. Receipt and handling of payments from purchasers..... Organization
16. Acquisition and disposition of underlying Organization, Objectives, Portfolio, Portfolio
securities......................................... Supervision
17. Withdrawal or redemption............................. Comparison of Public Offering Price, Sponsors'
Repurchase Price and Redemption Price, Sponsors
Repurchase, Trustee Redemption
18. (a) Receipt, custody and disposition of income....... Distribution Elections, Interest and Principal
Distributions, Records, Total Reinvestment Plan
(b) Reinvestment of distributions.................... Total Reinvestment Plan
(c) Reserves or special funds........................ Interest and Principal Distributions
(d) Schedule of distributions........................ Not Applicable
19. Records, accounts and reports........................ Records, Total Reinvestment Plan
20. Certain miscellaneous provisions of trust agreement
(a) Amendment........................................ Trust Agreement, Amendment and
Termination
(b) Termination...................................... Trust Agreement, Amendment and
Termination
(c) and (d) Trustee, removal and successor........... The Trustee
(e) and (f) Depositor, removal and successor......... The Sponsors
21. Loan to security holders............................. Not Applicable
22. Limitations on liability............................. The Sponsors, The Trustee, The Evaluator
23. Bonding arrangements................................. Part II--Item A
24. Other material provisions of trust agreement......... Not Applicable
III. ORGANIZATION, PERSONNEL AND AFFILIATED PERSONS OF DEPOSITOR
25. Organization of depositor............................ The Sponsors
26. Fees received by depositor........................... Not Applicable
27. Business of depositor................................ The Sponsors
28. Certain information as to officials and affiliated
persons of depositor............................... Not Applicable
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
FORM N-8B-2 FORM S-6
ITEM NUMBER HEADING IN PROSPECTUS
----------------------------------------------------- ------------------------------------------------------
<S> <C> <C>
29. Voting securities of depositor....................... Not Applicable
30. Persons controlling depositor........................ Not Applicable
31. Payments by depositor for certain services rendered
to trust........................................... Not Applicable
32. Payments by depositor for certain other services
rendered to trust.................................. Not Applicable
33. Remuneration of employees of depositor for certain
services rendered to trust......................... Not Applicable
34. Remuneration of other persons for certain services
rendered to trust.................................. Not Applicable
IV. DISTRIBUTION AND REDEMPTION OF SECURITIES
35. Distribution of trust's securities by states......... Distribution of Units
36. Suspension of sales of trust's securities............ Not Applicable
37. Revocation of authority to distribute................ Not Applicable
38. (a) Method of distribution........................... Distribution of Units, Total Reinvestment Plan
(b) Underwriting agreements.......................... Distribution of Units, Total Reinvestment Plan
(c) Selling agreements............................... Distribution of Units, Total Reinvestment Plan
39. (a) Organization of principal underwriters........... The Sponsors
(b) N.A.S.D. membership of principal underwriters.... The Sponsors
40. Certain fees received by principal underwriters...... Not Applicable
41. (a) Business of principal underwriters............... The Sponsors
(b) Branch offices of principal underwriters......... Not Applicable
(c) Salesmen of principal underwriters............... Not Applicable
42. Ownership of trust's securities by certain persons... Not Applicable
43. Certain brokerage commissions received by principal
underwriters....................................... Not Applicable
44. (a) Method of valuation.............................. Summary of Essential Information, Offering Price,
Accrued Interest, Volume and Other Discounts, Total
Reinvestment Plan, Distribution of Units
(b) Schedule as to offering price.................... Not Applicable
(c) Variation in offering price to certain persons... Distribution of Units, Total Reinvestment Plan, Volume
and Other Discounts
45. Suspension of redemption rights...................... Trustee Redemption
46. (a) Redemption valuation............................. Comparison of Public Offering Price, Sponsors'
Repurchase Price and Redemption Price, and Trustee
Redemption
(b) Schedule as to redemption price.................. Not Applicable
47. Maintenance of position in underlying securities..... Comparison of Public Offering Price, Sponsors'
Repurchase Price and Redemption Price, Sponsors
Repurchase, Trustee Redemption
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
FORM N-8B-2 FORM S-6
ITEM NUMBER HEADING IN PROSPECTUS
----------------------------------------------------- ------------------------------------------------------
<S> <C> <C>
V. INFORMATION CONCERNING THE TRUSTEE OR CUSTODIAN
48. Organization and regulation of trustee............... The Trustee
49. Fees and expenses of trustee......................... Trust Expenses and Charges
50. Trustee's lien....................................... Trust Expenses and Charges
VI. INFORMATION CONCERNING INSURANCE OF HOLDERS OF SECURITIES
51. Insurance of holders of trust's securities........... Not Applicable
VII. POLICY OF REGISTRANT
52. (a) Provisions of trust agreement with respect to
selection or elimination of underlying
securities...................................... Objectives, Portfolio, Portfolio Supervision
(b) Transactions involving elimination of underlying
securities...................................... Not Applicable
(c) Policy regarding substitution or elimination of
underlying securities........................... Objectives, Portfolio, Portfolio Supervision,
Substitution of Bonds
(d) Fundamental policy not otherwise covered......... Not Applicable
53. Tax status of trust.................................. Tax Status
VIII. FINANCIAL AND STATISTICAL INFORMATION
54. Trust's securities during last ten years............. Not Applicable
55. Hypothetical account for issuers of periodic payment
plans.............................................. Not Applicable
56. Certain information regarding periodic payment
certificates....................................... Not Applicable
57. Certain information regarding periodic payment
plans.............................................. Not Applicable
58. Certain other information regarding periodic payment
plans.............................................. Not Applicable
59. Financial statements (Instruction 1(c) to
Form S-6).......................................... Statement of Financial Condition
</TABLE>
iv
<PAGE>
SUBJECT TO COMPLETION DATED FEBRUARY 24, 1994
INSURED MUNICIPAL SECURITIES TRUST
SERIES 32 (LONG)
NEW YORK NAVIGATOR INSURED SERIES 16
AND
NEW JERSEY NAVIGATOR INSURED SERIES 12
STANDARD & POOR'S CORPORATION RATING: AAA
AND
MUNICIPAL SECURITIES TRUST
SERIES 55 (INTERMEDIATE)
The Trust consists of four separate unit investment trusts designated
Series 32 (Long) ('Insured Trust'), New York Navigator Insured Series 16
('New York Navigator Trust') and New Jersey Navigator Insured Series 12
('New Jersey Navigator Trust') (the New York Navigator Trust and the New
Jersey Navigator Trust are collectively known as the 'Navigator Trusts'
or together with the Insured Trust, the 'Insured Trusts'), and Series 55
(Intermediate) (the 'Uninsured Trust') (the Insured Trust, the Navigator
Trusts and the Uninsured Trust are collectively known as the 'Trusts').
The Sponsor for the Insured Trust and the Uninsured Trust is Bear,
Stearns & Co., Inc. The Sponsors for the Navigator Trusts are Bear,
Stearns & Co. Inc. and Gruntal & Co., Incorporated. Each Trust was
formed to preserve capital and to provide interest income (including
earned original issue discount) through investment in (a) for the
Navigator Trusts and the Insured Trust, an underlying portfolio of
long-term insured tax-exempt bonds and (b) for the Uninsured Trust, an
underlying portfolio of long-term tax-exempt bonds. The long-term
insured tax-exempt bonds and long-term tax-exempt bonds comprising the
underlying portfolios of the Trusts are issued by or on behalf of
states, municipalities and public authorities (the 'Bonds') which
interest income in the opinion of bond counsel to the respective
issuers, is, with certain exceptions, currently exempt from regular
federal income taxes under existing law and is exempt from state and
local taxes to the extent indicated when received by residents of the
state in which the issuer of any Bond is located. Units of the Insured
Trust and the Uninsured Trust will be offered to residents of all 50
states and the District of Columbia. Units of the Navigator Trusts will
be offered to residents of New York, Florida, the District of Columbia,
New Jersey, Wyoming, Colorado and Hawaii. Units of the New York
Navigator Trust will additionally be offered to residents of
Connecticut. Units of the New Jersey Navigator Trust will additionally
be offered to residents of Delaware and Pennsylvania. Except for these
states, Units of each of the Navigator Trusts will not be offered to
residents of any other state. On the Date of Deposit, all of the Bonds
in each of the Insured Trust and the Navigator Trusts are irrevocably
insured and therefore the Units of the Insured Trust and the Navigator
Trusts are rated 'AAA' by Standard & Poor's Corporation and all of the
Bonds in the Uninsured Trust were rated 'A' or better by Standard &
Poor's Corporation or Moody's Investors Service, Inc. None of the Bonds
in the Uninsured Trust is insured. The value of the Units of the Trusts
will fluctuate with the value of the underlying Bonds. Minimum purchase:
1 Unit.
This Prospectus consists of two parts. Part A contains the Summary of Essential
Information including descriptive material relating to the Trusts, the Statement
of Condition of the Trusts and the Portfolios. Part B contains general
information about the Trusts. Part A may not be distributed unless accompanied
by Part B.
Please read and retain both parts of this Prospectus for future reference.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE.
vi
<PAGE>
(LOGO)
INSURED MUNICIPAL SECURITIES TRUST
NEW YORK NAVIGATOR INSURED SERIES 15
AND
NEW JERSEY NAVIGATOR INSURED SERIES 11
STANDARD & POOR'S CORPORATION RATING: AAA
AND
MUNICIPAL SECURITIES TRUST
MULTI-STATE SERIES 44
The Trust consists of four separate unit investment trusts designated New York
Navigator Insured Series 15 ('New York Navigator Trust') and New Jersey
Navigator Insured Series 11 ('New Jersey Navigator Trust') (the New York
Navigator Trust and the New Jersey Navigator Trust are collectively known as the
'Navigator Trusts' or the 'Insured Trusts'), California Trust and Virginia Trust
(collectively the 'State Trusts') (the Navigator Trusts and the State Trusts are
collectively known as the 'Trusts'). The Sponsors are Bear, Stearns & Co. Inc.
and Gruntal & Co., Incorporated. Each Trust was formed to preserve capital and
to provide interest income (including earned original issue discount) through
investment in (a) for the Navigator Trusts, an underlying portfolio of long-term
insured tax-exempt bonds and (b) for the State Trusts, an underlying portfolio
of long-term tax-exempt bonds, with respect to the Trusts, are issued by or on
behalf of states, municipalities and public authorities (the 'Bonds') which
interest income in the opinion of bond counsel to the respective issuers, is,
with certain exceptions, currently exempt from regular federal income taxes
under existing law and is exempt from state and local taxes to the extent
indicated when received by residents of the state in which the issuer of any
Bond is located. Units of the Trusts will be offered to residents of New York,
Florida, the District of Columbia, New Jersey, Wyoming, Colorado and Hawaii.
Units of the New York Navigator Trust will additionally be offered to residents
of Connecticut. Units of the New Jersey Navigator Trust will additionally be
offered to residents of Delaware and Pennsylvania. Units of the California Trust
will additionally be offered to residents of California. Units of the Virginia
Trust will additionally be offered to residents of Virginia and Maryland. Except
for these states, Units of each of the Trusts will not be offered to residents
of any other state. On the Date of Deposit, all of the Bonds in each of the
Navigator Trusts are irrevocably insured and therefore the Units of each
Navigator Trust are rated 'AAA' by Standard & Poor's Corporation and all of the
Bonds in each State Trust were rated 'A' or better by Standard & Poor's
Corporation or Moody's Investors Service, Inc. None of the Bonds in the State
Trusts is insured. The value of the Units of the Trusts will fluctuate with the
value of the underlying Bonds. Minimum purchase: 1 Unit.
This Prospectus consists of two parts. Part A contains the Summary of Essential
Information including descriptive material relating to the Trusts, the Statement
of Condition of the Trusts and the Portfolios. Part B contains general
information about the Trusts. Part A may not be distributed unless accompanied
by Part B.
Please read and retain both parts of this Prospectus for future reference.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PROSPECTUS PART A DATED DECEMBER 9, 1993
<PAGE>
INSURED MUNICIPAL SECURITIES TRUST
NEW YORK NAVIGATOR INSURED SERIES 15
SUMMARY OF ESSENTIAL INFORMATION AS OF DECEMBER 8, 1993*
<TABLE>
<S> <C>
DATE OF DEPOSIT: December 9, 1993
PRINCIPAL AMOUNT OF BONDS................. $3,500,000
NUMBER OF UNITS........................... 3,500
FRACTIONAL UNDIVIDED INTEREST IN TRUST
PER UNIT................................ 1/3,500
PUBLIC OFFERING PRICE**+
Aggregate Offering Price of Bonds in
Trust................................. $3,404,138
Divided by 3,500 Units.................. $972.61
Plus Sales Charge of 4.9% of Public
Offering Price........................ $50.11
Public Offering Price per Unit.......... $1,022.72
REDEMPTION PRICE PER UNIT+++................. $968.61
SPONSORS' INITIAL REPURCHASE PRICE PER
UNIT +o ................................. $972.61
EXCESS OF PUBLIC OFFERING PRICE OVER
REDEMPTION PRICE PER UNIT............... $54.11
EXCESS OF SPONSORS' INITIAL REPURCHASE
PRICE OVER REDEMPTION PRICE PER UNIT o .. $4.00
EVALUATION TIME: 4:00 p.m. New York Time..
MINIMUM PRINCIPAL DISTRIBUTION:
$1.00 per Unit
WEIGHTED AVERAGE LIFE TO MATURITY:
24.6 Years
MINIMUM VALUE OF TRUST: Trust may be
terminated if the value of Trust is less
than $1,400,000 in principal amount of
Bonds.
MANDATORY TERMINATION DATE: The earlier
of December 31, 2043 or the disposition
of the last Bond in the Trust.
TRUSTEE: United States Trust Company of
New York.
TRUSTEE'S ANNUAL FEE:*** Monthly plan
$1.13 per $1,000; semi-annual plan $.66
per $1,000; and annual plan $.39 per
$1,000.
EVALUATOR: Kenny S&P Evaluation Services.
EVALUATOR'S FEE FOR EACH EVALUATION:
Minimum of $8 plus $.25 per each issue
of Bonds in excess of 50 issues
(treating separate maturities as
separate issues).
SPONSORS: Bear, Stearns & Co. Inc.
Gruntal & Co., Incorporated
SPONSORS' ANNUAL FEE: Maximum of $.25 per
$1,000 principal amount of bonds (see
'Trust Expenses and Charges' in Part B).
</TABLE>
PER UNIT INFORMATION BASED UPON INTEREST DISTRIBUTION PLAN ELECTED
<TABLE>
<CAPTION>
MONTHLY SEMI-ANNUAL ANNUAL
OPTION OPTION OPTION
------------------- ------------ --------
<S> <C> <C> <C>
Gross annual interest income (cash) oo............................... $ 52.88 $52.88 $52.88
Less estimated annual fees and expenses.............................. 2.34 1.77 1.49
------ ------------ --------
Estimated net annual interest income (cash)++++oo.................... 50.54 51.11 51.39
Estimated daily interest accrual oo.................................. .1403 .1419 .1427
Estimated current return based on Public Offering Price++oo(1)....... 4.94% 5.00% 5.02%
Estimated long term return++oo(1)...................................... 4.90% 4.96% 4.98%
First record date.................................................... 3/1/94 3/1/94 3/1/94
First interest distribution date..................................... 3/15/94 3/15/94 3/15/94
Subsequent record dates.............................................. 1st of each month June 1 and Dec. 1
Dec. 1
Subsequent interest distribution dates............................... 15th of each month June 15 and Dec. 15
Dec. 15
</TABLE>
- ------------
* The business day prior to the Date of Deposit. The Date of Deposit is
the date on which the Trust Agreement was signed and the deposit of bonds with
the Trustee made.
** For information regarding offering price per unit and applicable sales
charge under the Total Reinvestment Plan, see 'Total Reinvestment Plan' in Part
B.
*** During the first year estimated gross annual interest income per Unit
will be $52.87, estimated expenses will be $2.33 under the monthly plan, $1.76
under the semi-annual and $1.48 under the annual plan; and estimated net
interest income per Unit will remain as shown. The Trustee has agreed during the
first year only, to reduce its fee and to the extent necessary, reimburse the
expenses of the Trust by approximately $.01 per Unit to cover interest on any
Bonds accruing prior to their expected dates of delivery since interest will not
accrue to the benefit of the Certificateholders until such Bonds are actually
delivered to the Trust. To the extent such non-accrual is in excess of the
reduction of the Trustee's fee, the estimated current return reflected above
will be somewhat lower during the first year, although the cash distribution
will be the same. See 'Interest and Principal Distributions' in Part B.
+ No accrued interest will be added for any person contracting to purchase
Units on the Date of Deposit. Anyone ordering Units after such Date will pay
accrued interest from December 16, 1993 to the date of settlement (five business
days after order) less distributions from the Interest Account subsequent to
December 16, 1993.
++ The estimated current return and estimated long-term return are increased
for transactions entitled to a discount (see 'Volume and Other Discounts' in
Part B), and are higher under the semiannual and annual options due to lower
Trustee's fees and expenses.
+++ Based solely upon the bid side evaluation of the underlying Bonds. Upon
tender for redemption, the price to be paid will be calculated as described
under 'Trustee Redemption' in Part B.
++++ The first interest distribution of $2.25 per Unit will be made on
March 15, 1994 (the 'First Payment Date') to all Certificateholders of
record on March 1, 1994 (the 'First Record Date'). The regular monthly
payment will be $4.21 on April 15, 1994. The first semi-annual payment will
be $12.77 on June 15, 1994 and $25.55 thereafter and the first annual
payment will be $38.54 on December 15, 1994 and $51.39 thereafter.
o See 'Comparison of Public Offering Price, Sponsors' Repurchase Price and
Redemption Price' in Part B.
oo Does not include income accrual from original issue discount bonds.
(1) Estimated long term return is calculated by computing the average of the
yields to maturity (or earlier call date) of the Bonds in the portfolio of the
Trust in accordance with accepted bond practices (taking into account the
amortization of premiums, accretion of discounts, market value, and estimated
retirement of each Bond) and subtracting from the average yield so calculated
the fees, expenses and sales charge of the Trust. Estimated current return is
calculated by dividing the estimated net annual interest income 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 on the underlying Bonds, if any. These returns do not
include the effects of any delay in payments to Unitholders and a calculation
which includes those effects would be lower. See 'Estimated Long Term Return and
Estimated Current Return' in Part B.
A-2
<PAGE>
INSURED MUNICIPAL SECURITIES TRUST
NEW JERSEY NAVIGATOR INSURED SERIES 11
SUMMARY OF ESSENTIAL INFORMATION AS OF DECEMBER 8, 1993*
<TABLE>
<S> <C>
DATE OF DEPOSIT: December 9, 1993
PRINCIPAL AMOUNT OF BONDS................. $3,000,000
NUMBER OF UNITS........................... 3,000
FRACTIONAL UNDIVIDED INTEREST IN TRUST
PER UNIT................................ 1/3,000
PUBLIC OFFERING PRICE**+
Aggregate Offering Price of Bonds in
Trust................................. $2,921,775
Divided by 3,000 Units.................. $973.93
Plus Sales Charge of 4.9% of Public
Offering Price........................ $50.18
Public Offering Price per Unit.......... $1,024.11
REDEMPTION PRICE PER UNIT+++................. $969.93
SPONSORS' INITIAL REPURCHASE PRICE PER
UNIT+o $973.93
EXCESS OF PUBLIC OFFERING PRICE OVER
REDEMPTION PRICE PER UNIT............... $54.18
EXCESS OF SPONSORS' INITIAL REPURCHASE
PRICE OVER REDEMPTION PRICE PER UNIT o .. $4.00
EVALUATION TIME: 4:00 p.m. New York Time..
MINIMUM PRINCIPAL DISTRIBUTION:
$1.00 per Unit
WEIGHTED AVERAGE LIFE TO MATURITY:
30.2 Years
MINIMUM VALUE OF TRUST: Trust may be
terminated if the value of Trust is less
than $1,200,000 in principal amount of
Bonds.
MANDATORY TERMINATION DATE: The earlier
of December 31, 2043 or the disposition
of the last Bond in the Trust.
TRUSTEE: United States Trust Company of
New York.
TRUSTEE'S ANNUAL FEE: Monthly plan $1.13
per $1,000; semi-annual plan $.66 per
$1,000; and annual plan $.39 per $1,000.
EVALUATOR: Kenny S&P Evaluation Services.
EVALUATOR'S FEE FOR EACH EVALUATION:
Minimum of $8 plus $.25 per each issue
of Bonds in excess of 50 issues
(treating separate maturities as
separate issues).
SPONSORS: Bear, Stearns & Co. Inc.
Gruntal & Co., Incorporated
SPONSORS' ANNUAL FEE: Maximum of $.25 per
$1,000 principal amount of bonds (see
'Trust Expenses and Charges' in Part B).
</TABLE>
PER UNIT INFORMATION BASED UPON INTEREST DISTRIBUTION PLAN ELECTED
<TABLE>
<CAPTION>
MONTHLY SEMI-ANNUAL ANNUAL
OPTION OPTION OPTION
------------------- ------------ --------
<S> <C> <C> <C>
Gross annual interest income (cash) oo................................ $ 52.27 $52.27 $52.27
Less estimated annual fees and expenses.............................. 2.57 2.00 1.72
------ ------------ --------
Estimated net annual interest income (cash) ++++oo....................... 49.70 50.27 50.55
Estimated daily interest accrual oo.................................. .1380 .1396 .1404
Estimated current return based on Public Offering Price++oo(1)......... 4.85% 4.91% 4.94%
Estimated long term return++oo(1)...................................... 4.85% 4.90% 4.93%
First record date.................................................... 3/1/94 3/1/94 3/1/94
First interest distribution date..................................... 3/15/94 3/15/94 3/15/94
Subsequent record dates.............................................. 1st of each month June 1 and Dec. 1
Dec. 1
Subsequent interest distribution dates............................... 15th of each month June 15 and Dec. 15
Dec. 15
</TABLE>
- ------------
* The business day prior to the Date of Deposit. The Date of Deposit is
the date on which the Trust Agreement was signed and the deposit of bonds with
the Trustee made.
** For information regarding offering price per unit and applicable sales
charge under the Total Reinvestment Plan, see 'Total Reinvestment Plan' in Part
B.
+ No accrued interest will be added for any person contracting to purchase
Units on the Date of Deposit. Anyone ordering Units after such Date will pay
accrued interest from December 16, 1993 to the date of settlement (five business
days after order) less distributions from the Interest Account subsequent to
December 16, 1993.
++ The estimated current return and estimated long-term return are increased
for transactions entitled to a discount (see 'Volume and Other Discounts' in
Part B), and are higher under the semiannual and annual options due to lower
Trustee's fees and expenses.
+++ Based solely upon the bid side evaluation of the underlying Bonds. Upon
tender for redemption, the price to be paid will be calculated as described
under 'Trustee Redemption' in Part B.
++++ The first interest distribution of $2.25 per Unit will be made on
March 15, 1994 (the 'First Payment Date') to all Certificateholders of
record on March 1, 1994 (the 'First Record Date'). The regular monthly
payment will be $4.14 on April 15, 1994. The first semi-annual payment will
be $12.56 on June 15, 1994 and $25.13 thereafter and the first annual
payment will be $37.91 on December 15, 1994 and $50.55 thereafter.
o See 'Comparison of Public Offering Price, Sponsors' Repurchase Price and
Redemption Price' in Part B.
oo Does not include income accrual from original issue discount bonds.
(1) Estimated long term return is calculated by computing the average of the
yields to maturity (or earlier call date) of the Bonds in the portfolio of the
Trust in accordance with accepted bond practices (taking into account the
amortization of premiums, accretion of discounts, market value, and estimated
retirement of each Bond) and subtracting from the average yield so calculated
the fees, expenses and sales charge of the Trust. Estimated current return is
calculated by dividing the estimated net annual interest income 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 on the underlying Bonds, if any. These returns do not
include the effects of any delay in payments to Unitholders and a calculation
which includes those effects would be lower. See 'Estimated Long Term Return and
Estimated Current Return' in Part B.
A-3
<PAGE>
MUNICIPAL SECURITIES TRUST
MULTI-STATE SERIES 44
CALIFORNIA TRUST
SUMMARY OF ESSENTIAL INFORMATION AS OF DECEMBER 8, 1993*
<TABLE>
<S> <C>
DATE OF DEPOSIT: December 9, 1993
PRINCIPAL AMOUNT OF BONDS................. $2,500,000
NUMBER OF UNITS........................... 2,500
FRACTIONAL UNDIVIDED INTEREST IN TRUST
PER UNIT................................ 1/2,500
PUBLIC OFFERING PRICE**
Aggregate Offering Price of Bonds in
Trust................................. $2,364,445
Divided by 2,500 Units.................. $945.78
Plus Sales Charge of 4.9% of Public
Offering Price........................ $48.73
Public Offering Price per Unit+.......... $994.51
REDEMPTION PRICE PER UNIT+++.............. $941.78
SPONSORS' INITIAL REPURCHASE PRICE PER
UNIT+o $945.78
EXCESS OF PUBLIC OFFERING PRICE OVER
REDEMPTION PRICE PER UNIT o............. $52.73
EXCESS OF SPONSORS' INITIAL REPURCHASE
PRICE OVER REDEMPTION PRICE PER UNIT.... $4.00
EVALUATION TIME: 4:00 p.m. New York
time....................................
MINIMUM PRINCIPAL DISTRIBUTION:
$1.00 per Unit
MINIMUM VALUE OF TRUST: Trust may be
terminated if value of Trust is less
than $1,000,000 in principal amount of
Bonds.
WEIGHTED AVERAGE LIFE TO MATURITY:
26 years
MANDATORY TERMINATION DATE: The earlier
of December 31, 2043 or the disposition
of the last Bond in the Trust.
TRUSTEE: United States Trust Company of
New York.
TRUSTEE'S ANNUAL FEE:*** Monthly plan
$1.10 per $1,000; semi-annual plan $.63
per $1,000; and annual plan $.36 per
$1,000.
EVALUATOR: Kenny S&P Evaluation Services.
EVALUATOR'S FEE FOR EACH EVALUATION:
Minimum of $7.50 plus $.25 per each
issue of Bonds in excess of 50 issues
(treating separate maturities as
separate issues).
SPONSORS: Bear, Stearns & Co. Inc.
Gruntal & Co., Incorporated
SPONSORS' ANNUAL FEE: Maximum of $.25 per
$1,000 principal amount of Bonds (see
'Trust Expenses and Charges' in Part B).
</TABLE>
PER UNIT INFORMATION BASED UPON INTEREST DISTRIBUTION PLAN ELECTED
<TABLE>
<CAPTION>
MONTHLY SEMI-ANNUAL ANNUAL
OPTION OPTION OPTION
------------------- ----------------- --------
<S> <C> <C> <C>
Gross annual interest income (cash) oo......................... $ 52.18 $ 52.18 $52.18
Less estimated annual fees and expenses........................ 2.40 2.08 1.80
------ ------ --------
Estimated net annual interest income (cash) ++++oo............. 49.78 50.10 50.38
Estimated daily interest accrual oo............................ .1383 .1391 .1399
Estimated current return based on Public Offering Price++oo(1). 5.01% 5.04% 5.07%
Estimated long term return++oo(1).............................. 5.09% 5.13% 5.15%
First record date.............................................. 3/1/94 3/1/94 3/1/94
First interest distribution date............................... 3/15/94 3/15/94 3/15/94
Subsequent record dates........................................ 1st of each month June 1 & Dec. 1 Dec. 1
Subsequent interest distribution dates......................... 15th of each month June 15 & Dec. 15 Dec. 15
</TABLE>
- ------------
* The business day prior to the Date of Deposit. The Date of Deposit is the
date on which the Trust Agreement was signed and the Bonds were deposited with
the Trustee.
** For information regarding offering price per Unit and applicable sales
charge under the Total Reinvestment Plan, see 'Total Reinvestment Plan' in Part
B.
*** During the first year, estimated gross annual interest income per Unit
will be $51.53; estimated expenses will be $1.86 under the monthly plan, $1.43
under the semi-annual plan and $1.15 under the annual plan; and estimated net
interest income per Unit will remain as shown. The Trustee has agreed, during
the first year only, to reduce its fee and, to the extent necessary, reimburse
the expenses of the Trust by approximately $.65 per Unit to cover interest on
any Bonds accruing prior to their expected dates of delivery since interest will
not accrue to the benefit of the Certificateholders until such Bonds are
actually delivered to the Trust. To the extent such non-accrual is in excess of
the reduction of the Trustee's fee, the estimated current return reflected above
will be somewhat lower during the first year, although the cash distribution
will be the same. See 'Interest and Principal Distributions' in Part B.
+ No accrued interest will be added for any person contracting to purchase
Units on the Date of Deposit. Anyone ordering Units after such Date will pay
accrued interest from December 16, 1993 to the date of settlement (five business
days after order) less distributions from the Interest Account subsequent to
December 16, 1993.
++ The estimated current return and estimated long term return are increased
for transactions entitled to a sales charge discount (see 'Volume and Other
Discounts' in Part B), 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. Upon
tender for redemption, the price to be paid will be calculated as described
under 'Trustee Redemption' in Part B.
++++ The first interest distribution of $2.25 per Unit will be made on March 15,
1994 (the 'First Payment Date') to all Certificateholders of record on March 1,
1994 (the 'First Record Date'). The first regular monthly payment will be $4.14
on April 15, 1994. The first semi-annual payment will be $12.52 on June 15, 1994
and $25.05 thereafter and the first annual payment will be $37.79 on December
15, 1994 and $50.38 thereafter.
o See 'Comparison of Public Offering Price, Sponsors' Repurchase Price and
Redemption Price' in Part B.
oo Does not include income accrual from original issue discount Bonds.
(1) Estimated long term return is calculated by computing the average of the
yields to maturity (or earlier call date) of the Bonds in the portfolio of the
State Trust in accordance with accepted bond practices (taking into account the
amortization of premiums, accretion of discounts, market value, and estimated
retirement of each Bond) and subtracting from the average yield so calculated
the fees, expenses and sale charge of the State Trust. Estimated current return
is calculated by dividing the estimated net annual interest income 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 on the underlying Bonds, if any. These returns do not
include the effects of any delay in payments to Unitholders and a calculation
which includes those effects would be lower. See 'Estimated Long Term Return and
Estimated Current Return' in Part B.
A-4
<PAGE>
MUNICIPAL SECURITIES TRUST
MULTI-STATE SERIES 44
VIRGINIA TRUST
SUMMARY OF ESSENTIAL INFORMATION AS OF DECEMBER 8, 1993*
<TABLE>
<S> <C>
DATE OF DEPOSIT: December 9, 1993
PRINCIPAL AMOUNT OF BONDS................. $3,000,000
NUMBER OF UNITS........................... 3,000
FRACTIONAL UNDIVIDED INTEREST IN TRUST
PER UNIT................................ 1/3,000
PUBLIC OFFERING PRICE**
Aggregate Offering Price of Bonds in
Trust................................. $2,884,662
Divided by 3,000 Units.................. $961.55
Plus Sales Charge of 4.9% of Public
Offering Price........................ $49.54
Public Offering Price per Unit+......... $1,011.09
REDEMPTION PRICE PER UNIT+++.............. $957.55
SPONSORS' INITIAL REPURCHASE PRICE PER
UNIT+o $961.55
EXCESS OF PUBLIC OFFERING PRICE OVER
REDEMPTION PRICE PER UNIT o............. $53.54
EXCESS OF SPONSORS' INITIAL REPURCHASE
PRICE OVER REDEMPTION PRICE PER UNIT.... $4.00
EVALUATION TIME: 4:00 p.m. New York
time....................................
MINIMUM PRINCIPAL DISTRIBUTION:
$1.00 per Unit
MINIMUM VALUE OF TRUST: Trust may be
terminated if value of Trust is less
than $1,200,000 in principal amount of
Bonds.
WEIGHTED AVERAGE LIFE TO MATURITY:
26.8 years
MANDATORY TERMINATION DATE: The earlier
of December 31, 2043 or the disposition
of the last Bond in the Trust.
TRUSTEE: United States Trust Company of
New York.
TRUSTEE'S ANNUAL FEE: Monthly plan $1.10
per $1,000; semi-annual plan $.63 per
$1,000; and annual plan $.36 per $1,000.
EVALUATOR: Kenny S&P Evaluation Services.
EVALUATOR'S FEE FOR EACH EVALUATION:
Minimum of $7.50 plus $.25 per each
issue of Bonds in excess of 50 issues
(treating separate maturities as
separate issues).
SPONSORS: Bear, Stearns & Co. Inc.
Gruntal & Co., Incorporated
SPONSORS' ANNUAL FEE: Maximum of $.25 per
$1,000 principal amount of Bonds (see
'Trust Expenses and Charges' in Part B).
</TABLE>
PER UNIT INFORMATION BASED UPON INTEREST DISTRIBUTION PLAN ELECTED
<TABLE>
<CAPTION>
MONTHLY SEMI-ANNUAL ANNUAL
OPTION OPTION OPTION
------------------- ----------------- --------
<S> <C> <C> <C>
Gross annual interest income (cash) oo......................... $ 52.97 $ 52.97 $52.97
Less estimated annual fees and expenses........................ 2.35 1.89 1.61
------ ------ --------
Estimated net annual interest income (cash) ++++oo............. 50.62 51.08 51.36
Estimated daily interest accrual oo............................ .1406 .1419 .1426
Estimated current return based on Public Offering Price++oo(1). 5.01% 5.05% 5.08%
Estimated long term return++oo(1).............................. 5.01% 5.06% 5.09%
First record date.............................................. 3/1/94 3/1/94 3/1/94
First interest distribution date............................... 3/15/94 3/15/94 3/15/94
Subsequent record dates........................................ 1st of each month June 1 & Dec. 1 Dec. 1
Subsequent interest distribution dates......................... 15th of each month June 15 & Dec. 15 Dec. 15
</TABLE>
- ------------
* The business day prior to the Date of Deposit. The Date of Deposit is the
date on which the Trust Agreement was signed and the Bonds were deposited with
the Trustee.
** For information regarding offering price per Unit and applicable sales
charge under the Total Reinvestment Plan, see 'Total Reinvestment Plan' in Part
B.
+ No accrued interest will be added for any person contracting to purchase
Units on the Date of Deposit. Anyone ordering Units after such Date will pay
accrued interest from December 16, 1993 to the date of settlement (five business
days after order) less distributions from the Interest Account subsequent to
December 16, 1993.
++ The estimated current return and estimated long term return are increased
for transactions entitled to a sales charge discount (see 'Volume and Other
Discounts' in Part B), 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. Upon
tender for redemption, the price to be paid will be calculated as described
under 'Trustee Redemption' in Part B.
++++The first interest distribution of $2.25 per Unit will be made on March 15,
1994 (the 'First Payment Date') to all Certificateholders of record on March 1,
1994 (the 'First Record Date'). The first regular monthly payment will be $4.21
on April 15, 1994. The first semi-annual payment will be $12.77 on June 15, 1994
and $25.54 thereafter and the first annual payment will be $38.52 on December
15, 1994 and $51.36 thereafter.
o See 'Comparison of Public Offering Price, Sponsors' Repurchase Price and
Redemption Price' in Part B.
oo Does not include income accrual from original issue discount Bonds.
(1) Estimated long term return is calculated by computing the average of the
yields to maturity (or earlier call date) of the Bonds in the portfolio of the
State Trust in accordance with accepted bond practices (taking into account the
amortization of premiums, accretion of discounts, market value, and estimated
retirement of each Bond) and subtracting from the average yield so calculated
the fees, expenses and sale charge of the State Trust. Estimated current return
is calculated by dividing the estimated net annual interest income 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 on the underlying Bonds, if any. These returns do not
include the effects of any delay in payments to Unitholders and a calculation
which includes those effects would be lower. See 'Estimated Long Term Return and
Estimated Current Return' in Part B.
A-5
<PAGE>
THE TRUSTS
Each Trust is a unit investment trust and was formed to preserve capital and to
provide interest income (including earned original issue discount) which, in the
opinions of bond counsel to the respective issuers, is, with certain exceptions,
currently exempt from regular federal income tax under existing law and from
state and local taxes to the extent indicated herein when received by persons
subject to state and local income taxation in a state in which the issuers of
the Bonds are located. Each Navigator Trust seeks to achieve its investment
objectives through investment in a fixed, diversified portfolio of long-term
insured bonds issued by or on behalf of states, municipalities and public
authorities which, because of irrevocable insurance, are rated 'AAA' by Standard
& Poor's Corporation. Each State Trust seeks to achieve its investment objective
through investment in a fixed, diversified portfolio of long-term bonds issued
by or on behalf of states, municipalities and public authorities. None of the
Bonds in the State Trusts is insured. Although the Supreme Court has determined
that Congress has the authority to subject the interest on bonds such as the
Bonds in the Trusts to regular 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/or corporate alternative minimum tax. (See 'Description of Portfolios' in
this Part A for a list of these Bonds which pay interest income subject to the
federal individual alternative minimum tax. See also 'Tax Status' in Part B.)
Some of the aggregate principal amount of the Bonds in the Trusts 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 Portfolios' in this Part A). All of the Bonds
in each Navigator Trust were rated 'AAA' by Standard & Poor's Corporation on the
Date of Deposit (see 'Portfolio'). This rating results from insurance relating
only to the Bonds in the Navigator Trusts and not to Units of the Navigator
Trusts. The Units of the Navigator Trusts are not insured. The insurance does
not therefore remove market risk, as it does not guarantee the market value of
the Units. All of the Bonds in the State Trusts were rated 'A' or better by
Standard & Poor's Corporation or Moody's Investors Service, Inc. on the Date of
Deposit (see 'Portfolio'). For a discussion of the significance of such ratings,
see 'Description of Bond Ratings' in Part B. 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. There
can be no assurance that the Trusts' investment objectives will be achieved.
Investment in the Trusts 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 in response to such changes in interest rates. The Sponsors have a
limited right to substitute other bonds in the Trusts' portfolios in the event
of a failed contract. (See 'Portfolio' in Part B.) Each Unit in the Trusts
represents an undivided interest in the principal and net income of that Trust
in the ratio of one Unit for each $1,000 principal amount of Bonds initially
deposited in that Trust. (See 'Organization' in Part B.) (For the specific
number of Units in each Trust, see the 'Summary of Essential Information' for
the relevant Trust, in this Part A).
INSURANCE FOR NAVIGATOR TRUSTS
Each of the Bonds in the Navigator Trusts are insured by a financial guaranty
insurance policy obtained by the Sponsors (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 shall
not have 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 Bonds 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
A-6
<PAGE>
Navigator Trusts. The insurer's policies relating to small industrial
development bonds and pollution control revenue bonds also guarantee the
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 thereby required.
The 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 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 and 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 such
an acceleration. The insurance will not 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. 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 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 Sponsors. Additionally, some of the Bonds in the Navigator
Trusts may be Pre-Insured Bonds. 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 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.
All of the Bonds in the Navigator Trusts are covered by insurance obtained by
the Sponsors from MBIA Corp. 5% of the Bonds in the New York Navigator Trust and
85.2% in the New Jersey Navigator Trust are Pre-Insured Bonds. The approximate
percentage of the aggregate principal amount of the Portfolio of each of the
Navigator Trusts that is insured by an Insurance Company with respect to Pre-
Insured Bonds is as follows: New York Navigator Trust; Municipal Bond Investors
Assurance Corporation ('MBIA Corp.'), 5% and for the New Jersey Navigator Trust;
Financial Guaranty Insurance Company ('Financial Guaranty'), 5%; Financial
Security Assurance Inc. ('Financial Security'), 16.7% and MBIA Corp., 63.5%.
PUBLIC OFFERING PRICE
The Public Offering Price of each Unit of each Trust 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 4.9% of the Public Offering Price (5.152% of
the net amount invested in Bonds per Unit. In addition, for Units ordered after
the date hereof, accrued interest will be payable from the first settlement date
for Units of
A-7
<PAGE>
the Trust (five business days from the date hereof) to the expected date of
settlement (five business days after order). For additional information
regarding the Public Offering Price, the descriptions of interest and principal
distributions, repurchase and redemption of Units and other essential
information regarding the Trusts, see the Summary of Essential Information for
that Trust. During the initial offering period orders involving at least 100
Units will be entitled to a volume discount from the Public Offering Price. The
Public Offering Price per Unit may vary on a daily basis in accordance with
fluctuations in the aggregate offering price of the Bonds. (See 'Public
Offering' in Part B.)
DISTRIBUTIONS
Distributions of interest income, less expenses, will be made by each 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. The first interest distributions will be made on the First Payment
Date to all Certificateholders of record on the First Record Date and thereafter
distributions will be made in accordance with the distribution plan chosen by
the Certificateholder. Distributions of principal, if any, will be made
semi-annually on December 15 and June 15 of each year. (See 'Rights of
Certificateholders--Interest and Principal Distributions' in Part B. For
estimated monthly, semi-annual and annual interest distributions, the amount of
the first interest distributions and the specific dates representing the First
Payment Date and the First Record Date see 'Summary of Essential Information.')
ESTIMATED LONG TERM RETURN AND ESTIMATED CURRENT RETURN
Units of each Trust are offered to investors on a 'dollar price' basis (using
the computation method previously described under 'Public Offering Price') as
distinguished from a 'yield price' basis often used in offerings of tax exempt
bonds (involving the lesser of the yield as computed to maturity of bonds or to
an earlier redemption date). Since they are offered on a dollar price basis, the
rate of return on an investment in Units of each Trust is measured in terms of
'Estimated Current Return' and 'Estimated Long Term Return'.
Estimated Long Term Return is calculated by: (1) computing the yield to maturity
or to an earlier call date (whichever results in a lower yield) for each Bond in
a Trust's portfolio in accordance with accepted bond practices, which practices
take into account not only the interest payable on the Bond but also the
amortization of premiums or accretion of discounts, if any; (2) calculating the
average of the yields for the Bonds in each Trust's portfolio by weighing each
Bond's yield by the market value of the Bond and by the amount of time remaining
to the date to which the Bond is priced (thus creating an average yield for the
portfolio of each Trust); and (3) reducing the average yield for the portfolio
of each Trust in order to reflect estimated fees and expenses of that Trust and
the maximum sales charge paid by 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 Date of Deposit is stated for each Trust under 'Summary of Essential
Information' in Part A.
Estimated Current Return is computed by dividing the Estimated Net Annual
Interest Income per Unit by the Public Offering Price per Unit. In contrast to
the Estimated Long Term Return, the Estimated Current Return does not take into
account the amortization of premium or accretion of discount, if any, on the
Bonds in the portfolios of each Trust. Moreover, because interest rates on Bonds
purchased at a premium are generally higher than current interest rates on newly
issued bonds of a similar type with comparable rating, the Estimated Current
Return per Unit may be affected adversely if such Bonds are redeemed prior to
their maturity. On the day prior to the Date of Deposit, the Estimated Net
Annual Interest Income per Unit divided by the Public Offering Price resulted in
the Estimated Current Return stated for each Trust under 'Summary of Essential
Information' in Part A.
A-8
<PAGE>
The Estimated Net Annual Interest Income per Unit of each Trust will vary with
changes in the fees and expenses of the Trustee and the Evaluator applicable to
each Trust and with the redemption, maturity, sale or other disposition of the
Bonds in each Trust. The Public Offering Price will vary with changes in the
offering prices (bid prices in the case of the secondary market) 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 Sponsors upon request.
MARKET FOR UNITS
The Sponsors, although not obligated to do so, intend to maintain a secondary
market for the Units of each Trust after the initial public offering has been
completed. The secondary market repurchase price will be based on the aggregate
bid price of the Bonds in the Trust portfolio; and the reoffer price will be
based on the aggregate bid price of the Bonds plus a sales charge of 4.9%
(5.152% of the net amount invested) plus net accrued interest. If a market is
not maintained a Certificateholder will be able to redeem his Units with the
Trustee at a price based on the aggregate bid price of the Bonds. (See 'Sponsor
Repurchase' in Part B.)
TOTAL REINVESTMENT PLAN
Certificateholders under the semi-annual and annual plans of distribution have
the opportunity to have all their regular interest distributions, and principal
distributions, if any, reinvested in available series of 'Insured Municipal
Securities Trust' or 'Municipal Securities Trust.' (See 'Total Reinvestment
Plan' in Part B. Residents of Texas see 'Total Reinvestment Plan for Texas
Residents' in Part B.) The Plan is not designed to be a complete investment
program.
DESCRIPTION OF PORTFOLIOS
At least 80% of the assets of the New York Navigator Trust and the New Jersey
Navigator Trust are invested in obligations of issuers located in New York and
New Jersey, respectively. For the specific number of issues located in New York
and New Jersey, see the summaries of the New York and New Jersey Portfolios,
below. On the Date of Deposit, the Sponsors deposited with the Trustee an
aggregate of $12,000,000 principal amount of long-term bonds, including 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. Of such principal
amount of Bonds, $3,500,000 was deposited in the New York Navigator Trust,
$3,000,000 was deposited in the New Jersey Navigator Trust, $2,500,000 was
deposited in the California Trust and $3,000,000 was deposited in the Virginia
Trust. Thereafter, the Trustee, in exchange for the Bonds so deposited,
delivered to the Sponsors the certificates evidencing the ownership of all Units
of the Trusts. The Sponsors have not participated as a sole underwriter or
manager, co-manager or member of underwriting syndicates from which any of the
Bonds were acquired for the New York Navigator Trust, New Jersey Navigator
Trust, California Trust and Virginia Trust.
NEW YORK NAVIGATOR TRUST
The portfolio of the New York Navigator Trust consists of 10 issues representing
obligations of 8 issuers located in the State of New York and one in Puerto
Rico. None of the Bonds are obligations of state and local housing authorities;
9.1% are hospital revenue bonds and none are issued in connection with the
financing of nuclear generating facilities. One issue comprising 14.3% of the
aggregate principal amount of the Trust is a mortgage revenue bond. There are no
'when, as and if' issued bonds in the portfolio. Two issues representing
$450,000 of the aggregate principal amount of the Bonds are general obligation
bonds. Eight issues representing $3,050,000 of the aggregate principal amount of
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: Civic Facility, 1; Correctional Facility, 1;
Dormitory Authority, 1; Health and Education, 1; Hospital, 1;
A-9
<PAGE>
Housing, 1; Transit Facility, 1 and Water and Sewer, 1. For an explanation of
the significance of these factors see 'Portfolios' in Part B.
Approximately 39.9% of the Bonds in the New York Navigator Trust are original
issue discount bonds of which approximately 5% of the aggregate principal amount
of Bonds in the Trust (although only 1.2% of the aggregate cost of all Bonds
acquired for such Trust) are Zero Coupon Bonds and are included in such Trust to
achieve a lower Public Offering Price. 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. See 'Discount and Zero Coupon Bonds' in Part B. None of the Bonds in this
Trust were purchased at a 'market' discount from par value at maturity. All of
the Bonds are subject to redemption prior to maturity pursuant to sinking fund
or optional call provisions except for Portfolio No. 10.
On the Date of Deposit, based on the offering side evaluation, approximately
39.9% of the aggregate principal amount of Bonds in the Trust were acquired at a
discount from par, approximately 60.1% were at a premium over par and none were
at par. A Certificateholder may receive more or less than his original purchase
price upon disposition of his Units because the value of Units fluctuates with
the value of the underlying Bonds, which varies inversely with interest rates.
On the Date of Deposit, the bid side evaluation was lower than the offering side
evaluation by .4% of the aggregate offering price of this Trust. (See 'Public
Offering' in Part B.)
None of the Bonds in the Trust are subject to the Federal individual alternative
minimum tax under the Tax Reform Act of 1986.
No issues have been deposited in the New York Navigator Trust and 10 issues are
represented by the Sponsors' contracts to purchase, which are expected to be
settled on or about December 17, 1993.
NEW JERSEY NAVIGATOR TRUST
The portfolio of the New Jersey Navigator Trust consists of 9 issues
representing obligations of 8 issuers located in the State of New Jersey and one
in Puerto Rico. None of the Bonds are obligations of state and local housing
authorities; none are hospital revenue bonds and none are issued in connection
with the financing of nuclear generating facilities. One issue comprising 4.2%
of the aggregate principal amount of the Trust is a mortgage revenue bond. There
are no 'when, as and if' issued bonds in the portfolio. One issue representing
$100,000 of the aggregate principal amount of the Bonds is a general obligation
bond. Eight issues representing $2,900,000 of the principal amount of the Bonds
are payable from the income of a specific project or authority and are not
supported by the issuer's power to levy taxes. The portfolio is divided for
purpose of issue as follows: Convention Center, 1; Health and Education, 1;
Housing, 1; Pollution Control, 2 and Utilities, 3. For an explanation of the
significance of these factors see 'Portfolios' in Part B.
Approximately 5% of the Bonds in the New Jersey Navigator Trust are original
issue discount bonds, of which approximately 5% of the aggregate principal
amount of Bonds in the Trust (although only 1.2% of the aggregate cost of all
Bonds acquired for such Trust) are Zero Coupon Bonds and are included in such
Trust to achieve a lower Public Offering Price. 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. (See 'Discount and Zero Coupon Bonds' in Part B.) None of the
Bonds in this Trust were purchased at a 'market' discount from par value at
maturity. All of the Bonds are subject to redemption prior to maturity pursuant
to sinking fund or optional call provisions except for Portfolio No. 5.
On the Date of Deposit, based on the offering side evaluation, approximately 5%
of the aggregate principal amount of the Bonds in the Trust were acquired at a
discount from par, approximately 90.8% were at a premium over par and 4.2% were
at par. A Certificateholder may receive more or less than his original purchase
price upon disposition of his Units because the value of Units fluctuates with
the value of the underlying Bonds, which vary inversely with interest rates. On
the Date of Deposit, the
A-10
<PAGE>
bid side evaluation was lower than the offering side evaluation by .4% of the
aggregate offering price of this Trust. (See 'Public Offering' in Part B.)
Portfolio No. 7 in the principal amount of $500,000, which represents 16.7% of
the aggregate principal amount of the Bonds in the Trust (which also represents
17.9% of the annual interest income), will pay interest income which is
includable as a preference item in computing the Federal individual and
corporate alternative minimum taxes. This may result in an increase in the
overall Federal tax liability of certain corporations and individuals. Investors
will realize taxable capital gain upon maturity or earlier redemption of any
market discount Bonds in the Trust. In addition, interest income on the Bonds in
the Trust may be subject to the Federal corporate alternative minimum tax. See
'Tax Status' in Part B.
No issues have been deposited in the New Jersey Navigator Trust and 9 issues are
represented by the Sponsors' contracts to purchase, which are expected to be
settled on or about December 15, 1993.
CALIFORNIA TRUST
The portfolio of the California Trust consists of 12 issues representing
obligations of 12 issuers located in the State of California. None of the Bonds
are obligations of state and local housing authorities; 20% are hospital revenue
bonds and none of the Bonds are issued in connection with the financing of
nuclear generating facilities. One issue comprising 10% of the aggregate
principal amount of the Trust is a mortgage revenue bond. Portfolio No. 2, which
represents 10% of the aggregate principal amount of the bonds in the Trust has
been purchased on a 'when as and if' issued basis with delivery expected to take
place 41 days after the settlement date for the purchase of units. All of the
Bonds are subject to redemption prior to their stated maturity dates pursuant to
a sinking fund or optional call provision except for Portfolio No. 12. None of
the issues representing the aggregate principal amount of the Bonds are general
obligation bonds. Twelve issues representing $2,500,000 of the principal amount
of 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: Apartments, 1; Civic Center, 2; Education, 2;
Hospital, 2; Housing, 1; Improvement Facility, 2; Tax Allocation, 1 and
Transportation, 1. For an explanation of the significance of these factors see
'The Portfolios' in Part B.
Approximately 71% of the aggregate principal amount of the Bonds in the
California Trust are original issue discount bonds, of which 4% of the aggregate
principal amount of Bonds in such Trust (although only .8% of the aggregate cost
of all Bonds acquired for such Trust) are Zero Coupon Bonds. Zero Coupon Bonds
do not provide for the payment of any current interest and provide for payment
at maturity at face value unless sooner sold or redeemed. The market value of
Zero Coupon Bonds is subject to greater fluctuations than coupon bonds in
response to changes in interest rates. See 'Discount and Zero Coupon Bonds' in
Part B. Based on the offering side evaluation, 14.6% of the Bonds in the
California Trust were purchased at a 'market' discount from par value at
maturity.
Based on the offering side evaluation on the Date of Deposit, 85.6% of the
aggregate principal amount of Bonds in the portfolio were acquired at a discount
from par, none were at a premium over par and 14.4% were at par. A
Certificateholder may receive more or less than his original purchase price upon
disposition of his Units because the value of Units fluctuates with the value of
the underlying Bonds, which varies inversely with interest rates, including
fluctuations in the offering prices and bid prices. On the Date of Deposit, the
bid side evaluation was lower than the offering side evaluation by .4% of the
aggregate offering price of the California Trust. See 'Public Offering' in Part
B.
None of the Bonds in the California Trust are subject to the Federal
individual alternative minimum tax under the Tax Reform Act of 1986. See 'Tax
Status' in Part B.
No issues have been deposited in the California Trust and 12 issues are
represented by the Sponsors' contracts to purchase, which are expected to be
settled on or about January 27, 1994.
A-11
<PAGE>
VIRGINIA TRUST
The portfolio of the Virginia Trust consists of 12 issues, 10 issues
representing obligations of the Commonwealth of Virginia or municipalities,
authorities or other political subdivisions thereof and 2 issues representing
obligations of the Government of Puerto Rico or by its authorities.
Approximately 10% of the Bonds are obligations of state and local housing
authorities; 28.3% are hospital revenue bonds and none of the Bonds are issued
in connection with the financing of nuclear generating facilities. Two issues
comprising 10% of the aggregate principal amount of the Trust are mortgage
revenue bonds. There are no 'when, as and if' issued bonds in the portfolio. All
of the Bonds are subject to redemption prior to their stated maturity dates
pursuant to a sinking fund or optional call provision except for Portfolio No.
13. One issue representing $250,000 of the aggregate principal amount of the
Bonds is a general obligation bond. Eleven issues representing $2,750,000 of the
principal amount of 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: Bridge and Tunnel
Authority, 1; Educational Facility, 1; Electric, 1; Highway, 1; Hospital, 4;
Housing, 1; Multi-Family Housing, 1 and Water Revenue, 1. For an explanation of
the significance of these factors see 'The Portfolios' in Part B.
Approximately 38.3% of the aggregate principal amount of the Bonds in the
Virginia Trust are original issue discount bonds, of which 5% of the aggregate
principal amount of Bonds in such Trust (although only 1.4% of the aggregate
cost of all Bonds acquired for such Trust) are Zero Coupon Bonds. Zero Coupon
Bonds do not provide for the payment of any current interest and provide for
payment at maturity at face value unless sooner sold or redeemed. The market
value of Zero Coupon Bonds is subject to greater fluctuations than coupon bonds
in response to changes in interest rates. See 'Discount and Zero Coupon Bonds'
in Part B. Based on the offering side evaluation, 5% of the Bonds in the New
York Trust were purchased at a 'market' discount from par value at maturity.
Based on the offering side evaluation on the Date of Deposit, 43.3% of the
aggregate principal amount of Bonds in the portfolio were acquired at a discount
from par, 51.7% were at a premium over par and 5% were at par. A
Certificateholder may receive more or less than his original purchase price upon
disposition of his Units because the value of Units fluctuates with the value of
the underlying Bonds, which varies inversely with interest rates, including
fluctuations in the offering prices and bid prices. On the Date of Deposit, the
bid side evaluation was lower than the offering side evaluation by .4% of the
aggregate offering price of the Virginia Trust. See 'Public Offering' in Part B.
None of the Bonds in the Virginia Trust are subject to the Federal
individual alternative minimum tax under the Tax Reform Act of 1986.
No issues have been deposited in the Virginia Trust and 12 issues are
represented by the Sponsors' contracts to purchase, which are expected to be
settled on or about December 15, 1993.
A-12
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Sponsors, Trustee, and Certificateholders:
Insured Municipal Securities Trust -- New York Navigator Insured Series 15 and
New Jersey Navigator Insured Series 11; and
Municipal Securities Trust, Multi-State Series 44
We have audited the accompanying Statements of Condition and Portfolios
(the 'financial statements') of the Insured Municipal Securities Trust, New York
Navigator Insured Series 15 and New Jersey Navigator Insured Series 11; and
Municipal Securities Trust, Multi-State Series 44 as of December 9, 1993. These
financial statements are the responsibility of the Sponsors. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion. The irrevocable letters of
credit deposited in connection with the securities owned as of December 9, 1993,
pursuant to contracts to purchase, as shown in the Statements of Condition, were
confirmed to us by United States Trust Company of New York, the Trustee.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Insured Municipal
Securities Trust, New York Navigator Insured Series 15 and New Jersey Navigator
Insured Series 11; and Municipal Securities Trust, Multi-State Series 44, at
December 9, 1993, in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK
New York, New York
December 9, 1993
A-13
<PAGE>
INSURED MUNICIPAL SECURITIES TRUST,
NEW YORK NAVIGATOR INSURED SERIES 15 AND
NEW JERSEY NAVIGATOR INSURED SERIES 11
AND
MUNICIPAL SECURITIES TRUST,
MULTI-STATE SERIES 44
STATEMENTS OF CONDITION
AS OF DATE OF DEPOSIT, DECEMBER 9, 1993
TRUST PROPERTY
<TABLE>
<CAPTION>
NEW YORK NEW JERSEY
NAVIGATOR NAVIGATOR CALIFORNIA VIRGINIA
TRUST TRUST TRUST TRUST
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Investment in Securities--Sponsors' Contracts to Purchase
Underlying Bonds Backed by Letters of Credit(1)........ $3,404,138 $2,921,775 $2,364,445 $2,884,662
Accrued Interest to Date of Deposit on Bonds(1).......... 57,418 46,002 22,991 46,795
---------- ---------- ---------- ----------
Total.......................................... $3,461,556 $2,967,777 $2,387,436 $2,931,457
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
LIABILITY AND INTEREST OF CERTIFICATEHOLDERS
<TABLE>
<S> <C> <C> <C> <C>
Liability for Accrued Interest to Date of Deposit on
Bonds(1)(4)............................................ $ 57,418 $ 46,002 $ 22,991 $ 46,795
---------- ---------- ---------- ----------
Interest of Certificateholders--Units of Fractional
Undivided Interest Outstanding (New York Navigator
Insured Series 15: 3,500 Units, New Jersey Navigator
Insured Series 11: 3,000 Units California Trust: 2,500
Units and Virginia Trust: 3,000 Units):
Cost to Certificateholders(2)....................... 3,579,535 3,072,319 2,486,272 3,033,293
Less-Gross Underwriting Commissions(3).............. 175,397 150,544 121,827 148,631
---------- ---------- ---------- ----------
Net Amount Applicable to Certificateholders......... 3,404,138 2,921,775 2,364,445 2,884,662
---------- ---------- ---------- ----------
Total.......................................... $3,461,556 $2,967,777 $2,387,436 $2,931,457
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
(1) Aggregate cost to each Trust of the Bonds listed in the Portfolio of
such Trust is based on offering prices determined by the Evaluator on the basis
set forth under 'Public Offering--Offering Price' as of 4:00 p.m. on December 8,
1993. Irrevocable letters of credit issued by Morgan Guaranty Trust Company in
an aggregate amount of $12,000,000 have been deposited with the Trustee to cover
the purchase of $12,000,000 principal amount of Bonds pursuant to contracts to
purchase such Bonds and $180,532 accrued interest on such Bonds to the expected
dates of delivery.
(2) Aggregate public offering price (exclusive of interest) computed on
3,500 Units of New York Navigator Insured Series 15, 3,000 Units of New Jersey
Navigator Insured Series 11, 2,500 Units of the California Trust and 3,000 Units
of the Virginia Trust on the basis set forth under 'Public Offering-- Offering
Price' in Part B.
(3) Sales charge of 4.9% computed on 3,500 Units of New York Navigator
Insured Series 15, 3,000 Units of New Jersey Navigator Insured Series 11, 2,500
Units of the California Trust and 3,000 Units of the Virginia Trust on the basis
set forth under 'Public Offering Price' in Part B.
(4) On the basis set forth under 'Public Offering--Accrued Interest', the
Trustee will advance the amount of accrued interest as of December 16, 1993 (the
'First Settlement Date') and all accrued interest to the First Settlement Date
will be distributed to the Sponsors as the Certificateholders of record as of
the First Settlement Date. Consequently, the amount of accrued interest to be
added to the public offering price of Units will include only accrued interest
from the First Settlement Date to date of settlement, less any distributions
from the Interest Account subsequent to the First Settlement Date.
A-14
<PAGE>
INSURED MUNICIPAL SECURITIES TRUST
PORTFOLIO
------------------------
NEW YORK NAVIGATOR INSURED SERIES 15
------------------------
AS OF DECEMBER 9, 1993
A MONTHLY PAYMENT SERIES
SEMI-ANNUAL PAYMENT SERIES OR ANNUAL PAYMENT SERIES
<TABLE>
<CAPTION>
AGGREGATE NAME OF ISSUER AND COUPON/ REDEMPTION FEATURE
PORTFOLIO PRINCIPAL TITLE OF BONDS MATURITY S.F.--SINKING FUND
NO. AMOUNT CONTRACTED FOR(6) RATINGS(1)(7) DATE(2) OPT.--OPTIONAL(2)(3)
- ---------- ------------- --------------------------------------------- -------------- ----------- --------------------
<S> <C> <C> <C> <C> <C>
1 $ 400,000 N.Y. State Dorm Auth. (St. Univ. Ed. Facs.) AAA 5.000% No Sinking Fund
Rev. Bonds Series 1989 B (MBIA Corp.)
2 500,000 N.Y. State Hsg. Finc. Agncy. Serv. Cntrct. AAA 5.375% 3/15/14 @ 100 S.F.
Oblig. Rev. Bonds Series 1993D (MBIA Corp.) 3/15/2023 9/15/03 @ 102 Opt.
3 320,000 N.Y. State Med. Care Facs. Finc. Agncy. AAA 5.250% 2/15/14 @ 100 S.F.
Mental Hlth. Servs. Facs. Imprvmnt. Rev. 8/15/2023 8/15/03/@ 102 Opt.
Bonds Series D (MBIA Corp.)
4 500,000 N.Y. State Urban Dev. Corp. Correc. Cap. AAA 5.750% 1/01/11 @ 100 S.F.
Facs. Rev. Rfndg. Bonds Series 1993 (MBIA 1/01/2013 1/01/03 @ 102 Opt.
Corp.)
5 605,000 Metro. Trans. Auth. N.Y. Serv. Cntrct. Rev. AAA 5.750% 7/01/13 @ 100 S.F.
Bonds Trans. Facs. Series P (MBIA Corp.) 7/01/2015 7/01/03 @ 101.5 Opt.
6 350,000 N.Y. City Genl. Oblig. Rev. Bonds Fiscal 1993 AAA 6.250% No Sinking Fund
Series A (MBIA Corp.) 8/01/2016 8/01/02 101.5 Opt.
7 100,000 N.Y. City Genl. Oblig. Rev. Bonds Fiscal 1994 AAA 5.750% No Sinking Fund
Series D (MBIA Corp.) 8/15/2015 8/15/03 @ 101.5 Opt.
8 250,000 N.Y. City Muni. Wtr. Finc. Auth. Wtr. & Swr. AAA 5.500% 6/15/18 @ 100 S.F.
Sys. Rev. Rfndg. Bonds Series A (MBIA Corp.) 6/15/2020 6/15/02 @ 100 Opt.
9 300,000 P.R. Pub. Bldgs. Auth. Pub. Ed & Hlth. Facs. AAA 5.500% 7/01/17 @ 100 S.F.
Rev. Rfndg. Bonds Gtd. By The Cmmnwlth. of 7/01/2021 7/01/03 @ 101.5 Opt.
P.R. Series M (MBIA Corp.)
10 175,000 Glencove N.Y. Ind. Dev. Agncy. Civic Fac. AAA 0.000% No Sinking Fund
Rev. Bonds (Regency At Glencove) Series B 10/15/2019 None
(MBIA Corp.)
-------------
$ 3,500,000
-------------
-------------
<CAPTION>
PORTFOLIO COST OF BONDS
NO. TO TRUST(5)
- ---------- -------------
<S> <C>
1 $ 381,016
2 498,125
3 312,912
4 514,410
5 623,010
6 372,362
7 102,995
8 251,685
9 305,124
10 42,499
-------------
$ 3,404,138
-------------
-------------
</TABLE>
A-15
<PAGE>
INSURED MUNICIPAL SECURITIES TRUST
PORTFOLIO
------------------------
NEW JERSEY NAVIGATOR INSURED SERIES 11
------------------------
AS OF DECEMBER 9, 1993
A MONTHLY PAYMENT SERIES
SEMI-ANNUAL PAYMENT SERIES OR ANNUAL PAYMENT SERIES
<TABLE>
<CAPTION>
AGGREGATE NAME OF ISSUER AND COUPON/ REDEMPTION FEATURE
PORTFOLIO PRINCIPAL TITLE OF BONDS MATURITY S.F.--SINKING FUND
NO. AMOUNT CONTRACTED FOR(6) RATINGS(1)(7) DATE(2) OPT.--OPTIONAL(2)(3)
- ---------- ---------- ------------------------------------------- -------------- ----------- ----------------------
<S> <C> <C> <C> <C> <C>
1 $ 525,000 N.J. Econ. Dev. Auth. Nat. Gas. Facs. AAA 5.375% No Sinking Fund
Rfndg. Rev. Bonds (N.J. Nat. Gas Co. Prjt.) 8/01/2023 8/01/03 @ 102 Opt.
Series 1993A (MBIA Corp.)
2 125,000 N.J. Hsg. & Mtg. Finc. Agncy. Home Buyer AAA 5.350% 4/01/08 @ 100 S.F.
Rev. Bonds 1993 Series G (MBIA Corp.) 10/01/2015 10/01/03 @ 102 Opt.
3 525,000 N.J. Sports & Expo. Auth. Cnvntn. Cntr. AAA 5.500% 7/01/21 @ 100 S.F.
Luxury Tax Bonds Series 1992A (MBIA Corp.) 7/01/2022 7/01/02 @ 102 Opt.
4 100,000 Borough of Avalon N.J. In The Cnty. of Cape AAA 5.400% 7/01/06 @ 100 S.F.
May Genl. Oblig. Rfndg. Bonds (MBIA Corp.) 7/01/2013 7/01/03 @ 102 Opt.
5 150,000 Camden Cnty. N.J. Muni. Utils. Auth. Cnty. AAA 0.000% No Sinking Fund
Agreement Swr. Rev. Cap. Apprec. Bonds 9/01/2019 None
Series 1990A (MBIA Corp.)
6 105,000 Cape May N.J. Muni. Utils. Auth. Rev. AAA 5.750% 1/01/12 @ 100 S.F.
Rfndg. Bonds Series A (MBIA Corp.) 1/01/2016 1/01/03 @ 102 Opt.
7 500,000 Salem Cnty. N.J. Poll. Cntrl. Fincg. Auth. AAA 5.600% No Sinking Fund
Poll. Cntrl. Rev. Bonds (Atlantic City 11/01/2025 11/01/03 @ 102 Opt.
Elec. Co. Prjt.) Series 1993A (AMT) (MBIA
Corp.)
8 525,000 Salem Cnty. N.J. Poll. Cntrl. Fincg. Auth. AAA 5.550% No Sinking Fund
Poll. Cntrl. Rev. Rfndg. Bonds (Pub. Serv. 11/01/2033 11/01/03 @ 102 Opt.
Elec. & Gas Co. Prjt.) Series 1993C (MBIA
Corp.)
9 445,000 P.R. Pub. Bldgs. Auth. Pub. Ed. & Hlth. AAA 5.500% 7/01/17 @ 100 S.F.
Facs. Rev. Rfndg. Bonds Gtd. By The 7/01/2021 7/01/03 @ 101.5 Opt.
Cmmnwlth. of P.R. Series M (MBIA Corp.)
----------
$3,000,000
----------
----------
<CAPTION>
PORTFOLIO COST OF BONDS
NO. TO TRUST(5)
- ---------- -------------
<S> <C>
1 $ 528,350
2 125,000
3 533,390
4 100,852
5 36,216
6 109,807
7 503,745
8 531,814
9 452,601
-------------
$ 2,921,775
-------------
-------------
</TABLE>
A-16
<PAGE>
MUNICIPAL SECURITIES TRUST
MULTI-STATE SERIES 44
PORTFOLIO
------------------------
CALIFORNIA TRUST
------------------------
AS OF DECEMBER 9, 1993
A MONTHLY PAYMENT SERIES
SEMI-ANNUAL PAYMENT SERIES OR ANNUAL PAYMENT SERIES
<TABLE>
<CAPTION>
AGGREGATE NAME OF ISSUER AND COUPON/ REDEMPTION FEATURE
PORTFOLIO PRINCIPAL TITLE OF BONDS MATURITY S.F.--SINKING FUND
NO. AMOUNT CONTRACTED FOR(6) RATINGS(1) DATE(S)(2) OPT.--OPTIONAL(2)(3)
- --------- ---------- --------------------------------------------------- ---------- ----------- --------------------
<S> <C> <C> <C> <C> <C>
1 $ 250,000 Ca. Hlth. Facs. Fincg. Auth. Insrd. Hosp. Rev. A+ 5.000% 11/01/13 @ 100 S.F.
Rfndg. Bonds (Marshall Hosp.) Series 1993A 11/01/2018 11/01/03 @ 100 Opt.
2 250,000 (4) Ca. Hsg. Finc. Agncy. Home Mtg. Rev. Bonds. Series Aa* 5.700% 2/01/15 @ 100 S.F.
1993B 2/01/2025 2/01/04 @ 102 Opt.
3 250,000 Ca. St. Pub. Wks. Bd. Lease Rev. Bonds (Univ. of A1 Con.* 5.500% 6/01/15 @ 100 S.F.
Cal. Prjts.) Series B 6/01/2019 6/01/03 @ 102 Opt.
4 250,000 Univ. of Ca. Certs. of Part. Rfdg. Rev. Bonds (UCLA Aa Con.* 5.500% 11/01/12 @ 100 S.F.
Cntr. Chiller Cogen Prjt.) 11/01/2014 11/01/03 @ 102 Opt.
5 115,000 Pleasanton Ca. Mtg. Rfndg. Rev. Bonds (Gatewood AAA 5.625% 1/01/04 @ 100 S.F.
Apts.) FHA Insrd. Mtg. Ln. Series A 1/01/2026 7/01/03 @ 102 Opt.
6 250,000 Sacramento City Ca. Fincg. Auth. Lease Rev. Rfndg. Aa* 5.400% 11/01/15 @ 100 S.F.
Bonds Series 1993B 11/01/2020 None
7 110,000 City of San Diego Ca. Certs. of Part. (Balboa Park Aa Con.* 5.600% 11/01/12 @ 100 S.F.
& Mission Bay Park, Capital Imprvmnts. Prgm.) 11/01/2018 11/01/03 @ 101 Opt.
Series 1993
8 250,000 San Diego Ca. Cmmnty. Cllg. Dstrct. Admin. Facs. A+ 5.375% 12/01/06 @ 100 S.F.
Corp. Certs. of Part. (1993 Fincg. Prjts.) 12/01/2014 12/01/03 @ 102 Opt.
9 175,000 San Diego Ca. Muni. Trans. Dstrct. Bd. Auth. Lease Aa* 5.375% 6/01/19 @ 100 S.F.
Rev. Bonds (Old Town Light Rail Trans. Ext.) 6/01/2023 6/01/03 @ 101 Opt.
10 250,000 San Francisco City & Cnty. Ca. Redev. Agncy. Lease A* 5.500% 7/01/14 @ 100 S.F.
Rev. Bonds (George R. Mascone Cnvntn. Cntr.) Series 7/01/2018 7/01/02 @ 100 Opt.
1992
11 250,000 San Francisco Ca. City & Cnty. Redev. Fincg. Auth. A 5.400% 8/01/19 @ 100 S.F.
Tax Alloc. Redev. Prjt. Series C 8/01/2021 8/01/03 @ 103 Opt.
12 100,000 City of San Marcos Ca. (Civic Cntr. Twin Oaks AAA 0.000% No Sinking Fund
Valley Rd. Lease Pub. Wks. Yard Lease) Series C 8/15/2022 None
----------
$2,500,000
----------
----------
<CAPTION>
COST OF
PORTFOLIO BONDS TO
NO. TRUST(5)
- --------- ----------
<S> <C>
1 $ 229,970
2 250,000
3 246,625
4 248,447
5 114,571
6 244,778
7 110,000
8 243,103
9 170,577
10 245,040
11 242,990
12 18,344
----------
$2,364,445
----------
----------
</TABLE>
A-17
<PAGE>
MUNICIPAL SECURITIES TRUST
MULTI-STATE SERIES 44
PORTFOLIO
--------------------
VIRGINIA TRUST
--------------------
AS OF DECEMBER 9, 1993
A MONTHLY PAYMENT SERIES
SEMI-ANNUAL PAYMENT SERIES OR ANNUAL PAYMENT SERIES
<TABLE>
<CAPTION>
AGGREGATE NAME OF ISSUER AND COUPON/ REDEMPTION FEATURE
PORTFOLIO PRINCIPAL TITLE OF BONDS MATURITY S.F.--SINKING FUND
NO. AMOUNT CONTRACTED FOR(6) RATINGS(1) DATE(S)(2) OPT.--OPTIONAL(2)(3)
- --------- ---------- ------------------------------------------------- ---------- ----------- ----------------------
<S> <C> <C> <C> <C> <C>
1 $ 300,000 Va. Cllg. Bldg. Auth. Ed. Facs. Rev. Rfndg. Bonds A+ 5.750% 4/01/06 @ 100 S.F.
(Hampton Univ. Prjt.) Series 1993 4/01/2014 4/01/03 @ 102 Opt.
2 150,000 Va. Hsg. Dev. Auth. Cmmnwlth. Mtg. Rev. Bonds Aa 5.250% 1/01/17 @ 100 S.F.
Series 1993H 7/01/2023 7/01/03 @ 102 Opt.
3 150,000 Va. Hsg. Dev. Auth. Cmmnwlth. Mtg. Rev. Bonds Aa* 5.250% 1/01/24 @ 100 S.F.
Series 1993H 7/01/2027 7/01/03 @ 102 Opt.
4 300,000 Albemarle Cnty. Va. Ind. Dev. Auth. Hosp. Rfndg. A* 5.500% 10/01/16 @ 100 S.F.
Rev. Bonds (Martha Jefferson Hosp.) Series 1993 10/01/2020 10/01/03 @ 102 Opt.
5 50,000 Arlington Cnty. Va. Ind. Dev. Auth. Hosp. Rev. A1* 5.300% 9/01/09 @ 100 S.F.
Rfndg. Bonds (The Arlington Hosp.) Series 1993 9/01/2015 9/01/03 @ 102 Opt.
6 450,000 Chesapeake Bay Va. Bridge & Tunnel Commsn. Dist. AAA 5.750% 7/01/23 @ 100 S.F.
Rev. Rfndg. Bonds (MBIA Corp.) 7/01/2025 7/01/01 @ 100 Opt.
7 250,000 Fairfax Cnty. Va. Dev. Auth. Hosp. Rev. Rfndg. Aa* 5.000% 8/15/20 @ 100 S.F.
Bonds (Inova Hlth. Sys. Hosps. Prjt.) Series 8/15/2023 None
1993A
8 250,000 Fairfax Cnty. Va. Wtr. Auth. Wtr. Rfndg. Rev. Aa* 5.750% 4/01/09 @ 100 S.F.
Bonds Series 1992 4/01/2014 4/01/02 @ 102 Opt.
9 300,000 Harrisonburg Va. Redev. & Hsg. Auth. Multifam. AA 6.300% 3/01/10 @ 100 S.F.
Hsg. Rev. Rfndg. Bonds (Hanover Crossing Aprtmts. 3/01/2016 3/01/03 @ 102 Opt.
Prjt.) Series 1993
10 250,000 City of Richmond Va. Genl. Oblig. Pub. Imprvmnt. AA 5.500% 1/15/18 @ 100 S.F.
Rfndg. Bonds Series 1993A 1/15/2022 1/15/03 @ 102 Opt.
11 250,000 Roanoke Va. Ind. Dev. Auth. Hosp. Rev. Rfndg. AAA 5.250% No Sinking Fund
Bonds (Roanoke Mem. Hosps. Cmmnty. Hosp. & 7/01/2025 7/01/03 @ 102 Opt.
Roanoke Valley, Franklin Mem. Hosp. & St. Albans
Psychiatric Hosp. Prjt.) Series 1993A (MBIA
Corp.)
12 150,000 P.R. Hwy. & Trans. Auth. Hwy. Rev. Rfndg. Bonds A 5.500% 7/01/16 @ 100 S.F.
Series X 7/01/2019 7/01/03 @ 101.5 Opt.
13 150,000 P.R. Elec. Pwr. Auth. Pwr. Rev. Bonds Series O A- 0.000% No Sinking Fund
7/01/2017 None
----------
$3,000,000
----------
----------
<CAPTION>
COST OF
PORTFOLIO BONDS TO
NO. TRUST(5)
- --------- ----------
<S> <C>
1 $ 307,497
2 142,451
3 142,087
4 295,833
5 48,124
6 455,477
7 233,520
8 257,825
9 316,020
10 252,050
11 244,337
12 150,000
13 39,441
----------
$2,884,662
----------
----------
</TABLE>
A-18
<PAGE>
FOOTNOTES
TO
PORTFOLIOS
(l) All ratings are by Standard & Poor's Corporation except for those identified
by an asterisk (*), which are by Moody's Investors Service, Inc. A brief
description of the rating symbols and their meanings is set forth under
'Description of Bond Ratings' in Part B.
(2) This column indicates whether the Bonds are subject to mandatory sinking
fund redemption on or after a specified date and whether such Bonds are
subject to unrestricted optional call by the issuer (for purposes of a
refunding or otherwise) on or after a specified date at prices which may or
may not include a premium. See 'Tax Status' in Part B for a statement of the
federal tax consequences to a certificateholder upon the sale, redemption or
maturity of a Bond and the state and local tax consequences of a sale of a
Bond.
(3) 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).
(4) Bonds were in syndication at the Evaluation Time on the day prior to Date of
Deposit. (See 'Public Offering--Offering Price' in Part B.)
(5) Evaluation of Bonds by the Evaluator was made on the basis of current
offering prices for the Bonds. The offering prices are greater than the
current bid prices of the Bonds which are the basis on which Unit Value is
determined for purposes of redemption of Units. (See 'Comparison of Public
Offering Price, Sponsors' Repurchase Price and Redemption Price' in Part B.)
The aggregate value of Bonds in the Trusts, based on the bid prices on the
Date of Deposit, are as follows:
<TABLE>
<CAPTION>
% DIFFERENCE
VALUE OF BONDS COST OF BONDS BETWEEN BID SIDE
BASED UPON BASED UPON EVALUATION
BID SIDE OFFERING SIDE DIFFERENCE AND OFFERING
EVALUATION EVALUATION IN DOLLARS SIDE EVALUATION
-------------- -------------- ---------- ----------------
<S> <C> <C> <C> <C>
New York Navigator Trust...................... $3,390,138 $3,404,138 $ 14,000 .4%
New Jersey Navigator Trust.................... $2,909,775 $2,921,775 $ 12,000 .4%
California Trust.............................. $2,354,445 $2,364,445 $ 10,000 .4%
Virginia Trust................................ $2,872,662 $2,884,662 $ 12,000 .4%
</TABLE>
Additional information regarding the Trusts is as follows:
<TABLE>
<CAPTION>
SPONSORS' PURCHASE
PRICE (INCLUDING
PREMIUM PAID ON
SPONSOR-INSURED
AND NAVIGATOR SPONSORS'
SPONSOR-INSURED PROFIT/LOSS ANNUAL
BONDS) (DATE OF DEPOSIT) INTEREST INCOME
------------------ ----------------- ---------------
<S> <C> <C> <C>
New York Navigator Trust.............................. $3,377,804 $26,334 $ 185,088
New Jersey Navigator Trust............................ $2,870,639 $51,136 $ 156,831
California Trust...................................... $2,350,610 $13,835 $ 130,473
Virginia Trust........................................ $2,873,399 $11,263 $ 158,925
</TABLE>
(6) Forward contracts to purchase the Bonds were entered into from November 29,
1993 through December 8, 1993. All such contracts are expected to be settled
on or about the First Settlement Date of the Trust which is expected to be
December 16, 1993 except for Portfolio No. 2 in the California Trust which
is expected to be settled on or about January 27, 1994. The Purchase Cost to
Sponsors includes the premium paid, if any, by the Sponsors for insurance on
the Navigator Sponsor-Insured Bonds. Accordingly, the Sponsors' Profit (or
Loss) on Deposit reflects the deduction of such premiums.
(7) These Bonds are rated 'AAA' by Standard & Poor's Corporation and are insured
or guaranteed by the indicated municipal bond insurance company. (See
'Insurance of the Bonds' in Part B). In the event a bond whose rating is
conditional upon the issuance of insurance does not receive such a rating,
then the Sponsors may purchase Replacement Bonds. See 'Portfolios' in Part
B.
A-19
<PAGE>
UNDERWRITING SYNDICATES
The names and addresses of the Underwriters of the Units and their
participations in the offering of each Trust are as follows:
<TABLE>
<CAPTION>
UNITS OF UNITS OF
N.Y. N.J. UNITS OF UNITS OF
NAVIGATOR NAVIGATOR CALIFORNIA VIRGINIA
UNDERWRITER TRUST TRUST TRUST TRUST
- ------------------------------------------------------------------ --------- --------- ---------- --------
<S> <C> <C> <C> <C>
BEAR, STEARNS & CO. INC.
245 Park Avenue
New York, NY 10167................................................ 1,800 1,500 1,950 2,200
GRUNTAL & CO., INCORPORATED
14 Wall Street
New York, NY 10005................................................ 1,250 250 -- --
LEBENTHAL & CO., INC.
25 Broadway
New York, NY 10004................................................ -- 500 -- --
OPPENHEIMER & CO., INC.
Oppenheimer Tower
World Financial Center
New York, NY 10281................................................ 250 100 100 --
M.L. STERN & CO., INC.
8350 Wilshire Boulevard
Beverly Hills, CA 90211........................................... -- -- 350 --
BRANCH, CABELL & CO.
919 East Main Street
Richmond, VA 23217................................................ -- -- -- 250
DAVENPORT & CO. of VIRGINIA, INC.
One James Center
Richmond VA 23219................................................. -- -- -- 250
NORI, HENNION, WALSH, INC.
3799 Route 46, Suite 102
Parsippany, NJ 07054.............................................. -- 250 -- --
JOSEPHTHAL, LYON & ROSS, INC.
45 Broadway
New York, NY 10006................................................ 100 100 -- --
ANDERSON & STRUDWICK, INCORPORATED
1108 East Main Street
Richmond, VA 23212................................................ -- -- -- 100
BENCH SECURITIES CORPORATION
Two Executive Drive
Fort Lee, NJ 07024................................................ -- 100 -- --
J.C. BRADFORD & CO.
330 Commerce Street
Nashville, TN 37201............................................... -- -- -- 100
INVEMED ASSOCIATES
375 Park Avenue
Suite 2205
New York, NY 10052................................................ 100 -- -- --
JANNEY MONTGOMERY SCOTT INC.
1801 Market Street
Philadelphia, PA 19103............................................ -- 100 -- --
</TABLE>
A-20
<PAGE>
UNDERWRITING SYNDICATES
<TABLE>
<CAPTION>
UNITS OF UNITS OF
N.Y. N.J. UNITS OF UNITS OF
NAVIGATOR NAVIGATOR CALIFORNIA VIRGINIA
UNDERWRITER TRUST TRUST TRUST TRUST
- ------------------------------------------------------------------ --------- --------- ---------- --------
<S> <C> <C> <C> <C>
ROOSEVELT & CROSS INCORPORATED
20 Exchange Place
New York, NY 10005................................................ -- 100 -- --
WEDBUSH MORGAN SECURITIES INC.
1000 Wilshire Boulevard
Los Angeles, CA 90017............................................. -- -- 100 --
WHEAT, FIRST SECURITIES, INC.
901 East Byrd Street
Richmond, VA 23219................................................ -- -- -- 100
--------- --------- ---------- --------
Totals................................................ 3,500 3,000 2,500 3,000
--------- --------- ---------- --------
--------- --------- ---------- --------
</TABLE>
A-21
<PAGE>
(LOGO)
FEATURES
o INSURANCE FOR THE NAVIGATOR TRUSTS
Each Navigator Trust is rated 'AAA' by Standard & Poor's Corporation. Each
Navigator portfolio is comprised solely of Bonds irrevocably insured, all
rated 'AAA', guaranteeing the timely payment of interest and principal. There
is no insurance premium for you or the Navigator Trust to pay. The cost of
insurance is borne by the issuers or by the Sponsors.
o TAX FREE INCOME
In the opinion of bond counsel, all interest income (including earned original
issue discount) distributed by the Trusts is free, under current law, from
regular Federal income taxes and is exempt from state and local taxes to the
extent indicated when received by persons subject to state and local income
taxation in a state in which the issue of the Bonds is located. However,
interest income may be subject to the federal corporate and individual
alternative minimum taxes. Interest income accrual on original issue discount
bonds is not distributed.
o DIVERSIFICATION
Each Trust offers investors the opportunity for greater diversification than
they might acquire themselves by participating in a portfolio of long-term
tax-exempt bonds.
o RELATIVE STABILITY
With preservation of capital an important Trust objective, all Bonds, when
deposited in each Navigator portfolio, are rated 'AAA' by Standard & Poor's
Corporation and all Bonds when deposited in each State Trust, are rated 'A' or
better by either Standard & Poor's Corporation or Moody's Investors Service,
Inc. The value of the Units, however, may fluctuate with changes in the value
of the underlying Bonds.
o FIXED MATURITY
Bonds in each Trust will have a fixed maturity-- when the Bonds reach maturity
the principal will be paid out to the Certificateholders.
o PROFESSIONAL SELECTION
All bonds in each Trust are selected by seasoned municipal bond professionals.
o MARKETABILITY
Although not obligated to do so, the Sponsors intend to maintain a market for
units, at prices based on the aggregate bid-side evaluation of each Trust's
Bonds, which may be more or less than the original Purchase Price. A
Certificateholder will also tender his Units to the Trustee for redemption at
prices based on the net asset value per unit of the Bonds in each Trust, which
may be more or less than the original Purchase Price.
o CONVENIENCE
Certificateholders do not have to monitor or evaluate the portfolio for calls,
refundings, or bonds coming to maturity, etc. The bond professionals supervise
these duties for each Trust. Furthermore, the Trustee safekeeps each Trust's
Bonds, clips coupons and collects interest.
o MONTHLY, SEMI-ANNUAL OR ANNUAL CHECK
Certificateholders can receive their interest income checks either monthly,
semi-annually, or annually depending upon their investment goals. The monthly
checks are ideal for Certificateholders intending to spend their interest
income, while the semi-annual and annual checks offer the convenience of only
one or two checks, with a slightly higher return due to lower administrative
charges.
o TOTAL REINVESTMENT PLAN
Certificateholders who have chosen to receive interest income either
semi-annually or annually have the option to reinvest the regular interest and
principal distributions in fractional units of Available Series of 'Insured
Municipal Securities Trust' or 'Municipal Securities Trust' at a reduced sales
charge of 3 1/2%. There is no assurance that the current return on units of
Available Series of 'Insured Municipal Securities Trust', or 'Municipal
Securities Trust' will be the same as or greater than the current return on
Units of this Series. Series of 'Municipal Securities Trust' do not have
insurance.
o VOLUME DISCOUNT
Purchasers wishing to purchase more than 100, 250, 500, 750 or 1000 Units may
receive a discount. See Prospectus.
<PAGE>
(LOGO)
TAX-FREE VS. TAXABLE INCOME FOR INDIVIDUALS
These tables show the approximate current returns that taxable securities must
earn in various income brackets in the Navigator Trusts and the State Trusts to
produce, after Federal income taxes, (and, for the Navigator Trusts, after New
York State and City personal income taxes or New Jersey personal income taxes
and, for the State Trusts, after California or Virginia state and local taxes),
returns equivalent to tax-exempt bond current returns for the Navigator Trusts
and the State Trusts. The table is computed on the theory that the taxpayers'
highest tax rate is applicable to the entire amount of any increase or decrease
in his taxable income that results from a switch from taxable to tax-exempt
securities or vice versa. Under current law, the highest Federal income tax rate
for 1993 and thereafter will be 39.6%, although the effective marginal rate on a
portion of a taxpayer's income could be higher.
TAXABLE EQUIVALENT RETURNS
For example--Unitholders of the New York Navigator Trust filing a joint return
with taxable income of $36,901-$89,150 in 1993 would have to receive a 7.91%
taxable return on another investment to have the same spendable ++income that a
5.00% tax-exempt return would provide. Unitholders of the New Jersey Navigator
Trust filing a joint return with taxable income of $36,901-$89,150 in 1993 would
have to receive a 7.43% taxable return on another investment to have the same
spendable income++ that a 5.00% tax-exempt return would provide. Unitholders of
the California Trust and the Virginia Trust filing a joint return with taxable
income of $36,901-$89,150 in 1993 would have to receive a 8.04% or 7.74% taxable
return, respectively, on another investment to have the same spendable income++
that a 5.25% tax-exempt return would have. These tables do not reflect the
taxable return for individuals who are subject to the federal alternative
minimum tax.
1993 FEDERAL TAX FREE RATES(1)
<TABLE>
<CAPTION>
FEDERAL JOINT % FEDERAL
TAXABLE INCOME(2) TAX BRACKET 4.25% 4.50% 4.75% 5.00% 5.25% 5.50% 5.75% 6.00%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 - 36,900 15.0% 5.00 5.29 5.59 5.88 6.18 6.47 6.76 7.06
$ 36,901 - 89,150 28.0% 5.90 6.25 6.60 6.94 7.29 7.64 7.99 8.33
$ 89,151 - 140,000 31.0% 6.16 6.52 6.88 7.25 7.61 7.97 8.33 8.70
$140,001 - 250,000 36.0% 6.64 7.03 7.42 7.81 8.20 8.59 8.98 9.38
$250,000+ 39.6% 7.04 7.45 7.86 8.28 8.69 9.11 9.52 9.93
</TABLE>
(1) The 1993 Federal Tax Rates will not change in 1994.
(2) After exemptions and deductions other than state and local income tax
deductions.
1993 NEW YORK TRIPLE TAX FREE RATES
(ASSUMES NO FEDERAL OR NEW YORK STATE OR CITY TAXES)
<TABLE>
<CAPTION>
APPROX.
1993
FEDERAL,
FEDERAL JOINT FEDERAL NY STATE AND A TAX-EXEMPT RETURN OF
TAXABLE INCOME TAX BRACKET NY CITY(2) 4.25% 4.50% 4.75% 5.00% 5.25% 5.50% 5.75% 6.00%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 - 36,900 15.0% 23.33 5.54 5.87 6.19 6.52 6.84 7.17 7.50 7.82
$ 36,901 - 89,150 28.0% 36.81 6.72 7.12 7.52 7.91 8.31 8.70 9.10 9.49
$ 89,151 - 140,000 31.0% 39.59 7.02 7.44 7.85 8.26 8.68 9.09 9.50 9.92
$140,001 - 250,000 36.0% 43.9 7.58 8.02 8.47 8.91 9.36 9.80 10.25 10.70
$250,000+ 39.6% 47.1 8.03 8.51 8.98 9.45 9.92 10.40 10.87 11.34
</TABLE>
(1) After exemptions and deductions other than state and local income tax
deductions.
(2) In cases of overlap between federal and state/city brackets, the highest
state/city bracket is generally assumed. Assumes investor is a New York City
resident. New York rates are listed as currently enacted. These rates may be
subject to change in 1994.
- ------------------
++Interest income accrual on original issue discount bonds is not distributed.
<PAGE>
(LOGO)
1993 NEW JERSEY TAX FREE RATES
(ASSUMES NO FEDERAL OR NEW JERSEY STATE TAXES)
<TABLE>
<CAPTION>
APPROX.
1993
FEDERAL AND
FEDERAL JOINT % FEDERAL NJ TAX A TAX-EXEMPT RETURN OF
TAXABLE INCOME(1) TAX BRACKET RATE(2) 4.25% 4.50% 4.75% 5.00% 5.25% 5.50% 5.75%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 - 36,900 15.0% 17.13% 5.13 5.43 5.73 6.03 6.33 6.64 6.94
$ 36,901 - 89,150 28.0% 32.68% 6.31 6.68 7.05 7.43 7.79 8.17 8.53
$ 89,151 - 140,000 31.0% 35.49% 6.59 6.98 7.36 7.75 8.14 8.53 8.91
$140,001 - 250,000 36.0% 40.48% 7.14 7.56 7.98 8.40 8.82 9.24 9.66
$250,000+ 39.6% 43.83% 7.56 8.01 8.44 8.90 9.33 9.79 10.22
<CAPTION>
FEDERAL JOINT
TAXABLE INCOME(1) 6.00%
<S> <C>
$ 0 - 36,900 7.24
$ 36,901 - 89,150 8.91
$ 89,151 - 140,000 9.30
$140,001 - 250,000 10.08
$250,000+ 10.68
</TABLE>
(1) After exemptions and deductions other than state income tax deductions.
(2) These rates may be subject to change in 1994.
<TABLE>
<CAPTION>
APPROXIMATE
FEDERAL 1993
FEDERAL JOINT TAX FEDERAL AND
TAXABLE INCOME(1) BRACKET CALIFORNIA TAXES(2) 4.25% 4.50% 4.75% 5.00% 5.25% 5.50% 5.75%
CALIFORNIA RESIDENTS--1993 (ASSUMES NO FEDERAL OR CALIFORNIA STATE TAXES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 - 36,900 15.0% 20.1% 5.32 5.63 5.94 6.26 6.57 6.88 7.20
$ 36,901 - 89,150 28.0% 34.7% 6.51 6.89 7.27 7.66 8.04 8.42 8.81
$ 89,151 - 140,000 31.0% 37.4% 6.79 7.19 7.59 7.99 8.39 8.79 9.19
$140,001 - 250,000 36.0% 42.4% 7.38 7.81 8.25 8.68 9.11 9.55 9.98
$250,000+ 39.6% 46.2% 7.90 8.36 8.93 9.29 9.76 10.22 10.69
<CAPTION>
VIRGINIA RESIDENTS--1993 (ASSUMES NO FEDERAL OR VIRGINIA STATE TAXES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 - 36,900 15.0% 19.89% 5.31 5.62 5.93 6.24 6.55 6.87 7.18
$ 36,901 - 89,150 28.0% 32.14% 6.26 6.63 7.00 7.37 7.74 8.10 8.47
$ 89,151 - 140,000 31.0% 34.97% 6.54 6.92 7.30 7.69 8.07 8.46 8.84
$140,001 - 250,000 36.0% 39.68% 7.05 7.46 7.87 8.29 8.70 9.12 9.53
$250,000+ 39.6% 43.07% 7.47 7.90 8.34 8.78 9.22 9.66 10.10
<CAPTION>
FEDERAL JOINT
TAXABLE INCOME(1) 6.00%
<S> <C>
CALIFORNIA RESIDENTS-
$ 0 - 36,900 7.51
$ 36,901 - 89,150 9.19
$ 89,151 - 140,000 9.58
$140,001 - 250,000 10.42
$250,000+ 11.5
VIRGINIA RESIDENTS-
$ 0 - 36,900 7.49
$ 36,901 - 89,150 8.84
$ 89,151 - 140,000 9.23
$140,001 - 250,000 9.95
$250,000+ 10.54
</TABLE>
(1) After exemptions and deductions other than state and local income tax
deductions.
(2) In the case of overlap between federal and state brackets, the highest state
bracket is generally assumed. These rates may be subject to change in 1994.
<PAGE>
(LOGO)
INSURED MUNICIPAL SECURITIES TRUST
MUNICIPAL SECURITIES TRUST
PROSPECTUS PART B
PART B OF THIS PROSPECTUS MAY NOT BE
DISTRIBUTED UNLESS ACCOMPANIED BY
PART A
THE TRUST
ORGANIZATION
The Trust consists of four 'unit investment trusts' designated as set forth
in Part A. Each Trust was created under the laws of the State of New York
pursuant to a Trust Indenture and Agreement (the 'Trust Agreement'), dated the
Date of Deposit, among Bear, Stearns & Co. Inc., and Gruntal & Co., Incorporated
as Sponsors, United States Trust Company of New York, as Trustee, and Kenny S&P
Evaluation Services, a division of Kenny Information Systems, Inc. as Evaluator.
Each Trust will be administered as a distinct entity with separate certificates,
expenses, books and records.
On the Date of Deposit the Sponsors deposited with the Trustee long-term
insured bonds in the aggregate principal amount set forth in Part A, including
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 Sponsors the
Certificates evidencing the ownership of all Units of the Trusts. The Sponsors
have a limited right to substitute other bonds in each Trust portfolio in the
event of a failed contract. See 'Portfolios'.
A 'Unit' represents an undivided interest or pro rata share in the
principal and interest of each Trust in the ratio of one Unit for each $1,000
principal amount of Bonds initially deposited in that Trust. To the extent that
any Units are redeemed by the Trustee, the fractional undivided interest or pro
rata share in such Trust represented by each unredeemed Unit will increase,
although the actual interest in such Trust represented by such fraction will
remain unchanged. Units will remain outstanding until redeemed upon tender to
the Trustee by Certificateholders, which may include the Sponsors or the
Underwriters, or until the termination of the Trust Agreements.
OBJECTIVES
Each Trust offers investors the opportunity to participate in a portfolio
of long-term tax-exempt bonds with a greater diversification than they might be
able to acquire themselves. The objectives of each Trust are to preserve capital
and to provide interest income (including earned original issue discount) which,
in the opinion of bond counsel given at the time of original delivery of the
Bonds, is currently 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
1
<PAGE>
in a state in which the issuers of the Bonds are located. Such interest income
may, however, be subject to the federal, individual and corporate alternative
minimum 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
Sponsors of the Navigator Trusts have obtained bond insurance guaranteeing the
scheduled payment of principal and interest on the Bonds. Some of the Bonds may
additionally have already been covered by insurance when purchased by the
Navigator Trusts. (See 'Insurance on the Bonds'). Investors should be aware that
there is no assurance the Trusts' 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 continuing
satisfaction of the Bonds of the conditions required for the exemption of
interest thereon from regular federal income tax and from state and local income
taxes, on the market value of the Bonds, which can be affected by fluctuations
in interest rates and other factors and, with respect to the Navigator Trusts,
on the ability of the Insurance Companies to meet their obligations under the
policies of insurance issued on the Bonds.
Since disposition of Units prior to final liquidation of the Trusts may
result in an investor receiving less than the amount paid for such Units (see
'Comparison of Public Offering Price, Sponsors' Repurchase Price and Redemption
Price'), the purchase of a Unit should be looked upon as a long-term investment.
Neither the Trusts nor the Total Reinvestment Plan are designed to be complete
investment programs.
PORTFOLIOS
The portfolios of each Trust consists of the Bonds described in
'Description of Portfolios' in Part A and are represented by the Sponsors'
contracts to purchase, which are expected to be settled by the date set forth in
Part A. The Trusts may contain Bonds which have been purchased on a when, as,
and if issued basis. Accordingly, the delivery of such Bonds may be delayed or
may not occur. (See 'Description of Portfolios' in Part A.) Interest on these
Bonds begins accruing to the benefit of Certificateholders on their respective
dates of delivery. Certificateholders will be 'at risk' with respect to these
Bonds (i.e., may derive either gain or loss from fluctuations in the offering
side evaluation of the Bonds) from the date they commit for Units. (See
'Description of Portfolios' in Part A.) For a discussion of the Sponsors'
obligations in the event of the failure of any contract for the purchase of any
of the Bonds and limited right to substitute other bonds to replace any failed
contract, see 'Substitution of Bonds' in this Part B. On the Date of Deposit,
all of the Bonds in the Navigator Trusts were rated 'AAA' by Standard & Poor's
Corporation because each Bond was insured by a municipal bond guaranty insurance
policy (See 'Insurance on the Bonds') and all of the Bonds in the State Trusts
were rated 'A' or better by Standard & Poor's Corporation or Moody's Investors
Service, Inc.
When selecting Bonds for the Trusts, the following factors, among others,
were considered by the Sponsors: (a) the quality of the Bonds and with respect
to the Navigator Trusts, whether such Bonds, as insured, were rated 'AAA' by
Standard & Poor's Corporation, and with respect to the State Trusts, whether
such Bonds were rated 'A' or better by Standard & Poor's Corporation or Moody's
Investors Service, Inc., (b) the yield and price of the Bonds relative to other
tax-exempt securities of comparable quality and maturity, (c) income to the
Certificateholders of the Trusts, (d) with respect to the Navigator Trusts,
whether a Bond is insured, or insurance is available for the Bonds at a
reasonable cost, and (e) the diversification of each Trust portfolio, as to
purpose of issue and location of issuer, taking into account the availability in
the market of issues which meet such 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 the Trusts but may be considered in the Sponsors'
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 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 from
rents and other
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fees, 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.
The housing bonds in the Trust, despite their optional redemption
provisions which generally do not take effect until ten 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 housing bonds
pursuant to such redemption provisions. In addition, the housing 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 mortgages are made to the trustee for such Bonds or that the
mortgages are 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 housing bond to be redeemed
substantially prior to its stated maturity date, earliest call date or sinking
fund redemption date. See the 'Portfolio Summary' in Part A for the amount
housing bonds contained in the Trust.
Hospital Revenue Bonds. Some of the aggregate principal amount of Bonds may
consist of hospital revenue bonds. Ratings of hospital bonds are often based on
feasibility studies which contain projections of occupancy levels, revenues and
expenses. Actual experience may vary considerably from such projections. A
hospital's gross receipts and net income will be affected by future events and
conditions including, among other things, demand for hospital services and the
ability of the hospital to provide them, physicians' confidence in hospital
management capability, economic developments in the service area, competition,
actions by insurers and governmental agencies and the increased cost and
possible unavailability of malpractice insurance. Additionally, a major portion
of hospital revenue typically is derived from federal or state programs such as
Medicare and Medicaid which have been revised substantially in recent years and
which are undergoing further review at the state and federal level.
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 the 'Portfolio Summary' in Part A for
the amount of hospital revenue bonds contained in the Trust.
Nuclear Power Facility Bonds. Certain Bonds may have been issued in
connection with the financing of nuclear generating facilities. In view of
recent developments in connection with such facilities, legislative and
administrative actions have been taken and proposed relating to the development
and operation of nuclear generating facilities. The Sponsors are 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 the 'Portfolio Summary' in Part A for the amount of bonds
issued to finance nuclear generating facilities contained in the Trust.
Mortgage Revenue Bonds. Certain Bonds may be 'mortgage revenue bonds.'
Under the Internal Revenue Code of 1986, as amended (the 'Code') (and under
similar provisions of the prior tax law) 'mortgage revenue bonds' are
obligations the proceeds of which are used to finance owner-occupied residences
under programs which meet numerous statutory requirements relating to residency,
ownership, purchase price and target area requirements, ceiling amounts for
state and local issuers, arbitrage restrictions, and certain information
reporting, certification, and public hearing requirements. There can be no
assurance that additional federal legislation will not be introduced or that
existing legislation will not be further amended, revised, or enacted after
delivery of these Bonds or that certain required future actions will be taken by
the issuing governmental authorities, which action or failure to act could cause
interest on the Bonds to be subject to federal income tax. If any portion of the
Bonds proceeds are not committed for the purpose of the issue, Bonds in such
amount could be subject to earlier mandatory redemption at par, including issues
of Zero Coupon Bonds (see 'Discount and Zero Coupon Bonds'). See the 'Portfolio
Summary' in Part A for the amount of mortgage revenue bonds contained in the
Trust.
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Other Private Activity Bonds. The portfolios of the Trust may contain other
Bonds which are 'private activity bonds' (often called Industrial Revenue Bonds
('IRBs') if issued prior to 1987) which would be primarily of two types: (1)
Bonds for a publicly owned facility which a private entity may have a right to
use or manage to some degree, such as an airport, seaport facility or water
system and (2) facilities deemed owned or beneficially owned by a private entity
but which were financed with tax-exempt bonds of a public issuer, such as a
manufacturing facility or a pollution control facility. In the case of the first
type, bonds are generally payable from a designated source of revenues derived
from the facility and may further receive the benefit of the legal or moral
obligation of one or more political subdivisions or taxing jurisdictions. In
most cases of project financing of the first type, issuers are obligated to pay
the principal of, any premium then due, or interest on the private activity
bonds only to the extent that funds are available from receipts or revenues of
the Issuer derived from the project or the operator or from the unexpended
proceeds of the bonds. Such revenues include user fees, service charges, rental
and lease payments, and mortgage and other loan payments.
The second type of issue will generally finance projects which are owned by
or for the benefit of, and are operated by, corporate entities. Ordinarily, such
private activity bonds are not general obligations of governmental entities and
are not backed by the taxing power of such entities, and are solely dependent
upon the creditworthiness of the corporate user of the project or corporate
guarantor.
The private activity bonds in the Trust have generally been issued under
bond resolutions, agreements or trust indentures pursuant to which the revenues
and receipts payable under the issuer's arrangements with the users or the
corporate operator of a particular project have been assigned and pledged to the
holders of the private activity bonds. In certain cases a mortgage on the
underlying project has been assigned to the holders of the private activity
bonds or a trustee as additional security. In addition, private activity bonds
are frequently directly guaranteed by the corporate operator of the project or
by another affiliated company. See the 'Portfolio Summary' in Part A for the
amount of private activity bonds contained in the Trust.
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 Sponsors are 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 the Trusts.
To the Sponsors' knowledge, there is no litigation pending as of the Date
of Deposit with respect to any Bonds which might reasonably be expected to have
a material adverse effect on the Trusts. Subsequent to the Date of Deposit,
litigation may be initiated on a variety of grounds with respect to Bonds in the
Trusts. 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 Sponsors are unable to predict whether any such litigation
may be instituted or, if instituted, whether it might have a material adverse
effect on the Trusts.
Other Factors. Amendments made to the federal bankruptcy laws ease the
requirements that must be met before a municipality may seek federal court
protection to assist in reorganizing its debts. This easing of requirements may
encourage financially troubled municipalities to seek court assistance in
reorganizing their debts. The Sponsors are unable to predict what effect, if
any, such amendments will have on the Trusts.
The Trusts may also include 'moral obligation' bonds. Under statutes
applicable to such bonds, if an issuer is unable to meet its obligations, the
repayment of such bonds becomes a moral commitment but not a legal obligation of
the state or municipality in question.
All the Bonds in the Trusts are subject to redemption prior to their stated
maturity dates pursuant to sinking fund or call provisions. A sinking fund is a
reserve fund appropriated specifically toward the retirement of a debt. A
callable bond is one which is subject to redemption or refunding prior to
maturity at the option of the issuer. A refunding is a method by which a bond is
redeemed at or before
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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' for such Trust. Certificateholders will realize a
gain or loss on the early redemption of such Bonds, depending upon whether the
purchase price of such Bonds is at a discount from or at a premium over par at
the time Certificateholders purchase their Units.
PUERTO RICO BONDS
Certain of the Bonds in the portfolio may be general obligations and/or
revenue bonds of issuers located in Puerto Rico which will be affected by
general economic conditions in Puerto Rico. The economy of Puerto Rico is
closely integrated with that of the mainland United States. During fiscal year
1991, approximately 87% of Puerto Rico's exports were to the United States
mainland, which was also the source of 67% of Puerto Rico's imports. In fiscal
1991, Puerto Rico experienced a $2,325.5 million positive adjusted trade
balance. The economy of Puerto Rico is dominated by the manufacturing and
service sectors. The manufacturing sector has experienced a basic change over
the years as a result of increased emphasis on higher wage, high technology
industries such as pharmaceuticals, electronics, computers, microprocessors,
professional and scientific instruments, and certain high technology machinery
and equipment. The service sector, including finance, insurance and real estate,
also plays a major role in the economy. It ranks second only to manufacturing in
contribution to the gross domestic product and leads all sectors in providing
employment. In recent years, the service sector has experienced significant
growth in response to and paralleling the expansion of the manufacturing sector.
Since fiscal 1987, personal income has increased consistently in each fiscal
year. In fiscal 1991, aggregate personal income was $21.4 billion ($18.7 billion
in 1987 prices) and personal income per capita was $6.038 ($5.287 in 1987
prices). Real personal income showed a small decrease in fiscal 1991 principally
as a result of a decline in real transfer payments. Real transfer payments grew
at an above normal rate in fiscal 1990 due to the receipt of non-recurrent
relief of federal funds for hurricane Hugo victims. Personal income includes
transfer payments to individuals in Puerto Rico under various social programs.
Total federal payments to Puerto Rico, which include many types in addition to
federal transfer payments, are lower on a per capita basis in Puerto Rico than
in any state. Transfer payments to individuals in fiscal 1991 were $4.6 billion,
of which $3.0 billion, or 65.4%, represent entitlement to individuals who had
previously performed services or made contributions under programs such as
social security, veterans benefits and medicare. The number of persons employed
in Puerto Rico rose to a record level during fiscal 1991. Unemployment, although
at the lowest level since the late 1970s, remains above the average for the
United States. In fiscal 1991, the unemployment rate in Puerto Rico was 15.2%.
From fiscal 1987 through fiscal 1990, Puerto Rico experienced an economic
expansion that affected almost every sector of its economy and resulted in
record levels of employment. Factors behind this expansion include Commonwealth
sponsored economic development programs, the relatively stable prices of oil
imports, the continued growth of the United States economy, periodic declines in
exchange value of the United States dollar and the relatively low cost borrowing
during the period. Real gross product amounted to approximately $19.2 billion in
fiscal 1991, or .9% above the fiscal 1990 level. The economy continued its
growth during fiscal 1991 but at a slower rate. The Puerto Rico Planning Board's
economic activity index, a composite index for thirteen economic indicators,
increased .4% for the first eleven months of fiscal 1992 compared to the same
period in fiscal 1991, which period showed a decrease of .5% over the same
period in fiscal 1990. Growth in the Puerto Rico economy in fiscal 1993 depends
on several factors, including the state of the United States economy and the
relative stability in the price of oil imports, the exchange value of the U.S.
dollar and the cost of borrowing.
SUBSTITUTION OF BONDS
Neither the Sponsors nor the Trustee shall be liable in any way for any
default, failure or defect in any of the Bonds. In the event of a failure to
deliver any Bond that has been purchased for any of the Trusts under a contract,
including those Bonds purchased on a 'when, as and if' issued basis ('Failed
Bonds'), the Sponsors are authorized under the Trust Agreement to direct the
Trustee to acquire other bonds ('Replacement Bonds') to make up the original
corpus of the affected Trust.
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The Replacement Bonds must be purchased within 20 days after delivery of
the notice of the failed contract and the purchase price (exclusive of accrued
interest) may not exceed the purchase price of the Failed Bonds. The Replacement
Bonds (i) must be tax-exempt bonds issued by the same state or political
subdivision as the Failed Bond, (ii) must have a fixed maturity date of at least
10 years but not exceeding the maturity date of the Failed Bonds, (iii) must
bear a fixed interest rate of not less than that of the Failed Bonds and must be
purchased at a price that results in a yield to maturity at least equal to that
of the Failed Bonds as of the Date of Deposit, (iv) shall not be 'when, as and
if' issued bonds, (v) with respect to the Navigator Trusts, must be insured by
an Insurance Company and have the benefit of such insurance under terms
equivalent to the insurance of the Insurance Company with respect to the Failed
Bonds,(vi) with respect to the Navigator Trusts, must not cause the Units of the
particular Trust to cease to be rated AAA by Standard & Poor's ,(vii) with
respect to the State Trusts, must be rated 'A' or better by Standard & Poor's
Corporation or Moody's Investors Service, Inc. Whenever a Replacement Bond has
been acquired for a Trust, the Trustee shall, within five days thereafter,
notify all Certificateholders of the Trust of the acquisition of the Replacement
Bond and shall, on the next monthly Payment Date which is more than 30 days
thereafter, make a pro rata distribution of the amount, if any, by which the
cost to the Trust of the Failed Bond exceeded the cost of the Replacement Bond
plus accrued interest. Once the original corpus of a Trust is acquired, the
Trustee will have no power to vary the investment of such Trust, i.e., the
Trustee will have no managerial power to take advantage of market variations to
improve a Certificateholders' investment.
If the right of limited substitution described in the preceding paragraph
shall not be utilized to acquire Replacement Bonds in the event of a failed
contract, the Sponsors will refund the sales charge attributable to such Failed
Bonds to all Certificateholders of the affected Trust, and distribute the
principal and accrued interest attributable to such Failed Bonds on the next
monthly Payment Date. In all cases, accrued interest attributable to Failed
Bonds will be paid to Certificateholders until such time as Replacement Bonds
are acquired. All such interest paid to a Certificateholder which accrued after
the expected date of settlement for purchase of his Units will be paid by the
Sponsors and accordingly will not be treated as tax-exempt income.
Because certain of the Bonds from time to time may be redeemed or will
mature in accordance with their terms or may be sold under certain
circumstances, no assurance can be given that the Trusts will retain their
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 except to the extent such proceeds are applied
to meet redemptions of Units. (See 'Trustee Redemption'.)
DISCOUNT AND ZERO COUPON BONDS
Some of the aggregate principal amount of the Bonds in the Trusts 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 Trusts may be Zero Coupon Bonds. (See 'Description of Portfolios'
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
fluctuation in response to changes in interest rates. Zero Coupon Bonds
generally are subject to redemption at compound accreted value based on par
value at maturity. Because the user 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 aggregate principal amount of Bonds in the Trusts may have been
purchased at a 'market' discount from par value at maturity. The coupon interest
rates on the discount bonds at the
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time they were purchased and deposited in the Trusts were lower than the current
market interest rates for newly issued bonds of comparable rating and type. At
the time of issuance the discount bonds were for the most part issued at then
current coupon interest rates. The current 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 yield and a lower
current market value than otherwise comparable bonds with a shorter term of
maturity. If interest rates rise, the value of discount bonds will 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.
INSURANCE ON THE BONDS FOR THE NAVIGATOR TRUSTS
The Bonds in the Navigator Trusts are insured by a municipal bond guaranty
insurance policy covering scheduled payment of principal and interest on such
Bonds. See 'Insurance' in Part A. This insurance has been obtained either by the
issuer, underwriter or prior owner of the Bond ('Pre-Insured Bonds') or by the
Sponsors with respect to Bonds which were not insured prior to their deposit in
the Trust. 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 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.
Navigator Sponsor-Insured Bonds. Each of the Bonds in the New York
Navigator Trust is insured by a financial guaranty insurance policy obtained by
the Sponsors (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 shall not have been paid. Such amounts shall
be reduced by any amount 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, on the Date of Deposit, such policy
or policies covering each of the Bonds in the New York Navigator Trust 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 New York Navigator Trust.
MBIA Corp.'s policies relating to small industrial development bonds and
pollution control revenue bonds also guarantee the 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. The insurance will not 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 and
small industrial development bonds (although the insurance does guarantee the
payment of principal and interest in such amounts and at such times as such
amounts would have been due absent such acceleration). The insurance relates
only to the prompt payment of principal of and interest on the securities in the
New York Navigator Portfolio and does not remove market risk nor does it
guarantee the market value of Units in the New York Navigator Trust. The MBIA
Corp. policy also does not insure against non-payment of principal of or
interest on the Bonds resulting from the insolvency, negligence or any other act
or omission of the trustee or other paying agent for the Bonds. The policy is
not covered by the Property/Casualty Insurance Security Fund specified in
Article 76 of the New York Insurance Law. Upon notification from the trustee for
any bond issuer or any holder or owner of the Bonds or coupons that such trustee
or paying agent has insufficient funds to pay any principal or
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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.
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.
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
New York Navigator Trust. 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 New York Navigator Trust. Some of the Bonds in the New York Navigator Trust
may be Pre-Insured 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. No
representation is made herein as to any insurer's ability to meet its
obligations under a policy of insurance relating to any of the Pre-Insured Bonds
in the New York Navigator Trust. An insurance company that has paid interest
and/or principal in respect of any Bond in the New York Navigator Trust 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 such Bond.
Pre-Insured Bonds. The Bonds in the Trusts which are insured under policies
obtained by the Bond issuers, underwriters or prior owners are insured by AMBAC
Indemnity Corporation ('AMBAC'), Bond Investors Guaranty ('BIG'), Capital
Guaranty Insurance Company ('Capital Guaranty'), Connie Lee, Insurance Company,
('Connie Lee'), Financial Guaranty Insurance Company ('Financial Guaranty'),
Firemen's Insurance Co. ('Firemen's'), Municipal Bond Insurance Association
('MBIA'), or Municipal Bond Investors Assurance Corporation ('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.
AMBAC Indemnity Corporation ('AMBAC Indemnity') is a Wisconsin-domiciled
stock insurance corporation regulated by the Insurance Department of the State
of Wisconsin and licensed to do business in 50 states, the District of Columbia
and the Commonwealth of Puerto Rico with admitted assets of approximately
$1,884,000,000 (unaudited) and statutory capital of approximately $1,038,000,000
(unaudited) as of June 30, 1993. Statutory capital consists of AMBAC Indemnity's
policyholders' surplus and statutory contingency reserve. AMBAC is a wholly
owned subsidiary of AMBAC Inc., a 100% publicly-held company.
Capital Guaranty is a monoline stock insurance company incorporated in
Maryland, and is a wholly owned subsidiary of Capital Guaranty Corporation, a
Maryland insurance holding company. Capital Guaranty Corporation is owned by the
following investors: Constellation Investments, Inc., an affiliate of Baltimore
Gas and Electric; Fleet/Norstar Financial Group, Inc.; Safeco Corporation; Sibag
Finance Corporation, an affiliate of Siemens A.G.; and United States Fidelity
and Guaranty Company. Other than their capital commitment to Capital Guaranty
Corporation, the investors of Capital Guaranty Corporation are not obligated to
pay the debts of, or the claims against, Capital Guaranty Insurance Company. As
of June 30, 1993, the total statutory policyholders' surplus and contingency
reserves of Capital Guaranty Insurance Company was approximately $173,660,432
(unaudited) and total admitted assets were approximately $264,075,675
(unaudited) as reported to the Insurance Department of the State of Maryland.
Connie Lee is a wholly owned subsidiary of College Construction Loan
Insurance Association ('CCLIA'), a government-sponsored enterprise established
by Congress to provide American academic institutions with greater access to
low-cost capital through enhancement. Connie Lee, the operating insurance
company, was incorporated in 1987 and began business as a reinsurer of tax-
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exempt bonds of colleges, universities, and teaching hospitals with a
concentration on the hospital sector. During the fourth quarter of 1991 Connie
Lee began underwriting primary bond insurance which will focus largely on the
college and university sector. CCLIA's founding shareholders are the U.S.
Department of Education, which owns 36% of CCLIA, and the Student Loan Marketing
Association ('Sallie Mae'), which owns 14%. The other principal owners are:
Pennsylvania Public School Employees' Retirement System, Metropolitan Life
Insurance Company, Kemper Financial Services, Johnson family funds and trusts,
Northwestern University, Rockefeller & Co., Inc. administered trusts and funds,
and Stanford University. Connie Lee is domiciled in the state of Wisconsin and
has licenses to do business in 47 states and the District of Columbia. As of
March 31, 1992, its total admitted assets were approximately $141,000,000 and
policyholders' surplus was approximately $102,000,000.
Financial Guaranty is a wholly-owned subsidiary of FGIC Corporation, a
Delaware holding company. FGIC Corporation is a wholly-owned subsidiary of
General Electric Capital Corp. ('GECC'). Neither FGIC Corporation nor GECC is
obligated to pay the debts of or claims against Financial Guaranty. Financial
Guaranty is authorized to write insurance in 49 states and the District of
Columbia. Financial Guaranty is domiciled in the State of New York and is
subject to regulation by the State of New York Insurance Department. As of
September 30, 1993, its total capital and surplus was approximately $744,722,000
as reported to the New York State Insurance Department.
Firemen's, which was incorporated in New Jersey in 1855, is a wholly-owned
subsidiary of The Continental Corporation and a member of The Continental
Insurance Companies, a group of property and casualty insurance companies. It
provides unconditional and non-cancellable insurance on industrial development
revenue bonds. As of June 30, 1993, the total net admitted assets (unaudited) of
Firemen's were $194,370,881 and its statutory surplus (unaudited) was
$486,928,086.
As of the Evaluation Date, the claims-paying ability of Firemen's has been
rated A-by Standard & Poor's. As a result of this rating, the ratings of all
bonds insured by Firemen's, except pre-refunded bonds have been downgraded to
A-. As a result of this downgrading, the units of the Trust containing Bonds
insured by Firemen's are no longer rated.
Financial Security is a monoline insurance company incorporated under the
laws of the State of New York and is licensed, along with its two subsidiaries,
to engage in the financial guaranty insurance business in 49 states, the
District of Columbia and Puerto Rico. Financial Security is an indirect
wholly-owned subsidiary of US West, Inc., which operates businesses involved in
communications, data solutions, marketing services and capital assets.
Pursuant to an intercompany agreement, liabilities on financial guaranty
insurance written by Financial Security or either of its two 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 does not alter or limit
Financial Security's obligations under any financial guaranty insurance policy.
As of June 30, 1993, total shareholder equity of Financial Security and its two
wholly-owned subsidiaries was (unaudited) $644,081,000 and total unearned
premium reserves was (unaudited) $209,930,000.
Municipal Bond Investors Assurance Corporation ('MBIA Corp.') is the
principal operating subsidiary of MBIA Inc., a New York Stock Exchange listed
company. MBIA Inc. is not obligated to pay the debts of or claims against the
Insurer. MBIA Corp. is a limited liability corporation rather than a several
liability association. MBIA Corp. is domiciled, in the State of New York and
licensed to do business in all 50 states, the District of Columbia and the
Commonwealth of Puerto Rico.
Each insurance company comprising Municipal Bond Insurance Association
('MBIA' also known as the 'Association') will be severally and not jointly
obligated under the MBIA policy in the following respective percentages: The
Aetna Casualty and Surety Company, 33%; Fireman's Fund Insurance Company, 30%;
The Travelers Indemnity Company, 15%; Aetna Insurance Company (now known as
Cigna Property and Casualty Company), 12%; and The Continental Insurance
Company, 10%. As a several obligor, each such insurance company will be
obligated only to the extent of its
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percentage of any claim under the MBIA policy and will not be obligated to pay
any unpaid obligation of any other member of MBIA. Each insurance company's
participation is backed by all of its assets. However, each insurance company is
a multiline insurer involved in several lines of insurance other than municipal
bond insurance, and the assets of each insurance company also secure all of its
other insurance policy and surety bond obligations.
The following table sets forth certain financial information with respect
to the five insurance companies comprising MBIA. The statistics, which have been
furnished by MBIA, are as reported by the insurance companies to the New York
State Insurance Department and are determined in accordance with statutory
accounting principals. 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 date thereof. In addition, these numbers are
subject to revision by the New York State Insurance Department which, if
revised, could either increase or decrease the amounts.
MUNICIPAL BOND INSURANCE ASSOCIATION
FIVE MEMBER COMPANIES ASSETS, LIABILITIES AND POLICYHOLDERS' SURPLUS
AS OF SEPTEMBER 30, 1992
(000'S OMITTED)
<TABLE>
<CAPTION>
NEW YORK NEW YORK NEW YORK
STATUTORY STATUTORY POLICYHOLDER'S
ASSETS LIABILITIES SURPLUS
----------- ----------- --------------
<S> <C> <C> <C>
The Aetna Casualty & Surety Company................................ $10,449,113 $ 8,163,017 $ 2,286,096
Fireman's Fund Insurance Company................................... 6,462,398 4,888,898 1,573,500
The Travelers Indemnity Company.................................... 10,274,816 8,239,520 2,035,296
Cigna Property and Casualty Company
(Formerly Aetna Insurance Company)............................... 6,494,905 5,970,487 494,418
The Continental Insurance Company.................................. 2,320,636 2,033,400 287,236
----------- ----------- --------------
Total $35,971,868 $29,295,322 $ 6,676,546
----------- ----------- --------------
----------- ----------- --------------
</TABLE>
Some of the members of the 'Association' are among the shareholders of
MBIA, Inc. MBIA, Inc. is the parent of MBIA Corp. MBIA Corp. commenced municipal
bond insurance operations on January 5, 1987. MBIA Corp. is a separate and
distinct entity from the Association. MBIA Corp. has no liability to the
bondholders for the obligations of the Association under the Policy.
As of December 31, 1992, MBIA Corp. had admitted assets of $2.6 billion
(unaudited), total liabilities of $1.7 billion (unaudited), and total capital
and surplus of $896 million (unaudited) determined in accordance with statutory
accounting practices prescribed or permitted by insurance regulatory
authorities.
Effective December 31, 1989, MBIA Inc. acquired Bond Investors Group, Inc.
On January 5, 1990, MBIA acquired all of the outstanding stock of Bond Investors
Group, Inc., the parent corporation of Bond Investors Guaranty Insurance Co.
('BIG'). Through a Reinsurance Agreement, BIG has ceded all of its net insured
risks, as well as its unearned premium and contingency reserves, to MBIA and
MBIA has reinsured BIG's net outstanding exposure. As of December 31, 1991,
after giving effect to the acquisition of BIG, MBIA had admitted assets of $2.0
billion (audited), total liabilities of $1.4 billion (audited), and total
capital and surplus of $647 million (audited) prepared in accordance with
statutory accounting practices prescribed or permitted by insurance regulatory
authorities.
As of the Date of Deposit, Standard & Poor's has rated the claims-paying
ability of each of the above Insurance Companies 'AAA' and has rated each of the
Bonds in the Portfolio of each Trust AAA because the Insurance Companies have
insured the Bonds. The assignment of such AAA ratings is due to Standard &
Poor's Corporation's assessment of the creditworthiness of the Insurance
Companies and their ability to pay claims on their policies of insurance.
Subsequently, 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 Trusts. Moody's Investors Services, Inc. has assigned
a rating of Aaa to all of the Bonds in the New York Navigator Trust, as insured.
The Moody's Investors Service rating of the Bonds should be evaluated
independently of the Standard &
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Poor's Corporation rating of the Bonds. The ratings reflect Moody's current
assessment of the creditworthiness of MBIA Corp. and its ability to pay the
claims on its policies of insurance. The percentage of each 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; however the Sponsors are not
aware that the information herein is inaccurate or incomplete.
SPECIAL FACTORS CONCERNING THE TRUSTS
These summaries are introduced for the purpose of providing a general
description of the credit and financial conditions for the State of New York,
the State of New Jersey, the State of California and the Commonwealth of
Virginia.
NEW YORK NAVIGATOR TRUST
The following summary is introduced for the purpose of providing a general
description of the credit and financial conditions for the State of New York.
New York City. The City, with a population of approximately 7.3 million, is
an international center of business and culture. Its non-manufacturing economy
is broadly based, with the banking and securities, life insurance,
communications, publishing, fashion design, retailing and construction
industries accounting for a significant portion of the City's total employment
earnings. Additionally, the City is the nation's leading tourist destination.
The City's manufacturing activity is conducted primarily in apparel, printing
and publishing.
The national economic downturn which began in July 1990 adversely affected
the local economy, which had been declining since late 1989. As a result the
City experienced job losses in 1990 and 1991 and Real Gross City Product fell in
those two years. Beginning in 1992, the improvement in the national economy
helped stabilize conditions in the City. The City now projects, and its current
four-year financial plan assumes, that the City's economy will continue to
improve during calendar year 1993 and that a modest economic recovery will begin
during the second half of this calendar year. The Mayor is responsible for
preparing the City's four-year financial plan, including the City's current
financial plan for the 1994 through 1997 fiscal years (the 'Financial Plan' or
the '1994-97 Financial Plan').
For fiscal years 1981 through 1992 the City has achieved balanced operating
results when reported in accordance with generally accepted accounting
principles ('GAAP'), and the City's 1993 fiscal year results are projected to be
balanced in accordance with GAAP. As used herein, 'operating results' refers to
the City's General Fund revenues and transfers reduced by expenditures and
transfers. Since 1978, the City's annual financial statements, prepared in
conformity with GAAP, have been audited by independent certified public
accountants. The City's ability to maintain balanced budgets in the future is
subject to numerous contingencies.
Pursuant to the laws of the State, the City prepares an annual four-year
financial plan, which is reviewed and revised on a quarterly basis and which
includes the City's capital, revenue and expense projections. The City is
required to submit its financial plans to review bodies, including the New York
State Financial Control Board ('Control Board'). If the City were to experience
certain adverse financial circumstances, including the occurrence or the
substantial likelihood and imminence of the occurrence of an annual operating
deficit of more than $100 million or the loss of access to the public credit
markets to satisfy the City's capital and seasonal financing requirements, the
Control Board would be required by State law to exercise powers, among others,
of prior approval of City financial plans, proposed borrowings and certain
contracts.
The City achieved balanced operating results as reported in accordance with
GAAP for the 1992 fiscal year. During the 1991 fiscal year, the City implemented
various actions to offset a projected budget deficit of $3.3 billion for the
1992 fiscal year. This $3.3 billion gap resulted from, among other things,
projected tax revenue shortfalls of approximately $1.4 billion in fiscal year
1992; $564 million of
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proposed reductions of State aid for the City; approximately $400 million of
projected increases in legally mandated expenditures, including public
assistance and Medicaid expenditures; and $73 million of increased debt service
costs. The gap-closing measures for fiscal year 1992 included receipt of $605
million from tax increases, approximately $1.5 billion of proposed service
reductions; and proposed productivity savings of $545 million.
On July 6, 1993, the City prepared the Financial Plan for the 1994 through
1997 fiscal years, which relates to the City, the Board of Education ('BOE') and
the City University of New York ('CUNY'). The City is in the process of
preparing a more detailed financial plan, which will conform to the Financial
Plan, and which the City expects to submit to the Control Board in August 1993.
The 1994-1997 Financial Plan projects revenues and expenditures for the
1994 fiscal year balanced in accordance with GAAP. The 1994-1997 Financial Plan
sets forth actions to close a previously projected gap of approximately $2.0
billion in the 1994 fiscal year. The gap-closing actions for the 1994 fiscal
year included agency actions aggregating $666 million, including productivity
savings and savings from restructuring the delivery of City services; service
reductions aggregating $274 million, the sale of delinquent real property tax
receivables for $215 million; discretionary transfers from the 1993 fiscal year
of $110 million; reduced debt service costs aggregating $187 million, resulting
from refinancings and other actions; $150 million in proposed increased Federal
assistance; a proposed continuation of the personal income tax surcharge,
resulting in revenues of $143 million; $80 million in proposed increased State
aid, of which approximately $35 million may be subject to approval by the
Governor and State Legislature; and revenue actions aggregating $173 million.
The projected expenditures, for the 1994 fiscal year reflect the $131 million of
expenditure reductions announced subsequent to the adoption of the budget on
June 14, 1993, including a $50 million reduction in BOE expenditures, a $30
million reduction in personal service costs and a $25 million reduction in other
than personal services.
The Financial Plan also sets forth projections for the 1995 through 1997
fiscal years and outlines a proposed gap-closing program to close projected
budget gaps of $1.3 billion, $1.8 billion and $2.0 billion for the 1995 through
1997 fiscal years, respectively. The projections include $150 million of
increased Federal assistance in each of the 1995 through 1997 fiscal years and
$131 million, $291 million and $291 million of increased State assistance in the
1995, 1996 and 1997 fiscal years, respectively, which could include savings from
the proposed State assumption of certain Medicaid costs or various proposed
mandate relief measures and include the continuation of the personal income tax
surcharge, resulting in revenues of $420, $446 and $471 million in the 1995,
1996 and 1997 fiscal years, respectively. The proposed gap-closing actions
include City actions aggregating $287 million, $564 million and $645 million in
the 1995 through 1997 fiscal years respectively; $100 million and $200 million
in proposed additional Federal assistance in the 1996 and 1997 fiscal years,
respectively; savings from various proposed mandate relief measures and the
proposed reallocation of State education aid among various localitites,
aggregating $175 million, $325 million and $475 million in the 1995 through 1997
fiscal years, respectively; and other unspecified Federal, State or City actions
of $800 million, $800 million and $700 million in the 1995 through 1997 fiscal
years, respectively.
Various actions proposed in the Financial Plan, including the proposed
continuation of the personal income tax surcharge beyond December 31, 1995 and
the proposed increase in State aid, are subject to approval by the Governor and
the State Legislature, and the proposed increase in Federal aid is subject to
approval by Congress and the President. The State Legislature has in previous
legislative sessions failed to approve proposals for the State assumption of
certain Medicaid costs, mandate relief and reallocation of State education aid,
thereby increasing the uncertainty as to the receipt of the State assistance
included in the Financial Plan. If these actions cannot be implemented, the City
will be required to take other actions to decrease expenditures or increase
revenues to maintain a balanced financial plan. The state Legislature has
approved the continuation of the personal income tax surcharge through December
31, 1995, and the Governor is expected to approve this continuation. The
Financial Plan has been the subject of extensive public comment and criticism
particularly regarding the sale of delinquent property tax receivables, the sale
of the New York City Off-Track Betting Corporation ('OTB'), the amount of State
and Federal aid included in the Financial Plan and the inclusion of
non-recurring actions.
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The City Comptroller issued a statement on June 14, 1993 that identified
problems totalling $476 million in the fiscal year 1994 budget. The problems
included the uncertainty of (i) receiving all the Federal aid anticipated, (ii)
completing the sale or reorganization or OTB in fiscal year 1994 and (iii)
winning approval to eliminate preparation time for certain teachers. The City
Comptroller is expected to issue reports on the Financial Plan in the near
future.
Although the City has maintained balanced budgets in each of its last
twelve fiscal years, and is projected to achieve balanced operating results for
the 1993 fiscal year, there can be no assurance that the gap-closing actions
proposed in the Financial Plan can be successfully implemented or that the City
will maintain a balanced budget in future years without additional State aid,
revenue increases or expenditure reductions. Additional tax increases and
reductions in essential City services could adversely affect the City's economic
base.
The 1994-97 Financial Plan is based on numerous assumptions, including the
recovery of the City's and the region's economy early in the calendar year 1993.
The 1994-97 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 increases assumed for the
1994 through 1997 fiscal years; continuation of the 9% interest earnings
assumptions for pension fund assets 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, including the proposed State takeover of certain Medicaid costs and
State mandate relief, the ability of HHC, BOE and other agencies to maintain
budget balance; the willingness of the Federal government to provide Federal
aid; approval of the proposed continuation of the personal income tax surcharge
and the State budgets; adoption of the City's budgets by the City Council; the
ability of the City to implement contemplated productivity and service and
personnel reduction programs and the success with which the City controls
expenditures; additional expenditures that may be incurred due to the
requirements of certain legislation requiring minimum levels of funding for
education; the City's ability to market its securities successfully in the
public credit markets; the level of funding required to comply with the
Americans with Disabilities Act of 1990; and additional expenditures that may be
incurred as a result of deterioration in the condition of the City's
infrastructure. Certain of these assumptions have been questioned by the City
Comptroller and other public officials.
Estimates of the City's revenues and expenditures are based on numerous
assumptions and subject to various uncertainties. If expected Federal or State
aid is not forthcoming, if unforeseen developments in the economy significantly
reduce revenues derived from economically sensitive taxes or necessitate
increased expenditures for public assistance, if the City should negotiate wage
increases for its employees greater than the amounts provided for in the City's
Financial Plan or if other uncertainties materialize that reduce expected
revenues or increase projected expenditures, then, to avoid operating deficits,
the City may be required to implement additional actions, including increases in
taxes and reductions in essential City services. The City might also seek
additional assistance from the State.
The City depends on the State for State aid both to enable the City to
balance its budget and to meet its cash requirements. For its 1993 fiscal year,
the State, before taking any remedial action, reported a potential budget
deficit of $4.8 billion (before providing for repayment of the deficit notes as
described below). If the State experiences revenue shortfalls or spending
increases beyond its projections during its 1993 fiscal year or subsequent
years, such developments could result in reductions in projected State aid to
the City. In addition, there can be no assurance that State budgets in future
fiscal years will be adopted by the April 1 statutory deadline and that there
will not be adverse effects on the City's cash flow and additional City
expenditures as a result of such delays.
Implementation of the Financial Plan is also dependent upon the City's
ability to market its securities successfully in the public credit markets. The
City's financing program for fiscal years 1994-1997 contemplates issuance of
$10.8 billion of general obligation bonds primarily to reconstruct and
rehabilitate the City's infrastructure and physical assets and to make capital
investments. A significant portion of such bond financing is used to reimburse
the City's general fund for capital expenditures already incurred. In addition,
the City issues revenue and tax anticipation notes to
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finance its seasonal working capital requirements. The success of projected
public sales of City bonds and notes will be subject to prevailing market
conditions at the time of the sale, and no assurance can be given that such
sales will be completed. If the City were unable to sell its general obligation
bonds and notes, it would be prevented from meeting its planned operating and
capital expenditures.
Substantially all of the City's full-time employees are members of labor
unions. The Financial Emergency Act requires that all collective bargaining
agreements entered into by the City and the Covered Organizations be consistent
with the City's current financial plan, except under certain circumstances, such
as awards arrived at through impasse procedures.
On January 11, 1993, the City announced a settlement with a coalition of
municipal unions, including Local 237 of the International Brotherhood of
Teamsters ('Local 237'), District Council 37 of the American Federation of
State, County and Municipal Employees ('District Council 37') and other unions
covering approximately 44% of the City's work force. The settlement, which has
been ratified by the unions, includes a total net expenditure increase of 8.25%
over a 39-month period, ending March 31, 1995 for most of these employees. On
April 9, 1993 the City announced an agreement with the Uninformed Fire Officers
Association (the 'UFOA') which is consistent with the coalition agreement. The
agreement has been ratified. The Financial Plan reflects the costs associated
with these settlements and provides for similar increases for all other
City-funded employees.
The Financial Plan provides no additional wage increases for City employees
after their contracts expire in the 1995 fiscal year. Each 1% wage increase for
all employees commencing in the 1995 fiscal year would cost the City an
additional $56 million for the 1995 fiscal year and $152 million for the 1996
fiscal year and each year thereafter above the amounts provided for in the
Financial Plan.
The terms of eventual wage settlements could be determined through the
impasse procedure in the New York City Collective Bargaining Law, which can
impose a binding settlement.
MAC was organized in 1975 to provide financing assistance for the City and
also to exercise certain review functions with respect to the City's finances.
MAC bonds are payable out of certain State sales and compensating use taxes
imposed within the City, State stock transfer taxes and per capita State aid to
the City. Any balance from these sources after meeting MAC debt service and
reserve fund requirements and paying MAC's operating expenses is remitted to the
City or, in the case of the stock transfer taxes, rebated to the taxpayers. The
State is not, however, obligated to continue the imposition of such taxes or to
continue appropriation of the revenues therefrom to MAC, nor is the State
obligated to continue to appropriate the State per capita aid to the City which
would be required to pay the debt service on certain MAC obligations. MAC has no
taxing power and MAC bonds do not create an enforceable obligation of either the
State or the City. As of March 31, 1993, MAC had outstanding an aggregate of
approximately $5.463 billion of its bonds.
Standard & Poor's has rated City Bonds A-. Moody's Investors Service, Inc.
('Moody's') has rated City Bonds Baa1. Such ratings reflect only the views of
Standard & Poor's and Moody's from which an explanation of the significance of
such ratings may be obtained. There is no assurance that either or both of such
ratings will continue for any given period of time or that either or both will
not be revised downward or withdrawn entirely. Any such downward revision or
withdrawal could have an adverse effect on the market prices of the Bonds.
In 1975, Standard & Poor's suspended its A rating of City Bonds. This
suspension remained in effect until March 1981, at which time the City received
an investment grade rating of BBB from Standard & Poor's. On July 2, 1985,
Standard & Poor's revised its rating of City Bonds upward to BBB+ and on
November 19, 1987, to A-. On July 2, 1993, Standard & Poor's reconfirmed its A-
rating of City Bonds, continued its negative rating outlook assessment and
stated that maintenancce of such ratings depended upon the City's making further
progress towards reducing budget gaps in the outlying years. Moody's ratings of
City bonds were revised in November 1981 from B (in effect since 1977) to Ba1,
in November 1983 to Baa, in December 1985 to Baa1, in May 1988 to A and again in
February 1991 to Baa1.
New York State and Its Authorities. As a result of the national and
regional economic recession, the State's tax revenuees for its 1991 and 1992
fiscal years were substantially lower than projected. Consequently, the State
took various actions for its 1992 fiscal year, which included increases in
certain
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State taxes and fees, substantial decreases in certain expenditures from
previously projected levels, including cuts in State operations and reductions
in State aid to localities, and the sale of $531 million of short-term deficit
notes prior to the end of the State's 1992 fiscal year. The State's 1992-93
budget was passed on time, closing an estimated $4.8 billion imbalance resulting
primarily from the national and regional economic recession. Major budgetary
actions included a freeze in the scheduled reduction in the personal income tax
and business tax surcharge, addoption of significant Medicaid cost containment
or revenue initiatives, and reductions in both agency operations and grants to
local governments from previously anticipated levels. The State completed its
1993 fiscal year with a positive margin of $671 million in the General Fund
which was deposited into a tax refund reserve account.
The Governor released the recommended Governor's Executive Budget for the
1993-1994 fiscal year on January 19, 1993. The recommended 1993-1994 State
Financial Plan projected a balanced General Fund. General Fund receipts and
transfers from other funds were projected at $31.6 billion, including $184
million carried over from the state's 1993 fiscal year. Disbursements and
transfers from other funds were projected at $31.5 billion, not including a $67
million repayment to the State's Tax Stabilization Reserve Fund. To achieve
General Fund budgetary balance in the 1994 State fiscal year, the Governor
recommended various actions. These included proposed spending reductions and
other actions that would reduce General Fund spending ($1.6 billion); continuing
the freeze on personal income and corporate tax reductions and on hospital
assessments ($1.3 billion); retaining moneys in the General Fund that would
otherwise have been deposited in dedicated highway and transportation funds
($516 million); a 21-cent increase in the cigarette tax ($180 million); and new
revenues from miscellaneous sources ($91 million). The recommended Governor's
1993-94 Executive Budget included reductions in anticipated aid to all levels of
local government.
In comparison to the recommended 1993-94 Executive Budget, the 1993-94
State budget, as enacted, reflects increases in both receipts and disbursements
in the general Fund of $811 million.
The $811 million increase in projected receipts reflects (i) an increase of
$487 million, from $184 million to $671 million, in the positive year-end margin
at March 31, 1993, which resulted primarily from improving economic conditions
and higher-than-expected tax collections, (ii) an increase of $269 million in
projected receipts, $211 million resulting from the improved 1992-93 results and
the expectation of an improving economy and the balance from improved auditing
and enforcement measures and other miscellaneous items, (iii) additional
payments of $200 million from the Federal government to reimburse the State for
the cost of providing indigent medical care, and (iv) the payment of an
additional $50 million of personal income tax refunds in the 1992-93 fiscal year
which would otherwise have been paid in fiscal year 1993-94; offset by (v) $195
million of revenue raising recommendations in the Executive Budget that were not
enacted in the budget and thus are not included in the 1993-94 State Financial
Plan.
The $811 million increase in projected disbursements reflects (i) an
increase of $252 million in projected school-aid payments, after applying
estimated receipts from the State Lottery allocated to school aid, (ii) an
increase of $194 million in projected payments for Medicaid assistance and other
social service programs, (iii) additional spending on the judiciary ($56
million) and criminal justice ($48 million), (iv) a net increase in projected
disbursements for all other programs and purposes, including mental hygiene and
capital projects, of $161 million, after reflecting certain reestimates in
spending, and (v) the transfer of $100 million to a newly-established
contingency reserve.
The 1993-94 State budget, as enacted, included $400 million less in State
actions that the City had anticipated. Reform of education aid formulas was
achieved which brought an additional $145 million education dollars to New York
City. However, the State Legislature failed to enact a takeover of local
Medicaid costs, other significant mandate relief items and certain Medicaid cost
containment items proposed by the Governor, which would have provided the City
with savings. The adopted State budget cut aid for probation services, increased
sanctions on social service programs, eliminated the pass-through of a State
surcharge on parking tickets, cut reimbursement for CHIPS transportation
operating dollars, and required a large contribution in City funds to hold the
MTA fare at the current level. In the event of any significant reduction in
projected State revenues or increases in projected
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State expenditures from the amounts currently projected by the State, there
could be an adverse impact on the timing and amounts of State aid payments to
the City in the future.
In certain prior fiscal years, the State has failed to enact a budget prior
to the beginning of the State's fiscal year. A delay in the adoption of the
State's budget beyond the statutory April 1 deadline and the resultant delay in
the State's Spring borrowing has in certain prior years delayed the projected
receipt by the City of State aid, and there can be no assurance that State
budgets in future fiscal years will be adopted by the April 1 statutory
deadline.
The State has noted that its forecasts of tax receipts have been subject to
variance in recent fiscal years. As a result of these uncertainties and other
factors, actual results could differ materially and adversely from the State's
current projections and the State's projections could be materially and
adversely changed from time to time.
On January 14, 1992, Standard & Poor's downgraded the State's general
obligation bonds from A to A-. Also downgraded was certain of the State's
variously rated moral obligation, lease purchase, guaranteed and contractual
obligation debt, including debt issued by certain State agencies. On June 6,
1990, Moody's changed its rating of the State's outstanding general obligation
bonds from AA-to A. The State's tax and revenue anticipation notes issued in
February 1991 were rated MIG-2 by Moody's and SP-1 by Standard & Poor's. On
January 6, 1992, Moody's changed its rating of certain appropriations-backed
debt of the State from A to Baa1. Moody's also placed the State's general
obligation, State guaranteed and New York State Local Government Assistance
Corporation bonds under review for possible downgrading in coming months. Any
action taken by Standard & Poor's or Moody's to lower the credit rating on
outstanding indebtedness and obligations of the State may have an adverse impact
on the marketability of the State's notes and bonds.
As of March 31, 1993, the State had approximately $5.132 billion in general
obligation bonds exceeding Refunding Bonds and $294 million in bond anticipation
notes outstanding. On May 24, 1993 the State issued $850 million in tax and
revenue anticipation notes all of which will mature on December 31, 1993.
Principal and interest due on general obligation bonds and interest due on bond
anticipation notes and on tax and revenue anticipation notes were $890 million
and $881.8 million for the 1991-92 and 1992-93 fiscal years, respectively, and
are estimated to be $789 million for the State's 1993-94 fiscal year,
respectively, not including interest on refunding bonds, issued in July 1992, to
the extent that such interest is to be paid from escrowed funds.
The fiscal stability of the State is related to the fiscal stability of its
authorities, which generally have responsibility for financing, constructing and
operating revenue-producing public benefit facilities. The authorities are not
subject to the constitutional restrictions on the incurrence of debt which apply
to the State itself and may issue bonds and notes within the amounts of, and as
otherwise restricted by, their legislative authorization. As of September 30,
1992 there were 18 authorities that had outstanding debt of $100 million or
more. The aggregate outstanding debt, including refunding bonds, of these 18
authorities was $62.2 billion as of September 30, 1992, of which approximately
$8.2 billion was moral obligation debt and approximately $17.1 billion was
financed under lease-purchase or contractual-obligation financing arrangements.
The authorities are generally supported by revenues generated by the
projects financed or operated, such as fares, user fees on bridges, highway
tolls and rentals for dormitory rooms and housing. In recent years, however, the
State has provided financial assistance through appropriations, in some cases of
a recurring nature, to certain of the 18 authorities for operating and other
expenses and, in fulfillment of its commitments on moral obligation indebtedness
or otherwise for debt service. This assistance is expected to continue to be
required in future years.
The Metropolitan Transit Authority ('MTA'), a State agency, oversees the
operation of the City's subway and bus system (the 'Transit Authority' or 'TA')
and commuter rail lines serving the New York metropolitan area. Fare revenues
from such operations have been insufficient to meet expenditures, and the MTA
depends heavily upon a system of State, local, Triborough Bridge and Tunnel
Authority ('TBTA') and, to the extent available, Federal support. Over the past
several years, the State has enacted several taxes, including a surcharge on the
profits of banks, insurance corporations and general business corporations doing
business in the 12-county region served by the
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MTA (the 'Metropolitan Transportation Region') and a special one-quarter of 1%
regional sales and use tax, that provide additional revenues for mass transit
purposes including assistance to the MTA. The surcharge, which expires in
November 1995, yielded $507 million in calendar year 1992, of which the MTA was
entitled to receive approximately 90 percent, or approximately $456 million.
For 1993, TA has projected a budget gap of about $266 million. The MTA
Board approved an increase in TBTA tolls which took effect January 31, 1993.
Since the TBTA operating surplus helps subsidize TA operations, the January toll
increase on TBTA facilities, and other developments, reduced the projected gap
to approximately $241 million. Legislation passed in April 1993 relating to the
MTA's 1992-1996 Capital Program reflected a plan for closing this gap without
raising fares. A major element of the plan provides that the TA receive a
significant share of the petroleum business tax which will be paid directly to
MTA for its agencies. The plan also relies on certain City actions that have not
yet been taken. The plan also relies on MTA and TA resources projected to be
available to help close the gap. If any of the assumptions used in making these
projections prove incorrect, the TA's gap could grow, and the TA would be
required to seek additional State assistance, raise fares or take other actions.
Two serious accidents in December 1990 and August 1991, which caused
fatalities and many injuries, have given rise to substantial claims for damages
against both the TA and the City.
The State's experience has been that if an Authority suffers serious
financial difficulties, both the ability of the State and the Authorities to
obtain financing in the public credit markets and the market price of the
State's outstanding bonds and notes may be adversely affected. The Housing
Finance Agency ('HFA') and the Urban Development Corporation ('UDC') have in the
past required substantial amounts of assistance from the State to meet debt
service costs or to pay operating expenses. Further assistance, possibly in
increasing amounts, may be required for these, or other, Authorities in the
future. In addition, certain statutory arrangements provide for State local
assistance payments otherwise payable to localities to be made under certain
circumstances to certain Authorities. The State has no obligation to provide
additional assistance to localities whose local assistance payments have been
paid to Authorities under these arrangements. However, in the event that such
local assistance payments are so diverted, the affected localities could seek
additional State funds.
A number of other court actions have been brought involving State finances.
State programs and miscellaneous tort, real property, employment discrimination
and contract claims in which the State is a defendant and the monetary damages
sought are substantial. The proceedings could affect the ability of the State to
maintain a balanced State Financial Plan in the 1994-97 fiscal year or
thereafter. Among the more significant of these litigations, which are at
various procedural stages, are those that challenge: (1) the validity of
agreements and treaties by which various Indian tribes transferred title to the
State of certain land in central New York; (2) certain aspects of the State's
Medicaid rates and regulations, including reimbursements to providers of
mandatory and optional Medicaid services; (3) contamination in the Love Canal
area of Niagara Falls; (4) an action against State and New York City officials
alleging that the present level of shelter allowance for public assistance
recipients is inadequate under statutory standards to maintain proper housing;
(5) challenges to the practice of reimbursing certain Office of Mental Health
patient care expenses from the client's Social Security benefits; (6) a
challenge to the methods by which the State reimburses localities for the
administrative costs of food stamp programs; (7) a challenge to the State's
possession of certain funds taken pursuant to the State's Abandoned Property
Law; (8) alleged responsibility of State officials to assist in remedying racial
segregation in the City of Yonkers; (9) an action in which the State is a third
party defendant, for injunctive or other appropriate relief, concerning
liability for the maintenance of stone groins constructed along certain areas of
Long Island's shoreline; (10) actions challenging the constitutionality of
legislation enacted during the 1990 legislative session which changed the
actuarial funding methods for determining contributions to State employee
retirement systems; (11) an action challenging legislation enacted in 1990 which
had the effect of deferring certain employer contributions to the State
Teachers' Retirement System and reducing State aid to school districts by a like
amount; (12) a challenge to the constitutionality of financing programs of the
Thruway Authority authorized by Chapters 166 and 410 of the Laws of 1991; (13) a
challenge to the constitutionality of financing programs of the Metropolitan
Transportation Authority and the Thruway Authority
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authorized by Chapter 56 of the Laws of 1993; (14) challenges to the delay by
the State Department of Social Services in making two one-week Medicaid payments
to the service providers; (15) challenges to provisions of Section 2807-C of the
Public Health Law, which impose a 13% surcharge on inpatient hospital bills paid
by commercial insurers and employee welfare benefit plans and portions of
Chapter 55 of The Laws of 1992 which require hospitals to impose and remit to
the state an 11% surcharge on hospital bills paid by commercial insurers; (16)
challenges to the promulgation of the State's proposed procedure to determine
the eligibility for and nature of home care services for Medicaid recipients;
(17) a challenge to State implementation of a program which reduces Medicaid
benefits to certain home-relief recipients; and (18) challenges to the
rationality and retroactive application of State regulations recalibrating
nursing home Medicaid rates.
State Economic Trends. Over the long term, the State and the City also face
serious potential economic problems. The City accounts for approximately 41% of
the State's population and personal income, and the City's financial health
affects the State in numerous ways. The State historically has been one of the
wealthiest states in the nation. For decades, however, the State has grown more
slowly than the nation as a whole, gradually eroding its relative economic
affluence. Statewide, urban centers have experienced significant changes
involving migration of the more affluent to the suburbs and an influx of
generally less affluent residents. Regionally, the older Northeast cities have
suffered because of the relative success that the South and the West have had in
attracting people and business. The City has also had to face greater
competition as other major cities have developed financial and business
capabilities which make them less dependent on the specialized services
traditionally available almost exclusively in the City. In recent years the
State's economic position has improved in a manner consistent with that for the
Northeast as a whole.
A national recession commenced in mid-1990. The downturn, which continued
throughout the remainder of the 1990-91 fiscal year, has been a mild recession
when compared with the post-war historical average. The State has suffered a
more severe economic downturn. The national recession has been exacerbated in
the State by a significant retrenchment in the financial services industry,
cutbacks in defense spending, and an overbuilt real estate market.
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.
Reductions in Federal spending could materially and adversely affect the
financial condition and budget projections of the State's localities.
NEW JERSEY NAVIGATOR TRUST
State Finance. New Jersey is the ninth largest state in population and the
fifth smallest in land area. With an average of 1,050 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 1992 the State ranked second among the states in per
capita personal income ($26,457).
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
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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. New Jersey is currently experiencing a
recession and, as a result of the factors described above, such recession could
last longer than the national recession, although signs of a slow recovery both
on the national and state levels have been reported.
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 7.1% in
August 1993, which is above the national average of 6.7% in August 1993.
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. 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, 1993,
there was a total authorized bond indebtedness of approximately $8.98 billion,
of which $3.6 billion was issued and outstanding, $4.0 billion was retired
(including bonds for which provision for payment has been made through the sale
and issuance of refunding bonds) and $1.38 billion was unissued. The debt
service obligation for such outstanding indebtedness is $119.9 million for
Fiscal Year 1994.
NEW JERSEY'S BUDGET AND APPROPRIATION SYSTEM
The State operates on a fiscal year beginning July l and ending June 30. At
the end of Fiscal Year 1989, there was a surplus in the State's general fund
(the fund into which all State revenues not otherwise restricted by statute are
deposited and from which appropriations are made) of $411.2 million. At the end
of Fiscal Year 1990, there was a surplus in the general fund of $1 million. At
the end of Fiscal Year 1991, there was a surplus in the general fund of $1.4
million. New Jersey closed its Fiscal Year 1992 with a surplus of $760.8
million. It is estimated that New Jersey closed its Fiscal Year 1993 with a
surplus of $361.3 million.
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, 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, l991, in the form
of an increased state income tax on individuals. At the time of enactment, it
was projected that this increase would raise
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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.
The Florio administration has contended that the income tax package will
help reduce local property tax increases by providing more state aid to
municipalities. Under the income tax legislation, the State will 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 is 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%.
On June 29, 1993, Governor Florio signed the New Jersey Legislature's $15.9
billion budget for Fiscal Year 1994. The balanced budget does not rely on any
new taxes, college tuition increases or any commuter fare increases, while
providing a surplus of more than $400 million. Whether the State can achieve a
balanced budget depends on its ability to enact the implement expenditure
reductions and to collect estimated tax revenues. The Fiscal Year 1994
Appropriations Act forecasts sales and use tax collections of $3.920 billion, a
7.5% increase from receipts estimated in the Revised Revenue Estimates for
Fiscal Year 1993. It also forecasts gross income tax collections of $4.748
billion, a 10.6% increase from receipts estimated for Fiscal Year 1993, and
corporation business tax collections of 1.1 billion, a 15.4% increase from
receipts estimated for Fiscal Year 1993. However, 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 November 2, 1993, Governor Florio lost his bid for reelection to
Christine Todd Whitman who anticipates being sworn into office on or about
January 18, 1994. Governor-Elect Whitman, a Republican, will enjoy the benefit
of having a Republican majority in both the New Jersey Senate and Assembly.
DEBT RATINGS
For many years, both Moody's Investors Service, Inc., and Standard and
Poor's Corporation have rated New Jersey general obligation bonds Aaa and 'AAA',
respectively. Currently, Moody's Investors Service, Inc., rates New Jersey
general obligation bonds Aaa. On July 3, l991, however, Standard and 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 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 $l 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 and 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 and 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 and 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 will recover quickly
enough to meet lawmakers' revenue projections. It also remains 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. There
can be no assurance that
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these ratings will continue or that particular bond issues may not be adversely
affected by changes in the State or local economic or 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.
Although New Jersey recently received $412 million in settlement of its
$450 million dispute with the federal government for retroactive Medicaid
reimbursements, neither Moody's Investors Service, Inc., nor Standard and Poor's
Corporation has revised its rating for New Jersey general obligation bonds.
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. This
amount represents 2.2% of the total Fiscal Year 1993 Budget. In Fiscal Year
1993, the amount is $331.0 million and is for transportation projects. This
appropriation is being credited to the Transportation Trust Fund Account of the
State General Fund.
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 I. 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, 1989 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.
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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 $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 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 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 Capitol 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 Capitol Complex in Trenton and for the construction of a
structured parking facility. As of June 30, 1992 the total amount of Building
Authority Bonds outstanding was $235,612,206.05. 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 the 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
June 30, 1992, $275,220,000 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.
In addition, on September 2, 1992, $61,780,000 of Certificates of Participation
were delivered, and on October 6, 1992, $146,485,000 were delivered. 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 New Jersey Housing and Mortgage Finance
Agency, the South Jersey Port Corporation and the Higher Education Assistance
Authority.
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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 acquiring land in the City of Camden, for the purpose of expanding
the Corporation's Marine Terminal Facilities.
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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 adjustment 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 percent or an index rate
determined annually by the Director, whichever is less. However, where the index
percentage rate exceeds 5 percent, 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 percent, 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 percent. 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.
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 refunding 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
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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 percent of the equalized valuation basis in the case of
municipalities and 2 percent of the equalized valuation basis in the case of
counties. The debt limit of a county or municipality, with certain exceptions,
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 municipalties 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 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 percent 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 percent of its total
operating appropriations (except dedicated revenue appropriations) for the
previous year 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 1989,
1990, and 1991 no county exceeded its statutory debt limitations or incurred a
cash deficit in excess of 4 percent of its tax levy. The number of
municipalities which have a cash deficit greater than 4 percent of their tax
levies was zero for 1991. The number of municipalities which exceeded statutory
debt limits was five as of December 31, 1991. 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
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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.
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.
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 percent
downpayment provisions 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 percent 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 percent of the average equalized valuation basis of the constituent
municipality, and in cities with population in excess of 80,000 the debt limit
is 6 percent of the aforesaid average equalized valuation.
School bonds are authorized by (i) an ordinance 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
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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 alternative 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. 6:22A-1.2(h), to be included in
the 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 (F.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 F.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 schedules,
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 purpose 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 percent 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
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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. At 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-1 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.
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 following are cases presently pending or threatened in which the State
has the potential for either a significant loss of revenue or a significant
unanticipated expenditure.
Abbott v. Burke. This case concerned a challenge to the constitutionality
of the Public Education Act of 1975 (N.J.S.A. 18A:7A-1 et seq.) (the 'Act'). On
June 5, 1990, the State Supreme Court rendered its decision in this case and
held that the Act is unconstitutional as applied to 28 'poorer urban school
districts' described in the decision. The Court ruled that a funding mechanism
that is not dependent upon budgeting and tax decisions of the local school
boards must be in place for the 1991-1992 school year either through an
amendment to the Act or new legislation. The Quality Education Act of 1990
('QEA') was enacted into law on July 3, 1990 and establishes a new system for
distributing state aid to school districts. On June 12, 1991, the plaintiffs
filed a motion with the State Supreme Court to assure implementation of its
decree in Abbott. They have maintained that the QEA is invalid, arguing that it
does not comply with the Court's mandates in Abbott, and have requested that the
Legislature be ordered to enact a constitutional funding system or be required
to implement a court ordered plan. On September 23, 1991 the Court remanded the
matter to the Superior Court, Chancery Division -- Mercer County, for
consideration of plaintiffs' claims.
In September 1993, the Superior Court ruled that the funding formula in the
QEA as amended violated the N.J. constitution 'because it fails to comply with
the directives of (Abbott) requiring substantial timely parity of regular
education and adequate timely provision for the special educational needs for
pupils.' It is probable that this decision will again be appealed to the New
Jersey Supreme Court.
COUNTY/STATE DISPUTES CONCERNING SOCIAL SECURITY RECOVERIES
There are presently several cases pending in the State courts challenging
the methods by which the State Department of Human Services shares with county
governments the maintenance recoveries and costs for residents in State
psychiatric hospitals and residential facilities for the developmentally
disabled. In County of Essex v. Waldman, et al., Essex County challenged the
State's policy of sharing
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federal Social Security recoveries on a 50%-50% basis with the County. Essex
County maintains that State law has, since 1980, required that 100% of the
recoveries be paid to the County. On December 6, 1990, the Appellate Division
upheld the trial court's ruling allowing the County to receive 100% of
recoveries, but refused to allow recovery retroactive to 1980, instead fixing
January 25, 1989 as the effective date of the ruling as to Essex County. A
petition for certification by the County of Essex, and a cross-petition by the
State, were denied by the New Jersey Supreme Court on May 28, 1991. The Counties
of Morris, Passaic, Middlesex, Hudson, Bergen, Union, Cumberland, Monmouth,
Mercer, Hunterdon and Camden all filed similar actions which were stayed (except
in the cases of Hudson and Camden) pending the outcome in the County of Essex
case, and all actions (except in the case of Mercer) are now on appeal.
Retroactive recoveries in those cases may also be limited, as in the County of
Essex matter. By administrative order dated July 22, 1991, the Commissioner
determined that State liability to all counties (with the exception of Essex
County) would run as of December 6, 1990. The Counties of Bergen, Burlington,
Camden, Cumberland, Hunterdon, Hudson, Middlesex, Monmouth, Morris, Passaic and
Union have appealed that administrative order in the Superior Court, Appellate
Division.
County of Essex v. Commissioner, Department of Human Services, et al. In
this case, Essex County has sought the return of moneys it has paid since 1980
for maintenance of Medicaid or Medicare eligible residents of institutions and
facilities for the developmentally disabled, arguing that State law relieved the
County of maintenance responsibility for those persons. The trial court ruled in
Essex County's favor, but made its ruling effective as of March 30, 1989. The
Appellate Division affirmed that decision on June 14, 1991. Petitions for
certification by both parties were denied by the New Jersey Supreme Court on
November 12, 1991. Hunterdon, Mercer, Passaic, Middlesex, Hudson, Bergen, Union,
Cumberland, Camden and Monmouth Counties filed similar actions, which were
stayed (except in the cases of Hudson and Camden) pending a decision in the
Essex County case, and all actions (except in the case of Mercer) are now on
appeal. By administrative order, dated July 22, 1991, the Commissioner
determined that, subject to action by the New Jersey Supreme Court, the State's
liability to all counties (with the exception of Essex County) will run as of
June 14, 1991. The Counties of Bergen, Burlington, Camden, Cumberland,
Hunterdon, Hudson, Middlesex, Monmouth, Morris, Passaic and Union have appealed
the administrative order to the Superior Court, Appellate Division.
New Jersey Association of Health Care Facilities, Inc. et al. v. Gibbs, et
al. In this case, which was filed in the United States District Court for the
District of New Jersey on May 8, 1990, plaintiffs allege that the Department of
Human Services, Division of Medical Assistance and Health Services, has
implemented unreasonably low Medicaid payment rates for long-term care
facilities in New Jersey. Plaintiffs claim that the rates are not sufficient to
cover their actual costs of providing services to Medicaid patients. This matter
was certified as a class action on behalf of all New Jersey long-term care
facilities, which provide services to Medicaid recipients on March 11, 1991.
They seek a declaration that the Department of Human Services has violated
federal law in the setting and paying of Fiscal Year 1990 long-term care
facility Medicaid payment rates and an injunction against the department
requiring it to comply with federal law in the setting of such rates. Plaintiffs
also seek costs and attorneys' fees. A final decision in favor of the plaintiffs
could require the State to make substantial expenditures. Plaintiffs have filed
a motion for a preliminary injunction. The hearing on plaintiffs' motion has
been held, and briefs have been filed by all parties. The matter is presently
pending before the Third Circuit Court of Appeals.
Spill Compensation Fund Cases. In Exxon v. Hunt, a number of taxpayers are
seeking refunds of taxes paid to the Spill Compensation Fund pursuant to
N.J.S.A. 58:10-23.11. On March 10, 1986, the Supreme Court of the United States
decided that several uses of the Spill Compensation Fund were preempted by
federal law. Several issues in the case, including the issue of the refund of
what has been collected in taxes to date, were remanded to the State courts for
decision. On December 2, 1987, the Supreme Court of New Jersey held that
preemption began when a site was listed in the National Contingency Plan or was
placed on the National Priorities List and ended when Congress amended the
'Superfund' legislation to eliminate the preemption language. The Court further
held that the plaintiffs would receive refunds only in the event that the State
Legislation refused to reimburse the Spill Compensation Fund for expenditures
for preempted purposes, and remanded the matter to the
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Tax Court for an accounting. The plaintiffs filed with the Supreme Court of the
United States a petition for writ of mandamus alleging that the Supreme Court of
New Jersey misinterpreted the decision of the United States Supreme Court. That
petition was denied without comment on March 28, 1988. Remand proceedings have
resumed in the Tax Court. $87 million was collected in taxes for the Spill
Compensation Fund from December 1980 through April 1987. The Tax Court recently
rejected Exxon's argument that it was entitled to refunds on the grounds of due
process, which decision has not been appealed by Exxon. In addition, the Tax
Court ruled that pre-empted expenditures totaled approximately eight million
dollars. However, although the appeal is still pending, the New Jersey Supreme
Court has advised that the six-month period within which the Legislature may
determine whether to reimburse the Spill Compensation Fund in lieu of tax refund
has begun to run, and will expire on or about December 3, 1992. If the
Legislature fails to make reimbursement by that date, the Spill Compensation
Fund will be liable for refunds to all taxpayers who filed timely claims. This
includes the claims of taxpayers whose complaints were placed on the inactive
list pending resolution of the Exxon matter. On December 1, 1992, the
Legislature's Joint Budget Oversight Committee approved DEPE's request to
transfer $8,142,094 from the Hazardous Site Cleanup Fund to the New Jersey Spill
Compensation Fund to fulfill the obligation set out by the Supreme Court in
Exxon v. Hunt.
Fair Automobile Insurance Reform Act Litigation. On March 12, 1990, the
Fair Automobile Insurance Reform Act of 1990 ('FAIR Act') was enacted into law.
The FAIR Act substantially alters New Jersey's statutory scheme governing
private passenger automobile insurance. The New Jersey Automobile Full Insurance
Underwriting Association ('JUA'), an unincorporated non-profit association
created in 1983 to provide automobile insurance to those unable to secure such
coverage in the voluntary market, was precluded from issuing or renewing
automobile insurance policies after October 1, 1990. The FAIR Act includes
provisions governing the transition of drivers insured by the JUA to the
voluntary market and, to the extent such coverage is not available, to an
Assigned Risk Plan. The FAIR Act also provides for the imposition of taxes and
assessments to meet the financial obligations of the JUA, which are not debts,
liabilities or obligations of the State. The FAIR Act's revenue raising measures
include a premium tax surcharge imposed upon insurers doing business in New
Jersey that is intended to yield a total of $300 million dollars over a three
year period commencing in 1990. The fiscal year 1993 budget does not reflect the
anticipated revenues from the premium tax surcharge because the revenues are to
be applied by statute to the JUA financial obligations. The FAIR Act also
provides for the making of assessments by the New Jersey Property Liability
Insurance Guaranty Association upon property and casualty liability insurers in
order to raise $160 million dollars per year for the period 1990 to 1997.
Litigation challenging various portions of the FAIR Act remains pending. On
May 16, 1991, the Supreme Court of New Jersey decided State Farm Mutual
Automobile Insurance Company v. Fortunato upholding the facial constitutionality
of the surtax and assessment provisions of the FAIR Act. In the Matter of
American Reliance, the Appellate Division held that insurers who did not write
private passenger automobile insurance could be assessed pursuant to the FAIR
Act. Although successful in that case, certain 'as applied' challenges have been
brought. Recently, litigation was filed in the Mercer County Superior
Court-Chancery Division, by Allstate and State Farm alleging that their
constitutional rights have been violated and that they are entitled to refunds
of FAIR Act surtaxes and assessments.
An additional provision of the FAIR Act, N.J.S.A. 17:33B-10, provides
funding for the State's costs, including attorney's fees, in maintaining any
action against the servicing carriers of the New Jersey Automobile Full
Insurance Underwriting Association ('JUA') from the JUA or the New Jersey
Automobile Insurance Guaranty Fund ('Automobile Fund'). Currently, the
administrative restitution action, Jackson v. Aetna, et al., seeks restitution
from the JUA's servicing carriers for losses incurred by the JUA due to the
carriers' alleged mishandling of underwriting and claims adjustment on behalf of
the JUA. The State's funding for this action and the supplemental financial,
claim, underwriting and operational examinations of the servicing carriers which
are needed are currently being paid by the JUA through funds supplied in whole
or in part by the Automobile Fund. The servicing carriers have challenged this
funding mechanism on appeals pending before the Appellate Division In the matter
of The Commissioner of Insurance's Certification of Amendment to the New Jersey
Automobile Full Insurance
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Underwriting Association Plan of Operation, A-5514-89T1. This challenge was
rejected by the Court and there has been no subsequent litigation on this issue.
Tort, Contract and Other Claims. 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 (N.J.S.A. 59:1-1, et
seq.). The State does not formally estimate its reserve representing potential
exposure for these claims and cases. The State is unable to estimate its
exposure for those claims and cases. An independent study estimated an aggregate
potential exposure of $50 million for tort claims pending as of January 1, 1982.
It is estimated that were a similar study made of claims currently pending, the
amount of such estimated exposure would be somewhat higher. In addition, at any
given time, there are various numbers of contract and other claims against the
State and State agencies, seeking recovery of monetary damages or other relief
which, if granted, would require the expenditure of funds. The State is unable
to estimate its exposure for these claims.
Parlavecchio v. Florio. In this case, which was filed in Superior Court on
June 17, 1991, Essex County seeks to invalidate the State's method of funding
the judicial system. Under the current funding procedures most costs associated
with the judicial system are borne by the counties, and are allocated on a
county-by-county basis. The complaint alleges that this funding system
discriminates against urban counties and violates the provision in the State
Constitution establishing a 'unified' court system. Plaintiffs also raise equal
protection, substantive due process and takings claims, and seek to require the
State to assume sole responsibility for funding the judicial system. The trial
court has granted the State summary judgment, and the matter is now on appeal.
United Wire, Metal and Machine Health and Welfare Fund, et al. v.
Morristown Memorial Hospital, et. al. Several Union welfare benefit plans
brought this action in Federal District Court challenging some provisions of New
Jersey's hospital rate-setting system. The Plaintiffs claimed that the
provisions in the State rate scheme for a hospital bill uncompensated care
add-on, a Medicare cost shift, payer discounts and payer appeals violated their
federal and State constitutional and statutory rights. The Plaintiffs also asked
the Court to order restitution for any illegal payments made under protest. On
May 27, 1992, the District Court ruled that the four challenged provisions of
the rate-setting system were preempted by the federal Employee Retirement Income
Security Act ('ERISA') and, therefore, are unenforceable against participants in
ERISA benefit plans. However, the Court dismissed the Plaintiffs' constitutional
attacks on the rate scheme and declined for jurisdictional reasons to rule on
restitution claim on the ground it should be heard, if at all, by a State court.
State officials responsible for administering the rate system and the New Jersey
Hospital Association appealed to the federal Third Circuit Court of Appeals from
the ERISA-based aspects of the decision and obtained a stay of the District
Court's ruling pending the outcome of the appeal. The Plaintiffs filed
cross-appeals from the dismissal of their federal constitutional claimed that
the rate scheme constitutes a taking of property without just compensation and
the claim for restitution. The appeals remain pending. A decision from the Third
Circuit on the appeals that upholds the District Court's ERISA preemption
decision would raise serious doubts about the continued viability of New
Jersey's rate-setting system. The District Court's decision, if upheld, may
result in reduced payments to disproportionate share hospitals and thus,
potentially, the loss of matching federal funds. The New Jersey Hospital
Association has also filed a related action in State court that seeks to enjoin
certain Plaintiffs, plan participants and other payors from paying less than the
charges mandated by the challenged rate system.
Communications Workers of America, AFL-CIO ('CSA'), et al. v. Jim Florio,
et al. This case is pending in the Supreme Court of New Jersey. The Fiscal Year
1993 Appropriations Act includes provisions relating to cerain reductions in
personnel by various State agencies. Subsequent to its enactment, the Attorney
General advised the Governor that these provisions were to be read so as to
permit the exercise of certain discretion by the State agencies in making such
personnel decisions. CWA has filed suit, alleging, among other things, that the
Appropriations Act provisions in questions were intended by the Legislature as
mandatory and that they require that the reductions be accomplished through cuts
in unclassified personnel earning in excess of $50,000 per year. CWA alleges
further that proposed agency reductions in personnel fail to comply with this
requirement, and makes certain other claims, including an alleged failure by the
agencies to notify the Joint Budget Oversight Committee of the
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reductions. CWA seeks relief enjoining defendants from actions which it alleges
are in violation of the Appropriations Act and directing the rescission of all
layoff notices allegedly served in violation of the Act. The CWA case was
consolidated with two similar cases brought by several State legislators and the
plaintiffs sought a stay of the layoffs scheduled to take effect on October 2,
1992. The Appellate Division denied the stay, but a single Justice of the
Supreme Court granted a stay of the layoffs pending all Court action on October
5. On October 5, 1992, the Supreme Court entered an order denying the stay and
the layoffs took effect as of 5:00 p.m. on October 5. The appeals were argued on
their merits before the Supreme Court and in January 1993, the Supreme Court
upheld the Governor's position.
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.
CALIFORNIA TRUST
Because the Trust invests in California issues, it is susceptible to
political, economic, regulatory or other factors affecting issuers of California
municipal securities. The following information constitutes only a brief summary
of a number of the complex factors which may have an impact on issuers of
California municipal securities and does not purport to be a complete or
exhaustive description of all adverse conditions to which issuers of California
municipal securities may be subject. Additionally, many factors, including
national, economic, social and environmental policies and conditions, which are
not within the control of such issuers, could have an adverse impact on the
financial condition of such issuers. The Trust cannot predict whether or to what
extent such factors or other factors may affect the issuers of California
municipal securities, the market value or marketability of such securities or
the ability of the respective issuers of such securities acquired by the Trust
to pay interest on or principal of such securities. Further, the
creditworthiness of obligations issued by local California issuers may be
unrelated to the creditworthiness of obligations issued by the State of
California. Such information is derived from sources that are generally
available to investors (such as official statements relating to the offerings of
California issuers) and is believed to be accurate.
Bonds in the California Trust include primarily debt obligations of the
State of California and its subdivisions issued to obtain funds for various
public purposes, including the construction of a wide range of public facilities
such as airports, bridges, highways, housing, hospitals, mass transportation,
schools, streets and water and sewer works. Other purposes for which said Bonds
may be issued include the refunding of outstanding obligations, the obtaining of
funds for general operating expenses, or the obtaining of funds to lend to
public or private institutions for the construction of facilities such as
educational, hospital and housing facilities. In addition, certain types of
bonds may be issued by California public authorities to finance privately
operated housing facilities and certain local facilities for water supply, gas,
electricity or sewage or solid waste disposal.
NATIONAL
California's economy is the largest among the 50 states and one of the
largest in the world. The State's July 1, 1992 population of over 31 million
represents more than 12.0 percent of the total United States population. Total
employment is about 13.8 million, the majority of which is in the service, trade
and manufacturing sectors.
RECENT ECONOMIC TRENDS
Since the start of the 1990-91 Fiscal Year, California has faced the worst
economic, fiscal and budget conditions since the 1930s. Construction,
manufacturing (especially aerospace), exports and financial services, among
others, have all been severely affected. Job losses have been the worst of any
post-war recession. Employment levels are expected to stabilize by late 1993
before net employment
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starts to increase, and pre-recession job levels are not expected to be reached
for several more years. Unemployment reached 10 percent in November 1992 and is
expected to remain above 9 percent through 1993 and 1994. According to the
Department of Finance, recovery from the recession in California is not expected
in meaningful terms until late 1993 or 1994, notwithstanding signs of recovery
elsewhere in the nation.
The national economy appears to be strengthening slowly, led by gains in
business investment (especially computers and electronics), housing
construction, and consumer spending. The recovery has yet to spread throughout
the economy, however, as several areas remain weak. The trade balance has
deteriorated in recent months; government at all levels is faced with cutbacks;
and investment in nonresidential structures continues to edge lower. Employment
gains have been limited since the 'trough' of the recession. About a million
jobs have been recovered, mostly in the service sector. Manufacturing industries
have yet to show resiliency, and further defense spending cuts will put downward
pressure on manufacturing employment. The national jobless rate for 1993 is
forecast to remain around 7 percent.
The slowdown in the economy in the first quarter of 1993 has raised
questions about a possible 'third leg' of the recession. The normal stimulus for
recovery has certainly been lacking. Monetary authorities have taken interest
rates down to the point that both the potential for and effectiveness of further
cuts is probably limited. Financial institutions have announced plans to step up
lending, but the boost to activity that this would give has yet to materialize.
Add to this federal budget problems and the possibility of a bounce-back
recovery is effectively eliminated.
The unusual nature of the latest recession has reduced the correlation
between the national situation and California's economy. The unusual breadth and
severity of the downturn in the state and data comparability issues have led the
Department of Finance to reemphasizse the U.S.-California linkage. In effect,
while the national economic forecast is of interest, it is not the primary basis
of the outlook for California which follows.
CALIFORNIA
After three years of recession, California's economy seems to be
stabilizing. However, economic signals remain mixed, and recovery is still an
expectation rather than a reality. On the plus side:
o Nonfarm employment is April was essentially unchanged from the
December level. The unemployment rate seems to be moving down,
although the large April drop, from 9.4 percent to 8.6 percent,
probably exaggerates the improvement.
o Personal income growth is improving gradually, from gains of 2
percent or less in 1991 to slightly over 3 percent at the beginning
of 1993.
o Taxable sales are stabilizing after a lengthy decline.
There are still ample signs of weakness:
o Manufacturing employment continues to decline, with deep losses in
aerospace reflecting defense cuts and weak commercial markets.
Despite strong output and sales gains, electronics firms continue to
cut payrolls. All manufacturing industries, with the exception of
apparel and textiles, are posting employment losses.
o Housing, usually an engine of recovery, remains in a slump. Permit
volume has averaged a 95,000 unit annual rate in recent months,
actually somewhat below last year's 98,000 total. Nonresidential
construction continues to hit new recession lows, reflecting
oversupplied commercial office, retail and hotel markets.
o Employment continues to decline in such normally stable industries
as banking, the utilities and most segments of wholesale and retail
trade. Food, department and apparel stores are shedding jobs.
Government employment is down 30,000 over the past year.
The May Revision prepared by the California Department of Finance forecast
expects this essentially flat pattern of economic activity to persist throughout
1993, with employment by year end only marginally higher than in April. Gains in
service industries, mainly health care, temporary agencies (in business
services), motion picture production and amusements are expected to continue.
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There should be modest increases in wholesale and retail trade. The finance and
transportation and utilities groups will be stable to down slightly. Assuming
modest increase in home building, construction employment will also be about
flat this year.
Against these, manufacturing and government will continue to lose jobs. The
largest losses in percentage terms will be in aerospace manufacturing and
Federal Department of Defense, reflecting the cuts in the military budget.
Budget constraints will also affect State and local government.
The forecast predicts the State's economy will improve slowly in 1994 and
1995, but will continue to experience deep defense budget cuts, overbuilt
commercial real estate and high business and living costs, especially compared
to neighboring Western states. Elements of the forecast include:
o Nonfarm employment, on an annual average basis, is forecast to
decline by about 1/2 percent this year, then increase by 1 percent
in 1994 and a little over 2 percent in 1995.
o Personal income growth is forecast at 3.7 percent in 1993, 4.7
percent in 1994 and 6 percent in 1995.
o The California consumer price index is expected to average around a
3 1/2 percent advance each year.
o Home construction is forecast to improve to 108,000 units this year,
145,000 in 1994 and nearly 170,000 by 1995.
Subsequent Developments. The California Department of Finance Bulletins for
July, August, and September, 1993 reported that California entered the fourth
year of recession in June, 1993 with few signs of any sustained turnaround in
the economy, which remains sluggish. In the year from August, 1992 to August,
1993 an estimated 173,000 more jobs had been lost, principally in manufacturing.
A small gain in nonfarm employment in July, 1993 was offset by a larger loss of
22,000 jobs in August, 1993. Unemployment has risen in the last few months to
9.0 percent in August. Changes in the rate have been primarily due to changes in
the labor force; actual jobs and job-seekers declined in August, 1993. This was
consistent with a report issued by the Department of Finance indicating that
California suffered a net loss of 150,000 residents to other states in the last
fiscal year; overall population still grew due to births and foreign imigration.
Both residential and nonresidential real estate construction remained in a
sustained slump, and were, in May, 1993 both at or close to the lowest levels
since the start of the recession.
Finally, the Department of Finance noted that California would be hit hard
by the latest round of federal military base closings and force realignments,
which will be implemented over the remaining years of the decade. California was
estimated to have 22 percent of the nation's defense spending, but might suffer
25-30 percent of the defense spending cuts over the next five years. The
Department also estimates that the recent federal Budget Reconciliation Act will
have a disproportionate and negative impact on California. California would
suffer 19.5 percent of the outlays reductions, which rely heavily on defense
budget cuts, and the State, with many high income taxpayers, will pay nearly
14.5 percent of the tax increases, compared to 12 percent of the nation's
population.
State Finance
FISCAL YEARS PRIOR TO 1991-92
In the years following enactment of the federal Tax Reform Act of 1986, and
conforming changes to the State's tax laws, taxpayer behavior became much more
difficult to predict, and the State experienced a series of fiscal years in
which revenue came in significantly higher or lower than original estimates. The
1989-90 Fiscal Year ended with revenues below estimate, so that the State's
budget reserve (the Special Fund for Economic Uncertainties or 'SFEU') was fully
depleted by June 30, 1990. In approaching the 1990-91 Fiscal Year budget, the
Governor stated that a structural imbalance existed in the budget. The largest
General Fund programs--K-14 education, health, welfare and corrections-- were
increasing faster than the revenue base, driven by the State's rapid population
increases in the mid to late 1980's. The Governor estimated that a $3.6 billion
gap needed to be closed in order to fund all State programs at their legislated
levels (including cost of living adjustments, or 'COLAs'), and to
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restore a $1.3 billion budget reserve. The Governor called for structural
changes to programs in order to close this budget gap.
The 1990-91 Budget Act was signed on July 30, 1990, aproximately one month
past the July 1 start of the fiscal year. It closed the budget gap with a
combination of revenue increases, structural program changes, expenditure
reductions, and one-time deferrals and adjustments. As enacted, the Governor
estimated there would be a balance in the SFEU at June 30, 1991 of approximately
$1.3 billion. However, it became evident shortly after the fiscal year began
that revenues were coming in substantially lower than estimated, as the State
and national economies were affected by the recession which began in summer
1990, and by the Persian Gulf crisis.
Although the new Administration, which took office in January 1991,
announced substantially reduced revenue projections in the January 1991
Governor's Budget, the weakness of the economy resulted in actual receipts in
the second half of the 1990-91 Fiscal Year falling well below even those
projections. In addition, expenditures for health and welfare programs were
higher than originally budgeted, consistent with the ongoing recession. As a
result of these factors, the General Fund ended the 1990-91 Fiscal Year with a
large deficit which had to be repaid from revenues to be received in the 1991-92
Fiscal Year.
The Controller reported the General Fund ended the 1990-91 Fiscal Year with
a negative budgetary basis fund balance of $1.316 billion (compared with the
original Budget Act projection of a $1.5 billion positive fund balance). In
order to pay necessary cash expenses through June 1991, including payment of
$4.1 billion 1990 State of California Revenue Anticipation Notes which were due
on June 28, 1991, the General Fund borowed $1.390 billion from the SFEU and
$3.266 billion from other Special Funds as of the end of the Fiscal Year. Data
on General Fund revenues for the 1990-91 Fiscal Year show that revenues in all
major categories (except insurance taxes) were lower than the receipts in
1989-90, the first time this has happened on a year-over-year basis since the
1930s.
1991-92 FISCAL YEAR
As noted above, by the time the Governor introduced the proposed budget for
the 1991-92 Fiscal Year in January 1991, it was evident the recession and
underlying structural disparities in the State's Budget system would make it
necessary to take significant action. The Governor's Budget originally projected
a $7 billion gap between revenues and program needs (including restoration of a
budget reserve) through June 30, 1992. However, as revenues remained depressed
in early 1991, the estimate of the budget gap eventually increased to $14.3
billion. The Legislature passed the 1991-92 Budget Bill on June 22, 1991, but it
was not signed by the Governor until July 16, 1991, as the balancing of the
budget required enactment of dozens of additional bills to raise revenues and
change programs and laws. The 1991-92 Budget Act projected General Fund
expenditures of $43.4 billion and Special Fund expenditures of $10.6 billion.
The Department of Finance estimated that there would be a balance in the SFEU on
June 30, 1992 of $1.2 billion.
The $14.3 billion budget gap was closed through a combination of temporary
and permanent changes in laws and one-time budget adjustments. The major
features of the budget compromise were:
(1) Program funding reductions totaling $5.1 billion, including certain
automatic budget reductions enacted in 1990, cuts in welfare grants and renter's
tax credits, elimination of COLAs and salary increases, cuts in support for
higher education (the latter to be partly offset by higher student fees),
reductions in payments to pension funds, savings in aid to schools and community
colleges by applying $1.2 billion in aid given in 1990-91 against the
constitutional minimum guarantee of aid for 1991-1992 and other actions.
(2) A total of $5.1 billion of increased State revenues through increased
sales taxes, income taxes, and excise taxes, conformity with federal tax laws,
deferral of certain corporate tax deductions, closing of tax loopholes and
acceleration of tax collections.
(3) Savings of $2.1 billion by returning certain health and welfare
programs to counties to be funded by increased sales taxes and vehicle license
fees to be given directly to counties.
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(4) Additiional miscellaneous saavings and revenue gains totaling $1.1
billion, including inter-fund transfers, increased receipts and cost savings
involved in funding trial courts, and a reduction in the planned year-end budget
reserves.
(5) A one-time net increase in resources totaling $900 million from a
change in the accounting treatment for sales taxes and the Medi-Cal program to
full accrual basis.
SUBSEQUENT DEVELOPMENTS
After the 1992-93 Budget Act was enacted and as confirmed in the Governor's
Budget proposal for 1993-94, released on January 8, 1993, it became evident that
economic conditions in the State were not beginning to improve in the second
half of 1992, as assumed by the Department of Finance's May 1992 economic
estimates, which underlay the 1992-93 Budget Act. This was exacerbated by
enactment of an initiative measure in November 1992 which repealed a sales tax
for certain candy, snack foods and bottled water, reducing revenues by about
$300 million for a full fiscal year ($200 million in 1992-93). The January
Governor's budget projected a $2.1 billion budget deficit at June 30, 1993
(compared to the 1992-93 Budget Act projection of a $28 million balance).
On May 20, 1993, the Department of Finance released its May Revision to the
January Governor's Budget (the 'May Revision'), updating revenue and expenditure
projections and proposals for the 1992-93 and 1993-94 fiscal years. The May
Revision also updated the Admistration's economic projections, which were
changed only a little from the projections used in the January Governor's
Budget.
The May Revision projected that the General Fund would end the fiscal year
on June 30, 1993 with an accumulated budget deficit of about $2.8 billion, and a
negative fund balance of about $2.2 billion (the difference being certain
reserves for encumbrances and school funding costs). The Governor projected
revenues for 1992-93 of $41.0 billion, $1.0 billion less than in the 1991-92
fiscal year. On the expenditure side, the continued recession increased health
and welfare costs above the original Budget Act projections. Also, property tax
receipts at the local level were less than projected, so that the State will not
get the full $1.3 billion benefit from the property tax shift enacted in the
Budget Act. Overall, the May revision projected total General Fund expenditures
of $41.1 billion for the 1992-93 fiscal year, about $300 million higher than the
Budget Act and $2.2 billion less than Fiscal Year 1991-92.
The January Governor's Budget had projected that, because of severely
reduced revenues, the State would face a cash flow shortfall in May 1993,
necessitating additional external borrowing. The state met this cash flow need
by issuing $3.0 billion of revenue anticipation notes on April 26, 1993, which
matured on June 24, 1993. On June 23, 1993, the State also issued the 1993
Revenue Anticipation Warrants, which mature on December 23, 1993, in the
principal amount of $2.0 billion to meet cash flow requirements for the end of
the 1992-93 Fiscal Year and the start of the 1993-94 Fiscal Year.
The September, 1993 Bulletin of the Department of Finance reports that
General Fund revenues in August, 1993 were $79 million, or about 2.6 percent,
above updated May Revision estimates, but about $65 million of this was
apparently due to an administrative problem in refunds which will appear next
month. July and August, 1993 combined revenues were $86 million or 1.7 percent
above projections, with all three major tax sources tracking projections well.
August, 1993 sales tax receipts were 10.5% above projections, offsetting weak
results in June and July. The Department of Finance continues to report,
however, that economic activity in the State remains sluggish. See 'Economic
Considerations' below. The Department of Finance also reports that the State
will only receive approximately $450 million in aid from the Federal Government
to offset the health and welfare costs associated with foreign immigrants living
in the State, substantially less than the $692 million contemplated by the
1993-94 Budget Act.
As a result of the deterioration in the State's budget and cash situation
in Fiscal Years 1991-92 and 1992-93, rating agencies reduced the State's credit
ratings. Between November 1991 and October 1992 the rating on the State's
general obligation bonds was reduced by Standard & Poor's Corporation from 'AAA'
to 'A', by Moody's Investors Service from 'Aaa' to 'Aa', and by Fitch Investors
Services, Inc. from 'AAA' to 'AA' . There can be no assurance that such ratings
will continue for any given period of time or that they will not in the future
be further revised or withdrawn.
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Constitutional Limits on Spending and Taxes; Pending Litigation
Article XIIIA of the California Constitution (which resulted from the
voter approved Proposition 13 in 1978) limits the taxing powers of California
public agencies. Article XIIIA provides that the maximum ad valorem tax on real
property cannot exceed 1 percent of the 'full cash value' of the property, and
effectively prohibits the levying of any other ad valorem property tax for
general purposes. However, on May 3, 1986, Proposition 46, an amendment to
Article XIIIA, was approved by the voters of the State of California creating a
new exemption under Article XIIIA permitting an increase in ad valorem taxes on
real property in excess of 1 percent for bonded indebtedness approved by
two-thirds of the voters voting on the proposed indebtedness. 'Full cash value'
is defined as 'the County Assessor's valuation of real property as shown on the
1975-76 tax bill under 'full cash value' or, thereafter, the appraised value of
real property when purchased, newly constructed, or a change in ownership has
occurred after the 1975 assessment.' The 'full cash value' is subject to annual
adjustment to reflect increases (not to exceed 2 percent) or decreases in the
consumer price index or comparable local data, or to reflect reductions in
property value caused by damage, destruction or other factors.
The State is subject to an annual appropriations limit imposed by Article
XIIIB of the State Constitution (the 'Appropriations Limit'). Article XIIIB
prohibits the State from spending 'Appropriations subject to limitation' in
excess of the Appropriations Limit. Article XIIIB, originally adopted in 1979,
was modified substantially by Propositions 98 and 111 in 1988 and 1990,
respectively. 'Appropriations subject to limitation,' which respect to the
State, are authorizations to spend 'proceeds of taxes,' which consist of tax
revenues, and certain other funds, including proceeds from regulatory licenses,
user charges or other fees to the extent that such proceeds exceed 'the cost
reasonably borne by that entity in providing the regulation, product or
service,' but 'proceeds of taxes' exclude most state subventions to local
government, tax refunds and some benefit payments such as unemployment
insurance. No limit is imposed on appropriations of funds which are not
'proceeds of taxes,' such as reasonable user charges or fees, and certain other
non-tax funds.
Not included in the Appropriations Limit are appropriations for the debt
service costs of bonds existing or authorized by january 1, 1979, or
subsequently authorized by the voters, appropriations required to comply with
mandates of courts or the federal government and, pursuant to Proposition 111,
appropriations for qualified capital outlay projects and appropriations of
revenues derived from any increase in gasoline taxes and motor vehicle weight
fees above January 1, 1990 levels. In addition, a number of recent initiatives
were structured or proposed to create new tax revenues dedicated to certain
specific uses, with such new taxes expressly exempted from the Article XIIIB
limits (e.g., increased cigarette and tobacco taxes enacted by Proposition 99 in
1988). The Appropriations Limit may also be exceeded in cases of emergency.
However, unless the emergency arises from civil disturbance or natural disaster
declared by the Governor, and the appropriations are approved by two-thirds of
the Legislature, the Appropriations Limit for the next three years must be
reduced by the amount of the excess.
The State's Appropriations Limit in each year is based on the limit for the
prior year, adjusted annually for changes in California per capita personal
income and changes in population, and adjusted, when applicable, for any
transfer or financial responsibility of providing services to or from another
unit of government. The measurement of change in population is a blended average
of statewide overall population growth, and change in attendance at local school
and community college ('K-14') districts. As amended by Proposition 111, the
Appropriations Limit is tested over consecutive two-year periods. Any excess of
the aggregate 'proceeds of taxes' received over such two-year period above the
combined Appropriations Limits for those two years is divided equally between
transfers to K-14 districts and refunds to taxpayers.
As originally enacted in 1979, the State's Appropriations Limit was based
on 1978-79 Fiscal Year authorizations to expend proceeds of taxes and was
adjusted annually to reflect changes in cost of living and population (using
different definitions, which were modified by Proposition 111). Starting in the
1990-91 Fiscal Year, the State's Appropriations Limit will be recalculated by
taking the actual 1986-87 limit, and applying the annual adjustments as if
Proposition 111 had been in effect. This
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recalculation has resulted in an increqse of $1 billion to the State's
Appropriations Limit in 1990-91. The Legislature has enacted legislation to
implement Article XIIIB which defines certain terms used in Article XIIIB and
sets forth the methods for determining the Appropriations Limit. Government Code
Section 7912 requires an estimate of the Appropriations Limit to be included in
the annual budget proposed by the Governor in January of each year for the next
fiscal year (the 'Governor's Budget'), and thereafter to be subject to the
budget process and established in the Budget Act.
The following table shows the State's appropriations Limit for the past
four fiscal years, and the current fiscal year.
STATE APPROPRIATIONS LIMIT
(MILLIONS)
<TABLE>
<CAPTION>
FISCAL YEARS
----------------------------------------------------
1989-90 1990-91 1991-92 1992-93 1993-94*
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
State appropriations Limit................................. $29,318 $32,703 $34,233 $35,010 $ 36,699
Appropriations Subject to Limit............................ -27,700 -25,191 -30,426 -30,739 -33,164
------- ------- ------- ------- --------
Amount (Over)/Under Limit.................................. $ 1,618 $ 7,512 $ 3,807 $ 4,271 $ 3,435
</TABLE>
PROPOSITION 98
On November 8, 1988, voters of the State approved Proposition 98, a
combined initiative constitutional amendment and statute called the 'Classroom
Instructional Improvement and Accountability Act'. Proposition 98 changed State
funding of public education below the university level, and the operation of the
State Appropriations Limit, primarily by guaranteeing K-14 schools a minimum
share of General Fund revenues. Under Proposition 98 (as modified by Proposition
III, discussed below, which was enacted on June 5, 1990), K-14 schools are
guaranteed the greater of: 1. 40.3 percent of General Fund revenues (the 'first
test'), 2. the amount appropriated to K-14 schools in the prior year, adjusted
for changes in the cost of living (measured as in Article XIIIB by reference to
California per capita personal income) and enrollment (the 'second test'), or 3.
a third test, which would replace the second test in any year when the
percentage growth in per capita General Fund revenues from the prior year plus
one half of one percent is less than the percentage growth in California per
capita personal income. Under the third test, schools would receive the amount
appropriated in the prior year adjusted for changes in enrollment and per capita
General Fund revenues, plus an additional small adjustment factor. If the third
test is used in any year, the difference between the third test and the second
test would become a 'credit' to schools which would be the basis of payments in
future years when per capita General Fund revenue growth exceeds per capita
personal income growth.
Proposition 98 permits the Legislature by two-thirds vote of both houses,
with the Governor's concurrence, to suspend the K-14 schools' minimum funding
formula for a one-year period. In the fall of 1989, the Legislature and the
Governor utilized this provision to avoid having 40.3 percent of revenues
generated by a special supplemental sales tax enacted for earthquake relief go
to K-14 schools. Proposition 98 also contains provisions transferring certain
State tax revenues in excess of the Article XIIIB limit to K-14 schools.
Article XIIIA, Article XIIIB and Proposition 98 were each adopted as
measures that qualified for the ballot pursuant to California's initiative
process. Other initiative measures could be adopted in the future, affecting the
availability of revenues to pay certain of the Bonds.
In Parr v. State of California, a complaint was filed in federal court
claiming that payment of wages in registered warrants violated the Fair Labor
Standards Act ('FLSA'). The federal court held that the issuance of registered
warrants does violate the FLSA. The next phase of the trial will focus on the
issue of damages. The maximum amount of damages is the amount of the salary
originally owed or approximately $350 million.
- ------------------
* Estimate
SOURCE: State of California, Department of Finance.
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City of Alhambra, et al. v. Los Angeles County Auditor/Controller, et al.
involves the constitutionality of the 1992-93 Budget Act-related legislation
which redirects approximately $1.3 billion in local tax revenues from localities
to schools. The case was originally filed with the California Supreme Court. The
Court denied the petition and the case was refiled in the Los Angeles Superior
Court, where it is now pending. Various constitutional arguments concerning
equal protection, two-thirds voter approval for tax increases, interference with
local government fiscal powers and violation of school funding restrictions, are
raised.
On November 1, 1993, the United States Supreme Court granted certiorari to
hear two consolidated cases dealing with the validity of California's prior
method of taxing multinational corporations under a 'unitary' method of
accounting for their worldwide earnings. Barclays Bank PLC v. Franchise Tax
Board concerns foreign corporations, and Colgate-Palmolive v. Franchise Tax
Board concerns domestic corporations. California courts have upheld the State's
unitary method of taxation, which has since been modified by the Legislature. If
the Court does not uphold the State's prior method of taxation, the State could
be liable for tax refunds and will be unable to collect taxes previously
assessed, with an aggregate impact of $3.5-$4 billion.
In the spring of 1991, the Richmond Unified School District ('RUSD') Board
of Directors attempted to end classes six weeks early because of a fiscal
crisis. In response to lawsuits, a lower court judge, in Butt v. State of
California, ordered the State, over objections from the Governor, to provide
funding to allow the school year to be completed, and an emergency loan was
arranged by the State Controller. On appeal, the California Supreme Court in
late December 1992 upheld the lower court's action, ruling that the State
Constitution's guarantee of public education required the State to ensure a full
year's education in all school districts. The Court, however, overturned a
portion of the original order relating to the source of funds for RUSD's
emergency loan; the decision leaves unclear just where the State must find funds
to make any future loans of this kind.
In 1991, the Legislature adopted new laws to provide closer fiscal
oversight of school districts, authorizing State receivership in extreme cases.
This law hopes to head off crises as severe as RUSD. However, it is not possible
to predict whether the ruling in the Butt case may expose the State to
additional financial obligations in the future if more school districts fall
into insolvency.
In a case called ABC Unified School District, et al. v. State of
California, some 130 public school districts and various taxpayers filed an
action in 1991 seeking a declaration that the State's system of financing K-12
public education is unconstitutional. The suit claims that alleged inequalities
in per-pupil expenditures among school districts throughout the State are
violative of equal protection guarantees and the public education guarantee of
the State Constitution. The case is pending in the trial court. The State has
cross-complained seeking a declaration that the current school funding system is
constitutional. Plaintiffs and the State have filed a stipulation with the court
in which plaintiffs agree to dismiss their lawsuit against the State and the
State agrees to dismiss its cross-complaint.
1991-1992 Fiscal Year. The 1990-91 Budget Act appropriated $16.7 billion
for K-14 schools, applying 'Test 2' of Proposition 98. During the course of the
fiscal year, revenues proved to be substantially below expectations. By the time
the Governor's Budget was introduced in January 1991, it became clear that per
capita growth in General Fund revenues for 1990-1991 would be far smaller than
the growth in California per capita personal income and the Governor's budget
therefore reflected a reduction in Proposition 98 funding in 1990-91 by applying
'Test 3' rather than 'Test 2.'
In response to the changing revenue situation and to fully fund the
Proposition 98 guarantee in both the 1990-91 and 1991-92 fiscal years without
exceeding it, the Legislature enacted several bills prior to June 30, 1991 which
responded to the fiscal crisis in education funding. In Fiscal Year 1990-1991,
Proposition 98 appropriations for K-14 schools were reduced by $1.233 billion.
In order to not adversely impact cash received by school districts, however, a
short-term loan was appropriated from the non-Proposition 98 State General Fund.
The Legislature then appropriated $18.4 billion to K-14 schools for 1991-92 (the
minimum guaranteed by Proposition 98), but designated $1.233 billion of this
amount to 'repay' the prior year loan, thereby reducing cash outlays in 1991-92
by that amount. The Legislature also designated $133 million appropriated in
1990-91 as meeting the minimum
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Proposition 98 guarantee requirements for 1989-90, thereby completing the
reduction in monies which count towards Proposition 98 in 1990-91 to the minimum
required amount.
1992-93 Fiscal Year. As in the year earlier, the 1991-92 Budget Act
appropriated Proposition 98 funds based on 'Test 2,' which proved to be
approximately $1.1 billion above the minimum funding guarantee. As part of the
1992-93 Budget, fiscal year 1991-92 appropriations were reduced by approximately
$1.1 billion and converted to a loan, in order to keep the State from exceeding
the guarantee and building a higher base for future years. The loan is to be
repaid from 1992-93 Proposition 98 allocations. The budget legislation enacted
to accomplish this plan contained a technical error, and corrective legislation
may be necessary. The Governor has expressed his intention to support any
required corrective legislation and it is expected that such legislation will be
enacted. If such legislation is needed and is not enacted, budgeted expenditures
of K-14 schools in 1991-92 may have to be adjusted upward by $1.083 billion.
This adjustment would result in an ending negative fund balance for 1991-92 of
$3.274 billion instead of $2.191 billion. The beginning negative fund balance
for the 1992-93 Fiscal Year would likewise also be increased, but the Department
of Finance believes expenditures for 1992-93 would be lower by $1.083 billion,
because that amount is designated in the Budget Act as an appropriation for the
repayment of the loan which due to the technical error would not have been made.
Therefore, the Department believes there would be no change in the projected
ending fund balance at June 30, 1993 even if corrective legislation is not
approved. However, there may be other legal interpretations of this circumstance
which could reduce the ending fund balance.
In the 1992-93 Budget Act, a new loan of $732 million was made to K-12
schools in order to maintain per average daily attendance ('ADA') funding at the
same level as 1991-92, at $4,185. An additional loan of $241 million was made to
community college districts. These loans are to be repaid from 1993-94 and
1994-96 Proposition 98 entitlements, but the repayment of the loan to K-12
schools will be deferred to later fiscal years to the extent per-ADA funding for
those years is less than $4,184. Including both State and local funds, and
adjusting for the loans and repayments, total K-12 funding in the 1992-93 Fiscal
Year increased to $24.4 billion, or 4.5 percent more than the amount in 1991-92
($23.3 billion).
The related budget legislation also made an adjustment to 'Test 1,' whereby
there is a recalculation based on the additional $1.1 billion of local property
taxes that were shifted to schools and community colleges. The 'Test 1'
percentage changes from 40 percent to 37 percent. If a court should determine
that this provision or the reducing of the 1991-92 excess appropriations is
invalid, Proposition 98 is suspended for the 1992-93 Fiscal Year. However, in
such a case, the base funding in 1993-94 would be the same level per-ADA as in
1992-93, or an estimated $4,185.
VIRGINIA TRUST
Investors should be aware of certain factors that might affect the
financial condition of issuers of Virginia municipal securities.
Bonds in the Virginia Trust may include primarily debt obligations of the
subdivisions of the Commonwealth of Virginia issued to obtain funds for various
public purposes, including the construction of a wide range of public facilities
such as airports, bridges, highways, schools, streets and water and sewer works.
Other purposes for which bonds may be issued include the obtaining of funds to
lend to public or private institutions for the construction of facilities such
as educational, hospital, housing, and solid waste disposal facilities. The
latter are generally payable from private sources which, in varying degrees, may
depend on local economic conditions, but are not necessarily affected by the
ability of the Commonwealth of Virginia and its political subdivisions to pay
their debts. Therefore, the general risk factors as to the credit of the State
or its politicial subdivision discussed herein may not be relevant to the
Virginia Trust.
The Constitution of Virginia limits the ability of the Commonwealth to
create debt. The Constitution requires a balanced budget. The Commonwealth has
maintained a high level of fiscal stability for many years due in large part to
conservative financial operations and diverse sources or revenue. The economy of
the Commonwealth of Virginia is based primarily on manufacturing, the government
sector (including defense), agriculture, mining and tourism. The Federal Base
Closing
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Commission has ordered that a number of military facilities in Virginia be
closed or reduced. As a result of recessionary conditions, the Commonwealth has
experienced for the past several years severe revenue shortfalls, which have
necessitated cutbacks of expenditures in the budgets for the 1992-1994 biennia.
In the 1993 General Assembly session, the 1992-1994 budget was amended to
reflect $84,000,000 in additional revenues.
In Davis v. Michigan (decided March 28, 1989), the United States Supreme
Court ruled unconstitutional Michigan's statute exempting from state income tax
the retirement benefits paid by the state or local governments and not exempting
retirement benefits paid by the federal government. In Harper v. Virginia
Department of Taxation (decided June 18, 1993), the United States Supreme Court
held, in a suit involving claims for refunds by Federal retirees living in
Virginia that Virginia State income tax Statutes violated the principles of
Davis v. Michigan, but remanded for further relief so long as the relief was
consistent with Federal due process. If the courts ultimately rule that the
Commonwealth must make full refunds of taxes imposed prior to Davis v. Michigan,
the State has estimated that the potential financial impact on the Commonwealth
based on its review of claims for refunds by federal pensioners (including
interest payable calculated as of September 30, 1993) is approximately $498.7
million.
The Commonwealth currently has a Standard & Poor's rating of AAA and a
Moody's rating of Aaa on its general obligation bonds. There can be no assurance
that the economic conditions on which these ratings are based will continue or
that particular bond issues may not be adversely affected by changes in economic
or political conditions. Further, the credit of the Commonwealth is not material
to the ability of political subdivisions and private entities to make payments
on the obligations described below.
General obligations of cities, towns or counties in Virginia are payable
from the general revenues of the entity, including ad valorem tax revenues on
property within the jurisdiction. The obligation to levy taxes could be enforced
by mandamus, but such a remedy may be impracticable and difficult to enforce.
Under section 15.1-227.61 of the Code of Virginia of 1950, as amended, a holder
of any general obligation bond in default may file an affidavit setting forth
such default with the Governor. If, after investigating, the Governor determines
that such default exists, he is directed to order the State Comptroller to
withhold State funds appropriated and payable to the entity and apply the amount
so withheld to unpaid principal and interest. The Commonwealth, however, has no
obligation to provide any additional funds necessary to pay such principal and
interest.
Revenue bonds issued by Virginia political subdivisions include (1) revenue
bonds payable exclusively from revenue producing governmental enterprises and
(2) industrial revenue bonds, college and hospital revenue bonds and other
'private activity bonds' which are essentially non-governmental debt issues and
which are payable exclusively by private entities such as non-profit
organizations and business concerns of all sizes. State and local governments
has no obligation to provide for payment of such private activity bonds and in
many cases would be legally prohibited from doing so. The value of such private
activity bonds may be affected by a wide variety of factors relevant to
particular localities or industries, including economic developments outside of
Virginia.
Virginia municipal securities that are lease obligations are customarily
subject to 'non-appropriation' clauses which allow the municipality to terminate
its lease obligations if moneys to make the lease payments are not appropriated
for that purpose. See 'Objectives'. Legal principles may restrict the
enforcement of provisions in lease financing limiting the municipal issuer's
ability to utilize property similar to that leased in the event that debt
service is not appropriated.
No Virginia law expressly authorizes Virginia political subdivisions to
file under Chapter 9 of the United States Bankruptcy Code, but recent case law
suggests that the granting of general powers to such subdivisions may be
sufficient to permit them to file voluntary petitions under Chapter 9. Bonds
payable exclusively by private entities may be subject to the provisions of the
United States Bankruptcy Code other than Chapter 9.
Virginia municipal issuers are generally not required to provide ongoing
information about their finances and operations to holders of their debt
obligations, although a number of cities, counties and other issuers prepare
annual reports.
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Although revenue obligations of the Commonwealth or its political
subdivisions may be payable from a specific project or source, including lease
rentals, there can be no assurance that future economic difficulties and the
resulting impact on Commonwealth and local government finances will not
adversely affect the market value of the portfolio of the Fund or the ability of
the the respective obligors to make timely payments of principal and interest on
such obligations.
The Sponsors believe the information summarized above describes some of the
more significant events relating to the Virginia Trust. Sources of such
information are the official statements of the issuers located in the
Commonwealth of Virginia, as well as other publicly available documents and
information. While the Sponsors have not independently verified such
information, they have no reason to believe it is not correct in all material
respects.
The Sponsors believe that the information summarized above describes some
of the more significant aspects relating to the Trusts. The sources of such
information are the official statements of issuers located in New York, New
Jersey, California and Virginia as well as other publicly available documents.
While the Sponsors have not independently verified this information, they have
no reason to believe that such information is not correct in all material
respects.
PUBLIC OFFERING
OFFERING PRICE
The Public Offering Price per Unit of each Trust is computed by adding to
the aggregate offering price of the Bonds in the Trust divided by the number of
Units outstanding an amount equal to 5.152% of the aggregate offering price of
the Bonds per Unit which is equal to 4.9% of the Public Offering Price. A
proportionate share of accrued interest on the Bonds from the First Settlement
Date 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 the last day on which interest was paid and is accounted for daily by
the Trust at the initial daily rate set forth under 'Summary of Essential
Information' in Part A. The Public Offering Price can vary on a daily basis from
the amount stated on the cover of this Prospectus 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 offering side evaluation of the Bonds is determined by the
Evaluator (a) on the basis of current offering prices of the Bonds, (b) if an
offering price is not available for any particular Bond, on the basis of current
offering prices for comparable bonds, (c) by determining the value of the Bonds
on the offer side of the market by appraisal, or (d) by any combination of the
above. Insurance does not guarantee the market value of the Bonds or the Units
in the Navigator Trusts, 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. This evaluation is made each business day during the
initial public offering as of 4 P.M. New York Time, effective for all orders
received during the preceding 24-hour period. With respect to the initial
evaluation of the offering prices of certain Bonds which at the Date of Deposit
were subject to syndicate offering period pricing restrictions, it is the
practice of the Evaluator to determine such evaluation on the basis of the
syndicate offering price, unless other factors cause the Evaluator to conclude
that such syndicate offering price does not then accurately reflect the free
market value of such Bonds, in which case the Evaluator will also take into
account the other criteria described above for the purpose of making its
determination.
The Evaluator may obtain current bid or offering prices for the Bonds from
investment dealers or brokers (including the Sponsors) that customarily deal in
tax-exempt obligations or from any other reporting service or source of
information which the Evaluator deems appropriate.
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<PAGE>
ACCRUED INTEREST
Accrued interest is the accumulation of unpaid interest on a bond from the
last day on which interest thereon was paid. Interest on Bonds in each Trust is
actually paid semi-annually to the Trust. However, interest on the Bonds in each
Trust is accounted for daily on an accrual basis. Because of this, each Trust
always has an amount of interest earned but not yet collected by the Trustee
because of non-collected coupons. For this reason, the Public Offering Price of
Units will have added to it the proportionate share of accrued and undistributed
interest to date of settlement.
In an effort to reduce the amount of accrued interest which would otherwise
have to be paid in addition to the Public Offering Price on the sale of Units to
the public, the Trustee will advance the amount of accrued interest as of the
First Settlement Date as set forth in the 'Summary of Essential Information' in
Part A and the same will be distributed to the Sponsors as the Certificateholder
of record as of the First Settlement Date. (See 'Summary of Essential
Information' in Part A.) Consequently, the amount of accrued interest to be
added to the Public Offering Price of Units will include only accrued interest
from the First Settlement Date to date of settlement, less any distributions
from the Interest Account subsequent to the First Settlement Date. Thus, since
the First Settlement Date is the date of settlement for anyone ordering Units on
the Date of Deposit, no accrued interest will be added to the Public Offering
Price of Units ordered on the Date of Deposit.
Except through an advancement of its own funds, the Trustee will have no
cash for distribution to Certificateholders until it receives interest payments
on the Bonds in each Trust. The Trustee will recover its advancements without
interest or other costs to such Trust from interest received on the Bonds in
such Trust. When these advancements have been recovered, regular distributions
of interest to Certificateholders will be commenced. The Interest Account during
the initial months of each Trust will include some cash representing interest
which has been collected but will predominantly consist of uncollected accrued
interest which is not available for distribution. In approximately four months
the interest collected by the Trustee will be sufficient to repay its advances
and to generate enough cash to commence distributions to Certificateholders.
Since the Trusts normally receive the interest on Bonds twice a year and the
interest on the Bonds in the Trusts is accrued on a daily basis, the Trusts
always will 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
such Trust is terminated. At that time, the Certificateholder will receive his
proportionate share of the accrued interest computed to the settlement date in
the case of sale or termination and to the date of tender in the case of
redemption.
VOLUME AND OTHER DISCOUNTS
Units of the Trusts are available at a volume discount from the Public
Offering Price during the initial public offering. This volume discount will
result in a reduction of the sales charge applicable to such purchases. The
amount of the volume discount and the approximate sales charge applicable to
such purchases are as follows:
<TABLE>
<CAPTION>
DISCOUNT FROM PUBLIC OFFERING
NUMBER OF UNITS PRICE PER UNIT APPROXIMATE REDUCED SALES CHARGE
- ---------------- ----------------------------- --------------------------------
<S> <C> <C>
100--249 $ 2.50 4.66%
250--499 5.00 4.42%
500--749 7.50 4.18%
750--999 10.00 3.94%
1,000 and over 15.00 3.45%
</TABLE>
These discounts will apply to all purchases of Units by the same purchaser
during the initial public offering period. Units purchased by the same
purchasers in separate transactions during the initial public offering period
will be aggregated for purposes of determining if such purchaser is entitled to
a discount provided that such purchaser must own at least the required number of
Units at the time such determination is made. Units held in the name of the
spouse of the purchaser or in the name of a child of the purchaser under 21
years of age are deemed for the purposes hereof to be registered in the name of
the purchaser. The discount is also applicable to a trustee or other fiduciary
purchasing securities for a single trust estate or single fiduciary account.
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Employees (and their immediate families) of Bear, Stearns & Co. Inc.,
Gruntal & Co., Incorporated, and of any underwriter of either Trust may,
pursuant to employee benefit arrangements, purchase Units of such Trust at a
price equal to the offering side evaluation of the underlying securities in such
Trust during the initial offering period and at the bid side thereafter, divided
by the number of Units outstanding plus a reduced charge of $10.00 per Unit.
Such arrangements result in less selling effort and selling expenses than sales
to employee groups of other companies. Resales or transfers of Units purchased
under the employee benefit arrangements may only be made through the Sponsors'
secondary market, so long as it is being maintained.
DISTRIBUTION OF UNITS
During the initial offering period Units will be distributed by the
Sponsors, the Underwriters and dealers at the Public Offering Price plus accrued
interest. (See 'Underwriting Syndicate' in Part A.) The initial offering period
is thirty days and, unless all Units are sold prior thereto, the Sponsors may
extend the offering period up to four additional successive thirty day periods.
The Sponsors intend to qualify the Units of the Navigator Trusts for sale
in a limited number of 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 $33 per Unit,
subject to the Sponsors' right to change the dealers' concession from time to
time. Such Units may then be distributed to the public by the dealers at the
Public Offering Price then in effect. The Sponsors reserve the right to reject,
in whole or in part, any order for the purchase of Units.
Underwriters and broker-dealers of the Trusts, banks and/or others are
eligible to participate in a program in which such firms receive from the
Sponsors a nominal award for each of their registered representatives who have
sold a minimum number of units of unit investment trusts created by the Sponsors
during a specified time period. In addition, at various times the Sponsors may
implement other programs under which the sales forces of underwriters, brokers,
dealers, banks and/or others may be eligible to win other nominal awards for
certain sales efforts, or under which the Sponsors will reallow to any such
underwriters, brokers, dealers, banks and/or others that sponsor sales contests
or recognition programs conforming to criteria established by the Sponsors, or
participate in sales programs sponsored by the Sponsors, an amount not exceeding
the total applicable sales charges on the sales generated by such person at the
public offering price during such programs. Also, the Sponsors in their
discretion may from time to time pursuant to objective criteria established by
the Sponsors pay fees to qualifying underwriters, brokers, dealers, banks and/or
others for certain services or activities which are primarily intended to result
in sales of Units of the Trust. Such payments are made by the Sponsors out of
their own assets and not out of the assets of the Trusts. These programs will
not change the price Unitholders pay for their Units or the amount that the
Trusts will receive from the Units sold.
FREQUENT BUYER PROGRAM
Any dealer, underwriter, or firm whose total combined purchases of the
Trust and other unit investment trusts sponsored by Bear, Stearns & Co. Inc.
('MST/EST Units') from Bear, Stearns & Co. Inc. in a single calendar month fall
in any of the levels listed below, will be paid an additional concession.
<TABLE>
<CAPTION>
AGGREGATE MONTHLY
AMOUNT OF ADDITIONAL
MST/EST CONCESSION
UNITS SOLD AT (PER $1,000.00)
PUBLIC OFFERING PRICE SOLD
- --------------------------------------- ---------------
<S> <C>
$1,000,000 but less than $2,000,000............................................. $0.50
$2,000,000 but less than $4,500,000............................................. $1.00
$4,500,000 but less than $7,000,000............................................. $1.50
$7,000,000 or more.............................................................. $2.00
</TABLE>
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<PAGE>
SPONSORS' AND UNDERWRITERS' PROFITS
The Sponsors and the Underwriters will receive a gross underwriting
commission equal to 4.9% of the Public Offering Price per Unit (equivalent to
5.152% of the net amount invested in the Bonds). Additionally, the Sponsors may
realize a profit on the deposit of the Bonds in the Trusts representing the
difference between the cost of the Bonds to the Sponsors and the cost of the
Bonds to the Trusts (See 'Portfolios'). An element of such profit is the
increased market value of the Bonds which resulted from the difference between
the market value of the uninsured Bonds purchased by the Sponsors and the market
value of such Bonds after the Sponsors obtained insurance thereon. The Sponsors'
profit was reduced by the cost of the Insurance Premiums on the Sponsor-Insured
and Navigator Sponsor-Insured Bonds. (See 'Portfolio'.) The Sponsors or any
Underwriter may realize profits or sustain losses with respect to Bonds
deposited in the Trusts which were acquired from underwriting syndicates of
which they were a member.
The Sponsors may have participated as a sole underwriter or manager,
co-manager or member of underwriting syndicates from which some of the aggregate
principal amount of the Bonds were acquired for the Trusts in the amounts set
forth in Part A.
During the initial offering period the underwriting syndicate may also
realize profits or sustain losses as a result of fluctuations after the Date of
Deposit in the offering prices of the Bonds and hence in the Public Offering
Price received by the Sponsors and the Underwriters for the Units. Cash, if any,
made available to the Sponsors prior to settlement date for the purchase of
Units may be used in the Sponsors' business subject to the limitations of 17 CFR
240.15c3-3 under the Securities Exchange Act of 1934, and may be of benefit to
the Sponsors.
In maintaining a market for the Units (see 'Sponsors Repurchase') the
Sponsors will realize profits or sustain losses in the amount of any difference
between the price at which they buy Units and the price at which they resell
such Units.
Participants in the Total Reinvestment Plan can designate a broker as the
recipient of a dealer concession (see 'Total Reinvestment Plan').
COMPARISON OF PUBLIC OFFERING PRICE, SPONSORS' REPURCHASE PRICE AND
REDEMPTION PRICE
Although the Public Offering Price of Units of each Trust will be
determined on the basis of the current offering prices of the Bonds in such
Trust, the value at which Units may be redeemed or sold in the secondary market
will be determined on the basis of the current bid prices of such Bonds. On the
Date of Deposit, the Public Offering Price and the Sponsors' Initial Repurchase
Price per Unit of the Trusts (each based on the offering side evaluation of the
Bonds in the Trust) each exceeded the Redemption Price and the Sponsors'
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 the past, the bid prices of similar Bonds have been
lower than the offering prices by as much as 3% or more of principal amount in
the case of inactively traded Bonds or as little as 1/2 of 1% in the case of
actively traded Bonds, but the difference between such offering and bid prices
has averaged about 1 1/2% to 2% of principal amount. On the Date of Deposit, the
bid side evaluation for each Trust was lower than the offering side evaluation
for that Trust by the amount set forth in Part A. 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 or Sponsor repurchase of Units may be
less than the price paid for such Units. See 'Sponsors Repurchase.'
ESTIMATED LONG TERM RETURN AND ESTIMATED CURRENT RETURN
Units of each Trust are offered to investors on a 'dollar price' basis
(using the computation method previously described under 'Public Offering
Price') as distinguished from a 'yield price' basis often used in offerings of
tax exempt bonds (involving the lesser of the yield as computed to maturity of
bonds or to an earlier redemption date). Since they are offered on a dollar
price basis, the
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<PAGE>
rate of return on an investment in Units of each Trust is measured in terms of
'Estimated Current Return' and 'Estimated Long Term Return'.
Estimated Long Term Return is calculated by: (1) computing the yield to
maturity or to an earlier call date (whichever results in a lower yield) for
each Bond in a Trust's portfolio in accordance with accepted bond practices,
which practices take into account not only the interest payable on the Bond but
also the amortization of premiums or accretion of discounts, if any; (2)
calculating the average of the yields for the Bonds in each Trust's portfolio by
weighing each Bond's yield by the market value of the Bond and by the amount of
time remaining to the date to which the Bond is priced (thus creating an average
yield for the portfolio of each Trust); and (3) reducing the average yield for
the portfolio of each Trust in order to reflect estimated fees and expenses of
that Trust and the maximum sales charge paid by 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 Date of Deposit is stated for each Trust under 'Summary
of Essential Information' in Part A.
Estimated Current Return is computed by dividing the Estimated Net Annual
Interest Income per Unit by the Public Offering Price per Unit. In contrast to
the Estimated Long Term Return, the Estimated Current Return does not take into
account the amortization of premium or accretion of discount, if any, on the
Bonds in the portfolios of each Trust. Moreover, because interest rates on Bonds
purchased at a premium are generally higher than current interest rates on newly
issued bonds of a similar type with comparable rating, the Estimated Current
Return per Unit may be affected adversely if such Bonds are redeemed prior to
their maturity. On the day prior to the Date of Deposit, the Estimated Net
Annual Interest Income per Unit divided by the Public Offering Price resulted in
the Estimated Current Return stated for each Trust under 'Summary of Essential
Information' in Part A.
The Estimated Net Annual Interest Income per Unit of each Trust will vary
with changes in the fees and expenses of the Trustee and the Evaluator
applicable to each Trust and with the redemption, maturity, sale or other
disposition of the Bonds in each Trust. The Public Offering Price will vary with
changes in the offering prices (bid prices in the case of the secondary market)
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 Sponsors upon
request.
RIGHTS OF CERTIFICATEHOLDERS
CERTIFICATES
Ownership of Units of each Trust is evidenced by registered Certificates
executed by the Trustee and the Sponsors. 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 interchange. Mutilated,
destroyed, stolen or lost Certificates will be replaced upon delivery of
satisfactory indemnity and payment of expenses incurred.
INTEREST AND PRINCIPAL DISTRIBUTIONS
Interest received by each Trust is credited by the Trustee to an Interest
Account for such Trust 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 of such Trust.
Distributions to each Certificateholder from the Interest Account are
computed as of the close of business on each Record Date for the following
Payment Date and consist of an amount substantially equal to one-twelfth,
one-half or all of such Certificateholder's pro rata share of the Estimated Net
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<PAGE>
Annual Interest Income in the Interest Account, depending upon the applicable
plan of distribution. Distributions from the Principal Account of each Trust
(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 of such Trust on or shortly after the next semi-annual
Payment Date. Proceeds representing principal received from the disposition of
any of the Bonds between a Record Date and a Payment Date which are not used for
redemptions of Units will be held in the 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 Trusts 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.
In order to acquire the 'when issued' Bonds contracted for by the Trusts,
if any, it may be necessary to pay on the settlement dates for delivery of such
Bonds amounts covering accrued interest on such Bonds which exceed (1) the
amounts paid by Certificateholders and (2) the amount which will be made
available under the letter of credit furnished by the Sponsors on the Date of
Deposit for the purchase of such Bonds. The Trustee has agreed to pay for any
amounts necessary to cover any such excess and will be reimbursed therefor,
without interest, when funds become available from interest payments on the
particular Bonds with respect to which such payments may have been made. Also,
since interest on the Bonds in the portfolio of such Trust does not accrue to
the benefit of Certificateholders until their respective dates of delivery, the
Trustee will, in order to provide income to the Certificateholders for this
period of non-accrual, reduce its fee applicable to each Trust in an amount
equal to the amount of interest that would have so accrued on such Bonds in such
Trust between the date of settlement for the Units and such dates of delivery.
To the extent such non-accrual is in excess of the reduction in the Trustee's
fee, the amount of such excess will be distributed to Certificateholders as a
return of capital.
As of the first day of each month, the Trustee will deduct from the
Interest Account of each Trust, and, to the extent funds are not sufficient
therein, from the Principal Account of such Trust, amounts necessary to pay the
expenses of such 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 such Trust.
Amounts so withdrawn shall not be considered a part of such 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'
in Part A and will change and may be reduced as Bonds mature or are redeemed,
exchanged or sold, or as expenses of each Trust fluctuate. No distribution need
be made from the Principal Account until the balance therein is an amount
sufficient to distribute $1.00 per Unit.
DISTRIBUTION ELECTIONS
At the time of purchase, during the initial offering period, investors may
choose either a monthly, semi-annual or annual interest distribution plan. When
placing an order for Units an individual must indicate the distribution plan
desired or his order will not be accepted. All Certificateholders purchasing
Units during the initial public offering period and prior to the first Record
Date will receive the first interest distribution regardless of the distribution
plan chosen. Thereafter, Record
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Dates for monthly interest distributions will be the first day of each month,
the first day of June and December for semi-annual distributions and the first
day of 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 elections of the prior owner. After
the initial public offering, 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 1-800-428-8890 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 (a) as to the
Interest Account: interest received (including any earned original issue
discount and amounts representing interest received upon any disposition of
Bonds), amounts paid for purchases of Replacement Bonds and redemptions of
Units, if any, deductions for applicable taxes and fees and expenses of such
Trust, and the balance remaining after such distributions and deductions,
expressed both as a total dollar amount and as a dollar amount representing the
pro rata share of each Unit outstanding on the last business day of such
calendar year; (b) as to 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 such 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; (c) a list of the Bonds held and the number of Units outstanding
on the last business day of such calendar year; (d) the Redemption Price per
Unit based upon the last computation thereof made during such calendar year; and
(e) amounts actually distributed to Certificateholders during such calendar year
from the Interest and Principal Accounts, separately stated, of such Trust,
expressed both as total dollar amounts and as dollar amounts representing the
pro rata share of each Unit outstanding on the last business day of such
calendar year.
The Trustee shall keep available for inspection by Certificateholders at
all reasonable times during usual business hours, books of record and account of
its transactions as Trustee, including records of the names and addresses of
Certificateholders, Certificates issued or held, a current list of Bonds in the
portfolio and a copy of the Trust Agreement.
TAX STATUS
All Bonds to be acquired by each Trust pursuant to the contracts of
purchase 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 currently exempt from regular federal
income tax, but such interest may be subject to the federal corporate and/or
individual alternative minimum tax except as provided below. The Bonds to be
acquired by the Navigator Trusts and the State Trusts pursuant to contracts to
purchase were accompanied by opinions of counsel to the issuing governmental
authorities given at the time of original delivery of the Bonds to the effect
that interest derived from the Bonds is exempt from state and local income tax
when received by persons subject to state and local income taxation in a state
in which the issuers of the Bonds are located. Neither the Sponsors nor the
Trustee nor their respective counsel have made any review of the proceedings
relating to the issuance of the Bonds or the bases for such opinions and express
no opinion
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as to these matters, and neither the Trustee nor the Sponsors nor their
respective counsel have made an independent examination or verification that the
federal, state or local income tax status of the Bonds has not been altered
since the time of the original delivery of those opinions.
The Revenue Reconciliation Act of 1993 ('P.L. 103-66') was recently
enacted. P.L. 103-66 increases maximum marginal income tax rates for individuals
and corporations (generally effective for taxable years beginning after December
31, 1992), extends the authority to issue certain categories of tax-exempt bonds
(qualified small issue bonds and qualified mortgage bonds), limits the
availability of capital gain treatment for tax-exempt bonds purchased at a
market discount, increases the amount of Social Security benefits subject to tax
(effective for taxable years beginning after December 31, 1993) and makes a
variety of other changes. Prospective investors are urged to consult their own
tax advisors as to the effect of P.L. 103-66 on an investment in Units.
In rendering the opinion set forth below, counsel has examined the
Agreement, the final form of Prospectus that includes this opinion (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, counsel for the Sponsors, under existing
law:
The Trusts are not associations taxable as corporations for federal
income tax purposes under the Code, and income received by the Trusts that
consists of interest excludable from gross income under the Code will be
excludable from the regular federal gross income of the Certificateholders
of such Trusts.
Each Certificateholder will be considered the owner of a pro rata
portion of a Trust under Section 676(a) of the Code. Thus, each
Certificateholder will be considered to have received his pro rata share of
Bond interest when it is received by that Trust, and the net income
distributable to Certificateholders that is exempt from regular federal
income tax when received by that Trust will constitute tax-exempt income
for regular federal income tax purposes when received by the
Certificateholders.
Gain (other than any earned original issue discount) realized on a
sale or redemption of the Bonds or on a sale of a Unit is, however,
includable in gross income for regular federal income tax purposes,
generally as capital gain, although gain on the disposition of a Bond or a
Unit purchased at a market discount generally will be treated as ordinary
income, rather than capital gain, to the extent of accrued market discount.
(It should be noted in this connection that such gain does not include any
amounts received in respect of accrued interest.) Such gain may be long or
short-term gain depending on the holding period of the Bonds. Capital
assets acquired must be held for more than one year to qualify for
long-term capital gain treatment. Long-term capital gains are generally
taxed at the same rates applicable to ordinary income, although individuals
who realize long-term capital gains will be subject to a maximum tax rate
of 28% on such gain, rather than the 'regular' maximum rate of 39.6%.
Capital losses are deductible to the extent of capital gains; in addition,
up to $3,000 of capital losses of non-corporate Certificateholders may be
deducted against ordinary income.
Each Certificateholder of a Trust will realize taxable income or loss
when such Trust disposes of a Bond (whether by sale, exchange, redemption
or payment at maturity), as if the Certificateholder had directly disposed
of his pro rata share of such Bond. The gain or loss is measured by the
difference between (i) the tax cost of such pro rata share and (ii) the
amount received therefor. The Certificateholder's tax cost for each Bond is
determined by allocating the total tax cost of each Unit among all the
Bonds held in that Trust (in accordance with the portion of such Trust
allocable to 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 original issue discount (limited, in the case of Bonds
issued after June 8, 1980, to the portion earned from the
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date of acquisition to the date of disposition). Gain on the disposition of
a Bond purchased at a market discount generally will be treated as ordinary
income, rather than capital gain, to the extent of accrued market
discount. No deduction is allowed for the amortization of bond premium on
tax-exempt bonds such as the Bonds in computing regular federal income tax.
Original issue discount generally accrues based on the principle of
compounding of accrued interest, not on a straight-line or ratable method,
with the result that the amount of earned original issue discount is less
in the earlier years and more in the later years of a bond term. The tax
basis of a discount bond is increased by the amount of accrued, tax-exempt
original issue discount thus determined. This method of calculation will
produce higher capital gains (or lower losses) to a Certificateholder, as
compared to the results produced by the straight-line method of accounting
for original issue discount, upon an early disposition of a Bond by a
particular Trust or of a Unit by a Certificateholder.
A Certificateholder may also realize taxable income 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).
A portion of social security benefits is includable in gross income
for taxpayers whose 'modified adjusted gross income' combined with a
portion of their benefits exceeds a base amount. The base amount is $25,000
for an individual, $32,000 for a married couple filing a joint return and
zero for married persons filing separate returns. Interest on tax-exempt
bonds is to be added to adjusted gross income for purposes of computing the
amount of 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. For taxable years
beginning after December 31, 1993, the amount of Social Security benefits
subject to tax will be increased.
A Certificateholder is required to include as an item of tax
preference for purposes of the federal individual and corporate alternative
minimum taxes all tax-exempt interest on 'private activity' bonds (other
than Section 501(c)(3) bonds) issued after August 7, 1986. Corporate
Certificateholders are required to include as an item of tax preference for
purposes of the federal corporate alternative minimum tax 75 percent of the
amount by which the adjusted current earnings (which will include all
tax-exempt interest) of the corporation exceeds the alternative minimum
taxable income (determined without this tax preference item). Further,
interest on the Bonds is includable in a 0.12% additional corporate minimum
tax imposed by the Superfund Amendments and Reauthorization Act of 1986 for
taxable years beginning before January 1, 1996. 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. Corporate
Certificateholders are urged to consult their own tax advisers regarding an
investment in the Trust.
Under federal law, interest on 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 Trusts are 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 Trust will be treated as the income of
the Certificateholders. Interest on the Bonds of the New York Navigator
Trust that is exempt from tax under the laws of the State and City of New
York when received by the New York Navigator 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 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.
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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 Freeman, Zeller & Bryant, special counsel to the Sponsors
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:
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.
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.
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.
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 Certificateholder 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.
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 Certificateholders or through the New
Jersey Navigator Trust, are exempt from tax under the Act.
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 Law.
In the opinion of Brown & Wood, special counsel to the Sponsors for
California tax matters, under existing California law applicable to individuals
who are California residents:
The California Trust will not be treated as an association taxable as
a corporation. Accordingly, interest on the underlying Bonds received by
the California Trust that is exempt from personal income taxes imposed by
or under the authority of the State of California be treated for California
income tax purposes in the same manner as if received directly by the
Certificateholders.
Each Certificateholder of the California Trust will recognize gain or
loss when the California Trust disposes of a Bond (whether by sale,
exchange, redemption or payment at maturity) or upon the
Certificateholder's sale or other disposition of a Bond by the California
Trust or upon the sale or other disposition of a Unit. The amount of gain
or loss for California income tax purposes will generally be calculated
pursuant to the Internal Revenue Code of 1986, as amended, certain
provisions of which are incorporated by reference under California law.
In the opinion of Hunton & Williams, special counsel to the Sponsors for
Virginia tax matters, under existing Virginia law applicable to individuals who
are Virginia residents and assuming that the Virginia Trust is a grantor trust
under the grantor trust rules of Sections 671-679 of the Code:
The Virginia Trust will be taxable as a grantor trust for Virginia
income tax purposes with the result that income of the Virginia Trust will
be treated as income of the Certificateholders of the Virginia Trust.
Consequently, the Virginia Trust will not be subject to any income or
corporate
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franchise tax imposed by the Commonwealth of Virginia, or its subdivisions,
agencies or instrumentalities.
Interest on the Bonds in the Virginia Trust that is exempt from
Virginia income tax when received by the Virginia Trust will retain its tax
exempt status in the hands of the Certificateholders of the Virginia Trust.
A Certificateholder of the Virginia Trust will realize a taxable event
when the Virginia Trust disposes of a Bond (whether by sale, exchange,
redemption or payment at maturity) or when the Certificateholder redeems or
sells his Units, and taxable gain for Federal income tax purposes may
result in taxable gain for Virginia income tax purposes. Certain Bonds,
however, may have been issued under Acts of the Virginia General Assembly
which provide that all income from such Bond, including any profit from the
sale thereof, shall be free from all taxation by the Commonwealth of
Virginia. To the extent that any such profit is exempt from Virginia income
tax, any such profit received by the Virginia Trust will retain its tax
exempt status in the hands of the Certificateholders of the Virginia Trust.
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 several States
under the tax laws of those jurisdictions unless the bonds are issued by the
issuers located in that State or one of its political subdivisions. Earned
original issue discount will be reportable for state and local tax purposes
without a corresponding cash distribution. The laws of the several states and
local taxing authorities vary with respect to the taxation of such obligations
and each Certificateholder is advised to consult his own tax advisor as to the
tax consequences of his Certificates under state and local tax laws.
In the case of Bonds that are 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 Bonds 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 was determined to have exceeded $40,000,000 on the date of issue. In
the case of Bonds issued under the $10,000,000 'small issue' exemption, interest
on such Bonds will become taxable if the face amount of the Bonds plus certain
capital expenditures exceeds $10,000,000 within 3 years of the date of issue of
such Bonds.
In addition, a Bond can lose its tax-exempt status as a result of other
subsequent but unforeseeable events such as prohibited 'arbitrage' activities by
the issuer of the Bond or the failure of the Bond to continue to satisfy the
conditions required for the exemption of interest thereon from regular federal
income tax. No investigation has been made as to the current or future owners or
users of the facilities financed by the Bonds, the amount of such persons'
outstanding tax-exempt IRBs, or the facilities themselves, and no assurance can
be given that future events will not affect the tax-exempt status of the Bonds.
Investors should consult their tax advisors for advice with respect to the
effect of these provisions on their particular tax situation.
Interest on indebtedness incurred or continued to purchase or carry the
Units is not deductible for regular federal income tax purposes. In addition,
under rules used by the Internal Revenue Service for determining when borrowed
funds are considered used for the purpose of purchasing or carrying particular
assets, the purchase of Units may be considered to have been made with borrowed
funds even though the borrowed funds are not directly traceable to the purchase
of Units. Similar rules are applicable for New York State and New York City tax
purposes. Also, in the case of certain financial
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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 Trusts, and it can be expected that
similar proposals may be introduced in the future. The Sponsors cannot predict
what additional legislation, if any, in respect of the tax status of interest on
such debt obligations may be proposed by the federal executive branch or by
members of Congress, nor can it predict which proposals, if any, might be
enacted or whether any legislation, if enacted, would apply to the Bonds in the
Trust.
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 Trusts 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 Trusts in accordance with
Section 103 of the Code.
The opinions of 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
SPONSORS REPURCHASE
The Sponsors, although not obligated to do so, intend to maintain a
secondary market for the Units and continuously to offer to repurchase the
Units. The Sponsors' secondary market repurchase price after the initial public
offering is completed will be based on the aggregate bid price of the Bonds in
each Trust portfolio and will be the same as the redemption price. The aggregate
bid price will be determined by the Evaluator on a daily basis after the initial
public offering is completed and computed on the basis set forth under 'Trustee
Redemption'. During the initial offering period, the Sponsors' repurchase price
will be based on the aggregate offering price of the Bonds in each Trust.
Certificateholders who wish to dispose of their Units should inquire of the
Sponsors as to current market prices prior to making a tender for redemption.
The Sponsors may discontinue repurchase of Units if the supply of Units exceeds
demand, or for other business reasons. The date of repurchase is deemed to be
the date on which Certificates representing Units are physically received in
proper form by Bear, Stearns & Co. Inc., 245 Park Avenue, New York, New York
10167, on behalf of the Sponsors. Units received after 4 P.M., New York time,
will be deemed to have been repurchased on the next business day. In the event a
market is not maintained for the Units, a Certificateholder may be able to
dispose of Units only by tendering them to the Trustee for redemption.
Prospectuses relating to certain other bond trusts indicate an intention by
the respective sponsors of those trusts, 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 Sponsors for Units of these
Trusts, 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 Sponsors in the secondary market may be reoffered
for sale by the Sponsors at a price based on the aggregate bid price of the
Bonds in that Trust plus a 4.9% sales charge (5.152% of the net amount invested)
plus net accrued interest. Any Units that are purchased by the Sponsors in the
secondary market also may be redeemed by the Sponsors if it determines such
redemption to be in its best interest.
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The Sponsors 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 Sponsors will consider
in making a determination will include the number of Units of all Trusts which
it has in inventory, its estimate of the salability and the time required to
sell such Units and general market conditions. For example, if in order to meet
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
Sponsors may elect to purchase such Units. Such purchase shall be made by
payment to the Certificateholder not later than the close of business on the
redemption date of an amount equal to the Redemption Price on the date of
tender.
TRUSTEE REDEMPTION
Units may also be tendered to the Trustee for redemption at its corporate
trust office at 770 Broadway, New York, New York 10003, upon proper delivery of
Certificates representing such Units and payment of any relevant tax. At the
present time there are no specific taxes related to the redemption of Units. No
redemption fee will be charged by the Sponsors or the Trustee. Units redeemed by
the Trustee will be cancelled.
Certificates representing Units to be redeemed must be delivered to the
Trustee and must be properly endorsed or accompanied by proper instruments of
transfer with signature guaranteed (or by providing satisfactory indemnity, as
in the case of lost, stolen or mutilated Certificates). Thus, redemptions of
Units cannot be effected until Certificates representing such Units have been
delivered by the person seeking redemption. (See 'Certificates'.)
Certificateholders must sign exactly as their names appear on the faces of their
Certificates. In certain instances the Trustee may require additional documents
such as, but not limited to, trust instruments, certificates of death,
appointments as executor or administrator or certificates of corporate
authority.
Within seven calendar days following a tender for redemption, or, if such
seventh day is not a business day, on the first business day prior thereto, the
Certificateholder will be entitled to receive in cash an amount for each Unit
tendered equal to the Redemption Price per Unit computed as of the Evaluation
Time 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 each
Trust will be reduced.
The Redemption Price per Unit is the pro rata share of each Unit in a Trust
determined by the Trustee on the basis of (i) the cash on hand in the Trust or
moneys in the process of being collected, (ii) the value of the 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 (1) on the basis of current bid prices of the Bonds obtained from dealers
or brokers who customarily deal in bonds comparable to those held by the Trust,
(2) on the basis of bid prices for bonds comparable to any Bonds for which bid
prices are not available, (3) by determining the value of the Bonds by
appraisal, or (4) by any combination of the above. The 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.'
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The Trustee is irrevocably authorized in its discretion, if the Sponsors do
not elect to purchase a Unit tendered for redemption or if the Sponsors tender a
Unit for redemption, in lieu of redeeming such Unit, to sell such Unit in the
over-the-counter market for the account of the tendering Certificateholder at
prices which will return to the Certificateholder an amount in cash, net after
deducting brokerage commissions, transfer taxes and other charges, equal to or
in excess of the Redemption Price for such Unit. The Trustee will pay the net
proceeds of any such sale to the Certificateholder on the day he would otherwise
be entitled to receive payment of the Redemption Price.
The Trustee reserves the right to suspend the right of redemption and to
postpone the date of payment of the Redemption Price per Unit for any period
during which the New York Stock Exchange is closed, other than customary weekend
and holiday closings, or trading on that Exchange is restricted or during which
(as determined by the Securities and Exchange Commission) an emergency exists as
a result of which disposal or evaluation of the Bonds is not reasonably
practicable, or for such other periods as the Securities and Exchange Commission
may by order permit. The Trustee and the Sponsors are not liable to any person
or in any way for any loss or damage which may result from any such suspension
or postponement.
A Certificateholder who wishes to dispose of his Units should inquire of
his bank or broker in order to determine if there is a current secondary market
price in excess of the Redemption Price.
TOTAL REINVESTMENT PLAN
Under the Total Reinvestment Plan (the 'Plan'), semi-annual and annual
Certificateholders of the Trusts (except Texas residents* ) may elect to have
all interest and principal distributions, if any, with respect to their Units
reinvested either in units of various series of 'Insured Municipal Securities
Trust' or 'Municipal Securities Trust' which will have been created shortly
before each semi-annual or annual Payment Date (a 'Primary Series') or, if units
of a Primary Series are not available, in units of a previously formed series of
a Trust which have been repurchased by the Sponsors in the secondary market or
which constitute a portion of the Units of a Trust not sold by the Sponsors
prior to such Payment Date (a 'Secondary Series') (Primary Series and Secondary
Series are hereafter collectively referred to as 'Available Series'). Series of
'Municipal Securities Trust' do not have insurance. The first interest
distribution to Certificateholders cannot be reinvested unless such distribution
is scheduled for June 15 or December 15 in the case of semi-annual
Certificateholders or December 15 in the case of annual Certificateholders (each
such date being referred to herein as the 'Plan Reinvestment Date').
Under the Plan (subject to compliance with applicable blue sky laws),
fractional units ('Plan Units') will be purchased from the Sponsors at a price
equal to the aggregate offering price per Unit of the bonds in the Available
Series portfolio during the initial offering of the Available Series or at the
aggregate bid price per Unit of the Available Series if its initial offering has
been completed, plus a sales charge equal to 3.627% of the net amount invested
in such bonds or 3 1/2% of the Reinvestment Price per Plan Unit, plus accrued
interest, divided by one hundred (the 'Reinvestment Price per Plan Unit'). All
Plan Units will be sold at this reduced sales charge of 3 1/2% in comparison to
the regular sales charge on primary and secondary market sales of Units in any
series of 'Municipal Securities Trust'. Participants in the Plan will have the
opportunity to designate, in the Authorization Form for the Plan, the name of a
broker to whom the Sponsors will allocate a sales commission of 1 1/2% of the
Reinvestment Price per Plan Unit, payable out of the 3 1/2% sales charge. If no
such designation is made, the Sponsors will retain the sales commission.
Under the Plan, the entire amount of a participant's income and principal
distributions will be reinvested. For example, a Certificateholder who is
entitled to receive $130.50 interest income from a Trust would acquire 13.05
Plan Units assuming that the Reinvestment Price per Plan Unit, plus accrued
interest, approximated $10 (Ten Dollars).
- ------------------
* Texas residents may elect to participate in the 'Total Reinvestment Plan for
Texas Residents' hereinafter described.
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A semi-annual or annual Certificateholder may join the Plan at the time he
invests in Units of a Trust or any time thereafter by delivering to the Trustee
an Authorization Form which is available from brokers, any Underwriter of the
Units or the Sponsors. In order that distributions may be reinvested on a
particular Plan Reinvestment Date, the Authorization Form must be received by
the Trustee not later than the 15th day of the month preceding such Date.
Authorization Forms not received in time for a particular Plan Reinvestment Date
will be valid only for the second succeeding Plan Reinvestment Date. Similarly,
a participant may withdraw from the program at any time by notifying the Trustee
(see below). However, if written confirmation of withdrawal is not given to the
Trustee prior to a particular distribution, the participant will be deemed to
have elected to participate in the Plan with respect to that particular
distribution and his withdrawal would become effective for the next succeeding
distribution.
Once delivered to the Trustee, an Authorization Form will constitute a
valid election to participate in the Plan with respect to Units purchased in the
particular Trust (and with respect to Plan Units purchased with the
distributions from the Units purchased in the Trust) for each subsequent
distribution so long as the Certificateholder continues to participate in the
Plan. However, if in the opinion of the Sponsors, an Available Series should
materially differ from the particular Trust, the authorization will be voided
and participants will be provided with both a notice of the material change and
a new Authorization Form which would have to be returned to the Trustee before
the Certificateholder would again be able to participate in the Plan. The
Sponsors anticipate that a material difference which would result in a voided
authorization would include such facts as the inclusion of bonds in the
Available Series portfolio the interest income on which was not exempt from all
Federal income tax, or the inclusion of bonds which were not rated 'A' or better
by Standard & Poor's Corporation or Moody's Investors Service, Inc. on the date
such bonds were initially deposited in the Available Series portfolio.
The Sponsors have the option at any time to use units of a Secondary Series
to fulfill the requirements of the Plan in the event units of a Primary Series
are not available either because a Primary Series is not then in existence or
because the registration statement relating thereto is not declared effective in
sufficient time to distribute final prospectuses to Plan participants (see
below). It should be noted that there is no assurance that the quality and
diversification of the Bonds in any Available Series or the estimated current
return thereon will be similar to that of these Trusts.
It is the Sponsors' intention that Plan Units will be offered on or about
each semi-annual and annual Record Date for determining who is eligible to
receive distributions on the related Payment Date. Such Record Dates are June 1
and December 1 of each year for semi-annual Certificateholders, and December 1
of each year for annual Certificateholders. On each Record Date the Sponsors
will send a current Prospectus relating to the Available Series being offered
for the next Plan Reinvestment Date along with a letter which reminds each
participant that Plan Units are being purchased for him as part of the Plan
unless he notifies the Trustee in writing by that Plan Reinvestment Date that he
no longer wishes to participate in the Plan. In the event a Primary Series has
not been declared effective in sufficient time to distribute a final Prospectus
relating thereto and there is no Secondary Series as to which a registration
statement is currently effective, it is the Sponsors' intention to suspend the
Plan and distribute to each participant his regular semi-annual or annual
distribution. If the Plan is so suspended, it will resume in effect with the
next Plan Reinvestment Date assuming units of an Available Series are then being
offered.
To aid a participant who might desire to withdraw either from the Plan or
from a particular distribution, the Trustee has established a toll free number
(see below) for participants to use for notification of withdrawal, which must
be confirmed in writing prior to the Plan Reinvestment Date. Should the Trustee
be so notified, it will make the appropriate cash disbursement. Unless the
withdrawing participant specifically indicates in his written confirmation that
(a) he wishes to withdraw from the Plan for that particular distribution only,
or (b) he wishes to withdraw from the Plan for less than all units of each
series of 'Insured Municipal Securities Trust' which he might then own (and
specifically identifies which series are to continue in the Plan), he will be
deemed to have withdrawn completely from the Plan in all respects. Once a
participant withdraws completely, he will only be allowed to again participate
in the Plan by submitting a new Authorization Form. A sale or
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redemption of a portion of a participant's Plan Units will not constitute a
withdrawal from the Plan with respect to the remaining Plan Units owned by such
participant.
Unless a Certificateholder notifies the Trustee in writing to the contrary,
each semi-annual and annual Certificateholder who has acquired Plan Units will
be deemed to have elected the semi-annual and annual plan of distribution,
respectively, and to participate in the Plan with respect to distributions made
in connection with such Plan Units. (Should the Available Series from which Plan
Units are purchased for the account of an annual Certificateholder fail to have
an annual distribution plan, such Certificateholder will be deemed to have
elected the semi-annual plan of distribution, and to participate in the Plan
with respect to distributions made, in connection with such Plan Units.) A
participant who subsequently desires to have distributions made with respect to
Plan Units delivered to him in cash may withdraw from the Plan with respect to
such Plan Units and remain in the Plan with respect to units acquired other than
through the Plan. Assuming a participant has his distributions made with respect
to Plan Units reinvested, all such distributions will be accumulated with
distributions generated from the Units of the particular Trust used to purchase
such additional Plan Units. However, distributions related to units in other
series of 'Municipal Securities Trust' will not be accumulated with the
foregoing distributions for Plan purchases. Thus, if a person owns units in more
than one series of 'Municipal Securities Trust' (which are not the result of
purchases under the Plan), distributions with respect thereto will not be
aggregated for purchases under the Plan.
Although not obligated to do so, the Sponsors intend to maintain a market
for the Plan Units and continuously to offer to purchase Plan Units at prices
based upon the aggregate offering price of the Bonds in the Available Series
portfolio during the initial offering of the Available Series, or at the
aggregate bid price of the Bonds of the Available Series after its initial
offering has been completed. The Sponsors may discontinue such purchases at any
time. The aggregate bid price of the underlying Bonds may be expected to be less
than the aggregate offering price. In the event that a market is not maintained
for Plan Units, a participant desiring to dispose of his Plan Units may be able
to do so only by tendering such Plan Units to the Trustee for redemption at the
Redemption Price of the full units in the Available Series corresponding to such
Plan Units, which is based upon the aggregate bid price of the underlying bonds
as described in the 'Municipal Securities Trust' Prospectus for the Available
Series in question. If a participant wishes to dispose of his Plan Units, he
should inquire of the Sponsors as to current market prices prior to making a
tender for redemption to the Trustee.
Any participant may tender his Plan Units for redemption to the Available
Series Trust. Participants may redeem Plan Units by making a written request to
the Trustee, 770 Broadway, New York, New York 10003, on the Redemption Form
supplied by the Trustee. The redemption price per Plan Unit will be determined
as set forth in the Prospectus of the Available Series from which such Plan Unit
was purchased following receipt of the request and adjusted to reflect the fact
that it relates to a Plan Unit. There is no charge for the redemption of Plan
Units.
The Trust Agreement requires that the Trustee notify the Sponsors of any
tender of Plan Units for redemption. So long as the Sponsors are maintaining a
bid in the secondary market, the Sponsors will purchase any Plan Units tendered
to the Trustee for redemption by making payment therefor to the
Certificateholder in an amount not less than the redemption price for such Plan
Units on the date of tender not later than the day on which such Plan Units
otherwise would have been redeemed by the Trustee.
Participants in the Plan will not receive individual certificates for their
Plan Units unless the amount of Plan Units accumulated represents $1,000
principal amount of bonds underlying such Units and, in such case, a written
request for certificates is made to the Trustee. All Plan Units will be
accounted for by the Trustee on a book entry system. Each time Plan Units are
purchased under the Plan, a participant will receive a confirmation stating his
cost, number of Units purchased and estimated current return. Questions
regarding a participant's statements should be directed to the Trustee by
calling (800) 428-8890.
All expenses relating to the operation of the Plan will be borne by the
Sponsors. Both the Sponsors and the Trustee reserve the right to suspend, modify
or terminate the Plan at any time for any reason, including the right to suspend
the Plan if the Sponsors are unable or unwilling to establish a Primary
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Series or is unable to provide Secondary Series Units. All participants will
receive notice of any such suspension, modification or termination.
TOTAL REINVESTMENT PLAN FOR TEXAS RESIDENTS
Except as specifically provided under this section, and unless the context
otherwise requires, all provisions and definitions contained under the heading
'Total Reinvestment Plan' shall be applicable to the Total Reinvestment Plan for
Texas Residents ('Texas Plan').
Semi-annual and annual Certificateholders of the Trusts who are residents
of Texas have the option prior to any semi-annual or annual distribution to
affirmatively elect to reinvest that distribution, including both interest and
principal, if any, in an Available Series.
A resident of Texas who is a semi-annual or annual Certificateholder may
join the Texas Plan for any particular semi-annual or annual distribution by
delivering to the Trustee an Authorization Form For Texas Residents ('Texas
Authorization Form') specifically mentioning the date of the particular
semi-annual or annual distribution he wishes to reinvest. On or about each
semi-annual or annual Record Date, Texas Authorization Forms shall be sent by
the Trustee to every Certificateholder who, according to the Trustee's records,
is a resident of Texas. In the event that the Sponsors suspend the Plan or the
Texas Plan no Texas Authorization Forms shall be sent. In order that
distributions may be reinvested on a particular Plan Reinvestment Date, the
Texas Authorization Form must be received by the Trustee on or before such Date.
Texas Authorization Forms not received in time for the Plan Reinvestment Date
will be deemed void. A participant who delivers a Texas Authorization Form to
the Trustee may thereafter withdraw said authorization by notifying the Trustee
at its toll free telephone number prior to a Plan Reinvestment Date. Such
notification of withdrawal must be confirmed in writing prior to the Plan
Reinvestment Date. Under no circumstances shall a Texas Authorization Form be
provided or accepted by the Trustee which provides for the reinvestment of
distributions for more than one Plan Reinvestment Date.
On or about each semi-annual and annual Record Date, the Sponsors will send
a current Prospectus relating to the Available Series being offered on the next
Plan Reinvestment Date along with a letter incorporating a Texas Authorization
Form which specifies the funds available for reinvestment, reminds each
participant that no Plan Units will be purchased for him unless the Texas
Authorization Form is received by the Trustee on or before that particular Plan
Reinvestment Date, and states that the Texas Authorization Form is valid only
for that particular semi-annual or annual distribution. If the Available Series
should materially differ from the particular Trust, the participant will be
provided with a notice of the material change and a new Texas Authorization Form
which would have to be returned to the Trustee before the Certificateholder
would again be able to participate in the Plan.
Each semi-annual and annual Certificateholder who has acquired Plan Units
will be deemed to have elected the semi-annual and annual plan of distribution,
respectively, with respect to such Units, but such Certificateholder will not be
deemed to participate in the Plan for any particular distribution unless and
until he delivers to the Trustee a Texas Authorization Form pertaining to those
Plan Units. (Should the Available Series from which Plan Units are purchased for
the account of an annual Certificateholder fail to have an annual distribution
plan, such Certificateholder will be deemed to have elected the semi-annual plan
of distribution, and to participate in the Plan with respect to distributions
made in connection with such Plan Units.)
TRUST ADMINISTRATION
PORTFOLIO SUPERVISION
Except for the purchase of Replacement Bonds or as discussed herein, the
acquisition of any Bonds for a Trust other than Bonds initially deposited by the
Sponsors is prohibited. Although it is the Sponsors' and Trustee's intention not
to dispose of Bonds insured pursuant to the Bond Insurance in the event of
default, nevertheless, the Sponsors 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
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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 Sponsors would make the retention of such Bonds in a 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 Sponsors fail 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 Sponsors to give directions to the Trustee.
The Sponsors are 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 Sponsors and the
Evaluator without the consent of any of the Certificateholders: (1) to cure any
ambiguity or to correct or supplement any provision which may be defective or
inconsistent; (2) to change any provision thereof as may be required by the
Securities and Exchange Commission or any successor governmental agency; or (3)
to make such other provisions in regard to matters arising thereunder as shall
not adversely affect the interests of the Certificateholders.
The Trust Agreement may also be amended in any respect, or performance of
any of the provisions thereof may be waived, with the consent of the holders of
Certificates evidencing 66 2/3% of the Units then outstanding for the purpose of
modifying the rights of Certificateholders; provided that no such amendment or
waiver shall reduce any Certificateholder's interest in a Trust without his
consent or reduce the percentage of Units required to consent to any such
amendment or waiver without the consent of the holders of all Certificates. The
Trust Agreement may not be amended, without the consent of the holders of all
Certificates in a Trust then outstanding, to increase the number of Units
issuable or to permit the acquisition of any bonds in addition to or in
substitution for those initially deposited in such Trust, except in accordance
with the provisions of the Trust Agreement. The Trustee shall promptly notify
Certificateholders, in writing, of the substance of any such amendment.
The Trust Agreement provides that each Trust shall terminate upon the
maturity, redemption or other disposition, as the case may be, of the last of
the Bonds held in such Trust but in no event is it to continue beyond the end of
the calendar year preceding the fiftieth anniversary of the execution of the
Trust Agreement. If the value of a Trust shall be less than the minimum amount
set forth under 'Summary of Essential Information' in Part A, the Trustee may,
in its discretion, and shall when so directed by the Sponsors, terminate such
Trust. Each Trust may also be terminated at any time with the consent of the
holders of Certificates representing 100% of the Units then outstanding. In the
event of termination, written notice thereof will be sent by the Trustee to all
Certificateholders. Within a reasonable period after termination, the Trustee
must sell any Bonds remaining in the terminated 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 Sponsors, Bear, Stearns & Co. Inc. and Gruntal & Co., Incorporated,
have entered into an Agreement Among Co-Sponsors pursuant to which both parties
have agreed to act as Co-Sponsors for the Trust. Bear, Stearns & Co. Inc. has
been appointed by Gruntal & Co., Incorporated as agent for
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purposes of taking any action required or permitted to be taken by the Sponsors
under the Trust Agreement. If the Sponsors are unable to agree with respect to
action to be taken jointly by them under the Trust Agreement and they cannot
agree as to which Sponsor shall act as sole Sponsor, then Bear, Stearns & Co.
Inc. shall act as sole Sponsor. If one 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 Sponsors may continue to act as Sponsors.
Bear, Stearns & Co. Inc., a Delaware corporation, is engaged in the
underwriting, investment banking and brokerage business and is a member of the
National Association of Securities Dealers, Inc. and all principal securities
and commodities exchanges, including the New York Stock Exchange, the American
Stock Exchange, the Midwest Stock Exchange and the Pacific Stock Exchange. Bear
Stearns maintains its principal business offices at 245 Park Avenue, New York,
New York 10167 and, since its reorganization from a partnership to a corporation
in October, 1985, has been a wholly-owned subsidiary of The Bear Stearns
Companies Inc. Bear Stearns, through its predecessor entities, has been engaged
in the investment banking and brokerage business since 1923. Bear Stearns is the
sponsor for numerous series of unit investment trusts, including, A Corporate
Trust, Series 1 (and Subsequent Series); Equity Securities Trust, Series 1 (and
Subsequent Series); Mortgage Securities Trust, Series 1 (and Subsequent Series);
New York Municipal Trust, Series 1 (and Subsequent Series), New York Discount
and Zero Coupon Fund, 1st Series (and Subsequent Series); Municipal Securities
Trust, Series 1 (and Subsequent Series), 1st Discount Series (and Subsequent
Series), Multi-State Series 1 (and Subsequent Series), High Income Series 1 (and
Subsequent Series), Short-Intermediate Term Series 1 (and Subsequent Series) and
Insured Municipal Securities Trust, Series 1-4 (and Subsequent Series); Series 1
(Multiplier Portfolio) (and Subsequent Series) and 5th Discount Series (and
Subsequent Series).
Gruntal & Co., Incorporated, a Delaware corporation, operates a securities
broker/dealer from its main office in New York City and branch offices in ten
states and the District of Columbia. The firm is active in the marketing of
investment companies and has signed dealer agreements with many major mutual
fund groups. Further, through its Syndicate Department, Gruntal & Co.,
Incorporated has underwritten a large number of Closed-End Funds and has been
Co-Manager on the following offerings: Cigna High Income Shares; Dreyfus New
York Municipal Income, Inc.; Franklin Principal Maturity Trust and Van Kampen
Merritt Limited Term High Income Trust.
The information included herein is only for the purpose of informing
investors as to the financial responsibility of the Sponsors and their ability
to carry out their contractual obligations.
The Sponsors are jointly and severally liable for the performance of their
obligations arising from their responsibilities under the Trust Agreement, but
will be under no liability to Certificateholders for taking any action, or
refraining from taking any action, in good faith pursuant to the Trust
Agreement, or for errors in judgment except in cases of their own willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations and duties.
The Sponsors may resign at any time by delivering to the Trustee an
instrument of resignation executed by the Sponsors.
If at any time either of the Sponsors shall resign or fail to perform any
of its duties under the Trust Agreement or becomes incapable of acting or
becomes bankrupt or its affairs are taken over by public authorities, then the
Trustee may either (a) appoint a successor Sponsor; (b) terminate the Trust
Agreement and liquidate the Trusts; or (c) continue to act as Trustee without
terminating the Trust Agreement. Any successor Sponsor appointed by the Trustee
shall be satisfactory to the Trustee and, at the time of appointment, shall have
a net worth of at least $1,000,000.
THE TRUSTEE
The Trustee is United States Trust Company of New York, with its principal
place of business at 770 Broadway, New York, New York 10003. United States Trust
Company of New York has, since its establishment in 1853, engaged primarily in
the management of trust and agency accounts for individuals and corporations.
The Trustee is a member of the New York Clearing House Association and is
subject to supervision and examination by the Superintendent of Banks of the
State of New
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York, the Federal Deposit Insurance Corporation and the Board of Governors of
the Federal Reserve System.
The Trustee shall not be liable or responsible in any way for taking any
action, or for refraining from taking any action, in good faith pursuant to the
Trust Agreement, or for errors in judgment; or for any disposition of any
moneys, Bonds or Certificates in accordance with the Trust Agreement, except in
cases of its own willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations and duties; provided, however, that the Trustee
shall not in any event be liable or responsible for any evaluation made by the
Evaluator. In addition, the Trustee shall not be liable for any taxes or other
governmental charges imposed upon or in respect of the Bonds or the Trusts which
it may be required to pay under current or future law of the United States or
any other taxing authority having jurisdiction. The Trustee shall not be liable
for depreciation or loss incurred by reason of the sale by the Trustee of any of
the Bonds pursuant to the Trust Agreement.
For further information relating to the responsibilities of the Trustee
under the Trust Agreement, reference is made to the material set forth under
'Rights of Certificateholders'.
The Trustee may resign by executing an instrument in writing and filing the
same with the Sponsors, and mailing a copy of a notice of resignation to all
Certificateholders. In such an event the Sponsors are obligated to appoint a
successor Trustee as soon as possible. In addition, if the Trustee becomes
incapable of acting or becomes bankrupt or its affairs are taken over by public
authorities, the Sponsors may remove the Trustee and appoint a successor as
provided in the Trust Agreement. Notice of such removal and appointment shall be
mailed to each Certificateholder by the Sponsors. If upon resignation of the
Trustee no successor has been appointed and has accepted the appointment within
thirty days after notification, the retiring Trustee may apply to a court of
competent jurisdiction for the appointment of a successor. The resignation or
removal of the Trustee becomes effective only when the successor Trustee accepts
its appointment as such or when a court of competent jurisdiction appoints a
successor Trustee. Upon execution of a written acceptance of such appointment by
such successor Trustee, all the rights, powers, duties and obligations of the
original Trustee shall vest in the successor.
Any corporation into which the Trustee may be merged or with which it may
be consolidated, or any corporation resulting from any merger or consolidation
to which the Trustee shall be a party, shall be the successor Trustee. The
Trustee must always be a banking corporation organized under the laws of the
United States or any State and have at all times an aggregate capital, surplus
and undivided profits of not less than $2,500,000.
THE EVALUATOR
The Evaluator is Kenny S&P Evaluation Services, a division of Kenny
Information Systems, Inc. with main offices located at 65 Broadway, New York,
New York 10006. The Evaluator is a wholly-owned subsidiary of McGraw-Hill, Inc.
The Evaluator is a registered investment advisor and also provides financial
information services.
The Trustee, the Sponsors and the Certificateholders may rely on any
evaluation furnished by the Evaluator and shall have no responsibility for the
accuracy thereof. Determinations by the Evaluator under the Trust Agreement
shall be made in good faith upon the basis of the best information available to
it, provided, however, that the Evaluator shall be under no liability to the
Trustee, the Sponsors or Certificateholders for errors in judgment, except in
cases of its own willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations and duties.
The Evaluator may resign or may be removed by the Sponsors and Trustee, and
the Sponsors and the Trustee are to use their best efforts to appoint a
satisfactory successor. Such resignation or removal shall become effective upon
the acceptance of appointment by the successor Evaluator. If upon resignation of
the Evaluator no successor has accepted appointment within thirty days after
notice of resignation, the Evaluator may apply to a court of competent
jurisdiction for the appointment of a successor.
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TRUST EXPENSES AND CHARGES
At no cost to the Trusts, the Sponsors have borne all the expenses of
creating and establishing the Trusts, including the cost of initial preparation
and execution of the Trust Agreement, registration of the Trusts and the Units
under the Investment Company Act of 1940 and the Securities Act of 1933, the
premiums on the Navigator Sponsor-Insured Bonds, the initial preparation and
printing of the Certificates, the fees of the Evaluator during the initial
public offering, legal expenses, advertising and selling expenses, expenses of
the Trustee including, but not limited to, an amount equal to interest accrued
on certain 'when issued' bonds since the date of settlement for the Units,
initial fees and other out-of-pocket expenses.
The Sponsors will not charge the Trusts a fee for its services as such.
(See 'Sponsors' and Underwriters' Profits'.)
The Sponsors will receive for portfolio supervisory services to the Trusts
an Annual Fee in the amount set forth under 'Summary of Essential Information'
in Part A. The Sponsors' fee may exceed the actual cost of providing portfolio
supervisory services for these Trusts, 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
Sponsors of supplying such services in such year. (See 'Portfolio Supervision').
Pursuant to the Agreement Among Co-Sponsors, Bear Stearns shall receive the
entire Sponsors' fee set forth in the 'Summary of Essential Information' in Part
A.
The Trustee will receive for its ordinary recurring services to the Trusts
an annual fee in the amount set forth under 'Summary of Essential Information'
in Part A. For a discussion of the services performed by the Trustee pursuant to
its obligations under the Trust Agreement, see 'Trust Administration' and
'Rights of Certificateholders'.
The Evaluator will receive, for each daily evaluation of the Bonds in the
Trusts after the initial public offering is completed, a fee in the amount set
forth under 'Summary of Essential Information' in Part A.
The Trustee's and Evaluator's fees applicable to a Trust are payable
monthly as of the Record Date from the Interest Account of such Trust to the
extent funds are available and then from the Principal Account. Both fees may be
increased without approval of the Certificateholders by amounts not exceeding
proportionate increases in consumer prices for services as measured by the
United States Department of Labor's Consumer Price Index entitled 'All Services
Less Rent'.
The following additional charges are or may be incurred by the Trusts: 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 Trusts and the
rights and interests of the Certificateholders; fees of the Trustee for any
extraordinary services performed under the Trust Agreement; indemnification of
the Trustee for any loss or liability accruing to it without gross negligence,
bad faith or willful misconduct on its part, arising out of or in connection
with its acceptance or administration of the Trusts; indemnification of the
Sponsors for any losses, liabilities and expenses incurred in acting as sponsors
of the Trusts without gross negligence, bad faith or willful misconduct on its
part; and all taxes and other governmental charges imposed upon the Bonds or any
part of the Trusts (no such taxes or charges are being levied, made or, to the
knowledge of the Sponsors, contemplated). The above expenses, including the
Trustee's fees, when paid by or owing to the Trustee are secured by a first lien
on the Trust to which such expenses are charged. In addition, the Trustee is
empowered to sell Bonds in order to make funds available to pay all expenses.
The accounts of the Trusts shall be audited not less than annually by
independent public accountants selected by the Sponsors. The expenses of the
audit shall be an expense of each Trust. So long as the Sponsors maintain a
secondary market, the Sponsors will bear any audit expense which exceeds 50cents
per Unit. Certificateholders covered by the audit during the year may receive a
copy of the audited financials upon request.
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EXCHANGE PRIVILEGE AND CONVERSION OFFER
EXCHANGE PRIVILEGE
Certificateholders may elect to exchange any or all of their Units of these
Trusts for Units of one or more of any available series of Insured Municipal
Securities Trust, Municipal Securities Trust, New York Municipal Trust, Mortgage
Securities Trust, A Corporate Trust or Equity Securities Trust (upon receipt by
Equity Securities Trust of an appropriate exemptive order from the Securities
and Exchange Commission) (the 'Exchange Trusts') at a reduced sales charge as
set forth below. Under the Exchange Privilege, the Sponsors' repurchase price
during the initial offering period of the Units being surrendered will be based
on the aggregate offer price of the Bonds in the particular Trust portfolio;
and, after the initial offering period has been completed, will be based on the
aggregate bid price of the Bonds in the particular Trust portfolio. Units in an
Exchange Trust then will be sold to the Certificateholder at a price based on
the aggregate offer price of the Bonds in the Exchange Trust portfolio during
the initial public offering period of the Exchange Trust; or based on the
aggregate bid price of the Bonds in the Exchange Trust Portfolio if its initial
offering has been completed plus accrued interest and a reduced sales charge as
set forth below. If the participant elects to purchase units of the Equity
Securities Trust under the Exchange Privilege, the purchase price of the Units
will be based, at all times, on the market value of the underlying securities in
the Equity Trust portfolio plus a sales charge.
Except for unitholders who wish to exercise the Exchange Privilege within
the first five months of their purchase of Units of the Trust, the sales charge
applicable to the purchase of units of an Exchange Trust shall be $15 per unit
(or per 1,000 Units for the Mortgage Securities Trust or per 100 Units for the
Equity Securities Trust) (approximately 1.5% of the price of each Exchange Trust
unit (or 1,000 Units for the Mortgage Securities Trust or 100 Units for the
Equity Securities Trust)). For unitholders who wish to exercise the Exchange
Privilege within the first five months of their purchase of Units of the Trust,
the sales charge applicable to the purchase of units of an Exchange Trust shall
be the greater of (i) $15 per unit (or per 1,000 Units for the Mortgage
Securities Trust or 100 Units for the Equity Securities Trust), or (ii) an
amount which when coupled with the sales charge paid by the unitholder upon his
original purchase of Units of the Trust at least equals the sales charge
applicable in the direct purchase of units of an Exchange Trust. The Exchange
Privilege is subject to the following conditions:
1. The Sponsors must be maintaining a secondary market in both the
Units of the Trust held by the Certificateholder and the Units of the
available Exchange Trust. While the Sponsors have indicated their intention
to maintain a market in the Units of all Trusts sponsored by it, the
Sponsors are under no obligation to continue to maintain a secondary market
and therefore there is no assurance that the Exchange Privilege will be
available to a Certificateholder at any specific time in the future. At the
time of the Certificateholder's election to participate in the Exchange
Privilege, there also must be Units of the Exchange Trust available for
sale, either under the initial primary distribution or in the Sponsor's
secondary market.
2. Exchanges will be effected in whole units only. Any excess proceeds
from the Units surrendered for exchange will be remitted and the selling
Certificateholder will not be permitted to advance any new funds in order
to complete an exchange. Units of the Mortgage Securities Trust may only be
acquired in blocks of 1,000 Units. Units of the Equity Securities Trust may
only be acquired in blocks of 100 Units.
3. The Sponsors reserve the right to suspend, modify or terminate the
Exchange Privilege. The Sponsors will provide unitholders of the Trust with
60 days prior written notice of any termination or material amendment to
the Exchange Privilege, provided that, no notice need be given if (i) the
only material effect of an amendment is to reduce or eliminate the sales
charge payable at the time of the exchange, to add one or more series of
the Trust eligible for the Exchange Privilege or to delete a series which
has been terminated from eligibility for the Exchange Privilege, (ii) there
is a suspension of the redemption of units of an Exchange Trust under
Section 22(e) of the Investment Company Act of 1940, or (iii) an Exchange
Trust temporarily delays or ceases the sale of its units because it is
unable to invest amounts effectively in
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accordance with its investment objectives, policies and restrictions.
During the 60 day notice period prior to the termination or material
amendment of the Exchange Privilege described above, the Sponsors will
continue to maintain a secondary market in the units of all Exchange Trusts
that could be acquired by the affected unitholders. Unitholders may, during
this 60 day period, exercise the Exchange Privilege in accordance with its
terms then in effect. In the event the Exchange Privilege is not available
to a Certificateholder at the time he wishes to exercise it, the
Certificateholder will immediately be notified and no action will be taken
with respect to his Units without further instructions from the
Certificateholder.
To exercise the Exchange Privilege, a Certificateholder should notify the
Sponsors of his desire to exercise his Exchange Privilege. If Units of a
designated, outstanding series of an Exchange Trust are at the time available
for sale and such Units may lawfully be sold in the state in which the
Certificateholder is a resident, the Certificateholder will be provided with a
current prospectus or prospectuses relating to each Exchange Trust in which he
indicates an interest. He may then select the Trust or Trusts into which he
desires to invest the proceeds from his sale of Units. The exchange transaction
will operate in a manner essentially identical to a secondary market transaction
except that units may be purchased at a reduced sales charge.
EXAMPLE: Assume that after the initial public offering has been completed, a
Certificateholder has five units of a Trust with a current value of $700 per
unit which he has held for more than 5 months and the Certificateholder wishes
to exchange the proceeds for units of a secondary market Exchange Trust with a
current price of $725 per unit. The proceeds from the Certificateholder's
original units will aggregate $3,500. Since only whole units of an Exchange
Trust may be purchased under the Exchange Privilege, the Certificateholder would
be able to acquire four units (or 4,000 Units of the Mortgage Securities Trust
or 400 Units of the Equity Securities Trust) for a total cost of $2,960 ($2,900
for units and $60 for the sales charge). The remaining $540 would be remitted to
the Certificateholder in cash. If the Certificateholder acquired the same number
of units at the same time in a regular secondary market transaction, the price
would have been $3,068.80 ($2,900 for units and $168.80 for the sales charge,
assuming a 5 1/2% sales charge times the public offering price).
THE CONVERSION OFFER
Unit owners of any registered unit investment trust for which there is no
active secondary market in the units of such trust (a 'Redemption Trust') may
elect to redeem such units and apply the proceeds of the redemption to the
purchase of available Units of one or more series of A Corporate Trust,
Municipal Securities Trust, Insured Municipal Securities Trust, Mortgage
Securities Trust, New York Municipal Trust or Equity Securities Trust (upon
receipt by Equity Securities Trust of an appropriate exemptive order from the
Securities and Exchange Commission) sponsored by Bear, Stearns & Co. Inc. or the
Sponsors (the 'Conversion Trusts') at the Public Offering Price for units of the
Conversion Trust based on a reduced sales charge as set forth below. Under the
Conversion Offer, units of the Redemption Trust must be tendered to the trustee
of such trust for redemption at the redemption price, which is based upon the
aggregate bid side evaluation of the underlying bonds in such trust and is
generally about 1 1/2% to 2% lower than the offering price for such bonds. The
purchase price of the units will be based on the aggregate offer price of the
underlying bonds in the Conversion Trust portfolio during its initial offering
period; or, at a price based on the aggregate bid price of the underlying bonds
if the initial public offering of the Conversion Trust has been completed, plus
accrued interest and a sales charge as set forth below. If the participant
elects to purchase units of the Equity Securities Trust under the conversion
offer, the purchase price of the Units will be based at all times, on the market
value of the underlying securities in the Equity Trust portfolio plus a sales
charge.
Except for unitholders who wish to exercise the Conversion Offer within the
first five months of their purchase of units of a Redemption Trust, the sales
charge applicable to the purchase of Units of the Conversion Trust shall be $15
per Unit (or per 1,000 Units for the Mortgage Securities Trust or per 100 Units
for the Equity Securities Trust). For unitholders who wish to exercise the
Conversion Offer within the first five months of their purchase of units of a
Redemption Trust, the sales charge applicable to the purchase of Units of a
Conversion Trust shall be the greater of (i) $15 per Unit (or per
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1,000 Units for the Mortgage Securities Trust or per 100 Units for the Equity
Securities Trust) or (ii) an amount which when coupled with the sales charge
paid by the unitholder upon his original purchase of units of the Redemption
Trust at least equals the sales charge applicable in the direct purchase of
Units of a Conversion Trust. The Conversion Offer is subject to the following
limitations:
1. The Conversion Offer is limited only to unit owners of any
Redemption Trust, defined as a unit investment trust for which there is no
active secondary market at the time the Certificateholder elects to
participate in the Conversion Offer. At the time of the unit owner's
election to participate in the Conversion Offer, there also must be
available units of a Conversion Trust, either under a primary distribution
or in the Sponsors' secondary market.
2. Exchanges under the Conversion Offer will be effected in whole
units only. Unit owners will not be permitted to advance any new funds in
order to complete an exchange under the Conversion Offer. Any excess
proceeds from units being redeemed will be returned to the unit owner.
Units of the Mortgage Securities Trust may only be acquired in blocks of
1,000 units. Units of the Equity Securities Trust may only be acquired in
blocks of 100 Units.
3. The Sponsors reserve the right to modify, suspend or terminate the
Conversion Offer at any time without notice to unit owners of Redemption
Trusts. In the event the Conversion Offer is not available to a unit owner
at the time he wishes to exercise it, the unit owner will be notified
immediately and no action will be taken with respect to his units without
further instruction from the unit owner. The Sponsors also reserve the
right to raise the sales charge based on actual increases in the Sponsors'
costs and expenses in connection with administering the program, up to a
maximum sales charge of $20 per unit (or per 1,000 units for the Mortgage
Securities Trust or per 100 Units for the Equity Securities Trust).
To exercise the Conversion Offer, a unit owner of a Redemption Trust should
notify his retail broker of his desire to redeem his Redemption Trust Units and
use the proceeds from the redemption to purchase Units of one or more of the
Conversion Trusts. If Units of a designated, outstanding series of a Conversion
Trust are at that time available for sale and if such Units may lawfully be sold
in the state in which the unit owner is a resident, the unit owner will be
provided with a current prospectus or prospectuses relating to each Conversion
Trust in which he indicates an interest. He then may select the Trust or Trusts
into which he decides to invest the proceeds from the sale of his Units. The
transaction will be handled entirely through the unit owner's retail broker. The
retail broker must tender the units to the trustee of the Redemption Trust for
redemption and then apply the proceeds 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 Sponsors that the purchase of
Conversion Trust Units is being made pursuant to the Conversion Offer. The unit
owner's broker will be entitled to retain $5 of the applicable sales charge.
EXAMPLE: Assume a unit owner has five units of a Redemption Trust which has
held for more than 5 months with a current redemption price of $675 per unit
based on the aggregate bid price of the underlying bonds and the unit owner
wishes to participate in the Conversion Offer and exchange the proceeds for
units of a secondary market Conversion Trust with a current price of $750 per
Unit. The proceeds for the unit owner's redemption of units will aggregate
$3,375. Since only whole units of a Redemption Trust may be purchased under the
Conversion Offer, the unit owner will be able to acquire four units of the
Conversion Trust (or 4,000 units of the Mortgage Securities Trust or 400 Units
of the Equity Securities Trust) for a total cost of $2,860 ($2,800 for units and
$60 for the sales charge). The remaining $515 would be remitted to the unit
owner in cash. If the unit owner acquired the same number of Conversion Trust
units at the same time in a regular secondary market transaction, the price
would have been $2,962.96 ($2,800 for units and $162.96 sales charge, assuming a
5 1/2% sales charge times the public offering price).
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DESCRIPTION OF THE EXCHANGE
TRUSTS AND THE CONVERSION TRUSTS
A Corporate Trust may be an appropriate investment vehicle for an investor
who is more interested in a higher current return on his investment (although
taxable) than a tax-exempt return (resulting from the fact that the current
return from taxable fixed income securities is normally higher than that
available from tax-exempt fixed income securities). Municipal Securities Trust
and New York Municipal Trust may be appropriate investment vehicles for an
investor who is more interested in tax-exempt income. The interest income from
New York Municipal Trust is, in general, also exempt from all New York State and
local New York income taxes, while the interest income from Municipal Securities
Trust is subject to applicable New York State and local New York taxes, except
for that portion of the income which is attributable to New York obligations in
the Trust portfolio, if any. The interest income from each State Trust of the
Municipal Securities Trust, Multi-State Series is, in general, exempt from state
and local taxes when held by residents of the state where the issuers of bonds
in such State Trusts are located. The Insured Municipal Securities Trust
combines the advantages of providing interest income free from regular federal
income tax under existing law with the added safety of irrevocable insurance.
Insured Navigator Series further combines the advantages of providing interest
income free from regular federal income tax and state and local taxes when held
by residents of the state where issuers of the bonds in such state trusts are
located with the added safety of irrevocable insurance. Mortgage Securities
Trust offers an investment vehicle for investors who are interested in obtaining
safety of capital and a high level of current distribution of interest income
through investment in a fixed portfolio of collaterized mortgage obligations.
Equity Securities Trust offers investors an opportunity to achieve capital
appreciation together with a high level of current income.
TAX CONSEQUENCES OF THE EXCHANGE
PRIVILEGE AND THE CONVERSION OFFER
A surrender of units pursuant to the Exchange Privilege or the Conversion
Offer will constitute a 'taxable event' to the Certificateholder under the
Internal Revenue Code. The Certificateholder will realize a tax gain or loss
that will be of a long-or short-term capital or ordinary income nature depending
on the length of time the units have been held and other factors. (See 'Tax
Status'.) A Certificateholder's tax basis in the Units acquired pursuant to the
Exchange Privilege or Conversion Offer will be equal to the purchase price of
such Units. Investors should consult their own tax advisors as to the tax
consequences to them of exchanging or redeeming units and participating in the
Exchange Privilege or Conversion Offer.
OTHER MATTERS
LEGAL OPINIONS
The legality of the Units offered hereby and certain matters relating to
federal tax law have been passed upon by Messrs. Battle Fowler, 280 Park Avenue,
New York, New York 10017 as counsel for the Sponsors. Messrs. Freeman, Zeller &
Bryant have acted as special New Jersey counsel for the Sponsors. Messrs. Brown
& Wood have acted as special California counsel for the Sponsors. Messrs. Hunton
& Williams have acted as special Virginia counsel for the Sponsors. Messrs.
Carter, Ledyard & Milburn, Two Wall Street, New York, New York 10005 have acted
as counsel for the Trustee.
INDEPENDENT AUDITORS
The Statement of Condition and Portfolio(s) are included herein in reliance
upon the report of KPMG Peat Marwick, independent auditors, and upon the
authority of said firm as experts in accounting and auditing.
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DESCRIPTION OF BOND RATINGS*
STANDARD & POOR'S CORPORATION
A brief description of the applicable Standard & Poor's Corporation rating
symbols and their meanings is as follows:
A Standard & Poor's corporate or municipal bond rating is a current
assessment of the creditworthiness of an obligor with respect to a specific debt
obligation. This assessment of creditworthiness may take into consideration
obligors such as guarantors, insurers, or lessees.
The bond rating is not a recommendation to purchase or sell a security,
inasmuch as it does not comment as to market price.
The ratings are based on current information furnished to Standard & Poor's
by the issuer and obtained by Standard & Poor's from other sources it considers
reliable. The ratings may be changed, suspended or withdrawn as a result of
changes in, or unavailability of, such information.
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.
MOODY'S INVESTORS SERVICE, INC.
A brief description of the applicable Moody's Investors Service, Inc.'s
rating symbols and their meanings is as follows:
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
'gilt edge'. Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
- ------------------
* As described by the rating agencies.
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A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well. The market value of the Baa-rated
bonds is more sensitive to changes in economic circumstances. Aside from
occasional speculative factors and the aforementioned economic circumstances
applying to some bonds of this Class, Baa market valuations move in parallel
with Aaa, Aa and A obligations during periods of economic normalcy, except in
instances of oversupply.
Those bonds in the A and Baa group which Moody's believes possess the
strongest investment attributes are designated by the symbol A 1 and Baa 1.
Other A bonds comprise the balance of the group. These rankings (1) designate
the bonds which offer the maximum in security within their quality group, (2)
designate bonds which can be bought for possible upgrading in quality and (3)
additionally afford the investor an opportunity to gauge more precisely the
relative attractiveness of offerings in the market place.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
DESCRIPTION OF RATING*
A Standard & Poor's Corporation'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.
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AUTHORIZATION FOR INVESTMENT IN INSURED MUNICIPAL SECURITIES TRUST
AND MUNICIPAL SECURITIES TRUST
TRP PLAN -- TOTAL REINVESTMENT PLAN
I hereby elect to participate in the TRP Plan and am the owner of
-------units of New York Navigator Insured Series ------ and/or ------
units of New Jersey Navigator Insured Series ------ and/or ------ units
of California Trust and/or ------ units of Virginia Trust.
I hereby authorize the United States Trust Company of New York, Trustee
to pay all semi-annual or annual distributions of interest and
principal (if any) with respect to such units to the United States
Trust Company of New York, as TRP Plan Agent, who shall immediately
invest the distributions in units of the available series of Insured
Municipal Securities Trust, or Municipal Securities Trust.
<TABLE>
<S> <C>
The foregoing authorization is subject in all respects
to the terms and conditions of participation set forth Date ------------------ 19------
in the prospectus relating to such available series.
- ------------------------------------------------------- ------------------------------------------------------
Registered Holder (Print) Registered Holder (Print)
- ------------------------------------------------------ -------------------------------------------------------
Registered Holder Signature Registered Holder Signature
(Two signatures if joint tenancy)
My Brokerage Firm's Name -------------------------------------------------
Street Address -----------------------------------------------------------
City, State and Zip Code--------------------------------------------------
Salesman's Name --------------------- Salesman's No. ---------------------
</TABLE>
- ------------- UNIT HOLDERS NEED ONLY DATE AND SIGN THIS FORM -------------
MAIL TO YOUR BROKER
OR
UNITED STATES TRUST COMPANY OF NEW YORK
ATTN: THE UIT INVESTMENT DEPARTMENT UNIT A
770 BROADWAY
NEW YORK, NEW YORK 10003
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 TRUSTS, THE TRUSTEE, THE EVALUATOR, OR THE SPONSORS. THE
TRUSTS ARE REGISTERED AS UNIT INVESTMENT TRUSTS UNDER THE INVESTMENT COMPANY ACT
OF 1940. SUCH REGISTRATION DOES NOT IMPLY THAT THE TRUSTS OR ANY OF THEIR UNITS
HAVE BEEN GUARANTEED, SPONSORED, RECOMMENDED OR APPROVED BY THE UNITED STATES OR
ANY STATE OR ANY AGENCY OR OFFICER THEREOF.
------------------------
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.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
TITLE PAGE
- ----- ----
<S> <C>
PART A
Summary of Essential Information............... A-2
Independent Auditors' Report................... A-13
Statements of Condition........................ A-14
Portfolios..................................... A-15
Underwriting Syndicates........................ A-20
PART B
The Trust...................................... 1
Public Offering................................ 42
Estimated Long Term Return and Estimated
Current Return............................... 45
Rights of Certificateholders................... 46
Tax Status..................................... 48
Liquidity...................................... 53
Total Reinvestment Plan........................ 55
Trust Administration........................... 58
Trust Expenses and Charges..................... 62
Exchange Privilege and Conversion Offer........ 63
Other Matters.................................. 66
Description of Bond Ratings.................... 67
Description of Rating.......................... 68
</TABLE>
PARTS A AND B OF THIS PROSPECTUS DO NOT CONTAIN ALL OF THE INFORMATION SET
FORTH IN THE REGISTRATION STATEMENT AND EXHIBITS RELATING THERETO, FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION, WASHINGTON, D.C., UNDER THE SECURITIES
ACT OF 1933, AND THE INVESTMENT COMPANY ACT OF 1940, AND TO WHICH REFERENCE IS
MADE.
(LOGO)
NEW YORK NAVIGATOR INSURED SERIES 15
AND
NEW JERSEY NAVIGATOR INSURED SERIES 11
AND
MULTI-STATE SERIES 44
(UNIT INVESTMENT TRUSTS)
PROSPECTUS
DATED: DECEMBER 9, 1993
SPONSORS:
BEAR, STEARNS & CO. INC.
245 PARK AVENUE
NEW YORK, NY 10167
212-272-2500
GRUNTAL & CO., INCORPORATED
14 WALL STREET
NEW YORK, NY 10005
212-267-8800
TRUSTEE:
UNITED STATES TRUST COMPANY
OF NEW YORK
770 BROADWAY
NEW YORK, NY 10003
EVALUATOR:
KENNY S&P EVALUATION SERVICES
65 BROADWAY
NEW YORK, NY 10006
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II -- ADDITIONAL INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM A -- BONDING ARRANGEMENTS
The employees of Bear, Stearns & Co. Inc. are covered under Brokers'
Blanket Policy, Standard Form 14, in the amount of $11,000,000 (plus
$196,000,000 excess coverage under Brokers' Blanket Policies, Standard Form 14
and Form B Consolidated). Gruntal & Co., Incorporated is bonded by Gulf
Insurance Company which is a subsidiary of Commercial Credit Corporation. This
policy has an aggregate annual coverage of $15 million.
ITEM B -- CONTENTS OF REGISTRATION STATEMENT
This Registration Statement on Form S-6 comprises the following papers and
documents:
The facing sheet on Form S-6.
The Cross-Reference Sheet.
The Prospectus consisting of pages.
Undertakings.
Signatures.
Listed below are the names and registration numbers of each previous
series of Insured Municipal Securities Trust and Municipal Securities
Trust, the final prospectus of which properly supplemented, might be
used as preliminary prospectuses for Insured Municipal Securities Trust,
Series 32 (Long), New York Navigator Insured Series 16 and New Jersey
Navigator Insured Series 12; and Municipal Securities Trust, Series 55
(Intermediate). These final prospectuses are incorporated herein by
reference.
Insured Municipal Securities Trust, 50th Discount Series
New Jersey Navigator Insured Series 1 and
Pennsylvania Navigator Insured Series 1 (Registration No. 33-35080)
Insured Municipal Securities Trust, Series 31, New York Navigator
Insured Series 14 and
New Jersey Navigator Insured Series 10 (Registration No. 33-60604)
Insured Municipal Securities Trust, New York Navigator Insured
Series 15 and
New Jersey Navigator Insured Series 11; and
Municipal Securities Trust, Multi-State Series 44 (Registration
Nos. 33-50891 and 33-50901)
Municipal Securities Trust, Series 54 (Intermediate) and
Multi-State Series 43 (Registration No. 33-55996)
Written consents of the following persons:
Battle Fowler (included in Exhibit 99.3.1)
Freeman, Zeller & Bryant (included in Exhibit 99.3.2)
KPMG Peat Marwick
Kenny S&P Evaluation Services (included in Exhibit 99.5.1)
The following exhibits:
<TABLE>
<S> <C> <C>
*99.1.1 -- Reference Trust Agreements including certain amendments to the Trust Indenture and Agreements
referred to under Exhibit 99.1.1.1 below.
99.1.1.1 -- Trust Indenture and Agreements for Insured Municipal Securities Trust, 47th Discount Series and
Series 20 and Subsequent Series (filed as Exhibit 1.1.1 to Amendment No. 1 to Form S-6 Registration
Statement No. 33-28384 of Insured Municipal Securities Trust, 47th Discount Series and Series 20 on
June 16, 1989 and incorporated herein by reference) and Municipal Securities Trust, Series 45 and
73rd Discount Series and Subsequent Series (filed as Exhibit 1.1.1 to Amendment No. 1 to
Registration Statement No. 33-29313 of Municipal Securities Trust, Series 45 and 75th Discount
Series on July 20, 1989 and incorporated herein by reference.)
99.1.3.4 -- Certificate of Incorporation of Bear, Stearns & Co. Inc., as amended (filed as Exhibit 99.1.3.4 to
Form S-6 Registration Statement Nos. 33-50891 and 33-50901 of Insured Municipal Securities Trust,
New York Navigator Insured Series 15 and New Jersey Navigator Insured Series 11; and Municipal
Securities Trust, Multi-State Series 44, respectively, on December 9, 1993 and incorporated herein
by reference).
</TABLE>
- ------------
* To be filed by Amendment.
II-1
<PAGE>
<TABLE>
<S> <C> <C>
99.1.3.5 -- By-Laws of Bear, Stearns & Co. Inc., as amended (filed as Exhibit 99.1.3.5. to Form S-6
Registration Statement Nos. 33-50891 and 33-50901 of Insured Municipal Securities Trust, New York
Navigator Insured Series 15 and New Jersey Navigator Insured Series 11; and Municipal Securities
Trust, Multi-State Series 44, respectively, on December 9, 1993 and incorporated herein by
reference).
99.1.3.6 -- Certificate of Incorporation of Gruntal & Co., Incorporated, as amended (filed as Exhibit 1.3.6 to
Amendment No. 1 to Form S-6 Registration Statement No. 33-28384 of Insured Municipal Securities
Trust, 47th Discount Series and Series 20 on June 16, 1989 and incorporated herein by reference).
99.1.3.7 -- By-Laws of Gruntal & Co., Incorporated, as amended (filed as Exhibit 1.3.7 to Amendment No. 1 to
Form S-6 Registration Statement No. 33-28384 of Insured Municipal Securities Trust, 47th Discount
Series and Series 20 on June 16, 1989 and incorporated herein by reference).
99.1.4 -- Form of Agreement Among Underwriters (filed as Exhibit 1.4 to Amendment No. 1 to Form S-6
Registration Statement No. 33-28384 of Insured Municipal Securities Trust, 47th Discount Series and
Series 20 on June 16, 1989 and incorporated herein by reference).
99.1.5 -- Form of Insurance Policy of Financial Guaranty Insurance Company for Sponsor-Insured Bonds (filed
as Exhibit 1.5 to Amendment No. 1 to Form S-6 Registration Statement No. 2-95261 of Insured
Municipal Securities Trust, 7th Discount Series on February 7, 1985 and incorporated herein by
reference).
99.1.5.1 -- Form of Insurance Policy of Bond Investors Guaranty for Sponsor-Insured Bonds (filed as Exhibit
1.5.1 to Amendment No. 1 to Form S-6 Registration Statement No. 33-08700 of Insured Municipal
Securities Trust, 24th Discount Series on October 2, 1986 and incorporated herein by reference).
99.1.5.2 -- Form of Insurance Policy of Municipal Bond Investors Assurance Corporation (filed as Exhibit 1.5.2
to Amendment No. 2 to Form S-6 Registration Statement No. 33-29467 of Insured Municipal Securities
Trust, Series 22 and New York Navigator Insured Series 1 on January 18, 1990 and incorporated
herein by reference).
99.2.1 -- Form of Certificate (filed as Exhibit 2.1 to Amendment No. 1 to Form S-6 Registration Statement No.
33-28384 of Insured Municipal Securities Trust, 47th Discount Series and Series 20 on June 16, 1989
and incorporated herein by reference).
*99.3.1 -- Opinion of Battle Fowler as to the legality of the securities being registered, including their
consent to the filing thereof and to the use of their name under the headings 'Tax Status' and
'Legal Opinions' in the Prospectus, and to the filing of their opinion regarding tax status of the
Trust.
*99.3.2 -- Opinion of Special New Jersey Counsel.
99.4.1 -- Form of Custody Agreement (filed as Exhibit 4.1 to Amendment No. 1 to Form S-6 Registration
Statement No. 33-36215 of Insured Municipal Securities Trust, Series 25 and New York Navigator
Insured Series 4 and incorporated herein by reference).
99.4.2 -- Form of First Amendment to Custody Agreement (filed as Exhibit 4.2 to Amendment No. 1 to Form S-6
Registration Statement No. 33-36215 of Insured Municipal Securities Trust, Series 25 and New York
Navigator Series 4 and incorporated herein by reference).
*99.5.1 -- Consent of the Evaluator and confirmation of ratings.
99.6.0 -- Power of Attorney of Bear, Stearns & Co. Inc., the Depositor, by its officers and a majority of its
Directors (filed as Exhibit 6.0 to Post-Effective Amendment No. 8 to Registration Statements Nos.
2-92113, 2-92660, 2-93073, 2-93884 and 2-94545 on October 30, 1992).
99.6.1 -- Power of Attorney of Gruntal & Co., Incorporated, by its officers and a majority of its Directors
(filed as Exhibit 6.1 to Form S-6 Registration Statement No. 33-36316 of Mortgage Securities Trust,
CMO Series 1 on August 10, 1990 and incorporated herein by reference).
99.7.0 -- Form of Agreement Among Co-Sponsors (filed as Exhibit 7.0 to Amendment No. 1 to Form S-6
Registration Statement No. 33-28384 of Insured Municipal Securities Trust, 47th Discount Series and
Series 20 on June 16, 1989 and incorporated herein by reference).
</TABLE>
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* To be filed by Amendment.
II-2
<PAGE>
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT,
INSURED MUNICIPAL SECURITIES TRUST, SERIES 32 (LONG), NEW YORK NAVIGATOR INSURED
SERIES 16 AND NEW JERSEY NAVIGATOR INSURED SERIES 12; AND MUNICIPAL SECURITIES
TRUST, SERIES 55 (INTERMEDIATE) HAS DULY CAUSED THIS REGISTRATION STATEMENT TO
BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, HEREUNTO DULY AUTHORIZED, IN THE
CITY OF NEW YORK AND STATE OF NEW YORK ON THE 24TH DAY OF FEBRUARY, 1994.
Insured Municipal Securities Trust,
Series 32 (Long),
New York Navigator Insured Series 16
and
New Jersey Navigator Insured Series
12; and
Municipal Securities Trust, Series
55 (Intermediate)
(Registrant)
BEAR, STEARNS & CO. INC.
(Depositor)
By -------/s/--PETER J. DEMARCO-------
Peter J. DeMarco
(Authorized Signator)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS, WHO
CONSTITUTE THE PRINCIPAL OFFICERS AND A MAJORITY OF THE DIRECTORS OF BEAR,
STEARNS & CO. INC., THE DEPOSITOR, IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------- -------------------------------------------------- -----------------------------
<S> <C> <C>
ALAN C. GREENBERG Chairman of the Board, Chief Executive Officer,
Director and Senior Managing Director
JAMES E. CAYNE President, Director and Senior Managing Director February 24, 1994
ALVIN H. EINBENDER Chief Operating Officer, Executive Vice President,
Director and Senior Managing Director
JOHN C. SITES, JR. Executive Vice President, Director and Senior
Managing Director
MICHAEL L. TARNOPOL Executive Vice President, Director and Senior By /s/PETER J. DEMARCO
Managing Director Peter J. DeMarco
VINCENT J. MATTONE Executive Vice President, Director and Senior Attorney-in-Fact*
Managing Director
ALAN D. SCHWARTZ Executive Vice President, Director and Senior
Managing Director
DOUGLAS P.C. NATION Director and Senior Managing Director
WILLIAM J. MONTGORIS Chief Financial Officer, Senior Vice President-
Finance and Senior Managing Director
KENNETH L. EDLOW Secretary and Senior Managing Director
MICHAEL MINIKES Treasurer and Senior Managing Director
MICHAEL J. ABATEMARCO Controller, Assistant Secretary and Senior
Managing Director
MARK E. LEHMAN Senior Vice President -- General Counsel and
Senior Managing Director
FREDERICK B. CASEY Assistant Treasurer and Senior Managing Director
</TABLE>
- ------------
* An executed copy of the power of attorney was filed as Exhibit 6.0 to
Post-Effective Amendment No. 8 to Registration Statements Nos. 2-92113, 2-92660,
2-93073, 2-93884, and 2-94545 on October 30, 1992.
II-3
<PAGE>
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT,
INSURED MUNICIPAL SECURITIES TRUST, SERIES 32 (LONG), NEW YORK NAVIGATOR INSURED
SERIES 16 AND NEW JERSEY NAVIGATOR INSURED SERIES 12; AND MUNICIPAL SECURITIES
TRUST, SERIES 54 (INTERMEDIATE) HAS DULY CAUSED THIS REGISTRATION STATEMENT TO
BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, HEREUNTO DULY AUTHORIZED, IN THE
CITY OF NEW YORK AND STATE OF NEW YORK ON THE 24TH DAY OF FEBRUARY, 1994.
Insured Municipal Securities Trust,
Series 32 (Long),
New York Navigator Insured Series 16
and
New Jersey Navigator Insured Series
12; and
Municipal Securities Trust, Series
55 (Intermediate)
(Registrant)
GRUNTAL & CO., INCORPORATED
(Depositor)
By /s/ ROBERT SABLOWSKY
Robert Sablowsky
(Authorized Signator)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS, WHO
CONSTITUTE THE PRINCIPAL OFFICERS AND A MAJORITY OF THE DIRECTORS OF GRUNTAL &
CO., INCORPORATED, THE DEPOSITOR, IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------- -------------------------------------------------- -----------------------------
<S> <C> <C>
HOWARD SILVERMAN Chief Executive Officer and Director
EDWARD E. BAO Executive Vice President and February 24, 1994
Director
BARRY RICHTER Executive Vice President and By /s/ROBERT SABLOWSKY
Director Robert Sablowsky
ROBERT SABLOWSKY Executive Vice President and Attorney-in-Fact*
Director
LIONEL G. HEST Senior Executive and Director
</TABLE>
- ------------
* An executed copy of the power of attorney was filed as Exhibit 6.1 to
Registration Statement No. 33-36316 on August 10, 1990.
II-4
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
The Sponsors, Trustee, and Certificateholders:
Insured Municipal Securities Trust -- Series 32 (Long), New York Navigator
Insured Series 16 and
New Jersey Navigator Insured Series 12; and
Municipal Securities Trust, Series 55 (Intermediate)
We hereby consent to the use of our report dated February , 1994 included
herein and to the reference to our Firm under the heading 'Independent Auditors'
in the Prospectus.
KPMG PEAT MARWICK
New York, New York
February , 1994
II-5
