Document/Exhibit Description Pages Size
1: 485BPOS Post-Effective Amendment 98 416K
2: EX-27.CMO-SERIES12(I Article 6 FDS 2± 10K
3: EX-27.CMO-SERIES15(I Article 6 FDS 2± 10K
4: EX-27.CMO-SERIES16(I Article 6 FDS 2± 10K
5: EX-99.3.1 Form of Opinion 4 14K
6: EX-99.5.1 Consent 3 13K
As filed with the Securities and Exchange Commission on April 29, 1997
Registration No. 33-52780
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT
To
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT
TRUSTS REGISTERED ON FORM N-8B-2
A. Exact name of trust: MORTGAGE SECURITIES TRUST,
CMO SERIES 12, CMO SERIES 15
and CMO SERIES 16
B. Name of depositor: REICH & TANG DISTRIBUTORS L.P.
C. Complete address of depositor's principal executive offices:
REICH & TANG DISTRIBUTORS L.P.
600 Fifth Avenue
New York, NY 10020
D. Name and complete address of agent for service:
PETER J. DeMARCO Copy of comments to:
Executive Vice President MICHAEL R. ROSELLA, ESQ.
Reich & Tang Distributors L.P. Battle Fowler LLP
600 Fifth Avenue 75 East 55th Street
New York, NY 10020 New York, NY 10022
(212) 856-6858
It is proposed that this filing become effective (check appropriate box)
/ / immediately upon filing pursuant to paragraph (b) of Rule 485
/x/ on April 30, 1997 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)
/ / on ( date ) pursuant to paragraph (a) of Rule 485
================================================================================
* The Prospectus included in this Registration Statement constitutes a
combined Prospectus as permitted by the provisions of Rule 429 of the
General Rules and Regulations under the Securities Act of 1933 (the "Act").
Said Prospectus covers units of undivided interest in Municipal Securities
Trust, CMO Series 12, CMO Series 15 and CMO Series 16 covered by
prospectuses heretofore filed as part of separate registration statements
on Form S-6 (Registration Nos. 33-52780, 33-52373 and 33-57315,
respectively) under the Act. This filing constitutes Post-Effective
Amendment No. 4 for CMO Series 12, Post-Effective Amendment No. 3 for CMO
Series 15 and Post-Effective Amendment No. 2 for CMO Series 16.
Each of the Registrants declares that an indefinite number of its Units are
being registered by this Registration Statement pursuant to Section 24(f)
under the Investment Company Act of 1940, as amended, and Rule 24f-2
thereunder, and each of the Registrants filed a Rule 24f-2 Notice for its
fiscal year ended December 31, 1996 on February 28, 1997.
175587.1
Prospectus Part A Dated April 30, 1997
MORTGAGE SECURITIES TRUST
CMO SERIES 12
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The Trust consists of 1 unit investment trust designated
Mortgage Series Trust, CMO Series 12 Intermediate Portfolio (the "Trust"). The
Trust consists of an underlying portfolio of collateralized mortgage obligations
("CMOs" or "Securities") and was formed to obtain safety of capital and provide
a high level of current distributions of interest income. The Trust seeks to
obtain a higher yield than fixed income investments with comparable AAA ratings.
An investment in the Trust entails differing degrees of risk. The Trust seeks to
achieve its objectives through investment in a fixed portfolio of CMOs which may
have been issued as debt obligations of a trust or corporation or which may
represent certificated interests of beneficial ownership in pools of
mortgage-backed securities. All of the CMOs in the portfolio are backed by
underlying mortgage-backed securities which are pledged as collateral to secure
payment of principal and interest on the CMOs. Each of these underlying
mortgage-backed securities is guaranteed as to the payment of principal and
interest by the Government National Mortgage Association ("GNMA"), the Federal
National Mortgage Association ("FNMA") or the Federal Home Loan Mortgage
Corporation ("FHLMC"). All of the CMOs in the Trust are issued by GNMA, FNMA or
FHLMC or are otherwise rated AAA by Standard & Poor's and, therefore, the Units
of the Trust are rated AAA by Standard & Poor's Corporation. The Units of the
Trust are not, however, guaranteed by GNMA, FNMA, FHLMC, the United States or
any of its agencies. The full faith and credit of the United States is pledged
to the payment of all amounts guaranteed by GNMA. However, payments guaranteed
by FNMA and FHLMC are not guaranteed by the United States and neither the CMOs
in the Trust nor any underlying Fannie Maes or Freddie Macs constitute a debt
obligation of the United States or any of its agencies. The Sponsor is Reich &
Tang Distributors L.P. The value of the Units will fluctuate with the value of
the CMOs in the portfolio. Both the Estimated Current Return and the Estimated
Long Term Return are subject to fluctuations with changes in portfolio
composition, principal payments and prepayments, changes in the market value of
the CMOs in the portfolios and changes in fees and expenses. Minimum purchase:
1,000 Units.
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This Prospectus consists of two parts. Part A contains the
Summary of Essential Information, including descriptive material relating to the
Trust as of December 31, 1996 (the "Evaluation Date"), a summary of certain
specific information regarding the Trusts and audited financial statements of
the Trust, including the Portfolios as of the Evaluation Date. Part B of this
Prospectus contains general information about the Trust. Part A of this
Prospectus may not be distributed unless accompanied by Part B. Investors should
read and retain both parts of this Prospectus for future reference.
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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.
181355.1
THE TRUST. A CMO is a multiclass bond backed by a pool of
mortgage pass-through securities or mortgage loans. CMOs are also known as "real
estate mortgage investment conduits" (REMICs). As a result of the 1986 Tax
Reform Act, most CMOs are issued in REMIC form to create a certain tax advantage
for the issuer. The terms CMO and REMIC are used interchangeably. The Trust
seeks to obtain a higher yield than fixed income investments with comparable AAA
ratings. An investment in the Trust entails differing degrees of risk.
The Trust will invest primarily in planned amortization or
target amortization classes of CMOs. Such classes of CMOs receive payments of
principal according to a planned schedule to the extent that prepayments on the
underlying mortgage-backed securities occur within a broad time period. The
principal is reduced only in specified amounts at specified times resulting in
greater predictability of principal payments for the planned amortization bonds
or targeted amortization bonds. For a discussion on planned amortization bonds
or targeted amortization bonds see "The Trust--The Portfolio" and "The
Trust--CMO Structure" in this Part A and "The Trust--The Securities--Planned
Amortization or Targeted Amortization Bonds and Support Bonds" in Part B of this
Prospectus. The Trust may also invest in other types of CMOs described above and
in "The Trust--The Securities" in Part B of this Prospectus.
All of the CMOs in the Trust are backed by underlying
mortgage-backed securities which are pledged as collateral to secure payment of
principal and interest on the CMOs. Each of these mortgage-backed securities is
guaranteed as to the payment of principal and interest by either the Government
National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA") or the Federal Home Loan Mortgage Corporation ("FHLMC").
All of the CMOs in the Trust are issued by GNMA, FNMA or FHLMC or are otherwise
rated AAA by Standard & Poor's Corporation ("Standard & Poor's") and therefore,
the Units of the Trust are rated AAA by Standard & Poor's. There can be no
assurance that the Trust's investment objectives can be achieved. Investments in
the Trust should be made with an understanding of the risks inherent in an
investment in CMOs. (See "The Trust--Risk Considerations" in this Part A.) Each
Unit of the Trust represents an undivided interest in the principal and net
income of that Trust in the ratio of one thousand Units for the indicated
principal amount of Securities in the Trust. (See "The Trust--Organization" in
Part B of this Prospectus.) (For the specific number of Units in the Trust, see
"Summary of Essential Information" in this Part A.)
Generally, CMOs are designed to provide a substantial degree
of prepayment and reinvestment risk protection as compared to other mortgage
related securities. The CMOs may have been issued as debt obligations of a trust
or corporation or as certificated interests representing beneficial ownership in
a pool of mortgage-backed securities (See "The Trust--The Securities" in Part B
of this Prospectus for further description and examples) which trust,
corporation or pool may have been established for the sole purpose of issuing
CMOs by any of GNMA, FNMA or FHLMC or by a private business organization. Such
private business organizations are typically single-purpose corporations
established by mortgage-banking institutions for the sole purpose of issuing
CMOs. Any CMOs in the Trust that have been issued by private business
organizations have been rated AAA by Standard & Poor's. The sole assets of the
issuers of the CMOs are the underlying mortgage-backed securities. If the
collateral securing the Securities of these issuers is insufficient to make
payments on those Securities, it is unlikely that any other assets of these
issuers will be available for payment of the deficiency. The underlying
mortgage-backed securities which are pledged as collateral to secure the payment
of principal and interest on the CMOs may be (i) "fully modified pass-through"
mortgage-backed certificates, guaranteed by GNMA ("Ginnie Maes"), (ii) mortgage
pass-through certificates guaranteed by FNMA
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181355.1
("Fannie Maes") or (iii) mortgage participation certificates guaranteed by FHLMC
("Freddie Macs"). The full faith and credit of the United States is pledged to
the payment of all amounts guaranteed by GNMA. However, payments guaranteed by
FNMA and FHLMC are not guaranteed by the United States and neither the CMOs in
the Trust nor any underlying Fannie Maes or Freddie Macs constitute a debt or
obligation of the United States or any of its agencies. The Units of the Trust,
as such, are not guaranteed by any of GNMA, FNMA, FHLMC, the United States or
any of its agencies. Additionally, CMOs that are issued by GNMA, FNMA or FHLMC
or by any entity established by GNMA, FNMA or FHLMC are guaranteed as to payment
of principal and interest by GNMA, FNMA or FHLMC, respectively. The guaranty
obligations of GNMA with respect to any Ginnie Maes or any CMOs are supported by
the full faith and credit of the United States. However, the guaranty of
obligations of FNMA and FHLMC with respect to any Fannie Maes or Freddie Macs or
any CMOs are obligations of FNMA and FHLMC only (limited by their respective
credit capabilities) and are not supported by the full faith and credit of the
United States or any other governmental entity.
CMO Structure. CMOs are generally issued as a series of
different classes. An issue of CMOs generally is backed by a larger number of
mortgages than a pool of Ginnie Maes, Fannie Maes or Freddie Macs, thus allowing
greater statistical prediction of prepayment characteristics. Interest and
principal payments on the mortgages underlying any series will first be applied
to meet the interest payment requirements of each class in the series other than
any class in respect of which interest accrues but is not paid or any "principal
only" class. Principal payments on the underlying mortgages are thereafter
generally applied to pay the principal amount of the class that has the earliest
maturity date. Once that class is retired, the principal payments on the
underlying mortgages are applied to the class with the next earliest maturity
date. This is repeated until all classes are paid. Therefore, while each class
of CMOs remains subject to prepayment as the underlying mortgages prepay,
structuring several classes of CMOs in the stream of principal payments allows a
more predictable estimate of the period of time when any one class is likely to
be repaid. The estimate can be even closer with a class of planned amortization
bonds or targeted amortization bonds. The amortization schedule for these CMOs
is structured so that, at specified prepayment rates within a range, their
principal will be repaid at specified times and in specified amounts. However,
if any series of CMOs contains a class of planned amortization bonds or targeted
amortization bonds, then the other classes in that series may not be retired in
an order of priority determined strictly with reference to their maturity dates.
These other classes are often referred to as "support classes"
because their function is to support the amortization schedule of the planned
amortization bonds or targeted amortization bonds. If the rate of prepayment on
the underlying mortgages is faster than assumed, then classes with maturity
dates later than the planned amortization bonds or targeted amortization bonds
may be retired earlier than estimated to ensure that the planned amortization
bonds or targeted amortization bonds receive the principal payments required by
their amortization schedule. Similarly, if the rate of prepayments is slower
than anticipated, then earlier support classes may be retired later than
estimated. Hence, support classes of a series that contains planned amortization
bonds or targeted amortization bonds have less predictable prepayment
characteristics than classes of a series that does not. This lack of
predictability regarding prepayments also causes support class bonds to have
greater market value fluctuation than other classes of a CMO and causes
fluctuation, which may be substantial, both in the amount of income earned by
the Trust and in the timing of the Trust's principal distributions. This
fluctuation may adversely affect the repurchase and redemption prices of Units
of the Trust. (See "Description of the Portfolio" in this Part A for the number
of planned amortization bonds, targeted amortization bonds or support class
bonds in the Trust portfolio.) The rate of prepayment on the underlying
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181355.1
mortgages of a CMO will most likely decline as interest rates increase. If the
rate of prepayment declines, the weighted average life of the support class
bonds will most likely increase and, in some cases, the decline will impact the
yield and market value of these Securities. This may cause an investor's
principal in a support class bond to be outstanding for a longer period of time
than initially anticipated. Conversely, if interest rates decline, prepayments
on the underlying mortgages will most likely increase, and the weighted average
life of the support class bonds may be shorter than anticipated. A holder of a
support class bond in these situations may be unable to reinvest the proceeds of
these principal distributions at an effective interest rate equal to the
specified coupon rate on the original support class bond. Therefore, an investor
expecting to earn a fixed return for a fixed number of years may find the life
of a support class investment decreases as interest rates fall and increases as
they rise. Investors should be aware that the Federal Financial Institutions
Examination Council recently announced that certain high-risk CMO tranches are
generally not suitable investments for depository institutions. Support class
bonds such as those in the Trust would be characterized as high-risk CMO
tranches and, therefore, not suitable for depository institutions. Investors
should carefully consider all the risks inherent in an investment in support
class bonds before investing in the Trust.
Some of the CMOs in the Trust may be either a class of
Guaranteed REMIC Certificates ("REMIC Certificate") issued by FNMA or a class of
REMIC Certificates issued by FHLMC. A FNMA REMIC Certificate represents a
beneficial ownership interest in a certain class of a FNMA REMIC Trust
consisting of Fannie Maes, each of which in turn represents a beneficial
interest in a pool of first lien, single-family, fixed-rate residential mortgage
loans. FNMA REMIC Certificates are issued pursuant to trust agreements executed
by FNMA in both its corporate capacity and its capacity as trustee. A FNMA REMIC
Certificate evidences a beneficial ownership interest in the distribution of
principal and interest on the underlying Fannie Maes, subject to certain limits
and in an order of distribution established for the particular FNMA REMIC Trust.
Each FNMA REMIC Certificate is backed by the guaranty obligation of FNMA to
distribute on a timely basis required installments of principal and interest and
to distribute the principal balance of the FNMA REMIC Certificate in full no
later than an established final distribution date, notwithstanding insufficiency
of funds from the underlying Fannie Maes. A FHLMC REMIC Certificate represents a
beneficial ownership interest in a certain class of a pool of Freddie Macs, each
of which in turn represents undivided interests in discrete pools of fixed-rate,
first lien, residential mortgages or participations therein purchased by FHLMC.
FHLMC REMIC Certificates are issued pursuant to multiclass mortgage
participation certificate agreements executed by FHLMC. A FHLMC REMIC
Certificate evidences a beneficial ownership interest in the distributions of
principal and interest on the underlying Freddie Macs, subject to certain limits
and in an order of distribution established for the particular FHLMC REMIC pool.
Each FHLMC REMIC Certificate is backed by the guaranty obligation of FHLMC to
distribute required interest payments on a timely basis and to distribute
required principal payments as principal payments on the underlying Freddie Macs
are required to be made. Except with respect to certain issues of "Gold" PCs,
FHLMC generally does not guarantee timely payment of principal but does
guarantee ultimate payment. Both FNMA REMIC Certificates and FHLMC REMIC
Certificates pay interest monthly. (See "The Trust--The Securities" in Part B of
this Prospectus for a description of FHLMC Gold PCs.)
If FNMA or FHLMC were unable to fulfill its guarantees,
distributions to holders of REMIC Certificates such as the Trust would consist
solely of payments and other recoveries upon the mortgages underlying the
pledged Fannie Maes or Freddie Macs, respectively, and, accordingly,
delinquencies and defaults would diminish distributions to the holders. (See
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181355.1
"Description of the Portfolio" in this Part A for the number of FNMA REMIC
Certificates and FHLMC REMIC Certificates in the Trust portfolio.)
Some of the CMOs in the Trust may be a class of compound
interest bonds or principal only bonds. Interest on compound interest bonds is
accrued and is added to principal. Such interest is not paid until all classes
of CMOs issued in the same series with earlier final distributions dates are
paid in full. Principal only bonds entitle the holder to no payments of interest
but the holder will receive cash flow from the amortization of principal and
prepayments. Both compound interest bonds and principal only bonds sell at a
deep discount from par. The Sponsor believes that a portfolio with a limited
amount of compound interest bonds and principal only bonds will assist the Trust
in achieving its objective of preserving capital. Since the principal only bond
will accrue to par if held to maturity, the holder of such a bond would receive
a full return of his or her initial investment upon maturity of the bond. In
addition, compound interest bonds also assist in the preservation of capital as
interest which accrues on these bonds is added to principal. (See "Description
of the Portfolio" in this Part A for the amount of Securities in the Trust that
is a class of compound interest bonds or principal only bonds.)
Risk Considerations. An investment in Units of the Trust
should be made with an understanding of risks which an investment in fixed rate
CMOs may entail, including the risk that the value of the portfolio and, hence,
the value of the Units will decline with increases in interest rates and that
the life of the CMOs in the portfolio depends on the actual prepayments received
on the underlying mortgage-backed securities, the timing of which cannot be
determined but which may be sooner or later than anticipated, especially if
interest rates decline. Mortgage prepayment rates are likely to fluctuate
significantly from time to time as they have in recent years and at a rate
faster or slower than that initially assumed. The rate of prepayments depends on
a variety of geographic, social and other functions, including prevailing market
interest rates and general economic factors. The potential for appreciation,
which could otherwise be expected to result from a decline in interest rates,
may be limited by any increased prepayments by mortgagors. Investors should also
note that prepayments of principal on CMOs purchased at a premium over par will
result in some loss on investment while prepayments on CMOs purchased at a
discount from par will result in some gain on investment. Also, if interest
rates rise, the prepayment risk of higher yielding, premium CMOs and the
prepayment benefit for lower yielding, discount CMOs will be reduced. (See "The
Trust--Life of the Securities and of the Trust" in Part B of this Prospectus.)
In addition, a number of factors, including the extent of prepayments of
principal on the underlying mortgage-backed securities, affect the availability
of funds for payment of principal of bonds on any payment date and, therefore,
the timing of principal payments on each class of such bonds.
While all of the mortgage-backed securities underlying each of
the CMOs in the Trust are guaranteed as to the payment of principal and interest
by GNMA, FNMA or FHLMC, the CMOs in the Trust represent obligations solely of
the issuers of those CMOs and are not themselves insured or guaranteed by GNMA,
FNMA or FHLMC, or any other governmental agency. If a default were to occur with
respect to any of the CMOs, there can be no assurance that the collateral
securing such bonds would be sufficient to pay the principal and interest then
due.
CMOs are generally not listed on a national securities
exchange or on the National Association of Securities Dealers Automated
Quotation System, Inc. Whether or not CMOs are listed on a national securities
exchange, the principal trading market for the CMOs will generally be in the
over-the-counter market. As a result the existence of a liquid trading market
for CMOs may depend on whether dealers will make a market in CMOs. There can be
no
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181355.1
assurance that a market will be made for any of the CMOs in the Trust, that any
market for the CMOs in the Trust's portfolio will be maintained or of the
liquidity of the CMOs in the Trust in any markets made. The price at which the
CMOs in the Trust may be sold to meet redemptions and the value of the Trust
will be adversely affected if trading markets for the CMOs in the Trusts are
limited or absent. (See "The Trust--Liquidity" in Part B of this Prospectus.) In
addition, the Trust may be restricted under the Investment Company Act of 1940
from selling securities to the Sponsor. However, taking into account the
foregoing and other factors, the Sponsor believes that the nature of the GNMA,
FNMA or FHLMC guarantees of any securities that have been issued by them,
respectively, and the nature of the Ginnie Maes, Fannie Maes or Freddie Macs
securities payments of principal and interest due on the Securities make the
Securities adequately marketable for purposes of redemptions of Units by the
Trustee (see "Redemption" in Part B of this Prospectus).
Investors should note that all of the CMOs in the Trust have
been issued by trusts, corporations or other entities that have elected to be
treated as Real Estate Mortgage Investment Conduits ("REMICs"). As such,
Certificateholders will be required to include in income their respective pro
rata share of interest on each Security (whether or not the Security has
original issue discount) as interest accrues, whether or not the
Certificateholder is an accrual method taxpayer. (See "Tax Status" in Part B of
this Prospectus.)
The principal amount of Securities actually deposited in the
Trust is affected by the prepayment estimate or factor for each CMO. If the
prepayment estimate or factor is adjusted because the level of actual
prepayments increases with respect to a particular CMO prior to the settlement
date of the Securities, the actual principal amount of Securities deposited in a
Trust may be less than the amount noted above and the excess of any cash
returned to that Trust as a result of these prepayments will be held in the
Trust's principal account. Cash balances maintained in the principal account do
not generate income for the Trusts.
Educational material regarding CMOs is available upon request,
from the Sponsor.
PUBLIC OFFERING PRICE. The secondary market Public Offering
Price per 1,000 Units of the Trust is equal to the aggregate bid side evaluation
of the underlying Securities in a Trust divided by the number of Units
outstanding times 1,000, plus a sales charge of 4.25% of the Public Offering
Price per 1,000 Units or 4.439% of the net amount invested in Securities per
1,000 Units of the Trust. In addition, accrued interest to the expected date of
settlement is added to the Public Offering Price. If the Units of the Trust had
been purchased on the Evaluation Date, the Public Offering Price per 1,000 Units
would have been $809.15 plus accrued interest of $5.23, for a total of $814.38.
The Public Offering Price per 1,000 Units may vary on a daily basis in
accordance with the fluctuations in the aggregate bid price of the Bonds. (See
"Public Offering" in Part B of this Prospectus.)
The figures above assume a purchase of 1,000 Units. The price
of a single Unit, or any multiple thereof, is calculated by dividing the
secondary market Public Offering Price per 1,000 Units by 1,000 and multiplying
by the number of Units.
DISTRIBUTIONS. Distributions of principal and interest income,
less expenses, will be made by the Trust monthly on the 20th of each month. (See
"Rights of Certificateholders--Interest and Principal Distributions" in Part B
of this Prospectus. For the estimated amount of distributions see "Summary of
Essential Information" for the Trust in this Part A.)
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181355.1
ESTIMATED LONG TERM RETURN AND ESTIMATED CURRENT RETURN.
Estimated Long Term Return for the Trust is calculated by: (1) computing the
yield to maturity for each CMO in the Trust's portfolio in accordance with
accepted CMO practices, which practices take into account not only the interest
payable on the CMO but also the amortization of premiums or accretion of
discounts, if any, and estimates of projected prepayments; (2) calculating the
average of the yields for the CMOs in the Trust's portfolio by weighing each
CMO's yield by the market value of the CMO and by the amount of time remaining
to the date to which the CMO is priced (thus creating an average yield for the
portfolio of the Trust); and (3) reducing the average yield for the portfolio of
the Trust in order to reflect estimated fees and expenses of the Trust and the
maximum sales charge paid by Certificateholders. The resulting Estimated Long
Term Return represents a measure of the return to Certificateholders earned over
the estimated life of the Trust. (For the Estimated Long Term Return to
Certificateholders, see "Summary of Essential Information" for the Trust. See
"Estimated Long Term Return and Estimated Current Return" in Part B of this
Prospectus.)
Estimated Current Return for the Trust is computed by dividing
the Estimated Net Annual Interest Income per 1,000 Units by the Public Offering
Price per 1,000 Units. In contrast to the Estimated Long Term Return, the
Estimated Current Return does not take into account estimates of prepayments or
the amortization of premium or accretion of discount, if any, on the CMOs in the
portfolio of the Trust. For the Estimated Net Annual Interest Income to
Certificateholders, see "Summary of Essential Information" in Part A.
If the CMOs in the Trust are priced at a discount, the
Estimated Current Return will generally be lower relative to the Estimated Long
Term Return, whereas if the CMOs are priced at a premium, the Estimated Current
Return will generally be higher relative to the Estimated Long Term Return. This
is because Estimated Current Return reflects primarily the interest rate on the
CMOs, while Estimated Long Term Return reflects yield and timing of principal
payments, and thus increases when the principal returned is greater than the
price paid for the CMOs (discount) and decreases when the principal returned is
lower than the price paid (premium). Estimated Long Term Return is calculated
using an estimated average life for the CMOs in each Trust. Estimated average
life is an essential factor in the calculation of Estimated Long Term Return.
When a particular Trust has a shorter average life than is estimated, Estimated
Long Term Return will be higher if the Trust contains CMOs priced at a discount
and lower if the CMOs are priced at a premium. Conversely, when a particular
Trust has a longer average life than is estimated, Estimated Long Term Return
will be lower if the CMOs are priced at a discount and higher if the CMOs are
priced at a premium. To calculate estimated average life several assumptions are
made to derive an estimated prepayment rate for the mortgages underlying the
Ginnie Maes, Fannie Maes or Freddie Macs that may back the CMOs in the
Portfolio; the calculation of estimated prepayment rates is based upon actual
recent prepayments and analysis of several factors including, among other
things, the spread between present market interest rates and the rate on the
mortgages and the housing environment. The estimated prepayment rate that is
derived is then applied to retire the principal amount of each CMO class of the
same series as each CMO in the Trusts, including those CMOs in the Trusts,
according to the specific principal reduction schedule of each series. For a
more detailed explanation of the calculation of estimated average life, see
"Estimated Long Term Return and Estimated Current Return" in Part B of this
Prospectus. The estimated average life for the Trust is subject to change with
alterations in the data used in any of the underlying assumptions. The actual
average lives of the CMOs in the Trust's portfolio and the actual long term
returns will be different from the estimated average lives and the estimated
long term returns.
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181355.1
The Estimated Net Annual Interest Income per 1,000 Units of
the Trust will vary with changes in the fees and expenses of the Trustee and the
Evaluator applicable to the Trusts and with the redemption, prepayment,
maturity, sale or other disposition of the CMOs in the Trust. The Secondary
Market Public Offering Price will vary with changes in the bid prices of the
CMOs. Therefore, there is no assurance that the present Estimated Current Return
or Estimated Long Term Return will be realized in the future.
Market for Units. The Sponsor, although not obligated to do
so, intends to maintain a secondary market for the Units at prices based on the
aggregate bid side evaluation of the Securities in the Trust. The reoffer price
will be based on the aggregate bid side evaluation of the Securities, divided by
the number of Units outstanding times 1,000, plus a sales charge of 4.25%
(4.439% of the net amount invested), plus net accrued interest for the Trust. If
a market is not maintained a Certificateholder will be able to redeem his or her
Units with the Trustee at a price based on the aggregate bid side evaluation of
the Securities. (See "Sponsor Repurchase" in Part B of this Prospectus.)
Total Reinvestment Plan. Distributions from the Trust are made
to Certificateholders monthly. The Certificateholder has the option, however, of
either receiving his interest check, together with any principal payments, from
the Trustee or participating in a reinvestment program offered by the Sponsor in
shares of The Treasurer's Fund, Inc., U.S. Treasury Money Market Portfolio (the
"Fund"). Gabelli-O'Connor Fixed Income Mutual Funds Management Co. serves as the
investment advisor of the Fund and GOC Fund Distributors, Inc. serves as
distributor for the Fund. Participation in the reinvestment option is
conditioned on the Fund's lawful qualification for sale in the state in which
the Certificateholder is a resident. The Plan is not designed to be a complete
investment program. See "Total Reinvestment Plan" in Part B of this Prospectus.
The shares of the Fund are not rated by Standard & Poor's.
A-8
181355.1
MORTGAGE SECURITIES TRUST
CMO SERIES 12, INTERMEDIATE PORTFOLIO
SUMMARY OF ESSENTIAL INFORMATION AS OF DECEMBER 31, 1996
[Download Table]
Date of Deposit:* February 10, 1993 Evaluation Time: 4.00 p.m.
Principal Amount of New York Time.
Securities ................ $12,916,047 Minimum Principal Distribution:
Principal Amount of Secu- $1 per 1,000 Units.
rities per 1,000 Units..... $804.62 Weighted Average Life to
Number of Units ............. 16,052,332 Maturity: 6.7 years
Fractional Undivided Inter- Minimum Value of Trust:
est in Trust per Unit ..... 1/16052332 Trust may be terminated if
Secondary Market Public less than $8,000,000 in
Offering Price**+ principal amount of
Aggregate Bid Price of Securities.
Securities in Trust ..... $12,283,451 Mandatory Termination Date:
Divided by 16,052,332 Units The earlier of December 31,
times $1,000 ............ $765.21 2042 or the disposition of the
Plus Sales Charge of 4.25% last Security in the Trust.
of Public Offering Price $43.94 Trustee: The Chase Manhattan
Public Offering Price Bank.
per 1,000 Units.......... $809.15 Trustee's Annual Fee: $.84 per
Redemption and Sponsor's $1,000.
Repurchase Price Evaluator: Kenny S&P
per 1,000 Units+ .......... $765.21+++# Evaluation Services.
Excess of Public Offering Evaluator's Fee for Each
Price over Redemption and Evaluation: $7 per
Sponsor's Repurchase Price evaluation.
per 1,000 Units#........... $43.94 Sponsor: Reich & Tang
Difference between Public Distributors L.P.
Offering Price per 1,000 Sponsor's Annual Fee: Maximum
Units and Principal of $.25 per $1,000 principal
Amount per 1,000 Units amount of Securities (see
Premium/(Discount) ........ $4.53 "Trust Expense and Charges"
in Part B of this Prospectus).
PER 1,000 UNIT INFORMATION
Gross annual interest income (cash)............................. $55.27
Less estimated annual fees and expenses......................... 1.38
Estimated net annual interest income (cash)..................... 53.89
Estimated interest distribution................................. 4.49
Estimated daily interest accrual................................ .14
Estimated current return++(1)................................... 6.66%
Estimated long term return++(1)................................. 7.05%
Record dates.................................................... 1st of
each month
Interest distribution dates..................................... 20th of
each month
* The Date of Deposit is the date on which the Trust Agreement was signed
and the deposit of the Bonds with the Trustee made.
** Per 1,000 Units.
+ Plus accrued interest.
++ The estimated current return and estimated long term return are
increased for transactions entitled to a discount (see "Volume and
Other Discounts" in Part B of this Prospectus).
+++ Based solely upon the bid side evaluation of the underlying Securities.
Upon tender for redemption, the price to be paid will be calculated as
described under "Trustee Redemption" in Part B of this Prospectus.
# See "Comparison of Public Offering Price, Sponsor's Repurchase Price
and Redemption Price" in Part B of this Prospectus.
A-9
181355.1
Additional Footnotes to Summary of Essential Information
(1) Estimated current return represents annual interest income after
estimated annual expenses divided by the Public Offering Price,
including for the Intermediate Portfolio, a 4.25% maximum sales
charge. Estimated long term return is the net annual percentage return
based on the yield on each underlying Security in the Trust weighted
to reflect market value and estimated average life. The estimated
weighted average life to maturity of the Trust is an estimate based
upon various assumptions discussed more fully under "Estimated Long
Term Return and Estimated Current Return" in Part B of this
Prospectus. Estimated long term return is adjusted for estimated
expenses and the maximum public offering price but not for delays in
the Trust's distribution of income. Estimated current return shows
current annual cash return to investors while estimated long term
return shows the return on Units held to estimated average life,
reflecting prepayments of principal, maturities, discounts and
premiums on underlying Securities. Actual returns will vary with
purchase price, payments and prepayments of principal on the
underlying Ginnie Maes, Fannie Maes or Freddie Macs which back the
Securities, and changes in Trust income after expenses. These returns
do not include the effects of any delay in payments to Unitholders and
a calculation which includes those effects would be lower. See
"Estimated Long Term Return and Estimated Current Return" in Part B of
this Prospectus.
FINANCIAL AND STATISTICAL INFORMATION
Selected data for each Unit of each Trust outstanding for the periods listed
below:
[Download Table]
Distribu-
tions of
Principal
Distributions During
Net Asset* of Interest the
Value During the Period
Units Out- Per 1,000 Period (per (Per 1,000
Period Ended standing Units 1,000 Units) Units)
------------ ---------- --------- ------------ --------
INTERMEDIATE PORTFOLIO
December 31, 1994 19,909,109 $720.00 $51.61 $177.77
December 31, 1995 17,316,258 $810.52 $54.81 1.69
December 31, 1996 16,052,332 $773.83 $76.82 11.41
------------------
* Net Asset Value per 1,000 Units is calculated by dividing net assets as
disclosed in the "Statement of Net Assets" by the number of Units
outstanding as of the date of the Statement of Net Assets. See Note 5 of
Notes to Financial Statements for a description of the components of Net
Assets.
A-10
181355.1
INFORMATION REGARDING THE TRUST
AS OF DECEMBER 31, 1996
Description of the Portfolio*
The Trust consists of 6 issues of CMOs. The Sponsor has not
participated as a sole underwriter or manager, co-manager or member of an
underwriting syndicate from which any of the initial aggregate principal amount
of the CMOs in the Portfolio were acquired. None of the CMOs have been issued by
entities created by GNMA, approximately 76.5% of the aggregate principal amount
of the CMOs in the Portfolio have been issued by entities created by FNMA,
approximately 23.5% of the aggregate principal amount of the CMOs in the
Portfolio have been issued by entities created by FHLMC and none have been
issued by private issuers. All of the CMOs in the Trust have been issued by
trusts, corporations or other entities that have elected to be treated as Real
Estate Mortgage Investment Conduits. The CMOs in the Trust have stated final
distribution dates ranging from May 25, 2016 through February 25, 2022 and
estimated average lives (based upon estimated prepayment rates) ranging from
1.01 to 11.83 years.
$10,016,000 of the principal amount of the Securities deposited in
the Trust were planned amortization bonds or targeted amortization bonds. None
of the principal amount of the Securities are support class bonds that are part
of a series that contains planned amortization bonds or targeted amortization
bonds. $5,900,000 of the principal amount of the Securities in the Trust are
FNMA REMIC Certificates. None of the principal amount of the Securities
initially deposited in the Trust are a class of compound interest bonds or
principal only bonds.
As of December 31, 1996, 42.8% of the aggregate principal amount of
the Securities in the Trust were acquired at a discount from par, 57.2% of the
Securities in the Trust were acquired at a premium and none were acquired at
par. A Certificateholder may receive more or less than his original purchase
price upon disposition of his Units because the value of the Units fluctuates
with the value of the underlying Securities.
Educational material regarding CMOs is available, upon request from
the Sponsor.
------------------
* Changes in the Trust Portfolio: From January 1, 1997 to March 21, 1997,
there were paydowns on the securities in portfolio no. 3 and $134,375.85 of the
principal amount of securities are no longer contained in the Trust. $165,000
principal amount of the securities in portfolio no. 2 was sold and is no longer
contained in the Trust. 162,757 Units were redeemed from the Trust.
A-11
181355.1
Report of Independent Accountants
To the Sponsor, Trustee and Certificateholders of
Mortgage Securities Trust, CMO Series 12 Intermediate
In our opinion, the accompanying statement of net assets, including the
portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Mortgage Securities Trust, CMO
Series 12 Intermediate (the "Trust") at December 31, 1996, the results of its
operations, the changes in its net assets and the financial highlights for the
year then ended, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit, which included confirmation of securities at December
31, 1996 by correspondence with the Trustee, provides a reasonable basis for the
opinion expressed above. The financial statements for the prior periods
presented were audited by other independent accountants whose report dated March
31, 1996 expressed an unqualified opinion on those financial statements.
PRICE WATERHOUSE LLP
160 Federal Street
Boston, MA 02110
March 28, 1997
[Enlarge/Download Table]
Mortgage Securities Trust, CMO Series 12 Intermediate
Portfolio
December 31, 1996
-------------------------------------------------------------------------------------------------------------------
Estimated First
Coupon Rate/ Principal
Portfolio Principal Final Distribution Distribution Date Market
No. Amount Securities (3) Date (1) (Unaudited) Value (2)
1 $ 2,530,000 Federal Home Loan Mortgage Corporation 4.500% 3/15/00 $ 2,105,522
Multiclass Mortgage Participation Certificates 9/15/2021
(Guaranteed) Series 159-H
2 2,500,000 Federal National Mortgage Association 6.500 6/25/98 2,420,929
Guaranteed REMIC Pass-Through Certificates 2/25/2021
Fannie Mae REMIC Trust 1991--Class 8-G
3 1,486,000 Federal National Mortgage Association 8.000 1/25/99 1,502,526
Guaranteed REMIC Pass-Through Certificates 5/25/2016
Fannie Mae REMIC Trust 1991--Class 59-K
4 500,000 Federal Home Loan Mortgage Corporation 7.000 2/15/00 485,061
Multiclass Mortgage Participation Certificates 6/15/2021
(Guaranteed) Series 1091-G
5 2,900,000 Federal National Mortgage Association 8.000 6/25/03 2,944,561
Guaranteed REMIC Pass-Through Certificates 7/25/2020
Fannie Mae REMIC Trust 1992--Class 119-E
6 3,000,000 Federal National Mortgage Association 7.500 12/25/04 2,978,095
Guaranteed REMIC Pass-Through Certificates 2/25/2022
Fannie Mae REMIC Trust 1993--Class 2-PK
------------ --------------
$12,916,000 Total Investments (Cost $12,326,344) $ 12,436,694
============ ==============
See accompanying footnotes to portfolio and notes to financial statements.
Mortgage Securities Trust, CMO Series 12 Intermediate
Footnotes to Portfolio
-------------------------------------------------------------------------------
1. See "The Trust - Portfolio" in Part B of the Prospectus for an
explanation of redemption features. See "Tax Status" in Part B of the
Prospectus for a statement of the Federal tax consequences to a
Certificateholder upon the sale, redemption or maturity of a security.
2. At December 31, 1996, the net unrealized appreciation of all the
securities was comprised of the following:
Gross unrealized appreciation $ 290,816
Gross unrealized depreciation (180,466)
-------------
Net unrealized appreciation $ 110,350
=============
3. All of the CMOs in the portfolio are backed by underlying mortgage-backed
securities which are pledged as collateral to secure payment of principal
and interest on the CMOs. The Units of the Trust are not, however,
guaranteed by the United States or any of its agencies. Payments are not
guaranteed by the United States and neither the CMOs in the Trust nor any
underlying mortgage backed securities constitute a debt obligation of the
United States or any of its agencies.
The accompanying notes form an integral part of the financial statements.
Mortgage Securities Trust, CMO Series 12 Intermediate
Statement of Net Assets
December 31, 1996
--------------------------------------------------------------------------------
Investments in Securities,
at Market Value (Cost $12,326,344) $ 12,436,694
-------------
Other Assets
Accrued Interest 73,937
-------------
Total Other Assets 73,937
-------------
Liabilities
Accrued Expenses 3,483
Advance from Trustee 85,361
-------------
Total Liabilities 88,844
-------------
Excess of Other Assets over Total Liabilities (14,907)
-------------
Net Assets (16,052,332 Units of Fractional Undivided
Interest Outstanding, $0.77 per Unit) $ 12,421,787
=============
The accompanying notes form an integral part of the financial statements.
Mortgage Securities Trust, CMO Series 12 Intermediate
Statement of Operations
--------------------------------------------------------------------------------
[Enlarge/Download Table]
For the Years Ended December 31,
1996 1995 1994
Investment Income
Interest $ 929,507 $1,049,206 $1,146,619
----------- ---------- ----------
Expenses
Trustee's Fees 11,045 30,819 26,999
Evaluator's Fees 3,820 1,621 ----
Sponser's Advisory Fee 3,483 ---- ----
----------- ---------- ----------
Total Expenses 18,348 32,440 26,999
----------- ---------- ----------
Net Investment Income 911,159 1,016,766 1,119,620
----------- ---------- ----------
Realized and Unrealized Gain (Loss)
Realized (Loss) on
Investments (32,284) (37,914) (112,830)
Change in Unrealized Appreciation
(Depreciation) on Investments (407,178) 1,808,233 (1,558,615)
----------- ---------- ----------
Net Gain (Loss) on Investments (439,462) 1,770,319 (1,671,445)
----------- ---------- ----------
Net Increase (Decrease)
in Net Assets
Resulting From Operations $ 471,697 $2,787,085 $ (551,825)
=========== ========== ===========
The accompanying notes form an integral part of the financial statements.
Mortgage Securities Trust, CMO Series 12 Intermediate
Statement of Changes in Net Assets
--------------------------------------------------------------------------------
[Enlarge/Download Table]
For the Years Ended December 31,
1996 1995 1994
Operations
Net Investment Income $ 911,159 $ 1,016,766 $ 1,119,620
Realized (Loss)
on Investments (32,284) (37,914) (112,830)
Change in Unrealized Appreciation
(Depreciation) on Investments (407,178) 1,808,233 (1,558,615)
----------- ------------ ------------
Net Increase (Decrease) in
Net Assets Resulting
From Operations 471,697 2,787,085 (551,825)
----------- ------------ ------------
Distributions to Certificateholders
Investment Income 911,637 1,026,883 1,138,194
Principal 188,930 30,048 3,625,968
Redemptions
Interest 9,230 21,337 5,437
Principal 975,335 1,990,833 413,003
----------- ------------ ------------
Total Distributions
and Redemptions 2,085,132 3,069,101 5,182,602
----------- ------------ ------------
Total (Decrease) (1,613,435) (282,016) (5,734,427)
Net Assets
Beginning of Year 14,035,222 14,317,238 20,051,665
----------- ------------ ------------
End of Year (Including
Undistributed Net Investment
Income of $138,336, $148,044
and $179,498, Respectively) $12,421,787 $14,035,222 $14,317,238
=========== ============ ============
The accompanying notes form an integral part of the financial statements.
Mortgage Securities Trust, CMO Series 12 Intermediate
Notes to Financial Statements
--------------------------------------------------------------------------------
1. Organization
Mortgage Securities Trust, CMO Series 12 Intermediate (the "Trust") was
organized on February 10, 1993 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. The Trust was
formed to preserve capital and to provide interest income.
Effective September 28, 1995, Reich & Tang Distributors L.P. ("Reich &
Tang") has become the successor sponsor (the "Sponsor") to certain of
the unit investment trusts previously sponsored by Bear, Stearns & Co.
Inc. As successor Sponsor, Reich & Tang has assumed all of the
obligations and rights of Bear, Stearns & Co. Inc., the previous
sponsor. Effective September 2, 1995, United States Trust Company of
New York was merged into The Chase Manhattan Bank (the "Trustee").
Accordingly, Chase is the successor trustee of the Trust.
2. Summary of Significant Accounting Policies
The following is a summary of significant accounting policies
consistently followed by the Trust in preparation of its financial
statements. The policies are in conformity with generally accepted
accounting principles ("GAAP"). The preparation of financial statements
in accordance with GAAP requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the
financial statements. Actual amounts could differ from those estimates.
Interest income is recorded on the accrual basis.
Security Valuation
Investments are carried at market value which is determined by Kenny
S&P Evaluation Services, a business unit of J.J. Kenny Company, Inc., a
subsidiary of The McGraw-Hill Companies, Inc. The market value of the
portfolio is based upon the bid prices for the securities at the end of
the year, which approximates the fair value of the security at that
date, except that the market value on the date of deposit represents
the cost to the Trust based on the offering prices for investments at
that date. The difference between cost 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.
Mortgage Securities Trust, CMO Series 12 Intermediate
Notes to Financial Statements
--------------------------------------------------------------------------------
3. Income Taxes
No provision for federal income taxes has been made in the accompanying
financial statements because the Trust intends to continue to qualify
for the tax treatment applicable to Grantor Trusts under the Internal
Revenue Code. Under existing law, if the Trust so qualifies, it will
not be subject to federal income tax on net income and capital gains
that are distributed to unitholders.
4. Trust Administration
The Trustee has custody of assets and responsibility for the accounting
records and financial statements of the Trust and is responsible for
establishing and maintaining a system of internal control related
thereto. The Trustee is also responsible for all estimates of expenses
and accruals reflected in the Trust's financial statements.
The Trust Indenture and Agreement provides for interest distributions
on a monthly basis.
The Trust Indenture and Agreement further requires that principal
received from the disposition of securities, other than those
securities sold in connection with the redemption of units, be
distributed to Certificateholders.
The Trust Indenture and Agreement also requires the Trust to redeem
units tendered. For the years ended December 31, 1996, 1995 and 1994,
1,263,926, 2,592,851 and 540,233 units were redeemed, respectively.
The Trust pays an annual fee for trustee services rendered by the
Trustee of $.84 per $1,000 of outstanding investment principal. In
addition, a fee of $7.00 is paid to a service bureau for each portfolio
valuation. A maximum fee of $.25 per $1,000 of outstanding investment
principal is paid to the Sponsor. For the year ended December 31, 1996,
the "Trustee's Fees" are comprised of Trustee fees of $10,553 and other
expenses of $492. The other expenses include professional, printing and
miscellaneous fees.
Mortgage Securities Trust, CMO Series 12 Intermediate
Notes to Financial Statements
--------------------------------------------------------------------------------
5. Net Assets
At December 31, 1996, the net assets of the Trust represented the
interest of Certificateholders as follows:
Original cost to Certificateholders $ 20,449,342
Less Initial Gross Underwriting Commission 869,097
---------------
19,580,245
Accumulated Cost of Securities Sold
or Called (7,253,901)
Net Unrealized Appreciation 110,350
Undistributed Net Investment Income 138,336
Undistributed Proceeds From Investments (153,243)
---------------
Total $ 12,421,787
===============
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 20,449,342 units
of fractional undivided interest of the Trust as of the date of
deposit.
Mortgage Securities Trust, CMO Series 12 Intermediate
Notes to Financial Statements
--------------------------------------------------------------------------------
6. Financial Highlights (per unit)*
Selected data for a unit of the Trust outstanding for the year ended
December 31, 1996:
Net Asset Value, Beginning of Year** $ .81
---------------
Interest Income .06
Expenses (.00)
---------------
Net Investment Income .06
---------------
Net Gain or Loss on Investments(1) (.04)
---------------
Total from Investment Operations .02
---------------
Less Distributions
to Certificateholders
Income .05
Principal .01
for Redemptions
Interest .00
---------------
Total Distributions .06
---------------
Net Asset Value, End of Year** $ .77
===============
See "Financial and Statistical Information" in Part A of this
Prospectus for amounts of per unit distributions during the years ended
December 31, 1996, 1995 and 1994 based on actual units.
(1) Net gain or loss on investments is a result of changes in outstanding
units since January 1, 1996 and the dates of net gain and loss on
investments.
--------
* Unless otherwise stated, based upon average units outstanding during
the year of 16,684,295 ([16,052,332 + 17,316,258]/2).
** Based upon actual units outstanding.
Prospectus Part A Dated April 30, 1997
MORTGAGE SECURITIES TRUST
CMO SERIES 15
The Trust consists of 1 unit investment trust designated
Mortgage Series Trust, CMO Series 15 Intermediate Portfolio (the "Trust"). The
Trust consists of an underlying portfolio of collateralized mortgage obligations
("CMOs" or "Securities") and was formed to obtain safety of capital and provide
a high level of current distributions of interest income. The Trust seeks to
obtain a higher yield than fixed income investments with comparable AAA ratings.
An investment in the Trust entails differing degrees of risk. The Trust seeks to
achieve its objectives through investment in a fixed portfolio of CMOs which may
have been issued as debt obligations of a trust or corporation or which may
represent certificated interests of beneficial ownership in pools of
mortgage-backed securities. All of the CMOs in the portfolio are backed by
underlying mortgage-backed securities which are pledged as collateral to secure
payment of principal and interest on the CMOs. Each of these underlying
mortgage-backed securities is guaranteed as to the payment of principal and
interest by the Government National Mortgage Association ("GNMA"), the Federal
National Mortgage Association ("FNMA") or the Federal Home Loan Mortgage
Corporation ("FHLMC"). All of the CMOs in the Trust are issued by GNMA, FNMA or
FHLMC or are otherwise rated AAA by Standard & Poor's and, therefore, the Units
of the Trust are rated AAA by Standard & Poor's Corporation. The Units of the
Trust are not, however, guaranteed by GNMA, FNMA, FHLMC, the United States or
any of its agencies. The full faith and credit of the United States is pledged
to the payment of all amounts guaranteed by GNMA. However, payments guaranteed
by FNMA and FHLMC are not guaranteed by the United States and neither the CMOs
in the Trust nor any underlying Fannie Maes or Freddie Macs constitute a debt
obligation of the United States or any of its agencies. The Sponsor is Reich &
Tang Distributors L.P. The value of the Units will fluctuate with the value of
the CMOs in the portfolio. Both the Estimated Current Return and the Estimated
Long Term Return are subject to fluctuations with changes in portfolio
composition, principal payments and prepayments, changes in the market value of
the CMOs in the portfolios and changes in fees and expenses. Minimum purchase:
1,000 Units.
-------------------------------------------------------------------------------
This Prospectus consists of two parts. Part A contains the
Summary of Essential Information, including descriptive material relating to the
Trust as of December 31, 1996 (the "Evaluation Date"), a summary of certain
specific information regarding the Trust and audited financial statements of the
Trust, including the Portfolio as of the Evaluation Date. Part B of this
Prospectus contains general information about the Trust. Part A of this
Prospectus may not be distributed unless accompanied by Part B. Investors should
read and retain both parts of this Prospectus for future reference.
-------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
267690.1
THE TRUST. A CMO is a multiclass bond backed by a pool of
mortgage pass-through securities or mortgage loans. CMOs are also known as "real
estate mortgage investment conduits" (REMICs). As a result of the 1986 Tax
Reform Act, most CMOs are issued in REMIC form to create a certain tax advantage
for the issuer. The terms CMO and REMIC are used interchangeably. The Trust
seeks to obtain a higher yield than fixed income investments with comparable AAA
ratings. An investment in the Trust entails differing degrees of risk.
The Trust will invest primarily in planned amortization or
target amortization classes of CMOs. Such classes of CMOs receive payments of
principal according to a planned schedule to the extent that prepayments on the
underlying mortgage-backed securities occur within a broad time period. The
principal is reduced only in specified amounts at specified times resulting in
greater predictability of principal payments for the planned amortization bonds
or targeted amortization bonds. For a discussion on planned amortization bonds
or targeted amortization bonds see "The Trust-- Description of the Portfolio"
and "The Trust--CMO Structure" in this Part A and "The Trust--The
Securities--Planned Amortization or Targeted Amortization Bonds and Support
Bonds" in Part B of this Prospectus. The Intermediate Portfolio may also invest
in other types of CMOs described above and in "The Trust--The Securities" in
Part B of this Prospectus.
All of the CMOs in the Trust are backed by underlying
mortgage-backed securities which are pledged as collateral to secure payment of
principal and interest on the CMOs. Each of these mortgage-backed securities is
guaranteed as to the payment of principal and interest by either the Government
National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA") or the Federal Home Loan Mortgage Corporation ("FHLMC").
All of the CMOs in the Trust are issued by GNMA, FNMA or FHLMC or are otherwise
rated AAA by Standard & Poor's Corporation ("Standard & Poor's") and therefore,
the Units of the Trust are rated AAA by Standard & Poor's. There can be no
assurance that the Trust's investment objectives can be achieved. Investments in
the Trust should be made with an understanding of the risks inherent in an
investment in CMOs. (See "The Trust--Risk Considerations" in this Part A.) Each
Unit of the Trust represents an undivided interest in the principal and net
income of that Trust in the ratio of one thousand Units for the indicated
principal amount of Securities in that Trust. (See "The Trust--Organization" in
Part B of this Prospectus.) (For the specific number of Units in the Trust, see
"Summary of Essential Information" in this Part A.)
Generally, CMOs are designed to provide a substantial degree
of prepayment and reinvestment risk protection as compared to other mortgage
related securities. The CMOs may have been issued as debt obligations of a trust
or corporation or as certificated interests representing beneficial ownership in
a pool of mortgage-backed securities (See "The Trust--The Securities" in Part B
of this Prospectus for further description and examples) which trust,
corporation or pool may have been established for the sole purpose of issuing
CMOs by any of GNMA, FNMA or FHLMC or by a private business organization. Such
private business organizations are typically single-purpose corporations
established by mortgage-banking institutions for the sole purpose of issuing
CMOs. Any CMOs in the Trust that have been issued by private business
organizations have been rated AAA by Standard & Poor's. The sole assets of the
issuers of the CMOs are the underlying mortgage-backed securities. If the
collateral securing the Securities of these issuers is insufficient to make
payments on those Securities, it is unlikely that any other assets of these
issuers will be available for payment of the deficiency. The underlying
mortgage-backed securities which are pledged as collateral to secure the payment
of principal and interest on the CMOs may be (i) "fully modified pass-through"
mortgage-backed certificates, guaranteed by GNMA ("Ginnie Maes"), (ii) mortgage
pass-through certificates guaranteed by FNMA
A-2
267690.1
("Fannie Maes") or (iii) mortgage participation certificates guaranteed by FHLMC
("Freddie Macs"). The full faith and credit of the United States is pledged to
the payment of all amounts guaranteed by GNMA. However, payments guaranteed by
FNMA and FHLMC are not guaranteed by the United States and neither the CMOs in
the Trust nor any underlying Fannie Maes or Freddie Macs constitute a debt or
obligation of the United States or any of its agencies. The Units of the Trust,
as such, are not guaranteed by any of GNMA, FNMA, FHLMC, the United States or
any of its agencies. Additionally, CMOs that are issued by GNMA, FNMA or FHLMC
or by any entity established by GNMA, FNMA or FHLMC are guaranteed as to payment
of principal and interest by GNMA, FNMA or FHLMC, respectively. The guaranty
obligations of GNMA with respect to any Ginnie Maes or any CMOs are supported by
the full faith and credit of the United States. However, the guaranty of
obligations of FNMA and FHLMC with respect to any Fannie Maes or Freddie Macs or
any CMOs are obligations of FNMA and FHLMC only (limited by their respective
credit capabilities) and are not supported by the full faith and credit of the
United States or any other governmental entity.
CMO Structure. CMOs are generally issued as a series of
different classes. An issue of CMOs generally is backed by a larger number of
mortgages than a pool of Ginnie Maes, Fannie Maes or Freddie Macs, thus allowing
greater statistical prediction of prepayment characteristics. Interest and
principal payments on the mortgages underlying any series will first be applied
to meet the interest payment requirements of each class in the series other than
any class in respect of which interest accrues but is not paid or any "principal
only" class. Principal payments on the underlying mortgages are thereafter
generally applied to pay the principal amount of the class that has the earliest
maturity date. Once that class is retired, the principal payments on the
underlying mortgages are applied to the class with the next earliest maturity
date. This is repeated until all classes are paid. Therefore, while each class
of CMOs remains subject to prepayment as the underlying mortgages prepay,
structuring several classes of CMOs in the stream of principal payments allows a
more predictable estimate of the period of time when any one class is likely to
be repaid. The estimate can be even closer with a class of planned amortization
bonds or targeted amortization bonds. The amortization schedule for these CMOs
is structured so that, at specified prepayment rates within a range, their
principal will be repaid at specified times and in specified amounts. However,
if any series of CMOs contains a class of planned amortization bonds or targeted
amortization bonds, then the other classes in that series may not be retired in
an order of priority determined strictly with reference to their maturity dates.
These other classes are often referred to as "support classes"
because their function is to support the amortization schedule of the planned
amortization bonds or targeted amortization bonds. If the rate of prepayment on
the underlying mortgages is faster than assumed, then classes with maturity
dates later than the planned amortization bonds or targeted amortization bonds
may be retired earlier than estimated to ensure that the planned amortization
bonds or targeted amortization bonds receive the principal payments required by
their amortization schedule. Similarly, if the rate of prepayments is slower
than anticipated, then earlier support classes may be retired later than
estimated. Hence, support classes of a series that contains planned amortization
bonds or targeted amortization bonds have less predictable prepayment
characteristics than classes of a series that does not. This lack of
predictability regarding prepayments also causes support class bonds to have
greater market value fluctuation than other classes of a CMO and causes
fluctuation, which may be substantial, both in the amount of income earned by
the Trust and in the timing of the Trust's principal distributions. This
fluctuation may adversely affect the repurchase and redemption prices of Units
of the Trust. (See "Description of the Portfolio" in this Part A for the number
of planned amortization bonds, targeted amortization bonds or support class
bonds in the Trust portfolios.) The rate of prepayment on the
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underlying mortgages of a CMO will most likely decline as interest rates
increase. If the rate of prepayment declines, the weighted average life of the
support class bonds will most likely increase and, in some cases, the decline
will impact the yield and market value of these Securities. This may cause an
investor's principal in a support class bond to be outstanding for a longer
period of time than initially anticipated. Conversely, if interest rates
decline, prepayments on the underlying mortgages will most likely increase, and
the weighted average life of the support class bonds may be shorter than
anticipated. A holder of a support class bond in these situations may be unable
to reinvest the proceeds of these principal distributions at an effective
interest rate equal to the specified coupon rate on the original support class
bond. Therefore, an investor expecting to earn a fixed return for a fixed number
of years may find the life of a support class investment decreases as interest
rates fall and increases as they rise. Investors should be aware that the
Federal Financial Institutions Examination Council recently announced that
certain high-risk CMO tranches are generally not suitable investments for
depository institutions. Support class bonds such as those in the Trust would be
characterized as high-risk CMO tranches and, therefore, not suitable for
depository institutions. Investors should carefully consider all the risks
inherent in an investment in support class bonds before investing in the Trust.
Some of the CMOs in the Trust may be either a class of
Guaranteed REMIC Certificates ("REMIC Certificate") issued by FNMA or a class of
REMIC Certificates issued by FHLMC. A FNMA REMIC Certificate represents a
beneficial ownership interest in a certain class of a FNMA REMIC Trust
consisting of Fannie Maes, each of which in turn represents a beneficial
interest in a pool of first lien, single-family, fixed-rate residential mortgage
loans. FNMA REMIC Certificates are issued pursuant to trust agreements executed
by FNMA in both its corporate capacity and its capacity as trustee. A FNMA REMIC
Certificate evidences a beneficial ownership interest in the distribution of
principal and interest on the underlying Fannie Maes, subject to certain limits
and in an order of distribution established for the particular FNMA REMIC Trust.
Each FNMA REMIC Certificate is backed by the guaranty obligation of FNMA to
distribute on a timely basis required installments of principal and interest and
to distribute the principal balance of the FNMA REMIC Certificate in full no
later than an established final distribution date, notwithstanding insufficiency
of funds from the underlying Fannie Maes. A FHLMC REMIC Certificate represents a
beneficial ownership interest in a certain class of a pool of Freddie Macs, each
of which in turn represents undivided interests in discrete pools of fixed-rate,
first lien, residential mortgages or participations therein purchased by FHLMC.
FHLMC REMIC Certificates are issued pursuant to multiclass mortgage
participation certificate agreements executed by FHLMC. A FHLMC REMIC
Certificate evidences a beneficial ownership interest in the distributions of
principal and interest on the underlying Freddie Macs, subject to certain limits
and in an order of distribution established for the particular FHLMC REMIC pool.
Each FHLMC REMIC Certificate is backed by the guaranty obligation of FHLMC to
distribute required interest payments on a timely basis and to distribute
required principal payments as principal payments on the underlying Freddie Macs
are required to be made. Except with respect to certain issues of "Gold" PCs,
FHLMC generally does not guarantee timely payment of principal but does
guarantee ultimate payment. Both FNMA REMIC Certificates and FHLMC REMIC
Certificates pay interest monthly. (See "The Trust--The Securities" in Part B of
this Prospectus for a description of FHLMC Gold PCs.)
If FNMA or FHLMC were unable to fulfill its guarantees,
distributions to holders of REMIC Certificates such as the Trusts would
consist solely of payments and other recoveries upon the mortgages underlying
the pledged Fannie Maes or Freddie Macs, respectively, and, accordingly,
delinquencies and defaults would diminish distributions to the holders. (See
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"Description of the Portfolio" in this Part A for the number of FNMA REMIC
Certificates and FHLMC REMIC Certificates in the Trust's portfolio.)
Some of the CMOs in the Trust may be a class of compound
interest bonds or principal only bonds. Interest on compound interest bonds is
accrued and is added to principal. Such interest is not paid until all classes
of CMOs issued in the same series with earlier final distributions dates are
paid in full. Principal only bonds entitle the holder to no payments of interest
but the holder will receive cash flow from the amortization of principal and
prepayments. Both compound interest bonds and principal only bonds sell at a
deep discount from par. The Sponsor believes that a portfolio with a limited
amount of compound interest bonds and principal only bonds will assist the Trust
in achieving its objective of preserving capital. Since the principal only bond
will accrue to par if held to maturity, the holder of such a bond would receive
a full return of his or her initial investment upon maturity of the bond. In
addition, compound interest bonds also assist in the preservation of capital as
interest which accrues on these bonds is added to principal. (See "Description
of the Portfolio" in this Part A for the amount of Securities in the Trust that
is a class of compound interest bonds or principal only bonds.)
Risk Considerations. An investment in Units of the Trust
should be made with an understanding of risks which an investment in fixed rate
CMOs may entail, including the risk that the value of the portfolio and, hence,
the value of the Units will decline with increases in interest rates and that
the life of the CMOs in the portfolio depends on the actual prepayments received
on the underlying mortgage-backed securities, the timing of which cannot be
determined but which may be sooner or later than anticipated, especially if
interest rates decline. Mortgage prepayment rates are likely to fluctuate
significantly from time to time as they have in recent years and at a rate
faster or slower than that initially assumed. The rate of prepayments depends on
a variety of geographic, social and other functions, including prevailing market
interest rates and general economic factors. The potential for appreciation,
which could otherwise be expected to result from a decline in interest rates,
may be limited by any increased prepayments by mortgagors. Investors should also
note that prepayments of principal on CMOs purchased at a premium over par will
result in some loss on investment while prepayments on CMOs purchased at a
discount from par will result in some gain on investment. Also, if interest
rates rise, the prepayment risk of higher yielding, premium CMOs and the
prepayment benefit for lower yielding, discount CMOs will be reduced. (See "The
Trust--Life of the Securities and of the Trust" in Part B of this Prospectus.)
In addition, a number of factors, including the extent of prepayments of
principal on the underlying mortgage-backed securities, affect the availability
of funds for payment of principal of bonds on any payment date and, therefore,
the timing of principal payments on each class of such bonds.
While all of the mortgage-backed securities underlying each of
the CMOs in the Trust are guaranteed as to the payment of principal and interest
by GNMA, FNMA or FHLMC, the CMOs in the Trust represent obligations solely of
the issuers of those CMOs and are not themselves insured or guaranteed by GNMA,
FNMA or FHLMC, or any other governmental agency. If a default were to occur with
respect to any of the CMOs, there can be no assurance that the collateral
securing such bonds would be sufficient to pay the principal and interest then
due.
CMOs are generally not listed on a national securities
exchange or on the National Association of Securities Dealers Automated
Quotation System, Inc. Whether or not CMOs are listed on a national securities
exchange, the principal trading market for the CMOs will generally be in the
over-the-counter market. As a result the existence of a liquid trading market
for CMOs may depend on whether dealers will make a market in CMOs. There can be
no
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assurance that a market will be made for any of the CMOs in the Trust, that any
market for the CMOs in the Trust's portfolios will be maintained or of the
liquidity of the CMOs in the Trust in any markets made. The price at which the
CMOs in the Trust may be sold to meet redemptions and the value of the Trust
will be adversely affected if trading markets for the CMOs in the Trust are
limited or absent. (See "The Trust--Liquidity" in Part B of this Prospectus.) In
addition, the Trust may be restricted under the Investment Company Act of 1940
from selling securities to the Sponsor. However, taking into account the
foregoing and other factors, the Sponsor believes that the nature of the GNMA,
FNMA or FHLMC guarantees of any securities that have been issued by them,
respectively, and the nature of the Ginnie Maes, Fannie Maes or Freddie Macs
securities payments of principal and interest due on the Securities make the
Securities adequately marketable for purposes of redemptions of Units by the
Trustee (see "Redemption" in Part B of this Prospectus).
Investors should note that all of the CMOs in the Trust have
been issued by trusts, corporations or other entities that have elected to be
treated as Real Estate Mortgage Investment Conduits ("REMICs"). As such,
Certificateholders will be required to include in income their respective pro
rata share of interest on each Security (whether or not the Security has
original issue discount) as interest accrues, whether or not the
Certificateholder is an accrual method taxpayer. (See "Tax Status" in Part B of
this Prospectus.)
The principal amount of Securities actually deposited in the
Trust is affected by the prepayment estimate or factor for each CMO. If the
prepayment estimate or factor is adjusted because the level of actual
prepayments increases with respect to a particular CMO prior to the settlement
date of the Securities, the actual principal amount of Securities deposited in a
Trust may be less than the amount noted above and the excess of any cash
returned to that Trust as a result of these prepayments will be held in the
Trust's principal account. Cash balances maintained in the principal account do
not generate income for the Trusts.
Educational material regarding CMOs is available upon request,
from the Sponsor.
PUBLIC OFFERING PRICE. The secondary market Public Offering
Price per 1,000 Units of the Trust is equal to the aggregate bid side evaluation
of the underlying Securities in the Trust divided by the number of Units
outstanding times 1,000, plus a sales charge of 3.5% of the Public Offering
Price per 1,000 Units or 3.627% of the net amount invested in Securities per
1,000 Units of the Trust. In addition, accrued interest to the expected date of
settlement is added to the Public Offering Price. If the Units of the
Intermediate Portfolio had been purchased on the Evaluation Date, the Public
Offering Price per 1,000 Units would have been $1,004.77 plus accrued interest
of $5.61, for a total of $1,010.38. The Public Offering Price per 1,000 Units
may vary on a daily basis in accordance with the fluctuations in the aggregate
bid price of the Bonds. (See "Public Offering" in Part B of this Prospectus.)
The figures above assume a purchase of 1,000 Units. The price
of a single Unit, or any multiple thereof, is calculated by dividing the
secondary market Public Offering Price per 1,000 Units by 1,000 and multiplying
by the number of Units.
DISTRIBUTIONS. Distributions of principal and interest income,
less expenses, will be made by the Trust monthly on the 20th of each month. (See
"Rights of Certificateholders--Interest and Principal Distributions" in Part B
of this Prospectus. For the estimated amount of distributions see "Summary of
Essential Information" for the Trust in this Part A.)
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ESTIMATED LONG TERM RETURN AND ESTIMATED CURRENT RETURN.
Estimated Long Term Return for the Trust is calculated by: (1) computing the
yield to maturity for each CMO in the Trust's portfolio in accordance with
accepted CMO practices, which practices take into account not only the interest
payable on the CMO but also the amortization of premiums or accretion of
discounts, if any, and estimates of projected prepayments; (2) calculating the
average of the yields for the CMOs in the Trust's portfolio by weighing each
CMO's yield by the market value of the CMO and by the amount of time remaining
to the date to which the CMO is priced (thus creating an average yield for the
portfolio of the Trust); and (3) reducing the average yield for the portfolio of
the Trust in order to reflect estimated fees and expenses of the Trust and the
maximum sales charge paid by Certificateholders. The resulting Estimated Long
Term Return represents a measure of the return to Certificateholders earned over
the estimated life of the Trust. (For the Estimated Long Term Return to
Certificateholders, see "Summary of Essential Information" for the Trust. See
"Estimated Long Term Return and Estimated Current Return" in Part B of this
Prospectus.)
Estimated Current Return for the Trust is computed by dividing
the Estimated Net Annual Interest Income per 1,000 Units by the Public Offering
Price per 1,000 Units. In contrast to the Estimated Long Term Return, the
Estimated Current Return does not take into account estimates of prepayments or
the amortization of premium or accretion of discount, if any, on the CMOs in the
portfolio of the Trust. For the Estimated Net Annual Interest Income to
Certificateholders, see "Summary of Essential Information" in Part A.
If the CMOs in the Trust are priced at a discount, the
Estimated Current Return will generally be lower relative to the Estimated Long
Term Return, whereas if the CMOs are priced at a premium, the Estimated Current
Return will generally be higher relative to the Estimated Long Term Return. This
is because Estimated Current Return reflects primarily the interest rate on the
CMOs, while Estimated Long Term Return reflects yield and timing of principal
payments, and thus increases when the principal returned is greater than the
price paid for the CMOs (discount) and decreases when the principal returned is
lower than the price paid (premium). Estimated Long Term Return is calculated
using an estimated average life for the CMOs in the Trust. Estimated average
life is an essential factor in the calculation of Estimated Long Term Return.
When a particular Trust has a shorter average life than is estimated, Estimated
Long Term Return will be higher if the Trust contains CMOs priced at a discount
and lower if the CMOs are priced at a premium. Conversely, when a particular
Trust has a longer average life than is estimated, Estimated Long Term Return
will be lower if the CMOs are priced at a discount and higher if the CMOs are
priced at a premium. To calculate estimated average life several assumptions are
made to derive an estimated prepayment rate for the mortgages underlying the
Ginnie Maes, Fannie Maes or Freddie Macs that may back the CMOs in the
Portfolio; the calculation of estimated prepayment rates is based upon actual
recent prepayments and analysis of several factors including, among other
things, the spread between present market interest rates and the rate on the
mortgages and the housing environment. The estimated prepayment rate that is
derived is then applied to retire the principal amount of each CMO class of the
same series as each CMO in the Trust, including those CMOs in the Trust,
according to the specific principal reduction schedule of each series. For a
more detailed explanation of the calculation of estimated average life, see
"Estimated Long Term Return and Estimated Current Return" in Part B of this
Prospectus. The estimated average life for the Trust is subject to change with
alterations in the data used in any of the underlying assumptions. The actual
average lives of the CMOs in the Trust portfolio and the actual long term
returns will be different from the estimated average lives and the estimated
long term returns.
The Estimated Net Annual Interest Income per 1,000 Units of
the Trust will vary with changes in the fees and expenses of the Trustee and the
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Evaluator applicable to the Trust and with the redemption, prepayment, maturity,
sale or other disposition of the CMOs in the Trust. The Secondary Market Public
Offering Price will vary with changes in the bid prices of the CMOs. Therefore,
there is no assurance that the present Estimated Current Return or Estimated
Long Term Return will be realized in the future.
Market for Units. The Sponsor, although not obligated to do
so, intends to maintain a secondary market for the Units at prices based on the
aggregate bid side evaluation of the Securities in the Trust. The reoffer price
will be based on the aggregate bid side evaluation of the Securities, divided by
the number of Units outstanding times 1,000, plus a sales charge of 3.5% (3.627%
of the net amount invested), plus net accrued interest for the Intermediate
Portfolio. If a market is not maintained a Certificateholder will be able to
redeem his or her Units with the Trustee at a price based on the aggregate bid
side evaluation of the Securities. (See "Sponsor Repurchase" in Part B of this
Prospectus.)
Total Reinvestment Plan. Distributions from the Trust are made
to Certificateholders monthly. The Certificateholder has the option, however, of
either receiving his interest check, together with any principal payments, from
the Trustee or participating in a reinvestment program offered by the Sponsor in
shares of The Treasurer's Fund, Inc., U.S. Treasury Money Market Portfolio (the
"Fund"). Gabelli-O'Connor Fixed Income Mutual Funds Management Co. serves as the
investment advisor of the Fund and GOC Fund Distributors, Inc. serves as
distributor for the Fund. Participation in the reinvestment option is
conditioned on the Fund's lawful qualification for sale in the state in which
the Certificateholder is a resident. The Plan is not designed to be a complete
investment program. See "Total Reinvestment Plan" in Part B of this Prospectus.
The shares of the Fund are not rated by Standard & Poor's.
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MORTGAGE SECURITIES TRUST
CMO SERIES 15, INTERMEDIATE PORTFOLIO
SUMMARY OF ESSENTIAL INFORMATION AS OF DECEMBER 31, 1996
[Download Table]
Date of Deposit:* March 30, 1994 Evaluation Time: 4.00 p.m.
Principal Amount of New York Time.
Securities ................ $8,785,000 Minimum Principal Distribution:
Principal Amount of Secu- $1 per 1,000 Units.
rities per 1,000 Units..... $1,003.81 Weighted Average Life to
Number of Units ............. 8,751,666 Maturity: 6.6 years
Fractional Undivided Inter- Minimum Value of Trust:
est in Trust per Unit ..... 1/8751666 Trust may be terminated if
Secondary Market Public less than $4,000,000 in
Offering Price**+ principal amount of
Aggregate Bid Price of Securities.
Securities in Trust ..... $8,431,984 Mandatory Termination Date:
Divided by 8,751,666 Units The earlier of December 31,
times $1,000 ............ $963.47 2044 or the disposition of the
Plus Sales Charge of 3.5% last Security in the Trust.
of Public Offering Price $41.30 Trustee: The Chase Manhattan
Public Offering Price Bank.
per 1,000 Units.......... $1,004.77 Trustee's Annual Fee: $.84 per
Redemption and Sponsor's $1,000.
Repurchase Price Evaluator: Kenny S&P
per 1,000 Units+ .......... $963.47+++# Evaluation Services.
Excess of Public Offering Evaluator's Fee for Each
Price over Redemption and Evaluation: $7 per
Sponsor's Repurchase Price evaluation.
per 1,000 Units#........... $41.30 Sponsor: Reich & Tang
Difference between Public Distributors L.P.
Offering Price per 1,000 Sponsor's Annual Fee: Maximum
Units and Principal of $.25 per $1,000 principal
Amount per 1,000 Units amount of Securities (see
Premium/(Discount)......... $.96 "Trust Expense and Charges"
in Part B of this Prospectus).
PER 1,000 UNIT INFORMATION
Gross annual interest income (cash)............................. $67.57
Less estimated annual fees and expenses......................... 1.63
Estimated net annual interest income (cash)..................... 65.94
Estimated interest distribution................................. 5.49
Estimated daily interest accrual................................ .18
Estimated current return++(1)................................... 6.56%
Estimated long term return++(1)................................. 7.03%
Record dates.................................................... 1st of
each month
Interest distribution dates..................................... 20th of
each month
* The Date of Deposit is the date on which the Trust Agreement was signed
and the deposit of the Bonds with the Trustee made.
** Per 1,000 Units.
+ Plus accrued interest.
++ The estimated current return and estimated long term return are
increased for transactions entitled to a discount (see "Volume and
Other Discounts" in Part B of this Prospectus).
+++ Based solely upon the bid side evaluation of the underlying Securities.
Upon tender for redemption, the price to be paid will be calculated as
described under "Trustee Redemption" in Part B of this Prospectus.
# See "Comparison of Public Offering Price, Sponsor's Repurchase Price
and Redemption Price" in Part B of this Prospectus.
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267690.1
Additional Footnotes to Summary of Essential Information
(1) Estimated current return represents annual interest income after
estimated annual expenses divided by the Public Offering Price,
including a 3.5% maximum sales charge. Estimated long term return is
the net annual percentage return based on the yield on each underlying
Security in the Trust weighted to reflect market value and estimated
average life. The estimated weighted average life to maturity of the
Trust is an estimate based upon various assumptions discussed more
fully under "Estimated Long Term Return and Estimated Current Return"
in Part B of this Prospectus. Estimated long term return is adjusted
for estimated expenses and the maximum public offering price but not
for delays in the Trust's distribution of income. Estimated current
return shows current annual cash return to investors while estimated
long term return shows the return on Units held to estimated average
life, reflecting prepayments of principal, maturities, discounts and
premiums on underlying Securities. Actual returns will vary with
purchase price, payments and prepayments of principal on the
underlying Ginnie Maes, Fannie Maes or Freddie Macs which back the
Securities, and changes in Trust income after expenses. These returns
do not include the effects of any delay in payments to Unitholders and
a calculation which includes those effects would be lower. See
"Estimated Long Term Return and Estimated Current Return" in Part B of
this Prospectus.
FINANCIAL AND STATISTICAL INFORMATION
Selected data for each Unit of the Trust outstanding for the periods listed
below:
[Enlarge/Download Table]
Distribu-
tions of
Principal
Distributions During
Net Asset* of Interest the
Value During the Period
Units Out- Per 1,000 Period (per (Per 1,000
Period Ended standing Units 1,000 Units) Units)
------------ ---------- --------- ------------ --------
INTERMEDIATE PORTFOLIO
December 31, 1994 10,000,000 $ 880.00 $39.04 -0-
December 31, 1995 9,687,683 1,019.28 65.40 -0-
December 31, 1996 8,751,666 979.03 65.60 -0-
------------------
* Net Asset Value per 1,000 Units is calculated by dividing net assets as
disclosed in the "Statement of Net Assets" by the number of Units
outstanding as of the date of the Statement of Net Assets. See Note 5 of
Notes to Financial Statements for a description of the components of Net
Assets.
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INFORMATION REGARDING THE TRUSTS
AS OF DECEMBER 31, 1996
Description of the Portfolio*
The Trust consists of 4 issues of CMOs. The Sponsor has not
participated as a sole underwriter or manager, co-manager or member of an
underwriting syndicate from which any of the initial aggregate principal amount
of the CMOs in the Portfolio were acquired. None of the CMOs have been issued by
entities created by GNMA, approximately 77.2% of the aggregate principal amount
of the CMOs in the Portfolio have been issued by entities created by FNMA,
approximately 22.8% of the aggregate principal amount of the CMOs in the
Portfolio have been issued by entities created by FHLMC and none have been
issued by private issuers. All of the CMOs in the Trust have been issued by
trusts, corporations or other entities that have elected to be treated as Real
Estate Mortgage Investment Conduits. The CMOs in the Trust have stated final
distribution dates ranging from October 15, 2013 through April 25, 2022 and
estimated average lives (based upon estimated prepayment rates) ranging from
5.37 to 8.97 years.
$5,890,000 of the principal amount of the Securities deposited in
the Trust are planned amortization bonds or targeted amortization bonds. None of
the principal amount of the Securities are support class bonds that are part of
a series that contains planned amortization bonds or targeted amortization
bonds. $6,785,000 of the principal amount of the Securities initially deposited
in the Trust are FNMA REMIC Certificates. None of the principal amount of the
Securities initially deposited in the Trust are a class of compound interest
bonds or principal only bonds.
As of December 31, 1996, 77.2% of the aggregate principal amount of
the Securities in the Trust were acquired at a discount from par, 22.8% of the
Securities in the Trust were acquired at a premium and none were acquired at
par. A Certificateholder may receive more or less than his original purchase
price upon disposition of his Units because the value of the Units fluctuates
with the value of the underlying Securities.
Educational material regarding CMOs is available, upon request,
from the Sponsor.
----------------
* Changes in the Trust Portfolio: From January 1, 1997 to March 21,
1997, $60,000 of the principal amount of the securities in portfolio
no. 2 was sold and is no longer contained in the Trust.
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267690.1
Report of Independent Accountants
To the Sponsor, Trustee and Certificateholders of
Mortgage Securities Trust, CMO Series 15 Intermediate
In our opinion, the accompanying statement of net assets, including the
portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Mortgage Securities Trust, CMO
Series 15 Intermediate (the "Trust") at December 31, 1996, the results of its
operations, the changes in its net assets and the financial highlights for the
year then ended, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit, which included confirmation of securities at December
31, 1996 by correspondence with the Trustee, provides a reasonable basis for the
opinion expressed above. The financial statements for the prior periods
presented were audited by other independent accountants whose report dated March
31, 1996 expressed an unqualified opinion on those financial statements.
PRICE WATERHOUSE LLP
160 Federal Street
Boston, MA 02110
March 28, 1997
[Enlarge/Download Table]
Mortgage Securities Trust, CMO Series 15 Intermediate
Portfolio
December 31, 1996
-------------------------------------------------------------------------------------------------------------------
Estimated First
Coupon Rate/ Principal
Portfolio Principal Final Distribution Distribution Date Market
No. Amount Securities (3) Date (1) (Unaudited) Value (2)
1 $ 2,000,000 Federal National Mortgage Association 7.500% 1/25/99 $ 2,015,945
Guaranteed REMIC Pass-Through Certificates 5/25/2020
Fannie Mae REMIC Trust 1992-Class 146-PJ
2 2,895,000 Federal National Mortgage Association 6.500 1/25/99 2,804,061
Guaranteed REMIC Pass-Through Certificates 4/25/2020
Fannie Mae REMIC Trust 1993-Class 74-B
3 2,000,000 Federal Home Loan Mortgage Corporation 6.000 7/15/99 1,850,426
Multiclass Mortgage Participation Certificates 10/15/2013
(Guaranteed) Series 1595-B
4 1,890,000 Federal National Mortgage Association 7.050 12/25/00 1,815,144
Guaranteed REMIC Pass-Through Certificates 4/25/2022
Fannie Mae REMIC Trust 1993-Class 23-PM
------------ --------------
$ 8,785,000 Total Investments (Cost $8,404,370) $ 8,485,576
==============
============
See accompanying footnotes to portfolio and notes to financial statements.
Mortgage Securities Trust, CMO Series 15 Intermediate
Footnotes to Portfolio
-------------------------------------------------------------------------------
1. See "The Trust - Portfolio" in Part B of the Prospectus for an
explanation of redemption features. See "Tax Status" in Part B of the
Prospectus for a statement of the Federal tax consequences to a
Certificateholder upon the sale, redemption or maturity of a security.
2. At December 31, 1996, the net unrealized appreciation of all the
securities was comprised of the following:
Gross unrealized appreciation $ 84,154
Gross unrealized depreciation (2,948)
---------
Net unrealized appreciation $ 81,206
=========
3. All of the CMOs in the portfolio are backed by underlying mortgage-backed
securities which are pledged as collateral to secure payment of principal
and interest on the CMOs. The Units of the Trust are not, however,
guaranteed by the United States or any of its agencies. Payments are not
guaranteed by the United States and neither the CMOs in the Trust nor any
underlying mortgage backed securities constitute a debt obligation of the
United States or any of its agencies.
The accompanying notes form an integral part of the financial statements.
Mortgage Securities Trust, CMO Series 15 Intermediate
Statement of Net Assets
December 31, 1996
--------------------------------------------------------------------------------
Investments in Securities,
at Market Value (Cost $8,404,370) $ 8,485,576
--------------
Other Assets
Accrued Interest 99,260
--------------
Total Other Assets 99,260
--------------
Liabilities
Accrued Expenses 2,443
Advance from Trustee 14,223
--------------
Total Liabilities 16,666
--------------
Excess of Other Assets over Total Liabilities 82,594
--------------
Net Assets (8,751,666 Units of Fractional Undivided
Interest Outstanding, $0.98 per Unit) $ 8,568,170
==============
The accompanying notes form an integral part of the financial statements.
Mortgage Securities Trust, CMO Series 15 Intermediate
Statement of Operations
--------------------------------------------------------------------------------
[Enlarge/Download Table]
For the Years Ended December 31, For the Period from
1996 1995 March 30, 1994 (Date
of Deposit) to
December 31, 1994
Investment Income
Interest $ 607,310 $ 668,226 $ 510,228
----------- ----------- -----------
Expenses
Trustee's Fees 8,937 21,375 10,800
Evaluator's Fees 3,820 1,622 ----
Sponser's Advisory Fee 2,443 ---- ----
----------- ----------- -----------
Total Expenses 15,200 22,997 10,800
----------- ----------- -----------
Net Investment Income 592,110 645,229 499,428
----------- ----------- -----------
Realized and Unrealized Gain (Loss)
Realized Gain on
Investments 11,666 6,037 ----
Change in Unrealized Appreciation
(Depreciation) on Investments (390,230) 1,397,167 (925,731)
----------- ----------- -----------
Net Gain (Loss) on Investments (378,564) 1,403,204 (925,731)
----------- ----------- -----------
Net Increase (Decrease)
in Net Assets
Resulting From Operations $ 213,546 $2,048,433 $ (426,303)
=========== ========== ===========
The accompanying notes form an integral part of the financial statements.
Mortgage Securities Trust, CMO Series 15 Intermediate
Statement of Changes in Net Assets
--------------------------------------------------------------------------------
[Enlarge/Download Table]
For the Years Ended December 31, For the Period from
1996 1995 March 30, 1994 (Date
of Deposit) to
December 31, 1994
Operations
Net Investment Income $ 592,110 $ 645,229 $ 499,428
Realized Gain
on Investments 11,666 6,037 ----
Change in Unrealized Appreciation
(Depreciation) on Investments (390,230) 1,397,167 (925,731)
------------ ------------- -------------
Net Increase (Decrease) in
Net Assets Resulting
From Operations 213,546 2,048,433 (426,303)
------------ ------------- -------------
Distributions to Certificateholders
Investment Income 601,510 654,000 390,400
To Sponsor of Accrued Interest to
Date of Settlement ---- ---- (54,053)
Redemptions
Interest 6,853 1,871 ----
Principal 911,499 312,173 ----
------------ ------------- -------------
Total Distributions
and Redemptions 1,519,862 968,044 336,347
------------ ------------- -------------
Total Increase (Decrease) (1,306,316) 1,080,389 (762,650)
Net Assets
Beginning of Year 9,874,486 8,794,097 9,556,747
------------ ------------- -------------
End of Year (Including
Undistributed Net Investment
Income of $82,133, $98,386
and $109,028, Respectively) $ 8,568,170 $ 9,874,486 $ 8,794,097
============ ============ ============
The accompanying notes form an integral part of the financial statements.
Mortgage Securities Trust, CMO Series 15 Intermediate
Notes to Financial Statements
--------------------------------------------------------------------------------
1. Organization
Mortgage Securities Trust, CMO Series 15 Intermediate (the "Trust") was
organized on March 30, 1994 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. The Trust was
formed to preserve capital and to provide interest income.
Effective September 28, 1995, Reich & Tang Distributors L.P. ("Reich &
Tang") has become the successor sponsor (the "Sponsor") to certain of
the unit investment trusts previously sponsored by Bear, Stearns & Co.
Inc. As successor Sponsor, Reich & Tang has assumed all of the
obligations and rights of Bear, Stearns & Co. Inc., the previous
sponsor. Effective September 2, 1995, United States Trust Company of
New York was merged into The Chase Manhattan Bank (the "Trustee").
Accordingly, Chase is the successor trustee of the Trust.
2. Summary of Significant Accounting Policies
The following is a summary of significant accounting policies
consistently followed by the Trust in preparation of its financial
statements. The policies are in conformity with generally accepted
accounting principles ("GAAP"). The preparation of financial statements
in accordance with GAAP requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the
financial statements. Actual amounts could differ from those estimates.
Interest income is recorded on the accrual basis.
Security Valuation
Investments are carried at market value which is determined by Kenny
S&P Evaluation Services, a business unit of J.J. Kenny Company, Inc., a
subsidiary of The McGraw-Hill Companies, Inc. The market value of the
portfolio is based upon the bid prices for the securities at the end of
the year, which approximates the fair value of the security at that
date, except that the market value on the date of deposit represents
the cost to the Trust based on the offering prices for investments at
that date. The difference between cost 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.
Mortgage Securities Trust, CMO Series 15 Intermediate
Notes to Financial Statements
--------------------------------------------------------------------------------
3. Income Taxes
No provision for federal income taxes has been made in the accompanying
financial statements because the Trust intends to continue to qualify
for the tax treatment applicable to Grantor Trusts under the Internal
Revenue Code. Under existing law, if the Trust so qualifies, it will
not be subject to federal income tax on net income and capital gains
that are distributed to unitholders.
4. Trust Administration
The Trustee has custody of assets and responsibility for the accounting
records and financial statements of the Trust and is responsible for
establishing and maintaining a system of internal control related
thereto. The Trustee is also responsible for all estimates of expenses
and accruals reflected in the Trust's financial statements.
The Trust Indenture and Agreement provides for interest distributions
on a monthly basis.
The Trust Indenture and Agreement further requires that principal
received from the disposition of securities, other than those
securities sold in connection with the redemption of units, be
distributed to Certificateholders.
The Trust Indenture and Agreement also requires the Trust to redeem
units tendered. For the years ended December 31, 1996 and 1995, 936,017
and 312,317 units were redeemed, respectively. No units were redeemed
during the period ended December 31, 1994.
The Trust pays an annual fee for trustee services rendered by the
Trustee of $.84 per $1,000 of outstanding investment principal. In
addition, a fee of $7.00 is paid to a service bureau for each portfolio
valuation. A maximum fee of $.25 per $1,000 of outstanding investment
principal is paid to the Sponsor. For the year ended December 31, 1996,
the "Trustee's Fees" are comprised of Trustee fees of $7,160 and other
expenses of $1,777. The other expenses include professional, printing
and miscellaneous fees.
Mortgage Securities Trust, CMO Series 15 Intermediate
Notes to Financial Statements
--------------------------------------------------------------------------------
5. Net Assets
At December 31, 1996, the net assets of the Trust represented the
interest of Certificateholders as follows:
Original cost to Certificateholders $ 9,903,365
Less Initial Gross Underwriting Commission 346,618
---------------
9,556,747
Accumulated Cost of Securities Sold
or Called (1,152,377)
Net Unrealized Appreciation 81,206
Undistributed Net Investment Income 82,133
Undistributed Proceeds From Investments 461
---------------
Total $ 8,568,170
===============
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 10,000,000 units
of fractional undivided interest of the Trust as of the date of
deposit.
Mortgage Securities Trust, CMO Series 15 Intermediate
Notes to Financial Statements
--------------------------------------------------------------------------------
6. Financial Highlights (per unit)*
Selected data for a unit of the Trust outstanding for the year ended
December 31, 1996:
Net Asset Value, Beginning of Year** $ 1.02
----------------
Interest Income .07
Expenses (.00)
----------------
Net Investment Income .07
----------------
Net Gain or Loss on Investments(1) (.04)
----------------
Total from Investment Operations .03
----------------
Less Distributions
to Certificateholders
Income .07
for Redemptions
Interest .00
----------------
Total Distributions .07
----------------
Net Asset Value, End of Year** $ .98
===============
See "Financial and Statistical Information" in Part A of this
Prospectus for amounts of per unit distributions during the years ended
December 31, 1996, 1995 and 1994 based on actual units.
(1) Net gain or loss on investments is a result of changes in outstanding
units since January 1, 1996 and the dates of net gain and loss on
investments.
--------
* Unless otherwise stated, based upon average units outstanding during
the year of 9,219,675 ([8,751,666 + 9,687,683]/2).
** Based upon actual units outstanding.
Prospectus Part A Dated April 30, 1997
MORTGAGE SECURITIES TRUST
CMO SERIES 16
The Trust consists of 1 unit investment trust designated
Mortgage Series Trust, CMO Series 16, Intermediate Portfolio (the "Trust"). The
Trust consists of an underlying portfolio of collateralized mortgage obligations
("CMOs" or "Securities") and was formed to obtain safety of capital and provide
a high level of current distributions of interest income. The Trust seeks to
obtain a higher yield than fixed income investments with comparable AAA ratings.
An investment in the Trust entails differing degrees of risk. The Trust seeks to
achieve its objectives through investment in a fixed portfolio of CMOs which may
have been issued as debt obligations of a trust or corporation or which may
represent certificated interests of beneficial ownership in pools of
mortgage-backed securities. All of the CMOs in the portfolio are backed by
underlying mortgage-backed securities which are pledged as collateral to secure
payment of principal and interest on the CMOs. Each of these underlying
mortgage-backed securities is guaranteed as to the payment of principal and
interest by the Government National Mortgage Association ("GNMA"), the Federal
National Mortgage Association ("FNMA") or the Federal Home Loan Mortgage
Corporation ("FHLMC"). All of the CMOs in the Trust are issued by GNMA, FNMA or
FHLMC or are otherwise rated AAA by Standard & Poor's and, therefore, the Units
of the Trust are rated AAA by Standard & Poor's Corporation. The Units of the
Trust are not, however, guaranteed by GNMA, FNMA, FHLMC, the United States or
any of its agencies. The full faith and credit of the United States is pledged
to the payment of all amounts guaranteed by GNMA. However, payments guaranteed
by FNMA and FHLMC are not guaranteed by the United States and neither the CMOs
in the Trust nor any underlying Fannie Maes or Freddie Macs constitute a debt
obligation of the United States or any of its agencies. The Sponsor is Reich &
Tang Distributors L.P. The value of the Units will fluctuate with the value of
the CMOs in the portfolio. Both the Estimated Current Return and the Estimated
Long Term Return are subject to fluctuations with changes in portfolio
composition, principal payments and prepayments, changes in the market value of
the CMOs in the portfolios and changes in fees and expenses. Minimum purchase:
1,000 Units.
-------------------------------------------------------------------------------
This Prospectus consists of two parts. Part A contains the
Summary of Essential Information, including descriptive material relating to the
Trust as of December 31, 1996 (the "Evaluation Date"), a summary of certain
specific information regarding the Trust and audited financial statements of the
Trust, including the Portfolio as of the Evaluation Date. Part B of this
Prospectus contains general information about the Trust. Part A of this
Prospectus may not be distributed unless accompanied by Part B. Investors should
read and retain both parts of this Prospectus for future reference.
-------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
352475.1
THE TRUST. A CMO is a multiclass bond backed by a pool of
mortgage pass-through securities or mortgage loans. CMOs are also known as "real
estate mortgage investment conduits" (REMICs). As a result of the 1986 Tax
Reform Act, most CMOs are issued in REMIC form to create a certain tax advantage
for the issuer. The terms CMO and REMIC are used interchangeably. The Trust
seeks to obtain a higher yield than fixed income investments with comparable AAA
ratings. An investment in the Trust entails differing degrees of risk.
The Trust, as an Intermediate Portfolio, will invest primarily
in planned amortization or target amortization classes of CMOs. Such classes of
CMOs receive payments of principal according to a planned schedule to the extent
that prepayments on the underlying mortgage-backed securities occur within a
broad time period. The principal is reduced only in specified amounts at
specified times resulting in greater predictability of principal payments for
the planned amortization bonds or targeted amortization bonds. For a discussion
on planned amortization bonds or targeted amortization bonds see "The
Trust--Description of the Portfolio" and "The Trust--CMO Structure" in this Part
A and "The Trust--The Securities--Planned Amortization Bonds or Targeted
Amortization Bonds and Support Bonds" in Part B of this Prospectus. The Trust
may also invest in other types of CMOs described above and in "The Trust--The
Securities" in Part B of this Prospectus.
All of the CMOs in the Trust are backed by underlying
mortgage-backed securities which are pledged as collateral to secure payment of
principal and interest on the CMOs. Each of these mortgage-backed securities is
guaranteed as to the payment of principal and interest by either the Government
National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA") or the Federal Home Loan Mortgage Corporation ("FHLMC").
All of the CMOs in the Trust are issued by GNMA, FNMA or FHLMC or are otherwise
rated AAA by Standard & Poor's Corporation ("Standard & Poor's") and therefore,
the Units of the Trust are rated AAA by Standard & Poor's. There can be no
assurance that the Trust's investment objectives can be achieved. Investments in
the Trust should be made with an understanding of the risks inherent in an
investment in CMOs. (See "The Trust--Risk Considerations" in this Part A.) Each
Unit of the Trust represents an undivided interest in the principal and net
income of the Trust in the ratio of one thousand Units for the indicated
principal amount of Securities in the Trust. (See "The Trust--Organization" in
Part B of this Prospectus.) (For the specific number of Units in the Trust, see
"Summary of Essential Information" in this Part A.)
Generally, CMOs are designed to provide a substantial degree
of prepayment and reinvestment risk protection as compared to other mortgage
related securities. The CMOs may have been issued as debt obligations of a trust
or corporation or as certificated interests representing beneficial ownership in
a pool of mortgage-backed securities (See "The Trust--The Securities" in Part B
of this Prospectus for further description and examples) which trust,
corporation or pool may have been established for the sole purpose of issuing
CMOs by any of GNMA, FNMA or FHLMC or by a private business organization. Such
private business organizations are typically single-purpose corporations
established by mortgage-banking institutions for the sole purpose of issuing
CMOs. Any CMOs in the Trust that have been issued by private business
organizations have been rated AAA by Standard & Poor's. The sole assets of the
issuers of the CMOs are the underlying mortgage-backed securities. If the
collateral securing the Securities of these issuers is insufficient to make
payments on those Securities, it is unlikely that any other assets of these
issuers will be available for payment of the deficiency. The underlying
mortgage-backed securities which are pledged as collateral to secure the payment
of principal and interest on the CMOs may be (i) "fully modified pass-through"
mortgage-backed certificates, guaranteed by GNMA
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352475.1
("Ginnie Maes"), (ii) mortgage pass-through certificates guaranteed by FNMA
("Fannie Maes") or (iii) mortgage participation certificates guaranteed by FHLMC
("Freddie Macs"). The full faith and credit of the United States is pledged to
the payment of all amounts guaranteed by GNMA. However, payments guaranteed by
FNMA and FHLMC are not guaranteed by the United States and neither the CMOs in
the Trust nor any underlying Fannie Maes or Freddie Macs constitute a debt or
obligation of the United States or any of its agencies. The Units of the Trust,
as such, are not guaranteed by any of GNMA, FNMA, FHLMC, the United States or
any of its agencies. Additionally, CMOs that are issued by GNMA, FNMA or FHLMC
or by any entity established by GNMA, FNMA or FHLMC are guaranteed as to payment
of principal and interest by GNMA, FNMA or FHLMC, respectively. The guaranty
obligations of GNMA with respect to any Ginnie Maes or any CMOs are supported by
the full faith and credit of the United States. However, the guaranty of
obligations of FNMA and FHLMC with respect to any Fannie Maes or Freddie Macs or
any CMOs are obligations of FNMA and FHLMC only (limited by their respective
credit capabilities) and are not supported by the full faith and credit of the
United States or any other governmental entity.
CMO Structure. CMOs are generally issued as a series of
different classes. An issue of CMOs generally is backed by a larger number of
mortgages than a pool of Ginnie Maes, Fannie Maes or Freddie Macs, thus allowing
greater statistical prediction of prepayment characteristics. Interest and
principal payments on the mortgages underlying any series will first be applied
to meet the interest payment requirements of each class in the series other than
any class in respect of which interest accrues but is not paid or any "principal
only" class. Principal payments on the underlying mortgages are thereafter
generally applied to pay the principal amount of the class that has the earliest
maturity date. Once that class is retired, the principal payments on the
underlying mortgages are applied to the class with the next earliest maturity
date. This is repeated until all classes are paid. Therefore, while each class
of CMOs remains subject to prepayment as the underlying mortgages prepay,
structuring several classes of CMOs in the stream of principal payments allows a
more predictable estimate of the period of time when any one class is likely to
be repaid. The estimate can be even closer with a class of planned amortization
bonds or targeted amortization bonds. The amortization schedule for these CMOs
is structured so that, at specified prepayment rates within a range, their
principal will be repaid at specified times and in specified amounts. However,
if any series of CMOs contains a class of planned amortization bonds or targeted
amortization bonds, then the other classes in that series may not be retired in
an order of priority determined strictly with reference to their maturity dates.
These other classes are often referred to as "support classes"
because their function is to support the amortization schedule of the planned
amortization bonds or targeted amortization bonds. If the rate of prepayment on
the underlying mortgages is faster than assumed, then classes with maturity
dates later than the planned amortization bonds or targeted amortization bonds
may be retired earlier than estimated to ensure that the planned amortization
bonds or targeted amortization bonds receive the principal payments required by
their amortization schedule. Similarly, if the rate of prepayments is slower
than anticipated, then earlier support classes may be retired later than
estimated. Hence, support classes of a series that contains planned amortization
bonds or targeted amortization bonds have less predictable prepayment
characteristics than classes of a series that does not. This lack of
predictability regarding prepayments also causes support class bonds to have
greater market value fluctuation than other classes of a CMO and causes
fluctuation, which may be substantial, both in the amount of income earned by
the Trust and in the timing of the Trust's principal distributions. This
fluctuation may adversely affect the repurchase and redemption prices of Units
of the Trust. (See "Description of the Portfolio" in this Part A for the
A-3
352475.1
number of planned amortization bonds, targeted amortization bonds or support
class bonds in the Trust portfolio.) The rate of prepayment on the underlying
mortgages of a CMO will most likely decline as interest rates increase. If the
rate of prepayment declines, the weighted average life of the support class
bonds will most likely increase and, in some cases, the decline will impact the
yield and market value of these Securities. This may cause an investor's
principal in a support class bond to be outstanding for a longer period of time
than initially anticipated. Conversely, if interest rates decline, prepayments
on the underlying mortgages will most likely increase, and the weighted average
life of the support class bonds may be shorter than anticipated. A holder of a
support class bond in these situations may be unable to reinvest the proceeds of
these principal distributions at an effective interest rate equal to the
specified coupon rate on the original support class bond. Therefore, an investor
expecting to earn a fixed return for a fixed number of years may find the life
of a support class investment decreases as interest rates fall and increases as
they rise. Investors should be aware that the Federal Financial Institutions
Examination Council recently announced that certain high-risk CMO tranches are
generally not suitable investments for depository institutions. Support class
bonds such as those in the Long-Intermediate Portfolio would be characterized as
high-risk CMO tranches and, therefore, not suitable for depository institutions.
Investors should carefully consider all the risks inherent in an investment in
support class bonds before investing in the Trust.
Some of the CMOs in the Trust may be either a class of
Guaranteed REMIC Certificates ("REMIC Certificate") issued by FNMA or a class of
REMIC Certificates issued by FHLMC. A FNMA REMIC Certificate represents a
beneficial ownership interest in a certain class of a FNMA REMIC Trust
consisting of Fannie Maes, each of which in turn represents a beneficial
interest in a pool of first lien, single-family, fixed-rate residential mortgage
loans. FNMA REMIC Certificates are issued pursuant to trust agreements executed
by FNMA in both its corporate capacity and its capacity as trustee. A FNMA REMIC
Certificate evidences a beneficial ownership interest in the distribution of
principal and interest on the underlying Fannie Maes, subject to certain limits
and in an order of distribution established for the particular FNMA REMIC Trust.
Each FNMA REMIC Certificate is backed by the guaranty obligation of FNMA to
distribute on a timely basis required installments of principal and interest and
to distribute the principal balance of the FNMA REMIC Certificate in full no
later than an established final distribution date, notwithstanding insufficiency
of funds from the underlying Fannie Maes. A FHLMC REMIC Certificate represents a
beneficial ownership interest in a certain class of a pool of Freddie Macs, each
of which in turn represents undivided interests in discrete pools of fixed-rate,
first lien, residential mortgages or participations therein purchased by FHLMC.
FHLMC REMIC Certificates are issued pursuant to multiclass mortgage
participation certificate agreements executed by FHLMC. A FHLMC REMIC
Certificate evidences a beneficial ownership interest in the distributions of
principal and interest on the underlying Freddie Macs, subject to certain limits
and in an order of distribution established for the particular FHLMC REMIC pool.
Each FHLMC REMIC Certificate is backed by the guaranty obligation of FHLMC to
distribute required interest payments on a timely basis and to distribute
required principal payments as principal payments on the underlying Freddie Macs
are required to be made. Except with respect to certain issues of "Gold" PCs,
FHLMC generally does not guarantee timely payment of principal but does
guarantee ultimate payment. Both FNMA REMIC Certificates and FHLMC REMIC
Certificates pay interest monthly. (See "The Trust--The Securities" in Part B of
this Prospectus for a description of FHLMC Gold PCs.)
If FNMA or FHLMC were unable to fulfill its guarantees,
distributions to holders of REMIC Certificates such as the Trust would consist
solely of payments and other recoveries upon the mortgages underlying the
A-4
352475.1
pledged Fannie Maes or Freddie Macs, respectively, and, accordingly,
delinquencies and defaults would diminish distributions to the holders. (See
"Description of Portfolio" in this Part A for the number of FNMA REMIC
Certificates and FHLMC REMIC Certificates in the Trust portfolio.)
Some of the CMOs in the Trust may be a class of compound
interest bonds or principal only bonds. Interest on compound interest bonds is
accrued and is added to principal. Such interest is not paid until all classes
of CMOs issued in the same series with earlier final distributions dates are
paid in full. Principal only bonds entitle the holder to no payments of interest
but the holder will receive cash flow from the amortization of principal and
prepayments. Both compound interest bonds and principal only bonds sell at a
deep discount from par. The Sponsor believes that a portfolio with a limited
amount of compound interest bonds and principal only bonds will assist the Trust
in achieving its objective of preserving capital. Since the principal only bond
will accrue to par if held to maturity, the holder of such a bond would receive
a full return of his or her initial investment upon maturity of the bond. In
addition, compound interest bonds also assist in the preservation of capital as
interest which accrues on these bonds is added to principal. (See "Description
of Portfolio" in this Part A for the amount of Securities in the Trust that is a
class of compound interest bonds or principal only bonds.)
Risk Considerations. An investment in Units of the Trust
should be made with an understanding of risks which an investment in fixed rate
CMOs may entail, including the risk that the value of the portfolio and, hence,
the value of the Units will decline with increases in interest rates and that
the life of the CMOs in the portfolio depends on the actual prepayments received
on the underlying mortgage-backed securities, the timing of which cannot be
determined but which may be sooner or later than anticipated, especially if
interest rates decline. Mortgage prepayment rates are likely to fluctuate
significantly from time to time as they have in recent years and at a rate
faster or slower than that initially assumed. The rate of prepayments depends on
a variety of geographic, social and other functions, including prevailing market
interest rates and general economic factors. The potential for appreciation,
which could otherwise be expected to result from a decline in interest rates,
may be limited by any increased prepayments by mortgagors. Investors should also
note that prepayments of principal on CMOs purchased at a premium over par will
result in some loss on investment while prepayments on CMOs purchased at a
discount from par will result in some gain on investment. Also, if interest
rates rise, the prepayment risk of higher yielding, premium CMOs and the
prepayment benefit for lower yielding, discount CMOs will be reduced. (See "The
Trust--Life of the Securities and of the Trust" in Part B of this Prospectus.)
In addition, a number of factors, including the extent of prepayments of
principal on the underlying mortgage-backed securities, affect the availability
of funds for payment of principal of bonds on any payment date and, therefore,
the timing of principal payments on each class of such bonds.
While all of the mortgage-backed securities underlying each of
the CMOs in the Trust are guaranteed as to the payment of principal and interest
by GNMA, FNMA or FHLMC, the CMOs in the Trust represent obligations solely of
the issuers of those CMOs and are not themselves insured or guaranteed by GNMA,
FNMA or FHLMC, or any other governmental agency. If a default were to occur with
respect to any of the CMOs, there can be no assurance that the collateral
securing such bonds would be sufficient to pay the principal and interest then
due.
CMOs are generally not listed on a national securities
exchange or on the National Association of Securities Dealers Automated
Quotation System, Inc. Whether or not CMOs are listed on a national securities
exchange, the
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352475.1
principal trading market for the CMOs will generally be in the over-the-counter
market. As a result the existence of a liquid trading market for CMOs may depend
on whether dealers will make a market in CMOs. There can be no assurance that a
market will be made for any of the CMOs in the Trust, that any market for the
CMOs in the Trust's portfolios will be maintained or of the liquidity of the
CMOs in the Trust in any markets made. The price at which the CMOs in the Trust
may be sold to meet redemptions and the value of the Trust will be adversely
affected if trading markets for the CMOs in the Trust are limited or absent.
(See "The Trust--Liquidity" in Part B of this Prospectus.) In addition, the
Trust may be restricted under the Investment Company Act of 1940 from selling
securities to the Sponsor. However, taking into account the foregoing and other
factors, the Sponsor believes that the nature of the GNMA, FNMA or FHLMC
guarantees of any securities that have been issued by them, respectively, and
the nature of the Ginnie Maes, Fannie Maes or Freddie Macs securities payments
of principal and interest due on the Securities make the Securities adequately
marketable for purposes of redemptions of Units by the Trustee (see "Redemption"
in Part B of this Prospectus).
Investors should note that all of the CMOs in the Trust have
been issued by trusts, corporations or other entities that have elected to be
treated as Real Estate Mortgage Investment Conduits ("REMICs"). As such,
Certificateholders will be required to include in income their respective pro
rata share of interest on each Security (whether or not the Security has
original issue discount) as interest accrues, whether or not the
Certificateholder is an accrual method taxpayer. (See "Tax Status" in Part B of
this Prospectus.)
The principal amount of Securities actually deposited in the
Trust is affected by the prepayment estimate or factor for each CMO. If the
prepayment estimate or factor is adjusted because the level of actual
prepayments increases with respect to a particular CMO prior to the settlement
date of the Securities, the actual principal amount of Securities deposited in
the Trust may be less than the amount noted above and the excess of any cash
returned to the Trust as a result of these prepayments will be held in the
Trust's principal account. Cash balances maintained in the principal account do
not generate income for the Trust.
Educational material regarding CMOs is available upon request,
from the Sponsor.
PUBLIC OFFERING PRICE. The secondary market Public Offering
Price per 1,000 Units of the Trust is equal to the aggregate bid side evaluation
of the underlying Securities in the Trust divided by the number of Units
outstanding times 1,000, plus a sales charge of 3.5% of the Public Offering
Price per 1,000 Units or 3.626% of the net amount invested in Securities per
1,000 Units of the Trust. In addition, accrued interest to the expected date of
settlement is added to the Public Offering Price. If the Units of the
Intermediate Portfolio had been purchased on the Evaluation Date, the Public
Offering Price per 1,000 Units would have been $1,043.81, plus accrued interest
of $4.62, for a total of $1,048.43. The Public Offering Price per 1,000 Units
may vary on a daily basis in accordance with the fluctuations in the aggregate
bid price of the Bonds. (See "Public Offering" in Part B of this Prospectus.)
The figures above assume a purchase of 1,000 Units. The price
of a single Unit, or any multiple thereof, is calculated by dividing the
secondary market Public Offering Price per 1,000 Units by 1,000 and multiplying
by the number of Units.
A-6
352475.1
DISTRIBUTIONS. Distributions of principal and interest income,
less expenses, will be made by the Trust monthly on the 20th of each month. (See
"Rights of Certificateholders--Interest and Principal Distributions" in Part B
of this Prospectus. For the estimated amount of distributions see "Summary of
Essential Information" for the Trust in this Part A.)
ESTIMATED LONG TERM RETURN AND ESTIMATED CURRENT RETURN.
Estimated Long Term Return for the Trust is calculated by: (1) computing the
yield to maturity for each CMO in the Trust's portfolio in accordance with
accepted CMO practices, which practices take into account not only the interest
payable on the CMO but also the amortization of premiums or accretion of
discounts, if any, and estimates of projected prepayments; (2) calculating the
average of the yields for the CMOs in the Trust's portfolio by weighing each
CMO's yield by the market value of the CMO and by the amount of time remaining
to the date to which the CMO is priced (thus creating an average yield for the
portfolio of the Trust); and (3) reducing the average yield for the portfolio of
the Trust in order to reflect estimated fees and expenses of the Trust and the
maximum sales charge paid by Certificateholders. The resulting Estimated Long
Term Return represents a measure of the return to Certificateholders earned over
the estimated life of the Trust. (For the Estimated Long Term Return to
Certificateholders, see "Summary of Essential Information" for the Trust. See
"Estimated Long Term Return and Estimated Current Return" in Part B of this
Prospectus.)
Estimated Current Return for the Trust is computed by dividing
the Estimated Net Annual Interest Income per 1,000 Units by the Public Offering
Price per 1,000 Units. In contrast to the Estimated Long Term Return, the
Estimated Current Return does not take into account estimates of prepayments or
the amortization of premium or accretion of discount, if any, on the CMOs in the
portfolio of the Trust. For the Estimated Net Annual Interest Income to
Certificateholders, see "Summary of Essential Information" in Part A.
If the CMOs in the Trust are priced at a discount, the
Estimated Current Return will generally be lower relative to the Estimated Long
Term Return, whereas if the CMOs are priced at a premium, the Estimated Current
Return will generally be higher relative to the Estimated Long Term Return. This
is because Estimated Current Return reflects primarily the interest rate on the
CMOs, while Estimated Long Term Return reflects yield and timing of principal
payments, and thus increases when the principal returned is greater than the
price paid for the CMOs (discount) and decreases when the principal returned is
lower than the price paid (premium). Estimated Long Term Return is calculated
using an estimated average life for the CMOs in the Trust. Estimated average
life is an essential factor in the calculation of Estimated Long Term Return.
When a particular Trust has a shorter average life than is estimated, Estimated
Long Term Return will be higher if the Trust contains CMOs priced at a discount
and lower if the CMOs are priced at a premium. Conversely, if the Trust has a
longer average life than is estimated, Estimated Long Term Return will be lower
if the CMOs are priced at a discount and higher if the CMOs are priced at a
premium. To calculate estimated average life several assumptions are made to
derive an estimated prepayment rate for the mortgages underlying the Ginnie
Maes, Fannie Maes or Freddie Macs that may back the CMOs in the Portfolio; the
calculation of estimated prepayment rates is based upon actual recent
prepayments and analysis of several factors including, among other things, the
spread between present market interest rates and the rate on the mortgages and
the housing environment. The estimated prepayment rate that is derived is then
applied to retire the principal amount of each CMO class of the same series as
each CMO in the Trust, including those CMOs in the Trust, according to the
specific principal reduction schedule of each series. For a more detailed
explanation of the calculation of estimated average life, see "Estimated Long
Term Return and Estimated Current Return" in Part B of this Prospectus. The
estimated
A-7
352475.1
average life for the Trust is subject to change with alterations in the data
used in any of the underlying assumptions. The actual average lives of the CMOs
in the Trust's portfolio and the actual long term returns will be different from
the estimated average lives and the estimated long term returns.
The Estimated Net Annual Interest Income per 1,000 Units of
the Trust will vary with changes in the fees and expenses of the Trustee and the
Evaluator applicable to the Trust and with the redemption, prepayment, maturity,
sale or other disposition of the CMOs in the Trust. The Secondary Market Public
Offering Price will vary with changes in the bid prices of the CMOs. Therefore,
there is no assurance that the present Estimated Current Return or Estimated
Long Term Return will be realized in the future.
Market for Units. The Sponsor, although not obligated to do
so, intends to maintain a secondary market for the Units at prices based on the
aggregate bid side evaluation of the Securities in the Trust. The reoffer price
will be based on the aggregate bid side evaluation of the Securities, divided by
the number of Units outstanding times 1,000, plus a sales charge of 3.5% (3.626%
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 side evaluation of the Securities.
(See "Sponsor Repurchase" in Part B of this Prospectus.)
Total Reinvestment Plan. Distributions from the Trust are made
to Certificateholders monthly. The Certificateholder has the option, however, of
either receiving his interest check, together with any principal payments, from
the Trustee or participating in a reinvestment program offered by the Sponsor in
shares of The Treasurer's Fund, Inc., U.S. Treasury Money Market Portfolio (the
"Fund"). Gabelli-O'Connor Fixed Income Mutual Funds Management Co. serves as the
investment advisor of the Fund and GOC Fund Distributors, Inc. serves as
distributor for the Fund. Participation in the reinvestment option is
conditioned on the Fund's lawful qualification for sale in the state in which
the Certificateholder is a resident. The Plan is not designed to be a complete
investment program. See "Total Reinvestment Plan" in Part B of this Prospectus.
The shares of the Fund are not rated by Standard & Poor's.
A-8
352475.1
MORTGAGE SECURITIES TRUST
CMO SERIES 16, INTERMEDIATE PORTFOLIO
SUMMARY OF ESSENTIAL INFORMATION AS OF DECEMBER 31, 1996
[Enlarge/Download Table]
Date of Deposit:* February 9, 1995 Evaluation Time: 4.00 p.m.
Principal Amount of New York Time.
Securities ................ $6,431,825 Minimum Principal Distribution:
Principal Amount of Secu- $1 per 1,000 Units.
rities per 1,000 Units..... $999.96 Weighted Average Life to
Number of Units ............. 6,432,070 Maturity: 3.1 years
Fractional Undivided Inter- Minimum Value of Trust:
est in Trust per Unit ..... 1/6432070 Trust may be terminated if less than
Secondary Market Public $3,200,000 in principal amount of
Offering Price**+ Securities.
Aggregate Bid Price of Mandatory Termination Date:
Securities in Trust ..... $6,379,153 The earlier of December 31, 2044 or the
Divided by 6,432,070 Units disposition of the last Security in the
times 1,000 ............ $991.77 Trust.
Plus Sales Charge of 3.5% Trustee: The Chase Manhattan Bank.
of Public Offering Price $52.04 Trustee's Annual Fee: $.84 per $1,000.
Public Offering Price Evaluator: Kenny S&P Evaluation Services.
per 1,000 Units.......... $1,043.81 Evaluator's Fee for Each
Redemption and Sponsors' Evaluation: $10 per evaluation.
Repurchase Price Sponsor: Reich & Tang Distributors L.P.
per 1,000 Units+ .......... $991.77+++# Sponsor's Annual Fee: Maximum
Excess of Public Offering of $.25 per $1,000 principal amount of
Price over Redemption and Securities (see "Trust Expense and
Sponsors' Repurchase Price Charges" in Part B of this Prospectus).
per 1,000 Units#........... $52.04
Difference between Public
Offering Price per 1,000
Units and Principal
Amount per 1,000 Units
Premium/(Discount) ........ $43.85
PER 1,000 UNIT INFORMATION
Gross annual interest income (cash)............................. $76.76
Less estimated annual fees and expenses......................... 1.84
Estimated net annual interest income (cash)..................... 74.92
Estimated interest distribution................................. 6.24
Estimated daily interest accrual................................ .20
Estimated current return++(1)................................... 7.18%
Estimated long term return++(1)................................. 6.85%
Record dates.................................................... 1st of
each month
Interest distribution dates..................................... 20th of
each month
* The Date of Deposit is the date on which the Trust Agreement was signed
and the deposit of the Bonds with the Trustee made.
** Per 1,000 Units.
+ Plus accrued interest.
++ The estimated current return and estimated long term return are
increased for transactions entitled to a discount (see "Volume and
Other Discounts" in Part B of this Prospectus).
+++ Based solely upon the bid side evaluation of the underlying Securities.
Upon tender for redemption, the price to be paid will be calculated as
described under "Trustee Redemption" in Part B of this Prospectus.
# See "Comparison of Public Offering Price, Sponsors' Repurchase Price
and Redemption Price" in Part B of this Prospectus.
A-9
352475.1
Additional Footnotes to Summary of Essential Information
(1) Estimated current return represents annual interest income after
estimated annual expenses divided by the Public Offering Price,
including a 3.5% maximum sales charge. Estimated long term return is
the net annual percentage return based on the yield on each underlying
Security in the Trust weighted to reflect market value and estimated
average life. The estimated weighted average life to maturity of the
Trust is an estimate based upon various assumptions discussed more
fully under "Estimated Long Term Return and Estimated Current Return"
in Part B of this Prospectus. Estimated long term return is adjusted
for estimated expenses and the maximum public offering price but not
for delays in the Trust's distribution of income. Estimated current
return shows current annual cash return to investors while estimated
long term return shows the return on Units held to estimated average
life, reflecting prepayments of principal, maturities, discounts and
premiums on underlying Securities. Actual returns will vary with
purchase price, payments and prepayments of principal on the
underlying Ginnie Maes, Fannie Maes or Freddie Macs which back the
Securities, and changes in Trust income after expenses. These returns
do not include the effects of any delay in payments to Unitholders and
a calculation which includes those effects would be lower. See
"Estimated Long Term Return and Estimated Current Return" in Part B of
this Prospectus.
FINANCIAL AND STATISTICAL INFORMATION
Selected data for each unit of the Trust outstanding for the periods listed
below:
[Enlarge/Download Table]
Distribu-
tions of
Principal
Distributions During
Net Asset* of Interest the
Value During the Period
Units Out- Per 1,000 Period (per (Per 1,000
Period Ended standing Units 1,000 Units) Units)
------------ ---------- --------- ------------ --------
INTERMEDIATE PORTFOLIO
December 31, 1995 8,000,000 $1,037.41 $59.57 -0-
December 31, 1996 6,432,070 $1,001.41 $74.40 $15.10
-----------
* Net Asset Value per 1,000 Units is calculated by dividing net assets as
disclosed in the "Statement of Net Assets" by the number of Units
outstanding as of the date of the Statement of Net Assets. See Note 5
of Notes to Financial Statements for a description of the components of
Net Assets.
A-10
352475.1
INFORMATION REGARDING THE TRUST
AS OF DECEMBER 31, 1996
Description of the Portfolio*
The Trust consists of 5 issues of CMOs. The Sponsor has not
participated as a sole underwriter or manager, co-manager or member of an
underwriting syndicate from which any of the CMOs in the Portfolio were
acquired. None of the CMOs have been issued by entities created by GNMA, 3 have
been issued by entities created by FNMA, 2 have been issued by entities created
by FHLMC and none have been issued by private issuers. All of the CMOs in the
Trust have been issued by trusts, corporations or other entities that have
elected to be treated as Real Estate Mortgage Investment Conduits. The CMOs in
the Trust have stated final distribution dates ranging from March 25, 2020
through June 25, 2023 and estimated average lives (based upon prepayment rates)
ranging from 1.84 to 5.08.
All of the CMOs in the Portfolio are planned amortization
bonds or targeted amortization bonds. None of the principal amount of the
Securities are support class bonds that are part of a series that contains
planned amortization bonds or targeted amortization bonds. $3,591,825 of the
principal amount of the Securities in the Trust are FNMA REMIC Certificates.
$2,840,000 of the principal amount of the securities initially deposited in the
Trust are FHLMC REMIC Certificates. None of the principal amount of the
Securities initially deposited in the Trust are a class of compound interest
bonds or principal only bonds.
As of December 31, 1996, 75.3% of the aggregate principal
amount of the Securities in the Trust were acquired at a discount from par,
24.7% of the Securities in the Trust were acquired at a premium and none were
acquired at par. A Certificateholder may receive more or less than his original
purchase price upon disposition of his Units because the value of the Units
fluctuates with the value of the underlying Securities.
-------------
* Changes in the Trust Portfolio: From January 1, 1997 to March 21,
1997, there have been paydowns on the securities in portfolio no. 2
and $29,728.94 of the principal amount of the securities is no longer
contained in the Trust. $100,000 of the principal amount of the
securities in portfolio no. 4 was sold and is no longer contained in
the Trust. 45,293 Units were redeemed from the Trust.
A-11
352475.1
Report of Independent Accountants
To the Sponsor, Trustee and Certificateholders of
Mortgage Securities Trust, CMO Series 16 Intermediate
In our opinion, the accompanying statement of net assets, including the
portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Mortgage Securities Trust, CMO
Series 16 Intermediate (the "Trust") at December 31, 1996, the results of its
operations, the changes in its net assets and the financial highlights for the
year then ended, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit, which included confirmation of securities at December
31, 1996 by correspondence with the Trustee, provides a reasonable basis for the
opinion expressed above. The financial statements for the prior periods
presented were audited by other independent accountants whose report dated March
31, 1996 expressed an unqualified opinion on those financial statements.
PRICE WATERHOUSE LLP
160 Federal Street
Boston, MA 02110
March 28, 1997
[Enlarge/Download Table]
Mortgage Securities Trust, CMO Series 16 Intermediate
Portfolio
December 31, 1996
-------------------------------------------------------------------------------------------------------------------
Estimated First
Coupon Rate/ Principal
Portfolio Principal Final Distribution Distribution Date Market
No. Amount Securities (3) Date (1) (Unaudited) Value (2)
1 $1,000,000 Federal National Mortgage Association 9.000% 3/25/97 $ 1,026,762
Guaranteed REMIC Pass-Through Certificates 3/25/2020
Fannie Mae REMIC Trust 1990-24 E
2 591,825 Federal National Mortgage Association 8.750 11/25/96 602,682
Guaranteed REMIC Pass-Through Certificates 8/25/2020
Fannie Mae REMIC Trust G21 G
3 2,000,000 Federal Home Loan Mortgage Corporation 7.950 2/15/01 2,040,410
Multiclass Mortgage Participation Certificates, 9/15/2020
Series 1155 J
4 840,000 Federal Home Loan Mortgage Corporation 7.500 1/15/99 842,333
Multiclass Mortgage Participation Certificates, 7/15/2021
Series 1255 G
5 2,000,000 Federal National Mortgage Association 6.500 5/25/98 1,966,699
Guaranteed REMIC Pass-Through Certificates 6/25/2023
Fannie Mae REMIC Trust 1994-10 M
---------- --------------
$6,431,825 Total Investments (Cost $6,131,373) $ 6,478,886
========== ==============
See accompanying footnotes to portfolio and notes to financial statements.
Mortgage Securities Trust, CMO Series 16 Intermediate
Footnotes to Portfolio
-------------------------------------------------------------------------------
1. See "The Trust - Portfolio" in Part B of the Prospectus for an
explanation of redemption features. See "Tax Status" in Part B of the
Prospectus for a statement of the Federal tax consequences to a
Certificateholder upon the sale, redemption or maturity of a security.
2. At December 31, 1996, the net unrealized appreciation of all the
securities was comprised of the following:
Gross unrealized appreciation $ 347,513
Gross unrealized depreciation -
-------------
Net unrealized appreciation $ 347,513
=============
3. All of the CMOs in the portfolio are backed by underlying mortgage-backed
securities which are pledged as collateral to secure payment of principal
and interest on the CMOs. The Units of the Trust are not, however,
guaranteed by the United States or any of its agencies. Payments are not
guaranteed by the United States and neither the CMOs in the Trust nor any
underlying mortgage backed securities constitute a debt obligation of the
United States or any of its agencies.
The accompanying notes form an integral part of the financial statements.
Mortgage Securities Trust, CMO Series 16 Intermediate
Statement of Net Assets
December 31, 1996
--------------------------------------------------------------------------------
Investments in Securities,
at Market Value (Cost $6,131,373) $ 6,478,886
--------------
Other Assets
Accrued Interest 41,148
--------------
Total Other Assets 41,148
--------------
Liabilities
Accrued Expenses 2,000
Advance from Trustee 76,919
--------------
Total Liabilities 78,919
--------------
Excess of Other Assets over Total Liabilities (37,771)
--------------
Net Assets (6,432,070 Units of Fractional Undivided
Interest Outstanding, $1.00 per Unit) $ 6,441,115
==============
The accompanying notes form an integral part of the financial statements.
Mortgage Securities Trust, CMO Series 16 Intermediate
Statement of Operations
--------------------------------------------------------------------------------
[Download Table]
For the Year Ended For the Period from
December 31, February 9, 1995
1996 (Date of Deposit) to
December 31,1995
Investment Income
Interest $ 542,178 $ 551,663
----------- -----------
Expenses
Trustee's Fees 11,941 8,378
Evaluator's Fees 2,966 920
Sponser's Advisory Fee 2,000 ----
----------- -----------
Total Expenses 16,907 9,298
----------- -----------
Net Investment Income 525,271 542,365
----------- -----------
Realized and Unrealized Gain (Loss)
Realized Gain on
Investments 64,971 ----
Change in Unrealized Appreciation
(Depreciation) on Investments (228,229) 575,742
----------- -----------
Net Gain (Loss) on Investments (163,258) 575,742
----------- -----------
Net Increase in Net Assets
Resulting From Operations $ 362,013 $1,118,107
=========== ==========
The accompanying notes form an integral part of the financial statements.
Mortgage Securities Trust, CMO Series 16 Intermediate
Statement of Changes in Net Assets
--------------------------------------------------------------------------------
[Enlarge/Download Table]
For the Year Ended For the Period from
December 31, February 9, 1995
1996 (Date of Deposit) to
December 31,1995
Operations
Net Investment Income $ 525,271 $ 542,365
Realized Gain
on Investments 64,971 ----
Change in Unrealized Appreciation
(Depreciation) on Investments (228,229) 575,742
------------ -------------
Net Increase in Net Assets
Resulting From Operations 362,013 1,118,107
------------ -------------
Distributions to Certificateholders
Investment Income 490,332 462,861
Principal 105,605 ----
Redemptions
Interest 52,479 ----
Principal 1,571,778 ----
------------ -------------
Total Distributions
and Redemptions 2,220,194 462,861
------------ -------------
Total Increase (Decrease) (1,858,181) 655,246
Net Assets
Beginning of Year 8,299,296 7,644,050
------------ -------------
End of Year (Including
Undistributed Net Investment
Income of $61,964 and
$79,504, Respectively) $ 6,441,115 $ 8,299,296
============= =============
The accompanying notes form an integral part of the financial statements.
Mortgage Securities Trust, CMO Series 16 Intermediate
Notes to Financial Statements
--------------------------------------------------------------------------------
1. Organization
Mortgage Securities Trust, CMO Series 16 Intermediate (the "Trust") was
organized on February 9, 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. The Trust was
formed to preserve capital and to provide interest income.
Effective September 28, 1995, Reich & Tang Distributors L.P. ("Reich &
Tang") has become the successor sponsor (the "Sponsor") to certain of
the unit investment trusts previously sponsored by Bear, Stearns & Co.
Inc. As successor Sponsor, Reich & Tang has assumed all of the
obligations and rights of Bear, Stearns & Co. Inc., the previous
sponsor. Effective September 2, 1995, United States Trust Company of
New York was merged into The Chase Manhattan Bank (the "Trustee").
Accordingly, Chase is the successor trustee of the Trust.
2. Summary of Significant Accounting Policies
The following is a summary of significant accounting policies
consistently followed by the Trust in preparation of its financial
statements. The policies are in conformity with generally accepted
accounting principles ("GAAP"). The preparation of financial statements
in accordance with GAAP requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the
financial statements. Actual amounts could differ from those estimates.
Interest income is recorded on the accrual basis.
Security Valuation
Investments are carried at market value which is determined by Kenny
S&P Evaluation Services, a business unit of J.J. Kenny Company, Inc., a
subsidiary of The McGraw-Hill Companies, Inc. The market value of the
portfolio is based upon the bid prices for the securities at the end of
the year, which approximates the fair value of the security at that
date, except that the market value on the date of deposit represents
the cost to the Trust based on the offering prices for investments at
that date. The difference between cost 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.
Mortgage Securities Trust, CMO Series 16 Intermediate
Notes to Financial Statements
--------------------------------------------------------------------------------
3. Income Taxes
No provision for federal income taxes has been made in the accompanying
financial statements because the Trust intends to continue to qualify
for the tax treatment applicable to Grantor Trusts under the Internal
Revenue Code. Under existing law, if the Trust so qualifies, it will
not be subject to federal income tax on net income and capital gains
that are distributed to unitholders.
4. Trust Administration
The Trustee has custody of assets and responsibility for the accounting
records and financial statements of the Trust and is responsible for
establishing and maintaining a system of internal control related
thereto. The Trustee is also responsible for all estimates of expenses
and accruals reflected in the Trust's financial statements.
The Trust Indenture and Agreement provides for interest distributions
on a monthly basis.
The Trust Indenture and Agreement further requires that principal
received from the disposition of securities, other than those
securities sold in connection with the redemption of units, be
distributed to Certificateholders.
The Trust Indenture and Agreement also requires the Trust to redeem
units tendered. For the year ended December 31, 1996, 1,567,930 units
were redeemed. No units were redeemed during the period ended December
31, 1995
The Trust pays an annual fee for trustee services rendered by the
Trustee of $.84 per $1,000 of outstanding investment principal. In
addition, a fee of $10.00 is paid to a service bureau for each
portfolio valuation. A maximum fee of $.25 per $1,000 of outstanding
investment principal is paid to the Sponsor. For the year ended
December 31, 1996, the "Trustee's Fees" are comprised of Trustee fees
of $5,607 and other expenses of $6,334. The other expenses include
professional, printing and miscellaneous fees.
Mortgage Securities Trust, CMO Series 16 Intermediate
Notes to Financial Statements
--------------------------------------------------------------------------------
5. Net Assets
At December 31, 1996, the net assets of the Trust represented the
interest of Certificateholders as follows:
Original cost to Certificateholders $ 7,921,295
Less Initial Gross Underwriting Commission 277,245
---------------
7,644,050
Accumulated Cost of Securities Sold
or Called (1,512,677)
Net Unrealized Appreciation 347,513
Undistributed Net Investment Income 61,964
Undistributed Proceeds From Investments (99,735)
---------------
Total $ 6,441,115
===============
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 8,000,000 units of
fractional undivided interest of the Trust as of the date of deposit.
Mortgage Securities Trust, CMO Series 16 Intermediate
Notes to Financial Statements
--------------------------------------------------------------------------------
6. Financial Highlights (per unit)*
Selected data for a unit of the Trust outstanding for the year ended
December 31, 1996:
Net Asset Value, Beginning of Year** $ 1.04
---------------
Interest Income .08
Expenses (.00)
---------------
Net Investment Income .08
---------------
Net Gain or Loss on Investments(1) (.03)
---------------
Total from Investment Operations .05
---------------
Less Distributions
to Certificateholders
Income .07
Principal .01
for Redemptions
Interest .01
---------------
Total Distributions .09
---------------
Net Asset Value, End of Year** $ 1.00
===============
See "Financial and Statistical Information" in Part A of this
Prospectus for amounts of per unit distributions during the years ended
December 31, 1996 and 1995 based on actual units.
(1) Net gain or loss on investments is a result of changes in outstanding
units since January 1, 1996 and the dates of net gain and loss on
investments.
--------
* Unless otherwise stated, based upon average units outstanding during
the year of 7,216,035 ([6,432,070 + 8,000,000]/2).
** Based upon actual units outstanding.
Note: Part B of This Prospectus
May Not Be Distributed unless
Accompanied by Part A
Please Read and Retain Both Parts of This
Prospectus for Future Reference.
MORTGAGE SECURITIES TRUST
CMO SERIES
Prospectus Part B
Dated: April 30, 1997
THE TRUST
ORGANIZATION. "Mortgage Securities Trust CMO Series" (the
"Trust") consists of the "unit investment trusts" designated as set forth in
Part A.* The Trust was created under the laws of the State of New York pursuant
to the Trust Indenture and Agreements** (the "Trust Agreement"), dated the Date
of Deposit, among Reich & Tang Distributors L.P., or depending on the particular
Trust, among Reich & Tang Distributors L.P. and Gruntal & Co., L.L.C. as
Co-Sponsors (the Sponsor or Co-Sponsors, if applicable, are referred to herein
as the "Sponsor"), The Chase Manhattan Bank, as Trustee, and Kenny S&P
Evaluation Services, a business unit of J.J. Kenny Company, Inc., a subsidiary
of The McGraw-Hill Companies, Inc., as Evaluator. The name of the Sponsor for a
particular Trust is contained in the "Summary of Additional Information" in Part
A.
The Trust contains different issues of collateralized mortgage
obligations ("CMOs" or "Securities"). On the Date of Deposit the Sponsor
deposited with the Trustee the underlying Securities as set forth in Part A,
including delivery statements relating to contracts for the purchase of such
Securities, and cash or an irrevocable letter of credit issued by a major
commercial bank in the amount required for such purchases. Thereafter, the
Trustee delivered to the Sponsor units of interest ("Units") representing the
entire ownership of the Trust. Each "Unit" of a Trust outstanding on the
Evaluation Date represents an undivided interest or pro rata share in the
principal and interest of the Trust in the ratio of one Unit for the indicated
principal amount of Securities in that Trust on such date as specified in Part A
of this Prospectus. Certificateholders will have the right to have their Units
redeemed (see "Redemption") at a price based on the aggregate bid side
evaluation of the Securities. To the extent that any Units are redeemed by the
Trustee, the fractional undivided interest or pro rata share in the Trust
represented by each unredeemed Unit will increase, although the actual interest
in the Trust represented by such fraction will remain unchanged. Units will
remain outstanding until redeemed upon tender to the Trustee by
Certificateholders, which may include the Sponsor or the underwriters (the
"Underwriters"), or until the termination of the Trust Agreement.
--------
* This Part B relates to the outstanding series of Short-Intermediate
Portfolio, Intermediate Portfolio or Long-Intermediate Portfolio as
reflected in Part A attached hereto.
** References in this Prospectus to the Trust Agreement are qualified in
their entirety by the Trust Indenture and Agreement which is
incorporated herein.
1427.5
OBJECTIVES. The Trust offers investors the opportunity to
participate in a portfolio of collateralized mortgage obligations with a greater
degree of safety and diversification than they might be able to acquire
themselves. The objectives of the Trust are to obtain safety of capital and a
high level of current distribution of interest income through investment in a
fixed portfolio of CMOs. The Trust seeks to obtain a higher yield than fixed
income investments with comparable AAA ratings. These CMOs may have been issued
as debt obligations of a trust or corporation or as certificated interests
representing beneficial ownership in pools of mortgage-backed securities. All of
the CMOs in the Trust are backed by underlying mortgage-backed securities which
are pledged as collateral to secure payment of principal and interest on the
CMOs. Each of these mortgage-backed securities is guaranteed by either the
Government National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA"), or the Federal Home Loan Mortgage Corporation ("FHLMC").
All of the CMOs in the Trust are issued by GNMA, FNMA or FHLMC or are otherwise
rated AAA by Standard & Poor's Ratings Services, a division of the McGraw-Hill
Companies ("Standard & Poor's") and, therefore, the Units of the Trust are rated
AAA by Standard & Poor's. However, neither GNMA, FNMA, FHLMC, the United States
or any of its agencies guarantees payment on Units of the Trust. The full faith
and credit of the United States is pledged to the payment of all amounts
guaranteed by GNMA. However, payments guaranteed by FNMA and FHLMC are not
guaranteed by the United States and neither the CMOs in the Trust nor any
underlying Fannie Maes or Freddie Macs constitute a debt obligation of the
United States or any of its agencies.
Investors should be aware that there is no assurance that the
Trust's objectives will be achieved. An investment in Units of the Trust should
be made with an understanding of the risks which an investment in a fixed
portfolio of fixed rate CMOs may entail, including the risk that the value of a
Trust portfolio and hence of the Units will decline with increases in interest
rates. It should also be noted that the potential for appreciation on the
Securities which would otherwise be expected to result from a decline in
interest rates, may tend to be limited by any increased prepayments including
selling the property, refinancing the mortgage or otherwise paying off the loan
in whole or in part by mortgagors as interest rates decline. In addition,
prepayments of principal on Securities purchased at a premium over par will
result in some loss on investment, while prepayments on Securities purchased at
a discount from par will result in some gain on investment. The Sponsor cannot
predict future economic policies or their consequences or, therefore, the course
or extent of any similar fluctuations in the future. Educational materials
regarding CMOs, including a discussion of risk factors, investment features of
CMOs and questions an investor should ask before investing are available, upon
request, from the Sponsor.
Since disposition of Units prior to final liquidation of the
Trust may result in an investor receiving less than the amount paid for such
Units (see "Comparison of Public Offering Price, Sponsor's Repurchase Price and
Redemption Price"), the purchase of a Unit should be looked upon as a long-term
investment. Neither the Trust nor the Total Reinvestment Plan are designed to be
complete investment programs.
PORTFOLIOS. The portfolios of the Trust consist of the Securities
described in "Description of Portfolio" in Part A.
In selecting Securities for deposit in the Trust, the Sponsor
considered the following factors, among others: (i) the types of CMOs available,
(ii) the yield and price of the Securities relative to other comparable
mortgage-backed securities, (iii) the estimated average lives and prepayment
schedules of the Securities, (iv) the payment provisions applicable
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1427.5
to the Securities, and (v) whether the Securities were issued after July 18,
1984 if interest thereon is United States source income.
The Trust consists of the Securities listed under "Portfolio"
in Part A as long as they may continue to be held from time to time in the Trust
together with accrued and undistributed interest thereon and undistributed and
uninvested cash realized from the disposition or redemption of Securities (see
"Trust Administration--Portfolio Supervision").
A CMO is a multiclass bond backed by a pool of mortgage
pass-through securities or mortgage loans. CMOs are also known as "real estate
mortgage investment conduits" (REMICs). As a result of the 1986 Tax Reform Act,
most CMOs are issued in REMIC form to create a certain tax advantage for the
issuer. The terms CMO and REMIC are used interchangeably. CMOs generally are
bond-like tranches of the cash flow from a mortgage pool. An issue of CMOs
generally is backed by a larger number of mortgages than a pool of Ginnie Maes,
Fannie Maes or Freddie Macs, thus allowing greater statistical prediction of
prepayment characteristics. CMOs also differ from regular mortgage-backed
securities in that the cash flow on the mortgage pool are applied to the various
classes of any series of CMOs in the order specified by that series, rather than
to each CMO in the series pro rata.
THE SECURITIES. The Securities in the Long-Intermediate Trust
portfolio consist of support class bonds, described below. The Securities in the
Intermediate Trust Portfolio may consist primarily of planned amortization or
targeted amortization bonds. The Securities in the Short-Intermediate Portfolio
may consist of one or more of several classes of CMOs, including:
Standard (Plain Vanilla) Bonds: This class of CMO accrues
interest at a fixed rate on its outstanding principal amount. The interest is
payable monthly, quarterly or semi-annually as specified. Holders of Standard
Bonds receive only interest until all CMOs issued in the same series with
earlier final distribution dates have been paid in full. In addition, some
Standard Bonds may be issued as a support class to Planned Amortization Bonds or
Targeted Amortization Bonds (see below).
Compound Interest Bonds: Interest accrues upon this class of
CMO but is not payable until all classes of CMOs issued in the same series with
earlier final distribution dates have been paid in full. Interest that accrues
but is not paid is added to the principal amount of the Compound Interest Bond.
Adjustable Rate Bonds: Interest rates on this class of CMO may
increase or decrease at one or more specified dates according to the
documentation governing their issuance.
Floating Rate Bonds: Interest rates on these classes of CMOs
vary directly or inversely (although not necessarily proportionately) in
relation to generally accepted market interest rate indices. The interest rate
is usually capped to limit the extent of over-collateralization with
mortgage-backed securities required in order to ensure that there is sufficient
cash flow to service all the classes of CMOs in that series.
Planned Amortization Bonds or Targeted Amortization Bonds and
Support Bonds: Planned Amortization or Target Amortization classes of CMOs
receive payments of principal according to a planned schedule to the extent that
prepayments on the underlying mortgage-backed securities occur within a broad
time period (the "Protection Period"). The principal is reduced only in
specified amounts at specified times resulting in greater predictability of
principal payments for the Planned Amortization Bonds or Targeted Amortization
Bonds. The greater predictability of cash flows for Planned Amortization and
Target Amortization Bonds is achieved by creating other classes of bonds
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1427.5
commonly called "support classes." Support classes generally receive principal
payments on any payment date only if scheduled payments have been made on
specified Planned Amortization and/or Target Amortization classes. Support
classes absorb the variability of principal cash flows from the underlying
mortgage-backed securities. For instance, if prepayments on the underlying
mortgage-backed securities occur at a rate greater or less than that provided
for by the Protection Period, then the excess or deficiency of cash flows
generated is absorbed by the support classes of CMOs in the particular series
until the principal amount of each of the other classes has been paid in full,
resulting in less predictability of cash flows for the support classes.
Accordingly, the support classes are subject to a higher level of risk than the
Planned Amortization or Target Amortization Bonds because the support classes
have a higher degree of average life variability. Because the support classes
have a higher degree of average life variability, they generally pay a higher
yield.
Principal Only Bonds: This class of stripped CMOs has the
right to all principal payments from the underlying mortgage-backed securities.
Principal Only Bonds sell at a deep discount. The return on a Principal Only
Bond increases the faster prepayments are received at par. The return on a
Principal Only Bond decreases if the rate of prepayment is slow. Slow prepayment
can also cause great delays in recognizing gains.
Pledged as collateral to secure the payment of interest and
principal on each type of CMO in the Portfolio will be Ginnie Maes, Fannie Maes
or Freddie Macs, guaranteed by GNMA, FNMA and FHLMC, respectively. The Units of
the Trust, however, will not be guaranteed by GNMA, FNMA, FHLMC, the United
States or any of its agencies. The Trust may contain CMOs, the collateral
pledged to secure which, are mortgages referred to as "Relocation Mortgages."
Relocation Mortgages are issued expressly to finance home purchases by
transferred employees. Since such mortgages are related to the relocation of the
individual rather than housing activity and mortgages rates generally, the
anticipated prepayment rate for them is different than other individual
mortgage-backed securities. Historically, prepayment speeds with respect to
Relocation Mortgages are faster and less interest rate sensitive than
traditional single family mortgages. Therefore, with respect to any CMOs in the
Trust supported by such Relocation Mortgages, the Trust would expect to receive
prepayment of principal on such instruments at a faster rate than that with
respect to other CMOs in the Trust.
GNMA: The Government National Mortgage Association is a
wholly-owned corporate instrumentality of the United States within the
Department of Housing and Urban Development. The National Housing Act of 1943,
as amended, authorizes GNMA to guarantee the timely payment of the principal of,
and interest on, certificates which are based on and backed by a pool of
mortgage loans insured by the Federal Housing Administration ("FHA"), or
partially guaranteed by the Veteran's Administration ("VA"). In order to meet
its obligations under such guaranty, GNMA may issue its general obligations to
the United States Treasury in an amount which is at any time sufficient to
enable GNMA, with no limitations as to amount, to perform its obligations under
its guaranty. In the event it is called upon at any time to make good its
guaranty, GNMA has the full power and authority to borrow from the Treasury of
the United States, if necessary, amounts sufficient to make payments of
principal and interest on the Ginnie Maes.
Ginnie Maes: Ginnie Maes are mortgage-backed securities of the
"fully modified pass-through" type, the terms of which provide for timely
monthly payments by the issuers to the registered holders of their pro rata
shares of the scheduled principal payments, whether or not collected by the
issuers, on account of the mortgages backing such Ginnie Maes, plus any
prepayment of principal of such mortgages received, and interest (net of
servicing and guarantee charges) on the aggregate unpaid principal balance of
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1427.5
such Ginnie Maes, whether or not interest on account of such mortgages has been
collected by the issuers. Ginnie Maes will be guaranteed as to timely payment of
principal and interest by GNMA. The full faith and credit of the United States
is pledged to the payment of all amounts which may be required to be paid under
the guaranty.
FNMA: The Federal National Mortgage Association is a Federally
chartered, privately-owned corporation organized and existing under the Federal
National Mortgage Association Charter Act. FNMA was originally established in
1938 as a United States government agency to provide supplemental liquidity to
the mortgage market but was transformed into a stockholder owned and privately
managed corporation by legislation enacted in 1968. The Secretary of Housing and
Urban Development exercises general regulatory power over FNMA. FNMA
nevertheless maintains certain relationships with the U.S. Government. Although
thirteen members of its board of directors are authorized to be elected by the
shareholders, five are appointed by the President of the United States. The
President can also remove board members, including those elected by the
shareholders. Although the Secretary of the Treasury has discretionary authority
to lend FNMA up to $2.25 billion outstanding at any time, neither the United
States nor any agency thereof is obligated to finance FNMA's obligations or to
assist FNMA in any other matter, and obligations issued by FNMA are not
guaranteed by and do not constitute a debt or obligation of the United States or
of any agency or instrumentality thereof other than FNMA. FNMA provides funds to
the mortgage market primarily by purchasing home mortgage loans from lenders,
thereby replenishing funds for additional lending. FNMA acquires funds to
purchase home mortgage loans from many capital market investors which may not
ordinarily invest in mortgages thereby expanding the total amount of funds
available for housing.
Fannie Maes: Fannie Maes are certificates of beneficial
interest evidencing pro rata undivided ownership interests in pools of
residential mortgages either previously owned by FNMA or purchased by it in
connection with the formation of a pool. FNMA guarantees the full and timely
payment of principal and interest (adjusted to the pass-through rate) on the
mortgage loans in the pool, whether or not received by FNMA or recovered by it
in foreclosure. If FNMA were unable to fulfill its guaranty, distributions to
holders of Fannie Maes would consist solely of payments and other recoveries
upon the underlying mortgages, and, accordingly, delinquencies and default would
diminish distributions to the holders. The obligations of FNMA under its
guaranty are solely those of FNMA and are not backed by the full faith and
credit of the United States. Moreover, neither the United States nor any of its
agencies is obligated to finance the operations of FNMA or to assist it.
FHLMC: The Federal Home Loan Mortgage Corporation is a
corporate instrumentality of the United States created pursuant to the Emergency
Home Finance Act of 1970 (the "FHLMC Act"). FHLMC's common stock is owned by the
Federal Home Loan Banks. FHLMC was established primarily for the purpose of
increasing the availability of mortgage credit for the financing of urgently
needed housing. It seeks to provide an enhanced degree of liquidity for
residential mortgage investments primarily by assisting in the development of
secondary markets for conventional mortgages. The principal activity of FHLMC
currently consists of the purchase of first lien, conventional residential
mortgage loans or participation interests in such mortgage loans and the resale
of the mortgage loans so purchased in the form of mortgage securities, primarily
Freddie Macs. All mortgage loans purchased by FHLMC must meet certain standards
set forth in the FHLMC Act. Mortgages retained by FHLMC are financed with debt
and equity capital.
Freddie Macs: Freddie Macs represent an undivided interest in
a pool of first lien, residential mortgages and mortgage participations
("Mortgages" or "PCs") purchased by FHLMC. PCs include "Gold PCs," "Original
PCs," "ARM PCs," "Gold Giant PCs," "Original Giant PCs," and "ARM Giant PCs."
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1427.5
PCs may include whole loans, participation interests in whole loans and
undivided interest in whole loans or participations comprising other PCs. For
example, Gold PCs, Original PCs and ARM PCs represent undivided interests in
discrete pools consisting of Mortgages. Gold Giant PCs, Original Giant PCs and
ARM Giant PCs represent beneficial ownership interests in discrete pools
consisting of PCs. In the case of Original PCs FHLMC guarantees the timely
payment of interest at the rate provided for by Freddie Macs on the unpaid
principal balance outstanding on the underlying mortgage loans in the PCs
represented by the Freddie Macs, whether or not received, and also guarantees
collection of all principal on the underlying mortgage loans, without any offset
or deduction, but does not guarantee the timely payment of scheduled principal.
Unlike Original PCs, Gold PCs guarantee the timely payment of both interest and
scheduled principal, thus producing a more predictable payment stream. Gold PCs
also offer a shorter payment delay than that of conventional mortgage
pass-through securities (FHLMC advances payment to Gold PC holders 14 days after
the borrower's scheduled principal and interest payments are due), and a shorter
period (approximately 45 days) between the first day of the month in which the
Gold PCs are issued and the initial payment date. Freddie Macs are not
guaranteed by the United States or by any Federal Home Loan Bank and do not
constitute debts or obligations of the United States or any Federal Home Loan
Bank. The obligations of FHLMC under its guarantee are obligations solely of
FHLMC and are not backed by, nor entitled to, the full faith and credit of the
United States. If FHLMC were unable to fulfill its guaranty, distributions to
holders of Freddie Macs would consist solely of payments and other recoveries
upon the underlying mortgages, and, accordingly, delinquencies and defaults
would diminish distributions to the holders.
SPECIAL FEATURES OF MARKET DISCOUNT SECURITIES. Certain of the
Securities in the Trust may have been valued at a market discount. Securities
trade at less than par value because the interest rates on the Securities are
lower than interest on comparable obligations being issued at currently
prevailing interest rates. The current returns of Securities trading at a market
discount are lower than the current returns of comparably rated obligations of a
similar type issued at currently prevailing interest rates because discount
securities tend to increase in market value as they approach maturity and the
full principal amount becomes payable. If currently prevailing interest rates
for newly issued and otherwise comparable securities increase, the market
discount of previously issued securities will become deeper, and if currently
prevailing interest rates for newly issued comparable securities decline, the
market discount of previously issued securities will be reduced, other things,
including, without limitation, credit quality and rate of prepayment, being
equal. Investors should also note that the value of the Securities valued at a
market discount will increase faster than the Securities valued at a market
premium if interest rates decrease. Conversely, if interest rates increase, the
value of the Securities valued at a market discount will decrease faster than
the Securities valued at a premium. In addition, if interest rates rise, the
prepayment risk of higher yielding premium Securities, and the prepayment
benefit for lower yielding, discount Securities will be reduced. Market discount
attributable to interest rate changes does not indicate a lack of market
confidence in the issue.
SPECIAL FEATURES OF MARKET PREMIUM SECURITIES. Certain of the
Securities in the Trust may have been valued at a market premium. Securities
trade at a premium because the interest rates on the Securities are higher than
interest on comparable obligations being issued at currently prevailing interest
rates. The current returns of Securities trading at a market premium are higher
than the current returns of comparably rated obligations of a similar type
issued at currently prevailing interest rates because premium securities tend to
decrease in market value as they approach maturity when the principal amount
becomes payable. Because part of the purchase price is returned not at maturity
but through current income payments, an early redemption of a premium security
at par will result in a reduction in yield.
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1427.5
If currently prevailing interest rates for newly issued and otherwise comparable
securities increase, the market premium of previously issued securities will
decline and if currently prevailing interest rates for newly issued comparable
securities decline the market premium of previously issued securities will
increase, other things, including, without limitation, credit quality and rate
of prepayment, being equal. Market premium attributable to interest rate changes
does not indicate market confidence in the issue.
Neither the Sponsor nor the Trustee shall be liable in any way
for any default, failure or defect in any of the Securities. Because certain of
the Securities from time to time may be redeemed or will mature in accordance
with their terms or may be sold under certain circumstances, no assurance can be
given that the Trust will retain its present size and composition for any length
of time. The proceeds from the sale of a Security or the exercise of any
redemption or call provision will be distributed to Certificateholders except to
the extent such proceeds are applied to meet redemptions of Units (see "Trustee
Redemption").
LIQUIDITY. The Securities in the Trust have been registered,
or are exempt from registration, under the Securities Act of 1933 and,
therefore, may be sold by a Trust at any time to provide funds for purposes of
redemption of Units. However, the Securities are generally not listed on a
national securities exchange or on the National Association of Securities
Dealers Automated Quotation System, Inc. Whether or not the Securities are
listed, the principal trading market for the Securities will generally be in the
over-the-counter market. As a result, the existence of a liquid trading market
for the Securities may depend on whether dealers will make a market in the
Securities. There can be no assurance that a market will be made for any of the
Securities, that any market for the Securities will be maintained or of the
liquidity of the Securities in any markets made. In addition, the Trust may be
restricted under the Investment Company Act of 1940 from selling Securities to
the Sponsor. The price at which the Securities may be sold to meet redemptions
and the value of the Trust will be adversely affected if trading markets for the
Securities are limited or absent. However, taking into account the foregoing and
other factors, the Sponsor believes that the nature of the GNMA, FNMA or FHLMC
guarantees of any Securities that have been issued by them, respectively, and
the nature of the Ginnie Maes, Fannie Maes or Freddie Macs security payments of
principal and interest due on the Securities make the Securities adequately
marketable for purposes of redemption of Units by the Trustee (see
"Redemption").
LIMITED ASSETS AND LIMITED LIABILITY. Except as indicated
under "Description of Portfolio" in Part A and except for any Securities that
were issued by GNMA, FNMA or FHLMC, the issuers of the Securities are limited
purpose corporations, trusts or other entities ("Limited Purpose Issuers"),
organized solely for the purpose of issuing Ginnie Mae, Fannie Mae or Freddie
Mac-collateralized CMOs. None of the securities issued by the Limited Purpose
Issuers (including the Securities deposited in the Trust) are guaranteed by the
parent company or any other affiliate of any Limited Purpose Issuer.
Consequently, holders of these securities (including the Trust) must rely upon
payments on the Ginnie Maes, Fannie Maes or Freddie Macs and upon any other
collateral securing the securities (including the Securities deposited in the
Trust) for the payment of principal and interest due on the Securities. If the
collateral securing the securities of each Limited Purpose Issuer is
insufficient to make payments on those securities, it is unlikely that any other
asset of the Limited Purpose Issuer will be available for payment of the
deficiency. The collateral securing the CMOs of each Issuer (including the
Securities deposited in the Trust) will be held by the CMO Trustee as security
for the CMOs of that Issuer. Although payment of principal of and interest on
Ginnie Maes, Fannie Maes and Freddie Macs securing the Securities is guaranteed
by GNMA, FNMA and FHLMC, respectively, the CMOs (including the Securities
deposited in the Trust except for any Securities which have been
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1427.5
issued directly or indirectly by GNMA, FNMA or FHLMC) represent obligations
solely of the Issuers and are not insured or guaranteed by GNMA, FNMA or FHLMC
or any other governmental agency. A default with respect to the securities of a
particular Issuer (including the Securities of the Issuer deposited in the
Trust) may not necessarily result from a corresponding default with respect to
the underlying Ginnie Maes, Fannie Maes or Freddie Macs.
For any Securities that have been issued by issuers other than
GNMA, FNMA or FHLMC, the Sponsor has obtained representations from the issuer
that it has received an opinion of counsel to the effect that it is not an
investment company or that it has been exempted from the definition of an
investment company by order of the Securities and Exchange Commission. With
respect to any Securities of issuers that have been exempted from the definition
of an investment company by order of the Securities and Exchange Commission, the
value of the Securities will not exceed more than 5% individually, or 10% in the
aggregate, of the total value of the Securities in the Trust.
LIFE OF THE SECURITIES AND OF THE TRUST. CMOs are generally
issued as a series of different classes. An issue of CMOs tends to be backed by
a larger number of mortgages than a pool of Ginnie Maes, Fannie Maes or Freddie
Macs, thus allowing greater statistical prediction of prepayment
characteristics. However, mortgage prepayment rates are likely to fluctuate
significantly from time to time and investors should consider the associated
risks. (See "Risk Considerations" in Part A.) Interest and principal payments on
the mortgages underlying any series will first be applied to meet the interest
payment requirements of each class in the series other than any class in respect
of which interest accrues but is not paid or any principal only class. Then,
principal payments on the underlying mortgages are generally applied to pay the
principal amount of the class that has the earliest maturity date. Once that
class is retired, the principal payments on the underlying mortgages are applied
to the class with the next earliest maturity date. This is repeated until all
classes are paid. Therefore, while each class of CMOs, remains subject to
prepayment as the underlying mortgages prepay, structuring several classes of
CMOs in the stream of principal payments allows a more predictable estimate of
the period of time when any one class is likely to be repaid. The estimate can
be even closer with a class of planned amortization bonds or targeted
amortization bonds. The amortization schedule for these CMOs is structured so
that, at specified prepayment rates within a relatively wide range, their
principal will be repaid at specified times and in specified amounts. However,
if any series of CMOs contains a class of planned amortization bonds or targeted
amortization bonds, then the other classes in that series may not be retired in
an order of priority determined strictly with reference to their maturity dates.
These other classes are often referred to as "support classes"
because their function is to support the amortization schedule of the planned
amortization bonds or targeted amortization bonds. If the rate of prepayments on
the underlying mortgages is faster than assumed, then classes with maturity
dates later than the planned amortization bonds or targeted amortization bonds
may be retired earlier than estimated to ensure that the planned amortization
bonds or targeted amortization bonds receive the principal payments required by
their amortization schedule. Similarly, if the rate of prepayments is slower
than anticipated, earlier support classes may be retired later than estimated.
Hence, support classes of a series that contains planned amortization bonds or
targeted amortization bonds have less predictable prepayment characteristics
than classes of a series that does not. This lack of predictability regarding
prepayments also causes support class bonds to have greater market value
fluctuation than other classes of a CMO (see "Description of Portfolios" in each
Part A for the number of planned amortization bonds, target amortization bonds
and support bonds contained in the Trust portfolios). With respect to the
Long-Intermediate Portfolio, this
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fluctuation may be substantial, both in the amount of income earned and in the
timing of principal distributions. This fluctuation may adversely affect the
repurchase and redemption prices of Units of the Long-Intermediate Portfolio.
The rate of prepayment on the underlying mortgages of a CMO will most likely
decline as interest rates increase. If the rate of prepayment declines, the
weighted average life of the support class bonds will most likely increase and,
in some cases, the decline will impact the yield and market value of these
Securities. This may cause an investor's principal in a support class bond to be
outstanding for a longer period of time than initially anticipated. Conversely,
if interest rates decline, prepayments on the underlying mortgages will most
likely increase, and the weighted average life of the support class bonds may be
shorter than anticipated. A holder of a support class bond in these situations
may be unable to reinvest the proceeds of these principal distributions at an
effective interest rate equal to the specified coupon rate on the original
support class bond. Therefore, an investor expecting to earn a fixed return for
a fixed number of years may find the life of a support class investment
decreases as interest rates fall and increases as they rise.
In contrast, Ginnie Maes, Fannie Maes or Freddie Macs,
estimation of repayment is more difficult as the cash flow on the underlying
mortgages is simply passed through on a pro rata basis to the holders. However,
any estimate of the prepayment period for any class of CMO is based upon certain
assumptions as to the prepayment speed of the underlying mortgages, which
assumptions may prove to be inaccurate over time. See "Estimated Long Term
Return and Estimated Current Return."
All of the mortgages in the pools relating to the Ginnie Maes,
Fannie Maes or Freddie Macs backing the Securities in the Trust are subject to
prepayment without any significant premium or penalty at the option of the
mortgagors (i.e., the homeowners). Because certain of the Securities from time
to time may be redeemed or prepaid or will mature in accordance with their terms
or may be sold under certain circumstances described herein, no assurance can be
given that the Trust will retain for any length of time its present size and
composition (see "Redemption").
While the mortgages on the 1 to 4 family dwellings underlying
Ginnie Maes, Fannie Maes or Freddie Macs which may back the Securities are
amortized over a period of up to 30 years, it has been the experience of the
mortgage industry that the average life of comparable mortgages, owing to
prepayments, is considerably less. Prepayments on mortgages are commonly
measured relative to a prepayment standard or model. The prepayment model of the
Public Securities Association (the "Prepayment Model") represents an assumed
rate of prepayment each month relative to the then outstanding principal balance
of a pool of new mortgage loans. 100% of the Prepayment Model assumes prepayment
rates of 0.2% per annum of the then outstanding principal balance of such
mortgage loans in the first month of the life of the mortgage loans and an
additional 0.2% per annum in each month thereafter until the 30th month.
Beginning in the 30th month and in each month thereafter during the life of the
mortgage loans, 100% of the Prepayment Model assumes a constant prepayment rate
of 6% per annum. The principal repayment behavior of any individual mortgage
will likely vary from these assumptions. The extent of this variation will
depend on a variety of factors, including the relationship between the coupon
rate on a mortgage and prevailing mortgage origination rates. As prevailing
mortgage origination rates increase in relationship to a mortgage coupon rate,
the likelihood of prepayment of that mortgage decreases. Conversely, during
periods in which prevailing mortgage origination rates are significantly less
than a mortgage coupon rate, prepayment of that mortgage becomes increasingly
likely. Research analysts use complex formulae to scrutinize the prepayments of
mortgage pools in an attempt to predict more accurately the average life of any
particular class of mortgage-backed bonds. The basis for the calculation of
estimated average life and the relationship of this calculation for Estimated
Long Term Return
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is more fully described under "Estimated Long Term Return and Estimated
Current Return."
Generally speaking, a number of factors, including mortgage
market interest rates and homeowners' mobility, will affect the average life of
the Ginnie Maes, Fannie Maes or Freddie Macs which back the Securities in the
Trust and, accordingly, there can be no assurance that the prepayment levels
which will be actually realized will conform to the estimated levels. Changes in
prepayment patterns, as reported by each of GNMA, FNMA and FHLMC on a periodic
basis, if generally applicable to the mortgage pools related to specific CMOs
could influence yield assumptions used in pricing the securities. Shifts in
prepayment patterns are influenced by changes in housing cycles and mortgage
refinancing and are also subject to certain limitations on the gathering of the
data; it is impossible to predict how new statistics will affect the yield
assumptions that determine mortgage industry rooms and pricing of CMOs.
Moreover, there is no assurance that the pools of mortgage loans relating to the
Securities in the Trust will conform to prepayment experience as reported by
GNMA, FNMA or FHLMC on a periodic basis or the prepayment experience of other
mortgage lenders.
While the value of CMOs generally fluctuates inversely with
changes in interest rates, it should also be noted that the potential for
appreciation on CMOs, which could otherwise be expected to result from a decline
in interest rates, may tend to be limited by any increased prepayments by
mortgagors as interest rates decline (except for Principal Only Bonds whose
yield increases with the speed at which payments of principal are received at
par). Accordingly, the termination of the Trust might be accelerated as a result
of prepayments made as described above. In addition, it is possible that, in the
absence of a secondary market for the Units or otherwise, redemption of Units
may occur in sufficient numbers to reduce a Portfolio to a size resulting in the
termination of the Trust (termination for this reason would be delayed if
additional Units are issued). Early termination of a Trust may have important
consequences to Certificateholders, e.g., the extent that Units were purchased
with a view to an investment of longer duration, the overall investment program
of the investor may require readjustment, or the overall return on investment
may be less or greater than anticipated, depending in part on whether the
purchase price paid for Units represented the payment of an overall premium or a
discount, respectively, above or below the stated principal amounts of the
underlying mortgages.
PUBLIC OFFERING
OFFERING PRICE. The secondary market Public Offering Price per
1,000 Units of the Trust is computed by adding to the aggregate bid price of the
Securities in the Trust divided by the number of Units outstanding times 1,000,
an amount equal to (a) for the Short-Intermediate Portfolio, 3.627% of the
aggregate bid price of the Securities per 1,000 Units which is equal to 3.5% of
the Public Offering Price per 1,000 Units, (b) for the Intermediate Portfolio,
3.896% of the aggregate bid price of the Securities per 1,000 Units which is
3.75% of the Public Offering Price per 1,000 Units and (c) for the
Long-Intermediate Portfolio, 4.167% of the aggregate offering price of the
Securities per 1,000 Units which is equal to 4% of the Public Offering Price per
1,000 Units. A proportionate share of accrued interest on the Securities is
added to the Public Offering Price. Accrued interest is the accumulated and
unpaid interest on Securities from the last day on which interest was paid and
is accounted for daily by the Trust at the initial daily rate set forth under
"Summary of Essential Information" in Part A. The Public Offering Price can vary
on a daily basis from the amount stated in this Prospectus in accordance with
fluctuations in the prices of the Securities and the price to be paid by each
investor will be computed as of the date the Units are
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purchased. The aggregate bid price evaluation of the Bonds is determined in
the manner set forth under "Trustee Redemption."
The Evaluator may obtain current bid or offering prices for
the Securities from investment dealers or brokers (including the Sponsor) that
customarily deal in CMOs or from any other report service or source of
information which the Evaluator deems appropriate.
ACCRUED INTEREST. Accrued interest is the accumulation of
unpaid interest on a Security from the last day on which interest thereon was
paid. Interest on Securities in the Trust is actually paid monthly to the Trust.
However, interest on Securities in the Trust is accounted for daily on an
accrual basis. Because of this, a Trust always has an amount of interest earned
but not yet collected by the Trustee because of non-collected coupons. For this
reason, the Public Offering Price of Units will have added to it the
proportionate share of accrued and undistributed interest to Date of Settlement.
A Certificateholder will not recover his proportionate share
of accrued interest until the Units are sold or redeemed, or the Trust is
terminated. At that time, the Certificateholder will receive his proportionate
share of the accrued interest computed to the Settlement Date in the case of
sale or termination and to the date of tender in the case of redemption.
EMPLOYEE DISCOUNTS. Employees (and their immediate families)
of Reich & Tang Distributors L.P. and its affiliates, Gruntal & Co. L.L.C. and
of any underwriter of a Trust, pursuant to employee benefit arrangements, may
purchase Units of a Trust at a price equal to the bid side evaluation of the
underlying securities in the Trust divided by the number of Units outstanding
plus a reduced sales charge. Such arrangements result in less selling effort and
selling expenses than sales to employee groups of other companies. Resales or
transfers of Units purchased under the employee benefit arrangements may only be
made through the Sponsor's secondary market, so long as it is being maintained.
DISTRIBUTION OF UNITS. Certain banks and thrifts will make
Units of the Trust available to their customers on an agency basis. A portion of
the sales charge paid by their customers is retained by or remitted to the
banks. Under the Glass-Steagall Act, banks are prohibited from underwriting
Units; however, the Glass-Steagall Act does permit certain agency transactions
and the banking regulators have indicated that these particular agency
transactions are permitted under such Act. In addition, state securities laws on
this issue may differ from the interpretations of federal law expressed herein
and banks and financial institutions may be required to register as dealers
pursuant to state law.
The Sponsor intends to qualify the Units for sale in
substantially all States through the Underwriters and through dealers who are
members of the National Association of Securities Dealers, Inc. Units may be
sold to dealers at prices which represent a concession of up to $25 per 1,000
Units, subject to the Sponsor's right to change the dealers' concession from
time to time. In addition, for transactions of 1,000,000 Units or more, the
Sponsor intends to negotiate the applicable sales charge and such charge will be
disclosed to any such purchaser. Such Units may then be distributed to the
public by the dealers at the Public Offering Price then in effect. The Sponsor
reserves the right to reject, in whole or in part, any order for the purchase of
Units. The Sponsor reserves the right to change the discounts from time to time.
SPONSOR'S AND UNDERWRITERS' PROFITS. The Sponsor will receive a
gross commission equal to (a) for the Short-Intermediate Portfolio, 3.5% of
the Public Offering Price per 1,000 Units (equivalent to 3.627% of the net
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amount invested in the Securities), (b) for the Intermediate Portfolio, 3.75% of
the Public Offering Price per 1,000 Units (equivalent to 3.896% of the net
amount invested in the Securities) and (c) for the Long-Intermediate Portfolio,
4% of the Public Offering Price per 1,000 Units (equivalent to 4.167% of the net
amount invested in the Securities). In addition, in maintaining a market for the
Units (see "Sponsor's Repurchase") the Sponsor will realize profits or sustain
losses in the amount of any difference between the price at which they buy Units
and the price at which they resell such Units.
Participants in the Total Reinvestment Plan can designate a
broker as the recipient of a dealer concession (see "Total Reinvestment Plan").
COMPARISON OF PUBLIC OFFERING PRICE, SPONSOR'S REPURCHASE
PRICE AND REDEMPTION PRICE. The secondary market Public Offering Price of the
Units will be determined on the basis of the current bid prices of the
Securities in the Trust, plus the applicable sale charges. The value at which
Units may be resold in the secondary market will be determined on the basis of
the aggregate bid side evaluation of the Securities. On the Evaluation Date, the
Public Offering Price per 1,000 Units and the Sponsor's Repurchase Price per
1,000 Units (each based on the bid side evaluation of the Securities) each
exceeded the Redemption Price per 1,000 Units and the Sponsor's secondary market
Repurchase Price per 1,000 Units (based on the current bid side evaluation of
the Securities) by the amounts shown under "Summary of Essential Information" in
Part A.
ESTIMATED LONG TERM RETURN AND ESTIMATED CURRENT RETURN
The rate of return on an investment in Units of the Trust is
measured in terms of "Estimated Current Return" and "Estimated Long Term Return"
as described below.
The Estimated Net Annual Interest Income per 1,000 Units for
the Trust, set forth under "Summary of Essential Information", shows the return
based on $1.00 principal amount per Unit after deducting estimated annual fees
and expenses. This figure will change as Securities mature, are prepaid,
exchanged, redeemed, pair or sold, as replacements or Additional Securities are
purchased and deposited in the Trust or as the expenses of the Trust change.
In actual operation, payments received in respect of the
mortgages underlying the Ginnie Maes, Fannie Maes or Freddie Macs which in turn
back the Securities will consist of a portion representing interest and a
portion representing principal. Although the aggregate monthly payment made by
the obligor on each mortgage remains constant (aside from optional prepayments
of principal), in the early years the larger proportion of each payment will
represent interest, while in later years, the proportion representing interest
will decline and the proportion representing principal will increase, although
the interest rate remains constant. Moreover, by reason of optional prepayments,
payments in the earlier years on mortgages may be substantially in excess of
those required by the amortization schedules of these mortgages; conversely,
payments in later years may be substantially less since the aggregate unpaid
principal balances of the underlying mortgages and, hence, the related Ginnie
Maes, Fannie Maes or Freddie Macs may have been greatly reduced--ultimately even
sufficiently reduced to accelerate termination of the Trust. To the extent that
those Securities bearing the higher interest rate represented in the Portfolio
are prepaid faster than other Securities, the net annual interest per 1,000
Units and the return on the Units can be expected to decline. Monthly payments
to the Certificateholders will reflect all of the foregoing factors.
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Interest on the Securities in the Trust, less estimated fees
of the Trustee and Sponsor and certain other expenses, is expected to accrue per
1,000 Units at the daily rate (based on a 360-day year) shown under "Summary of
Essential Information". The actual daily rate will vary as Securities are
prepaid, exchanged, redeemed, paid or sold or as the expenses of the Trust
change.
The Estimated Current Return and the Estimated Long Term
Return for each Trust on the Evaluation Date are set forth under "Summary of
Essential Information" in Part A. Estimated Long Term Return is calculated by:
(1) computing the yield to maturity for each CMO in the Trust's portfolio in
accordance with accepted CMO practices, which practices take into account not
only the interest payable on the CMO but also the amortization of premiums or
accretion of discounts, if any, and estimated appropriate prepayments; (2)
calculating the average of yields for the CMOs in the Trust's portfolio by
weighing each CMOs' yield by the market value of the CMO and by the amount of
time remaining to the date to which the CMO is priced (thus creating an average
yield for the portfolio of the Trust); and (3) reducing the average yield for
the portfolio of the Trust in order to reflect estimated fees and expenses of
the Trust and the maximum sales charge paid by Certificateholders. The resulting
Estimated Long Term Return represents a measure of the return to
Certificateholders earned over the estimated life of the Trust.
Estimated Current Return for each Portfolio is computed by
dividing the Estimated Net Annual Interest Income per 1,000 Units by the Public
Offering Price per 1,000 Units. In contrast to the Estimated Long Term Return,
the Estimated Current Return does not take into account the amortization of
premium or accretion of discount, if any, on the CMOs in the portfolio of the
Trust.
The calculation of an estimated average life for any Security
in the Trust is a two stage process. First, several assumptions are made to
derive an estimated prepayment rate for the mortgages underlying the Ginnie
Maes, Fannie Maes or Freddie Macs which back the Securities. Based upon
historical prepayment data provided by GNMA, FNMA or FHLMC an assumption is made
as to how the prepayment behavior of the mortgages will be affected as they
amortize. However, because historical prepayment data afford only a limited
basis upon which to analyze prepayment behavior, the Sponsor has developed an
econometric model that allows an analysis of several other important variables.
The principal variables are the spread between present market interest rates and
the interest rate on the mortgages and the turnover rate in the housing market.
Finally, the Sponsor uses this model's prepayment predictions to derive an
estimated prepayment rate for the mortgage pool, expressed in terms of the PSA
Prepayment Model, from which an estimated average life an estimated prepayment
schedule can be projected for the Ginnie Maes, Fannie Maes or Freddie Macs
themselves. While the various estimates made in this first stage are subjected
to rigorous analysis, investors should be aware that they are based upon
reported statistical relations that may not remain constant and assumptions
about the future of an uncertain economic environment.
The second stage in determining the estimated average life of
any Security in the Trust involves the use of a formula to apply the estimated
rate of principal payments on the mortgage pool to amortize the Ginnie Maes,
Fannie Maes or Freddie Macs which back the Securities and to retire the
principal amount of each CMO class of the same series, including the Security
itself, according to the specific principal reduction schedule of that series.
This results in an estimate of the point at which the principal of any Security
will begin to be paid and how long it will take for the principal to be fully
paid. If any Security was issued in a series that contains planned amortization
bonds or targeted amortization bonds, then the estimated rate of principal
payments on the underlying mortgages will be applied to the other
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classes in that series in a manner that takes account of the amortization
schedule of the planned amortization bonds or targeted amortization bonds. This
results in less predictable prepayment characteristics for those other classes.
The estimated average life for the Trust provided under the "Summary of
Essential Information" is subject to change with alterations in the data used in
any of the underlying assumptions. The actual average lives of the Securities
and the actual long term returns will be different from the estimated average
lives and the Estimated Long Term Returns.
Both Estimated Current Return and Estimated Long Term Return
are subject to fluctuation with changes in Portfolio composition, principal
payments and prepayments and changes in market value of the underlying
Securities and changes in fees and expenses, including sales charges, and
therefore can be materially different than the figures set forth under the
Summary of Essential Information. The size of any difference between Estimated
Current Return and Estimated Long Term Return can also be expected to fluctuate
at least as frequently. In addition, both return figures may not be directly
comparable to yield figures used to measure other investments, and since the
return figures are based on certain assumptions and variables the actual returns
received by a Certificateholder may be higher or lower. The Estimated Long Term
Return and Estimated Current Return calculations do not take into account
certain delays in distributions of income and the timing of other receipts and
distributions on Units and may, depending on maturities, over or understate the
impact of sales charges. Both of these factors may result in lower figures.
In addition to the Public Offering Price, the price of a Unit
includes accrued interest on the Securities. Securities deposited in the Trust
include an item of accrued but unpaid interest up to the date of delivery of the
Securities. Certificateholders pay for this additional accrued interest when
they purchase Units. In addition, interest accruing after the date of delivery
of the Securities is added to the Public Offering Price. Accrued interest earns
no return.
The payment dates of the Securities may vary and therefore
accrued interest at any time may be greater than the amount of interest actually
received by the Trust and distributed to Certificateholders. Therefore, accrued
interest (if any) is always added to the value of the Units. If a
Certificateholder sells all or a portion of his Units, he will receive his
proportionate share of the accrued interest from the purchaser of his Units.
Similarly, if a Certificateholder redeems all or a portion of his Units, the
Redemption Price per Unit will include accrued interest on the Securities.
RIGHTS OF CERTIFICATEHOLDERS
CERTIFICATES. Ownership of Units of the Trust is evidenced by
registered Certificates executed by the Trustee and the Sponsor. Certificates
may be issued in denominations of one thousand or more Units. Certificates are
transferable by presentation and surrender to the Trustee properly endorsed
and/or accompanied by a written instrument or instruments of transfer. Although
no such charge is presently made or contemplated, the Trustee may require a
Certificateholder to pay $2.00 for each Certificate reissued or transferred and
any governmental charge that may be imposed in connection with each such
transfer or interchange. Mutilated, destroyed, stolen or lost Certificates will
be replaced upon delivery of satisfactory indemnity and payment of expenses
incurred.
INTEREST AND PRINCIPAL DISTRIBUTIONS. Interest received by each
Trust is credited by the Trustee to an Interest Account for the Trust.
Proceeds representing principal received from the maturity, redemption, sale
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or other disposition of the Securities are credited to the Principal Account
of the Trust.
Distributions to each Certificateholder from the Interest
Account are computed as of the close of business on each Record Date for the
following Payment Date and consist of an amount substantially equal to such
Certificateholder's pro rata share of the amount of interest received on the
Securities during such month in the Interest Account less amounts deducted or
estimated to be deducted as discussed below. Distributions from the Principal
Account of each Trust (other than amount representing failed contracts, as
previously discussed) will be computed as of each monthly Record Date, and will
be made to the Certificateholders of that Trust on the next monthly Payment
Date. Proceeds representing principal received from the disposition of any of
the Securities between a Record Date and a Payment Date which are not used for
redemptions of Units will be held in the Principal Account and not distributed
until the second succeeding monthly Payment Date. No distributions will be made
to Certificateholders electing to participate in the Total Reinvestment Plan.
Persons who purchase Units between a Record Date and a Payment Date will receive
their first distribution on the second Payment Date after such purchase. All
funds in respect of the Securities received and held by the Trustee prior to
distribution to Certificateholders may be of benefit to the Trustee and do not
bear interest to Certificateholders.
As of the first day of each month, the Trustee will deduct
from the Interest Account of each Trust, and, to the extent funds are not
sufficient therein, from the Principal Account of the Trust, amounts necessary
to pay the expenses of the Trust (as determined on the basis set forth under
"Trust Expenses and Charges"). The Trustee also may withdraw from said accounts
such amounts, if any, as it deems necessary to establish a reserve for any
applicable taxes or other governmental charges that may be payable out of the
Trust. Amounts so withdrawn shall not be considered a part of the Trust's assets
until such time as the Trustee shall return all or any part of such amounts to
the appropriate accounts. In addition, the Trustee may withdraw from the
Interest and Principal Accounts such amounts as may be necessary to cover
purchases of Replacement Securities and redemptions of Units by the Trustee.
The estimated monthly distribution per 1,000 Units will be in
the approximate amount shown under "Summary of Essential Information" in Part A
and will change and may be reduced as Securities are prepaid or are redeemed,
exchanged or sold, or as expenses of the Trust fluctuate. No distribution need
be made from the Principal Account until the balance therein is an amount
sufficient to distribute $1 per 1,000 Units.
RECORDS. The Trustee shall furnish Certificateholders in
connection with each distribution a statement of the amount of interest, if any,
and the amount of the receipts, if any, which are being distributed, expressed
in each case as a dollar amount per 1,000 Units. Within a reasonable time after
the end of each calendar year the Trustee will furnish to each person who at any
time during the calendar year was a Certificateholder of record, a statement
showing (a) as to the Interest Account: interest received, amounts paid for
purchases of Replacement Securities and redemptions of Units, if any, deductions
for applicable taxes and fees and expenses of the Trust, and the balance
remaining after such distributions and deductions, expressed both as a total
dollar amount and as a dollar amount representing the pro rata share of each
1,000 Units outstanding on the last business day of such calendar year; (b) as
to the Principal Amount: the dates of disposition of any Securities and the net
proceeds received therefrom, deductions for payments of applicable taxes and
fees and expenses of the Trust, amounts paid for purchases of Replacement
Securities and redemptions of Units, if any, and the balance remaining after
such distributions and deductions, expressed both as a total dollar amount and
as a
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dollar amount representing the pro rata share of each 1,000 Units outstanding on
the last business day of such calendar year; (c) a list of the Securities held
and the number of Units outstanding on the last business day of such calendar
year; (d) the Redemption Price per 1,000 Units based upon the last computation
thereof made during such calendar year; and (e) amounts actually distributed to
Certificateholders during such calendar year from the Interest and Principal
Accounts, separately stated, of the Trust, expressed both as total dollar
amounts and as dollar amounts representing the pro rata share of each 1,000
Units outstanding on the last business day of such calendar year.
The Trustee shall keep available for inspection by
Certificateholders at all reasonable times during usual business hours, books or
record and account of its transactions as Trustee, including records of the
names and address of Certificateholders, Certificates issued or held, a current
list of Securities in the Portfolio and a copy of the Trust Agreement.
TAX STATUS
The Sponsor believes that (i) each Security the interest on
which is United States source income (which is the case for most Securities
issued by United States issuers) was or will have been issued after July 18,
1984, (ii) each Security is a regular interest in a REMIC, as defined in
Sections 860A-G of the Code, and (iii) interest on any Security issued by a
non-United States issuer is not subject to any foreign withholding taxes under
current law. There can be no assurance, however, that foreign withholding taxes
will not be imposed on interest on Securities issued by non-United States
issuers in the future.
Neither the Sponsor nor Battle Fowler LLP has made or will
make a review of the facts and circumstances relating to the issuance of any
Security.
Based on the foregoing, in the opinion of Battle Fowler LLP,
special counsel for the Sponsor, under existing law:
The Trust is not an association taxable as a corporation for
Federal income tax purposes, and income received by the Trust will be
treated as the income of the Certificateholder in the manner set forth
below.
Each Certificateholder will be considered the owner of a pro
rata portion of each Security in the Trust under the grantor trust
rules of Sections 671-679 of the Internal Revenue Code of 1986, as
amended (the "Code"). In order to determine the face amount of the
Certificateholder's pro rata portion of each Security on the initial
Date of Deposit, see Principal Amount of Securities under "Portfolio."
The total cost to a Certificateholder of his Units, including sales
charges, is allocated among his or her pro rata portion of each
Security (in proportion to the fair market values thereof on the date
the Certificateholder purchases his Units) in order to determine his
tax cost for his pro rata portion of each Security. In order for a
Certificateholder who purchases his Units on the initial Date of
Deposit to determine the fair market value of his pro rata portion of
each Security on such date, see Cost of Securities to Trust under
"Portfolio."
A Certificateholder will be required to include in income his
or her respective pro rata share of interest on each Security (whether
or not the Security has original issue discount, as discussed below) as
interest accrues, whether or not the Certificateholder is an accrual
method taxpayer. An individual Certificateholder who itemizes
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deductions may deduct his pro rata share of fees and expenses of the
Trust only to the extent that such amount together with the
Certificateholder's other miscellaneous deductions exceeds 2% of his
adjusted gross income and subject to overall restrictions on itemized
deductions set forth in Section 68 of the Code.
The Trust may contain Securities which were originally issued
at a discount ("original issue discount"). In general, original issue
discount is defined as the difference between the price at which a
security was issued and its stated redemption price at maturity.
Original issue discount on a Security will accrue as interest over the
life of the Security under a formula based on the compounding of
interest. Such formula requires the adoption by the issuer of the
Securities of certain prepayment assumptions, discussed in more detail
in "Estimated Long Term Return and Estimated Current Return."
Certificateholders are urged to consult their own tax advisers. In the
case of a Certificateholder who purchases Units in a trust holding a
Security that was originally issued at a discount, the amount of
original issue discount that will accrue will be reduced if the
Certificateholder purchases the Units at a price that reflects a lower
yield for the Security than the yield thereon at the time of the
original issuance of such Security. Each Certificateholder will be
required to include in income in each year the amount of original issue
discount which accrues during the year on his pro rata portion of any
Security originally issued at a discount. The amount of original issue
discount so included in income in respect of a Certificateholder's pro
rata portion of a Security is added to the Certificateholder's tax cost
therefor.
If a Certificateholder's tax cost for his pro rata portion of
a Security exceeds the redemption price at maturity thereof, the
Certificateholder will be considered to have purchased his pro rata
portion of the Security at a "premium." The Certificateholder (except
in the case of a dealer in securities or one who holds debt obligations
primarily for sale to customers in the ordinary course of his trade or
business) may elect to amortize the premium prior to the maturity of
the Security. The amount amortized in any year should be applied to
offset the Certificateholder's interest from the Security and should
result in an adjustment to basis (i.e., a reduction of the
Certificateholder's tax cost) for his pro rata portion of the Security.
A Certificateholder will recognize taxable gain or loss when
all or part of his pro rata portion of a Security is disposed of for an
amount greater or less than his original tax cost therefor plus any
accrued original issue discount or minus any amortized premium. Any
such taxable gain or loss will be capital gain or loss, except in the
case of a dealer, and except as provided for in the next paragraph.
Any gain from the disposition of a Certificateholder's pro
rata portion of a Security issued after July 18, 1984 and acquired by
the Certificateholder at "market discount" (i.e., if the
Certificateholder's original cost for his pro rata portion of the
Security (plus any original issue discount which has accrued thereon)
is less than its stated redemption price at maturity) will be treated
as ordinary income to the extent the gain does not exceed the accrued
market discount. The deduction of capital losses is subject to
limitations. A Certificateholder will be considered to have disposed of
all or part of his pro rata portion of each Security when he sells or
redeems all or some of his Units. A Certificateholder will also be
considered to have disposed of all or part of his pro rata portion of a
Security when all or part of the Security is sold by the Trust or is
redeemed or paid at maturity.
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Units that are owned by Certificateholders, other than a
dealer in securities or one who holds debt obligations primarily for
sale to customers in the ordinary course of his trade or business, are
capital assets and generally produce capital gains and losses upon
their sale or disposition. Gain realized upon the sale or disposition
of an interest in a REMIC, however, will be ordinary income to the
extent of unaccrued original issue discount as determined by a
prescribed formula.
Under the income tax laws of the State and City of New York,
the Trust is not an association taxable as a corporation and income
received by the Trust will be treated as the income of the
Certificateholders in the same manner as for Federal income tax
purposes.
Notwithstanding the foregoing, a Certificateholder who is not
a citizen or resident of the United States or a United States domestic
corporation (a "Foreign Certificateholder") will generally not be
subject to United States Federal income taxes, including withholding
taxes, or information reporting, on the interest income (including any
original issue discount) on, or any gain from the sale or other
disposition of, his pro rata portion of any Security provided that (i)
the interest income or gain is not effectively connected with the
conduct by the Foreign Certificateholder of a trade or business within
the United States, (ii) if the interest is United States source income
(which is the case on most Securities issued by United States issuers),
the Security is issued after July 18, 1984 and the Foreign
Certificateholder does not own, actually or constructively, 10% or more
of the total combined voting power of all classes of voting stock of
the issuer of the Security and is not a controlled foreign corporation
related (within the meaning of Section 864(d)(4) of the Code) to the
issuer of the Security, (iii) with respect to any gain, the Foreign
Certificateholder (if an individual) is not present in the United
States for 183 days or more during the taxable year and does not have a
"tax home" (as defined in Section 911(d)(3) of the Code) in the United
States, and the gain is not attributable to an office or fixed place of
business maintained by such individual in the United States, and (iv)
the Foreign Certificateholder provides the required certification of
his status and of the matters contained in clauses (i), (ii) and (iii)
above. Foreign Certificateholders should consult their own tax advisers
with respect to United States Federal income tax consequences of
ownership of Units.
After the end of each calendar year, the Trustee will furnish
to each Certificateholder an annual statement containing information relating to
the interest received by the Trust on the Securities, the gross proceeds
received by the Trust from the disposition of any Security (resulting from
redemption or payment at maturity of any Security or the sale by the Trust of
any Security), and the fees and expenses paid by the Trust. The Trustee will
also furnish annual information returns to each Certificateholder and to the
Internal Revenue Service.
The foregoing discussion relates only to United States Federal
and, to a limited extent, New York State and City income taxes.
Certificateholders may be subject to taxation in New York or in other
jurisdictions (including a Foreign Certificateholder's country of residence) and
should consult their own tax advisers in this regard.
TAX-EXEMPT INVESTORS. Entities that generally qualify for an
exemption from federal income tax, such as many pension trusts, are nevertheless
taxed under Section 511 of the Code on "unrelated business taxable income."
Unrelated business taxable income is income from a trade or business regularly
carried on by the tax-exempt entity that is unrelated to the entity's exempt
purpose. Unrelated business taxable income generally
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does not include interest income or gain from the sale of investment property,
unless such income is derived from property that is debt-financed or such gain
is derived from property that is dealer property. A tax-exempt entity's interest
income from the Trust and gain from the sale of Units in the Trust or the
Trust's sale of Securities is not expected to constitute unrelated business
income to such tax-exempt entity unless the acquisition of the Unit itself is
debt-financed or constitutes dealer property in the hands of the tax-exempt
entity.
Before investing in the Trust, the trustee or investment
manager of an employee benefit plan (e.g., a pension or profit sharing
retirement plan) should consider among other things (i) whether the investment
is prudent under ERISA, taking into account the needs of the plan and all of the
facts and circumstances of the investment in the Trust; (ii) whether the
investment satisfies the diversification requirement of Section 404(a)(1)(C) of
ERISA; and (iii) whether the assets of the Trust are deemed "plans assets" under
ERISA and the Department of Labor regulations regarding the definition of "plan
assets."
Prospective tax-exempt investors are urged to consult their
own advisors prior to investing in the Trust.
LIQUIDITY
SPONSOR REPURCHASE. The Sponsor, although not obligated to do
so, intends to maintain a secondary market for the Units and continuously to
offer to repurchase the Units. The Sponsor's secondary market repurchase price
after the initial public offering is completed will be based on the aggregate
bid price of the Securities in the Trust and will be the same as the redemption
price. The aggregate bid price will be determined by the Evaluator on a daily
basis after the initial public offering is completed and computed on the basis
set forth under "Trustee Redemption". Certificateholders who wish to dispose of
their Units should inquire of the Sponsor as to current market prices prior to
making a tender for redemption. The Sponsor may discontinue repurchase of Units
if the supply of Units exceeds demand, or for other business reasons. The date
of repurchase is deemed to be the date on which Certificates representing Units
are physically received in proper form by Reich & Tang Distributors L.P., 600
Fifth Avenue, New York, New York 10020, on behalf of the Sponsor. Units received
after 4 P.M., New York Time, will be deemed to have been repurchased on the next
business day. In the event a market is not maintained for the Units, a
Certificateholder may be able to dispose of Units only by tendering them to the
Trustee for redemption.
Units purchased by the Sponsor in the secondary market may be
reoffered for sale by the Sponsor at a price based on the aggregate bid price of
the Securities in the Trust plus (a) for the Short-Intermediate Portfolio, a
3.5% sales charge (3.627% of the net amount invested) plus net accrued interest,
(b) for the Intermediate Portfolio, a 3.75% sales charge (3.896% of the net
amount invested) plus net accrued interest and (c) for the LongIntermediate
Portfolio, a 4% Sales Charge (4.167% of the net amount invested) plus net
accrued interest. Any Units that are purchased by the Sponsor in the secondary
market also may be redeemed by the Sponsor if it determines such redemption to
be in its best interest.
The Sponsor may, under certain circumstances, as a service to
Certificateholders, elect to purchase any Units tendered to the Trustee for
redemption (see "Trust Redemption"). Factors which the Sponsor will consider in
making a determination will include the number of Units of the Trust which it
has in inventory, its estimate of the salability and the time required to sell
such Units and general market conditions. For example, if in order to meet
redemption of Units the Trustee must dispose of Securities, and if such
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disposition cannot be made by the redemption date (seven calendar days after
render), the Sponsor may elect to purchase such Units. Such purchase shall be
made by payment to the Certificateholder not later than the close of business on
the redemption date of an amount equal to the Redemption Price on the date of
tender.
TRUSTEE REDEMPTION. Units may also be tendered to the Trustee
for redemption at any time prior to the termination of the Trust at its unit
investment trust office at 4 New York Plaza, New York, New York 10004, upon
proper delivery of Certificates representing such Units and payment of any
relevant tax. At the present time there are no specific taxes related to the
redemption of Units. No redemption fee will be charged by the Sponsor or the
Trustee. Units redeemed by the Trustee will be canceled.
Certificate representing Units to be redeemed must be
delivered to the Trustee and must be properly endorsed or accompanied by proper
instruments of transfer with signature guaranteed (or by providing satisfactory
indemnity, as in the case of lost, stolen or mutilated Certificates). Thus,
redemptions of Units cannot be effected until Certificates representing such
Units have been delivered by the person seeking redemption. (See
"Certificates".) Certificateholders must sign exactly as their names appear on
the faces of their Certificates. In certain instances the Trustee may require
additional documents such as, but not limited to, trust instruments,
certificates of death, appointments as executor or administrator or certificates
of corporate authority.
Within three business days following a tender for redemption,
the Certificateholder will be entitled to receive in cash an amount for each
Unit tendered equal to the Replacement Price per Unit computed as of the
Evaluation Time set forth under "Summary of Essential Information" in Part A on
the date of tender. The "date of tender" is deemed to be the date on which Units
are received by the Trustee, except that with respect to Units received after
the close of trading on the New York Stock Exchange, the date of tender is the
next day on which such Exchange is open for trading, and such Units will be
deemed to have been tendered to the Trustee on such day for redemption at the
Redemption Price computed on that day.
Accrued interest paid on redemption shall be withdrawn from
the Interest Account, or, if the balance therein is insufficient, from the
Principal Account. All other amounts paid on redemption shall be withdrawn from
the Principal Account. The Trustee is empowered to sell Securities in order to
make funds available for redemptions. Such sales, if required, could result in a
sale of Securities by the Trustee at a loss. To the extent Securities are sold,
the size and diversity of the Trust will be reduced.
The Redemption Price per Unit is the pro rata share of each
Unit in a Trust determined by the Trustee on the basis of (i) the cash on hand
in the Trust or moneys in the process of being collected, (ii) the value of the
Securities in the Trust based on the bid prices of such Securities and (iii)
interest accrued thereon, less (a) amounts representing taxes or other
governmental charges payable out of the Trust, (b) the accrued expenses of the
Trust and (c) cash allocated for the distribution to Certificateholders of
record as of the business day prior to the evaluation being made. The Evaluator
may determine the value of the Securities in the Trust (i) if the Securities are
listed on a national securities exchange (CMOs are usually not so listed), based
on the closing sale prices on that exchange (unless the Evaluator deems these
prices inappropriate as a basis for valuation), (ii) if the Securities are not
so listed or, if so listed and the principal market therefor is other than on
the exchange or there are no closing sale prices on the exchange, based on the
closing sale prices on the over-the-counter market (unless the Evaluator deems
these prices inappropriate as a basis for evaluation), (iii) if closing sale
prices are unavailable, (a) on the basis of
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current bid or offering prices for the Securities, (b) if bid or offering prices
are not available for any Securities, on the basis of current bid or offering
prices for comparable securities, (c) by appraising the value of the Securities
on the bid or offering side of the market or (d) by any combination of the
above. The Evaluator may obtain current price information as to the Securities
from investment dealers or brokers (including the Sponsor) which customarily
deal in this type of security.
While the Sponsor believes that Securities of the type
included in the Trust involve minimal risk of loss of principal, due to
variations in interest rates the market value of these Securities, and
Redemption Price per Unit (particularly of the Long-Intermediate Portfolio), can
be expected to fluctuate during the period of an investment in the Trust.
The Trustee is irrevocably authorized in its discretion, if
the Sponsor does not elect to purchase a Unit tendered for redemption or if the
Sponsor tenders a Unit for redemption, in lieu of redeeming such Unit, to sell
such Unit in the over-the-counter market for the account of the tendering
Certificateholder at prices which will return to the Certificateholder an amount
in cash, net after deducting brokerage commissions, transfer taxes and other
charges, equal to or in excess of the Redemption Price for such Unit. The
Trustee will pay the net proceeds of any such sale to the Certificateholder on
the day he would otherwise be entitled to receive payment of the Redemption
Price.
The Trustee reserves the right to suspend the right of
redemption and to postpone the date of payment of the Redemption Price per Unit
for any period during which the New York Stock Exchange is closed, other than
customary weekend and holiday closings, or trading on that Exchange is
restricted or during which (as determined by the Securities and Exchange
Commission) an emergency exists as a result of which disposal or evaluation of
the Bonds is not reasonably practicable, or for such other periods as the
Securities and Exchange Commission may by order permit. The Trustee and the
Sponsor is not liable to any person or in any way for any loss or damage which
may result from any such suspension or postponement.
A Certificateholder who wishes to dispose of his Units should
inquire of his bank or broker in order to determine if there is a current
secondary market price in excess of the Redemption Price.
TOTAL REINVESTMENT PLAN
Distributions of interest and principal, if any, from the
Trust are made to Certificateholders monthly. The Certificateholder has the
option, however, of either receiving his interest check, together with any
principal payments, from the Trustee or participating in a reinvestment program
offered by the Sponsor in shares of The Treasurer's Fund, Inc., U.S. Treasury
Money Market Portfolio (the "Fund"). Participation in the reinvestment option is
conditioned on the Fund's lawful qualification for sale in the state in which
the Certificateholder is a resident.
Upon enrollment in the reinvestment option, the Trustee will
direct interest and/or principal distributions, if any, to the Fund. The Fund
seeks to maximize current income and to maintain liquidity and a stable net
asset value by investing in short term U.S. Treasury Obligations which have
effective maturities of one year or less. For more complete information
concerning the Fund, including charges and expenses, the Certificateholder
should fill out and mail the card attached to the inside back cover of this
Prospectus. The prospectus for the Fund will be sent to Certificateholders. The
Certificateholder should read the prospectus for the Fund carefully before
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deciding to participate. The shares of the Fund are not rated by Standard &
Poor's.
TRUST ADMINISTRATION
PORTFOLIO SUPERVISION. The Trust is a unit investment trust
and is not an actively managed fund. Traditional methods of investment
management for a managed fund typically involve frequent changes in a portfolio
of securities on the basis of economic, financial and market analyses. The
portfolios of the Trust, however, will not be actively managed and therefore the
adverse financial condition of an issuer will not require the sale of its
Securities from the Portfolios. However, the Sponsor may direct the disposition
of Securities upon default in payment of amounts due on any of the Securities,
institution of certain legal proceedings, default in payment of amounts due on
other securities of the same issuer or guarantor, or decline in price or the
occurrence of other market or credit factors that in the opinion of the Sponsor
would make the retention of these Securities detrimental to the interest of the
Certificateholders. If a default in the payment of amounts due on any Security
occurs and if the Sponsor fails to give instructions to sell or hold that
Security, the Indenture provides that the Trustee, within 30 days of that
failure by the Sponsor, shall sell the Security.
The Sponsor is required to instruct the Trustee to reject any
offer made by an issuer of any of the Securities to issue new Securities in
exchange or substitution for any Securities pursuant to a refunding or
refinancing plan, except that the Sponsor may instruct the Trustee to accept or
reject any offer or to take any other action with respect thereto as the Sponsor
may deem proper if (a) the issuer is in default with respect to these Securities
or (b) in the written opinion of the Sponsor the issuer will probably default
with respect to these Securities in the reasonably foreseeable future. Any
Securities so received in exchange or substitution will be held by the Trustee
subject to the terms and conditions of the Indenture to the same extent as
Securities originally deposited thereunder. Within five days after the deposit
of Securities in exchange or substitution for underlying Securities, the Trustee
is required to give notice thereof to each Certificateholder, identifying the
Securities eliminated and the Securities substituted therefor. Except as stated
herein, the acquisition by the Trust of any securities other than the Securities
initially deposited is prohibited.
TRUST AGREEMENT, AMENDMENT AND TERMINATION. The Trust
Agreement may be amended by the Trustee, the Sponsor and the Evaluator without
the consent of any of the Certificateholders; (1) to cure any ambiguity or to
correct or supplement any provision which may be defective or inconsistent; (2)
to change any provision thereof as may be required by the Securities and
Exchange Commission or any successor governmental agency; or (3) to make such
other provisions in regard to matters arising thereunder as shall not adversely
affect the interests of the Certificateholders.
The Trust Agreement may also be amended in any respect, or
performance of any of the provisions thereof may be waived, with the consent of
the holders of Certificates evidencing 66-2/3% of the Units then outstanding for
the purpose of modifying the rights of Certificateholders; provided that no such
amendment or waiver shall reduce any Certificateholder's interest in a Trust
without his consent or reduce the percentage of Units required to consent to any
such amendment or waiver without the consent of the holders of all Certificates.
The Trust Agreement may not be amended, without the consent of the holders of
all Certificates in a Trust then outstanding, to increase the number of Units
issuable or to permit the acquisition of any bonds in addition to or in
substitution for those initially deposited in such Trust, except in accordance
with the provisions of the Trust Agreement. The
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Trustee shall promptly notify Certificateholders, in writing, of the substance
of any such amendment.
The Trust Agreement provides that the Trust shall terminate
upon the maturity, redemption or other disposition, as the case may be, of the
last of the Securities held in the Trust but in no event is it to continue
beyond the end of the calendar year preceding the fiftieth anniversary of the
execution of the Trust Agreement. If the value of the Trust shall be less than
the minimum amount set forth under "Summary of Essential Information" in Part A,
the Trustee may, in its discretion, and shall when so directed by the Sponsor,
terminate such Trust. Each Trust may also be terminated at any time with the
consent of the holders of Certificates representing 100% of the Units then
outstanding. In the event of termination, written notice thereof will be sent by
the Trustee to all Certificateholders. Within a reasonable period after
termination, the Trustee must sell any Securities remaining in the terminated
Trust, and, after paying all expenses and charges incurred by the Trust,
distribute to each Certificateholder, upon surrender for calculation of his
Certificate for Units, his pro rata share of the Interest and Principal
Accounts.
THE SPONSOR. The Sponsor, Reich & Tang Distributors L.P.
("Reich & Tang") is engaged in the brokerage business and is a member of the
National Association of Securities Dealers, Inc. Reich & Tang is also a
registered investment adviser. Reich & Tang maintains its principal business
offices at 600 Fifth Avenue, New York, New York 10020. Reich & Tang Asset
Management L.P. ("RTAM LP"), a registered investment adviser, having its
principal place of business at 399 Boylston Street, Boston, MA 02116, is the 99%
limited partner of the Sponsor. RTAM LP is 99.5% owned by New England Investment
Companies, LP ("NEIC LP") and Reich & Tang Asset Management, Inc., a wholly
owned subsidiary of NEIC LP, owns the remaining .5% interest of RTAM LP and is
its general partner. NEIC LP's general partner is New England Investment
Companies, Inc. ("NEIC"), a holding company offering a broad array of investment
styles across a wide range of asset categories through eleven subsidiaries,
divisions and affiliates offering a wide array of investment styles and products
to institutional clients. These affiliates in the aggregate are investment
advisers or managers to over 54 registered investment companies. Reich & Tang is
the successor sponsor for numerous series of unit investment trusts, including,
New York Municipal Trust, Series 1 (and Subsequent Series), Municipal Securities
Trust, Series 1 (and Subsequent Series), 1st Discount Series (and Subsequent
Series), Multi-State Series 1 (and Subsequent Series), Mortgage Securities
Trust, Series 1 (and Subsequent Series), Insured Municipal Securities Trust,
Series 1 (and Subsequent Series), 5th Discount Series (and Subsequent Series),
and Equity Securities Trust, Series 1, Signature Series, Gabelli Communications
Income Trust (and Subsequent Series).
On August 30, 1996, New England Mutual Life Insurance Company
("The New England") and Metropolitan Life Insurance Company ("MetLife") merged,
with MetLife being the continuing company. RTAM L.P. remains a wholly-owned
subsidiary of NEIC LP, but RTAM Inc. its sole general partner, is now an
indirect subsidiary of MetLife. Also, Metlife New England Holdings, Inc., a
wholly-owned subsidiary of MetLife, owns 55% of the outstanding limited
partnership interest of NEIC L.P., also indirectly owns a majority of the
outstanding limited partnership interest of NEIC LP.
MetLife is a mutual life insurance company with assets of
$142.2 billion at March 31, 1996. It is the second largest life insurance
company in the United States in terms of total assets. MetLife provides a wide
range of insurance and investment products and services to individuals and
groups and is the leader among United States life insurance companies in terms
of total life insurance in force, which exceeded $1.2 trillion at March 31, 1996
for MetLife and its insurance affiliates. MetLife and its affiliates provide
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insurance or other financial services to approximately 36 million people
worldwide.
For certain other Trusts as set forth in the "Summary of
Essential Information" in Part A, the Co-Sponsors are Reich & Tang and Gruntal &
Co. L.L.C., both of whom have entered into an Agreement Among Co-Sponsors
pursuant to which both parties have agreed to act as Co-Sponsors for the Trust.
Reich & Tang has been appointed by Gruntal & Co. L.L.C. as agent for purposes of
taking any action required or permitted to be taken by the Sponsors under the
Trust Agreement. If the Sponsors are unable to agree with respect to action to
be taken jointly by them under the Trust Agreement and they cannot agree as to
which Sponsor shall act as sole Sponsor, then Reich & Tang shall act as sole
Sponsor. If one of the Sponsors fails to perform its duties under the Trust
Agreement or becomes incapable of acting or becomes bankrupt or its affairs are
taken over by public authorities, that Sponsor may be discharged under the Trust
Agreement and a new Sponsor may be appointed or the remaining Sponsor may
continue to act as Sponsor.
Gruntal & Co., L.L.C., a Delaware limited liability company,
operates a securities broker/dealer from its main office in New York City and
branch offices in ten states. The firm is active in the marketing of investment
companies and has signed dealer agreements with many major mutual fund groups.
Further, through its Syndicate Department, Gruntal & Co., L.L.C. has
underwritten a large number of Closed-End Funds and has been Co-Manager on the
following offerings: Cigna High Income Shares; Dreyfus New York Municipal
Income, Inc.; Franklin Principal Maturity Trust and Van Kampen Merritt Limited
Term High Income Trust.
The information included herein is only for the purpose of
informing investors as to the financial responsibility of the Sponsor and their
ability to carry out their contractual obligations.
The Sponsor is liable for the performance of their obligations
arising from their responsibilities under the Trust Agreement, but will be under
no liability to Certificateholders for taking any action, or refraining from
taking any action, in good faith pursuant to the Trust Agreement, or for errors
in judgment except in cases of their own willful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations and duties.
The Sponsor may resign at any time by delivering to the
Trustee an instrument of resignation executed by the Sponsor.
If at any time either of the Sponsor shall resign or fail to
perform any of its duties under the Trust Agreement or becomes incapable of
acting or becomes bankrupt or its affairs are taken over by public authorities,
then the Trustee may either (a) appoint a successor Sponsor; (b) terminate the
Trust Agreement and liquidate the Trust; or (c) continue to act as Trustee
without terminating the Trust Agreement. Any successor Sponsor appointed by the
Trust shall be satisfactory to the Trustee and, at the time of appointment,
shall have a net worth of at least $1,000,000.
THE TRUSTEE. The Trustee is The Chase Manhattan Bank with its
principal executive office located at 270 Park Avenue, New York, New York 10017,
(800) 428-8890 and its unit investment trust office at 4 New York Plaza, New
York, New York 10004. The Trustee is subject to the supervision by the
Superintendent of Banks of the State of New York, the Federal Deposit Insurance
Corporation and the Board of Governors of the Federal Reserve System.
The Trustee 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
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disposition of any moneys, Securities or Certificates in accordance with the
Trust Agreement, except in cases of its own willful misfeasance, bad faith,
gross negligence or reckless disregard of its obligations and duties; provided,
however, that the Trustee shall not in any event be liable or responsible for
any evaluation made by the Evaluator. In addition, the Trustee shall not be
liable for any taxes or other governmental charges imposed upon or in respect of
the Securities or the Trust which it may be required to pay under current or
future law of the United States or any other taxing authority having
jurisdiction. The Trustee shall not be liable for depreciation or loss incurred
by reason of the sale by the Trustee of any of the Securities pursuant to the
Trust Agreement.
For further information relating to the responsibilities of
the Trustee under the Trust Agreement, reference is made to the material set
forth under "Rights of Certificateholders.
The Trustee may resign by executing an instrument in writing
and filing the same with the Sponsor, and mailing a copy of a notice of
resignation to all Certificateholders. In such an event, the Sponsor is
obligated to appoint a successor Trustee as soon as possible. In addition, if
the Trustee becomes incapable of acting or becomes bankrupt or its affairs are
taken over by public authorities, the Sponsor may remove the Trustee and appoint
a successor as provided in the Trust Agreement. Notice of such removal and
appointment shall be mailed to each Certificateholder by the Sponsor. If upon
resignation of the Trustee no successor has been appointed and has accepted the
appointment within thirty days after notification, the retiring Trustee may
apply to a court of competent jurisdiction for the appointment of a successor.
The resignation or removal of the Trustee becomes effective only when the
successor Trustee accepts its appointment as such or when a court of competent
jurisdiction appoints a successor Trustee. Upon execution of a written
acceptance of such appointment by such successor Trustee, all the rights,
powers, duties and obligations of the original Trustee shall vest in the
successor.
Any corporation into which the Trustee may be merged or with
which it may be consolidated, or any corporation resulting from any merger or
consolidation to which the Trustee shall be a party, shall be the successor
Trustee. The Trustee must always be a banking corporation organized under the
laws of the United States or any state and have at all times an aggregate
capital, surplus and undivided profits of not less than $2,500,000.
THE EVALUATOR. The Evaluator is Kenny S&P Evaluation Services,
a business unit of J.J. Kenny Company, Inc., a subsidiary of The McGraw-Hill
Companies, with main offices located at 65 Broadway, New York, New York 10006.
The Evaluator is a 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
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thirty days after notice of resignation, the Evaluator may apply to a court of
competent jurisdiction for the appointment of a successor.
TRUST EXPENSES AND CHARGES
At no cost to the Trust, the Sponsor has borne the expenses of
creating and establishing the Trust, including the cost of initial preparation
and execution of the Trust Agreement, registration of the Trust and the Units
under the Investment Company Act of 1940 and the Securities Act of 1933, the
initial preparation and printing of the Certificates, legal expenses,
advertising and selling expenses, expenses of the Trustee including, but not
limited to, an amount equal to interest accrued on certain "when issued"
securities since the date of settlement for the Units, initial fees and other
out-of-pocket expenses. The fees of the Evaluator, however, incurred during the
Initial Public Offering are paid directly by the Trust.
The Sponsor will not charge the Trust a fee for its services as
such. (See "Sponsor's and Underwriters' Profits.")
The Sponsor will receive for portfolio supervisory services to
the Trust an Annual Fee in the amount set forth under "Summary of Essential
Information" in Part A. The Sponsor's fee may exceed the actual cost of
providing portfolio supervisory services for the Trust, but at no time will the
total amount received for portfolio supervisory services rendered to all series
of the Mortgage Securities Trust in any calendar year exceed the aggregate cost
to the Sponsor of supplying such services in such year. (See "Portfolio
Supervision.") Pursuant to the Agreement Among Co-Sponsors, if applicable, Reich
& Tang Distributors L.P. shall receive the entire Sponsor's fee set forth in the
"Summary of Essential Information" in Part A.
The Trustee will receive for its ordinary recurring services
to the Trust an annual fee in the amount set forth under "Summary of Essential
Information" in Part A. For a discussion of the services performed by the
Trustee pursuant to its obligations under the Trust Agreement, see "Trust
Administration" and "Rights of Certificateholders."
The Evaluator will receive, for each daily evaluation of the
Securities in the Trust after the initial public offering is completed, a fee in
the amount set forth under "Summary of Essential Information" in Part A.
The Trustee's and Evaluator's fees applicable to the Trust are
payable monthly as of the Record Date from the Interest Account of such Trust to
the extent funds are available and then from the Principal Account. Both fees
may be increased without approval of the Certificateholders by amounts not
exceeding proportionate increases in consumer prices for services as measured by
the United States Department of Labor's Consumer Price Index entitled "All
Services Less Rent."
The following additional charges are or may be incurred by the
Trust: all expenses (including counsel fees) of the Trustee incurred and
advances made in connection with its activities under the Trust Agreement,
including the expenses and costs of any action undertaken by the Trustee to
protect the Trust and the rights and interests of the Certificateholders; fees
of the Trustee for any extraordinary services performed under the Trust
Agreement; indemnification of the Trustee for any loss or liability accruing to
it without gross negligence, bad faith or willful misconduct on its part,
arising out of or in connection with its acceptance or administration of the
Trust; indemnification of the Sponsor for any losses, liabilities and expenses
incurred in acting as sponsors of the Trust without gross negligence, bad faith
or willful misconduct on its part; and all taxes and other governmental charges
imposed upon the Securities or any part of the Trust (no such taxes or
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charges are being levied, made or, to the knowledge of the Sponsor,
contemplated). The above expenses, including the Trustee's fees, when paid by or
owing to the Trustee are secured by a first lien on the Trust to which such
expenses are charged. In addition, the Trustee is empowered to sell Securities
in order to make funds available to pay all expenses.
Unless the Sponsor otherwise directs, the accounts of the
Trust shall be audited not less than annually by independent public accountants
selected by the Sponsor. The expenses of the audit shall be an expense of the
Trust. So long as the Sponsor maintains a secondary market, the Sponsor will
bear any audit expense which exceeds $.50 per 1,000 Units. Certificateholders
covered by the audit during the year may receive a copy of the audited
financials upon request.
EXCHANGE PRIVILEGE AND CONVERSION OFFER
EXCHANGE PRIVILEGE. Certificateholders will be able to elect
to exchange any or all of their Units of this Trust for Units of one or more of
any available series of Equity Securities Trust, Insured Municipal Securities
Trust, Municipal Securities Trust, New York Municipal Trust or Mortgage
Securities Trust (the "Exchange Trusts") at a reduced sales charge as set forth
below. Under the Exchange Privilege, the Sponsor's repurchase price during the
initial offering period of the Units being surrendered will be based on the
market value of the Securities in the Trust portfolio or on the aggregate offer
price of the Bonds in the other Trust Portfolios; and, after the initial
offering period has been completed, will be based on the aggregate bid price of
the Bonds in the particular Trust portfolio. Units in an Exchange Trust then
will be sold to the Certificateholder at a price based on the aggregate offer
price of the Bonds in the Exchange Trust portfolio (or for units of Equity
Securities Trust, based on the market value of the underlying securities in the
Trust portfolio) during the initial public offering period of the Exchange
Trust; and after the initial public offering period has been completed, based on
the aggregate bid price of the Bonds in the Exchange Trust Portfolio if its
initial offering has been completed plus accrued interest (or for units of
Equity Securities Trust, based on the market value of the underlying securities
in the Trust portfolio) and a reduced sales charge as set forth below.
Except for Certificateholders who wish to exercise the
Exchange Privilege within the first five months of their purchase of Units of
the Trust, any purchaser who purchases Units under the Exchange Privilege will
pay a lower sales charge than that which would be paid for the Units by a new
investor. For Certificateholders who wish to exercise the Exchange Privilege
within the first five months of their purchase of Units of the Trust, the sales
charge applicable to the purchase of units of an Exchange Trust shall be the
greater of (i) the reduced sales charge or (ii) an amount which when coupled
with the sales charge paid by the Certificateholder upon his original purchase
of Units of the Trust would equal the sales charge applicable in the direct
purchase of units of an Exchange Trust.
Exercise of the Exchange Privilege by Certificateholders is
subject to the following conditions (i) the Sponsor must be maintaining a
secondary market in the units of the available Exchange Trust, (ii) at the time
of the Certificateholder's election to participate in the Exchange Privilege,
there must be units of the Exchange Trust available for sale, either under the
initial primary distribution or in the Sponsor's secondary market, (iii)
exchanges will be effected in whole units only, (iv) Units of the Mortgage
Securities Trust may only be acquired in blocks of 1,000 Units and (v) Units of
the Equity Securities Trust may only be acquired in blocks of 100 Units.
Certificateholders will not be permitted to advance any funds in excess of their
redemption in order to complete the exchange. Any excess
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proceeds received from a Certificateholder for exchange will be remitted to
such Certificateholder.
The Sponsor reserves the right to suspend, modify or terminate
the Exchange Privilege. The Sponsor will provide Certificateholders of the Trust
with 60 days' prior written notice of any termination or material amendment to
the Exchange Privilege, provided that, no notice need be given if (i) the only
material effect of an amendment is to reduce or eliminate the sales charge
payable at the time of the exchange, to add one or more series of the Trust
eligible for the Exchange Privilege or to delete a series which has been
terminated from eligibility for the Exchange Privilege, (ii) there is a
suspension of the redemption of units of an Exchange Trust under Section 22(e)
of the Investment Company Act of 1940, or (iii) an Exchange Trust temporarily
delays or ceases the sale of its units because it is unable to invest amounts
effectively in accordance with its investment objectives, policies and
restrictions. During the 60-day notice period prior to the termination or
material amendment of the Exchange Privilege described above, the Sponsor will
continue to maintain a secondary market in the units of all Exchange Trusts that
could be acquired by the affected Certificateholders. Certificateholders may,
during this 60-day period, exercise the Exchange Privilege in accordance with
its terms then in effect.
To exercise the Exchange Privilege, a Certificateholder should
notify the Sponsor of his desire to exercise his Exchange Privilege. If Units of
a designated, outstanding series of an Exchange Trust are at the time available
for sale and such Units may lawfully be sold in the state in which the
Certificateholder is a resident, the Certificateholder will be provided with a
current prospectus or prospectuses relating to each Exchange Trust in which he
indicates an interest. He may then select the Trust or Trusts into which he
desires to invest the proceeds from his sale of Units. The exchange transaction
will operate in a manner essentially identical to a secondary market transaction
except that units may be purchased at a reduced sales charge.
THE CONVERSION OFFER. Unit owners of any registered unit
investment trust for which there is no active secondary market in the units of
such trust (a "Redemption Trust") will be able to elect to redeem such units and
apply the proceeds of the redemption to the purchase of available Units of one
or more series of Municipal Securities Trust, Insured Municipal Securities
Trust, Mortgage Securities Trust, New York Municipal Trust or Equity Securities
Trust (the "Conversion Trusts") at the Public Offering Price for units of the
Conversion Trust based on a reduced sales charge as set forth below. Under the
Conversion Offer, units of the Redemption Trust must be tendered to the trustee
of such trust for redemption at the redemption price determined as set forth in
the relevant Redemption Trust's prospectus. The purchase price of the units will
be based on the aggregate offer price of the in the Conversion Trust's portfolio
securities during its initial offering period; or, at a price based on the
aggregate bid price of the underlying bonds if the initial public offering of
the Conversion Trust has been completed, plus accrued interest and a sales
charge as set forth below. If the participant elects to purchase units of the
Equity Securities Trust under the Conversion Offer, the purchase price of the
units will be based, at all times, on the market value of the underlying
securities in the Trust portfolio plus a sales charge.
Except for Certificateholders who wish to exercise the
Conversion Offer within the first five months of their purchase of units of a
Redemption Trust, any Certificateholder who purchases Units under the Conversion
Offer will pay a lower sales charge than that which would be paid for the Units
by a new investor. For Certificateholders who wish to exercise the Conversion
Offer within the first five months of their purchase of units of Redemption
Trust, the sales charge applicable to the purchase of Units of a Conversion
-28-
1427.5
Trust shall be the greater of (i) the reduced sales charge or (ii) an amount
which when coupled with the sales charge paid by the Certificateholder upon his
original purchase of units of the Redemption Trust would equal the sales charge
applicable in the direct purchase of Units of a Conversion Trust.
The exercise of the Conversion Offer is subject to the
following limitations: (i) the Conversion Offer is limited only to unit owners
of any Redemption Trust, (ii) at the time of the unit owner's election to
participate in the Conversion Offer, there also must be available units of a
Conversion Trust, either under a primary distribution or in the Sponsor's
secondary market, (iii) exchanges under the Conversion Offer will be effected in
whole units only, (iv) units of the Mortgage Securities Trust may only be
acquired in blocks of 1,000 units, (v) units of the Equity Securities Trust may
only be acquired in blocks of 100 Units. Unit owners will not be permitted to
advance any new funds in order to complete an exchange under the Conversion
Offer. Any excess proceeds from units being redeemed will be returned to the
unit owner.
The Sponsor reserves the right to modify, suspend or terminate
the Conversion Offer. The Sponsor will provide Certificateholders with 60 days
prior written notice of any termination or material amendment to the Conversion
Offer, provided that, no notice need be given if (i) the only material effect of
an amendment is to reduce or eliminate the sales charge payable at the time of
the exchange, to add one or more series of the Trusts eligible for the
Conversion Offer, to add any new unit investment trust sponsored by Reich & Tang
or a sponsor controlled by or under common control with Reich & Tang, or to
delete a series which has been terminated from eligibility for the Conversion
Offer, (ii) there is a suspension of the redemption of units of a Conversion
Trust under Section 22(e) of the Act, or (iii) a Conversion 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.
To exercise the Conversion Offer, a unit owner of a Redemption
Trust should notify his retail broker of his desire to redeem his Redemption
Trust Units and use the proceeds from the redemption to purchase Units of one or
more of the Conversion Trusts. If Units of a designated, outstanding series of a
Conversion Trust are at that time available for sale and if such Units may
lawfully be sold in the state in which the unit owner is a resident, the unit
owner will be provided with a current prospectus or prospectuses relating to
each Conversion Trust in which he indicates an interest. He then may select the
Trust or Trusts into which he decides to invest the proceeds from the sale of
his Units. The transaction will be handled entirely through the unit owner's
retail broker. The retail broker must tender the units to the trustee of the
Redemption Trust for redemption and then apply the proceeds to the redemption
toward the purchase of units of a Conversion Trust at a price based on the
aggregate offer or bid side evaluation per Unit of the Conversion Trust,
depending on which price is applicable, plus accrued interest and the applicable
sales charge. The certificates must be surrendered to the broker at the time the
redemption order is placed and the broker must specify to the Sponsor that the
purchase of Conversion Trust Units is being made pursuant to the Conversion
Offer. The unit owner's broker will be entitled to retain a portion of the sales
charge.
DESCRIPTION OF THE EXCHANGE TRUSTS AND THE CONVERSION TRUSTS.
Municipal Securities Trust and New York Municipal Trust may be appropriate
investment vehicles for an investor who is more interested in tax-exempt income.
The interest income from New York Municipal Trust is, in general, also exempt
from New York State and local New York income taxes, while the interest income
from Municipal Securities Trust is subject to applicable New York State and
local New York taxes, except for that portion of the income which is
attributable to New York obligations in the Trust portfolio, if any.
-29-
1427.5
The interest income from each State Trust of the Municipal Securities Trust,
Multi-State Series is, in general, exempt from state and local taxes when held
by residents of the state where the issuers of bonds in such State Trusts are
located. The Insured Municipal Securities Trust combines the advantages of
providing interest income free from regular federal income tax under existing
law with the added safety of irrevocable insurance. Insured Navigator Series
further combines the advantages of providing interest income free from regular
federal income tax and state and local taxes when held by residents of the state
where issuers of bonds in such state trusts are located with the added safety of
irrevocable insurance. Mortgage Securities Trust offers an investment vehicle
for investors who are interested in obtaining safety of capital and a high level
of current distribution of interest income through investment in a fixed
portfolio of collateralized mortgage obligations. Equity Securities Trust offers
investors an opportunity to achieve capital appreciation together with a high
level of current income.
TAX CONSEQUENCES OF THE EXCHANGE PRIVILEGE AND THE CONVERSION
OFFER. A surrender of units pursuant to the Exchange Privilege or the Conversion
Offer will constitute a "taxable event" to the Certificateholder under the
Internal Revenue Code. The Certificateholder will realize a tax gain or loss
that will be of a long- or short-term capital or ordinary income nature
depending on the length of time the units have been held and other factors. (See
"Tax Status".) A Certificateholder's tax basis in the Units acquired pursuant to
the Exchange Privilege or Conversion Offer will be equal to the purchase price
of such Units. Investors should consult their own tax advisors as to the tax
consequences to them of exchanging or redeeming units and participating in the
Exchange Privilege or Conversion Offer.
RATING OF UNITS. Standard & Poor's has rated the Units of the
Trust AAA. This is the highest rating assigned by Standard & Poor's Ratings
Services, A Division of The McGraw-Hill Companies ("Standard & Poor's") (see
Description of Standard & Poor's Ratings). Standard & Poor's has been
compensated by the Sponsor for its service in rating the Units.
OTHER MATTERS
LEGAL OPINIONS. The legality of the Units offered hereby and
certain matters relating to federal tax law have been passed upon by Battle
Fowler LLP, 75 East 55th Street, New York, New York 10022 as counsel for the
Sponsor. Carter, Ledyard & Milburn, Two Wall Street, New York, New York 10005
have acted as counsel for the Trustee.
INDEPENDENT ACCOUNTANTS. The financial statements of the
Trusts for the year ended December 31, 1996 included in Part A of this
Prospectus have been examined by Price Waterhouse LLP, independent accountants.
The financial statements have been so included in reliance on their report given
upon the authority of said firm as experts in accounting and auditing. KPMG Peat
Marwick LLP has consented to the incorporation by reference of their report on
the statements of operations and changes in net assets for the Trusts included
in Part A of this Prospectus for the periods ended December 31, 1994 and
December 31, 1995, respectively.
DESCRIPTION OF RATINGS*
STANDARD & POOR'S RATINGS SERVICES. A Standard & Poor's rating on
the units of an investment trust (hereinafter referred to collectively as
"units" and "trust") is a current assessment of creditworthiness with respect
--------
* As described by the rating companies themselves.
-30-
1427.5
to the investments held by such trust. This assessment takes into consideration
the financial capacity of the issuers and of any guarantors, issuers, lessees,
or mortgagors with respect to such investments. The assessment, however, does
not take into account the extent to which trust expenses or portfolio asset
sales for less than the Trust's purchase price will reduce payment to the unit
holder of the interest and principal required to be paid on the portfolio
assets. In addition, the rating is not a recommendation to purchase, sell or
hold units, inasmuch as the rating does not comment as to market price of the
units or suitability for a particular investor.
Trusts rated AAA are composed exclusively of assets that,
together with their credit support are rated AAA by Standard & Poor's. Standard
& Poor's defines its AAA rating for such assets as the highest rating assigned
by Standard & Poor's to a debt obligation. Capacity to pay interest and repay
principal is extremely strong.
-31-
1427.5
[Enlarge/Download Table]
INDEX
Title Page MORTGAGE SECURITIES TRUST
Part A CMO SERIES
Risk Considerations.....................................A-5 (Unit Investment Trust)
Summary of Essential
Information...........................................A-9
Information Regarding the Trust........................A-11
Financial and Statistical Prospectus
----------
Information..........................................A-10
Audit and Financial Information
Report of Independent Accountants....................F-1
Dated: April 30, 1997
Part B
The Trust............................................. 1 Sponsor:
Public Offering...................................... 10 Reich & Tang Distributors L.P.
Estimated Long Term Return and 600 Fifth Avenue
Estimated Current Return............................ 12 New York, New York 10020
Rights of Certificateholders.......................... 14 212-830-5200
Tax Status............................................ 16
Liquidity ........................................... 19
Total Reinvestment Plan............................... 21 (and for certain Trusts:)
Trust Administration.................................. 22
Trust Expenses and Charges............................ 26 Gruntal & Co., L.L.C.
Exchange Privilege and 14 Wall Street
Conversion Offer.................................... 27 New York, New York 10005
Other Matters......................................... 30 212-267-8800
Description of Ratings................................ 30
Parts A and B of this Prospectus
do not contain all of the information Trustee:
set forth in the registration The Chase Manhattan Bank
statement and exhibits relating 4 New York Plaza
thereto, filed with the Securities and New York, New York 10004
Exchange Commission, Washington, D.C. 800-882-9898
under the Securities Act of 1933, and
the Investment Company Act of 1940,
and to which reference is made.
Evaluator:
Kenny S&P Evaluation Services
65 Broadway
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 in this Prospectus; and any
information or representation not contained herein must not be relied upon as
having been authorized by the Trust, the Trustee, the Evaluator, or the Sponsor.
The Trust is registered as a unit investment trust under the Investment Company
Act of 1940. Such registration does not imply that the Trust or any of its Units
have been guaranteed, sponsored, recommended or approved by the United States or
any state or any agency or officer thereof.
1427.5
================================================================================
I am the owner of __________ units of Mortgage Securities Trust, CMO Series
_______ Short-Intermediate/Intermediate/Long-Intermediate Portfolio.
I would like to learn more about The Treasurer's Fund, Inc., U.S. Treasury Money
Market Portfolio including charges and expenses. I understand that my request
for more information about this fund in no way obligates me to participate in
the reinvestment option, and that this request form is not an offer to sell.
Please send me more information, including a copy of the current prospectus of
The Treasurer's Fund, Inc.
--------------------------------------------------------------------------------
Date ______________________ 19__
--------------------------------------------------------------------------------
---------------------------------------- -----------------------------
Registered Holder (Print) Registered Holder (Print)
---------------------------------------- -----------------------------
Registered Holder Signature Registered Holder Signature
(The signatures if joint tenancy)
My Brokerage Firm's Name
--------------------------------------------------------
Street Address
------------------------------------------------------------------
City, State & Zip Code
---------------------------------------------------------
Broker's Name Broker's No.
------------------------------ ----------------------
================================================================================
MAIL TO:
THE TREASURER'S FUND, INC.
19 OLD KINGS HIGHWAY SOUTH
DARIEN, CONNECTICUT 06820
1427.1
PART II
ADDITIONAL INFORMATION NOT REQUIRED
IN PROSPECTUS
CONTENTS OF REGISTRATION STATEMENT
This Post-Effective Amendment to the Registration Statements on Form S-6
comprises the following papers and documents:
The facing sheet on Form S-6.
The Cross-Reference Sheet (incorporated by reference to the Post-Effective
Amendment to Form S-6 Registration Statement No. 33-52780, filed April 29,
1996).
The Prospectus consisting of pages.
Signatures.
Consent of Independent Accountants.
Consent of Counsel (included in Exhibits 99.3.1 and 99.3.1.1). Consent of the
Evaluator (included in Exhibit 99.5.1).
The following exhibits:
99.1.1 -- Form of Reference Trust Agreement (filed as Exhibit 99.1.1 to
Post-Effective Amendment No. 8 to Form S-6 Registration
Statement No. 33-26426 on April 25, 1997; and as Exhibit 1.1 to
Amendment No. 1 to Registration Statements Nos. 33-52373 and
33-57315 on March 30, 1994 and February 9, 1995, respectively,
and incorporated herein by reference).
99.1.1.1 -- Trust Indenture and Agreement for Mortgage Securities Trust,
CMO Series 1 (and Subsequent Series) (filed as Exhibit 99.1.1.1
to Post Effective Amendment No. 4 to Form S-6 Registration
Statement No. 33-48009 of Mortgage Securities Trust, CMO Series
10 on April 29, 1996 and incorporated herein by reference).
99.1.3.4 -- Certificate of Formation and Agreement among Limited Partners,
as amended, of Reich & Tang Distributors L.P. (filed as Exhibit
99.1.3.4 to Post-Effective Amendment No. 10 to Form S-6
Registration Statements Nos. 2-98914, 33-00376, 33-00856 and
33-01869 of Municipal Securities Trust, Series 28, 39th
Discount Series, Series 29 & 40th Discount Series and Series 30
& 41st Discount Series, respectively, on October 31, 1995 and
incorporated herein by reference).
99.2.1 -- Form of Certificate dated November 1, 1990 (filed as
Exhibit 99.2.1 to Post-Effective Amendment No. 3 to Form
S-6 Registration Statement Nos. 33-58526 and 33-50903 of
Mortgage Securities Trust, CMO Series 13 and Series 14,
respectively, on October 29, 1996 and incorporated herein
by reference).
**99.3.1 -- Opinion of Battle Fowler LLP as to the legality of the
securities being registered, including their consent to the
delivery thereof and to the use of their name under the
headings "Tax Status" and "Legal Opinions" in the Prospectus,
and to the filing of their opinion regarding the tax status
(filed as Exhibit 99.3.1 to Post-Effective Amendment No. 4 to
Form S-6 Registration Statement No. 33-52780 on April 28, 1997;
and as Exhibit 3.1 to Amendment No. 1 to Form S-6 Registration
--------
** Filed herewith for the Edgar filing only.
II-1
175587.1
Statement Nos. 33-52373 and 33-57315 of Mortgage Securities
Trust, CMO Series 15 and CMO Series 16 on March 30, 1994
and February 9, 1995, respectively, and incorporated herein
by reference).
*99.5.1 -- Consent of the Evaluator.
99.6.0 -- Power of Attorney of Reich & Tang Distributors L.P., the
Depositor, by its officers and a majority of its Directors
(filed as Exhibit 99.6.0 to Amendment No. 1 to Form S-6
Registration Statement No. 33-62627 of Equity Securities Trust,
Series 6, Signature Series, Gabelli Entertainment and Media
Trust on November 16, 1995 and incorporated herein by
reference).
*27 -- Financial Data Schedule(s) (for EDGAR filing only).
--------
* Being filed by this Amendment.
II-2
175587.1
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the registrants, Mortgage Securities Trust, CMO Series 12, CMO Series 15 and CMO
Series 16 certify that they have met all of the requirements for effectiveness
of this Post-Effective Amendment to the Registration Statements pursuant to Rule
485(b) under the Securities Act of 1933. The registrants have duly caused this
Post-Effective Amendment to the Registration Statements to be signed on their
behalf by the undersigned, thereunto duly authorized, in the City of New York
and State of New York on the 17th day of April, 1997.
MORTGAGE SECURITIES TRUST, CMO SERIES 12,
CMO SERIES 15 and CMO SERIES 16
(Registrants)
REICH & TANG DISTRIBUTORS L.P.
(Depositor)
By: Reich & Tang Asset Management, Inc.,
as general partner
By: /s/PETER J. DEMARCO
Peter J. DeMarco
(Authorized Signatory)
Pursuant to the requirements of the Securities Act of 1933,
this Post-Effective Amendment to the Registration Statement has been signed
below by the following persons who constitute the principal officers and a
majority of the directors of Reich & Tang Asset Management, Inc., the general
partner of Reich & Tang Distributors L.P., the Depositor, in the capacities and
on the dates indicated.
[Download Table]
Name Title Date
PETER S. VOSS President, Chief Executive Officer )
and Director )
G. NEAL RYLAND Executive Vice President, Treasurer ) April 17, 1997
and Chief Financial Officer )
EDWARD N. WADSWORTH Clerk )
RICHARD E. SMITH III Director )By: /s/PETER J. DEMARCO
-------------------
STEVEN W. DUFF Director ) Peter J. DeMarco
BERNADETTE N. FINN Vice President ) Attorney-in-Fact*
LORRAINE C. HYSLER Secretary )
RICHARD DE SANCTIS Vice President and Treasurer )
---------------
* Executed copies of Powers of Attorney were filed as Exhibit 6.0 to
Amendment No. 1 to Registration Statement No. 33-62627 on November 16,
1995.
II-3
175587.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Post-Effective Amendment to the registration statement on Form S-6 of our report
dated March 28, 1997, relating to the financial statements and financial
highlights for the year ended December 31, 1996 of the Mortgage Securities
Trust, CMO Series 12 Intermediate; Mortgage Securities Trust, CMO Series 15
Intermediate; and Mortgage Securities Trust, CMO Series 16 Intermediate, which
appear in such Prospectus. We also consent to the reference to us under the
heading "Independent Accountants" in the Prospectus.
PRICE WATERHOUSE LLP
Boston, MA 02110
April 25, 1997
Independent Auditors' Consent
Re: Mortgage Securities Trust, CMO Series 12 Intermediate
Mortgage Securities Trust, CMO Series 15 Intermediate
Mortgage Securities Trust, CMO Series 16 Intermediate
We consent to the incorporation by reference of our report dated March
31, 1996, on the statements of operations and changes in net assets for the
subject trusts for each of the years in the two year period ended December 31,
1995, and to the reference to our firm under the heading "Independent
Accountants" in the prospectus.
KPMG Peat Marwick LLP
New York, New York
April 24, 1997
Dates Referenced Herein and Documents Incorporated by Reference
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