INSURED MUN SEC TR SE 33 NY NAV INS SE 17 NJ INS SE 13 MUN, 497, 1995-03-27

INSURED MUN SEC TR SE 33 NY NAV INS SE 17 NJ INS SE 13 MUN
497, 1995-03-27

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<PAGE>

Rule 497(a)
Registration Number 33-58167

SUBJECT TO COMPLETION DATED MARCH 27, 1995

INSURED MUNICIPAL SECURITIES TRUST
SERIES 33
NEW YORK NAVIGATOR INSURED SERIES 17
AND
NEW JERSEY NAVIGATOR INSURED SERIES 13
STANDARD & POOR'S CORPORATION RATING: AAA

AND

MUNICIPAL SECURITIES TRUST
MULTI-STATE SERIES 46

The Trust consists of six separate unit investment trusts designated Series 33
('Insured Trust'), New York Navigator Insured Series 17 ('New York Navigator
Trust') and New Jersey Navigator Insured Series 13 ('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 Multi-State Series 46, California Trust ('California
Trust'), Florida Trust ('Florida Trust') and Virginia Trust ('Virginia Trust')
(the California Trust, Florida Trust and Virginia Trust are collectively known
as the 'State Trusts') (the Insured Trust, the Navigator Trusts and the State
Trusts are collectively known as the 'Trusts'). The Sponsor for the Insured
Trust and the State Trusts 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 State Trusts, 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 will be offered to residents of
all 50 states and the District of Columbia. 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 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 State Trusts were rated 'A' or better by
Standard & Poor's Corporation or Moody's Investors Service, Inc. None of the
Bonds in the State Trusts are 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.

<PAGE>
Rule 497(b)
Registration Nos. 33-52397
33-52829

(LOGO)
INSURED MUNICIPAL SECURITIES TRUST
SERIES 32, 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) AND MULTI-STATE SERIES 45

The Trust consists of five separate unit investment trusts designated Series 32
('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' and together with the Insured Trust
are collectively known as the 'Insured Trusts'), Series 55 (Intermediate)
('Municipal Trust') and Multi-State Series 45, (Virginia Trust) (the 'Virginia
Trust' or 'State Trust') (the Insured Trusts, Municipal Trust and the State
Trust are collectively known as the 'Trusts'). The Sponsors for the Navigator
Trusts are Bear, Stearns & Co. Inc. and Gruntal & Co., Incorporated. The Sponsor
for the Insured Trust, the Municipal Trust and the State Trust is Bear, Stearns
& Co. Inc. only. Each Trust was formed to preserve capital and to provide
interest income (including earned original issue discount) through investment in
(a) for the Insured Trust and the Navigator Trusts, an underlying portfolio of
long-term insured tax-exempt bonds and (b) for the Municipal Trust and the State
Trust, an underlying portfolio of intermediate or long-term tax-exempt bonds
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 New York Navigator Trust will be offered to
residents of Connecticut, Colorado, the District of Columbia, Florida, Hawaii,
New Jersey, New York and Wyoming. Units of the New Jersey Navigator Trust will
be offered to residents of Delaware, Pennsylvania, Colorado, the District of
Columbia, Florida, Hawaii, New Jersey, New York and Wyoming. Units of the
Virginia Trust will be offered to residents of Virginia, Maryland, Colorado, the
District of Columbia, Florida, Hawaii, New Jersey, New York and Wyoming. Except
for these states, Units of each of the Navigator Trusts and the State Trust will
not be offered to residents of any other state. Units of the Insured Trust and
the Municipal Trust will be offered to residents of all 50 states and the
District of Columbia. On the Date of Deposit, all of the Bonds in each of the
Insured Trusts are irrevocably insured and therefore the Units of each of the
Insured Trusts are rated 'AAA' by Standard & Poor's Corporation and all of the
Bonds in the Municipal Trust and State Trust were rated 'A' or better by
Standard & Poor's Corporation or Moody's Investors Service, Inc. None of the
Bonds in the Municipal Trust and State Trusts are insured. The value of the

Units of the Trusts will fluctuate with the value of the underlying Bonds.
Minimum purchase: 1 Unit.

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 APRIL 14, 1994

<PAGE>

INSURED MUNICIPAL SECURITIES TRUST
SERIES 32
SUMMARY OF ESSENTIAL INFORMATION AS OF APRIL 13, 1994*

EVALUATION TIME: 4:00 p.m. New York Time..
MINIMUM PRINCIPAL DISTRIBUTION:
$1.00 per Unit
WEIGHTED AVERAGE LIFE TO MATURITY:
27.9 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, 2044 or the disposition
of the last Bond in the Trust.
TRUSTEE: United States Trust Company of
New York.
TRUSTEE'S ANNUAL FEE:*** Monthly plan
$1.39 per $1,000 and semi-annual plan
$.94 per $1,000.
EVALUATOR: Kenny S&P Evaluation Services.
EVALUATOR'S FEE FOR EACH EVALUATION:
Minimum of $3 plus $.25 per each issue
of Bonds in excess of 50 issues
(treating separate maturities as
separate issues).
SPONSOR: Bear, Stearns & Co. Inc.
SPONSOR'S 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
OPTION OPTION
------------------ -----------
<S> <C> <C>
Gross annual interest income (cash) oo............................... $61.20 $ 61.20
Less estimated annual fees and expenses.............................. 2.45 1.89
------ -----------
Estimated net annual interest income (cash) ++++oo................... 58.75 59.31
Estimated daily interest accrual oo.................................. .1632 .1647
Estimated current return based on Public Offering Price oo(1)........ 5.73% 5.79%
Estimated long term return ++oo(1)................................... 5.73% 5.79%
First record date.................................................... 5/1/94 5/1/94
First interest distribution date..................................... 5/15/94 5/15/94
Subsequent record dates.............................................. 1st of each month June 1 and
Dec. 1

Subsequent interest distribution dates............................... 15th of each month June 15 and
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 $60.98, estimated expenses will be $2.23 under the monthly plan and
$1.67 under the semi-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 $.22 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 April 21, 1994 to the date of settlement (five business
days after order) less distributions from the Interest Account subsequent to
April 21, 1994.

+++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 $1.63 per Unit will be made on May 15,
1994 (the 'First Payment Date') to all Certificateholders of record on May 1,
1994 (the 'First Record Date'). The regular monthly payment will be $4.89 on
June 15, 1994. The first semi-annual payment will be $4.94 on June 15, 1994 and
$29.65 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 YORK NAVIGATOR INSURED SERIES 16
SUMMARY OF ESSENTIAL INFORMATION AS OF APRIL 13, 1994*

$1.00 per Unit
WEIGHTED AVERAGE LIFE TO MATURITY:
23.4 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, 2044 or the disposition
of the last Bond in the Trust.
TRUSTEE: United States Trust Company of
New York.
TRUSTEE'S ANNUAL FEE: Monthly plan $1.40
per $1,000 and semi-annual plan $.95 per
$1,000.
EVALUATOR: Kenny S&P Evaluation Services.
EVALUATOR'S FEE FOR EACH EVALUATION:
Minimum of $3 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
OPTION OPTION
------------------ -----------
<S> <C> <C>
Gross annual interest income (cash) oo............................... $57.66 $ 57.66
Less estimated annual fees and expenses.............................. 2.46 1.90
------ -----------
Estimated net annual interest income (cash) ++++oo................... 55.20 55.76
Estimated daily interest accrual oo.................................. .1533 .1548
Estimated current return based on Public Offering Price oo(1)........ 5.58% 5.64%
Estimated long term return ++oo(1)................................... 5.62% 5.68%
First record date.................................................... 5/1/94 5/1/94
First interest distribution date..................................... 5/15/94 5/15/94
Subsequent record dates.............................................. 1st of each month June 1 and
Dec. 1
Subsequent interest distribution dates............................... 15th of each month June 15 and
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 April 21, 1994 to the date of settlement (five business
days after order) less distributions from the Interest Account subsequent to
April 21, 1994.

++ 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 $1.53 per Unit will be made on May 15,
1994 (the 'First Payment Date') to all Certificateholders of record on May 1,
1994 (the 'First Record Date'). The regular monthly payment will be $4.60 on
June 15, 1994. The first semi-annual payment will be $4.64 on June 15, 1994 and
$27.88 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>

INSURED MUNICIPAL SECURITIES TRUST
NEW JERSEY NAVIGATOR INSURED SERIES 12
SUMMARY OF ESSENTIAL INFORMATION AS OF APRIL 13, 1994*

<TABLE>
<S> <C>
DATE OF DEPOSIT: April 14, 1994
PRINCIPAL AMOUNT OF BONDS................. $3,000,000
NUMBER OF UNITS........................... 3,000
FRACTIONAL UNDIVIDED INTEREST IN TRUST
PER UNIT................................ 1/3,000
PRINCIPAL AMOUNT OF BONDS PER UNIT........ $1,000
PUBLIC OFFERING PRICE**+
Aggregate Offering Price of Bonds in
Trust................................. $2,912,132
Divided by 3,000 Units.................. $970.71
Plus Sales Charge of 4.9% of Public
Offering Price........................ $50.01
Public Offering Price per Unit.......... $1,020.72
REDEMPTION PRICE PER UNIT +++............. $966.71
SPONSORS' INITIAL REPURCHASE PRICE PER
UNIT +o $970.71
EXCESS OF PUBLIC OFFERING PRICE OVER
REDEMPTION PRICE PER UNIT............... $54.01
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:
27 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, 2044 or the disposition
of the last Bond in the Trust.
TRUSTEE: United States Trust Company of
New York.
TRUSTEE'S ANNUAL FEE: Monthly plan $1.41
per $1,000 and semi-annual plan $.96 per
$1,000.
EVALUATOR: Kenny S&P Evaluation Services.
EVALUATOR'S FEE FOR EACH EVALUATION:
Minimum of $3 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
OPTION OPTION
------------------- ------------
<S> <C> <C>
Gross annual interest income (cash) oo............................... $ 59.19 $59.19
Less estimated annual fees and expenses.............................. 2.47 1.91
------ ------------
Estimated net annual interest income (cash) ++++oo................... 56.72 57.28
Estimated daily interest accrual oo.................................. .1575 .1591
Estimated current return based on Public Offering Price oo(1)........ 5.56% 5.61%
Estimated long term return ++oo(1)................................... 5.58% 5.63%
First record date.................................................... 5/1/94 5/1/94
First interest distribution date..................................... 5/15/94 5/15/94
Subsequent record dates.............................................. 1st of each month June 1 and
Dec. 1
Subsequent interest distribution dates............................... 15th of each month June 15 and
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 April 21, 1994 to the date of settlement (five business
days after order) less distributions from the Interest Account subsequent to
April 21, 1994.

++++ The first interest distribution of $1.57 per Unit will be made on May 15,
1994 (the 'First Payment Date') to all Certificateholders of record on May 1,
1994 (the 'First Record Date'). The regular monthly payment will be $4.72 on
June 15, 1994. The first semi-annual payment will be $4.77 on June 15, 1994 and
$28.64 thereafter.

A-4
<PAGE>

MUNICIPAL SECURITIES TRUST
SERIES 55 (INTERMEDIATE)
SUMMARY OF ESSENTIAL INFORMATION AS OF APRIL 13, 1994*

9.8 years
MINIMUM VALUE OF TRUST: Trust may be
terminated if value of Trust is less
than $1,200,000 in principal amount of
Bonds.
MANDATORY TERMINATION DATE: The earlier
of December 31, 2044 or the disposition
of the last Bond in the Trust.
TRUSTEE: United States Trust Company of
New York.
TRUSTEE'S ANNUAL FEE:*** Monthly plan
$1.36 per $1,000 and semi-annual plan
$.91 per $1,000.
EVALUATOR: Kenny S&P Evaluation Services.
EVALUATOR'S FEE FOR EACH EVALUATION:
Minimum of $3 plus $.25 per each issue
of Bonds in excess of 50 issues
(treating separate maturities as
separate issues).
SPONSOR: Bear, Stearns & Co. Inc.
SPONSOR'S 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
OPTION OPTION
------------------- -----------------
<S> <C> <C>
Gross annual interest income (cash) oo......................... $ 54.04 $ 54.04
Less estimated annual fees and expenses........................ 2.42 1.86
------ ------
Estimated net annual interest income (cash) ++++oo............. 51.62 52.18
Estimated daily interest accrual oo............................ .1434 .1449
Estimated current return based on Public Offering Price ++oo(1) 5.09% 5.15%
Estimated long term return ++oo(1)............................... 5.30% 5.36%
First record date.............................................. 5/1/94 5/1/94
First interest distribution date............................... 5/15/94 5/15/94
Subsequent record dates........................................ 1st of each month June 1 & Dec. 1
Subsequent interest distribution dates......................... 15th of each month June 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 $53.72; estimated expenses will be $2.10 under the monthly plan and
$1.54 under the semi-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 $.32 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 April 21, 1994 to the date of settlement (five business
days after order) less distributions from the Interest Account subsequent to
April 21, 1994.

+++ 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 $1.43 per Unit will be made on May 15,
1994 (the 'First Payment Date') to all Certificateholders of record on May 1,
1994 (the 'First Record Date'). The first regular monthly payment will be $4.30
on June 15, 1994. The first semi-annual payment will be $4.34 on June 15, 1994
and $26.09 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>

MUNICIPAL SECURITIES TRUST
MULTI-STATE SERIES 45
VIRGINIA TRUST
SUMMARY OF ESSENTIAL INFORMATION AS OF APRIL 13, 1994*

26.6 years
MINIMUM VALUE OF TRUST: Trust may be
terminated if value of Trust is less
than $1,200,000 in principal amount of
Bonds.
MANDATORY TERMINATION DATE: The earlier
of December 31, 2044 or the disposition
of the last Bond in the Trust.
TRUSTEE: United States Trust Company of
New York.
TRUSTEE'S ANNUAL FEE: Monthly plan $1.37
per $1,000 and semi-annual plan $.92 per
$1,000.
EVALUATOR: Kenny S&P Evaluation Services.
EVALUATOR'S FEE FOR EACH EVALUATION:
Minimum of $3 plus $.25 per each issue
of Bonds in excess of 50 issues
(treating separate maturities as
separate issues).
SPONSOR: Bear, Stearns & Co. Inc.
SPONSOR'S 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
OPTION OPTION
------------------- -----------------
<S> <C> <C>
Gross annual interest income (cash) oo........................ $ 57.67 $ 57.67
Less estimated annual fees and expenses........................ 2.43 1.87
------ ------
Estimated net annual interest income (cash) ++++oo............. 55.24 55.80
Estimated daily interest accrual oo............................ .1534 .1550
Estimated current return based on Public Offering Price ++oo(1) 5.59% 5.65%
Estimated long term return ++oo(1)............................. 5.69% 5.75%
First record date.............................................. 5/1/94 5/1/94
First interest distribution date............................... 5/5/94 5/5/94
Subsequent record dates........................................ 1st of each month June 1 & Dec. 1
Subsequent interest distribution dates......................... 15th of each month June 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 April 21, 1994 to the date of settlement (five business
days after order) less distributions from the Interest Account subsequent to
April 21, 1994.

++ 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 $1.53 per Unit will be made on May 15,
1994 (the 'First Payment Date') to all Certificateholders of record on May 1,
1994 (the 'First Record Date'). The first regular monthly payment will be $4.60
on June 15, 1994. The first semi-annual payment will be $4.65 on June 15, 1994
and $27.90 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.

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<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 of the Insured Trusts 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. The Municipal Trust and the State Trust each
seeks to achieve its investment objective through investment in a fixed,
diversified portfolio of intermediate or long-term bonds issued by or on behalf
of states, municipalities and public authorities. None of the Bonds in the
Municipal Trust and the State Trust are 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 the Insured Trust and 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 Insured
Trusts and not to Units of the Insured Trusts. The Units of the Insured 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 Municipal
Trust and the State Trust 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 intermediate or long-term fixed rate debt obligations as the
case may be, 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 THE INSURED TRUST AND NAVIGATOR TRUSTS

Each of the Bonds in the Insured Trust are insured by a municipal bond guaranty
insurance policy obtained by either the Sponsors ('Sponsor-Insured Bonds') or by
issuers, underwriters or prior owners of the Bonds ('Pre-Insured Bonds') and
issued by one of the insurance companies described under 'Insurance on the

Bonds' in Part B (the 'Insurance Companies'). Such insurance covers the
scheduled payment of principal thereof and interest thereon when such amounts
shall become due for payment but shall not have been paid by the issuer or any
other insurer thereof. The insurance, unless obtained by MBIA Corp., will also
cover any accelerated payments of principal and any increase in

A-7
<PAGE>

interest payments or premiums, if any, payable upon mandatory redemption of the
Bonds if interest on any such Bond is ultimately deemed to be subject to federal
income tax. Insurance obtained from MBIA Corp. only guarantees the accelerated
payments required to be made by or on behalf of an issuer of small industrial
revenue bonds and pollution control revenue bonds if there occurs an event which
results in the loss of tax-exempt status of the interest on such Bonds,
including principal, interest or premium payments, if any, as and when required.
To the extent, therefore, that Bonds are only covered by insurance obtained from
MBIA Corp., such Bonds will be not be covered for the 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 tax-exempt status of the interest on such Bonds. None of
the insurance will cover accelerated payments of principal or penalty interest
or premiums unrelated to taxability of interest on the Bonds (although the
insurance, including insurance obtained by MBIA Corp., does guarantee 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 portfolios,
and does not remove market risks nor does it guarantee the market value of Units
in the Insured Trust. The terms of the insurance are more fully described
herein. For a discussion of the effect of an occurrence of nonpayment of
principal or interest on any Bonds in the Insured 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 addition, investors should be aware that subsequent to
the Date of Deposit the rating of the claims-paying ability of the insurer of an
underlying Bond may be downgraded, which may result in a downgrading of the
rating of the Units in the Insured Trust. The approximate percentage of the
aggregate principal amount of the Portfolio of the Insured Trust that is insured
by each Insurance Company is as follows: AMBAC Indemnity Corp. ('AMBAC'), 33.3%;
Financial Guaranty Insurance Company ('Financial Guaranty'), 13.3%; and
Municipal Bond Investors Assurance Corporation ('MBIA Corp.'), 53.4%.

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 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

A-8
<PAGE>
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. 46.7% of the Bonds in the New York Navigator Trust
and 57% 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; AMBAC, 16.7% and MBIA
Corp., 30% and for the New Jersey Navigator Trust; AMBAC, 17.7% and MBIA Corp.,
39.3%

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 (i) for the Insured Trusts and the State
Trust: 4.9% of the Public Offering Price (5.152% of the net amount invested in
Bonds per Unit) or (ii) for the Municipal Trust: 3.9% of the Public Offering
Price (4.058% 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 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 or semi-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 and semi-annual interest distributions, the amount of the
first interest distributions and the specific dates

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<PAGE>
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.

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 (i) for the
Insured Trusts and the State Trusts: 4.9% (5.152% of the net amount invested)

plus net accrued interest or (ii) for the Municipal Trust: 3.9%(4.058% 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.)

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<PAGE>
TOTAL REINVESTMENT PLAN

Certificateholders under the semi-annual plan 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 $15,000,000 principal amount of intermediate or 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, $3,000,000 was deposited in the Insured Trust,
$3,000,000 was deposited in the New York Navigator Trust, $3,000,000 was
deposited in the New Jersey Navigator Trust, $3,000,000 was deposited in the
Municipal 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 Insured Trust, New York Navigator Trust, New Jersey Navigator Trust,
Municipal Trust and Virginia Trust.

INSURED TRUST

The portfolio of the Insured Trust consists of 10 issues representing
obligations of 10 issuers located in 5 states and one in the District of
Columbia. None of the Bonds are obligations of state and local housing
authorities; approximately 13.3% are hospital revenue bonds and none are issued
in connection with the financing of nuclear generating facilities. None of the
issues comprising the aggregate principal amount of the Trust are mortgage
revenue bonds. Portfolio No. 8 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 within 13 days after the
settlement date for the purchase of units. Three of the issues representing
$900,000 of the aggregate principal amount of the Bonds are general obligation
bonds. Seven issues representing $2,100,000 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: Convention Center, 1; Electric, 1; Hospital, 2;
Jails, 1; Sewer, 1 and Water, 1.

For an explanation of the significance of these factors see 'Portfolios' in Part
B.

Approximately 33.3% of the Bonds in the Insured Trust are original issue
discount bonds. 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.

On the Date of Deposit, based on the offering side evaluation, approximately
33.3% of the aggregate principal amount of Bonds in the portfolio were acquired
at a discount from par, approximately 36.7% were at a premium over par and 30%
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 bid side evaluation was lower than
the offering side evaluation by .4% of the aggregate offering price for 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.

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<PAGE>

No issues have been deposited in the Insured Trust and 10 issues are represented
by the Sponsors' contracts to purchase, which are expected to be settled on or
about May 4, 1994.

NEW YORK NAVIGATOR TRUST

The portfolio of the New York Navigator Trust consists of 8 issues representing
obligations of 8 issuers located in the State of New York. None of the Bonds are
obligations of state and local housing authorities; 3.3% are hospital revenue
bonds and none are issued in connection with the financing of nuclear generating

facilities. None of the issues comprising the aggregate principal amount of the
Trust are mortgage revenue bonds. There are no 'when, as and if' issued bonds in
the portfolio. Two issues representing $500,000 of the aggregate principal
amount of the Bonds are general obligation bonds. Six issues representing
$2,500,000 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:
Bridge and Tunnel, 1; Hospital, 1; Local Government Assistance, 1; University,
1; Urban Development Corp., 1 and Water, 1. For an explanation of the
significance of these factors see 'Portfolios' in Part B.

Approximately 75% of the Bonds in the New York Navigator Trust are original
issue discount bonds. 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.

On the Date of Deposit, based on the offering side evaluation, approximately 75%
of the aggregate principal amount of Bonds in the Trust were acquired at a
discount from par, approximately 25% 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 8 issues are
represented by the Sponsors' contracts to purchase, which are expected to be
settled on or about April 21, 1994.

NEW JERSEY NAVIGATOR TRUST

The portfolio of the New Jersey Navigator Trust consists of 11 issues
representing obligations of 9 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; 31% are hospital revenue bonds and none are issued in connection
with the financing of nuclear generating facilities. None of the issues
comprising the aggregate principal amount of the Trust are mortgage revenue
bonds. There are no 'when, as and if' issued bonds in the portfolio. None of the
issues representing the aggregate principal amount of the Bonds are general
obligation bonds. Eleven issues representing $3,000,000 of the principal amount
of the Bonds are payable from the income of a specific project or authority and

are not supported by the issuer's power to levy taxes. The portfolio is divided
for purpose of issue as follows: Electric and Gas, 1; Hospital, 3; Office
Building, 1; Port Authority, 1; Public Building, 2; School, 1; Turnpike, 1 and
Water, 1. For an explanation of the significance of these factors see
'Portfolios' in Part B.

Approximately 31% of the Bonds in the New Jersey Navigator Trust are original
issue discount bonds. 45.2% 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.

On the Date of Deposit, based on the offering side evaluation, approximately
76.2% of the aggregate principal amount of the Bonds in the Trust were acquired
at a discount from par, approximately 23.8% 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 vary inversely with
interest rates. On the Date of Deposit, the

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<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. 5 in the principal amount of $400,000, which represents 13.3% of
the aggregate principal amount of the Bonds in the Trust (which also represents
14.6% 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 11 issues
are represented by the Sponsors' contracts to purchase, which are expected to be
settled on or about April 21, 1994.

MUNICIPAL TRUST

The portfolio of the Municipal Trust consists of 11 issues representing
obligations of 11 issuers located in 8 states, one in the District of Columbia
and one in Puerto Rico. None of the Bonds are obligations of state and local
housing authorities; 5.8% are hospital revenue bonds and 20.8% of the Bonds are
issued in connection with the financing of nuclear generating facilities. None
of the issues comprising the aggregate principal amount of the Trust are
mortgage revenue bonds. Portfolio Nos. 1, 2, 3 and 11, which represent 19.7% of
the aggregate principal amount of the bonds in the Trust have been purchased on
a 'when, as and if' issued basis with delivery expected to take place 13 days
after the settlement date for the purchase of units. None of the Bonds are
subject to redemption prior to their stated maturity dates pursuant to a sinking
fund or call provision except for Portfolio Nos. 7, 10, 11 and 14. Five issues
representing $1,070,000 of the aggregate principal amount of the Bonds are
general obligation bonds. Nine issues representing $1,930,000 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: Electric, 2; Hospital, 1; Jails, 1;
Lease Revenue, 3 and Nuclear, 2. For an explanation of the significance of these
factors see 'The Portfolios' in Part B.

Approximately 65.8% of the aggregate principal amount of the Bonds in the
Municipal Trust are original issue discount bonds. Based on the offering side
evaluation, none of the Bonds in the Municipal Trust were purchased at a
'market' discount from par value at maturity.

Based on the offering side evaluation on the Date of Deposit, 65.8% of the
aggregate principal amount of Bonds in the portfolio were acquired at a discount
from par, 34.2% 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, 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 Municipal Trust. See 'Public Offering' in Part
B.

None of the Bonds in the Minucipal 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 Municipal Trust and 14 issues are
represented by the Sponsors' contracts to purchase, which are expected to be
settled on or about May 4, 1994.

VIRGINIA TRUST

The portfolio of the Virginia Trust consists of 9 issues, 7 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 11.7% of the
Bonds are obligations of state and local housing authorities; 22.3% are hospital
revenue bonds and none of the Bonds are issued in connection with the financing
of nuclear generating facilities. None of the issues comprising 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

A-13
<PAGE>

subject to redemption prior to their stated maturity dates pursuant to a sinking
fund or optional call provision. One issue representing $400,000 of the
aggregate principal amount of the Bonds is a general obligation bond. Eight
issues representing $2,600,000 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: Building Authority, 1; Electric, 1; Expressway, 1; Highway, 1;
Hospital, 2; Multi-family Housing, 1 and Water, 1. For an explanation of the
significance of these factors see 'The Portfolios' in Part B.

Approximately 73.3% of the aggregate principal amount of the Bonds in the
Virginia Trust are original issue discount bonds. Based on the offering side
evaluation, none of the Bonds in the Virginia Trust were purchased at a 'market'
discount from par value at maturity.

Based on the offering side evaluation on the Date of Deposit, 73.3% of the
aggregate principal amount of Bonds in the portfolio were acquired at a discount
from par, 26.7% 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, 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 9 issues are represented
by the Sponsors' contracts to purchase, which are expected to be settled on or
about April 21, 1994.

A-14
<PAGE>
INDEPENDENT AUDITORS' REPORT

The Sponsors, Trustee, and Certificateholders:

Insured Municipal Securities Trust -- Series 32, New York Navigator Insured
Series 16 and New Jersey Navigator Insured Series 12; and Municipal Securities
Trust, Series 55 (Intermediate) and Multi-State Series 45 (Virginia Trust)

We have audited the accompanying Statements of Condition and Portfolios
(the 'financial statements') of the Insured Municipal Securities Trust -- Series
32, New York Navigator Insured Series 16 and New Jersey Navigator Insured Series
12; and Municipal Securities Trust, Series 55 (Intermediate) and Multi-State
Series 45 (Virginia Trust) as of April 14, 1994. 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 April 14, 1994,
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 -- Series 32, New York Navigator Insured Series 16 and New
Jersey Navigator Insured Series 12; and Municipal Securities Trust, Series 55
(Intermediate) and Multi-State Series 45 (Virginia Trust), as of April 14, 1994,
in conformity with generally accepted accounting principles.

KPMG PEAT MARWICK

New York, New York
April 14, 1994

A-15
<PAGE>

INSURED MUNICIPAL SECURITIES TRUST, SERIES 32

NEW YORK NAVIGATOR INSURED SERIES 16 AND
NEW JERSEY NAVIGATOR INSURED SERIES 12
AND
MUNICIPAL SECURITIES TRUST,
SERIES 55 (INTERMEDIATE) AND MULTI-STATE SERIES 45

STATEMENTS OF CONDITION

AS OF DATE OF DEPOSIT, APRIL 14, 1994

TRUST PROPERTY

<TABLE>
<CAPTION>
MULTI-STATE
NEW YORK NEW JERSEY SERIES 45
INSURED NAVIGATOR NAVIGATOR MUNICIPAL (VIRGINIA
TRUST TRUST TRUST TRUST TRUST)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Investment in Securities--Sponsors'
Contracts to Purchase Underlying Bonds
Backed by Letters of Credit(1)........... $2,922,803 $2,821,105 $2,912,132 $2,922,336 $2,816,980
Accrued Interest to Date of Deposit on
Bonds(1)................................. 54,975 33,281 56,519 31,028 28,261
---------- ---------- ---------- ---------- ----------
Total............................ $2,977,778 $2,854,386 $2,968,651 $2,953,364 $2,845,241
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>

LIABILITY AND INTEREST OF CERTIFICATEHOLDERS

<TABLE>
<S> <C> <C> <C> <C> <C>
Liability for Accrued Interest to Date of
Deposit on Bonds(1)(4)................... $ 54,975 $ 33,281 $ 56,519 $ 31,028 $ 28,261
---------- ---------- ---------- ---------- ----------
Interest of Certificateholders--Units of
Fractional Undivided Interest Outstanding
(Insured Trust: 3,000 Units, New York
Navigator Trust: 3,000 Units, New Jersey
Navigator Trust: 3,000 Units, Municipal
Trust: 3,000 Units, and Virginia Trust:
3,000 Units):
Cost to Certificateholders(2)......... 3,073,400 2,966,462 3,062,179 3,040,932 2,962,124
Less-Gross Underwriting
Commissions(3)...................... 150,597 145,357 150,047 118,596 145,144
---------- ---------- ---------- ---------- ----------
Net Amount Applicable to
Certificateholders.................. 2,922,803 2,821,105 2,912,132 2,922,336 2,816,980
---------- ---------- ---------- ---------- ----------
Total............................ $2,977,778 $2,854,386 $2,968,651 $2,953,364 $2,845,241
---------- ---------- ---------- ---------- ----------

---------- ---------- ---------- ---------- ----------
</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 April 13,
1994. Irrevocable letters of credit issued by Morgan Guaranty Trust Company in
an aggregate amount of $15,500,000 have been deposited with the Trustee to cover
the purchase of $15,000,000 principal amount of Bonds pursuant to contracts to
purchase such Bonds and $248,302 accrued interest on such Bonds to the expected
dates of delivery.

(2) Aggregate public offering price (exclusive of interest) computed on
3,000 Units of the Insured Trust, 3,000 Units of New York Navigator Trust, 3,000
Units of New Jersey Navigator Trust, 3,000 Units of the Municipal 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 3,000 Units of the Insured Trust,
3,000 Units of New York Navigator Trust, 3,000 Units of New Jersey Navigator
Trust, and 3,000 Units of the Virginia Trust and a sales charge of 3.9% computed
on 3,000 Units of the Municipal Trust on the basis set forth under 'Public
Offering--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 April 21, 1994 (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-16
<PAGE>

INSURED MUNICIPAL SECURITIES TRUST
PORTFOLIO

------------------------

SERIES 32
------------------------
AS OF APRIL 14, 1994

A MONTHLY PAYMENT SERIES OR

SEMI-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(2) OPT.--OPTIONAL(2)(3)
---------- ---------- -------------------------------------------------- ----------- ----------- --------------------
<S> <C> <C> <C> <C> <C>
1 $ 100,000 Cal. Hlth. San Diego Hosp. (MBIA Corp.) AAA 6.625% 5/01/07 @ 100 S.F.
5/01/2019 5/01/99 @ 101 Opt.
2 100,000 D.C. G. O. Series B (MBIA Corp.) AAA 6.300% 6/01/11 @ 100 S.F.
6/01/2012 6/01/02 @ 102 Opt.
3 300,000 Ill. Hlth. Fac. Auth. Rev. Bds., Series 1993 (The AAA 5.000% 8/15/14 @ 100 S.F.
Children's Memorial Hosp.) (MBIA Corp.) 8/15/2022 8/15/03 @ 102 Opt.
4 400,000 Metro. Pier & Expo. Auth. Ill. McCormick Place AAA 6.500% 6/15/23 @ 100 S.F.
Expansion Pjct. Bonds Series 1992 A (Financial 6/15/2027 6/15/03 @ 102 Opt.
Guaranty)
5 400,000 Rgnl. Trans. Auth. Ill. Cook, DuPage, Kane, Lake, AAA 6.500% 6/01/13 @ 100 S.F.
McHenry, and Will Counties Gen. Oblig. Series 6/01/2015 6/01/02 @ 102 Opt.
1992A (AMBAC)

6 400,000 City of Chicago Genl. Oblig. Bds. Pjct. Series 1993 AAA 5.500% 1/01/19 @ 100 S.F.
(Financial Guaranty) 1/01/2024 1/01/04 @ 102 Opt.
7 400,000 Piedmont Muni. Pwr. Agncy (S.C.) Elec. Rev. Bds., AAA 6.300% 1/01/15 @ 100 S.F.
1992 Rfndg. Series (MBIA Corp.) 1/01/2022 1/01/03 @ 102 Opt.
8 300,000(4) Charleston Cnty, S.C. Charleston Pub. Facs. Corp. AAA 6.100% No Sinking Fund
Rfndg. Certs. of Part. Series 1994 (MBIA Corp.) 6/01/2011 6/01/04 @ 102 Opt.
9 200,000 Houston, TX Wtr. & Swr. Sys. Rev. Bonds Jr. AAA 6.500% 12/01/09 @ 100 S.F.
Lien--Ser. 1991A (AMBAC) 12/01/2021 12/01/01 @ 102 Opt.
10 400,000 Muncplty of Metro. Seattle (Seattle, WA) Swr. Rev. AAA 6.300% 1/01/24 @ 100 S.F.
Bds., Series W (MBIA Corp.) 1/01/2033 1/01/03 @ 102 Opt.
----------
$3,000,000
----------
----------

PORTFOLIO COST OF BONDS
NO. TO TRUST(5)
---------- -------------
<S> <C>
1 $ 101,860

2 100,000

3 248,742

4 404,700

5 405,884

6 359,664

7 400,000

8 298,395

9 203,558

10 400,000

-------------
$ 2,922,803
-------------
-------------
</TABLE>

A-17
<PAGE>
INSURED MUNICIPAL SECURITIES TRUST
PORTFOLIO
------------------------

NEW YORK NAVIGATOR INSURED SERIES 16
------------------------
AS OF APRIL 14, 1994

A MONTHLY PAYMENT SERIES OR
SEMI-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 $ 500,000 N.Y. St. Dorm. Auth. Rev. Mt. Sinai Sch. of AAA 5.000% No Sinking Fund
Med. (MBIA Corp.) 7/01/2016 7/01/04 @ 102 Opt.
2 100,000 N.Y. St. Dorm. Auth. Revs. Univ. Rochester-- AAA 5.500% 7/01/18 @ 100 S.F.
Strong Mem. Hosp. (MBIA Corp.) 7/01/2021 7/01/04 @ 102 Opt.
3 500,000 N.Y. St. Loc. Govt. Asst. Corp. Rfndg. Rev. AAA 5.500% 4/01/20 @ 100 S.F.
Series A (MBIA Corp.) 4/01/2023 4/01/04 @ 101.5 Opt.
4 400,000 N.Y. St. U. D. C. Youth Fac. (MBIA Corp.) AAA 5.700% 4/01/10 @ 100 S.F.
4/01/2014 4/01/04 @ 102 Opt.
5 250,000 The City of N.Y. Genl. Oblig. Bonds Fiscal 1993 AAA 7.000% No Sinking Fund
Series B (MBIA Corp.) 10/01/2009 10/01/02 @ 101.5 Opt.
6 250,000 N.Y. City Genl. Oblig. Rev. Bonds 1994 Series C AAA 5.375% No Sinking Fund
(MBIA Corp.) 10/01/2022 10/01/03 @ 101.5
Opt.
7 500,000 N.Y. City Muni. Wtr. Finc. Auth. Wtr. & Swr. AAA 6.750% No Sinking Fund

Sys. Rev. Rfndg. Bonds (MBIA Corp.) 6/15/2017 6/15/01 @ 101 Opt.
8 500,000 Trib. Brdg. & Tnnl. Auth. Rev. Rfndg. Spec. AAA 5.500% 1/01/16 @ 100 S.F.
Oblig. Series 1992 (MBIA Corp.) 1/01/2017 1/01/02 @ 100 Opt.
----------
$3,000,000
----------
----------

PORTFOLIO COST OF BONDS
NO. TO TRUST(5)
---------- -------------
<S> <C>
1 $ 428,100

2 90,842

3 453,160

4 381,660

5 266,953

6 222,575

7 517,365

8 460,450

-------------
$ 2,821,105
-------------
-------------
</TABLE>

A-18
<PAGE>

INSURED MUNICIPAL SECURITIES TRUST
PORTFOLIO
------------------------
NEW JERSEY NAVIGATOR INSURED SERIES 12
------------------------
AS OF APRIL 14, 1994

A MONTHLY PAYMENT SERIES OR
SEMI-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 $ 395,000 N.J. Hlth. Care Facs. Fincg. Auth. Rev. AAA 6.000% 7/01/05 @ 100 S.F.
Bonds Centrastate Med. Cntr. Issue Series A 7/01/2021 7/01/01 @ 100 Opt.
(MBIA Corp.)
2 400,000 N.J. Hlth. Care Facs. Fncg. Auth. Rev. AAA 6.000% 7/01/10 @ 100 S.F.
Bonds Community Med. Cntr Series 1989D 7/01/2019 7/01/99 @ 100 Opt.
(MBIA Corp.)
3 135,000 N.J. Hlth. Care Fac. Rev. Riverview Hosp. AAA 5.500% 7/01/17 @ 100 S.F.
1994 Series (MBIA Corp) 7/01/2018 7/01/04 @ 102 Opt.
4 270,000 N.J. Econ. Dev. Auth. Rev. Bonds (St. AAA 5.250% 7/01/14 @ 100 S.F.
Barnabas Realty Dev. Corp. Prjt.) Series 7/01/2020 7/01/03 @ 102 Opt.
1993 (MBIA Corp.)
5 400,000 N.Y. & N.J. Port Auth. Cnsldtd. Rev. Bonds AAA 6.500% 11/01/13 @ 100 S.F.
Seventy-Sixth Series (AMT) (MBIA Corp) 11/01/2026 11/01/01 @ 101 Opt.
6 315,000 N.J. Tnpke. Auth. Tnpke. Rev. Bonds Series AAA 6.500% 1/01/12 @ 100 S.F.
1991C (MBIA Corp.) 1/01/2016 None
7 175,000 Monmouth Co. Imprvmt. Auth. (Monmouth Co., AAA 5.550% 2/15/14 @ 100 S.F.
N.J.) Rev. Bonds, Series 1993 (Millstone 12/15/2018 2/15/03 @ 102 Opt.
Twnshp Brd. of Ed. Pjct.) (MBIA Corp.)
8 110,000 No. Jersey Dstrct. Wtr. Supl. Commsn. of AAA 6.000% 7/01/13 @ 100 S.F.
the State of N.J. Wanaque So. Prjt. Rev. 7/01/2021 7/01/03 @ 102 Opt.
Rfndg. Bonds Series 1993 (MBIA Corp.)
9 400,000 Poll. Cntrl. Fncg. Auth. of Salem Cnty. AAA 5.700% 5/01/06 @ 100 S.F.
(N.J.) Poll. Cntrl. Rev. Rfndg. Bonds 5/01/2028 5/01/03 @ 102 Opt.
1993A (Pub. Serv. Elec. & Gas Co.
Prjt.) (MBIA Corp.)

10 280,000 P.R. Pub. Bldgs. Auth. Pub. Ed. & Hlth. AAA 5.750% 7/01/11 @ 100 S.F.
Facs. Rev. Rfndg. Bonds Gtd. By The 7/01/2015 7/01/03 @ 101.5 Opt.
Commonwlth. of P.R. Series L (MBIA Corp.)
11 120,000 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.
Commonwlth. of P.R. Series M (MBIA Corp.)
----------
$3,000,000
----------
----------

PORTFOLIO COST OF BONDS
NO. TO TRUST(5)
---------- -------------
<S> <C>
1 $ 389,743

2 394,836

3 124,008

4 238,534

5 408,532

6 331,969

7 161,938

8 109,258

9 374,436

10 268,394

11 110,484

-------------
$ 2,912,132
-------------
-------------
</TABLE>

A-19
<PAGE>

MUNICIPAL SECURITIES TRUST
PORTFOLIO
------------------------
SERIES 55 (INTERMEDIATE)
------------------------
AS OF APRIL 14, 1994

A MONTHLY PAYMENT SERIES OR
SEMI-ANNUAL PAYMENT SERIES

Vets. Affrs.) 1994 Series A (So. Ca. Vets. 10/01/2003 None
Home-- Barstow Fac.)
4 300,000 D.C. (Wash., D.C.) Genl. Oblig. Ref. Bonds AAA 4.650% No Sinking Fund
Series 1994 A-2 (AMBAC) 6/01/2002 None
5 175,000 City of Venice, Fla. Hlth. Facs. Rev. Bonds A* 5.500% No Sinking Fund
Series 1994 (Venice Hosp., Inc. Proj.) 12/01/2004 None
6 300,000 Ga. Muni. Elec. Pwr. Rev. Gen. Ser. D AAA 4.750% No Sinking Fund
(Financial Guaranty) 1/01/2004 None
7 300,000 St. of Ill. Genl. Oblig. Ref. Bonds Series of Aa* 4.600% No Sinking Fund
January, 1994 12/01/2005 12/01/03 @ 102 Opt.
8 205,000 The City of N.Y. Genl. Oblig. Bonds, Fiscal A- 5.700% No Sinking Fund
1994 Series H 8/01/2003 None
9 95,000 The City of N.Y. Genl. Oblig. Bonds, Fiscal A- 5.800% No Sinking Fund
1994 Series H 8/01/2004 None
10 325,000 N.C. Eastern Muni. Pwr. Agcy. Pwr. Sys. Rev. A* 6.000% No Sinking Fund
Bonds Series 1993 B 1/01/2005 1/01/03 @ 102 Opt.
11 300,000(4) Charleston Cnty., S.C. Charleston Pub. Facs. AAA 5.700% No Sinking Fund
Corp. Rfndg. Certs. of Part. Series 1994 6/01/2005 6/01/04 @ 102 Opt.
12 170,000 State of Wash. Genl. Oblig. Rfndg. Bonds AA 6.400% No Sinking Fund
Series R 92 A 9/01/2003 None
13 300,000 Wa. Pub. Pwr. Spply. Systm. Nuc. Proj. No 2 AA 4.600% No Sinking Fund
Rev. Rfndg. Series 1994A 7/01/2002 None
14 240,000 P.R. Elec. Pwr. Auth. Pwr. Rev. Bonds Series Q A- 6.200% No Sinking Fund
7/01/2004 7/01/02 @ 101.5 Opt.
----------
$3,000,000
----------
----------

PORTFOLIO COST OF BONDS
NO. TO TRUST(5)
---------- -------------
<S> <C>
1 $ 96,144

2 101,326

3 96,708

4 278,778

5 170,185

6 278,934

7 269,826

8 202,077

9 93,546

10 328,806

11 298,755

12 181,373

13 276,708

14 249,170

-------------
$ 2,922,336
-------------
-------------
</TABLE>

A-20
<PAGE>

MUNICIPAL SECURITIES TRUST
MULTI-STATE SERIES 45
PORTFOLIO
--------------------
VIRGINIA TRUST
--------------------
AS OF APRIL 14, 1994

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 $ 400,000 Albemarle Cnty. Va. Ind. Dev. Auth. Hosp. Rfndg. A* 5.500% 10/01/14 @ 100 S.F.
Rev. Bonds (Martha Jefferson Hosp.) Series 1993 10/01/2015 10/01/03 @ 102 Opt.
2 400,000 Indus. Dev. Auth. of the City of Alexandria, Va. A+ 5.375% No Sinking Fund
Poll. Cntl. Rev. Rfndg. Bonds 2/15/2024 2/15/04 @ 102 Opt.
3 300,000 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
4 400,000 Fairfax Cnty. Wtr. Auth. Wtr. Rfndg. Rev. Bonds Aa* 5.750% 4/01/23 @ 100 S.F.
Series 1992 4/01/2029 4/01/02 @ 100 Opt.
5 350,000 Harrisonburg Va. Redev. & Hsg. Auth. Multifam. AA 6.150% 3/01/04 @ 100 S.F.
Hsg. Rev. Rfndg. Bonds (Hanover Crossing Aprtmts. 3/01/2009 3/01/03 @ 102 Opt.
Prjt.) Series 1993
6 400,000 Richmond Va. Genl. Oblig. Pub. Imprvmt. Rev. AA 6.250% 1/15/12 @ 100 S.F.
Bonds Series 1991A 1/15/2021 1/15/01 @ 102 Opt.

7 400,000 Richmond Metro. Auth. Expy. Rev. & Rfndg. Bonds, AAA 6.250% 7/15/13 @ 100 S.F.
Series 1992B 7/15/2022 7/15/02 @ 102 Opt.
8 150,000 P.R. Hwy. Auth. Hwy. Rev. Rfndg. Bonds (Series Q) A 6.000% 7/01/18 @ 100 S.F.
7/01/2020 7/01/00 @ 100 Opt.
9 200,000 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 P.R. 7/01/2021 7/01/03 @ 101.5 Opt.
Series M
----------
$3,000,000
----------
----------

<CAPTION>
COST OF
PORTFOLIO BONDS TO
NO. TRUST(5)
--------- ----------
<S> <C>
1 $ 362,608

2 352,888

3 249,837

4 369,056

5 348,285

6 402,628

7 405,084

8 146,120

9 180,474

----------
$2,816,980
----------
----------
</TABLE>

A-21
<PAGE>
FOOTNOTES
TO
PORTFOLIOS

(1) 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>
Insured Trust................................. $2,910,803 $2,922,803 $ 12,000 .4%
New York Navigator Trust...................... $2,809,105 $2,821,105 $ 12,000 .4%
New Jersey Navigator Trust.................... $2,900,132 $2,912,132 $ 12,000 .4%
Municipal Trust............................... $2,910,336 $2,922,336 $ 12,000 .4%
Virginia Trust................................ $2,804,980 $2,816,980 $ 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>
Insured Trust......................................... $2,900,857 $21,946 $ 183,625
New York Navigator Trust.............................. $2,788,047 $33,058 $ 172,988
New Jersey Navigator Trust............................ $2,885,966 $26,166 $ 177,588
Municipal Trust....................................... $2,912,946 $ 9,390 $ 162,138
Virginia Trust........................................ $2,796,706 $20,274 $ 173,025
</TABLE>

(6) Forward contracts to purchase the Bonds were entered into from April 12,
1994 through April 13, 1994. All such contracts are expected to be settled
on or about the First Settlement Date of the Trust which is expected to be
April 21, 1994 except for Portfolio No. 8 in the Insured Trust and Portfolio
Nos. 1, 2, 3 and 11 in the Municipal Trust which are expected to be settled
on or about May 4, 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-22
<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 UNITS OF UNITS OF
OF N.Y. N.J. UNITS OF UNITS OF
INSURED NAVIGATOR NAVIGATOR MUNICIPAL VIRGINIA
UNDERWRITER TRUST TRUST TRUST TRUST TRUST
------------------------------------------------------ ------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
BEAR, STEARNS & CO. INC.
245 Park Avenue
New York, NY 10167.................................... 2,550 1,950 1,600 2,500 2,500

GRUNTAL & CO., INCORPORATED
14 Wall Street
New York, NY 10005.................................... -- 750 750 -- --

OPPENHEIMER & CO., INC.

Oppenheimer Tower
World Financial Center
New York, NY 10281.................................... 100 100 100 100 --

J.C. BRADFORD & CO.
330 Commerce Street
Nashville, TN 37201................................... 100 -- -- -- 100

GIBRALTAR SECURITIES CO.
Ten James Street
Florham Park, NJ 07932................................ -- 100 100 -- --

RAYMOND JAMES & ASSOCIATES, INC.
The Raymond James Financial Center
880 Carillon Parkway
St. Petersburg, FL 33716.............................. 100 -- -- 100 --

B.C. CHRISTOPHER
DIV. OF FAHNESTOCK & CO. INC.
4717 Grand Avenue
Kansas City, MO 64112................................. 50 -- 100 -- --

AEGIS CAPITAL CORP.
70 East Sunrise Highway, Suite 415
Valley Stream, NY 11581-1264.......................... -- -- -- 100 --

ANDERSON & STRUDWICK, INCORPORATED
1108 East Main Street
Richmond, VA 23212.................................... -- -- -- -- 100

BRANCH, CABELL & CO.
919 East Main Street
Richmond, VA 23217.................................... -- -- -- -- 100

DAIN BOSWORTH INCORPORATED
Dain Bosworth Plaza
60 South Sixth Street
Minneapolis, MN 55402................................. 50 -- -- 50 --

DAVENPORT & CO. OF VIRGINIA, INC.
One James Center
Richmond, VA 23219.................................... -- -- -- -- 100

NATHAN & LEWIS SECURITIES, INC.
119 West 40th Street
New York, NY 10018.................................... -- 100 -- -- --

</TABLE>

A-23
<PAGE>
UNDERWRITING SYNDICATES

<TABLE>
<CAPTION>
UNITS UNITS OF UNITS OF
OF N.Y. N.J. UNITS OF UNITS OF
INSURED NAVIGATOR NAVIGATOR MUNICIPAL VIRGINIA
UNDERWRITER TRUST TRUST TRUST TRUST TRUST
------------------------------------------------------ ------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
ROOSEVELT & CROSS INCORPORATED
20 Exchange Place
New York, NY 10005.................................... -- -- 100 -- --

SOUTHWEST SECURITIES INC.
1201 Elm Street, Suite 4300
Dallas, TX 75270...................................... -- -- -- 100 --

STIFEL, NICOLAUS & COMPANY, INCORPORATED
500 North Broadway
St. Louis, MO 63102................................... 50 -- -- 50 --

WHEAT FIRST, BUTCHER & SINGER CAPITAL MARKETS
901 East Byrd Street
Richmond, VA 23219.................................... -- -- -- -- 100

J.B. HANAUER & CO.
Four Gate Hall Drive
Parsippany, NJ 07054.................................. -- -- 50 -- --

JANNEY MONTGOMERY SCOTT INC.
1801 Market Street
Philadelphia, PA 19103................................ -- -- 50 -- --

LEBENTHAL & CO., INC.
25 Broadway
New York, NY 10004.................................... -- -- 50 -- --

MABON SECURITIES CORP.
One Liberty Plaza
New York, NY 10006.................................... -- -- 50 -- --

STUART, COLEMAN & CO., INC.
11 West 42nd Street, 15th Floor
New York, NY 10036.................................... -- -- 50 -- --

Totals.................................... 3,000 3,000 3,000 3,000 3,000
------- --------- --------- --------- --------
------- --------- --------- --------- --------
</TABLE>

A-24

<PAGE>
(LOGO)

FEATURES

o INSURANCE FOR THE INSURED TRUSTS

Each Insured Trust is rated 'AAA' by Standard & Poor's Corporation. Each
Insured 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 Insured 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 and state and local taxes (except with respect to
bonds in the Navigator Trusts and the Virginia Trust and with regard to
interest paid to persons subject to state and local taxation in a state where
the issuer of the bonds is located). 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 Insured portfolio, are rated 'AAA' by Standard & Poor's
Corporation and all Bonds when deposited in the Municipal Trust and the 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 be able to 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 OR SEMI-ANNUAL CHECK

Certificateholders can receive their interest income checks either monthly or
semi-annually depending upon their investment goals. The monthly checks are
ideal for Certificateholders intending to spend their interest income, while
the semi-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 semi-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

Investors 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 Insured Trusts, the Municipal Trust and
the State Trust 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 Trust, after Virginia state and local
taxes), returns equivalent to tax-exempt bond current returns for the Insured
Trusts, the Municipal Trust and the State Trust. 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 1994 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 Insured Trust and the Municipal Trust filing a
joint return with taxable income in excess of $250,000 in 1994 would have to
receive a 8.28% taxable return on another investment to have the same spendable
income++ that a 5.00% tax-exempt return would provide. Unitholders of the New
York Navigator Trust filing a joint return with taxable income in
excess of $250,000 in 1994 would have to receive a 10.35% taxable return on
another investment to have the same spendable income++ that a 5.5% tax-exempt
return would provide. Unitholders of the New Jersey Navigator Trust filing a
joint return with taxable income in excess of $250,000 in 1994 would have to
receive a 9.76% taxable return on another investment to have the same spendable
income++ that a 5.5% tax-exempt return would provide. Unitholders of the
Virginia Trust filing a joint return with taxable income in excess of $250,000
in 1994 would have to receive a 9.66% taxable return on another investment to
have the same spendable income++ that a 5.5% tax-exempt return would have. These
tables do not reflect the taxable return for individuals who are subject to the
federal alternative minimum tax.

1994 FEDERAL TAX FREE RATES

<TABLE>
<CAPTION>
FEDERAL JOINT % FEDERAL
TAXABLE INCOME(1) 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 - 38,000 15.0% 5.00 5.29 5.59 5.88 6.18 6.47 6.76 7.06
$ 38,001 - 91,850 28.0% 5.90 6.25 6.60 6.94 7.29 7.64 7.99 8.33
$ 91,851 - 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) After exemptions and deductions other than state and local income tax
deductions.

1994 NEW YORK TRIPLE TAX FREE RATES
(ASSUMES NO FEDERAL OR NEW YORK STATE OR CITY TAXES)

<TABLE>
<CAPTION>
APPROX.
1994
FEDERAL, A TAX-EXEMPT RETURN OF
FEDERAL JOINT FEDERAL NY STATE AND
TAXABLE INCOME(1) 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 - 38,000 15.0% 25.19 5.68 6.02 6.35 6.68 7.02 7.35 7.69 8.02
$ 38,001 - 91,850 28.0% 36.64 6.71 7.10 7.50 7.89 8.29 8.68 9.08 9.47
$ 91,851 - 140,000 31.0% 39.32 7.00 7.42 7.83 8.24 8.65 9.06 9.48 9.89
$140,001 - 250,000 36.0% 43.71 7.55 7.99 8.44 8.88 9.32 9.77 10.21 10.66
$250,000+ 39.6% 46.88 8.00 8.47 8.94 9.41 9.88 10.35 10.82 11.30
</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. The table is based on 1994 tax rates assuming that the 1994
scheduled New York State tax rate decreases take effect. If, however, the
New York State tax rate is postponed, then the equivalent yields will be
higher than depicted above. There can be no assurance that such rates will
remain unchanged.

------------------
++ Interest income accrual on original issue discount bonds is not distributed.

<PAGE>
(LOGO)

1994 NEW JERSEY TAX FREE RATES
(ASSUMES NO FEDERAL OR NEW JERSEY STATE TAXES)

<TABLE>
<CAPTION>
APPROX.
1994
FEDERAL AND A TAX-EXEMPT RETURN OF
FEDERAL JOINT % FEDERAL NJ TAX
TAXABLE INCOME(1) TAX BRACKET RATE(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 - 38,000 15.0% 17.02% 5.12 5.42 5.72 6.03 6.33 6.63 6.93 7.23
$ 38,001 - 91,850 28.0% 32.45% 6.29 6.66 7.03 7.40 7.77 8.14 8.51 8.88
$ 91,851 - 140,000 31.0% 35.26% 6.56 6.95 7.34 7.72 8.11 8.50 8.88 9.27
$140,001 - 250,000 36.0% 40.26% 7.11 7.53 7.45 8.37 8.79 9.21 9.63 10.04
$250,000+ 39.6% 43.62% 7.54 7.98 8.42 8.87 9.31 9.76 10.20 10.64
</TABLE>

(1) After exemptions and deductions other than state income tax deductions.

(2) These rates may be subject to change.

1994 VIRGINIA TAX FREE RATES
(ASSUMES NO FEDERAL OR VIRGINIA STATE TAXES)

<TABLE>
<CAPTION>
APPROXIMATE
FEDERAL 1994
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%
------------------ ------- ------------------- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 - 38,000 15.0% 19.89% 5.31 5.62 5.93 6.24 6.55 6.87 7.18
$ 38,001 - 91,850 28.0% 32.14% 6.26 6.63 7.00 7.37 7.74 8.10 8.47
$ 91,851 - 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>
$ 0 - 38,000 7.49
$ 38,001 - 91,850 8.84
$ 91,851 - 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.

<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 five '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 intermediate
or long-term 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 intermediate or 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

1
<PAGE>

local taxation 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
primarily or solely

2
<PAGE>

from rents and other fees, adverse economic developments including failure or
inability to increase rentals, fluctuations of interest rates and increasing
construction and operating costs may reduce revenues available to pay existing
obligations.

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.

Proposals for significant changes in the health care system and the present
programs for third party payment of health care costs are under consideration in
Congress and many states. 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

3
<PAGE>
Coupon Bonds'). See the 'Portfolio Summary' in Part A for the amount of mortgage
revenue bonds contained in the Trust.

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. In 1976 the federal bankruptcy laws were amended so that an
authorized municipal debtor could more easily seek federal court protection to
assist in reorganizing its debts so long as certain requirements were met.
Historically, very few financially troubled municipalities have sought court
assistance for reorganizing their debts; notwithstanding, the Sponsors are
unable to predict to what extent financially troubled municipalities may seek
court assistance in reorganizing their debts in the future and, therefore, what
effect, if any, the applicable federal bankruptcy law provisions will have on
the 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.

4
<PAGE>
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 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.

5
<PAGE>
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.

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

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<PAGE>
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 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

The Bonds in the Insured 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.

Sponsor-Insured Bonds. For those Bonds in the Insured Trust which are not
covered by an insurance policy obtained by the issuers, underwriters or prior
owners of such Bonds, the Sponsors have obtained bond insurance from certain
Bond Insurers (as hereinafter described) in an effort to protect
Certificateholders against nonpayment of principal and interest in respect of
such Bonds ('Sponsor-Insured Bonds'). The bond insurance on the Sponsor-Insured
Bonds covers the Sponsor-Insured Bonds deposited in the Trust at the time that
they are physically delivered to the Trustee (in the case of bearer bonds) or
registered in the name of the Trustee or its nominee or delivered along with an
assignment (in the case of registered bonds) or registered in the name of the
Trustee or its nominee (in the case of bonds held in book-entry form).
Accordingly, although contracts to purchase Sponsor-Insured Bonds are not
covered by the bond insurance obtained by the Sponsors, such Bonds will be
insured when they are deposited in the Trust. When selecting Bonds for the Trust
prior to obtaining insurance thereon, the Sponsors consider the factors listed
under 'Portfolio', among others. The insurers of the Sponsor-Insured Bonds apply
their own standards in determining whether to insure the Sponsor-Insured Bonds.
To the extent that the standards of such insurers are more restrictive than
those of the Sponsors, the Sponsors' investment criteria have been limited to
the more restrictive standards.

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

7
<PAGE>
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 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 Insured 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.

8
<PAGE>

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
$1,936,000,000 (unaudited) and statutory capital of approximately $1,096,000,000
(unaudited) as of September 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 December 31, 1993, the total statutory policyholders' surplus and contingency
reserves of Capital Guaranty Insurance Company was approximately $190,986,527
(unaudited) and total admitted assets were approximately $284,503,855
(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-
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 50 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
December 31, 1993, its total capital and surplus was approximately $777,000 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 September 30, 1993, the total net admitted assets
(unaudited) of Firemen's were $2,226,579,000 and its statutory surplus
(unaudited) was $495,752,845.

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

9
<PAGE>

indirect wholly-owned subsidiary of Financial Security Assurance Holdings Ltd.
which is in turn approximately 92.5% owned by U.S. WEST Capital Corporation
('U.S. West'). U.S. West is a subsidiary of U.S. 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 September 30, 1993, total shareholder equity of Financial Security and its
two wholly-owned subsidiaries was (unaudited) $585,935,000 and total unearned
premium reserves was (unaudited) $216,434,000.

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 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 JUNE 30, 1993
(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................................ $ 9,670,645 $ 8,278,113 $ 1,392,532
Fireman's Fund Insurance Company................................... 6,571,313 4,880,776 1,690,537
The Travelers Indemnity Company.................................... 10,194,126 8,280,211 1,913,915
Cigna Property and Casualty Company
(Formerly Aetna Insurance Company)............................... 6,198,088 5,634,331 563,757
The Continental Insurance Company.................................. 2,574,504 2,223,194 351,310
----------- ----------- --------------

Total $35,208,676 $29,296,625 $ 5,912,051
----------- ----------- --------------
----------- ----------- --------------
</TABLE>

10
<PAGE>

Some of the members of the 'Association' are among the shareholders of
MBIA, Inc., a New York Stock Exchange listed company. 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.

MBIA Corp. is the principal operating subsidiary of MBIA Inc. 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.

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. As of December 31, 1993, MBIA Corp. had admitted assets of $3.1
billion (audited), total liabilities of $2.1 billion (audited), and total
capital and surplus of $978 million (audited) 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 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 & 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, 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. 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.

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Additionally, the City is the nation's leading tourist destination. The City's
manufacturing activity is conducted primarily in apparel and publishing.

The national economic recession which began in July 1990 has adversely
impacted the City harder than almost any other political jurisdiction in the
nation. As a result, the City, with approximately 3 percent of national
employment, has lost approximately 20 percent of all U.S. jobs during the recent
economic downturn and, consequently, has suffered erosion of its local tax base.
In total, the City private sector employment has plummeted by approximately
360,000 jobs since 1987. But, after nearly five years of decline, the City
appears to be on the verge of a broad-based recovery which will lift many
sectors of the local economy. Most of the nascent local recovery can be
attributed to the continued improvement in the U.S. economy, but a great deal of

the strength expected in the City economy will be due to local factors, such as
the heavy concentration of the securities and banking industries in the City.
The current forecast calls for modest employment growth of about 20,000 a year
(0.6 percent) on average through 1998 with some slowing but still positive
growth in employment in 1995-96 as U.S. growth slows (local job gains slow from
25,000 to around 10,000 per year).

During the most recent economic downturn, the City has faced recurring
extraordinary budget gaps that have been addressed by undertaking one-time,
one-shot budgetary initiatives to close then projected budget gaps in order to
achieve a balanced budget as required by the laws of the State of New York (the
'State'). For example, in order to achieve a balanced budget for the 1992 fiscal
year, the City increased taxes and reduced services during the 1991 fiscal year
to close a then projected gap of $3.3 billion in the 1992 fiscal year which
resulted from, among other things, lower than expected tax revenue of
approximately $1.4 billion, reduced State aid for the City of approximately $564
million and greater than projected increases in legally mandated expenditures of
approximately $400 million, including public assistance and Medicare
expenditures. 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.

Notwithstanding its recurring projected budget gaps, for fiscal years 1981
through 1993 the City achieved balanced operating results (the City's General
Fund revenues and transfers reduced by expenditures transfers), as reported in
accordance with Generally Accepted Accounting Principles ('GAAP'), and the
City's 1994 fiscal year results are projected to be balanced in accordance with
GAAP.

The City's ability to maintain balanced budgets in the future is subject to
numerous contingencies; therefore, even though the City has managed to close
substantial budget gaps in recent years in order to maintain balanced operating
results, there can be no assurance that the City will continue to maintain a
balanced budget as required by State law without additional tax or other revenue
increases or reduction in City services, which could adversely affect the City's
economic base.

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.

On November 23, 1993, the City submitted to the Control Board the Financial
Plan for the 1994 through 1997 fiscal years, which is a modification to a
financial plan submitted to the Control Board on August 30, 1993 and which
relates to the City, the Board of Education ('BOE') and the City University of
New York ('CUNY'). 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

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$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
continuation of the personal income tax surcharge, resulting in revenues of $143
million; $80 million in proposed increased State aid, which is subject to
approval by the Governor; and revenue actions aggregating $173 million.

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 $1.7 billion, $2.5 billion and $2.7 billion for the 1995 through
1997 fiscal years, respectively. City gap-closing actions total $640 million in
the 1995 fiscal year, $814 million in the 1996 fiscal year and $870 million in
the 1997 fiscal year. These actions include increased revenues and reduced
expenditures from agency actions aggregating $165 million, $439 million and $470
million in the 1995 through 1997 fiscal years, respectively, including
productivity savings and savings from restructuring the delivery of City
services and service reductions; possible BOE expenditure reductions aggregating
$125 million in each of the 1995 through 1997 fiscal years; and reduced other
than personal service costs aggregating $50 million in each of the 1995 through
1997 fiscal years.

State actions proposed in the gap-program total $306 million, $616 million
and $766 million in each of the 1995, 1996 and 1997 fiscal years, respectively.
These actions include savings from various proposed mandate relief measures and
the proposed reallocation of State education aid among various localities
totaling $175 million, $325 million and $475 million in each of the 1995, 1996
and 1997 fiscal years, respectively. These actions also include $131 million in
1995 and $291 million in each of 1996 and 1997 in anticipated State actions

which could include savings from the proposed State assumption of certain
Medicaid costs or various proposed mandate relief measures.

The Federal actions proposed in the gap-closing program are $100 million
and $200 million in increased Federal assistance in fiscal years 1996 and 1997,
respectively.

Other Actions proposed in the gap-closing program represent Federal, State
or City actions to be specified in the future.

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.

Notwithstanding the proposed city, federal and state actions in the
gap-closing programs, the City Comptroller has warned in past published reports
that State and local tax increases in an economic downturn or period of slow
economic growth can have adverse effects on the local economy and can slow down
an economic recovery. The City Comptroller has also previously expressed
concerns about the effects on the City's economy and budgets of rapidly
increasing water and sewer rates, decreasing rental payments in future years
from the Port Authority under leases for LaGuardia and Kennedy airports, the
dependence on increased aid from the State and Federal Governments for
gap-closing programs, the escalation cost of judgements and claims, federal
deficit reduction measures and the increasing percentage of future years'
revenues projected to be consumed by debt service, even after reductions in the
capital program.

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Although the City has maintained balanced budgets in each of its last
thirteen 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.

In November 1993, Rudolph W. Giuliani was elected mayor of the City,
replacing the previous administration on January 1, 1994. Mayor Giuliani's
Modification No. 94-2 to the Financial Plan for the City and Covered
Organizations for fiscal years 1994-1998 (the 'Modification'), issued February
10, 1994, reports that for 1995 fiscal year, the budget gap is estimated at
$2.26 billion, or nearly a 12 percent shortfall of existing tax revenues over
baseline expenditures. Absent gap closing initiatives, the Modification reports
that the projected budget gap will grow to nearly $3.4 billion by 1998 fiscal
year. According to the Modification, the 1995 fiscal year budget gap is the
largest that the City has faced since 1981, when the City converted to GAAP. The
Modification attributes the projected budget gaps to the lingering national
recession, to a sharp growth in expenditures during the boom years of the 1980s
and the failure of the City to reduce the City's municipal workforce. The
Modification reports that at the same time that City employment has declined as
a percentage of U.S. employment, local government employment in the City, which
exceeds the state government employment of the five largest states, is on the
verge of an historic high. According to the Modification, at the end of December
1993, the City's full-time municipal workforce stood at more than 362,000
employees, and absent reductions, will reach an all-time high at the end of
fiscal year 1994.

The Modification states that in order to strengthen the City's long-term
fiscal position the City's gap closing initiatives must be accomplished without
resorting to one-shot gap-closing measures, such as tax increases; instead, it
must balance its budgets by reducing City spending, reducing the size of the
City's municipal workforce and reducing certain City taxes to encourage economic
growth. Under the Modification, fiscal year 1995 spending declines by $516
million over the current fiscal year, the lowest projected spending rate since
1975. The Modification plans to reduce the City's municipal workforce by 15,000
positions, as compared to the current actual headcount, by the end of fiscal
year 1995. The workforce reduction will be achieved through an aggressive
severance package, and, if necessary, layoffs. It is anticipated that these
workforce reduction initiatives will save $117 million, $144 million, $311
million, $415 million and $539 million in fiscal years 1994 through 1998,
respectively, after taking into account an estimated $200 million in costs
related to instituting the proposed severance programs which are anticipated to
be financed with surplus Municipal Assistance Corporation funds (see below for a
discussion of the Municipal Assistance Corporation). The Modification also
contemplates the loss of $35 million, $186 million, $534 million and $783
million in tax revenues in 1995 through 1998, respectively, as a result of the
reduction in certain City taxes, such as the reduction of the hotel tax from 6

percent to 5 percent, commercial rent tax reductions and the elimination of the
12.5 percent personal income tax surcharge.

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
and the concomitant receipt of economically sensitive tax revenues in the
amounts projected. 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 the New York City Health and Hospitals
Corporation ('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

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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
$11.7 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 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 Uniformed 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 $30 million for the 1995 fiscal year and $135 million for the 1996
fiscal year and $150 million for each year thereafter above the amounts provided
for in the Financial Plan.

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A substantial portion of the capital improvements in the City are financed
by indebtedness issued by the Municipal Assistance Corporation for the City of
New York ('MAC'). 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 September 30,
1993, MAC had outstanding an aggregate of approximately $5.304 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 maintenance 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. The national recession which commenced
in mid-1990 has had a more adverse impact on the State's economy than on other
parts of the nation, owing to a significant retrenchment in the financial

services industry, cutbacks in defense spending, and an overbuilt real estate
market in the State and City. As a result of the national and regional economic
recession, the State's tax revenues 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 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, adoption 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,

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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) a
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 capital projects, of
$162 million, after reflecting certain re-estimates 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 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.

On October 29, 1993, the State released a revised financial plan for the
State's 1993-94 fiscal year (the 'Revised State Financial Plan') which includes
increased taxes and other revenues, deferral of scheduled personal income and
corporation tax reductions, reductions from previously projected levels in aid
to localities and State operations and other budgetary actions that further
limit the growth of General Fund disbursements as compared to the initial
financial plan for the State's 1993-94 fiscal year. The Revised State Financial
Plan is based on economic projections that the State will perform more poorly
than the nation as a whole. The State's economy, as measured by employment, was
expected to commence growth late in the 1993 calendar year. Many uncertainties
exist in forecasts of both the national and State economies, including consumer
attitudes toward spending. There can be no assurance that the State economy will
not experience worse-than-predicted results in the 1993-94 fiscal year, with

corresponding material and adverse effects on the State's projections of
receipts and disbursements.

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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 excluding refunding bonds and $293 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 $818.8 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, 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

18
<PAGE>

corporations and general business corporations doing business in the 12-county
region served by the 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 1992, 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.

Litigation. A number of court actions have been brought involving State
finances. The court actions in which the State is a defendant generally involve
state programs and miscellaneous tort, real property, employment discrimination
and contract claims and the monetary damages sought are substantial. The outcome
of these proceedings could affect the ability of the State to maintain a
balanced State Financial Plan in the 1994-97 fiscal year or thereafter.

In particular, for the State's 1993-1994 fiscal year, the State may be
required to make payments as a result of the United States Supreme Court
decision in the case of State of Delaware v. State of New York, which involved a
challenge to the State's possession of certain funds taken pursuant to the
State's Abandoned Property Law. Although it is not possible to predict the
amounts of the payments that may be required to be made in the State's 1993-94
fiscal year, the amount may be significant. The Division of the Budget expects,
however, that the State will have the resources to meet reasonably anticipated
payment requirements for the 1993-94 fiscal year resulting from the litigation.

In addition, on November 23, 1993, the New York Court of Appeals, the
State's highest court, affirmed the decisions of the State's Supreme Court in
several actions challenging the constitutionality of legislation enacted in 1990
which changed the actuarial funding methods for determining contributions by the
State and local governments to the State and local retirement systems. As a
result of this decision, the State Comptroller has developed a plan to return to
the previous actuarial funding method and to restore previous funding levels of
the retirement system. The Comptroller expects to achieve this objective in a
manner that, consistent with its fiduciary duties, will neither require the

19
<PAGE>

State to make additional contributions in its 1993-1994 fiscal year nor
materially and adversely affect the financial condition of the State thereafter.

Among the more significant of these claims still pending against the State
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) alleged responsibility of State
officials to assist in remedying racial segregation in the City of Yonkers; (8)
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; (9) 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; (10) a challenge to the
constitutionality of financing programs of the Thruway Authority authorized by
Chapters 166 and 410 of the Laws of 1991; (11) a challenge to the
constitutionality of financing programs of the Metropolitan Transportation
Authority and the Thruway Authority authorized by Chapter 56 of the Law of 1993;
(12) challenges to the delay by the State Department of Social Services in
making two one-week Medicaid payments to the service providers; (13) 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; (14) challenges to the promulgation of the
State's proposed procedure to determine the eligibility for and nature of home
care services for Medicaid recipients; (15) a challenge to State implementation
of a program which reduces Medicaid benefits to certain home-relief recipients;
and (16) 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.

The State has for many years had a very high State and local tax burden
relative to other states. The State and its localities have used these taxes to
develop and maintain their transportation networks, public schools and colleges,
public health systems, other social services and recreational facilities.
Despite these benefits, the burden of State and local taxation, in combination
with the many other causes of regional economic dislocation, has contributed to
the decisions of some businesses and individuals to relocate outside, or not
locate within, the State.

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<PAGE>

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
capital 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 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
December 1993, which is above the national average of 6.4% in December 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.

21
<PAGE>

NEW JERSEY BUDGET AND APPROPRIATION SYSTEM

The State operates on a fiscal year beginning July 1 and ending June 30. At
the end of Fiscal Year 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 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 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.

22
<PAGE>

On November 2, 1993, Governor Florio lost his bid for reelection to
Christine Todd Whitman who was sworn into office on January 18, 1994. Governor
Whitman, a Republican, enjoys the benefit of having a Republican majority in
both the New Jersey Senate and Assembly. On March 7, 1994, Governor Whitman
signed a bill into law reducing the New Jersey State Income Tax by 5%
retroactive to January 1, 1994.

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 Aa1. 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 its principal reason for its
caution the unexpected denial by the Federal Government of New Jersey's request
for $450 million in retroactive Medicaid payments for psychiatric hospitals.
These funds were critical to closing a $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 remained concerned about
the recent federal ruling leaving in doubt how much the State was due in
retroactive Medicaid reimbursements and a ruling by a federal judge, now on
appeal, of the State's method for paying for uninsured hospital patients. There
can be no assurance that these ratings will continue or that particular bond
issues may not be adversely affected by changes in the State or local economic
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.

23
<PAGE>

LEASE FINANCING

The State has entered into a number of leases relating to the financing of
certain real property and equipment. The State leases the State Tax Processing
Building and the Richard J. Hughes Justice Complex in Trenton, both from the
Mercer County Improvement Authority (the 'Authority'). On August 8, 1991 the
Authority defeased outstanding bonds originally issued to finance construction
of the Richard J. Hughes Justice Complex through the issuance of custody
receipts (the 'Custody Receipts') in the aggregate principal amount of
$95,760,000. The rental is sufficient to cover the debt service on the
Authority's Custody Receipts. Maximum annual rental payments on these leases,
including debt service, maintenance and payments in lieu of taxes, will be
approximately $11 million. The State's obligation to pay the rentals is subject
to appropriations being made by the State Legislature. The Custody Receipts will
mature in the years 1992 through 2018.

The State has also entered into a lease agreement, as lessee, with the New
Jersey Economic Development Authority, as lessor (the 'EDA') to lease (i) office
buildings that are presently under construction and when finished, are expected
to house the New Jersey Division of Motor Vehicles, New Jersey Network (the
State's public television station), and a branch of the United States Postal
Service and (ii) a parking facility that is also under construction, all of
which were financed by the EDA's $114,391,434.70 initial aggregate principal
amount of Trenton Office Complex Revenue Bonds, 1980 Series dated December 1,
1989. The State has also entered into a lease agreement, as lessee, with the EDA
to lease approximately 13 acres of real property and certain infrastructure
improvements thereon located in the City of Newark. This property is in a
geographical area generally bounded by McCarter Highway, Mulberry Street and
Saybrook Place and its purchase was financed by $21,510,000 aggregate principal
amount of New Jersey Economic Development Authority Revenue Bonds, New Jersey
Performing Arts Center Site Acquisition Project, 1991 Series, issued on August
20, 1991. The rental payments required to be made by the State under such lease
agreements are sufficient to cover debt service on such bonds and other amounts
payable to the EDA, including certain administrative expenses of the EDA, and

such rental payments are subject to annual appropriation by the State
Legislature. Maximum annual debt service on such bonds is approximately
$12,200,000. All of such bonds are still outstanding and mature in the years
1992 through 2012.

The State has also entered into a sublease with the EDA to lease two
parking lots, certain infrastructure improvements and related elements located
at Liberty State Park in the City of Jersey City. These parking lots and
improvements have been financed by $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

24
<PAGE>

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 December 31, 1991 the total amount of
Building Authority Bonds outstanding was $238,687,206.05. Outstanding Building
Authority bonds are secured by annual rentals from the State which are subject
to annual appropriations by the State Legislature. The State's combined annual
rental payment for all leases with the Building Authority will be (i)
approximately $17.5 million per year for the years ending June 15, 1992 through
1998, 2012 and 2013 and (ii) approximately $31.0 million per year for the years
ending June 15, 1999 through 2011.

Beginning in April 1984, the State, acting through the Director of the
Division of Purchase and Property, entered into a series of lease purchase
agreements which provide for the acquisition of equipment and real property to
be used by various departments and agencies of the State. To date, the State has
completed nine lease purchase agreements which have resulted in 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
December 31, 1991, $305,400,000 Certificates of Participation remain
outstanding. The agreements relating to these transactions provide for
semiannual rental payments. The State's obligation to pay rentals due under
these leases is subject to annual appropriations being made by the State
Legislature. The final maturity of the outstanding Certificates of Participation
is December 15, 2013. The majority of proceeds from these transactions have been
or will be used to acquire equipment for the State and its agencies. The rentals
payable by the State will be made from monies appropriated by the State
Legislature. The State intends to continue to use this financing technique for a
substantial portion of its future equipment requirements.

'MORAL OBLIGATION' FINANCING

Aside from its general obligation bonds, the State's 'moral obligation'
backs certain obligations issued by the New Jersey Housing and Mortgage Finance
Agency, the South Jersey Port Corporation and the Higher Education Assistance
Authority.

NEW JERSEY HOUSING AND MORTGAGE FINANCE AGENCY

Neither the New Jersey Housing and Mortgage Finance Agency nor its
predecessors, the New Jersey Housing Finance Agency and the New Jersey Mortgage
Finance Agency, have had a deficiency in a debt service reserve fund which
required the State to appropriate funds to meet its 'moral obligation'. It is
anticipated that this agency's revenues will continue to be sufficient to cover
debt service on its bonds.

SOUTH JERSEY PORT CORPORATION

The State provides the South Jersey Port Corporation (the 'Corporation')
with funds to cover all debt service and property tax requirements, when earned
revenues are anticipated to be insufficient to cover these obligations.

HIGHER EDUCATION ASSISTANCE AUTHORITY

The Higher Education Assistance Authority has issued $24,996,064 aggregate
principal amount of revenue bonds, the interest on which has been capitalized to
but not including January 1, 1993. After the period of capitalized interest has
ended, it is anticipated that the authority's revenues will be sufficient to
cover debt service on its bonds.

25
<PAGE>

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.

26
<PAGE>
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 1987,
1988, and 1989 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 five for 1987, zero for 1988, and six for 1989. The number of
municipalities which exceeded statutory debt limits was six, five, and one as of
December 31, 1987, 1988, and 1989, respectively. No New Jersey
municipality or county has defaulted on the payment of interest or
principal on any outstanding debt obligation since the 1930's.

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SCHOOL DISTRICTS

All New Jersey school districts are coterminous with the boundaries of one
or more municipalities. They are characterized by the manner in which the board
of education, the governing body of the school district, takes office. Type I
school districts, most commonly found in cities, have a board of education
appointed by the mayor or the chief executive officer of the municipality
constituting the school district. In a Type II school district, the board of
education is elected by the voters of the district. Nearly all regional and
consolidated school districts are Type II school districts.

SCHOOL BUDGETS

In every school district having a board of school estimate, the board of
school estimate examines the budget request and fixes the appropriation amounts
for the next year's operating budget after a public hearing at which the
taxpayers and other interested persons shall have an opportunity to raise
objections and to be heard with respect to the budget. This board, whose
composition is fixed by statute, certifies the budget to the municipal governing
bodies and to the local board of education. If either disagrees, they must
appeal to the State Commissioner of Education (the 'Commissioner') to request
changes.

The Quality Education Act of 1990 (N.J.S.A. 18A:7D-1 et seq.) limits the
annual increase of a school district's net current expense budget. The
Commissioner certifies the allowable amount of increase for each school district
but may grant a higher level of increase in certain limited instances. A school
district may also submit a proposal to the voters to raise amounts above the
allowable amount of increase. If defeated, such a proposal is subject to further
review or appeal only if the Commissioner determines that additional funds are
required to provide a thorough and efficient education.

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

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school district having a board of school estimate; or (iii) adoption of
a proposal by resolution by the board of education and approval of the
proposal by the legal voters of any other Type II school district. If
school bonds will exceed the school district borrowing capacity, a
school district (other than a regional school district) may use the
balance of the municipal borrowing capacity. If the total amount of debt
exceeds the school district's borrowing capacity and any available
remaining municipal borrowing capacity, the Commissioner and the Local
Finance Board must approve the proposed authorization before it is
submitted to the voters. All authorizations of debt in a Type II school

district without a board of school estimate require an approving
referendum, except where, after hearing, the Commissioner and the State
Board of Education determine that the issuance of such debt is necessary
to meet the constitutional obligation to provide a thorough and
efficient system of public schools. When such obligations are issued,
they are issued by, and in the name of, the school district.

In Type I and II school districts with a board of school estimate, that
board examines the capital proposal of the board of education and certifies the
amount of bonds to be authorized. When it is necessary to exceed the borrowing
capacity of the municipality, the approval of a majority of the legally
qualified voters of the municipality is required, together with the approval of
the Commissioner and the local Finance Board. When such bonds are issued for a
Type I school district, they are issued by the municipality and identified as
school bonds. When bonds are issued by a Type II school district having a board
of school estimate, they are issued by, and in the name of, the school district.

All authorizations of debt must be reported to the Division of local
Government Services by a supplemental debt statement prior to final approval.

SCHOOL DISTRICT LEASE PURCHASE FINANCINGS

In 1982, school districts were given an 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 (P.L. 1976, c. 38 and c. 39) which
provides for the issuance by municipalities and school districts of 'qualified
bonds.' Whenever a local board of education or the governing body of a
municipality determines to issue bonds, it may file an application with the

Local Finance Board, and, in the case of a local board of education, the
Commissioner, to qualify bonds pursuant to P.L. 1976, c. 38 or c. 39. Upon
approval of such an application and after receipt of a certificate stating the
name and address of the paying agent for such bonds, the maturity 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.

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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 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,
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.

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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 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 and
that this has had an adverse impact on the quality of services they are
able to provide to Medicaid patients. Plaintiffs are attempting to have
their lawsuit certified as a class action on behalf of all New Jersey
long-term care facilities, which provide services to Medicaid patients.
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.

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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 Tax Court for an accounting. The plaintiffs filed with the
Supreme Court of the United States a petition for a 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

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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 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

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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 Third Circuit Court
of Appeals rendered its decision and a petition for certiorari is
presently pending before the United States Supreme Court. 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.

Communication 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 certain 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 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.

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 of 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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<PAGE>

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 1994 General Assembly session, the 1992-1994 budget was amended to
reflect $96,000,000 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 December 31, 1993) is approximately $700
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
have no obligation to provide for payment of such private activity bonds and in
many cases would be legally prohibited from doing so. The value of such private
activity bonds may be affected by a wide variety of factors relevant to
particular localities or industries, including economic developments outside of
Virginia.

Virginia municipal securities that are lease obligations are customarily
subject to 'non-appropriation' clauses which allow the municipality 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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<PAGE>
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 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 (i) for the Insured Trusts and the State
Trust: 5.152% of the aggregate offering price of the Bonds per Unit which is
equal to 4.9% of the Public Offering Price or (ii) for the Municipal Trust:
4.058% of the aggregate offering price of the Bonds per Unit which is equal to
3.9% 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 Insured 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 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. 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 will have an amount of interest accrued but not actually
received. However, due to advances by the Trustee, the Trustee will provide a
first distribution between approximately 30 and 60 days after the Date of
Deposit.

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>
APPROXIMATE REDUCED SALES CHARGE
------------------------------------
INSURED,
DISCOUNT FROM PUBLIC OFFERING NAVIGATOR &
NUMBER OF UNITS PRICE PER UNIT VIRGINIA TRUSTS MUNICIPAL TRUST
---------------- ----------------------------- ---------------- ----------------
<S> <C> <C> <C>
100--249 $ 2.50 4.66% 3.66%
250--499 5.00 4.42% 3.42%
500--749 7.50 4.18% 3.18%
750--999 10.00 3.94% 2.94%
1,000 and over 15.00 3.45% 2.46%
</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.

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

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<PAGE>
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>

SPONSORS' AND UNDERWRITERS' PROFITS

The Sponsors and the Underwriters will receive a gross underwriting
commission equal to (i) for the Insured Trusts and the State Trust: 4.9% of the
Public Offering Price per Unit (equivalent to 5.152% of the net amount invested
in the Bonds) or (ii) for the Municipal Trust: 3.9% of the Public Offering Price
per Unit (equivalent to 4.058% 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

39
<PAGE>
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 rate of return on an investment in Units of each Trust is
measured in terms of 'Estimated Current Return' and 'Estimated Long Term
Return'.

40
<PAGE>
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.

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
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

41
<PAGE>
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. The Trustee's fee
takes into account the costs attributable to the outlay of capital needed to
make such advances. 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 or semi-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 Dates for monthly interest distributions will be
the first day of each month and the first day of June and December for
semi-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

42
<PAGE>
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 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

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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 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.

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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.

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.

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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 Hunton & Williams, special counsel to the Sponsors for
Virginia tax matters, under existing Virginia law applicable to individuals who
are Virginia residents and assuming that the Virginia Trust is a grantor trust
under the grantor trust rules of Sections 671-679 of the Code:

The Virginia Trust will be taxable as a grantor trust for Virginia
income tax purposes with the result that income of the Virginia Trust will
be treated as income of the Certificateholders of the Virginia Trust.
Consequently, the Virginia Trust will not be subject to any income or
corporate franchise tax imposed by the Commonwealth of Virginia, or its
subdivisions, agencies or instrumentalities.

Interest on the Bonds in the Virginia Trust that is exempt from
Virginia income tax when received by the Virginia Trust will retain its tax
exempt status in the hands of the Certificateholders of the Virginia Trust.

A Certificateholder of the Virginia Trust will realize a taxable event
when the Virginia Trust disposes of a Bond (whether by sale, exchange,
redemption or payment at maturity) or when the Certificateholder redeems or
sells his Units, and taxable gain for Federal income tax purposes may
result in taxable gain for Virginia income tax purposes. Certain Bonds,
however, may have been issued under Acts of the Virginia General Assembly
which provide that all income from such Bond, including any profit from the
sale thereof, shall be free from all taxation by the Commonwealth of

Virginia. To the extent that any such profit is exempt from Virginia income
tax, any such profit received by the Virginia Trust will retain its tax
exempt status in the hands of the Certificateholders of the Virginia Trust.

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

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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 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.

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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 (i) for the Insured Trusts and the State Trust; a 4.9%
sales charge (5.152% of the net amount invested) plus net accrued interest or
(ii) for the Municipal Trust: a 3.9% sales charge (4.058% of the net amount
invested) plus net accrued interest. Any Units that are purchased by the
Sponsors in the secondary market also may be redeemed by the Sponsors if it
determines such redemption to be in its best interest.

The Sponsors may, under certain circumstances, as a service to
Certificateholders, elect to purchase any Units tendered to the Trustee for
redemption (see '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.

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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.'

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.

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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
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 (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).

A semi-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
------------------
* Texas residents may elect to participate in the 'Total Reinvestment Plan for
Texas Residents' hereinafter described.

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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 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. 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
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 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 Certificateholder who has acquired Plan Units 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

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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 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 Certificateholders of the Trusts who are residents of Texas
have the option prior to any semi-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 Certificateholder may join the
Texas Plan for any particular semi-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 distribution he
wishes to reinvest. On or about each semi-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

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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 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 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 Certificateholder who has acquired Plan Units will be
deemed to have elected the semi-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.

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 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.

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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 Trusts as set forth in the 'Summary of
Essential Information' in Part A. Bear, Stearns & Co. Inc. has been appointed by
Gruntal & Co., Incorporated as agent for purposes of taking any action required
or permitted to be taken by the Sponsors under the Trust Agreement. If the
Sponsors are unable to agree with respect to action to be taken jointly by them
under the Trust Agreement and they cannot agree as to which Sponsor shall act as
sole Sponsor, then Bear, Stearns & Co. Inc. shall act as sole Sponsor. If one 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).

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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 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

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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'. In addition, the Trustee's fee may be periodically adjusted in
response to fluctuations in short-term interest rates (reflecting the cost to
the Trustee of advancing funds to a Trust to meet scheduled distributions).

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
50 cents per Unit. Certificateholders covered by the audit during the
year may receive a copy of the audited financials upon request.

<PAGE>
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

58
<PAGE>
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

59
<PAGE>
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).

60
<PAGE>
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. 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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<PAGE>
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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<PAGE>
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.

<PAGE>
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
Insured Fund and/or ______ units of New York Navigator Insured Series
______ and/or ______ units of New Jersey Navigator Insured Series
______ and/or ______ units of Municipal Trust and/or ______ units of
Virginia Trust.

I hereby authorize the United States Trust Company of New York, Trustee
to pay all semi-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)
</TABLE>

My Brokerage Firm's Name _________________________________________________

Street Address ___________________________________________________________

City, State and Zip Code__________________________________________________

Salesman's Name _____________________ Salesman's No. _____________________

UNIT HOLDERS NEED ONLY DATE AND SIGN THIS FORM

MAIL TO YOUR BROKER

UNITED STATES TRUST COMPANY OF NEW YORK
ATTN: THE UIT INVESTMENT DEPARTMENT UNIT A
770 BROADWAY

NEW YORK, NEW YORK 10003

<PAGE>
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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
----------------------------------------------- -----
PART A
<S> <C>
Summary of Essential Information............... A-2
Independent Auditors' Report................... A-15
Statements of Condition........................ A-16
Portfolios..................................... A-17
Underwriting Syndicates........................ A-23
<CAPTION>
PART B
<S> <C>
The Trust...................................... 1
Public Offering................................ 37
Estimated Long Term Return and Estimated
Current Return............................... 40
Rights of Certificateholders................... 41
Tax Status..................................... 43
Liquidity...................................... 48
Total Reinvestment Plan........................ 50
Trust Administration........................... 53
Trust Expenses and Charges..................... 57
Exchange Privilege and Conversion Offer........ 58
Other Matters.................................. 61
Description of Bond Ratings.................... 62
Description of Rating.......................... 63
</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.

SERIES 32,
NEW YORK NAVIGATOR INSURED SERIES 16,
NEW JERSEY NAVIGATOR INSURED SERIES 12

AND

SERIES 55 INTERMEDIATE
MULTI-STATE SERIES 45

(UNIT INVESTMENT TRUSTS)

PROSPECTUS

DATED: APRIL 14, 1994

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

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