Rule 497(b)
Registration No. 33-58167
NOTE: Part A of This Prospectus May Not Be
Distributed Unless Accompanied by Part B.
INSURED MUNICIPAL SECURITIES TRUST
NEW YORK NAVIGATOR INSURED
SERIES 17
The Trust is a unit investment trust designated Series 17 ("New
York Navigator Trust") with an underlying portfolio of long-term insured tax-
exempt bonds and was formed to preserve capital and to provide interest income
(including, where applicable, earned original issue discount) which, in the
opinions of bond counsel to the respective issuers, is, with certain
exceptions, currently exempt from regular federal income tax under existing
law and from New York State and City personal income tax. Capital gains,
however, are subject to tax. (See "Tax Status" and "The Trust--Portfolio" in
Part B of this Prospectus.) The Sponsors are Reich & Tang Distributors L.P.
(successor Sponsor to Bear, Stearns & Co. Inc.) and Gruntal & Co.,
Incorporated (sometimes referred to as the "Sponsor" or the "Sponsors"). The
value of the Units of the Trust will fluctuate with the value of the
underlying bonds. Minimum purchase: 1 Unit.
This Prospectus consists of two parts. Part A contains the Summary
of Essential Information as of December 31, 1995 (the "Evaluation Date"), a
summary of certain specific information regarding the Trust and audited
financial statements of the Trust, including the related portfolio, as of the
Evaluation Date. Part B of this Prospectus contains a general summary of the
Trust.
Investors should retain both parts of this Prospectus for
future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus Part A Dated April 30, 1996
352467.1
<PAGE>
THE TRUST. The 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. The Trust
seeks to achieve its investment objectives through investment in a fixed,
diversified portfolio of long-term insured bonds (the "Bonds") issued by or on
behalf of states, municipalities and public authorities which, because of
irrevocable insurance, were rated "AAA" by Standard & Poor's Corporation. A
Trust designated as a short/intermediate-term trust must have a dollar-weighted
average portfolio maturity of more than two years but less than five years; a
Trust designated as an intermediate-term trust must have a dollar-weighted
average portfolio maturity of more than three years but not more than ten
years; a Trust designated as an intermediate/long-term trust must have a
dollar-weighted average portfolio maturity of more than ten years but less than
fifteen years; and a Trust designated as a long-term trust must have a
dollar-weighted average portfolio maturity of more than ten years. Although the
Supreme Court has determined that Congress has the authority to subject the
interest on bonds such as the Bonds in the Trust to 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 Portfolio" 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 of this Prospectus.) Some of the aggregate
principal amount of the Bonds in the Trust may be "Zero Coupon Bonds," which
are original issue discount bonds that provide for payment at maturity at par
value, but do not provide for the payment of current interest (for the amount
of Zero Coupon Bonds in each Trust, and the cost of such Bonds to that Trust,
see "Description of Portfolio" in this Part A). All of the Bonds in the Trust
were rated "AAA" by Standard & Poor's Corporation at the time originally
deposited in the Trust (see "Portfolio"). This rating results from insurance
relating only to the Bonds in the Trust and not to Units of the Trust. The
insurance does not remove market risk, as it does not guarantee the market
value of the Units. For a discussion of the significance of such ratings, see
"Description of Bond Ratings" in Part B of this Prospectus. 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 Trust's investment
objectives will be achieved. Investment in the Trust should be made with an
understanding of the risks which an investment in long-term fixed rate debt
obligations may entail, including the risk that the value of the underlying
portfolio will decline with increases in interest rates, and that the value of
Zero Coupon Bonds is subject to greater fluctuation than coupon bonds in
response to such changes in interest rates. (See "Portfolio" in Part B of this
Prospectus.) Each Unit in the Trust represents a 1/3000th undivided interest in
the principal and net income of the Trust. The principal amount of Bonds
deposited in the Trust per Unit is reflected in the Summary of Essential
Information. (See "Organization" in Part B of this Prospectus.) The Units being
offered hereby are issued and outstanding Units which have been purchased by
the Sponsors in the secondary market.
INSURANCE. Each of the Bonds in the New York Navigator Trust is
insured by a municipal bond guaranty insurance policy obtained by the Sponsors
(the "Navigator Sponsor-Insured Bonds") from MBIA Insurance Corporation ("MBIA
Corp.") covering regularly scheduled payments of principal thereof and interest
thereon when such amounts become due for payment but shall not have been paid.
Such amounts shall be reduced by any amounts received by the holders or the
owners of the Bonds from any trustee for the Bond issuers, any
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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 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. 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 required. Such
insurance does not cover accelerated payments required to be made by or on
behalf of an issuer of other than small industrial revenue bonds or pollution
control revenue bonds if there occurs an event which results in the loss of the
tax exempt status of the interest on such Bonds nor does the insurance cover
accelerated payments of principal or penalty interest or premiums unrelated to
taxability of interest on any of the Bonds, including pollution control revenue
bonds or small industrial development bonds. In the event of accelerated
payments on any such Bonds unrelated to the taxability of interest on any such
Bonds, the payments guaranteed by MBIA Corp. shall be made in such amounts and
at such times such payment would have been made absent such an acceleration.
The insurance relates only to the prompt payment of principal of and interest
on the securities in the New York Navigator Trust and does not remove market
risk nor does it guarantee the market value of Units in the New York Navigator
Trust. The terms of the insurance are more fully described under "Insurance on
the Bonds" in Part B of this Prospectus. For discussion of the effect of an
occurrence of non-payment of principal or interest on any Bonds in the New York
Navigator Trust see "Portfolio Supervision" in Part B of this Prospectus. 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. The premiums for the Navigator Sponsor-Insured
Bonds are obligations of the Sponsors. Additionally, some of the Bonds in the
New York Navigator Trust may be Pre- Insured Bonds (as described below). The
premium for the Pre-Insured Bonds is an obligation of the issuers, underwriters
or prior owners of those Bonds. The insurance policy or policies relating to
the Navigator Sponsor-Insured Bonds provides that, to the extent that Bonds are
both Pre-Insured Bonds and Navigator Sponsor-Insured Bonds, coverage is
effective after a claim has been made upon the insurer of the Pre-Insured
Bonds.
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.
Some of the Bonds in the New York Navigator Trust may additionally
be insured by a municipal bond guaranty insurance policy obtained by issuers,
underwriters or prior owners of the Bonds ("Pre-Insured Bonds") and issued by
one of the insurance companies described under "Insurance on the Bonds" in Part
B of this Prospectus (the "Insurance Companies"). 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
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Corp., will also cover any accelerated payments of principal and any increase
in interest payments or premiums, if any, payable upon mandatory redemption of
the Bonds if interest on any such Bond is ultimately deemed to be subject to
federal income tax. Insurance obtained from MBIA Corp. only guarantees the full
and complete payments required to be made by or on behalf of an issuer of small
industrial revenue bonds and pollution control revenue bonds if there occurs an
event which results in the loss of tax-exempt status of the interest on such
Bonds, including principal, interest or 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 not be covered for the full and
complete payments required to be made by or on behalf of an issuer of other
than small industrial revenue bonds or pollution control revenue bonds if there
occurs an event which results in the loss of tax-exempt status of the interest
on such Bonds. None of the insurance will cover accelerated payments of
principal or penalty interest or premiums unrelated to taxability of interest
on the Bonds. The insurance relates only to the prompt payment of principal of
and interest on the securities in the portfolios, and does not remove market
risks nor does it guarantee the market value of Units in the Trusts. The terms
of the insurance are more fully described herein. No representation is made
herein as to any Bond insurer's ability to meet its obligations under a policy
of insurance relating to any of the Pre-Insured Bonds. In addition, investors
should be aware that subsequent to the Date of Deposit the rating of the
claims-paying ability of the insurer of an underlying Pre-Insured Bond may be
downgraded.
All of the Bonds in the New York Navigator Trust are covered by
insurance obtained by the Sponsors from MBIA Corp. and 31.3% of the Bonds in
the New York Navigator Trust are Pre-Insured Bonds. The approximate percentage
of the aggregate principal amount of the Portfolio that is insured by each
Insurance Company with respect to Pre-Insured Bonds is as follows: AMBAC
Indemnity Corp. ("AMBAC"), 8.3%; Financial Security Assurance Inc.
("Financial Security"), 5.2%; and MBIA Corp., 17.8%.
PUBLIC OFFERING PRICE. The secondary market Public Offering Price
of each Unit is equal to the aggregate offering price of the Bonds in such
Trust divided by the number of Units outstanding, plus a sales charge of 5.8%
of the Public Offering Price, or 6.157% of the net amount invested in Bonds per
Unit. In addition, accrued interest to the expected date of settlement is added
to the Public Offering Price. If Units had been purchased on the Evaluation
Date, the Public Offering Price per Unit would have been $1,075.23 plus accrued
interest of $.46 under the monthly distribution plan and $5.21 under the
semi-annual distribution plan, for a total of $1,075.69 and $1,080.44,
respectively. The Public Offering Price per Unit can vary on a daily basis in
accordance with fluctuations in the aggregate bid price of the Bonds. (See
"Public Offering--Offering Price" in Part B of this Prospectus.)
ESTIMATED LONG TERM RETURN AND ESTIMATED CURRENT RETURN. Units of
each Trust are offered to investors on a "dollar price" basis (using the
computation method 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 the Trust's portfolio in accordance with accepted bond
practices, which practices take into account not only the interest payable on
the Bond but also the amortization of premiums or accretion of discounts, if
any; (2) calculating the average of the yields for the Bonds in the Trust's
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portfolio by weighing each Bond's yield by the market value of the Bond and by
the amount of time remaining to the date to which the Bond is priced (thus
creating an average yield for the portfolio of the Trust); and (3) reducing the
average yield for the portfolio of the Trust in order to reflect estimated fees
and expenses of the Trust and the maximum sales charge paid by investors. The
resulting Estimated Long Term Return represents a measure of the return to
investors earned over the estimated life of the Trust. (For the Estimated Long
Term Return to Certificateholders under the monthly, semi-annual and annual
distribution plans, see "Summary of Essential Information".)
Estimated Current Return is a measure of the Trust's cash flow.
Estimated Current Return is computed by dividing the Estimated Net Annual
Interest Income per Unit by the Public Offering Price per Unit. In contrast to
the Estimated Long Term Return, the Estimated Current Return does not take into
account the amortization of premium or accretion of discount, if any, on the
Bonds in the portfolio of the Trust. Moreover, because interest rates on Bonds
purchased at a premium are generally higher than current interest rates on
newly issued bonds of a similar type with comparable rating, the Estimated
Current Return per Unit may be affected adversely if such Bonds are redeemed
prior to their maturity.
The Estimated Net Annual Interest Income per Unit of the Trust will
vary with changes in the fees and expenses of the Trustee and the Evaluator
applicable to the Trust and with the redemption, maturity, sale or other
disposition of the Bonds in the Trust. The Public Offering Price will vary with
changes in the bid prices of the Bonds. Therefore, there is no assurance that
the present Estimated Current Return or Estimated Long Term Return will be
realized in the future. (For the Estimated Current Return to Certificateholders
under the monthly, semi-annual and annual distribution plans, see "Summary of
Essential Information". See "Estimated Long Term Return and Estimated Current
Return" in Part B of this Prospectus.)
A schedule of cash flow projections is available from the Sponsors
upon request.
DISTRIBUTIONS. Distributions of interest income, less expenses,
will be made by the Trust either monthly, semi-annually or annually depending
upon the plan chosen by the Certificateholder. Certificateholders purchasing
Units in the secondary market will initially receive distributions in
accordance with the elections of the prior owner and may thereafter change the
plan as provided under "Interest and Principal Distributions" in Part B of this
Prospectus. Distributions of principal, if any, will be made semi-annually on
June 15 and December 15 of each year. (See "Rights of
Certificateholders--Interest and Principal Distributions" in Part B of this
Prospectus. For estimated monthly, semi-annual and annual interest
distributions, see "Summary of Essential Information.")
MARKET FOR UNITS. The Sponsors, although not obligated to do so,
intend to maintain a secondary market for the Units at a price based on the
aggregate bid price of the Bonds in the Trust portfolio. The reoffer price will
be based on the aggregate bid price of the Bonds plus a sales charge of 5.8% of
the Public Offering Price (6.157% of the net amount invested), plus net accrued
interest. If a market is not maintained a Certificateholder will be able to
redeem his or her Units with the Trustee at a price based on the aggregate bid
price of the Bonds. (See "Sponsor Repurchase" and "Public Offering--Offering
Price" in Part B of this Prospectus.)
TOTAL REINVESTMENT PLAN. Certificateholders under the semi-annual
and annual plans of distribution have the opportunity to have all their regular
interest distributions, and principal distributions, if any, reinvested in
available series of "Insured Municipal Securities Trust" or
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"Municipal Securities Trust." (See "Total Reinvestment Plan" in Part B of
this Prospectus. Residents of Texas see "Total Reinvestment Plan for Texas
Residents" in Part B of this Prospectus.) The Plan is not designed to be a
complete investment program.
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INSURED MUNICIPAL SECURITIES TRUST
NEW YORK NAVIGATOR INSURED
SERIES 17
SUMMARY OF ESSENTIAL INFORMATION AS OF DECEMBER 31, 1995
Date of Deposit: April 6, 1995 Weighted Average Life to
- --------------- ------------------------
Principal Amount of Bonds ... $3,000,000 Maturity: 23.9 Years.
- ------------------------- --------
Number of Units ............. 3,000 Minimum Value of Trust:
- --------------- ----------------------
Fractional Undivided Inter- Trust may be terminated if
- --------------------------
est in Trust per Unit ..... 1/3000 value of Trust is less than
---------------------
Principal Amount of $1,200,000 in principal
- -------------------
Bonds per Unit ............ $1,000.00 amount of Bonds.
--------------
Secondary Market Public Mandatory Termination Date:
Offering Price** The earlier of December 31,
Aggregate Bid Price 2044 or the disposition of
of Bonds in Trust ....... $3,048,274+++ the last Bond in the Trust.
Divided by 3,000 Units .... $1,016.09 Trustee***: The Chase
-------
Plus Sales Charge of 5.8% Manhattan Bank, N.A.
of Public Offering Price $59.14 Trustee's Annual Fee: Monthly
--------------------
Public Offering Price plan $1.49 per $1,000; and
per Unit ................ $1,075.23+ semi-annual plan $1.04 per
Redemption and Sponsors' $1,000.
- ------------------------
Repurchase Price Evaluator: Kenny S&P
---------------- ---------
per Unit .................. $1,016.09+ Evaluation Services.
--------
+++ Evaluator's Fee for Each
++++ Evaluation: Minimum of $2.83
Excess of Secondary Market plus $.25 per each issue of
- --------------------------
Public Offering Price Bonds in excess of 50 issues
---------------------
over Redemption and (treating separate maturities
-------------------
Sponsors' Repurchase as separate issues).
--------------------
Price per Unit ............ $59.14++++ Sponsors: Reich & Tang
-------------- --------
Difference between Public Distributors L.P. and Gruntal
Offering Price per Unit & Co., Incorporated.
and Principal Amount per Sponsors' Annual Fee: Maximum
Unit Premium/(Discount) ... $75.23 of $.25 per $1,000 principal
-----------------------
Evaluation Time: 4:00 p.m. amount of Bonds (see "Trust
- ---------------
New York Time. Expenses and Charges" in
Minimum Principal Distribution: Part B of this Prospectus).
$1.00 per Unit.
PER UNIT INFORMATION BASED UPON INTEREST DISTRIBUTION PLAN ELECTED
Monthly Semi-Annual
Option Option
Gross annual interest income# ......... $58.89 $58.89
Less estimated annual fees and
expenses ............................ 2.50 1.98
Estimated net annual interest ______ ______
income (cash)# ...................... $56.39 $56.91
Estimated interest distribution# ...... 4.69 28.45
Estimated daily interest accrual# ..... .1566 .1580
Estimated current return#++ ........... 5.24% 5.29%
Estimated long term return++ .......... 4.71% 4.76%
Record dates .......................... 1st of Dec. 1 and
each month June 1
Interest distribution dates ........... 15th of Dec. 15 and
each month June 15
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Footnotes to Summary of Essential Information
* The Date of Deposit is the date on which the Trust Agreement was signed
and the deposit of the Bonds with the Trustee made.
** For information regarding offering price per Unit and applicable sales
charge under the Total Reinvestment Plan, see "Total Reinvestment Plan"
in Part B of this Prospectus.
*** The Trustee maintains its principal executive office at 1 Chase Manhattan
Plaza, New York, New York 10081 and its unit investment trust office at
770 Broadway, New York, New York 10003 (tel. no.: 1-800-882- 9898). For
information regarding redemption by the Trustee, see "Trustee Redemption"
in Part B of this Prospectus.
+ Plus accrued interest to the expected date of settlement (approximately
five business days after purchase) of $.46 monthly and $5.21
semi-annually.
++ The estimated current return and estimated long term return are increased
for transactions entitled to a discount (see "Employee Discounts" in Part
B of this Prospectus), and are higher under the semi-annual and annual
options due to lower Trustee's fees and expenses.
+++ Based solely upon the bid side evaluation of the underlying Bonds
(including, where applicable, undistributed cash from the principal
account). Upon tender for redemption, the price to be paid will be
calculated as described under "Trustee Redemption" in Part B of this
Prospectus.
++++ See "Comparison of Public Offering Price, Sponsors' Repurchase Price and
Redemption Price" in Part B of this Prospectus.
# Does not include income accrual from original issue discount bonds, if
any.
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INFORMATION REGARDING THE TRUST
AS OF DECEMBER 31, 1995
DESCRIPTION OF PORTFOLIO
The portfolio of the Trust consists of 12 issues representing
obligations of 8 issuers located in the state of New York and 2 in Puerto Rico.
The Sponsors have not participated as a sole underwriter or manager, co-manager
or member of an underwriting syndicate from which any principal amount of the
Bonds were acquired. Approximately 21.7% of the Bonds are obligations of state
and local housing authorities; approximately 11.7% are hospital revenue bonds;
none were issued in connection with the financing of nuclear generating
facilities; and none are "mortgage subsidy" bonds. All of the Bonds in the
Trust are subject to redemption prior to their stated maturity dates pursuant
to sinking fund or optional call provisions. The Bonds may also be subject to
other calls, which may be permitted or required by events which cannot be
predicted (such as destruction, condemnation, termination of a contract, or
receipt of excess or unanticipated revenues). Four of the issues representing
$755,000 of the principal amount of the Bonds are general obligation bonds. All
8 of the remaining issues representing $2,245,000 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: Correctional Facility 1, Hospital 2,
Multi-Family Housing 2, Public Building 1, Transit Facility 1, and Water 1. For
an explanation of the significance of these factors see "The Trust--Portfolio"
in Part B of this Prospectus.
As of December 31, 1995, $1,040,000 (approximately 34.7% of the
aggregate principal amount of the Bonds) were original issue discount bonds. Of
these original issue discount bonds, $155,000 (approximately 5.2% of the
aggregate principal amount of the Bonds) were Zero Coupon Bonds. Zero Coupon
Bonds do not provide for the payment of any current interest and provide for
payment at maturity at par value unless sooner sold or redeemed. The market
value of Zero Coupon Bonds is subject to greater fluctuations than coupon bonds
in response to changes in interest rates. Approximately 8.3% of the aggregate
principal amount of the Bonds in the Trust were purchased at a "market"
discount from par value at maturity, approximately 57% were purchased at a
premium and none were purchased at par. For an explanation of the significance
of these factors see "Discount and Zero Coupon Bonds" in Part B of this
Prospectus.
None of the Bonds in the Trust are subject to the federal
individual alternative minimum tax under the Tax Reform Act of 1986. See "Tax
Status" in Part B of this Prospectus.
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FINANCIAL AND STATISTICAL INFORMATION
Selected data for each Unit outstanding for the periods listed below:
Distribu-
tions of
Distributions of Interest Principal
During the Period (per Unit) During
Net Asset* Semi- the
Units Out- Value Monthly Annual Annual Period
Period Ended standing Per Unit Option Option Option (Per Unit)
December 31, 1995 3,000 $1,021.11 $35.64 $36.00 -0- -0-
- --------
* Net Asset Value per Unit is calculated by dividing net assets as
disclosed in the "Statement of Net Assets" by the number of Units
outstanding as of the date of the Statement of Net Assets. See Note 5 of
Notes to Financial Statements for a description of the components of Net
Assets.
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Independent Auditors' Report
The Sponsor, Trustee and Certificateholders Insured Municipal Securities Trust,
New York Navigator Insured Series 17:
We have audited the accompanying statement of net assets, including the
portfolio, of Insured Municipal Securities Trust, New York Navigator Insured
Series 17 as of December 31, 1995, and the related statement of operations, and
changes in net assets for the period from April 6, 1995 (date of deposit) to
December 31, 1995. These financial statements are the responsibility of the
Trustee (see note 2). Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1995, by correspondence with
the Trustee. An audit also includes assessing the accounting principles used and
significant estimates made by the Trustee, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Insured Municipal Securities
Trust, New York Navigator Insured Series 17 as of December 31, 1995, and the
results of its operations, and the changes in its net assets for the period from
April 6, 1995 (date of deposit) to December 31, 1995 in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
New York, New York
March 31, 1996
F-1
<PAGE>
Statement of Net Assets
December 31, 1995
Investments in marketable securities,
at market value (cost $2,882,637) $ 3,048,274
Excess of other assets over total liabilities 15,070
----------
Net assets 3,000 units of fractional undivided
interest outstanding, $1,021.11 per unit) $ 3,063,344
==========
See accompanying notes to financial statements.
<PAGE>
Statement of Operations
For the Period from April 6,
1995 (date of deposit)
to December 31, 1995
--- --------- ----
Investment income - interest $ 131,632
---------
Expenses:
Trustee's fees 3,259
Evaluator's fees 505
Sponsor's advisory fee 554
---------
Total expenses 4,318
---------
Investment income, net 127,314
Unrealized appreciation
of the investments for the period 165,637
---------
Net increase in net
assets resulting
from operations $ 292,951
=========
See accompanying notes to financial statements.
<PAGE>
Statement of Changes in Net Assets
For the Period from April 6,
1995 (date of deposit)
to December 31, 1995
--- ----------- ---
Operations:
Investment income, net 127,314
Unrealized appreciation
of investments for the period 165,637
-----------
Net increase in net
assets resulting
from operations 292,951
-----------
Distributions:
To Certificateholders of 107,238
investment income
To Sponsor of accrued interest
to date of settlement 3,435
-----------
Total distributions 110,673
-----------
Total increase 182,278
Net assets at date of deposit 2,881,066
-----------
Net assets at end of period (including
undistributed net investment
income of $16,641 ) 3,063,344
===========
See accompanying notes to financial statements.
<PAGE>
INSURED MUNICIPAL SECURITIES TRUST,
NEW YORK NAVIGATOR INSURED SERIES 17
Notes to Financial Statements
December 31, 1995
(1) Organization
Insured Municipal Securities Trust, New York Navigator Insured Series 17
was organized on April 6, 1995 by Bear, Stearns & Co. Inc. under the laws
of the State of New York by a Trust Indenture and Agreement, and is
registered under the Investment Company Act of 1940. Effective September
28, 1995, Reich & Tang Distributors L.P. (Reich & Tang) has become the
successor sponsor (Sponsor) to certain of the unit investments trusts
previously sponsored by Bear, Stearns & Co. Inc. As successor Sponsor,
Reich & Tang has assumed all of the obligations and rights of Bear Stearns
& Co. Inc., the previous sponsor.
(2) Summary of Significant Accounting Policies
Effective September 2, 1995, United States Trust Company of New York was
merged into Chase Manhattan Bank (National Association) (Chase).
Accordingly, Chase is the successor trustee of the unit investment trusts.
The Trustee has custody of and responsibility for the accounting records
and financial statements of the Trust and is responsible for establishing
and maintaining a system of internal control related thereto.
The Trustee is also responsible for all estimates of expenses and accruals
reflected in the Trust's financial statements. The accompanying financial
statements have been adjusted to record the unrealized appreciation
(depreciation) of investments and to record interest income and expenses
on the accrual basis.
The discount on the zero-coupon bonds is accreted by the interest method
over the respective lives of the bonds. The accretion of such discount is
included in interest income; however, it is not distributed until realized
in cash upon maturity or sale of the respective bonds.
Investments are carried at market value which is determined by Kenny S&P
Evaluation Services (Evaluator). The market value of the portfolio is
based upon the bid prices for the bonds at the end of the year, except
that the market value on the date of deposit represents the cost to the
Trust based on the offering prices for investments at that date. The
difference between cost (including accumulated accretion of original issue
discount on zero-coupon bonds) and market value is reflected as unrealized
appreciation (depreciation) of investments. Securities transactions are
recorded on the trade date. Realized gains (losses) from securities
transactions are determined on the basis of average cost of the securities
sold or redeemed.
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Trustee to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
(Continued)
<PAGE>
INSURED MUNICIPAL SECURITIES TRUST,
NEW YORK NAVIGATOR INSURED SERIES 17
Notes to Financial Statements
(3) Income Taxes
The Trust is not subject to Federal income taxes as provided for by the
Internal Revenue Code.
(4) Trust Administration
The fees and expenses of the Trust are incurred and paid on the basis set
forth under "Trust Expenses and Charges" in Part B of this Prospectus.
The Trust Indenture and Agreement provides for interest distributions as
often as monthly (depending upon the distribution plan elected by the
Certificateholders).
See "Financial and Statistical Information" in Part A of this Prospectus
for the amounts of per unit distributions during the year ended December
31, 1995.
The Trust Indenture and Agreement further requires that principal received
from the disposition of bonds, other than those bonds sold in connection
with the redemption of units, be distributed to Certificateholders.
The Trust Indenture and Agreement also requires the Trust to redeem units
tendered. No units were redeemed during the period from April 6, 1995 to
December 31, 1995.
(5) Net Assets
At December 31, 1995, the net assets of the Trust represented the interest
of Certificateholders as follows:
Original cost to Certificateholders $ 3,029,512
Less initial gross underwriting commission (148,446)
---------
2,881,066
Net unrealized appreciation 165,637
Undistributed net investment income 16,641
---------
Total $ 3,063,344
=========
The original cost to Certificateholders, less the initial gross
underwriting commission, represents the aggregate initial public offering
price net of the applicable sales charge on 3,000 units of fractional
undivided interest of the Trust as of the date of deposit.
Undistributed net investment income includes accumulated accretion of
original issue discount of $1,571.
<PAGE>
<TABLE>
INSURED MUNICIPAL SECURITIES TRUST,
NEW YORK NAVIGATOR INSURED SERIES 17
Portfolio
December 31, 1995
<CAPTION>
Port- Aggregate Coupon Rate/ Redemption Feature
folio Principal Name of Issuer Ratings Date(s) of S.F.--Sinking Fund Market
No. Amount and Title of Bonds (1) Maturity(2) Ref.--Refunding(2)(6) Value(3)
- ---- ---------- --------------------- ----- ----------- ----------------------- ----------
<S> <C> <C> <C> <C> <C> <C>
1 $ 250,000 N.Y. State Hsg. Finc. AAA 6.250% 8/15/07 @100 S.F. $ 260,828
Agcy. Ins. Multi-Fam. 8/15/14 8/15/04 @102 Ref.
Mtg. Hsg. Rev. Bonds
1994 Series B (MBIA
Corp.)
2 215,000 N.Y. State Med. Care AAA 6.375 8/15/10 @ 100 S.F. 232,129
Facs. Finc. Agcy. 8/15/14 8/15/04 @ 102 Ref.
Mental Hlth. Servs.
Facs. Imprvmnt. Rev.
Bonds, 1994 Series E
(MBIA Corp.)
3 135,000 N.Y. State Med. Care AAA 6.000 No Sinking Fund 141,699
Facs. Finc. Agcy. 8/15/20 2/1/05 @ 102 Ref.
Mental Hlth. Servs.
Facs. Imprvmnt. Rev.
Bonds, 1995 Series C
(MBIA Corp.)
4 200,000 N.Y. State U.D.C. AAA 5.375 1/1/14 @ 100 S.F. 197,612
Correc. Cap. Facs. 1/1/23 1/1/04 @102 Ref.
Rev. Bonds, Series 4
(MBIA Corp.)
5 400,000 N.Y. City Hsg. Dev. AAA 6.550 4/1/16 @100 S.F. 422,968
Corp. Multi-Fam. Hsg. 4/1/18 4/1/03 @ 102 Ref.
Rev. (FHA Ins. Mtg.
Loans) Series 1993A
(MBIA Corp.)
6 400,000 The City of N.Y. AAA 7.000 No Sinking Fund 453,408
Genl. Oblig. Bonds, 2/1/20 2/1/02 @ 101.5 Ref.
Fiscal 1992 Series H
(MBIA Corp.)
7 395,000 N.Y. City Muni. Wtr. AAA 6.375 6/15/21 @100 S.F. 419,668
Finc. Auth. Wtr. & 6/15/22 6/15/02 @ 101 Ref.
Swr. Sys. Rev. Bonds
Fiscal 1993 Series B
(MBIA Corp.)
8 400,000 Metro. Trans. Auth. AAA 6.000 7/1/21 @100 S.F. 421,015
Trans. Facs. Rev. 7/1/24 7/1/04 @ 101.5 Ref.
Bonds, Series O (MBIA
Corp.)
9 150,000 Cmmnwlth. of P.R. AAA 5.000 7/1/19 @ 100 S.F. 143,948
Pub. Imprvmnt. Ref. 7/1/21 7/1/03 @ 100 Ref.
Bonds, Series 1993
(Gen. Obg. Bonds)
(MBIA Corp.)
10 50,000 Cmmnwlth. of P.R. AAA 6.500 7/1/18 @ 100 S.F. 55,125
Pub. Imprvmnt. Ref. 7/1/23 7/1/04 @ 101.5 Ref.
Bonds of 1994 (Gen.
Obg. Bonds) (MBIA
Corp.)
11 250,000 P.R. Pub. Bldgs. AAA 5.750 7/1/11 @ 100 S.F. 257,375
Auth. Pub. Ed. & 7/1/15 7/1/03 @ 101.5 Ref.
Hlth. Facs. Rev.
Rfndg. Bonds Gtd. By
the Commonwealth of
P.R. Series L (MBIA
Corp.)
12 155,000 The City of N.Y. AAA 0.000 No Sinking Fund 42,499
Genl. Oblig. Bonds, 6/1/20 None
Fiscal 1991 N.Y. City
Savers Series B (MBIA
Corp.)
---------- ----------
$ 3,000,000 $ 3,048,274
========== ==========
</TABLE>
See accompanying footnotes to portfolio and notes to financial statements.
<PAGE>
INSURED MUNICIPAL SECURITIES TRUST,
NEW YORK NAVIGATOR INSURED SERIES 17
Footnotes to Portfolio
December 31, 1995
(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 ratings symbols and their meanings is set forth
under "Description of Bond Ratings" in Part B of this Prospectus.
(2) See "The Trust - Portfolio" in Part B of this Prospectus for an explanation
of redemption features. See "Tax Status" in Part B of this Prospectus for a
statement of the Federal tax consequences to a Certificateholder upon the
sale, redemption or maturity of a bond.
(3) At December 31, 1995, the net unrealized appreciation of all the bonds was
comprised of gross unrealized appreciation of $165,637.
(4) The annual interest income, based upon bonds held at December 31, 1995,
(excluding accretion of original issue discount on zero-coupon bonds) to
the Trust is $176,687.
(5) The bonds have been prerefunded and will be redeemed at the next refunding
call date.
(6) Bonds sold or called after December 31, 1995 are noted in a footnote
"Changes in Trust Portfolio" under "Description of Portfolio" in Part A of
this Prospectus.
(7) 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).
<PAGE>
Note: Part B of This Prospectus May Not Be Distributed
Unless Accompanied by Part A.
Please Read and Retain Both Parts
of This Prospectus For Future Reference.
INSURED MUNICIPAL SECURITIES TRUST
Prospectus Part B
Dated: April 28, 1995
THE TRUST
Organization
"Insured Municipal Securities Trust" (the "Trust") consists of the
"unit investment trust" designated as set forth in Part A.* The Trust was
created under the laws of the State of New York pursuant to the Trust
Indenture and Agreement** (collectively, the "Trust Agreement"), dated the
Date of Deposit, among Bear, Stearns & Co. Inc., as Sponsor, or depending on
the particular Trust, among Bear, Stearns & Co. Inc. and Gruntal & Co.,
Incorporated, as Co-Sponsors (the Sponsor or Co-Sponsors, if applicable, are
referred to herein as the "Sponsor"), Kenny S&P Evaluation Services, a
division of J.J. Kenny Co. Inc., as Evaluator and United States Trust Company
of New York, as Trustee. The name of the Sponsor for a particular Trust is
contained in the "Summary of Additional Information" in Part A.
On the Date of Deposit, the Sponsor deposited with the Trustee
long-term insured bonds, and/or delivery statements relating to contracts for
the purchase of certain such bonds (the "Bonds") and cash or an irrevocable
letter of credit issued by a major commercial bank in the amount required for
such purchases. Thereafter, the Trustee, in exchange for the Bonds so
deposited delivered to the Sponsor the Certificates evidencing the ownership
of all Units of the Trust. The Trust consists of the Bonds described under
"The Trust" in Part A, the interest (including, where applicable, earned
original issue discount) on which, in the opinions of bond counsel to the
respective issuers given at the time of original delivery of the Bonds, is
exempt from regular federal income tax under existing law.
Each "Unit" outstanding on the Evaluation Date represented an
undivided interest or pro rata share in the principal and interest of the
Trust in the ratio of one Unit to the principal amount of Bonds in the Trust
on such date as specified in Part A of this Prospectus. To the extent that
any Units are redeemed by the Trustee, the fractional undivided interest or
- --------
* This Part B relates to the outstanding series of Insured Municipal
Securities Trust, Insured Municipal Securities Discount Trust, Insured
Municipal Securities New York Navigator Insured Trust, Insured Municipal
Securities New Jersey Navigator Insured Trust and/or Insured
Pennsylvania Navigator Trust as reflected in Part A attached hereto.
** References in this Prospectus to the Trust Agreement are qualified in
their entirety by the Trust Indenture and Agreement which is incorpo-
rated herein.
112677.1
<PAGE>
pro rata share in the Trust represented by each unredeemed Unit will increase,
although the actual interest in the Trust represented by such fraction will
remain unchanged. Units will remain outstanding until redeemed upon tender to
the Trustee by Certificateholders, which may include the Sponsor or the Under-
writers, or until the termination of the Trust Agreement.
Objectives
The Trust, one of a series of similar but separate unit investment
trusts formed by the Sponsor, offers investors the opportunity to participate
in a portfolio of long-term insured tax-exempt bonds with a greater
diversification than they might be able to acquire themselves. The objectives
of the Trust are to preserve capital and to provide interest income
(including, where applicable, earned original issue discount) which, in the
opinions of bond counsel given at the time of original delivery of the Bonds,
is exempt from regular federal income tax under existing law and exempt from
state and local income tax to the extent indicated herein when received by
persons subject to state and local taxation in a state in which the issuers of
the Bonds are located. Such interest income may, however, be subject to the
federal corporate alternative minimum taxes and to state and local taxes.
(See "Description of Portfolio" in Part A for a list of those Bonds which pay
interest income subject to federal individual alternative minimum tax. See
also "Tax Status".) Consistent with such objectives, the Sponsor has obtained
bond insurance guaranteeing the scheduled payment of principal and interest on
certain of the Bonds and have purchased, as to the remainder of each Trust
Portfolio, Bonds which are already covered by insurance. (See "Insurance on
the Bonds".) An investor will realize taxable income upon maturity or early
redemption of the market discount bonds in a Trust portfolio and will realize,
where applicable, tax-exempt income to the extent of the earned portion of
interest, including original issue discount earned on the Bonds in a Trust
portfolio. Investors should be aware that there is no assurance the Trust's
objectives will be achieved as these objectives are dependent on the
continuing ability of the issuers of the Bonds to meet their interest and
principal payment requirements, on the abilities of the Insurance Companies to
meet their obligations under the policies of insurance issued on the Bonds, on
the continuing satisfaction of the Bonds of the conditions required for the
exemption of interest thereon from regular federal income tax and on the
market value of the Bonds, which can be affected by fluctuations in interest
rates and other factors.
Since disposition of Units prior to final liquidation of each
Trust may result in an investor receiving less than the amount paid for such
Units (see "Comparison of Public Offering Price, Sponsor's Repurchase Price
and Redemption Price"), the purchase of a Unit should be looked upon as a
long-term investment. Neither the Trust nor the Total Reinvestment Plan are
designed to be complete investment programs.
Portfolio
All of the Bonds in the Trust were rated "AAA" by Standard &
Poor's Corporation at the time originally deposited in the Trust. (See
"Insurance on the Bonds.") The "AAA" rating was assigned to the Bonds by
Standard & Poor's because each Bond was insured by a municipal bond guaranty
insurance policy issued by a company whose claims-paying ability was rated
"AAA" by Standard & Poor's at that time. In the event of a downgrading of the
claims-paying ability of one of the insurers, as of the Evaluation Date, the
Bonds in the Trust which are insured by that company would no longer be rated
"AAA" by Standard & Poor's. The Units of Trusts containing the downgraded
bonds are no longer rated "AAA."
For information regarding (i) the number of issues in the Trust,
(ii) the range of fixed maturities of the Bonds, (iii) the number of issues
-2-
112677.1
<PAGE>
payable from the income of a specific project or authority and (iv) the number
of issues constituting general obligations of a government entity, see
"Information Regarding the Trust" and "Portfolio" in Part A of this
Prospectus.
When selecting Bonds for a Trust, the following factors, among
others, were considered by the Sponsor: (a) the quality of the Bonds and
whether such Bonds, whether Sponsor-Insured or Pre-Insured, were rated "AAA"
by Standard & Poor's Corporation, (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 Trust, (d) whether a bond was
insured, or insurance was available for the Bonds at a reasonable cost, (e) in
connection with Bonds for which bond insurance was obtained by the Sponsor,
the quality of the Bonds and whether they were rated, without regard to such
bond insurance, "A" or better by either Standard & Poor's Corporation or
Moody's Investors Service, and (f) the diversification of the Trust portfolio,
as to purpose of issue and location of issuer, taking into account the
availability in the market of issues which meet the Trust's quality, rating,
yield and price criteria. Subsequent to the Date of Deposit, a Bond may cease
to be rated or its rating may be reduced below that specified above. Neither
event requires an elimination of such Bond from a Trust but may be considered
in the Sponsor's determination to direct the Trustee to dispose of the Bond.
(See "Portfolio Supervision".) For an interpretation of the bond ratings see
"Description of Bond Ratings".
Housing Bonds. Some of the aggregate principal amount of the
Bonds may consist of obligations of state and local housing authorities whose
revenues are primarily derived from mortgage loans to rental housing projects
for low to moderate income families. Since such obligations are usually not
general obligations of a particular state or municipality and are generally
payable primarily or solely from rents and other fees, adverse economic
developments including failure or inability to increase rentals, fluctuations
of interest rates and increasing construction and operating costs may reduce
revenues available to pay existing obligations. See "Description of
Portfolio" in Part A for the amount of rental housing bonds contained therein.
Hospital Revenue Bonds. Some of the aggregate principal amount of
the Bonds may consist of hospital revenue bonds. Ratings of hospital bonds
are often initially based on feasibility studies which contain projections of
occupancy levels, revenues and expenses. Actual experience may vary
considerably from such projections. A hospital's gross receipts and net
income will be affected by future events and conditions including, among other
things, demand for hospital services and the ability of the hospital to
provide them, physicians' confidence in hospital management capability,
economic developments in the service area, competition, actions by insurers
and governmental agencies and the increased cost and possible unavailability
of malpractice insurance. Additionally, a major portion of hospital revenue
typically is derived from 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 "Description of Portfolio" in Part A for the amount of hospital
revenue bonds contained therein.
Nuclear Power Facility Bonds. Certain Bonds may have been issued
in connection with the financing of nuclear generating facilities. In view of
-3-
112677.1
<PAGE>
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 Sponsor is
unable to predict whether any such actions or whether any such proposals or
litigation, if enacted or instituted, will have an adverse impact on the
revenues available to pay the debt service on the Bonds in the portfolio
issued to finance such nuclear projects. See "Description of Portfolio" in
Part A for the amount of bonds issued to finance nuclear generating facilities
contained therein.
Mortgage Subsidy Bonds. Certain Bonds may be "mortgage subsidy
bonds" which are obligations of which all or a significant portion of the
proceeds are to be used directly or indirectly for mortgages on owner-occupied
residences. Section 103A of the Internal Revenue Code of 1954, as amended,
provided as a general rule that interest on "mortgage subsidy bonds" will not
be exempt from Federal income tax. An exception is provided for certain
"qualified mortgage bonds." Qualified mortgage bonds are bonds that are used
to finance owner-occupied residences and that meet numerous statutory
requirements. These requirements include certain residency, ownership,
purchase price and target area requirements, ceiling amounts for state and
local issuers, arbitrage restrictions and (for bonds issued after December 31,
1984) certain information reporting, certification, public hearing and policy
statement requirements. In the opinions of bond counsel to the issuing
governmental authorities, interest on all the Bonds in a Trust that might be
deemed "mortgage subsidy bonds" will be exempt from Federal income tax when
issued. See "Description of Portfolio" in Part A for the amount of mortgage
subsidy Bonds contained therein.
Mortgage Revenue Bonds. Certain Bonds may be "mortgage revenue
bonds." Under the Internal Revenue Code of 1986, as amended (the "Code") (and
under similar provisions of the prior tax law) "mortgage revenue bonds" are
obligations the proceeds of which are used to finance owner-occupied
residences under programs which meet numerous statutory requirements relating
to residency, ownership, purchase price and target area requirements, ceiling
amounts for state and local issuers, arbitrage restrictions, and certain
information reporting certification, and public hearing requirements. There
can be no assurance that additional federal legislation will not be introduced
or that existing legislation will not be further amended, revised, or enacted
after delivery of these Bonds or that certain required future actions will be
taken by the issuing governmental authorities, which action or failure to act
could cause interest on the Bonds to be subject to federal income tax. If any
portion of the Bond proceeds are not committed for the purpose of the issue,
Bonds in such amount could be subject to earlier mandatory redemption at par,
including issues of Zero Coupon Bonds (see "Discount and Zero Coupon Bonds").
See "Description of Portfolio" in Part A for the amount of mortgage revenue
bonds contained therein.
Private Activity Bonds. The portfolio of the Trust may contain
other Bonds which are "private activity bonds" (often called Industrial
Revenue Bonds ("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, receipts or revenues of the issuer are derived from the project or the
operator or from the unexpended proceeds of the bonds. Such revenues include
-4-
112677.1
<PAGE>
user fees, service charges, rental and lease payments, and mortgage and other
loan payments.
The second type of issue will generally finance projects which are
owned by or for the benefit of, and are operated by, corporate entities.
Ordinarily, such private activity bonds are not general obligations of
governmental entities and are not backed by the taxing power of such entities,
and are solely dependent upon the creditworthiness of the corporate user of
the project or corporate guarantor.
The private activity bonds in the Trust have generally been issued
under bond resolutions, agreements or trust indentures pursuant to which the
revenues and receipts payable under the issuer's arrangements with the users
or the corporate operator of a particular project have been assigned and
pledged to the holders of the private activity bonds. In certain cases a
mortgage on the underlying project has been assigned to the holders of the
private activity bonds or a trustee as additional security. In addition,
private activity bonds are frequently directly guaranteed by the corporate
operator of the project or by another affiliated company. See "Description of
Portfolio" in Part A for the amount of private activity bonds contained
therein.
Litigation. Litigation challenging the validity under state
constitutions of present systems of financing public education has been
initiated in a number of states. Decisions in some states have been reached
holding such school financing in violation of state constitutions. In
addition, legislation to effect changes in public school financing has been
introduced in a number of states. The Sponsor is unable to predict the
outcome of the pending litigation and legislation in this area and what
effect, if any, resulting changes in the sources of funds, including proceeds
from property taxes applied to the support of public schools, may have on the
school bonds in a Trust.
To the Sponsor's knowledge, there was no litigation pending as of
the initial Date of Deposit with respect to any Bonds which might reasonably
be expected to have a material adverse effect on a Trust. Subsequent to the
Date of Deposit, litigation may be initiated on a variety of grounds with
respect to Bonds in a Trust. Such litigation, as, for example, suits
challenging the issuance of pollution control revenue bonds under
recently-enacted environmental protection statutes, may affect the validity of
such Bonds or the tax-free nature of the interest thereon. The Sponsor is
unable to predict whether any such litigation may be instituted or, if
instituted, whether it might have a material adverse effect on a Trust.
Other Factors. The Bonds in the Trust, despite their optional
redemption provisions which generally do not take effect until 10 years after
the original issuance dates of such bonds (often referred to as "ten year call
protection"), do contain provisions which require the issuer to redeem such
obligations at par from unused proceeds of the issue within a stated period.
In recent periods of declining interest rates there have been increased
redemptions of bonds, particularly housing bonds, pursuant to such redemption
provisions. In addition, the Bonds in the Trusts are also subject to
mandatory redemption in whole or in part at par at any time that voluntary or
involuntary prepayments of principal on the underlying collateral are made to
the trustee for such bonds or that the collateral is sold by the bond issuer.
Prepayments of principal tend to be greater in periods of declining interest
rates; it is possible that such prepayments could be sufficient to cause a
bond to be redeemed substantially prior to its stated maturity date, earliest
call date or sinking fund redemption date.
-5-
112677.1
<PAGE>
The Bonds may also be subject to other calls, which may be
permitted or required by events which cannot be predicted (such as
destruction, condemnation, or termination of a contract).
In 1976 the federal bankruptcy laws were amended so that an
authorized municipal debtor could more easily seek federal court protection to
assist in reorganizing its debts so long as certain requirements were met.
Historically, very few financially troubled municipalities have sought court
assistance for reorganizing their debts; notwithstanding, the Sponsor is
unable to predict to what extent financially troubled municipalities may seek
court assistance in reorganizing their debts in the future and, therefore,
what effect, if any, the applicable federal bankruptcy law provisions will
have on the Trusts.
The Trust may also include "moral obligation" bonds. Under
statutes applicable to such bonds, if any issuer is unable to meet its
obligations, the repayment of such bonds becomes a moral commitment but not a
legal obligation of the state or municipality in question. See "Description
of Portfolio" in Part A of this Prospectus for the amount of moral obligation
bonds contained therein.
Certain of the Bonds in the Trust are subject to redemption prior
to their stated maturity dates pursuant to sinking fund or call provisions. A
sinking fund is a reserve fund appropriated specifically toward the retirement
of a debt. A callable bond is one which is subject to redemption or refunding
prior to maturity at the option of the issuer. A refunding is a method by
which a bond is redeemed at or before maturity from the proceeds of a new
issue of bonds. In general, call provisions are more likely to be exercised
when the offering side evaluation of a bond is at a premium over par than when
it is at a discount from par. A listing of the sinking fund and call
provisions, if any, with respect to each of the Bonds is contained under
"Portfolio". Certificateholders will realize a gain or loss on the early
redemption of such Bonds, depending upon whether the price of such Bonds is at
a discount from or at a premium over par at the time Certificateholders
purchase their Units.
Neither the Sponsor nor the Trustee shall be liable in any way for
any default, failure or defect in any of the Bonds. Because certain of the
Bonds from time to time may be redeemed or will mature in accordance with
their terms or may be sold under certain circumstances, no assurance can be
given that a Trust will retain its present size and composition for any length
of time. The proceeds from the sale of a Bond or the exercise of any
redemption or call provision will be distributed to Certificateholders on the
next distribution date, except to the extent such proceeds are applied to meet
redemptions of Units. (See "Trustee Redemption".)
Puerto Rico Bonds. Certain of the Bonds in the 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 1993, approximately 86% of Puerto Rico's exports
were to the United States mainland, which was also the source of 69% of Puerto
Rico's imports. In fiscal 1993, Puerto Rico experienced a $2.5 billion
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
-6-
112677.1
<PAGE>
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
1993, aggregate personal income was $24.1 billion ($20.6 billion in 1987
prices) and personal income per capita was $6,760 ($5,767 in 1987 prices).
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 1993 were $5.3 billion, of which $3.6 billion, or 67.6%, 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 during fiscal 1994
averaged 1,011,000. Unemployment, although at a low level compared to the
late 1970s, remains above the average for the United States. In fiscal 1994,
the unemployment rate in Puerto Rico was 15.9%. Puerto Rico's decade-long
economic expansion continued throughout the five-year period from fiscal 1989
through fiscal 1993. Almost every sector of its economy was affected and
record levels of employment were achieved. 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
(adjusted to reflect 1987 prices) amounted to approximately $20.07 billion in
fiscal 1993, or 3.1% above the fiscal 1992 level. The Puerto Rico Planning
Board's economic activity index, a composite index for thirteen economic
indicators, increased 1.6% in fiscal 1994 compared to fiscal 1993, which
period showed an increase of 1.4% over fiscal 1992. Growth in the Puerto Rico
economy in fiscal 1995 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.
Discount And Zero Coupon Bonds
Some of the Bonds in a Trust may be original issue discount bonds.
The original issue discount, which is the difference between the initial
purchase price of the Bonds and the face value, is deemed to accrue on a daily
basis and the accrued portion will be treated as tax-exempt interest income
for regular federal income tax purposes. Upon sale or redemption, any gain
realized that is in excess of the earned portion of original issue discount
will be taxable as capital gain. (See "Tax Status".) The current value of an
original issue discount bond reflects the present value of its face amount at
maturity. The market value tends to increase more slowly in early years and
in greater increments as the Bonds approach maturity. Of these original issue
discount bonds, some of the aggregate principal amount of the Bonds in the
Trust may be Zero Coupon Bonds. (See "Description of Portfolio" in Part A.)
Zero Coupon Bonds do not provide for the payment of any current interest and
provide for payment at maturity at face value unless sooner sold or redeemed.
The market value of Zero Coupon Bonds is subject to greater fluctuations than
coupon bonds in response to changes in interest rates. Zero Coupon Bonds
generally are subject to redemption at compound accreted value based on par
value at maturity. Because the issuer is not obligated to make current
interest payments, Zero Coupon Bonds may be less likely to be redeemed than
coupon bonds issued at a similar interest rate, although certain zero coupon
housing bonds may be subject to mandatory call provisions.
Some of the Bonds in the Trust may have been purchased at a
"market" discount from par value at maturity. This is because the coupon
interest rates on the discount bonds at the time they were purchased and
deposited in each Trust were lower than the current market interest rates for
newly issued bonds of comparable rating and type. At the time of issuance the
discount bonds were for the most part issued at then current coupon interest
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rates. The current yields (coupon interest income as a percentage of market
price) of discount bonds will be lower than the current yields of comparably
rated bonds of similar type newly issued at current interest rates because
discount bonds tend to increase in market value as they approach maturity and
the full principal amount becomes payable. Gain on the disposition of a Bond
purchased at a market discount generally will be treated as ordinary income,
rather than capital gain, to the extent of accrued market discount. A
discount bond held to maturity will have a larger portion of its total return
in the form of capital gain and less in the form of tax-exempt interest income
than a comparable bond newly issued at current market rates. Discount Bonds
with a large term to maturity tend to have a higher current yield and a lower
current market value than otherwise comparable bonds with a shorter term to
maturity. If interest rates rise, the value of discount bonds will 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
Each of the Bonds in the Trust is insured by a municipal bond
guaranty insurance policy obtained by either the Sponsor with respect to Bonds
which were not insured prior to their deposit in the Trust ("Sponsor-Insured
Bonds") or the issuer, underwriter or prior owner of the Bonds ("Pre-Insured
Bonds"), and issued by one of the insurance companies described under
"Insurance on the Bonds" in Part B (the "Insurance Companies"). The insurance
policies are non-cancelable and will continue in force so long as the Bonds
are outstanding and the insurers remain in business. The insurance policies
guarantee the timely payment of principal and interest on the Bonds but do not
guarantee the market value of the Bonds or the value of the Units. No
representation is made herein as to any Bond insurer's ability to meet its
obligations under a policy of insurance relating to any of the Bonds. An
insurance company that is required to pay interest and/or principal in respect
of any Bond will succeed and be subrogated to the Trustee's right to collect
such interest and/or principal from the issuer and to other related rights of
the Trustee with respect to any such Bond.
Such insurance covers the scheduled payment of principal thereof
and interest thereon when such amounts shall become due for payment but shall
not have been paid by the issuer or any other insurer thereof. The insurance,
unless obtained by MBIA Insurance Corporation ("MBIA Corp."), will also cover
any accelerated payments of principal and any increase in interest payments or
premiums, if any, payable upon mandatory redemption of the Bonds if interest
on any Bonds is ultimately deemed to be subject to regular federal income tax.
Insurance obtained from MBIA Corp. only guarantees the full and complete
payments required to be made by or on behalf of an issuer of small industrial
revenue bonds and pollution control revenue bonds if there occurs an event
which results in the loss of tax-exempt status of the interest on such Bonds,
including principal, interest or premiums payments, if any, as and when
required. To the extent, therefore, that Bonds are only covered by insurance
obtained from MBIA Corp., such Bonds will not be covered for the full and
complete payments required to be made by or on behalf of an issuer of other
than small industrial revenue bonds or pollution control revenue bonds if
there occurs an event which results in the loss of tax-exempt status of the
interest on such Bonds. None of the insurance will cover accelerated payments
of principal or penalty interest or premiums unrelated to taxability of
interest on the Bonds. The insurance relates only to the prompt payment of
principal of and interest on the securities in the portfolios, and does not
remove market risks nor does it guarantee the market value of Units in the
Trusts. The terms of the insurance are more fully described herein. No
representation is made herein as to any Bond insurer's ability to meet its
obligations under a policy of insurance relating to any of the Pre-Insured
Bonds. In addition, investors should be aware that subsequent to the Date of
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Deposit the rating of the claims-paying ability of the insurer of an
underlying Pre-Insured Bond may be down-graded.
Navigator Insured Trusts
Sponsor-Insured Bonds. Each of the Bonds in the Navigator Trusts
is insured by a financial guaranty insurance policy obtained by the Sponsor
(the "Navigator Sponsor-Insured Bonds") from MBIA Corp. covering regularly
scheduled payments of principal thereof and interest thereon when such amounts
become due for payment but have not been paid. Such amounts shall be reduced
by any amounts received by the holders or the owners of the Bonds from any
trustee for the Bond issuers, any other Bond insurers or any other source
other than MBIA Corp. MBIA Corp. has issued such policy or policies covering
each of the Bonds in the Navigator Trusts and each such policy will remain in
force until the payment in full of such Bonds, whether or not such Bonds
continue to be held in the Navigator Trusts. The insurer's policies relating
to small industrial development bonds and pollution control revenue bonds also
guarantee any accelerated payments required to be made by or on behalf of an
issuer of Bonds pursuant to the terms of the Bonds if there occurs an event
which results in the loss of the tax-exempt status of the interest on such
Bonds, including principal, interest or premium payments, if any, as and when
required. Such insurance does not cover for any accelerated payments required
to be made by or on behalf of an issuer of other than small industrial revenue
bonds or pollution control revenue bonds if there occurs an event which
results in the loss of the tax exempt status of the interest on such Bonds nor
will the insurance cover accelerated payments of principal or penalty interest
or premiums unrelated to taxability of interest on any of the Bonds, including
pollution control revenue bonds or small industrial development bonds. In the
event of such an acceleration, the payments guaranteed by MBIA Corp. shall be
made in such amounts and at such times as such payments would have been made
absent any such acceleration. The insurance relates only to the prompt
payment of principal of and interest on the securities in the Navigator
Portfolios and does not remove market risk nor does it guarantee the market
value of Units in the Navigator Trusts. The terms of the insurance are more
fully described herein. For discussion of the effect of an occurrence of non-
payment of principal or interest on any Bonds in the Navigator Trusts see
"Portfolio Supervision" in Part B. No representation is made herein as to any
bond insurer's ability to meet its obligations under a policy of insurance
relating to any of the Bonds in the Navigator Trusts. In addition, investors
should be aware that subsequent to the Date of Deposit the rating of the
claims-paying ability of MBIA Corp. may be downgraded, which may result in a
downgrading of the rating of the Units in the Navigator Trusts. The premiums
for the Navigator Sponsor-Insured Bonds are obligations of the Sponsor.
Additionally, some of the Bonds in the Navigator Trusts may be Pre-Insured
Bonds (as described below). The premium for the Pre-Insured Bonds is an
obligation of the issuers, underwriters or prior owners of those Bonds. The
insurance policy or policies relating to the Navigator Sponsor-Insured Bonds
provides that, to the extent that Bonds are both Pre-Insured Bonds and
Navigator Sponsor-Insured Bonds, coverage is effective after a claim has been
made upon the insurer of the Pre-Insured Bonds.
Upon notification from the trustee for any bond issuer or any
holder or owner of the Bonds that such trustee or paying agent has
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.
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Pre-Insured Bonds. Some of the Bonds in the Trusts which are
insured under policies obtained by the Bond issuers, underwriters or prior
owners of the Bonds ("Pre-Insured Bonds") are insured either by AMBAC
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"),
Financial Security Assurance, Inc. ("Financial Security"), Firemen's Insurance
Co. ("Firemen's"), Industrial Indemnity Company ("IIC") (which operates the
Health Industry Board Insurance Program ("HBI Program"), Municipal Bond
Insurance Association ("MBIA"), MBIA Corp. or United States Fidelity and
Guaranty Company ("USF&G Company") (collectively the "Insurance Companies").
The cost of this insurance is borne by the respective issuers, underwriters or
prior owners of the Pre-Insured Bonds. The percentage of each Portfolio
insured by each insurance company, if any, is set forth under "Insurance" in
Part A of this Prospectus.
AMBAC is a Wisconsin-domiciled stock insurance company, 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 (unaudited) of approximately $2,145,000,000, and
statutory capital (unaudited) of approximately $1,218,000,000 as of
December 31, 1994. Statutory capital consists of the statutory contingency
reserve and policyholders' surplus of the insurance company. AMBAC is a
wholly owned subsidiary of AMBAC Inc., a 100% publicly-held company.
As of the Evaluation Date the claims-paying ability of AMBAC has
been rated "AAA" by Standard & Poor's.
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 publicly owned and its shares are traded on the New York Stock
Exchange. Other than their capital commitment to Capital Guaranty
Corporation, the shareholders of Capital Guaranty Corporation are not
obligated to pay the debts of, or the claims against, Capital Guaranty
Insurance Company. Capital Guaranty is authorized to provide insurance in 50
States, the District of Columbia and three U.S. territories. As of
December 31, 1994, Capital Guaranty had more than $15.7 billion in net
exposure outstanding (excluding defeased issues). The total statutory
policyholders' surplus and contingency reserves of Capital Guaranty Insurance
Company was approximately $196,529,000 (unaudited) and total admitted assets
were approximately $303,723,316 (unaudited) as reported to the Insurance
Department of the State of Maryland as of December 31, 1994.
As of the Evaluation Date, the claims-paying ability of Capital
Guaranty has been rated "AAA" by Standard & Poor's.
Connie Lee, a stock insurance company incorporated in Wisconsin,
is a wholly-owned subsidiary of College Construction Loan Insurance
Association, a stockholder-owned District of Columbia insurance holding
company whose creation was authorized by the 1986 amendments to the Higher
Education Act. The United States Department of Education and Student Loan
Marketing Association are founding shareholders of College Construction Loan
Insurance Association. As a federally authorized company, Connie Lee's
structure and operational authorities are subject to revision by amendments to
the Higher Education Act or other federal enactments. CONNIE LEE IS NOT AN
AGENCY OR INSTRUMENTALITY OF THE UNITED STATES GOVERNMENT, ALTHOUGH THE UNITED
STATES GOVERNMENT IS A STOCKHOLDER OF COLLEGE CONSTRUCTION LOAN INSURANCE
ASSOCIATION. THE OBLIGATIONS OF CONNIE LEE ARE NOT OBLIGATIONS OF THE UNITED
STATES GOVERNMENT.
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As of December 31, 1994, the total policyholders' surplus of
Connie Lee was $106,496,295 (unaudited) and total admitted assets were
$194,152,295 (unaudited), as reported to the Commissioner of Insurance of the
State of Wisconsin.
As of the Evaluation Date, the claims-paying ability of Connie Lee
has been rated "AAA" by Standard & Poor's.
Financial Guaranty is a wholly-owned subsidiary of FGIC
Corporation ("FGIC"), a Delaware holding company. FGIC is a wholly-owned
subsidiary of General Electric Capital Corporation ("GECC"). Neither FGIC nor
GECC is obligated to pay the debts of or the claims against Financial
Guaranty. 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, 1994, the total capital and surplus of Financial Guaranty was
approximately $893,700,000. In addition, Financial Guaranty is currently
authorized to write insurance in 50 states and the District of Columbia.
As of the Evaluation Date, the claims-paying ability of Financial
Guaranty has been rated "AAA" by Standard & Poor's.
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-cancelable insurance on
industrial development revenue bonds. As of December 31, 1993, Firemen's
statutory surplus (audited) was $502,800,000.
As of the Evaluation Date, the claims-paying ability of Firemen's
has been rated "AA-" by Standard & Poor's (see "Ratings" under "Insurance on
the Bonds" in this Part B).
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 a wholly owned subsidiary of Financial
Security Assurance Holdings Ltd. ("Holdings"), a New York Stock Exchange
listed company. Holdings is owned approximately 60.5% by US WEST Capital
Corporation ("US WEST"), 7.6% by Fund American Enterprises Holdings, Inc.
("Fund American"), and 7.4% by The Tokio Marine and Fire Insurance Co., Ltd.
("Tokio Marine"). US WEST is a subsidiary of US WEST, Inc., which operates
businesses involved in communications, data solutions, marketing services and
capital assets, including the provision of telephone services in 14 states in
the western and midwestern United States. Fund American is a financial
services holding company whose principal operating subsidiary is one of the
nation's largest mortgage servicers. Tokio Marine is a major Japanese
property and casualty insurance company. US WEST has announced its intention
to dispose of its remaining interest in Holdings as part of its strategic plan
to withdraw from businesses not directly involved in telecommunications. Fund
American has certain rights to acquire additional shares of Holdings from US
WEST and Holdings. No shareholder of Holdings is obligated to pay any debt of
Financial Security or any claim under any insurance policy issued by Financial
Security or to make any additional contribution to the capital of Financial
Security.
Pursuant to an intercompany agreement, liabilities on financial
guaranty insurance written 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,
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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, 1994, total shareholder equity of
Financial Security and its wholly-owned subsidiaries was (unaudited)
$732,413,000 and total unearned premium reserves was (unaudited) $202,284,000.
As of the Evaluation Date, Financial Security's claims-paying
ability has been rated "AAA" by Standard & Poor's Corporation.
On the original date of deposit, some of the Bonds in the Trusts
may have been pre-insured pursuant to the HIBI Program operated by IIC. Under
the HIBI Program, all insurance written was pooled pursuant to a Reinsurance
Participation Agreement among United States Fire Insurance Company, The North
River Insurance Company, Westchester Fire Insurance Company, International
Insurance Company and Industrial Indemnity Company (collectively, including
IIC, the "Companies"). Under the Reinsurance Participation Agreement, each
Company shared in the business produced by each participant in the pool on the
following basis: United States Fire Insurance Company--41%, IIC--18%, The
North River Insurance Company--18%, Westchester Fire Insurance Company--18%
and International Insurance Company--5%. As of December 31, 1992, the
Reinsurance Participation Agreement terminated. As of January 1, 1993, each
party to the HIBI Program remains liable on risks in force until their
expiration.
As of the Evaluation Date, the claims-paying ability of each of
the Companies has been rated by Standard & Poor's as follows: IIC has been
rated A+; United States Fire Insurance Company, North River Insurance Company
and Westchester Fire Insurance Company have each been rated A; and
International Insurance Company has not been rated (see "Ratings" under
"Insurance on the Bonds" in this Part B).
IIC is a wholly-owned subsidiary of Industrial Indemnity Holdings,
Inc. Industrial Indemnity Holdings, Inc. is a wholly owned subsidiary of
Talegen Holdings, Inc. (formerly Crum and Forster, Inc.) For the year ending
December 1994, total policyholders' surplus of IIC was $305,487,051. For the
fiscal year ending December 31, 1992 IIC participated in a Reinsurance
Participation Agreement with certain other Crum and Forster, Inc. companies.
As of January 1, 1993, Industrial Indemnity Company was not a participant in
the Reinsurance Participation Agreement.
As of the Evaluation Date, the claims-paying ability of IIC has
been rated "A+" by Standard & Poor's. As a result of this rating, the ratings
of all Bonds in the Trusts insured by IIC, except pre-refunded bonds, are
rated (see "Ratings" under "Insurance on the Bonds" in this Part B).
MBIA is an association of five insurance companies which joined
together to insure severally (and not jointly) new issues of municipal bonds.
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*, 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
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* Now known as Cigna Property and Casualty Company.
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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 ("MBIA")
FIVE MEMBER COMPANIES ASSETS, LIABILITIES
AND POLICYHOLDERS' SURPLUS
AS OF SEPTEMBER 30, 1994
(000's omitted)
New York New York New York
Statutory Statutory Policyholder's
Assets Liabilities Surplus
The Aetna Casualty & Surety Company $10,030,200 $ 8,275,300 $1,754,900
Fireman's Fund Insurance Company 6,815,775 4,904,534 1,911,241
The Travelers Indemnity Company 10,295,359 8,515,392 1,779,967
Cigna Property and Casualty Company 5,112,251 4,842,235 270,016
(Formerly Aetna Insurance Company)
The Continental Insurance Company 2,794,536 2,449,805 344,731
TOTAL $35,048,121 $28,987,266 $6,060,855
MBIA Insurance Corporation (formerly known as Municipal Bond
Investors Assurance Corporation) ("MBIA Corp.") is the principal operating
subsidiary of MBIA Inc., a New York Stock Exchange listed company. MBIA Corp.
commenced municipal bond insurance operations on January 5, 1987. 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. 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.
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 September 30, 1994, MBIA Corp. had admitted assets of $3.3 billion
(unaudited), total liabilities of $2.2 billion (unaudited), and total capital
and surplus of $1.1 billion (unaudited) prepared in accordance with statutory
accounting practices prescribed or permitted by insurance regulatory
authorities.
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As of the Evaluation Date, the claims-paying ability of MBIA and
MBIA Corp. has been rated "AAA" by Standard & Poor's.
USF&G Company is the principal subsidiary of USF&G, a holding
company engaged primarily in the insurance business. USF&G Company, founded
in 1896, is the twenty-fourth largest property/casualty insurer in the United
States, based on net premiums written for the year ended December 31, 1993.
USF&G Company markets commercial and personal insurance products,
concentrating on targeted market segments, through a distribution network of
approximately 3,900 independent agents. USF&G's life insurance subsidiary,
F&G Life, markets life insurance and annuity products through a network of
wholesalers, brokers and specialty marketing organizations. USF&G Company
accounted for $2.3 billion (or 94%) of USF&G's approximately $2.4 billion
total premiums earned for the year ended December 31, 1994. As of the
Evaluation Date, the claims-paying ability of USF&G Company has been rated
BBB- for senior secured obligations (see "Ratings" under "Insurance on the
Bonds" in this Part B).
Insured Municipal Securities Trust
Sponsor-Insured Bonds. For those Bonds which are not covered by
an insurance policy obtained by the issuers of such Bonds, the Sponsor has
obtained bond insurance from either BIG, Financial Guaranty, MBIA or MBIA
Corp. in an effort to protect Certificateholders against nonpayment of
principal and interest in respect of such Bonds (the "Sponsor-Insured Bonds").
The bond insurance on the Sponsor-Insured Bonds covers the Sponsor-Insured
Bonds deposited in a Trust at the time that they are physically delivered to
the Trustee (in the case of bearer bonds) or registered in the name of the
Trustee or its nominee or delivered along with an assignment (in the case of
registered bonds) or registered in the name of the Trustee or its nominee (in
the case of bonds held in book-entry form). Accordingly, although contracts
to purchase Sponsor-Insured Bonds are not covered by the bond insurance
obtained by the Sponsor, such Bonds will be insured when they are deposited in
the Trust. When selecting Bonds for a Trust prior to obtaining insurance
thereon, the Sponsor considers the factors listed under "Portfolio", among
others. The insurers of the Sponsor-Insured Bonds apply their own standards
in determining whether to insure the Sponsor-Insured Bonds. To the extent
that the standards of such insurers are more restrictive than those of the
Sponsor, the Sponsor's investment criteria have been limited to the more
restrictive standards.
Pre-Insured Bonds. The Bonds which are insured under policies
obtained by the Bond issuers are insured by AMBAC, BIG, Financial Guaranty,
Firemen's, MBIA, or MBIA Corp. (collectively, the "Insurance Companies") on
the date the Bonds were originally deposited in the Trust. The cost of this
insurance is borne by the respective issuers of the Pre-Insured Bonds. The
percentage of the Portfolio insured by each Insurance Company, if any, is set
forth under "Insurance" in Part A.
Ratings. As of the Date of Deposit for each of the respective
Trusts, Standard & Poor's had rated the claims-paying ability of each of the
above insurance companies "AAA" and had rated each of the Bonds in the
Portfolio "AAA" because the insurance companies had insured the Bonds. The
assignment of such "AAA" ratings was due to Standard & Poor's assessment of
the creditworthiness of the insurance companies and their ability to pay
claims on their policies of insurance. Subsequently, the rating of the
claims-paying ability of the insurer of an underlying Bond may cease to be
rated or may be downgraded which may result in a downgrading of the rating of
the Units in the Trust. For a discussion of the rating of the claims-paying
ability of each of the Bond insurers see "Insurance On The Bonds". For a list
of Bond Ratings as of the Evaluation Date see the "Portfolio" in Part A of
this Prospectus. For a discussion of the rating assigned to the Units of the
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Trusts, see "the Trust" in Part A of this Prospectus. 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, but the Sponsor is not aware that the information herein is
inaccurate or incomplete.
RISK CONSIDERATIONS
Special Factors Affecting the Navigator Trusts
The Sponsor believes the information summarized below describes
some of the more significant events relating to the Navigator Trusts. Sources
of such information are the official statements of issuers located in the
states of the Navigator Trusts which have been issued in connection with the
debt offerings of such states, as well as other publicly available documents
and information. While the Sponsor has not independently verified such
information, they have no reason to believe it is not correct in all material
respects.
New York Navigator Trust
New York Risk Factors
This summary is included for the purpose of providing a general
description of New York State's (the "State") and New York City's (the "City")
credit and financial condition. The information set forth below is derived
from the official statements and/or preliminary drafts of official statements
prepared in connection with the issuance of State and City municipal bonds.
The Fund has not independently verified this information.
State Economic Trends. Over the long term, the State and the City
face serious potential economic problems. The City accounts for approximately
41% of the State's population and personal income, and the City's financial
health affects the State in numerous ways. The State historically has been
one of the wealthiest states in the nation. For decades, however, the State
has grown more slowly than the nation as a whole, gradually eroding its
relative economic affluence. Statewide, urban centers have experienced
significant changes involving migration of the more affluent to the suburbs
and an influx of generally less affluent residents. Regionally, the older
Northeast cities have suffered because of the relative success that the South
and the West have had in attracting people and business. The City has also
had to face greater competition as other major cities have developed financial
and business capabilities which make them less dependent on the specialized
services traditionally available almost exclusively in the City. 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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Notwithstanding the numerous initiatives that the State and its
localities may take to encourage economic growth and achieve balanced budgets,
reductions in Federal spending could materially and adversely affect the
financial condition and budget projections of the State and its localities.
New York City. The City, with a population of approximately 7.3
million, is an international center of business and culture. Its
non-manufacturing economy is broadly based, with the banking and securities,
life insurance, communications, publishing, fashion design, retailing and
construction industries accounting for a significant portion of the City's
total employment earnings. Additionally, the City is the nation's leading
tourist destination. The City's manufacturing activity is conducted primarily
in apparel and publishing.
The national economic downturn which began in July 1990 adversely
affected the local economy, which had been declining since late 1989. As a
result, the City experienced job losses in 1990 and 1991 and real Gross City
Product (GCP) fell in those two years. In order to achieve a balanced budget
as required by the laws of the State 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 projected tax revenue of approximately
$1.4 billion, reduced State aid for the City and greater than projected
increases in legally mandated expenditures, including public assistance and
Medicaid expenditures. Beginning in calendar year 1992, the improvement in
the national economy helped stabilize conditions in the City. Employment
losses moderated toward year-end and real GCP increased, boosted by strong
wage gains. The City's current four-year financial plan assumes that, after
noticeable improvements in the City's economy during calendar year 1994,
economic growth will slow in calendar years 1995 and 1996 with local
employment increasing modestly. In December 1994, the City experienced
substantial shortfalls in payments of non-property tax revenues from those
forecasted. Through December 1994, collections of non-property taxes were
approximately $200 million lower than projected.
For each of the 1981 through 1994 fiscal years, the City achieved
balanced operating results as reported in accordance with generally accepted
accounting principles ("GAAP"), and the City's 1995 fiscal year results are
projected to be balanced in accordance with GAAP. The City was required to
close substantial budget gaps in recent years in order to maintain balanced
operating results. For fiscal year 1995, the City has adopted a budget which
has halted the trend in recent years of substantial increases in City spending
from one year to the next. 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 reductions 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 and
outlines proposed gap-closing programs for years with projected budget gaps.
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.
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The City depends on the State for State aid both to enable the
City to balance its budget and to meet its cash requirements. There can be no
assurance that there will not be reductions in State aid to the City from
amounts currently projected or that State budgets in future fiscal years will
be adopted by the April 1 statutory deadline and that such reductions or
delays will not have adverse effects on the City's cash flow or expenditures.
The Mayor is responsible for preparing the City's four-year
financial plan, including the City's current financial plan for the 1995
through 1998 fiscal years (the "1995-1998 Financial Plan" or "Financial
Plan"). The City's projections set forth in the Financial Plan are based on
various assumptions and contingencies which are uncertain and which may not
materialize.
Changes in major assumptions could significantly affect the City's
ability to balance its budget as required by State law and to meet its annual
cash flow and financing requirements. Such assumptions and contingencies
include the condition of the regional and local economies, the impact on real
estate tax revenues of the real estate market, wage increases for City
employees consistent with those assumed in the Financial Plan, employment
growth, the results of a pending actuarial audit of the City's pension system
which is expected to significantly increase the City's annual pension costs,
the ability to implement proposed reductions in City personnel and other cost
reduction initiatives, which may require in certain cases the cooperation of
the City's municipal unions, revenue generating transactions and provision of
State and Federal aid and mandate relief.
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 1995 through 1998
contemplates the issuance of $10.7 billion of general obligation bonds
primarily to reconstruct and rehabilitate the City's infrastructure and
physical assets and to make other capital investments. 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, 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 capital and operating expenditures.
On October 25, 1994, the City published the Financial Plan for the
1995-1998 fiscal years, which is a proposed modification to a financial plan
submitted to the Control Board on July 8, 1994 (the "July Financial Plan") and
which relates to the City, the Board of Education ("BOE") and the City
University of New York.
The City's July Financial Plan set forth proposed actions for the
1995 fiscal year to close a previously projected gap of approximately $2.3
billion for the 1995 fiscal year, which included City actions aggregating $1.9
billion, a $288 million increase in State actions over the 1994 and 1995
fiscal years, and a $200 million increase in Federal assistance. The City
actions included proposed agency actions aggregating $1.1 billion, including
productivity savings; tax and fee enforcement initiatives; service reductions;
and savings for the restructuring of City services. City actions also
included savings of $45 million resulting from proposed tort reform, the
projected transfer to the 1995 fiscal year of $171 million of the projected
1994 fiscal year surplus, savings of $200 million for employee health care
costs, $51 million in reduced pension costs, savings of $225 million from
refinancing City bonds and $65 million from the proposed sale of certain City
assets.
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The 1995-1998 Financial Plan published on October 25, 1994
reflects actual receipts and expenditures and changes in forecast revenues and
expenditures since the July Financial Plan and projects revenues and
expenditures for the 1995 fiscal year balanced in accordance with GAAP. For
the 1995 fiscal year, the Financial Plan includes actions to offset an
additional potential $1.1 billion budget gap, resulting principally from a
$104 million decrease in the $171 million projected surplus from the 1994
fiscal year to be transferred to the 1995 fiscal year, due primarily to lower
than projected tax revenues for the 1994 fiscal year; reductions in projected
tax revenues for the 1995 fiscal year totaling $170 millon; $60 million of
increased City pension contributions resulting from lower than expected
earnings on pension fund assets for the 1994 fiscal year; a $166 million
shortfall in projected increased Federal assistance due primarily to the
failure to enact national health care reform; the failure of the State
Legislature to approve tort reform; the failure to achieve the projected
savings of $200 million for employee health care costs; a $165 million
increase in projected overtime expenditures; and additional agency spending
requirements, primarily for increased costs for foster care and homeless
services, and other decreased projected revenues.
The gap-closing measures for the 1995 fiscal year set forth in the
1995-1998 Financial Plan include additional proposed agency actions
aggregating $851 million, including $342 million of reduced personal services
costs resulting from a reduction in the number of city employees, additional
expenditure reductions and $42 million of greater than forecast miscellaneous
revenues. Additional proposed gap-closing actions include the availability of
$200 million, primarily from reserves held for unreported health insurance
claims. The $851 million of agency actions proposed in the Financial Plan for
the 1995 fiscal year, together with the $1.1 billion of agency actions
proposed in the July Financial Plan, are substantial and difficult to
implement. Agency actions proposed in the Financial Plan for the 1995 fiscal
year include reduced expenditures for the Police Department totaling $67
million, a $107 million reduction in the City's subsidy to the New York City
Health and Hospital Corporation ("HHC"), reduced allocations to BOE totaling
$190 million, expenditure reductions totaling $102 million for the Human
Resources Administration, expenditure reduction totaling $32 million for the
Department of Corrections, a portion of which is subject to modification of a
court consent decree, and a $113 million reduction in the City's subsidy to
the Metropolitan Transportation Authority (the "MTA"). The Financial Plan is
subject to the ability of the City to implement proposed reductions in City
personnel and other cost reduction initiatives.
Based on currently available results, the Mayor's Office of
Management and Budget ("OMB") believes that developments since the publication
of the Financial Plan on October 25, 1994 have caused an additional $650
million budget gap in the 1995 fiscal year due to (i) projected tax revenue
shortfalls of $400 million, (ii) failure to renegotiate the terms of certain
Port Authority leases to increase revenues by $75 million, (iii) miscellaneous
revenue shortfalls of $25 million, and (iv) increases in certain agency
expenditures of $150 million. The projected tax revenue shortfalls for the
1995 fiscal year result from lower capital gains, bonuses and business
profits, the timing of certain payments and discounting by retailers. OMB has
also identified gap-closing actions totaling $650 million in the 1995 fiscal
year. Certain of these gap-closing actions will be subject to the ability of
the City to implement expenditure reduction initiatives and, in the case of
the social security refund, final approval by the Internal Revenue Service.
In the event these gap-closing actions cannot be fully implemented, the City
will be required to adopt additional gap-closing measures for the remainder of
the 1995 fiscal year, and there is no assurance that such measures will enable
the City to achieve a balanced budget for the 1995 fiscal year. Current
forecasts of revenues and expenditures for the fiscal year 1995, including the
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gap-closing actions, could require the City to take actions within the 1995
fiscal year to meet its cash flow requirements.
The Financial Plan also sets forth projections for the 1996
through 1998 fiscal years and outlines a proposed gap-closing program to close
projected gaps of $1.0 billion, $1.5 billion and $2.0 billion for the 1996
through 1998 fiscal years, respectively, after successful implementation of
the $1.1 billion gap-closing program for the 1995 fiscal year.
OMB believes that developments since the publication of the
Financial Plan have caused the $1.0 billion gap projected in the Financial
Plan for the 1996 fiscal year to increase to $2.7 billion. The $1.5 billion
increase in the forecast budget gap for fiscal year 1996 is due to (i) a
projected tax revenue shortfall of approximately $400 million, reflecting the
impact of the recent shortfall in collections of non-property taxes described
above, (ii) an $80 million shortfall in projected property tax receipts due to
a lower than forecast increase in the tentative assessment roll published by
the New York City Department of Finance, (iii) a reduction of $390 million in
the forecast receipts of State and Federal aid, (iv) a reduction of $75
million in forecast receipts of lease payments for New York City airports,
(v) higher costs of $260 million for Medicaid and agency spending, (vi)
additional pension funding costs of $300 million resulting from an ongoing
actuarial audit of the City pension systems and (vii) $45 million in
additional costs for unachieved tort reform.
In February the Mayor published a modification (the "February
Modification") to the Financial Plan for the City's 1995 through 1998 fiscal
years and a preliminary budget for the City's 1996 fiscal year. The February
Modification reflected changes since the Financial Plan including measures to
be taken to assure balance in the 1995 fiscal year described above and the
City's program to address the currently forecast gap of approximately $2.7
billion in fiscal year 1996 which gap is projected to increase to $3.2 billion
and $3.8 billion in 1997 and 1998, respectively. The gap-closing program is
subject to change. However, the major components of the gap-closing program
for fiscal year 1996 are (i) a reduction in spending for entitlements of
approximately $1.2 billion, primarily affecting public assistance and Medicaid
payments by the City, (ii) $600 million in savings from municipal unions and
(iii) $500 million from the Board of Education. In addition, the City will
continue to seek mandate relief such as tort reform and other changes in City
procedures and use of resources through privatization and efficient
utilization of the City's assets.
The proposals contained in the February Modification to close the
projected budget gaps for the 1995 and 1996 fiscal years engendered
substantial public debate, and the public debate relating to the 1996 fiscal
year budget will most likely continue through the time the budget is scheduled
to be adopted in June 1995. On January 17, 1995, Standard & Poor's placed the
City's general obligation bonds on CreditWatch with negative implications.
Standard & Poor's stated that it will review the February Modification for
evidence of continued progress toward long-term structural balance, and
eventual elimination of certain types of budget devices, as well as the next
State budget proposal, to determine the extent of the City's relief from State
mandates in education, social services, and health care expenditures.
Standard & Poor's stated that, by April 1995, financial plans which continue
to incorporate budget devices or fail to reflect ongoing budget relief from
the State, will result in a lowering of the rating to the "BBB" category for
New York City's general obligation bonds.
In January 1993, the City announced a settlement with a coalition
of municipal unions, including Local 237 of the International Brotherhood of
Teamsters, District Council 37 of the American Federation of State, County and
Municipal Employees and other unions covering approximately 44% of the City's
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workforce. 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. The City is presently bargaining
with the Correction Officers' Benevolent Association and the Sanitation
Officers' Association. In addition, the Transit Police Benevolent
Association's delegate body rejected a tentative settlement with the City.
The contract dispute is currently being arbitrated before the State's Public
Employment Relations Board. Moreover, a contract dispute between the City and
the Licensed Practical Nurses is currently in arbitration before the City's
Office of Collective Bargaining.
The Financial Plan provides no additional wage increases for City
employees after their contracts expire in the 1995-1996 fiscal years. Each 1%
wage increase for all employees commencing in the 1995 and 1996 fiscal years
would cost the City an additional $28 million for the 1995 fiscal year, $140
million for the 1996 fiscal year and $150 million each year thereafter above
the amounts provided for in the Financial Plan.
Various actions proposed in the Financial Plan, including 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. State and Federal actions are
uncertain and no assurance can be given that such actions will in fact be
taken or that the savings that the City projects will result from these
actions will be realized. The State Legislature failed to approve a
substantial portion of the proposed State assumption of Medicaid costs in the
last session. The Financial Plan assumes that these proposals will be
approved by the State Legislature during the 1995 fiscal year and that the
Federal government will increase its share of funding for the Medicaid
program. If these measures cannot be implemented, the City will be required
to take other actions to decrease expenditures or increase revenues to
maintain a balanced financial plan.
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 1995 fiscal year, there can be no assurance that the gap-
closing actions proposed by the Financial Plan can be successfully implemented
or that the City will maintain a balanced budget in future years without
additional State aid, revenue increases or expenditure reductions. Additional
tax increases and reductions in essential City services could adversely affect
the City's economic base.
The 1995-1998 Financial Plan is based on numerous assumptions,
including the continuing improvement in the City's and the region's economy
and a modest employment recovery during calendar year 1994 and the concomitant
receipt of the economically sensitive tax revenues in the amounts projected.
The 1995-1998 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
1995 through 1998 fiscal years; continuation of the 9% interest earnings
assumptions for pension fund assets and current assumptions with respect to
wages for City employees affecting the City's required pension fund
contributions; the willingness and ability of the State, in the context of the
State's current financial condition, 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 Health and Hospitals Corporation ("HHC"), BOE and
other such agencies to maintain balanced budgets; the willingness of the
Federal government to provide Federal aid; approval of the proposed
continuation of the personal income tax surcharge; adoption of the City's
budgets by the City Council in substantially the forms submitted by the Mayor;
the ability of the City to implement proposed reductions in City personnel and
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other cost reduction initiatives, which may require in certain cases the
cooperation of the City's municipal unions, and the success with which the
City controls expenditures; savings for health care costs for City employees
in the amounts projected in the Financial Plan; additional expenditures that
may be incurred due to the requirements of certain legislation requiring
minimum levels of funding for education; the impact on real estate tax
revenues of the current weakness in the real estate market; the City's ability
to market its securities successfully in the public credit markets; 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.
The projections and assumptions contained in the 1995-1998
Financial Plan are subject to revision, which may involve substantial change,
and no assurance can be given that these estimates and projections, which
include actions which the City expects will be taken but which are not within
the City's control, will be realized.
From time to time, the Control Board staff, the City Comptroller
and others issue reports and make public statements regarding the City's
financial condition, commenting on, among other matters, the City's financial
plans, projected revenues and expenditures and actions by the City to
eliminate projected operating deficits. Some of these reports and statements
have warned that the City may have underestimated certain expenditures and
overestimated certain revenues and have suggested that the City may not have
adequately provided for future contingencies. Certain of these reports have
analyzed the City's future economic and social conditions and have questioned
whether the City has the capacity to generate sufficient revenues in the
future to meet the costs of its expenditure increases and to provide necessary
services.
On January 17, 1995, the City Comptroller issued a report which
concluded that the risks for the 1995 fiscal year had increased from $453
million to $658 million, primarily as a result of the lower-than-projected tax
revenues totaling $400 million, partially offset by the anticipated receipt of
an additional $100 million of revenues from the refund by the Internal Revenue
Service of social security overpayments by the City in the 1995 fiscal year.
The report stated that the shortfall in tax revenue collections is explained
largely by weaknesses in the banking industry and securities sector, which
have been hurt by the tight monetary policies of the Federal Reserve Board
which have resulted in losses from bond trading operations, layoffs and lower
year-end bonuses. The report stated that this shortfall may increase if total
returns in the financial sector do not improve in the first half of the 1995
calendar year.
On December 27, 1994, the City Comptroller issued a report on the
City's economy which noted that the City's economic recovery had slowed in the
third quarter of the 1994 calendar year and concluded that the City's economy
is still very weak and the local recovery is fragile. The report noted that
the indications of weakness in the City's economy included slower growth in
payroll employment and retail sales in the third quarter, as well as softness
in the Manhattan commercial real estate market. The report also noted that
the tight monetary policies implemented by the Federal Reserve Bank since
February 1994 to curb inflationary pressures were particularly harmful to
interest rate sensitive and cyclical sectors, such as retailing, the
securities industry, banking and manufacturing and that the City's service
driven economy has not benefited from the national recovery, which was largely
driven by interest rate sensitive sectors of housing, capital goods and
consumer durable goods. The report noted that the slow-down in economic
activity was expected to continue in the fourth quarter of 1994, with more
cutbacks in local governments and additional layoffs in the financial sector,
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which will offset new hiring in other areas and result in a slow growth in the
1995 calendar year.
On November 30, 1994, OSDC issued a report reviewing the Financial
Plan. The report concluded that a projected budget gap of $252 million
existed for the 1995 fiscal year, due largely to higher social service costs
and uncertainties concerning the receipt of revenues from increased collection
efforts. The report identified additional substantial risks for the 1995
fiscal year totaling $351 million, including the proposed reduction in the
City subsidy to the Transit Authority, the receipt of revenues by the City as
a result of the refund of social security overpayments, the projected
subleasing of certain assets and possible additional expenditures for the BOE.
After taking into account possible reduced expenditures of $100 millon, OSDC
concluded that the City faces risks of approximately $500 million for the
remainder of the 1995 fiscal year.
With respect to the 1996 through 1998 fiscal years, the OSDC in
its March 21, 1995 report projects gaps of approximately $3 billion, $3.6
billion and $4.1 billion, respectively. According to the OSDC, the projected
gap could be greater than forecast by the City primarily because the City has
not yet secured $133 million in anticipated health insurance savings and
overtime costs from uniformed agencies are likely to be $80 million higher
than projected by the City. The report also identified a number of additional
risks which could raise the 1996 budget gap by another $400 millon (a net gap
of $232 million after accounting for possible savings from overestimating
prior year's expenses). These risks include (i) the expiration of the 14%
personal income tax surcharge which the Financial Plan assumes will be
extended by the State, (ii) unfunded liabilities at the Board of Education and
(iii) potentially higher pension costs. Additionally, the 1996 gap-closing
program relies to a very large degree on cooperation from Federal and State
governments and municipal unions. In fact, the City has direct control of
less than $500 million of the total gap-closing measures. Therefore, no
assurance can be given that the 1996 measures will be successfully
implemented.
On December 8, 1994, the staff of the Control Board issued a
report on the Financial Plan. In its report the staff concluded that the City
faced risks of more than $513 million in the 1995 fiscal year. The staff
noted that tax receipts are stagnant, primarily because of a further
contraction in the property tax and sluggish growth in the non-property taxes,
related to erosion of profits in the securities industry, and that there are
substantial risks for the 1995 fiscal year with respect to possible increased
overtime and City Medicaid payments to HHC, shortfalls in parking fine
collections, the projected refund of social security payments, a proposed
asset sale, the renegotiation of certain Port Authority leases and possible
additional expenditures at BOE. In addition, the staff indicated that there
are risks of $2.0 billion, $2.6 billion and $3.1 billion for the 1996, 1997
and 1998 fiscal years, respectively. Risks for 1996 through 1998 fiscal years
include the potential for increased overtime and lower nonproperty tax
revenues, increased spending for City Medicaid payments to HHC, additional
expenditures at BOE, uncertainties concerning the proposed reduction in City
expenditures for health care costs, the anticipated revenues from
renegotiation of the terms of certain Port Authority leases, savings resulting
from the proposed tort reform to limit damage claims against the City, and
increased Federal aid for Medicaid. The report noted that the City faced
additional risks with respect to its assumptions regarding pension costs, a
reduced subsidy to the Transit Authority, social services savings and the cost
of wages. The staff noted that it is imperative that the City Council and the
Mayor work together to ensure that the actions taken for the 1995 fiscal year
are recurring and help reduce the over $2 billion gap for the 1996 fiscal year
and that a cooperative effort is necessary if the City is to solve its
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structural budget problems and bring stability to the delivery of services to
its residents.
On March 17, 1995 the Control Board staff issued its report
commenting on the February Modification. The report notes that the February
Modification attempts to address the structural imbalances by dramatically
lowering expenditures in large budget areas while continuing the restructuring
of the City's finances. Their analysis does show a risk of at least $486
million in fiscal 1996, particularly because more than $2 billion in projected
budget relief is dependent upon the action of others. Both the Control Board
and the OSDC have noted that the City has not yet brought its long term
expenditures in line with recurring revenues; therefore, the City is likely to
face future budget gaps requiring it to reduce expenditures and/or increase
revenues.
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, 1994, MAC had outstanding an
aggregate of approximately $4.885 billion of its bonds.
The City's general obligation bonds are rated Baa1 by Moody's.
Standard & Poor's has rated the City's general obligation bonds A-. Fitch
Investors Service, Inc. ("Fitch") has rated them A-. Such ratings reflect
only the view of Moody's, Standard & Poor's and Fitch, from which an
explanation of the significance of such ratings may be obtained. There is no
assurance that such ratings will continue for any given period of time or that
they will not be revised downward or withdrawn entirely. Any such downward
revision or withdrawal could have an adverse effect on the market prices of
the City's general obligation bonds.
New York State and its Authorities. The State's current fiscal
year commenced on April 1, 1995, and ends on March 31, 1996, and is referred
to herein as the State's 1995-96 fiscal year. The prior fiscal year, which
ended on March 31, 1995, is referred to herein as the State's 1994-95 fiscal
year. The State's budget for the 1994-95 fiscal year was enacted by the
Legislature on June 7, 1994, more than two months after the start of the
fiscal year. Prior to adoption of the budget, the Legislature enacted
appropriations for disbursements considered to be necessary for State
operations and other purposes, including all necessary appropriations for debt
service. The State Financial Plan for the 1994-95 fiscal year was formulated
on June 16, 1994 and is based on the State's budget as enacted by the
Legislature and signed into law by then Governor Cuomo. On February 1,
Governor Pataki presented his 1995-96 Executive Budget, containing his
recommendations for the upcoming fiscal year. The Governor's budget is
balanced on a cash basis in the General Fund (described below). However,
there can be no assurance that the Legislature will enact the proposed
Executive Budget into law, that the budget will be adopted in a more timely
manner than the prior year's budget, or that actual results will not differ
materially and adversely from the projections set forth below.
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The economic and financial condition of the State may be affected
by various financial, social, economic and political factors. Those factors
can be very complex, may vary from fiscal year to fiscal year, and are
frequently the result of actions taken not only by the State and its agencies
and instrumentalities, but also by entities, such as the Federal government,
that are not under the control of the State.
The State Financial Plan is based upon forecasts of national and
State economic activity. Economic forecasts have frequently failed to predict
accurately the timing and magnitude of changes in the national and the State
economics. Many uncertainties exist in forecasts of both the national and
State economies, including consumer attitudes toward spending, Federal
financial and monetary policies, the availability of credit, and the condition
of the world economy, which could have an adverse effect on the State. There
can be no assurance that the State economy will not experience results in the
current fiscal year that are worse than predicted, with corresponding material
and adverse effects on the State's projections of receipts and disbursements.
The State Division of the Budget ("DOB") believes that its
projections of receipts and disbursements relating to the current State
Financial Plan, and the assumptions on which they are based, are reasonable.
Actual results, however, could differ materially and adversely from the
projections set forth below, and those projections may be changed materially
and adversely from time to time.
As noted above, the financial condition of the State is affected
by several factors, including the strength of the State and regional economy
and actions of the Federal government, as well as State actions affecting the
level of receipts and disbursements. Owing to these and other factors, the
State may, in future years, face substantial potential budget gaps resulting
from a significant disparity between tax revenues projected from a lower
recurring receipts base and the future costs of maintaining State programs at
current levels. Any such recurring imbalance would be exacerbated if the
State were to use a significant amount of nonrecurring resources to balance
the budget in a particular fiscal year. To address a potential imbalance for
a given fiscal year, the State would be required to take actions to increase
receipts and/or reduce disbursements as it enacts the budget for that year,
and under the State Constitution the Governor is required to propose a
balanced budget each year. To correct recurring budgetary imbalances, the
State would need to take significant actions to align recurring receipts and
disbursements in future fiscal years. There can be no assurance, however,
that the State's actions will be sufficient to preserve budgetary balance in a
given fiscal year or to align recurring receipts and disbursements in future
fiscal years.
The General Fund is the general operating fund of the State and is
used to account for all financial transactions, except those required to be
accounted for in another fund. It is the State's largest fund and receives
almost all State taxes and other resources not dedicated to particular
purposes. In the State's 1994-95 fiscal year, the General Fund was expected
to account for approximately 52 percent of total governmental-fund receipts
and 51 percent of total governmental-fund disbursements. General Fund moneys
are also transferred to other funds, primarily to support certain capital
projects and debt service payments in other fund types.
As a result of the national and regional economic recession, the
State's tax receipts for its 1991 and 1992 fiscal years were substantially
lower than projected, which resulted in reductions in State aid to localities
for the State's 1992 and 1993 fiscal years from amounts previously projected.
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 State's economy, as measured by employment, started to recover
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near the start of the 1993 calendar year, continued into mid-1994 and then
virtually ceased and the State completed its 1994 fiscal year with a
cash-basis balanced budget in the State's General Fund (the major operating
fund of the State), after depositing $1.5 billion in various reserve funds.
The State's 1994-95 Financial Plan, which is based upon the
enacted State budget, projected a balanced General Fund. The State's 1994-95
Financial Plan provided the City with savings through various actions, which
include increased State education aid and State assumption of certain costs
previously paid by the City and restoration of certain prior year revenue
sharing reductions. However, the State Legislature failed to enact a
substantial portion of the proposed State assumption of local Medicaid costs,
other significant mandate relief items, and the proposed tort reform
legislation, which would have provided the City with additional savings. On
February 1, 1995, as part of his Executive Budget for the 1995-96 fiscal year,
the Governor submitted the third quarterly update to the State Financial Plan
for the 1994-95 fiscal year. This update reflects changes to receipts and
disbursements. The update revises the projected General Fund receipts and
disbursements contained in the 1994-95 State Financial Plan as revised by the
first and second quarterly updates issued on July 29, 1994 and October 28,
1994. The update reflected that estimates of General Fund receipts for the
1994-95 fiscal year have been reduced by $585 million, from the mid-year
update, and are down $1.058 billion from the budget enacted in June 1994 (of
which $227 million results from a post mid-year accounting restatement of the
State Financial Plan). Offsetting this projected loss in receipts, however,
are projected reductions of $312 million in disbursements from the mid-year
update, attributable to lower spending through the first nine months of the
fiscal year, and to the use of greater than anticipated receipts from the
State lottery. The net result of the projected reductions in receipts and
disbursements is a negative margin of $273 million against the mid-year
update's projection of a $14 million surplus, producing a potential deficit of
$259 million for the 1994-95 fiscal year. The Governor has proposed to close
this deficit through a hiring freeze, a review of pending contracts, and
spending cuts in certain programs that were started or expanded in the 1994-95
budget. Governor Pataki submitted a proposed budget for the State's 1995-96
fiscal year on February 1, 1995. The Governor's budget for 1995-96 fiscal
year included significant savings from Medicaid cost containment measures and
welfare reform and substantial reductions in State aid to localities,
including the City.
The 1995-96 Executive Budget is the first to be submitted by the
Governor, who assumed office on January 1. It proposes actual reductions in
the year-over-year dollar levels of State spending from the General Fund for
the first time in over half a century with a proposed cut of 3.4 percent.
There are, however, risks and uncertainties concerning whether or not certain
tax and spending cuts proposed in the Executive Budget will be upheld in the
face of potential legal challenges. For example, there can be no assurance
that cuts in social-welfare entitlement programs will not be challenged in
court. Further, the Comptroller has indicated his intention to challenge in
Court the proposed use of certain pension reserves in the Executive Budget.
According to the Executive Budget, in the 1995-96 fiscal year, the
State Financial Plan would be out of balance by almost $4.7 billion, as a
result of three key factors: (1) the projected structural deficit resulting
from the ongoing disparity between sluggish growth in receipts, the effect of
prior-year tax changes, and the rapid acceleration of spending growth ($2.1
billion); (2) the impact of unfunded 1994-95 initiatives, including capital
projects such as sports and recreational facilities, an increase in revenue
sharing to local governments, further State takeover of local Medicaid costs,
more school aid, and increased tuition assistance ($1.1 billion); and (3) the
use of one-time solutions to fund recurring spending in the 1994-95 budget
($1.5 billion). Tax cuts proposed to spur economic growth and provide relief
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for low and middle-income taxpayers add $240 million to the projected
imbalance or budget gap, bringing the total to approximately $5 billion.
The Executive Budget proposes to close the budget gap for the
1995-96 fiscal year through (1) $1.9 billion from cost containment savings in
social-welfare programs, particularly Medicaid cost-containment
recommendations ($1.277 billion), Income-Maintenance restructuring
recommendations ($340 million), and the consolidation of various child-care
programs into a Family Services Block Grant to counties and New York City; (2)
$2.5 billion in savings from State agency restructuring that is expected to
reduce spending on the State workforce, SUNY and CUNY, mental hygiene
programs, capital projects, the prison population, and public authorities; (3)
$350 million in savings from local assistance reforms, by freezing school aid,
revenue sharing and county costs of preschool special education at current
levels, while proposing program legislation to provide relief from certain
mandates that increase local spending; and (4) $200 million in new revenue
measures, primarily a new Quick Draw Lottery game and changes to tax-payment
schedules. The Executive Budget indicates that for years State revenues have
grown at a lower rate than State spending, producing an increasing structural
deficit, and that if the proposals in the Executive Budget are upheld
(particularly the spending cuts described above) the State will start to
eliminate the structural imbalance that has characterized the State's fiscal
record. There can, however, be no assurances that the tax and spending cuts
proposed in the Executive Budget will be upheld or enacted as proposed, or
that if enacted, will eliminate potential imbalances in future fiscal years.
As expected, the Governor's proposals have engendered substantial
public debate which will continue until the enactment of the budget by the
State legislature, which as expected did not occur before April 1, 1995. In
certain recent fiscal years, the State has failed to enact a budget prior to
the beginning of the State's fiscal year. The delay in the adoption of the
State's budget could delay 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.
As a result of various uncertainties and other factors, including
consumer attitudes toward spending, Federal financial and monetary policies,
the availability of credit and the condition of the world economy, 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 13, 1992 Standard & Poor's Corporation ("Standard &
Poor's") reduced its ratings on the State's general obligation bonds from A to
A- and, in addition, reduced its ratings on the State's moral obligation,
lease purchase, guaranteed and contractual obligation debt. Standard & Poor's
also continued its negative rating outlook assessment on State general
obligation debt. On April 26, 1993, Standard & Poor's revised the rating
outlook assessment to stable. On February 14, 1994, Standard & Poor's raised
its outlook to positive and, on December 12, 1994, confirmed its A- rating.
On January 6, 1992, Moody's Investors Service, Inc. ("Moody's") reduced its
ratings on outstanding limited-liability State lease purchase and contractual
obligations from A to Baa1. On December 12, 1994, Moody's reconfirmed its A
rating on the State's general obligation long-term indebtedness.
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
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authorities that had outstanding debt of $100 million or more. The aggregate
outstanding debt, including refunding bonds, of these 18 authorities was $63.5
billion as of September 30, 1993. As of March 31, 1994, aggregate public
authority debt outstanding as State-supported debt was $21.1 billion and as
State-related debt was $29.4 billion.
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 MTA, a State agency, oversees the operation of the City's
subway and bus system (the "Transit Authority" or "TA") and commuter rail
lines serving the New York metropolitan area. Fare revenues from such
operations have been insufficient to meet expenditures, and the MTA depends
heavily upon a system of State, local, Triborough Bridge and Tunnel Authority
("TBTA") and, to the extent available, Federal support. Over the past several
years, the State has enacted several taxes, including a surcharge on the
profits of banks, insurance corporations and general business corporations
doing business in the 12-county region served by the MTA 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% or approximately $456
million. For the 1994-95 State fiscal year, total State assistance to the MTA
is estimated at approximately $1.3 billion.
In 1993, State legislation authorized the funding of a five-year
$9.56 billion MTA capital plan for the five-year period, 1992 through 1996
(the "1992-1996 Capital Program"). The MTA has received approval of the
1992-96 Capital Program based on this legislation from the 1992-96 Capital
Program Review Board, as State law requires. This is the third five-year plan
since the Legislature authorized procedures for the adoption, approval and
amendment of a five-year plan in 1981 for a capital program designed to
upgrade the performance of the MTA's transportation systems and to supplement,
replace and rehabilitate facilities and equipment. The MTA, the TBTA and the
TA are collectively authorized to issue an aggregate of $3.1 billion of bonds
(net of certain statutory exclusions) to finance a portion of the 1992-96
Capital Program. The 1992-96 Capital Program is expected to be financed in
significant part through the dedication of State petroleum business taxes.
There can be no assurance that all the necessary governmental
actions for the Capital Program will be taken, that funding sources currently
identified will not be decreased or eliminated, or that the 1992-96 Capital
Program, or parts thereof, will not be delayed or reduced. Furthermore, the
power of the MTA to issue certain bonds expected to be supported by the
appropriation of State petroleum business taxes is currently the subject of
court challenge. If the Capital Program is delayed or reduced, ridership and
fare revenues may decline, which could, among other things, impair the MTA's
ability to meet its operating expenses without additional State assistance.
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
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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, and contract
claims and the monetary damages sought are substantial. Adverse development
in these proceedings or the initiation of new proceedings could affect the
ability of the State to maintain a balanced State Financial Plan in the
current fiscal year or thereafter.
In addition to the proceedings noted below, the State is party to
other claims and litigation which its legal counsel has advised are not
probable of adverse court decisions. Although the amounts of potential
losses, if any, are not presently determinable, it is the State's opinion that
its ultimate liability in these cases is not expected to have a material
adverse effect on the State's financial position in the current fiscal year or
thereafter.
On May 31, 1988, the United States Court took jurisdiction of a
claim of the State of Delaware that certain unclaimed dividends, interest and
other distributions made by issuers of securities and held by New York-based
brokers incorporated in Delaware for beneficial owners who cannot be
identified or located, had been, and were being, wrongfully taken by the State
of New York pursuant to New York's Abandoned Property Law (State of Delaware
v. State of New York, United States Supreme Court). All 50 states and the
District of Columbia moved to intervene, claiming a portion of such
distributions and similar property taken by the State of New York from New
York-based banks and depositories incorporated in Delaware. In a decision
dated March 30, 1993, the Court granted all pending motions of the states and
the District of Columbia to intervene and remanded the case to a Special
Master for further proceedings consistent with the Court's decision. The
Court determined that the abandoned property should be remitted first to the
state of the beneficial owner's last known address, if ascertainable and, if
not, then to the states of incorporation of the intermediary bank, broker or
depository. New York and Delaware have executed a settlement agreement which
provides for payment by New York to Delaware of $35 million in the State's
1993-94 fiscal year and five annual payments thereafter of $33 million. New
York and Massachusetts have executed a settlement agreement which provided for
aggregate payments by New York of $23 million, payable over consecutive years.
The claims of the other states and the District of Columbia remain.
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
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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
MTA and the Thruway Authority authorized by Chapter 56 of the laws 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; (16) challenges to the rationality and
retroactive application of State regulations recalibrating nursing home
Medicaid rates; and (17) challenge by AT&T to New York Tax Law Section 186-a
(2-a) as violative of the Commerce Clause of the U.S. Constitution.
New Jersey Navigator Trust
New Jersey Risk Factors
State Finance. New Jersey is the ninth largest state in population and
the fifth smallest in land area. With an average of 1,050 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 ($26,967).
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.
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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 6.1% in December 1994, which is above the national average of 5.4%
in December 1994. 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 $9.0 billion, of which $3.6 billion was issued and outstanding,
$4.0 billion was retired (including bonds for which provisions for payment
have been made through the sale and issuance of refunding bonds) and
$1.4 billion was unissued. The debt service obligation of such outstanding
indebtedness was $103.5 million for Fiscal Year 1994.
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 funds 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
$937.4 million.
ln order to provide additional revenues to balance future budgets, to
redistribute school aid and to contain real property taxes, on June 27, 1990,
and July 12, 1990, former Governor Florio signed into law legislation which
was estimated to raise approximately $2.8 billion in additional taxes
(consisting of $1.5 billion in sales and use taxes and $1.3 billion in income
taxes), the biggest tax hike in New Jersey history. There can be no assurance
that receipts and collections of such taxes will meet such estimates.
The first part of the tax hike took effect on July 1, 1990, with the
increase in the State's sales and use tax rate from 6% to 7% and the
elimination of exemptions for certain products and services not previously
subject to the tax, such as telephone calls, paper products (which has since
been reinstated), soaps and detergents, janitorial services, alcoholic
beverages and cigarettes. At the time of enactment, it was projected that
these taxes would raise approximately $1.5 billion in additional revenue.
Projections and estimates and receipts from sales and use taxes, however, have
been subject to variance in recent fiscal years.
The second part of the tax hike took effect on January 1, 1991, in the
form of an increased state income tax on individuals. At the time of
enactment, it was projected that this increase would raise approximately $1.3
billion in additional income taxes to fund a new school aid formula, a new
homestead rebate program and state assumption of welfare and social services
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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 had contended that the income tax package
would help reduce local property tax increases by providing more state aid to
municipalities. Under the income tax legislation, the State would assume
approximately $289 million in social services costs that previously were paid
by counties and municipalities and funded by property taxes. In addition,
under the new formula for funding school aid, an extra $1.1 billion was
proposed to be sent by the State to school districts beginning in 1991, thus
reducing the need for property tax increases to support education programs.
Effective July 1, 1992, the State's sales and use tax rate decreased
from 7% to 6%. On November 2, 1993, Governor Florio lost his bid for
re-election 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.
Effective January 1, 1994, an across-the-board 5% reduction in the income tax
rates was enacted and effective January 1, 1995, further reductions ranging
from 1% to 10% in income tax rates will take effect.
On June 30, 1994, Governor Whitman signed the New Jersey Legislature's
$15.7 billion budget for Fiscal Year 1995. The balanced budget, which
includes $455 million in surplus, is $141 million less than the 1994 budget.
Whether the State can achieve a balanced budget depends on its ability to
enact and implement expenditure reductions and to collect estimated tax
revenues. The Fiscal Year 1995 Appropriations Act forecasts sales and use tax
collections of $3.98 billion, a 5.3% increase from receipts estimated in the
Revised Revenue Estimates for Fiscal Year 1994. It also forecasts gross
income tax collections of $4.582 billion, a 1.2% increase from receipts,
estimated for Fiscal Year 1994, and corporation business tax collections of
$915 million, a 12% decrease from receipts estimated for Fiscal Year 1994.
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.
Debt Ratings. For many years, prior to 1991, 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 Aal. On
July 3, 1991, 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 $1 billion gap in the State's $15 billion
budget for fiscal year 1992 which ended on June 30, 1992. Under New Jersey
state law, the gap in the current budget must be closed before the new budget
year begins on July 1, 1992. Standard 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
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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 would
recover quickly enough to meet lawmakers' revenue projections. It also
remained concerned about the recent federal ruling leaving in doubt how much
the State was due in retroactive Medicaid reimbursements and a ruling by a
federal judge, now on appeal, of the State's method for paying for uninsured
hospital patients. However, on July 27, 1994, Standard and Poor's announced
that it was changing the State's outlook from negative to stable due to a
brightening of the State's prospects as a result of Governor Whitman's effort
to trim spending and cut taxes, coupled with an improving economy. Standard
and Poor's reaffirmed its "AA+" rating at the same time. There can be no
assurance that these ratings will continue or that particular bond issues may
not be adversely affected by changes in the State or local economic and
political conditions.
On August 24, 1992, Moody's Investors Service, Inc. downgraded New
Jersey general obligation bonds to "Aal", stating that the reduction reflected
a developing pattern of reliance on nonrecurring measures to achieve budgetary
balance, four years of financial operations marked by revenue shortfalls and
operating deficits, and the likelihood that serious financial pressures would
persist. On August 5, 1994, Moody's reaffirmed its "Aal" rating, citing on
the positive side New Jersey's broad-based economy, high income levels,
history of maintaining a positive financial position and moderate (although
rising) debt ratios, and, on the negative side, a continued reliance on
one-time revenue and a dependence on pension-related savings to achieve
budgetary balance.
Capital Construction. In addition to payment from bond proceeds,
capital construction can also be funded by appropriation of current revenues
on a pay-as-you go basis. This amount represents 2.2% of the total Fiscal
Year 1993 Budget. In Fiscal Year 1993, the amount was $331.0 million and was
for transportation projects. This appropriation was credited to the
Transportation Trust Fund Account of the State General Fund.
All appropriations for capital projects and all proposals for State bond
authorizations are subject to the review and recommendation of the New Jersey
Commission on Capital Budgeting and Planning. This permanent commission was
established in November 1975, and is charged with the preparation of the State
Capital Improvement Plan, which contains proposals for State spending for
capital projects.
Lease Financing. The State has entered into a number of leases relating
to the financing of certain real property and equipment. The State leases the
State Tax Processing Building and the Richard 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
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construction, all of which were financed by the EDA's $114,391,434.70 initial
aggregate principal amount of Trenton Office Complex Revenue Bonds, 1980
Series dated December 1, 1989. The State has also entered into a lease
agreement, as lessee, with the EDA to lease approximately 13 acres of real
property and certain infrastructure improvements thereon located in the City
of Newark. This property is in a geographical area generally bounded by
McCarter Highway, Mulberry Street and Saybrook Place and its purchase was
financed by $21,510,000 aggregate principal amount of New Jersey Economic
Development Authority Revenue Bonds, New Jersey Performing Arts Center Site
Acquisition Project, 1991 Series, issued on August 20, 1991. The rental
payments required to be made by the State under such lease agreements are
sufficient to cover debt service on such bonds and other amounts payable to
the EDA, including certain administrative expenses of the EDA, and such rental
payments are subject to annual appropriation by the State Legislature.
Maximum annual debt service on such bonds is approximately $12,200,000. All
of such bonds are still outstanding and mature in the years 1992 through 2012.
The State has also entered into a sublease with the EDA to lease two
parking lots, certain infrastructure improvements and related elements located
at Liberty State Park in the City of Jersey City. These parking lots and
improvements have been financed by a $13,683,767.50 aggregate principal amount
of New Jersey Economic Development Authority Lease Rental Bonds, 1992 Series
(Liberty State Park Project) dated March 15, 1992. The rental payments that
will be required to be made by the State under such sublease agreement will be
sufficient to cover debt service on such bonds and other amounts payable to
the EDA, and such rental payments will be subject to appropriation by the
State Legislature.
In 1981, the Governor signed into law a bill creating the New Jersey
Building Authority (the "Building Authority") having the power to construct
facilities for leasing to the State (P.L. 1981, c. 120). The law provides for
leasing to the State on a basis similar to that described above. The Building
Authority is authorized to have not more than $250 million of its notes and
bonds outstanding exclusive of refunded bonds and notes, provided that if the
Building Authority issues bonds or notes to finance the total cost of a
project based on estimates prepared by an independent consultant and the
consultant determines later that the costs of the project as initially
approved have increased, the Building Authority may issue additional bonds or
notes to finance the increased cost notwithstanding the $250 million
limitation. In 1985 the Building Authority issued $129,635,000 of 1985 Series
Bonds for five office building projects in the Trenton area. During April
1987 the Building Authority issued $103,760,000 of the 1987 Series Bonds to
refund the outstanding term bonds of the 1985 issue. On April 6, 1989 the
Building Authority issued $49,752,390.30 of 1989 Series Bonds for the
renovation and historical restoration of portions of the State Capital Complex
in Trenton. On October 9, 1991 the Building Authority issued $74,999,815.75
of State Building Revenue Bonds, 1991 Series (Garden State Savings Bonds,
1991A), as capital appreciation bonds, under the Garden State Savings Act of
1991, for the continued renovation and historical restoration of portions of
the State Capital Complex in Trenton and for the construction of a structured
parking facility. As of December 31, 1991 the total amount of Building
Authority Bonds outstanding was $238,687,206.05. Outstanding Building
Authority bonds are secured by annual rentals from the State which are subject
to annual appropriations by the State Legislature. The State's combined
annual rental payment for all leases with the Building Authority will be
(i) approximately $17.5 million per year for the years ending June 15, 1992
through 1998, 2012 and 2013 and (ii) approximately $31.0 million per year for
the years ending June 15, 1999 through 2011.
Beginning in April 1984, the State, acting through the Director of the
Division of Purchase and Property, entered into a series of lease purchase
agreements which provide for the acquisition of equipment and real property to
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be used by various departments and agencies of the State. To date, the State
has completed nine lease purchase agreements which have resulted in issuance
of Certificates of Participation totaling $541,085,000. A Certificate of
Participation evidences a proportionate interest of the owner thereof in the
lease payments to be made by the State under the terms of the agreement. As
of December 31, 1991, $305,400,000 Certificates of Participation remain
outstanding. The agreements relating to these transactions provide for
semiannual rental payments. The State's obligation to pay rentals due under
these leases is subject to annual appropriations being made by the State
Legislature. The final maturity of the outstanding Certificates of
Participation is December 15, 2013. The majority of proceeds from these
transactions have been or will be used to acquire equipment for the State and
its agencies. The rentals payable by the State will be made from monies
appropriated by the State Legislature. The State intends to continue to use
this financing technique for a substantial portion of its future equipment
requirements.
"Moral Obligation" Financing. Aside from its general obligation bonds,
the State's "moral obligation" backs certain obligations issued by the New
Jersey Housing and Mortgage Finance Agency, the South Jersey Port Corporation
and the Higher Education Assistance Authority.
New Jersey Housing and Mortgage Finance Agency. Neither the New Jersey
Housing and Mortgage Finance Agency nor its predecessors, the New Jersey
Housing Finance Agency and the New Jersey Mortgage Finance Agency, have had a
deficiency in a debt service reserve fund which required the State to
appropriate funds to meet its "moral obligation". It is anticipated that this
agency's revenues will continue to be sufficient to cover debt service on its
bonds.
South Jersey Port Corporation. The State provides the South Jersey Port
Corporation (the "Corporation") with funds to cover all debt service and
property tax requirements, when earned revenues are anticipated to be
insufficient to cover these obligations.
Higher Education Assistance Authority. The Higher Education Assistance
Authority has issued $24,996,064 aggregate principal amount of revenue bonds,
the interest on which has been capitalized to but not including January 1,
1993. After the period of capitalized interest has ended, it is anticipated
that the authority's revenues will be sufficient to cover debt service on its
bonds.
Below are listed State appropriations made since 1986 which covered
deficiencies in revenues of the Corporation, for debt service and property tax
payments.
Appropriation for Appropriation for
Calendar Year Debt Service Property Tax
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
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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.
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. 4OA:4-1 et
seq.) imposes specific budgetary procedures upon counties and municipalities
("local units"). Every local unit must adopt an operating budget which is
balanced on a cash basis, and items of revenue and appropriation must be
examined by the Director of the Division (the "Director"). The accounts of
each local unit must be independently audited by a registered municipal
accountant. State law provides that budgets must be submitted in a form
promulgated by the Division and further provides for limitations on estimates
of tax collection and for reserves in the event of any shortfalls in
collections by the local unit. The Division reviews all municipal and county
annual budgets prior to adoption for compliance with the Local Budget Law.
The Director is empowered to require changes for compliance with law as a
condition of approval; to disapprove budgets not in accordance with law; and
to prepare the budget of a local unit, within the limits of the adopted budget
of the previous year with suitable adjustments for legal compliance, if the
local unit is unwilling to prepare a budget in accordance with law. This
process insures that every municipality and county annually adopts a budget
balanced on a cash basis, within limitations on appropriations or tax levies,
respectively, and making adequate provision for principal of and interest on
indebtedness falling due in the fiscal year, deferred charges and other
statutory expenditure requirements. The Director also oversees changes to
local budgets after adoption as permitted by law, and enforces regulations
pertaining to execution of adopted budgets and financial administration. In
addition to the exercise of regulatory and oversight functions, the Division
offers expert technical assistance to local units in all aspects of financial
administration, including revenue collection and cash management procedures,
contracting procedures, debt management and administrative analysis.
The local Government Cap Law (N.J.S.A. 4OA: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
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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 reflecting purposes, and then only with the
approval of the Local Finance Board. Local units may issue bond anticipation
notes for temporary periods not exceeding in the aggregate approximately ten
years from the date of first issue. The debt that any local unit may
authorize is limited to a percentage of its equalized valuation basis, which
is the average of the equalized value of all taxable real property and
improvements within the geographic boundaries of the local unit, as annually
determined by the Director of the Division of Taxation, for each of the three
most recent years. In the calculation of debt capacity, the local Bond Law
and certain other statutes permit the deduction of certain classes of debt
("statutory deductions") from all authorized debt of the local unit ("gross
capital debt") in computing whether a local unit has exceeded its statutory
debt limit. Statutory deductions from gross capital debt consist of bonds or
notes (i) authorized for school purposes by a regional school district or by a
municipality or a school district with boundaries coextensive with such
municipality to the extent permitted under certain percentage limitations set
forth in the School Bond Law (as hereinafter defined); (ii) authorized for
purposes which are self-liquidating, but only to the extent permitted by the
Local Bond Law; (iii) authorized by a public body other than local unit the
principal of and interest on which is guaranteed by the local unit, but only
to the extent permitted by law; (iv) that are bond anticipation notes; (v) for
which provision for payment has been made; or (vi) authorized for any other
purpose for which a deduction is permitted by law. Authorized net capital
debt (gross capital debt minus statutory deductions) is limited to 3.5 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 exemptions, may be exceeded only with the
approval of the Local Finance Board.
Chapter 75 of the Pamphlet Laws of 1991 signed into law on March 28,
1991 requires certain municipalities and permits all other municipalities to
adopt the State fiscal year in place of the existing calendar fiscal year.
Municipalities that change fiscal years must adopt a six month transition
budget for January to June. Since expenditures would be expected to exceed
revenues primarily because state aid for the calendar year would not be
received by the municipality until after the end of the transition year
budget, the act authorizes the issuance of Fiscal Year Adjustment Bonds to
fund the one time deficit for the six month transition budget. The act
provides that the deficit in the six month transition budget may be funded
initially with bond anticipation notes based on the estimated deficit in the
six month transition budget. Notes issued in anticipation of Fiscal Year
Adjustment Bonds, including renewals, can only be issued for up to one year
unless the Local Finance Board permits the municipality to renew them for a
further period of time. The Local Finance Board must confirm the actual
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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 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.
School Districts. All New Jersey school districts are coterminous with
the boundaries of one or more municipalities. They are characterized by the
manner in which the board of education, the governing body of the school
district, takes office. Type I school districts, most commonly found in
cities, have a board of education appointed by the mayor or the chief
executive officer of the municipality constituting the school district. In a
Type II school district, the board of education is elected by the voters of
the district. Nearly all regional and consolidated school districts are
Type II school districts.
School Budgets. In every school district having a board of school
estimate, the board of school estimate examines the budget request and fixes
the appropriation amounts for the next year's operating budget after a public
hearing at which the taxpayers and other interested persons shall have an
opportunity to raise objections and to be heard with respect to the budget.
This board, whose composition is fixed by statute, certifies the budget to the
municipal governing bodies and to the local board of education. If either
disagrees, they must appeal to the State Commissioner of Education (the
"Commissioner") to request changes.
The Quality Education Act of 1990 (N.J.S.A. 18A:7D-1 et seq.) limits the
annual increase of a school district's net current expense budget. The
Commissioner certifies the allowable amount of increase for each school
district but may grant a higher level of increase in certain limited
instances. A school district may also submit a proposal to the voters to
raise amounts above the allowable amount of increase. If defeated, such a
proposal is subject to further review or appeal only if the Commissioner
determines that additional funds are required to provide a thorough and
efficient education.
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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 down payment provision generally applied to bonds
issued by municipalities and counties, they are subject to debt limits (which
vary depending on the type of school system provided) and to State regulation
of their borrowing. The debt limitation on school district bonds depends upon
the classification of the school district but may be as high as 4 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 populations 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 adopted by the governing
body of a municipality within a Type I school district; (ii) adoption of a
proposal by resolution by the board of education of a Type II school district
having a board of school estimate; or (iii) adoption of a proposal by
resolution by the board of education and approval of the proposal by the legal
voters of any other Type II school district. If school bonds will exceed the
school district borrowing capacity, a school district (other than a regional
school district) may use the balance of the municipal borrowing capacity. If
the total amount of debt exceeds the school district's borrowing capacity and
any available remaining municipal borrowing capacity, the Commissioner and the
Local Finance Board must approve the proposed authorization before it is
submitted to the voters. All authorizations of debt in a Type II school
district without a board of school estimate require an approving referendum,
except where, after hearing, the Commissioner and the State Board of Education
determine that the issuance of such debt is necessary to meet the
constitutional obligation to provide a thorough and efficient system of public
schools. When such obligations are issued, they are issued by, and in the
name of, the school district.
In Type I and II school districts with a board of school estimate, that
board examines the capital proposal of the board of education and certifies
the amount of bonds to be authorized. When it is necessary to exceed the
borrowing capacity of the municipality, the approval of a majority of the
legally qualified voters of the municipality is required, together with the
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approval of the Commissioner and the Local Finance Board. When such bonds are
issued for a Type I school district, they are issued by the municipality and
identified as school bonds. When bonds are issued by a Type II school
district having a board of school estimate, they are issued by, and in the
name of, the school district.
All authorizations of debt must be reported to the Division of Local
Government Services by a supplemental debt statement prior to final approval.
School District Lease Purchase Financings. In 1982, school districts
were given an alterative to the traditional method of bond financing capital
improvements pursuant to N.J.S.A. 18A:20-4.2(f) (the "Lease Purchase Law").
The Lease Purchase Law permits school districts to acquire a site and school
building through a lease purchase agreement with a private lessor corporation.
For Type II school districts, the lease purchase agreement does not require
voter approval. The rent payments attributable to the lease purchase
agreement are subject to annual appropriation by the school district and are
required, pursuant to N.J.A.C. 6:22-A-1.2(h), to be included in the annual
current expense budget of the school district. Furthermore, the rent payments
attributable to the lease purchase agreement do not constitute debt of the
school district and therefore do not impact on the school district's debt
limitation. Lease purchase agreements in excess of five years require the
approval of the Commissioner and the Local Finance Board.
Qualified Bonds. In 1976, legislation was enacted (P.L. 1976, c. 38 and
c. 39) which provides for the issuance by municipalities and school districts
of "qualified bonds." Whenever a local board of education or the governing
body of a municipality determines to issue bonds, it may file an application
with the Local Finance Board, and, in the case of a local board of education,
the Commissioner, to qualify bonds pursuant to P.L. 1976, c. 38 or c. 39.
Upon approval of such an application and after receipt of a certificate
stating the name and address of the paying agent for such bonds, the maturity
schedule, interest rates and payment dates, the State Treasurer shall, in the
case of qualified bonds for school districts, withhold from the school aid
payable to such municipality or school district and in the case of qualified
bonds for municipalities, withhold from the amount of business personal
property tax replacement revenues, gross receipts; tax revenues, municipal
purposes tax assistance fund distributions, State urban aid, State revenue
sharing, and any other funds appropriated as State aid and not otherwise
dedicated to specific municipal programs, payable to such municipalities, an
amount sufficient to cover debt service on such bonds. These "qualified
bonds" are not direct, guaranteed or moral obligations of the State, and debt
service on such bonds will be provided by the State only if the above
mentioned appropriations are made by the State. Total outstanding
indebtedness for "qualified bonds" consisted of $103,720,500 by various school
districts as of June 30, 1992 and $830,037,105 by various municipalities as of
June 30, 1992.
New Jersey School Bond Reserve Act. The New Jersey School Bond Reserve
Act (N.J.S.A. 18A:56-17 et seq.) establishes a school bond reserve within the
constitutionally dedicated Fund for the Support of Free Public Schools. Under
this law the reserve is maintained at an amount equal to 1.5 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. On
June 30, 1991, the book value of the Fund's assets aggregated $59,352,429 and
the reserve, computed as of June 30, 1991, amounted to $19,668,349. There has
never been an occasion to call upon this Fund.
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Local Financing Authorities. The Local Authorities Fiscal Control Law
(N.J.S.A. 4OA:5A-l et seq.) provides for State supervision of the fiscal
operations and debt issuance practices of independent local authorities and
special taxing districts by the State Department of Community Affairs. The
Local Authorities Fiscal Control Law applies to all autonomous public bodies
created by counties or municipalities, which are empowered to issue bonds, to
impose facility or service charges, or to levy taxes in their districts. This
encompasses most autonomous local authorities (sewerage, municipal utilities,
parking, pollution control, improvement, etc.) and special taxing districts
(fire, water, etc.). Authorities which are subject to differing State or
federal financial restrictions are exempted, but only to the extent of that
difference.
Financial control responsibilities over local authorities and special
districts are assigned to the Local Finance Board and the Director of the
Division of Local Government Services. The Local Finance Board exercises
approval power over the creation of new authorities and special districts as
well as their dissolution. The Local Finance Board also reviews, conducts
public hearings and issues findings and recommendations on any proposed
project financing of an authority or district, and on any proposed financing
agreement between a municipality or county and an authority or special
district. The Local Finance Board prescribes minimum audit requirements to be
followed by authorities and special districts in the conduct of their annual
audits. The Director reviews and approves annual budgets of authorities and
special districts.
Litigation. The State is a party in numerous legal proceedings
pertaining to matters incidental to the performance of routine governmental
operations. Such litigation includes, but is not limited to, claims asserted
against the State arising from alleged torts, alleged breaches of contracts,
condemnation proceedings and other alleged violations of State and Federal
laws. Included in the State's outstanding litigation are cases which
challenge the following: the formula relating to State aid to public schools,
the method by which the State shares with its counties maintenance recoveries
and costs for residents in State institutions, unreasonably low Medicaid
payment rates for long-term facilities in New Jersey, the obligation of
counties to maintain Medicaid or Medicare eligible residents of institutions
and facilities for the developmentally disabled, taxes paid into the Spill
Compensation Fund (a fund established to provide money for use by the State to
remediate hazardous waste sites and to compensate other persons for damages
incurred as a result of hazardous waste discharge) based upon Federal
preemption, various provisions, and the constitutionality of the Fair
Automobile Insurance Reform Act of 1990, the State's role in a consent order
concerning the construction of a resource facility in Passaic County, actions
taken by the New Jersey Bureau of Securities against an individual, the
State's actions regarding alleged chromium contamination of State-owned
property in Hudson County, the issuance of emergency redirection orders and a
draft permit by the Department of Environmental Protection and Energy, the
adequacy of Medicaid reimbursement for services rendered by doctors and
dentists to Medicaid eligible children, the Commissioner of Health's
calculation of the hospital assessment required by the Health Care Cost
Reduction Act of 1991, refusal of the State to share with Camden County
Federal funding the State recently received for disproportionate share
hospital payments made to county psychiatric facilities, and the
constitutionality of annual A-901 hazardous and solid waste licensure renewal
fees collected by the Department of Environmental Protection and Energy.
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
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damages that are primarily paid out of the fund created pursuant to the New
Jersey Tort Claims Act. In addition at any given time, there are various
numbers of contract claims against the State and State agencies seeking
recovery of monetary damages. The state is unable to estimate its exposure
for these claims.
PUBLIC OFFERING
Offering Price
The secondary market Public Offering Price per Unit is computed by
adding to the aggregate bid price of the Bonds in the Trust divided by the
number of Units outstanding, an amount based on the applicable sales charge
times the aggregate offering price of the Bonds (see "Public Offering Price"
in Part A for the applicable sales charge for the Trust). A proportionate
share of accrued interest on the Bonds to the expected date of settlement for
the Units is added to the Public Offering Price. Accrued interest is the
accumulated and unpaid interest on a Bond from the last day on which interest
was paid and is accounted for daily by the Trust at the initial daily rate set
forth under "Summary of Essential Information" in Part A of this Prospectus.
This daily rate is net of estimated fees and expenses. The Public Offering
Price can vary on a daily basis from the amount stated in Part A in accordance
with fluctuations in the prices of the Bonds and the price to be paid by each
investor will be computed as of the date the Units are purchased. The
aggregate bid price evaluation of the Bonds is determined in the manner set
forth under "Trustee Redemption."
The Evaluator may obtain current bid or offering prices for the
Bonds from investment dealers or brokers (including the Sponsor) that
customarily deal in tax-exempt obligations or from any other reporting service
or source of information which the Evaluator deems appropriate.
Accrued Interest
An amount of accrued interest which represents accumulated unpaid
or uncollected interest on a Bond from the last day on which interest was paid
thereon will be added to the Public Offering Price and paid by the
Certificateholder at the time Units are purchased. Since the Trust normally
receives the interest on Bonds twice a year and the interest on the Bonds in
the Trust is accrued on a daily basis (net of estimated fees and expenses),
the Trust will always have an amount of interest accrued but not actually
received and distributed to Certificateholders. A Certificateholder will not
recover his proportionate share of accrued interest until the Units are sold
or redeemed, or the Trust is terminated. At that time, the Certificateholder
will receive his proportionate share of the accrued interest computed to the
settlement date in the case of a sale or termination and to the date of tender
in the case of redemption.
Employee Discounts
Employees (and their immediate families) of Bear, Stearns & Co.
Inc., Gruntal & Co., Incorporated and of any underwriter of a Trust, pursuant
to employee benefit arrangements, may purchase Units of a Trust at a price
equal to the offering side evaluation of the underlying securities in a Trust
during the initial offering period and at the bid side thereafter, divided by
the number of Units outstanding plus a reduced charge of $10.00 per Unit.
Such arrangements result in less selling effort and selling expenses than
sales to employee groups of other companies. Resales or transfers of Units
purchased under the employee benefit arrangements may only be made through the
Sponsor's secondary market, so long as it is being maintained.
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Distribution Of Units
Certain banks and thrifts will make Units of the Trust available
to their customers on an agency basis. A portion of the sales charge paid by
their customers is retained by or remitted to the banks. Under the Glass-
Steagall Act, banks are prohibited from underwriting Units; however, the
Glass-Steagall Act does permit certain agency transactions and the banking
regulators have indicated that these particular agency transactions are
permitted under such Act. In addition, state securities laws on this issue
may differ from the interpretations of federal law expressed herein and banks
and financial institutions may be required to register as dealers pursuant to
state law.
The Sponsor intends to qualify the Units for sale in substantially all
States through the Underwriters and through dealers who are members of the
National Association of Securities Dealers, Inc. Units may be sold to dealers
at prices which represent a concession of up to (a) 4% of the Public Offering
Price for the Insured Municipal Securities Trust Series, (b) $25.00 per unit
for the Insured Municipal Securities Trust Discount Series or (c) $33.00 per
Unit, for the Insured Municipal Securities Navigator Trust, subject to the
Sponsor's right to change the dealers' concession from time to time. In
addition, for transactions of 1,000,000 Units or more, the Sponsor intends to
negotiate the applicable sales charge and such charge will be disclosed to any
such purchaser. Such Units may then be distributed to the public by the
dealers at the Public Offering Price then in effect. The Sponsor reserves the
right to reject, in whole or in part, any order for the purchase of Units.
The Sponsor reserves the right to change the discounts from time to time.
Sponsor's Profits
The Sponsor will receive a gross commission on all Units sold in
the secondary market equal to the applicable sales charge on each transaction.
(See "Offering Price".) In addition, in maintaining a market for the Units
(see "Sponsor Repurchase") the Sponsor will realize profits or sustain losses
in the amount of any difference between the price at which they buy Units and
the price at which they resell such Units.
Participants in the Total Reinvestment Plan can designate a broker
as the recipient of a dealer concession (see "Total Reinvestment Plan").
Comparison of Public Offering Price, Sponsor's
Repurchase Price And Redemption Price
The secondary market Public Offering Price of Units will be
determined on the basis of the current bid prices of the Bonds in the Trust,
plus the applicable sales charge. The value at which Units may be resold in
the Secondary Market or redeemed will be determined on the basis of the
current bid prices of the Bonds without any sales charge. On the Evaluation
Date, the Public Offering Price and the Sponsor's initial Repurchase Price per
Unit (each based on the bid side evaluation of the Bonds in the Trust) each
exceeded the Redemption Price and the Sponsor's secondary market Repurchase
Price per Unit (based upon the current bid side evaluation of the Bonds in the
Trust) by the amounts shown under "Summary of Essential Information" in Part A
of this Prospectus. For this reason, among others (including fluctuations in
the market prices of such Bonds and the fact that the Public Offering Price
includes the applicable sales charge), the amount realized by a Certificate-
holder upon any redemption of Sponsor repurchase of Units may be less than the
price paid for such Units.
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ESTIMATED LONG TERM RETURN AND ESTIMATED CURRENT RETURN
Units of the 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 the 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 Evaluation Date is
stated for the Trust under "Summary of Essential Information" in Part A.
Estimated Current Return is computed by dividing the Estimated Net
Annual Interest Income per Unit by the Public Offering Price per Unit. In
contrast to the Estimated Long Term Return, the Estimated Current Return does
not take into account the amortization of premium or accretion of discount, if
any, on the Bonds in the portfolios of the Trust. Moreover, because interest
rates on Bonds purchased at a premium are generally higher than current
interest rates on newly issued bonds of a similar type with comparable rating,
the Estimated Current Return per Unit may be affected adversely if such Bonds
are redeemed prior to their maturity. On the day prior to the Evaluation
Date, the Estimated Net Annual Interest Income per Unit divided by the Public
Offering Price resulted in the Estimated Current Return stated for the Trust
under "Summary of Essential Information" in Part A.
The Estimated Net Annual Interest Income per Unit of the Trust
will vary with changes in the fees and expenses of the Trustee and the
Evaluator applicable to the Trust and with the redemption, maturity, sale or
other disposition of the Bonds in the Trust. The Public Offering Price will
vary with changes in the bid prices of the Bonds. Therefore, there is no
assurance that the present Estimated Current Return or Estimated Long Term
Return will be realized in the future.
A schedule of cash flow projections is available from the Sponsor
upon request.
RIGHTS OF CERTIFICATEHOLDERS
Certificates
Ownership of Units of the Trust is evidenced by registered
Certificates executed by the Trustee and the Sponsor. Certificates may be
issued in denominations of one or more Units and will bear appropriate
notations on their faces indicating which plan of distribution has been
selected by the Certificateholder. Certificates are transferable by
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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 the Trust is credited by the Trustee to an
Interest Account and a deduction is made to reimburse the Trustee without
interest for any amounts previously advanced. Proceeds representing principal
received from the maturity, redemption, sale or other disposition of the Bonds
are credited to a Principal Account.
Distributions to each Certificateholder from the Interest Account
are computed as of the close of business on each Record Date for the following
Payment Date and consist of an amount substantially equal to one-twelfth, one-
half or all of such Certificateholder's pro rata share of the Estimated Net
Annual Interest Income in the Interest Account, depending upon the applicable
plan of distribution. Distributions from the Principal Account (other than
amounts representing failed contracts, as previously discussed) will be
computed as of each semi-annual Record Date, and will be made to the Certifi-
cateholders on or shortly after the next semi-annual Payment Date. Proceeds
representing principal received from the disposition of any of the Bonds
between a Record Date and a Payment Date which are not used for redemptions of
Units will be held in the Principal Account and not distributed until the
second succeeding semi-annual Payment Date. No distributions will be made to
Certificateholders electing to participate in the Total Reinvestment Plan.
Persons who purchase Units between a Record Date and a Payment Date will
receive their first distribution on the second Payment Date after such
purchase.
Because interest payments are not received by the Trust at a
constant rate throughout the year, interest distributions may be more or less
than the amount credited to the Interest Account as of a given Record Date.
For the purpose of minimizing fluctuations in the distributions from the
Interest Account, the Trustee will advance sufficient funds, without interest,
as may be necessary to provide interest distributions of approximately equal
amounts. All funds in respect of the Bonds received and held by the Trustee
prior to distribution to Certificateholders may be of benefit to the Trustee
and do not bear interest to Certificateholders.
As of the first day of each month, the Trustee will deduct from
the Interest Account, and, to the extent funds are not sufficient therein,
from the Principal Account, amounts necessary to pay the expenses of the Trust
(as determined on the basis set forth under "Trust Expenses and Charges").
The Trustee also may withdraw from said accounts such amounts, if any, as it
deems necessary to establish a reserve for any applicable taxes or other
governmental charges that may be payable out of the Trust. Amounts so
withdrawn shall not be considered a part of the Trust's assets until such time
as the Trustee shall return all or any part of such amounts to the appropriate
accounts. In addition, the Trustee may withdraw from the Interest and
Principal Accounts such amounts as may be necessary to cover purchases of
Replacement Bonds and redemptions of Units by the Trustee.
The estimated monthly, semi-annual or annual interest distribution
per Unit will initially be in the amount shown under Summary of Essential
Information and will change and may be reduced as Bonds mature or are
redeemed, exchanged or sold, or as expenses of the Trust fluctuate. No
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distribution need be made from the Principal Account until the balance therein
is an amount sufficient to distribute $1.00 per Unit.
Distribution Elections
Interest is distributed monthly, semi-annually or annually,
depending upon the distribution plan applicable to the Unit purchased. Record
Dates are the first day of each month for monthly distributions, the first day
of each June and December for semi-annual distributions and the first day of
each December for annual distributions. Payment Dates will be the fifteenth
day of each month following the respective Record Dates.
Certificateholders purchasing Units in the secondary market will
initially receive distributions in accordance with the election of the prior
owner. Every October each Certificateholder may change his distribution
election by notifying the Trustee in writing of such change between October 1
and November 1 of each year. (Certificateholders deciding to change their
election should contact the Trustee by calling the number listed on the back
cover hereof for information regarding the procedures that must be followed in
connection with this written notification of the change of election.) Failure
to notify the Trustee on or before November 1 of each year will result in a
continuation of the plan for the following 12 months.
Records
The Trustee shall furnish Certificateholders in connection with
each distribution a statement of the amount of interest, if any, and the
amount of other receipts, if any, which are being distributed, expressed in
each case as a dollar amount per Unit. Within a reasonable time after the end
of each calendar year the Trustee will furnish to each person who at any time
during the calendar year was a Certificateholder of record, a statement
showing (a) as to the Interest Account: interest received (including amounts
representing interest received upon any disposition of Bonds and earned
original issue discount, if any), amounts paid for purchases of Replacement
Bonds and redemptions of Units, if any, deductions for applicable taxes and
fees and expenses of the Trust, and the balance remaining after such
distributions and deductions, expressed both as a total dollar amount and as a
dollar amount representing the pro rata share of each Unit outstanding on the
last business day of such calendar year; (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 the Trust, amounts paid for purchases of Replacement
Bonds and redemptions of Units, if any, and the balance remaining after such
distributions and deductions, expressed both as a total dollar amount and as a
dollar amount representing the pro rata share of each Unit outstanding on the
last business day of such calendar year; (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
such calendar year; and (e) amounts actually distributed to Certificateholders
during such calendar year from the Interest and Principal Accounts, separately
stated, expressed both as total dollar amounts representing the pro rata share
of each Unit outstanding on the last business day of such calendar year.
The Trustee shall keep available for inspection by Certificate-
holders at all reasonable times during usual business hours, books of record
and account of its transactions as Trustee, including records of the names and
addresses of Certificateholders, Certificates issued or held, a current list
of Bonds in the portfolio and a copy of the Trust Agreement.
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TAX STATUS
All Bonds acquired by each Trust were accompanied by copies of
opinions of bond counsel to the issuing governmental authorities given at the
time of original delivery of the Bonds to the effect that the interest thereon
is exempt from regular federal income tax. Such interest may, however, be
subject to the federal corporate alternative minimum tax and to state and
local taxes. Neither the Sponsor nor the Trustee nor their respective counsel
have made any review of the proceedings relating to the issuance of the Bonds
or the bases for such opinion and express no opinion as to these matters, and
neither the Trustee nor the Sponsor nor their respective counsel has made an
independent examination or verification that the federal income tax status of
the Bonds has not been altered since the time of the original delivery of
those opinions.
The Revenue Reconciliation Act of 1993 ("P.L. 103-66") increases
maximum marginal income tax rates for individuals and corporations (generally
effective for taxable years beginning after December 31, 1992), extends the
authority to issue certain categories of tax-exempt bonds (qualified small
issue bonds and qualified mortgage bonds), limits the availability of capital
gain treatment for tax-exempt bonds purchased at a market discount, increases
the amount of Social Security benefits subject to tax (effective for taxable
years beginning after December 31, 1993) and makes a variety of other changes.
Prospective investors are urged to consult their own tax advisors as to the
effect of P.L. 103-66 on an investment in Units.
In rendering the opinion set forth below, counsel has examined the
Agreement, the final form of Prospectus dated the date hereof (the
"Prospectus") and the documents referred to therein, among others, and has
relied on the validity of said documents and the accuracy and completeness of
the facts set forth therein.
In the opinion of Battle Fowler LLP, counsel for the Sponsor,
under existing law:
The Trusts are not associations taxable as corporations for
federal income tax purposes under the Internal Revenue Code of 1986 (the
"Code"), and income received by the Trusts that consists of interest
excludable from federal gross income under the Code will be excludable
from the federal gross income of the Certificateholders of such Trusts.
Each Certificateholder will be considered the owner of a pro rata
portion of the Trust under Section 676(a) of the Code. Thus, each Cer-
tificateholder 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 federal income
tax when received by that Trust will constitute tax-exempt income 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 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 depending on the facts and circumstances.
Capital losses are deductible to the extent of capital gains; in
addition, up to $3,000 of capital losses of non-corporate Certificate-
holders may be deducted against ordinary income. Capital assets
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acquired on or after January 1, 1988 must be held for more than one year
to qualify for long-term capital gain treatment.
Each Certificateholder will realize taxable income or loss when
the Trust disposes of a Bond (whether by sale, exchange, redemption or
payment at maturity), as if the Certificateholder had directly disposed
of 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. For this purpose, a Certificateholder's per
Unit tax cost for each Bond is determined by allocating the total tax
cost of each Unit among all the Bonds held in the Trust (in accordance
with the portion of the Trust comprised by each Bond). In order to
determine the amount of taxable gain or loss, the Certificateholder's
amount received is similarly allocated at that time. The Certificate-
holder 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.
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 Certificate-
holder, as compared to the results produced by the straight-line method
of accounting for original issue discount, upon an early disposition of
a Bond by the Trust or of a Unit by a Certificateholder.
A Certificateholder may also realize taxable gain or loss when a
Unit is sold or redeemed. The amount received is allocated among all
the Bonds in a particular Trust in the same manner as when that Trust
disposes of Bonds and the Certificateholder may exclude accrued interest
and the earned portion of any original issue discount (but not amounts
attributable to market discount). The return of a Certificateholder's
tax cost is otherwise a tax-free return of capital.
A portion of social security benefits is includable in gross
income for taxpayers whose "modified adjusted gross income" combined
with a portion of their benefits exceeds a base amount. The base amount
is $25,000 for an individual, $32,000 for a married couple filing a
joint return and zero for married persons filing separate returns.
Interest on tax-exempt bonds is to be added to adjusted gross income for
purposes of computing the amount of Social Security benefits that are
includable in gross income and determining whether an individual's
income exceeds the base amount above which a portion of the benefits
would be subject to tax. For taxable years beginning after December 31,
1993, the amount of Social Security benefits subject to tax has been
increased.
Corporate Certificateholders are required to include in federal
corporate alternative minimum taxable income 75 percent of the amount by
which the adjusted current earnings (which will include tax-exempt
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interest) of the corporation exceeds alternative minimum taxable income
(determined without regard to this 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.
Under federal law, interest on Navigator Trust-held Bonds issued
by authority of the Government of Puerto Rico is exempt from regular
federal income tax, and state and local income tax in the United States
and Puerto Rico. The New York Navigator Insured Trust is not subject to
the New York State Franchise Tax on Business Corporations or the New
York City General Corporation Tax. Under the personal income tax laws
of the State and City of New York, the income of the New York Navigator
Insured Trust will be treated as the income of the Certificateholders.
Interest on the Bonds of the New York Navigator Insured Trust that is
exempt from tax under the laws of the State and City of New York when
received by the Trust will retain its status as tax-exempt interest to
its Certificateholders. In addition, non-residents of New York City
will not be subject to the New York City personal income tax on gains
derived with respect to their Units of the New York Navigator Insured
Trust. Non-residents of New York State will not be subject to New York
State personal income tax on such gains unless the Units are employed in
a business, trade or occupation carried on in New York State. A New
York State or New York City resident should determine his basis and
holding periods for his Units in the same manner for New York State and
New York City tax purposes as for federal tax purposes. For
corporations doing business in New York State, interest earned on state
and municipal obligations that are exempt from federal income tax,
including obligations of New York State, its political subdivisions and
instrumentalities, must be included in calculating New York State and
New York City entire net income for purposes of calculating New York
State and New York City franchise (income) tax.
The exemption of interest on municipal obligations for federal
income tax purposes does not necessarily result in exemption under the
income tax laws of any state or local government. The laws of such
states and local governments vary with respect to the taxation of such
obligations. See "Rights of Certificateholders" in this Part B.
The Insured Municipal Securities Trust is not subject to the New
York State Franchise Tax on Business Corporations or the New York City
General Corporation Tax. For a Certificateholder who is a New York
resident, however, a pro rata portion of all or part of the income of
the Trust will be treated as the income of the Certificateholder under
the income tax laws of the State and City of New York. Similar
treatment may apply in other states.
The exemption of interest on municipal obligations for federal
income tax purposes does not necessarily result in exemption under the income
tax laws of any state or political subdivision. In general, municipal bond
interest exempt from federal income tax is taxable income to residents of the
State or City of New York under the tax laws of those jurisdictions unless the
bonds are issued by the State of New York or one of its political subdivisions
or by the Commonwealth of Puerto Rico or one of its political subdivisions.
For corporations doing business in New York State, interest earned on state
and municipal obligations that are exempt from federal income tax, including
obligations of New York State, its political subdivisions and instrumental-
ities, must be included in calculating New York State and New York City entire
net income for purposes of calculating New York State and New York City
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franchise (income) tax. 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.
Any proceeds received pursuant to the terms of the insurance on
the Bonds that represent maturing interest on defaulted obligations will
be excludable from federal gross income if, and to the same extent that,
such interest would have been so excludable if paid by the issuers of
such defaulted obligations.
In the opinion of Freeman, Zeller & Bryant, special counsel to the
Sponsor on New Jersey tax matters, which opinion is made in reliance upon
certain information and based on certain assumptions respecting the New Jersey
Navigator Trust, under existing New Jersey law applicable to individuals who
are New Jersey residents and New Jersey estates and trusts:
The New Jersey Navigator Trust will be recognized as a trust
and not as an association taxable as a corporation.
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, estate
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).
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 case of Bonds that are Industrial Revenue Bonds ("IRBs") or
certain types of private activity bonds, the opinions of bond counsel to the
respective issuing authorities indicate that interest on such Bonds is exempt
from regular federal income tax. However, interest on such Bonds will not be
exempt from regular federal income tax for any period during which such Bonds
are held by a "substantial user" of the facilities financed by the proceeds of
such Bonds or by a "related person" thereof within the meaning of the Code.
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Therefore, interest on any such Bonds allocable to a Certificateholder who is
such a "substantial user" or "related person" thereof will not be tax-exempt.
Furthermore, in the case of IRBs that qualify for the "small issue" exemption,
the "small issue" exemption will not be available or will be lost if, at any
time during the three-year period beginning on the later of the date the
facilities are placed in service or the date of issue, all outstanding tax-
exempt IRBs, together with a proportionate share of any present issue, of an
owner or principal user (or related person) of the facilities exceeds
$40,000,000. In the case of IRBs issued under the $10,000,000 "small issue"
exemption, interest on such IRBs will become taxable if the face amount of the
IRBs plus certain capital expenditures exceeds $10,000,000.
In addition, a Bond can lose its tax-exempt status as a result of
other subsequent but unforeseeable events such as prohibited "arbitrage"
activities by the issuer of the Bond or the failure of the Bond to continue to
satisfy the conditions required for the exemption of interest thereon from
regular federal income tax. No investigation has been made as to the current
or future owners or users of the facilities financed by the Bonds, the amount
of such persons' outstanding tax-exempt IRBs, or the facilities themselves,
and no assurance can be given that future events will not affect the tax-
exempt status of the Bonds. Investors should consult their tax advisors for
advice with respect to the effect of these provisions on their particular tax
situation.
Interest on indebtedness incurred or continued to purchase or
carry the Units is not deductible for regular federal income tax purposes.
However, such interest is deductible for New York State and New York City
income tax purposes by corporations that are required to include interest on
the Bonds in New York State and New York City entire net income for purposes
of calculating New York State and City franchise (income) taxes. In addition,
under rules used by the Internal Revenue Service for determining when borrowed
funds are considered used for the purpose of purchasing or carrying particular
assets, the purchase of Units may be considered to have been made with
borrowed funds even though the borrowed funds are not directly traceable to
the purchase of Units. Also, in the case of certain financial institutions
that acquire Units, in general no deduction is allowed for interest expense
allocable to the Units.
From time to time proposals have been introduced before Congress
to restrict or eliminate the federal income tax exemption for interest on debt
obligations similar to the Bonds in the Trust, and it can be expected that
similar proposals may be introduced in the future.
In South Carolina v. Baker, the U.S. Supreme Court held that the
federal government may constitutionally require states to register bonds they
issue and subject the interest on such bonds to federal income tax if not
registered, and that there is no constitutional prohibition against the
federal government's taxing the interest earned on state or other municipal
bonds. The Supreme Court decision affirms the authority of the federal
government to regulate and control bonds such as the Bonds in the Trust and to
tax interest on such bonds in the future. The decision does not, however,
affect the current exemption from taxation of the interest earned on the Bonds
in the Trust in accordance with Section 103 of the Code.
The opinions of bond counsel or special tax counsel to the issuing
governmental authorities to the effect that interest on the Bonds is exempt
from regular federal income tax may be limited to law existing at the time the
Bonds were issued, and may not apply to the extent that future changes in law,
regulations or interpretations affect such Bonds. Investors are advised to
consult their own tax advisors for advice with respect to the effect of any
legislative changes.
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LIQUIDITY
Sponsor Repurchase
The Sponsor, although not obligated to do so, intend to maintain a
secondary market for the Units and continuously to offer to repurchase the
Units. The Sponsor's secondary market repurchase price, after the initial
public offering is completed, will be based on the aggregate bid price of the
Bonds in the Trust portfolio, determined by the Evaluator on a daily basis,
and will be the same as the redemption price. The aggregated bid price is
determined by the Evaluation on a daily basis and computed on the basis set
forth under "Trustee Redemption". Certificateholders who wish to dispose of
their Units should inquire of the Sponsor as to current market prices prior to
making a tender for redemption. The Sponsor may discontinue repurchase of
Units if the supply of Units exceeds demand, or for other business reasons.
The date of repurchase is deemed to be the date on which Certificates
representing Units are physically received in proper form by Bear, Stearns &
Co. Inc., 245 Park Avenue, New York, NY 10167 on behalf of the Sponsor. Units
received after 4 P.M., New York Time, will be deemed to have been repurchased
on the next business day. In the event a market is not maintained for the
Units, a Certificateholder may be able to dispose of Units only by tendering
them to the Trustee for redemption.
Prospectuses relating to certain other bond trusts indicate an
intention by the respective Sponsor, subject to change, to repurchase units on
the basis of a price higher than the bid prices of the bonds in the trusts.
Consequently, depending on the prices actually paid, the secondary market
repurchase price of other trusts may be computed on a somewhat more favorable
basis than the repurchase price offered by the Sponsor for units of this
Trust, although in all bond trusts, the purchase price of a unit depends
primarily on the value of the bonds in the trust portfolio.
Units purchased by the Sponsor in the secondary market may be
re-offered for sale by the Sponsor at a price based on the aggregate bid price
of the Bonds in the Trust plus the applicable sales charge (see "Public
Offering Price" in Part A) plus net accrued interest. Any Units that are
purchased by the Sponsor in the secondary market also may be redeemed by the
Sponsor if it determines such redemption to be in its best interest.
The Sponsor may, under certain circumstances, as a service to
Certificateholders, elect to purchase any Units tendered to the Trustee for
redemption (see "Trustee Redemption"). Factors which the Sponsor will
consider in making a determination will include the number of Units of all
Trust which it has in inventory, its estimate of the salability and the time
required to sell such Units and general market conditions. For example, if in
order to meet redemptions of Units the Trustee must dispose of Bonds, and if
such disposition cannot be made by the redemption date (seven calendar days
after tender), the Sponsor may elect to purchase such Units. Such purchase
shall be made by payment to the Certificateholder not later than the close of
business on the redemption date of an amount equal to the Redemption Price on
the date of tender.
Trustee Redemption
Units may also be tendered to the Trustee for redemption at its
corporate trust office as set forth in Part A of this Prospectus, upon proper
delivery of Certificates representing such Units and payment of any relevant
tax. At the present time there are no specific taxes related to the
redemption of Units. No redemption fee will be charged by the Sponsor or the
Trustee. Units redeemed by the Trustee will be 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 the Trust will be reduced.
The Redemption Price per Unit is the pro rata share of each Unit
in the Trust determined by the Trustee on the basis of (i) the cash on hand in
the Trust or moneys in the process of being collected, (ii) the value of the
Bonds in the Trust based on the bid prices of such Bonds and (iii) interest
accrued thereon, less (a) amounts representing taxes or other governmental
charges payable out of the Trust, (b) the accrued expenses of the Trust and
(c) cash allocated for the distribution to Certificateholders of record as of
the business day prior to the evaluation being made. The Evaluator may
determine the value of the Bonds in the Trust (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". Insurance
does not guarantee the market value of the Bonds or the Units, and while Bond
insurance represents an element of market value in regard to insured Bonds,
its exact effect, if any, on market value cannot be predicted.
The Trustee is irrevocably authorized in its discretion, if the
Sponsor does not elect to purchase a Unit tendered for redemption or if the
Sponsor tenders a Unit for redemption, in lieu of redeeming such Unit, to sell
such Unit in the over-the-counter market for the account of the tendering Cer-
tificateholder 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
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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
Sponsor is not liable to any person or in any way for any loss or damage which
may result from any such suspension or postponement.
A Certificateholder who wishes to dispose of his Units should
inquire of his bank or broker in order to determine if there is a current
secondary market price in excess of the Redemption Price.
TOTAL REINVESTMENT PLAN
Under the Total Reinvestment Plan (the "Plan"), semi-annual and
annual Certificateholders (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 the Trust which have been repurchased by the Sponsor in the
secondary market or which constitute a portion of the Units of the Trust not
sold by the Sponsor 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 Trustee" do not have
insurance. The first interest distribution to Certificateholders cannot be
reinvested unless such distribution is scheduled for June 15 or December 15 in
the case of semi-annual Certificateholders or December 15 in the case of
annual Certificateholders (each such date being referred to herein as the
"Plan Reinvestment Date").
Under the Plan (subject to compliance with applicable blue sky
laws), fractional units ("Plan Units") will be purchased from the Sponsor 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 Sponsor 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
Sponsor will retain the sales commission.
- --------
* Texas residents may elect to participate in the "Total Reinvestment Plan
for Texas Residents" hereinafter described.
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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 the 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 or annual Certificateholder may join the Plan at the
time he invests in Units of the 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 Sponsor. 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 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 an Available Series should materially differ from the Trust
in the opinion of the Sponsor, the authorization will be voided and
participants will be provided with both a notice of the material change and a
new Authorization Form which would have to be returned to the Trustee before
the Certificateholder would again be able to participate in the Plan. The
Sponsor anticipates 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 Sponsor has 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 this Trust.
It is the Sponsor's intention that Plan Units will be offered on
or about each semi-annual and annual Record Date for determining who is
eligible to receive distributions on the related Payment Date. Such Record
Dates are June 1 and December 1 of each year for semi-annual
Certificateholders, and December 1 of each year for annual Certificateholders.
On each Record Date the Sponsor 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 Sponsor's intention to suspend the Plan and distribute to each
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participant his regular semi-annual or annual distribution. If the Plan is so
suspended, it will resume in effect with the next Plan Reinvestment Date
assuming units of an Available Series are then being offered.
To aid a participant who might desire to withdraw either from the
Plan or from a particular distribution, the Trustee has established a toll
free number (see "Summary of Essential Information" in Part A) 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 "Municipal Securities Trust" or "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 and annual Certificateholder who has acquired Plan
Units will be deemed to have elected the semi-annual and annual plan of
distribution, respectively, and to participate in the Plan with respect to
distributions made in connection with such Plan Units. (Should the Available
Series from which Plan Units are purchased for the account of an annual Cer-
tificateholder fail to have an annual distribution plan, such Certificate-
holder 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 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 Sponsor intends to maintain a
market for the Plan Units and continuously to offer to purchase Plan Units at
prices based upon the aggregate offering price of the Bonds in the Available
Series portfolio during the initial offering of the Available Series, or at
the aggregate bid price of the Bonds of the Available Series after its initial
offering has been completed. The Sponsor 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 "Insured 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 Sponsor as to
current market prices prior to making a tender for redemption to the Trustee.
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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, at the address listed in the "Summary of
Essential Information" in Part A, on the Redemption Form supplied by the
Trustee. The redemption price per Plan Unit will be determined as set forth
in the "Insured Municipal Securities Trust" 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 Sponsor
of any tender of Plan Units for redemption. So long as the Sponsor is
maintaining a bid in the secondary market, the Sponsor 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 the Trustee at the number set forth under "Summary of
Essential Information" in Part A of this Prospectus.
All expenses relating to the operation of the Plan will be borne
by the Sponsor. The Sponsor 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 Sponsor is 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 and annual Certificateholders of the Trust who are
residents of Texas have the option prior to any semi-annual or annual
distribution to affirmatively elect to reinvest that distribution, including
both interest and principal, if any, in an Available Series.
A resident of Texas who is a semi-annual or annual Certificate-
holder may join the Texas Plan for any particular semi-annual or annual
distribution by delivering to the Trustee an Authorization Form For Texas
Residents ("Texas Authorization Form") specifically mentioning the date of the
particular semi-annual or annual distribution he wishes to reinvest. On or
about each semi-annual or annual Record Date, Texas Authorization Forms shall
be sent by the Trustee to every Certificateholder who, according to the
Trustee's records, is a resident of Texas. In the event that the Sponsor
suspends 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
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delivers a Texas Authorization Form to the Trustee may thereafter withdraw
said authorization by notifying the Trustee at its toll free telephone number
prior to a Plan Reinvestment Date. Such notification of withdrawal must be
confirmed in writing prior to the Plan Reinvestment Date. Under no
circumstances shall a Texas Authorization Form be provided or accepted by the
Trustee which provides for the reinvestment of distributions for more than one
Plan Reinvestment Date.
On or about each semi-annual and annual Record Date, the Sponsor
will send a current Prospectus relating to the Available Series being offered
on the next Plan Reinvestment Date along with a letter incorporating a Texas
Authorization Form which specifies the funds available for reinvestment,
reminds each participant that no Plan Units will be purchased for him unless
the Texas Authorization Form is received by the Trustee on or before that
particular Plan Reinvestment Date, and states that the Texas Authorization
Form is valid only for that particular semi-annual or annual distribution. If
the Available Series should materially differ from the Trust, the participant
will be provided with a notice of the material change and a new Texas
Authorization Form which would have to be returned to the Trustee before the
Certificateholder would again be able to participate in the Plan.
Each semi-annual and annual Certificateholder who has acquired
Plan Units will be deemed to have elected the semi-annual and annual plan of
distribution, respectively, with respect to such Units, but such Certificate-
holder will not be deemed to participate in the Plan for any particular
distribution unless and until he delivers to the Trustee a Texas Authorization
Form pertaining to those Plan Units. (Should the Available Series from which
Plan Units are purchased for the account of an annual Certificateholder fail
to have an annual distribution plan, such Certificateholder will be deemed to
have elected the semi-annual plan of distribution, and to participate in the
Plan with respect to distributions made in connection with such Plan Units.)
TRUST ADMINISTRATION
Portfolio Supervision
Except for the purchase of Replacement Bonds or as discussed
herein, the acquisition of any Bonds for the Trust other than Bonds initially
deposited by the Sponsor is prohibited. Although it is the Sponsor's and
Trustee's intention not to dispose of Bonds insured pursuant to the Bond
Insurance in the event of default, nevertheless, the Sponsor may direct the
Trustee to dispose of Bonds upon (i) default in payment of principal or
interest on such Bonds, (ii) institution of certain legal proceedings with
respect to the issuers of such Bonds, (iii) default under other documents
adversely affecting debt service on such Bonds, (iv) default in payment of
principal or interest on other obligations of the same issuer or guarantor,
(v) with respect to revenue Bonds, decline in revenues and income of any
facility or project below the estimated levels calculated by proper officials
charged with the construction or operation of such facility or project or
(vi) decline in price or the occurrence of other market or credit factors that
in the opinion of the Sponsor would make the retention of such Bonds in the
Trust detrimental to the interests of the Certificateholders. If a default in
the payment of principal or interest on any of the Bonds occurs and if the
Sponsor fails to instruct the Trustee to sell or hold such Bonds, the Trust
Agreement provides that the Trustee may sell such Bonds. The Trustee shall
not be liable for any depreciation or loss by reason of any sale of bonds or
by reason of the failure of the Sponsor to give directions to the Trustee.
The Sponsor is authorized by the Trust Agreement to direct the
Trustee to accept or reject certain plans for the refunding or refinancing of
any of the Bonds. Any bonds received in exchange or substitution will be held
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by the Trustee subject to the terms and conditions of the Agreement to the
same extent as the Bonds originally deposited. Within five days after such
deposit, notice of such exchange and deposit shall be given by the Trustee to
each Certificateholder registered on the books of the Trustee, including an
identification of the Bonds eliminated and the Bonds substituted therefor.
Trust Agreement, Amendment And Termination
The Trust Agreement may be amended by the Trustee, the Sponsor and
the Evaluator without the consent of any of the Certificateholders: (1) to
cure any ambiguity or to correct or supplement any provision which may be
defective or inconsistent; (2) to change any provision thereof as may be
required by the Securities and Exchange Commission or any successor
governmental agency; or (3) to make such other provisions in regard to matters
arising thereunder as shall not adversely affect the interests of the
Certificateholders.
The Trust Agreement may also be amended in any respect, or
performance of any of the provisions thereof may be waived, with the consent
of the holders of Certificates evidencing 66-2/3% of the Units then
outstanding for the purpose of modifying the rights of Certificateholders;
provided that no such amendment or waiver shall reduce any Certificateholder's
interest in the Trust without his consent or reduce the percentage of Units
required to consent to any such amendment or waiver without the consent of the
holders of all Certificates. The Trust Agreement may not be amended, without
the consent of the holders of all Certificates then outstanding, to increase
the number of Units issuable or to permit the acquisition of any bonds in
addition to or in substitution for those initially deposited in the Trust,
except in accordance with the provisions of the Trust Agreement. The Trustee
shall promptly notify Certificateholders, in writing, of the substance of any
such amendment.
The Trust Agreement provides that the Trust shall terminate upon
the maturity, redemption or other disposition, as the case may be, of the last
of the Bonds held in the Trust but in no event is it to continue beyond the
end of the calendar year preceding the fiftieth anniversary of the execution
of the Trust Agreement. If the value of the Trust shall be less than the
minimum amount set forth under "Summary of Essential Information" in Part A,
the Trustee may, in its discretion, and shall when so directed by the Sponsor,
terminate the Trust. The Trust may also be terminated at any time with the
consent of the holders of Certificates representing 100% of the Units then
outstanding. In the event of termination, written notice thereof will be sent
by the Trustee to all Certificateholders. Within a reasonable period after
termination, the Trustee must sell any Bond remaining in the Trust, and, after
paying all expenses and charges incurred by the Trust, distribute to each
Certificateholder, upon surrender for cancellation of his Certificate for
Units, his pro rata share of the Interest and Principal Accounts.
The Sponsors
For certain of the Trusts as set forth in the "Summary of
Essential Information" in Part A, the Sponsor is Bear, Stearns & Co. Inc., a
Delaware corporation, which 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
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Stearns is the sponsor for numerous series of unit investment trusts,
including: A Corporate Trust, Series 1 (and Subsequent Series); New York
Municipal Trust, Series 1 (and Subsequent Series); Municipal Securities Trust,
Series 1 (and Subsequent Series), 1st Discount Series (and Subsequent Series),
High Income Series 1 (and Subsequent Series), Multi-State Series 1 (and
Subsequent Series); Insured Municipal Securities Trust, Series 1-4 (Multiplier
Portfolio), Series 1 (and Subsequent Series), 5th Discount Series (and
Subsequent Series), Navigator Series (and Subsequent Series); Mortgage
Securities Trust, CMO Series 1 (and Subsequent Series); and Equity Securities
Trust, Series 1, Signature Series, Gabelli Communications Income Trust (and
Subsequent Series). The information included herein is only for the purpose
of informing investors as to the financial responsibility of the Sponsor and
its ability to carry out its contractual obligations.
For certain other Trusts as set forth in the "Summary of Essential
Information" in Part A, the Sponsors are Bear, Stearns & Co. Inc. and
Gruntal & Co., Incorporated, both of whom have entered into an Agreement Among
Co-Sponsors pursuant to which both parties have agreed to act as Co-Sponsors
for the Trust. 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 Sponsor under the Trust Agreement. If the Sponsors are
unable to agree with respect to action to be taken jointly by them under the
Trust Agreement and they cannot agree as to which Sponsor shall act as sole
Sponsor, then 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 Sponsor may continue to
act as Sponsor.
Gruntal & Co., Incorporated, a Delaware corporation, operates a
regional securities broker/dealer from its main office in New York City and
branch offices in nine states and the District of Columbia. The firm is very
active in the marketing of investment companies and has signed dealer
agreements with every mutual fund group, as well as being the managing
distributor for The Home Group Money Market and Mutual Funds. 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 Sponsor is liable for the performance of its obligations
arising from its responsibilities under the Trust Agreement, but will be under
no liability to Certificateholders for taking any action, or refraining from
taking any action, in good faith pursuant to the Trust Agreement, or for
errors in judgment except in cases of its own willful misfeasance, bad faith,
gross negligence or reckless disregard of its obligations and duties.
The Sponsor may resign at any time by delivering to the Trustee an
instrument of resignation executed by the Sponsor.
If at any time the Sponsor shall resign or fail to perform any of
its duties under the Trust Agreement or becomes incapable of acting or becomes
bankrupt or its affairs are taken over by public authorities, then the Trustee
may either (a) appoint a successor Sponsor; (b) terminate the Trust Agreement
and liquidate the Trust; or (c) continue to act as Trustee without terminating
the Trust Agreement. Any successor Sponsor appointed by the Trustee shall be
satisfactory to the Trustee and, at the time of appointment, shall have a net
worth of at least $1,000,000.
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The Trustee
For certain of the Trusts as set forth in the "Summary of
Essential Information" in Part A, 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 Trust which it may be required to pay under current or
future law of the United States or any other taxing authority having
jurisdiction. The Trustee shall not be liable for depreciation or loss
incurred by reason of the sale by the Trustee of any of the Bonds pursuant to
the Trust Agreement.
For further information relating to the responsibilities of the
Trustee under the Trust Agreement, reference is made to the material set forth
under "Rights of Certificateholders".
The Trustee may resign by executing an instrument in writing and
filing the same with the Sponsor, and mailing a copy of a notice of
resignation to all Certificateholders. In such an event the Sponsor is
obligated to appoint a successor Trustee as soon as possible. In addition, if
the Trustee becomes incapable of acting or becomes bankrupt or its affairs are
taken over by public authorities, the Sponsor may remove the Trustee and
appoint a successor as provided in the Trust Agreement. Notice of such
removal and appointment shall be mailed to each Certificateholder by the
Sponsor. If upon resignation of the Trustee no successor has been appointed
and has accepted the appointment within thirty days after notification, the
retiring Trustee may apply to a court of competent jurisdiction for the
appointment of a successor. The resignation or removal of the Trustee becomes
effective only when the successor Trustee accepts its appointment as such or
when a court of competent jurisdiction appoints a successor Trustee. Upon
execution of a written acceptance of such appointment by such successor
Trustee, all the rights, powers, duties and obligations of the original
Trustee shall vest in the successor.
Any corporation into which the Trustee may be merged or with which
it may be consolidated, or any corporation resulting from any merger or
consolidation to which the Trustee shall be a party, shall be the successor
Trustee. The Trustee must always be a banking corporation organized under the
laws of the United States or any State and have at all times an aggregate
capital, surplus and undivided profits of not less than $2,500,000.
The Evaluator
The Evaluator is Kenny S&P Evaluation Services, a division of
J.J. Kenny Co., Inc. with main offices located at 65 Broadway, New York, New
York 10006. The Evaluator is a wholly-owned subsidiary of McGraw Hill, Inc.
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The Evaluator is a registered investment advisor and also provides financial
information services.
The Trustee, the Sponsor and the Certificateholders may rely on
any evaluation furnished by the Evaluator and shall have no responsibility for
the accuracy thereof. Determinations by the Evaluator under the Trust
Agreement shall be made in good faith upon the basis of the best information
available to it, provided, however, that the Evaluator shall be under no
liability to the Trustee, the Sponsor or Certificateholders for errors in
judgment, except in cases of its own willful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations and duties.
The Evaluator may resign or may be removed by the Sponsor and
Trustee, and the Sponsor and the Trustee are to use their best efforts to
appoint a satisfactory successor. Such resignation or removal shall become
effective upon the acceptance of appointment by the successor Evaluator. If
upon resignation of the Evaluator no successor has accepted appointment within
thirty days after notice of resignation, the Evaluator may apply to a court of
competent jurisdiction for the appointment of a successor.
TRUST EXPENSES AND CHARGES
At no cost to the Trust, the Sponsor has borne the expenses of
creating and establishing the Trust, including the cost of initial preparation
and execution of the Trust Agreement, registration of the Trust and the Units
under the Investment Company Act of 1940 and the Securities Act of 1933, the
premiums on the Sponsor-Insured Bonds, initial preparation and printing of the
Certificates, legal expenses, advertising and selling expenses, expenses of
the Trustee including, but not limited to, an amount equal to interest accrued
on certain "when issued" bonds since the date of settlement for the Units,
initial fees and other out-of-pocket expenses. The fees of the Evaluator,
however, incurred during the initial public offering are paid directly by the
Trust.
The Sponsor will not charge the Trust a fee for its services as
such. (See "Sponsor's Profits".)
The Sponsor will receive for portfolio supervisory services to the
Trust an Annual Fee in the amount set forth under "Summary of Essential
Information" in Part A of this Prospectus. The Sponsor's fee may exceed the
actual cost of providing portfolio supervisory services for this Trust, but at
no time will the total amount received for portfolio supervisory services
rendered to all series of the Municipal Securities Trust in any calendar year
exceed the aggregate cost to the Sponsor of supplying such services in such
year. (See "Portfolio Supervision".)
The Trustee will receive for its ordinary recurring services to
the Trust an annual fee in the amount set forth under "Summary of Essential
Information" in Part A of this Prospectus. For a discussion of the services
performed by the Trustee pursuant to its obligations under the Trust
Agreement, see "Trust Administration" and "Rights of Certificateholders".
The Evaluator will receive, for each daily evaluation of the Bonds
in the Trust after the initial public offering is completed, a fee in the
amount set forth under "Summary of Essential Information" in Part A of this
Prospectus.
The Trustee's and Evaluator's fees are payable monthly as of the
Record Date from the Interest Account to the extent funds are available and
then from the Principal Account. Both fees may be increased without approval
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of the Certificateholders by amounts not exceeding proportionate increases in
consumer prices for services as measured by the United States Department of
Labor's Consumer Price Index entitled "All Services Less Rent".
The following additional charges are or may be incurred by the
Trust: all expenses (including counsel fees) of the Trustee incurred and
advances made in connection with its activities under the Trust Agreement,
including the expenses and costs of any action undertaken by the Trustee to
protect the Trust and the rights and interests of the Certificateholders; fees
of the Trustee for any extraordinary services performed under the Trust
Agreement; indemnification of the Trustee for any loss or liability accruing
to it without gross negligence, bad faith or willful misconduct on its part,
arising out of or in connection with its acceptance or administration of the
Trust; indemnification of the Sponsor for any losses, liabilities and expenses
incurred in acting as Sponsor of the Trust 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 Trust (no such taxes or
charges are being levied, made or, to the knowledge of the Sponsor,
contemplated). The above expenses, including the Trustee's fees, when paid by
or owing to the Trustee are secured by a first lien on the Trust. In
addition, the Trustee is empowered to sell Bonds in order to make funds
available to pay all expenses.
The accounts of the Trust shall be audited not less than annually
by independent public accountants selected by the Sponsor. So long as the
Sponsor maintains a secondary market, the Sponsor will bear any audit expense
which exceeds 50 cents per Unit. Certificateholders covered by the audit
during the year may receive a copy of the audited financials upon request.
EXCHANGE PRIVILEGE AND CONVERSION OFFER
Exchange Privilege
Certificateholders may elect to exchange any or all of their Units
of this Trust 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
(the "Exchange Trusts") at a reduced sales charge as set forth below. Under
the Exchange Privilege, the Sponsor's repurchase price for units of the
Exchange Trust will be based on the aggregate bid price of the Bonds in the
Trust portfolio. Units in an Exchange Trust then will be sold to the Certifi-
cateholder at a price based on the aggregate offer price of the Bonds in the
Exchange Trust portfolio (or for Units of Equity Securities Trust, based on
the market value of the underlying securities in the Trust Equity 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 public offering has been completed, plus accrued interest (or for
Units of Equity Securities Trust, based on the market value of the underlying
securities in the Trust Equity portfolio) and a reduced sales charge as set
forth below.
Except for Certificateholders who wish to exercise the Exchange
Privilege within the first five months of their purchase of Units of a Trust,
the sales charge applicable to the purchase of units of an Exchange Trust
shall be 1.5% per unit (or per 1,000 Units for the Mortgage Securities Trust
or per 100 Units for the Equity Securities Trust). For Certificateholders who
wish to exercise the Exchange Privilege within the first five months of their
purchase of Units of a Trust, the sales charge applicable to the purchase of
units of an Exchange Trust shall be the greater of (i) 1.5% per unit (or per
1,000 Units for the Mortgage Securities Trust or per 100 Units for the Equity
Securities Trust), or (ii) an amount which when coupled with the sales charge
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paid by the Certificateholder upon his original purchase of Units of the Trust
at least equals the sales charge applicable in the direct purchase of units of
an Exchange Trust. The Exchange Privilege is subject to the following
conditions:
(1) The Sponsor must be maintaining a secondary market in both
the Units of the Trust held by the Certificateholder and the Units of
the available Exchange Trust. While the Sponsor has indicated their
intention to maintain a market in the Units of all Trusts sponsored by
it, the Sponsor is under no obligation to continue to maintain a
secondary market and therefore there is no assurance that the Exchange
Privilege will be available to a Certificateholder at any specific time
in the future. At the time of the Certificateholder's election to
participate in the Exchange Privilege, there also must be Units of the
Exchange Trust available for sale, either under the initial primary
distribution or in the Sponsor's secondary market.
(2) Exchanges will be effected in whole units only. Any excess
proceeds from the Units surrendered for exchange will be remitted and
the selling Certificateholder will not be permitted to advance any new
funds in order to complete an exchange. Units of the Mortgage
Securities Trust may only be acquired in blocks of 1,000 Units. Units
of the Equity Securities Trust may only be acquired in blocks of 100
Units.
(3) The Sponsor reserves the right to modify, suspend or
terminate the Exchange Privilege. The Sponsor will provide
Certificateholders of the Trust with 60 days prior written notice of any
termination or material amendment to the Exchange Privilege, provided
that, no notice need be given if (i) the only material effect of an
amendment is to reduce or eliminate the sales charge payable at the time
of the exchange, to add one or more series of the Trust eligible for the
Exchange Privilege or to delete a series which has been terminated from
eligibility for the Exchange Privilege, (ii) there is a suspension of
the redemption of units of an Exchange Trust under Section 22(e) of the
Investment Company Act of 1940, or (iii) an Exchange Trust temporarily
delays or ceases the sale of its units because it is unable to invest
amounts effectively in accordance with its investment objectives,
policies and restrictions. During the 60 day notice period prior to the
termination or material amendment of the Exchange Privilege described
above, the Sponsor will continue to maintain a secondary market in the
units of all Exchange Trusts that could be acquired by the affected
Certificateholders. Certificateholders may, during this 60 day period,
exercise the Exchange Privilege in accordance with its terms then in
effect. In the event the Exchange Privilege is not available to a Cer-
tificateholder at the time he wishes to exercise it, the Certificate-
holder will immediately be notified and no action will be taken with
respect to his Units without further instructions from the Certificate-
holder.
To exercise the Exchange Privilege, a Certificateholder should
notify the Sponsor of his desire to sell his Units and apply the proceeds from
the sale to purchase Units of one or more of the Exchange Trusts. 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.
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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
$2,943.50 ($2,900 for units and $43.50 for the sales charge). The remaining
$556.50 would be remitted to the Certificateholder in cash. If the
Certificateholder acquired the same number of units at the same time in a
regular secondary market transaction, the price would have been $3,059.50
($2,900 for units and $159.50 for the sales charge, assuming a 5-1/2% sales
charge times the public offering price).
The Conversion Offer
Certificateholders 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 sponsored by Bear, Stearns & Co. Inc. (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 (or for Units of
Equity Securities Trust, based on the market value of the underlying
securities in the Equity Trust portfolio). 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 for Units of
Equity Securities Trust, based on the market value of the underlying
securities in the Equity Trust portfolio), 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 (or for Units
of Equity Securities Trust, based on the market value of the underlying
securities in the Equity Trust portfolio) and a sales charge as set forth
below.
Except for Certificateholders who wish to exercise the Conversion
Offer within the first five months of their purchase of units of a Redemption
Trust, the sales charge applicable to the purchase of Units of the Conversion
Trust shall be 1.5% per Unit (or per 1,000 Units for the Mortgage Securities
Trust or per 100 Units for the Equity Securities Trust). For
Certificateholders who wish to exercise the Conversion Offer within the first
five months of their purchase of units of a Redemption Trust, the sales charge
applicable to the purchase of Units of a Conversion Trust shall be the greater
of (i) 1.5% per Unit (or per 1,000 Units for the Mortgage Securities Trust or
per 100 Units for the Equity Securities Trust) or (ii) an amount which when
coupled with the sales charge paid by the Certificateholder upon his original
purchase of units of the Redemption Trust at least equals the sales charge
applicable in the direct purchase of Units of a Conversion Trust. The
Conversion Offer is subject to the following limitations:
(1) The Conversion Offer is limited only to Certificateholders 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
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Certificateholder's election to participate in the Conversion Offer,
there also must be available units of a Conversion Trust, either under a
primary distribution or in the Sponsor's secondary market.
(2) Exchanges under the Conversion Offer will be effected in
whole units only. Certificateholders 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 Certificateholder. Units of the Mortgage Securities Trust may
only be acquired in blocks of 1,000 units. Units of the Mortgage
Securities Trust may only be acquired in blocks of 100 Units.
(3) The Sponsor reserves the right to modify, suspend or
terminate the Conversion Offer at any time without notice to
Certificateholders of Redemption Trusts. In the event the Conversion
Offer is not available to a Certificateholder at the time he wishes to
exercise it, the Certificateholder will be notified immediately and no
action will be taken with respect to his units without further
instruction from the Certificateholder. The Sponsor also reserves the
right to raise the sales charge based on actual increases in the
Sponsor's costs and expenses in connection with administering the
program, up to a maximum sales charge of $20 per unit (or per 1,000
units for the Mortgage Securities Trust or per 100 Units for the Equity
Securities Trust).
To exercise the Conversion Offer, a Certificateholder 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
Certificateholder is a resident, the Certificateholder 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 Certificateholder's retail broker. The
retail broker must tender the units to the trustee of the Redemption Trust for
redemption and then apply the proceeds of the redemption toward the purchase
of units of a Conversion Trust at a price based on the aggregate offer or bid
side evaluation per Unit of the Conversion Trust, depending on which price is
applicable, plus accrued interest and the applicable sales charge. The
certificates must be surrendered to the broker at the time the redemption
order is placed and the broker must specify to the Sponsor that the purchase
of Conversion Trust Units is being made pursuant to the Conversion Offer. The
Certificateholder's broker will be entitled to retain $5 of the applicable
sales charge.
Example: Assume a Certificateholder has five units of a Redemption Trust
which he 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
Certificateholder wishes to participate in the Conversion Offer and exchange
the proceeds for units of a secondary market Conversion Trust with a current
price of $700 per Unit. The proceeds from the Certificateholder's redemption
of units will aggregate $3,375. Since only whole units of a Redemption Trust
may be purchased under the Conversion Offer, the Certificateholder will be
able to acquire four units of the Conversion Trust (or 4,000 units of the
Mortgage Securities Trust or 400 Units of the Equity Securities Trust) for a
total cost of $3,045 ($3,000 for units and $45 for the sales charge). The
remaining $330 would be remitted to the Certificateholder in cash. If the
Certificateholder acquired the same number of Conversion Trust units at the
same time in a regular secondary market transaction, the price would have been
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$3,165 ($3,000 for units and $165 sales charge, assuming a 5-1/2% sales charge
times the public offering price).
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 New York State
and local New York income taxes, while the interest income from Municipal
Securities Trust is subject to applicable New York State and local New York
taxes, except for that portion of the income which is attributable to New York
obligations in the Trust portfolio, if any. The interest income from each
State Trust of the Municipal Securities Trust, Multi-State Series is, in
general, exempt from state and local taxes when held by residents of the state
where the issuers of bonds in such State Trusts are located. The Insured
Municipal Securities Trust combines the advantages of providing interest
income free from regular federal income tax under existing law with the added
safety of irrevocable insurance. Insured Navigator Series further combines
the advantages of providing interest income free from regular federal income
tax and state and local taxes when held by residents of the state where
issuers of bonds in such State Trusts are located with the added safety of
irrevocable insurance. Mortgage Securities Trust offers an investment vehicle
for investors who are interested in obtaining safety of capital and a high
level of current distribution of interest income through investment in a fixed
portfolio of collateralized mortgage obligations. Equity Securities Trust
offers investors an opportunity to achieve capital appreciation together with
a high level of current income.
Tax Consequences of the Exchange Privilege and the Conversion Offer
A surrender of units pursuant to the Exchange Privilege or the
Conversion Offer will constitute a "taxable event" to the Certificateholder
under the 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. 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 LLP, 75 East 55th Street, New York, New York 10022, as counsel for the
Sponsor. Messrs. Carter, Ledyard & Milburn, Two Wall Street, New York, New
York 10005 have acted as counsel for United States Trust Company of New York.
Certain matters relating to New Jersey tax law have been passed upon by
Freeman, Zeller & Bryant, as special New Jersey counsel to the Sponsor.
Certain matters relating to Pennsylvania tax law have been passed upon by
Saul, Ewing, Remick & Saul, as special Pennsylvania counsel to the Sponsor.
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Independent Auditors
The financial statements of the Trusts included in Part A of this
Prospectus as of the dates set forth in Part A, have been examined by KPMG
Peat Marwick LLP, independent certified public accountants, for the periods
indicated in its reports appearing herein. The financial statements examined
by KPMG Peat Marwick LLP have been so included in reliance on its report given
upon its authority as experts in accounting and auditing.
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
- --------
* As described by Standard & Poor's Corporation.
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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.
Provisional Ratings (Prov.) following a rating indicates the
rating is provisional, which assumes the successful completion of the project
being financed by the issuance of the bonds being rated and indicates that
payment of debt service requirements is largely or entirely dependent upon the
successful and timely completion of the project. This rating, however, while
addressing credit quality subsequent to completion, makes no comment on the
likelihood of, or the risk of default upon failure of, such completion.
Accordingly, the investor should exercise his own judgment with respect to
such likelihood and risk.
DESCRIPTION OF RATING ON THE UNITS*
A Standard & Poor's Corporation's rating on the units of an
investment trust (hereinafter referred to collectively as "units" and "fund")
is a current assessment of creditworthiness with respect to the investments
held by such fund. This assessment takes into consideration the financial
capacity of the issuers and of any guarantors, insurers, lessees, or
mortgagors with respect to such investments. The assessment, however, does
not take into account the extent to which fund expenses or portfolio asset
sales for less than the fund's purchase price will reduce payment to the unit
holder of the interest and principal required to be paid on the portfolio
assets. In addition, the rating is not a recommendation to purchase, sell, or
hold units, inasmuch as the rating does not comment as to market price of the
units or suitability for a particular investor.
Funds rated "AAA" are composed exclusively of assets that are
rated "AAA" by Standard & Poor's or have, in the opinion of Standard & Poor's,
credit characteristics comparable to assets that are rated "AAA", or certain
short-term investments. Standard & Poor's defines its AAA rating for such
assets as the highest rating assigned by Standard & Poor's to a debt
obligation. Capacity to pay interest and repay principal is very strong.
- --------
* As described by Standard & Poor's Corporation.
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FOR USE WITH INSURED MUNICIPAL SECURITIES TRUST
9TH - 50TH DISCOUNT SERIES
SERIES 2 - 32
NEW YORK NAVIGATOR INSURED SERIES 1 - 16
NEW JERSEY NAVIGATOR INSURED SERIES 1 - 12
=============================================================================
AUTHORIZATION FOR INVESTMENT IN INSURED MUNICIPAL SECURITIES TRUST
-- DISCOUNT SERIES/SERIES --
TRP PLAN - TOTAL REINVESTMENT PLAN
I hereby elect to participate in the TRP Plan and am the owner of _____ units
___ Discount Series/Series _______.
I hereby authorize the United States Trust Company of New York, Trustee, to
pay all semi-annual or annual distributions of interest and principal (if any)
with respect to such units to the United States Trust Company of New York, as
TRP Plan Agent, who shall immediately invest the distributions in units of the
available series of Insured Municipal Securities Trust above or, if
unavailable, of other available series of Municipal Securities Trust.
The foregoing authorization is subject in Date ______________, 19__
all respects to the terms and conditions of
participation set forth in the prospectus
relating to such available series.
- ------------------------------------------- --------------------------------
Registered Holder (Print) Registered Holder (Print)
- ------------------------------------------- --------------------------------
Registered Holder Signature Registered Holder Signature
(Two signatures if joint tenancy)
My Brokerage Firm's Name ____________________________________________________
Street Address ______________________________________________________________
City, State and Zip Code ____________________________________________________
Salesman's Name ___________________________ Salesman's No. _________________
UNIT HOLDERS NEED ONLY SIGN AND DATE THIS FORM.
==============================================================================
MAIL TO YOUR BROKER
OR
UNITED STATES TRUST COMPANY OF NEW YORK
ATTN: THE UNIT INVESTMENT DEPARTMENT, UNIT A
770 BROADWAY
NEW YORK, NEW YORK 10003
112677.1
<PAGE>
FOR USE WITH INSURED MUNICIPAL SECURITIES TRUST
SERIES 1 - 4 (MULTIPLIER PORTFOLIO)
SERIES 1 - 2 AND 1ST - 8TH DISCOUNT SERIES
==============================================================================
AUTHORIZATION FOR INVESTMENT IN MUNICIPAL SECURITIES TRUST
-- DISCOUNT SERIES/SERIES --
TRP PLAN - TOTAL REINVESTMENT PLAN
I hereby elect to participate in the TRP Plan and am the owner of _____ units
___ Discount Series/Series __________.
I hereby authorize The Bank of New York, Trustee to pay all semi-annual or
annual distributions of interest and principal (if any) with respect to such
units to The Bank of New York, as TRP Plan Agent, who shall immediately invest
the distributions in units of the available series of Insured Municipal
Securities Trust above or, if unavailable, of other available series of
Municipal Securities Trust.
The foregoing authorization is subject in Date ______________, 19__ all
respects to the terms and conditions of participation set forth in the
prospectus relating to such available series.
- ------------------------------------------- --------------------------------
Registered Holder (Print) Registered Holder (Print)
- ------------------------------------------- --------------------------------
Registered Holder Signature Registered Holder Signature
(Two signatures if joint tenancy)
My Brokerage Firm's Name
Street Address
City, State and Zip Code
Salesman's Name ___________________________ Salesman's No.
UNIT HOLDERS NEED ONLY SIGN AND DATE THIS FORM.
==============================================================================
MAIL TO YOUR BROKER
OR
THE BANK OF NEW YORK
ATTN: UNIT INVESTMENT TRUST DIVISION
101 BARCLAY STREET
NEW YORK, NEW YORK 10286
<PAGE>
INDEX
Title Page INSURED
MUNICIPAL SECURITIES TRUST
Summary of Essential Information............A-5 (Unit Investment Trust)
Information Regarding the Trust.............A-7 Prospectus
Financial and Statistical Information.......A-8
Audit and Financial Information Dated: April 28, 1995
Report of Independent Accountants.........F-1
Statement of Net Assets...................F-2 Sponsor:
Statement of Operations...................F-3 Bear, Stearns & Co. Inc.
Statement of Changes in Net Assets........F-4 245 Park Avenue
Notes to Financial Statements.............F-5 New York, New York 10167
Portfolio.................................F-6 212-272-2500
The Trust.................................. 1
Risk Considerations....................... 15 (and for certain Trusts:)
Public Offering............................. 41 Gruntal & Co., Incorporated
Estimated Long Term Return and 14 Wall Street
Estimated Current Return.................. 42 New York, New York 10005
Rights of Certificateholders................ 43 212-267-8800
Tax Status.................................. 45
Liquidity................................... 50 Trustee:
Total Reinvestment Plan..................... 53
Trust Administration........................ 57 United States Trust Company
Trust Expenses and Charges.................. 60 of New York
Exchange Privilege and Conversion 770 Broadway
Offer..................................... 61 New York, New York 10003
Other Matters............................... 66 1-800-428-8890
Description of Bond Ratings................. 66
Description of Rating on the Units.......... 67 or
The Bank of New York
101 Barclay Street
New York, New York 10286
1-800-431-8002
Evaluator:
Parts A and B of this Prospectus do not
contain all of the information set forth in Kenny S&P
the registration statement and exhibits Evaluation Services,
relating thereto, filed with the Securities a division of
and Exchange Commission, Washington, D.C., J.J. Kenny Co., Inc.
under the Securities Act of 1933, and to 65 Broadway
which reference is made. New York, New York 10006
* * *
This Prospectus does not constitute an offer to sell, or a
solicitation of an offer to buy, securities in any state to any person to whom
it is not lawful to make such offer in such state.
* * *
No person is authorized to give any information or to make any
representations not contained in Parts A and B of this Prospectus; and any
information or representation not contained herein must not be relied upon as
having been authorized by the Trust, the Trustee, the Evaluator, or the
Sponsor. The Trust is registered as a unit investment trust under the
Investment Company Act of 1940. Such registration does not imply that the
Trust or any of its Units have been guaranteed, sponsored, recommended or
approved by the United States or any state or any agency or officer thereof.
112677.1
