<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 30, 1997
REGISTRATION NOS. 333-33717
333-24841
333-35733
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
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:
TAX EXEMPT SECURITIES TRUST
CALIFORNIA TRUST 160
NEW JERSEY TRUST 132
NEW YORK TRUST 165
B. NAME OF DEPOSITOR:
SMITH BARNEY INC.
C. COMPLETE ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES:
SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013
D. NAME AND COMPLETE ADDRESS OF AGENT FOR SERVICE:
LAURIE A. HESSLEIN
Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
COPY TO:
MICHAEL R. ROSELLA, ESQ.
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
E. TITLE AND AMOUNT OF SECURITIES BEING REGISTERED:
AN INDEFINITE NUMBER OF UNITS OF BENEFICIAL INTEREST PURSUANT TO RULE 24F-2
PROMULGATED UNDER THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED.
F. PROPOSED MAXIMUM AGGREGATE OFFERING PRICE TO THE PUBLIC OF THE SECURITIES
BEING REGISTERED:
INDEFINITE
G. AMOUNT OF FILING FEE:
NO FILING FEE REQUIRED.
H. APPROXIMATE DATE OF PROPOSED SALE TO PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT.
[X] Check box if it is proposed that this filing will become effective
immediately upon filing pursuant to Rule 487.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
---------------------------------------------------------
TAX EXEMPT California Trust 160
SECURITIES
TRUST
New Jersey Trust 132 New York Trust 165
- ---------------------- ---------------------------------------------------
10,250 UNITS
INVESTORS SHOULD READ AND RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE.
IN THE OPINION OF COUNSEL UNDER EXISTING LAW, INTEREST INCOME TO THE TRUSTS AND
TO UNIT HOLDERS (EXCEPT IN CERTAIN INSTANCES DEPENDING UPON THE UNIT HOLDERS)
IS EXEMPT FROM REGULAR FEDERAL INCOME TAX AND FROM CERTAIN STATE AND LOCAL
PERSONAL INCOME TAXES, TO THE EXTENT INDICATED, IN THE STATE FOR WHICH A STATE
TRUST IS NAMED. CAPITAL GAINS, IF ANY, ARE SUBJECT TO TAX.
THE TAX EXEMPT SECURITIES TRUST consists of separate underlying unit investment
trusts designated as California Trust 160, New Jersey Trust 132 and New York
Trust 165 (the "California Trust," the "New Jersey Trust" and the "New York
Trust," respectively) (the "Trusts" or the "Trust" as the context requires and
in the case of a Trust designated by a state name, the "State Trust" or the
"State Trusts," as the context requires). Each Trust was formed to obtain for
its Unit holders tax-exempt interest income and conservation of capital through
investment in a professionally selected, fixed portfolio of municipal bonds
rated at the time of deposit in the category A or better by Standard & Poor's
Ratings Group, a division of McGraw-Hill, Inc. ("Standard & Poor's"), Moody's
Investors Service, Inc. ("Moody's"), Fitch Investors Service, Inc. ("Fitch") or
Duff & Phelps Credit Rating Co. ("Duff & Phelps"). (See "Portfolio of
Securities".) Each State Trust comprises a fixed portfolio of interest-bearing
obligations issued primarily by or on behalf of the state for which such State
Trust is named and counties, municipalities, authorities or political
subdivisions thereof. Interest on all bonds in each Trust is in the opinion of
counsel under existing law, with certain exceptions, exempt from regular
Federal income taxes (see Part B, "Taxes") and from certain state and local
personal income taxes in the state for which a State Trust is named, but may be
subject to other state and local taxes. (See discussions of State and local
taxes in Part C.)
THE PUBLIC OFFERING PRICE of the Units of each Trust during the initial public
offering period is equal to the aggregate offering price of the underlying
bonds in the Trust's portfolio divided by the number of Units outstanding in
such Trust, plus a sales charge. The Public Offering Price of the Units of each
Trust following the initial public offering period is equal to the aggregate
bid price of the underlying bonds in the Trust's portfolio divided by the
number of Units outstanding in such Trust, plus a sales charge. During the
initial public offering period the sales charge is equal to 4.70% of the Public
Offering Price (4.932% of the aggregate offering price of the bonds per Unit)
for each Trust, and following the initial public offering period this charge
will be equal to 5.00% of the Public Offering Price (5.263% of the aggregate
bid price of the bonds per Unit) for each Trust. See Part B, "Public Offering--
Distribution of Units" for a description of the initial public offering period.
If the Units had been available for sale on October 29, 1997, the Public
Offering Price per Unit (including the sales charge) would have been $1,041.34,
$1,042.41 and $1,040.68 for the California Trust, New Jersey Trust and New York
Trust respectively. In addition, there will be added an amount equal to accrued
interest commencing on the day after the Date of Deposit through the date of
settlement (normally three business days after purchase).
THE SPONSOR, although not obligated to do so, intends to maintain a market for
the Units of the Trusts at prices based upon the aggregate bid price of the
underlying bonds, as more fully described under "Public Offering--Market for
Units" in Part B. If such a market is not maintained, a Unit holder will be
able to dispose of his Units through redemption, at prices that are also based
upon the aggregate bid price of the underlying bonds. Units can be sold at any
time without fee or penalty.
MONTHLY DISTRIBUTIONS of principal and interest received by each Trust will be
made on or shortly after the fifteenth day of each month to holders of record
on the first day of that month. For further information regarding the
distributions by each Trust, see "Summary of Essential Information".
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
SMITH BARNEY
-------------------------------
A Member of TravelersGroup LOGO
The date of this Prospectus is October 30, 1997
<PAGE>
TAX EXEMPT SECURITIES TRUST
SUMMARY OF ESSENTIAL INFORMATION AS OF OCTOBER 29, 1997 +
SPONSOR RECORD DATES
Smith Barney Inc.
The first day of each month,
commencing December 1, 1997
TRUSTEE
The Chase Manhattan Bank DISTRIBUTION DATES
EVALUATOR
The fifteenth day of each
month,** commencing December
15, 1997
Kenny S & P Evaluation Services,
a business unit of J.J. Kenny
Company, Inc.
EVALUATION TIME
DATE OF DEPOSIT AND OF TRUST As of 1:00 P.M. on the Date of
AGREEMENT Deposit. Thereafter, as of
4:00 P.M. New York Time.
October 29, 1997 EVALUATOR'S FEE
MANDATORY TERMINATION DATE*
The Evaluator will receive a
fee of $.29 per bond per
evaluation. (See Part B,
"Evaluator--Responsibility"
and "Public Offering--Offering
Price".)
Each Trust will terminate on the
date of maturity, redemption,
sale or other disposition of the
last Bond held in the Trust.
SPONSOR'S ANNUAL PORTFOLIO
SUPERVISION FEE***
Maximum of $.25 per $1,000
face amount of the underlying
Bonds.
- -------
+ The Date of Deposit. The Date of Deposit is the date on which the Trust
Agreement was signed and the deposit with the Trustee was made.
* The actual date of termination of each Trust may be considerably earlier
(see Part B, "Amendment and Termination of the Trust Agreement--
Termination").
** The first monthly income distribution of $4.64, $4.58 and $4.65 for the
California Trust, New Jersey Trust and New York Trust, respectively, will
be made on December 15, 1997.
*** In addition to this amount, the Sponsor may be reimbursed for bookkeeping
and other administrative expenses not exceeding its actual costs.
A-2
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA NEW JERSEY NEW YORK
TRUST 160 TRUST 132 TRUST 165
---------- ---------- ----------
<S> <C> <C> <C>
Principal Amount of Bonds in Trust......... $3,250,000 $2,000,000 $5,000,000
Number of Units............................ 3,250 2,000 5,000
Principal Amount of Bonds in Trust per
Unit...................................... $ 1,000 $ 1,000 $ 1,000
Fractional Undivided Interest in Trust per
Unit...................................... 1/3,250 1/2,000 1/5,000
Minimum Value of Trust:
Trust Agreement may be Terminated if
Principal Amount is less than........... $1,625,000 $1,000,000 $2,500,000
Calculation of Public Offering Price per
Unit*:
Aggregate Offering Price of Bonds in
Trust................................... $3,225,288 $1,986,843 $4,958,853
========== ========== ==========
Divided by Number of Units............... $ 992.40 $ 993.42 $ 991.77
Plus: Sales Charge (4.70% of the Public
Offering Price)......................... $ 48.94 $ 48.99 $ 48.91
---------- ---------- ----------
Public Offering Price per Unit........... $ 1,041.34 $ 1,042.41 $ 1,040.68
Plus: Accrued Interest*.................. $ .87 $ .85 $ .87
---------- ---------- ----------
Total.................................. $ 1,042.21 $ 1,043.26 $ 1,041.55
========== ========== ==========
Sponsor's Initial Repurchase Price per Unit
(per Unit Offering Price of Bonds)*....... $ 992.40 $ 993.42 $ 991.77
Approximate Redemption Price per Unit (per
Unit Bid Price of Bonds)**.............. $ 988.40 $ 989.42 $ 986.77
---------- ---------- ----------
Difference Between per Unit Offering and
Bid Prices of Bonds....................... $ 4.00 $ 4.00 $ 5.00
========== ========== ==========
Calculation of Estimated Net Annual Income
per Unit:
Estimated Annual Income per Unit......... $ 54.62 $ 53.97 $ 54.70
Less: Estimated Trustee's Annual Fee***.. $ 1.31 $ 1.31 $ 1.32
Less: Organizational Expenses****........ $ .50 $ .50 $ .50
Less: Other Estimated Annual Expenses.... $ .61 $ .56 $ .56
---------- ---------- ----------
Estimated Net Annual Income per Unit..... $ 52.20 $ 51.60 $ 52.32
========== ========== ==========
Calculation of Monthly Income Distribution
per Unit:
Estimated Net Annual Income per Unit.... $ 52.20 $ 51.60 $ 52.32
Divided by 12............................ $ 4.35 $ 4.30 $ 4.36
Accrued interest from the day after the
Date of Deposit to the first record
date**.................................. $ 4.64 $ 4.58 $ 4.65
First distribution per unit................ $ 4.64 $ 4.58 $ 4.65
Daily Rate (360-day basis) of Income Ac-
crual per Unit............................ $ .1450 $ .1433 $ .1453
Estimated Current Return based on Public
Offering Price*****....................... 5.01% 4.95% 5.03%
Estimated Long-Term Return*****............ 4.87% 4.80% 4.95%
</TABLE>
- -------
* Accrued interest will be commencing on the day after the Date of Deposit
through the date of settlement (normally three business days after
purchase).
** This figure will also include accrued interest from the day after the
Date of Deposit to the date of settlement (normally three business days
after purchase) and the net of cash on hand in the relevant Trust,
accrued expenses of such Trust and amounts distributable to holders of
record of Units of such Trust as of a date prior to the computation date,
on a pro rata share basis. (See Part B, "Redemption of Units--Computation
of Redemption Price per Unit.")
*** Per $1,000 principal amount of Bonds, plus expenses. (See Part B, "Rights
of Unit Holders--Distribution of Interest and Principal.")
**** Each Trust (and therefore the investors) will bear all or a portion of
its organizational costs--including costs of preparing the registration
statement, the trust indenture and other closing documents, registering
units with the SEC and the states and the initial audit of the Trust--as
is common for mutual funds. Advertising and selling expenses, as well as
any organizational costs not paid by a Trust, will be paid by the
Underwriters at no cost to the Trust.
***** The Estimated Current Return is calculated by dividing the Estimated Net
Annual Interest Income per Unit by the Public Offering Price per Unit.
The Estimated Net Annual Interest Income per Unit will vary with changes
in fees and expenses of the Trustee and the Evaluator and with the
principal prepayment, redemption, maturity, exchange or sale of Bonds
while the Public Offering Price will vary with changes in the offering
price of the underlying Bonds; therefore, there is no assurance that the
present Estimated Current Return indicated above will be realized in the
future. The Estimated Long-Term Return is calculated using a formula
which (1) takes into consideration, and factors in the relative
weightings of, the market values, yields (which takes into account the
amortization of premiums and the accretion of discounts) and estimated
retirements of all of the Bonds in the Trust and (2) takes into account
the expenses and sales charge associated with each Unit. Since the market
values and estimated retirements of the Bonds and the expenses of the
Trust will change, there is no assurance that the present Estimated Long-
Term Return as indicated above will be realized in the future. The
Estimated Current Return and Estimated Long-Term Return are expected to
differ because the calculation of the Estimated Long-Term Return reflects
the estimated date and amount of principal returned while the Estimated
Current Return calculations include only Net Annual Interest Income and
Public Offering Price as of the Date of Deposit.
A-3
<PAGE>
PORTFOLIO SUMMARY AS OF DATE OF DEPOSIT
CALIFORNIA TRUST 160
The Portfolio of the California Trust contains 10 issues of Bonds of issuers
located in the State of California. All of the issues are payable from the
income of specific projects or authorities and are not supported by the
issuer's power to levy taxes. Although income to pay such Bonds may be derived
from more than one source, the primary sources of such income and the
percentage of the Bonds in this Trust deriving income from such sources are as
follows: hospital and health care facilities: 14.7%*; housing facilities:
16.6%; transportation facilities: 3.2%; educational facilities: 35.5%; water
and sewer facilities: 14.2%; capital improvement facilities: 12.5%; tax
allocation: 3.3%. The Trust is considered to be concentrated in educational
facilities issues.+ (See Part B, "Tax Exempt Securities Trust--Risk Factors"
for a brief summary of additional considerations relating to certain of these
issues.) 39.7% of the Bonds in this Trust are insured as to timely payment of
principal and interest by certain insurance companies (AMBAC, 4.4%; FSA, 10.4%;
and MBIA, 24.9%) (see Part B, "Tax Exempt Securities Trust--Risk Factors--
Insurance"). Nine Bonds in this Trust have been issued with an "original issue
discount." (See Part B, "Taxes.") The average life to maturity of the Bonds in
the California Trust is 25.3 years.
As of the Date of Deposit, 100% of the Bonds in this Trust are rated by
Standard & Poor's (39.7% rated AAA, 15.7% rated AA and 44.6% rated A). For a
description of the meaning of the applicable rating symbols as published by the
rating agencies, see Part B, "Bond Ratings." It should be emphasized, however,
that the ratings of the rating agencies represent their opinions as to the
quality of the Bonds which they undertake to rate, and that these ratings are
general and are not absolute standards of quality and may change from time to
time.
None of the Bonds in the California Trust were acquired from the Sponsor as
sole underwriter or from an underwriting syndicate in which the Sponsor
participated, or otherwise from the Sponsor's own organization. (See Part B,
"Public Offering--Sponsor's and Underwriters' Profits.")
NEW JERSEY TRUST 132
The Portfolio of the New Jersey Trust contains 10 issues of Bonds of issuers
located in the State of New Jersey and the Commonwealth of Puerto Rico. Of the
Bonds in this Trust, two were issued by an issuer in the Commonwealth of Puerto
Rico (representing 15.9%* of the Bonds in the Trust) and were issued to finance
transportation facilities. All of the issues are payable from the income of
specific projects or authorities and are not supported by the issuer's power to
levy taxes. Although income to pay such Bonds may be derived from more than one
source, the primary sources of such income and the percentage of the Bonds in
this Trust deriving income from such sources are as follows: hospital and
health care facilities: 16.7%; transportation facilities: 23.1%; pollution
control facilities: 12.8%; water and sewer facilities: 17.8%; correctional
facilities: 8.6%; recreational facilities: 5.1%. The Trust is considered to be
concentrated in transportation facilities issues.+ 46.9% of the Bonds in this
Trust are insured as to timely payment of principal and interest by certain
insurance companies (AMBAC, 5.1%; FGIC, 18.9%; and MBIA, 22.9%) (see Part B,
"Tax Exempt Securities Trust--Risk Factors--Insurance"). Eight Bonds in this
Trust have been issued with an "original issue discount." (See Part B,
"Taxes.") The average life to maturity of the Bonds in the New Jersey Trust is
25.3 years.
- -------
* Percentages computed on the basis of the aggregate offering price of the
Bonds in the Trust on the Date of Deposit.
+ A Trust is considered to be "concentrated" in a particular category when the
Bonds in that category constitute 25% or more of the aggregate offering price
of the Bonds in the Trust.
A-4
<PAGE>
As of the Date of Deposit, 93.6% of the Bonds in this Trust are rated by
Standard & Poor's (46.9% rated AAA, 30.8% rated AA and 15.9% rated A); and 6.4%
are rated Aa by Moody's. For a description of the meaning of the applicable
rating symbols as published by the rating agencies, see Part B, "Bond Ratings."
It should be emphasized, however, that the ratings of the rating agencies
represent their opinions as to the quality of the Bonds which they undertake to
rate, and that these ratings are general and are not absolute standards of
quality and may change from time to time.
None of the Bonds in the New Jersey Trust were acquired from the Sponsor as
sole underwriter or from an underwriting syndicate in which the Sponsor
participated, or otherwise from the Sponsor's own organization. (See Part B,
"Public Offering--Sponsor's and Underwriters' Profits.")
NEW YORK TRUST 165
The Portfolio of the New York Trust contains 17 issues of Bonds of issuers
located in the State of New York and the Commonwealth of Puerto Rico. Of the
Bonds in this Trust, two were issued by an issuer in the Commonwealth of Puerto
Rico (representing 9.1%* of the Bonds in the Trust) and were issued to finance
transportation facilities. Three of the issues (representing approximately
19.6% of the Bonds in the Trust) are general obligations of governmental
entities and are backed by the taxing power of those entities. The remaining
issues are payable from the income of specific projects or authorities and are
not supported by the issuer's power to levy taxes. Although income to pay such
Bonds may be derived from more than one source, the primary sources of such
income and the percentage of the Bonds in this Trust deriving income from such
sources are as follows: hospital and health care facilities: 10.1%; housing
facilities: 10.4%; transportation facilities: 15.4%; education facilities:
19.4%; correctional facilities: 11.2%; sales tax: 4.8%. 9.9% of the Bonds in
this Trust are insured as to timely payment of principal and interest by
certain insurance companies (Connie Lee, 5.1%; and MBIA, 4.8%) (see Part B,
"Tax Exempt Securities Trust--Risk Factors--Insurance"). Fifteen Bonds in this
Trust have been issued with an "original issue discount." (See Part B,
"Taxes.") The average life to maturity of the Bonds in the New York Trust is
27.0 years.
As of the Date of Deposit, 48.2% of the Bonds in this Trust are rated by
Standard & Poor's (9.9% rated AAA, 16.9% rated AA and 21.4% rated A); 1.9% are
rated Aa by Moody's; and 49.9% are rated A by Fitch. For a description of the
meaning of the applicable rating symbols as published by the rating agencies,
see Part B, "Bond Ratings." It should be emphasized, however, that the ratings
of the rating agencies represent their opinions as to the quality of the Bonds
which they undertake to rate, and that these ratings are general and are not
absolute standards of quality and may change from time to time.
None of the Bonds in the New York Trust were acquired from the Sponsor as
sole underwriter or from an underwriting syndicate in which the Sponsor
participated, or otherwise from the Sponsor's own organization. (See Part B,
"Public Offering--Sponsor's and Underwriters' Profits.")
- -------
* Percentages computed on the basis of the aggregate offering price of the
Bonds in the Trust on the Date of Deposit.
A-5
<PAGE>
UNDERWRITING
The names and addresses of the Underwriters and the number of Units to be
sold by them are as follows:
<TABLE>
<CAPTION>
UNITS
-----------------------------------
CALIFORNIA NEW JERSEY NEW YORK
TRUST 160 TRUST 132 TRUST 165
---------- ---------- ---------
<S> <C> <C> <C> <C>
Smith Barney Inc. .......................... 3,250 1,900 4,550
388 Greenwich Street
New York, New York 10013
Oppenheimer & Co., Inc. .................... -- -- 250
Oppenheimer Tower
One World Financial Center
New York, New York 10281
Gruntal & Co. Incorporated.................. -- 100 100
14 Wall Street
New York, New York 10005
Roosevelt & Cross, Inc. .................... -- -- 100
20 Exchange Place
New York, New York 10005
----- ----- -----
Total....................................... 3,250 2,000 5,000
===== ===== =====
</TABLE>
A-6
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Sponsor, Trustee and Unit Holders of Tax Exempt Securities Trust,
California Trust 160, New Jersey Trust 132 and New York Trust 165:
We have audited the accompanying statements of financial condition, including
the portfolios of securities, of each of the respective trusts constituting Tax
Exempt Securities Trust, California Trust 160, New Jersey Trust 132 and New
York Trust 165 as of October 29, 1997. These financial statements are the
responsibility of the Trustee (see note 6 to the statements of financial
condition). Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statements of financial condition are
free of material misstatement. An audit of a statement of financial condition
includes examining, on a test basis, evidence supporting the amounts and
disclosures in that statement of financial condition. Our procedures included
confirmation with the Trustee of an irrevocable letter of credit deposited on
October 29, 1997, for the purchase of securities, as shown in the statements of
financial condition and portfolios of securities. An audit of a statement of
financial condition also includes assessing the accounting principles used and
significant estimates made by the Trustee, as well as evaluating the overall
statement of financial condition presentation. We believe that our audits of
the statements of financial condition provide a reasonable basis for our
opinion.
In our opinion, the statements of financial condition referred to above
present fairly, in all material respects, the financial position of each of the
respective trusts constituting Tax Exempt Securities Trust, California Trust
160, New Jersey Trust 132 and New York Trust 165 as of October 29, 1997, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
New York, New York
October 29, 1997
A-7
<PAGE>
TAX EXEMPT SECURITIES TRUST
STATEMENTS OF FINANCIAL CONDITION
AS OF DATE OF DEPOSIT, OCTOBER 29, 1997
<TABLE>
<CAPTION>
TRUST PROPERTY
--------------------------------
CALIFORNIA NEW JERSEY NEW YORK
TRUST 160 TRUST 132 TRUST 165
---------- ---------- ----------
<S> <C> <C> <C>
Investment in Tax-Exempt Securities:
Bonds represented by purchase contracts
backed by letter of credit (1)............. $3,225,288 $1,986,843 $4,958,853
Accrued interest through the Date of Deposit
on underlying bonds (1)(2)................... 37,723 35,934 74,512
Organizational costs (3)...................... 8,125 5,000 12,500
---------- ---------- ----------
Total..................................... $3,271,136 $2,027,777 $5,045,865
========== ========== ==========
<CAPTION>
LIABILITIES AND INTEREST OF UNIT
HOLDERS
--------------------------------
<S> <C> <C> <C>
Liabilities:
Accrued interest through the Date of Deposit
on underlying bonds (1)(2)................. $ 37,723 $ 35,934 $ 74,512
Accrued expenses (3)........................ 8,125 5,000 12,500
---------- ---------- ----------
45,848 40,934 87,012
---------- ---------- ----------
Interest of Unit Holders:
Units of fractional undivided interest out-
standing California Trust 160: 3,250; New
Jersey Trust 132: 2,000; New York Trust
165: 5,000) Cost to investors (4).......... 3,384,360 2,084,833 5,203,424
Less--Gross underwriting commission (5).... 159,072 97,990 244,571
---------- ---------- ----------
Net amount applicable to investors......... 3,225,288 1,986,843 4,958,853
---------- ---------- ----------
Total..................................... $3,271,136 $2,027,777 $5,045,865
========== ========== ==========
</TABLE>
(1) Aggregate cost to each Trust of the Bonds listed under the Portfolios of
Securities on the immediately following pages is based on offering prices
as of 1:00 P.M. on October 29, 1997, the Date of Deposit, determined by the
Evaluator on the basis set forth in Part B, "Public Offering--Offering
Price." Svenska Handelsbanken issued an irrevocable letter of credit in the
aggregate principal amount of $11,000,000 which was deposited with the
Trustee for the purchase of $10,250,000 principal amount of Bonds pursuant
to contracts to purchase such Bonds at the Sponsor's aggregate cost of
$10,170,924 plus $148,169 representing accrued interest thereon through the
Date of Deposit.
(2) The Indenture provides that the Trustee will advance amounts equal to the
accrued interest on the underlying securities of each Trust (net of accrued
expenses) through the Date of Deposit and that such amounts will be
distributed to the Sponsor as Unit holder of record on such date, as set
forth in Part B, "Rights of Unit Holders--Distribution of Interest and
Principal."
(3) Organizational costs to be paid by the Trusts have been deferred and will
be amortized over five years.
(4) Aggregate public offering price (exclusive of interest) computed on 3,250,
2,000 and 5,000 Units of California Trust, New Jersey Trust and New York
Trust, respectively, on the basis set forth in Part B, "Public Offering--
Offering Price."
(5) Sales charge of 4.70% computed on 3,250, 2,000 and 5,000 Units of
California Trust, New Jersey Trust and New York Trust, respectively, on the
basis set forth in Part B, "Public Offering--Offering Price."
(6) The Trustee has custody of and responsibility for all accounting and
financial books, records, financial statements and related data of each
Trust and is responsible for establishing and maintaining a system of
internal controls directly related to, and designed to provide reasonable
assurance as to the integrity and reliability of, financial reporting of
each Trust. The Trustee is also responsible for all estimates and accruals
reflected in each Trust's financial statements. The Evaluator determines
the price for each underlying Bond included in each Trust's Portfolio of
Securities on the basis set forth in Part B, "Public Offering--Offering
Price."
A-8
<PAGE>
TAX EXEMPT SECURITIES TRUST
CALIFORNIA TRUST 160--PORTFOLIO OF SECURITIES
AS OF OCTOBER 29, 1997
<TABLE>
<CAPTION>
COST OF YIELD ON ANNUAL
REDEMPTION SECURITIES DATE OF INTEREST
AGGREGATE RATINGS PROVISIONS TO TRUST DEPOSIT INCOME
PRINCIPAL SECURITIES REPRESENTED BY PURCHASE CONTRACTS (1) (2) (3)(4) (4) TO TRUST
--------- -------------------------------------------- ------- ---------------- ---------- -------- --------
<C> <C> <S> <C> <C> <C> <C> <C>
1. $ 500,000 California Educational AA 10/1/03 @ 102 $ 506,350 5.400% $ 28,000
Facilities Authority SF 10/1/19 @ 100
Revenue Bonds, Carnegie
Institution of
Washington, 5.60% Due
10/1/2023
2. 345,000 California Health AAA 8/15/07 @ 102 334,381 5.350 17,682
Facilities Financing SF 8/15/18 @ 100
Authority Revenue Bonds,
Sutter Health, FSA
Insured, 5.125% Due
8/15/2022
3. 500,000 California State Public A 6/1/03 @ 102 499,500 5.508 27,500
Works Board, Lease SF 6/1/15 @ 100
Revenue Bonds, Regents
of the University of
California, Various
University of California
Projects, 5.50% Due
6/1/2019
4. 150,000 California Statewide AAA 6/1/04 @ 100 138,958 5.300 7,125
Communities Development SF 6/1/14 @ 100
Authority Revenue
Certificates of
Participation,
Children's Hospital of
Los Angeles, MBIA
Insured, 4.75% Due
6/1/2021
5. 150,000 The Regents of the AAA 9/1/03 @ 102 141,798 5.300 7,312
University of California
Refunding Revenue Bonds,
Multiple Purpose
Projects, AMBAC Insured,
4.875% Due 9/1/2019
6. 500,000 State of California AAA 12/1/05 @ 101 457,770 5.300 23,750
Department of Water SF 12/1/26 @ 100
Resources, Central
Valley Project, Water
System Revenue Bonds,
MBIA Insured, 4.75% Due
12/1/2029
7. 500,000 Bell Community Housing A- 10/1/05 @ 102 535,000 5.475 32,000
Authority Revenue Bonds, SF 10/1/06 @ 100
California, Mobilehome
Parks Acquisition
Project, 6.40% Due
10/1/2015
8. 105,000 Indio, California, AAA 8/15/06 @ 102 104,895 5.356 5,617
Public Financing SF 8/15/18 @ 100
Authority, Tax Increment
Revenue Refunding Bonds,
MBIA Insured, 5.35% Due
8/15/2027
9. 400,000 City of Salinas, A- 10/1/07 @ 102 403,424 5.600 22,800
California, Certificates SF 10/1/18 @ 100
of Participation,
Capital Improvement
Projects, 5.70% Due
10/1/2028
10. 100,000 Sacramento County, AAA 7/1/06 @ 102 103,212 5.350 5,750
California, Airport SF 7/1/24 @ 100
System Revenue Bonds,
MBIA Insured, 5.75% Due
7/1/2026
---------- ---------- --------
$3,250,000 $3,225,288 $177,536
========== ========== ========
</TABLE>
The Notes following the Portfolios are an integral part of each Portfolio of
Securities.
A-9
<PAGE>
TAX EXEMPT SECURITIES TRUST
NEW JERSEY TRUST 132--PORTFOLIO OF SECURITIES AS OF OCTOBER 29, 1997
<TABLE>
<CAPTION>
COST OF YIELD ON ANNUAL
REDEMPTION SECURITIES DATE OF INTEREST
AGGREGATE RATINGS PROVISIONS TO TRUST DEPOSIT INCOME
PRINCIPAL SECURITIES REPRESENTED BY PURCHASE CONTRACTS (1) (2) (3)(4) (4) TO TRUST
--------- -------------------------------------------- ------- ---------------- ---------- -------- --------
<C> <C> <S> <C> <C> <C> <C> <C>
1. $ 125,000 New Jersey Economic Aa3* 4/1/06 @ 102 $ 126,976 5.300% $ 6,875
Development Authority SF 4/1/17 @ 100
Revenue Bonds, Morris
Hall/St. Lawrence, Inc.
Project, 5.50% Due
4/1/2027
2. 200,000 New Jersey Health Care AAA 7/1/05 @ 101 204,852 5.300 11,250
Facilities Financing SF 7/1/16 @ 100
Authority Revenue Bonds,
JFK Health Systems
Obligated Group Issue,
FGIC Insured, 5.625%
Due 7/1/2020
3. 335,000 North Jersey District AAA 7/1/03 @ 102 352,829 5.150 20,100
Water Supply Commission SF 7/1/13 @ 100
of the State of New
Jersey, Wanaque South
Project Revenue
Refunding Bonds, MBIA
Insured, 6.00% Due
7/1/2021
4. 150,000 Pollution Control AA 12/1/03 @ 102 153,660 5.250 8,438
Financing Authority of
Gloucester County, New
Jersey, Pollution
Control Refunding
Revenue Bonds, Mobil Oil
Refunding Corporation
Project, 5.625% Due
12/1/2028
5. 100,000 The Pollution Control AAA 11/1/03 @ 102 101,613 5.300 5,550
Financing Authority of
Salem County, New
Jersey, Pollution
Control Revenue
Refunding Bonds, Public
Service Electric and Gas
Company Project, MBIA
Insured, 5.55%
Due 11/1/2033
6. 500,000 The Port Authority of AA- 1/15/04 @ 101 458,210 5.300 23,750
New York and New Jersey SF 7/15/25 @ 100
Consolidated Bonds,
4.75% Due 1/15/2029
7. 100,000 The Essex County, New AAA 10/1/07 @ 101 102,053 5.250 5,500
Jersey, Improvement SF 10/1/23 @ 100
Authority, General
Obligation Guaranteed
Lease Revenue Bonds,
Sportsplex Project,
AMBAC Insured, 5,50% Due
10/1/2027
8. 165,000 Essex County, New AAA 1/1/07 @ 101 170,496 5.300 9,405
Jersey, Improvement SF 1/1/19 @ 100
Authority Lease,
Guaranteed Correctional
Facilities, FGIC
Insured, 5.70% Due
1/1/2027
9. 160,000 Puerto Rico Highway and A 7/1/03 @ 101.50 151,319 5.400 8,000
Transportation
Authority, Highway
Revenue Refunding Bonds,
5.00% Due 7/1/2022
10. 165,000 Puerto Rico Highway and A 7/1/06 @ 101.50 164,835 5.506 9,075
Transportation SF 7/1/22 @ 100
Authority, Highway
Revenue Bonds, 5.50% Due
7/1/2026
---------- ---------- --------
$2,000,000 $1,986,843 $107,943
========== ========== ========
</TABLE>
The Notes following the Portfolios are an integral part of each Portfolio of
Securities.
A-10
<PAGE>
TAX EXEMPT SECURITIES TRUST
NEW YORK TRUST 165--PORTFOLIO OF SECURITIES
AS OF OCTOBER 29, 1997
<TABLE>
<CAPTION>
YIELD ON ANNUAL
COST OF SECURITIES DATE OF INTEREST
AGGREGATE SECURITIES REPRESENTED RATINGS REDEMPTION TO TRUST DEPOSIT INCOME
PRINCIPAL BY PURCHASE CONTRACTS (1) PROVISIONS (2) (3)(4) (4) TO TRUST
--------- ------------------------ ------- ---------------- ------------------ -------- --------
<C> <C> <S> <C> <C> <C> <C> <C>
1. $ 490,000 The City of New York, A-** 8/1/07 @ 101 $ 514,039 5.544% $ 30,013
General Obligation SF 8/1/18 @ 100
Bonds, 6.125% Due
8/1/2025
2. 180,000 The City of New York, A-** 8/1/06 @ 101.5 184,671 5.550 10,575
General Obligation SF 8/1/17 @ 100
Bonds, 5.875% Due
8/1/2024
3. 265,000 State of New York A 10/1/05 @ 101 270,541 5.350 14,906
General Obligation SF 10/1/14 @ 100
Refunding Bonds, 5.625%
Due 8/1/2020
4. 500,000 Dormitory Authority of A** 7/1/06 @ 102 499,500 5.506 27,500
the State of New York, SF 7/1/18 @ 100
Department of Health of
the State of New York
Revenue Bonds, 5.50% Due
7/1/2025
5. 340,000 Dormitory Authority of A- 5/15/04 @ 102 335,352 5.500 18,360
the State of New York, SF 5/15/14 @ 100
State University
Educational Facilities
Revenue Bonds, 5.40% Due
5/15/2023
6. 490,000 Dormitory Authority of A-** 7/1/07 @ 102 477,750 5.550 26,338
the State of New York,
City University System
Consolidated, Third
General Resolution
Revenue Bonds, 5.375%
Due 7/1/2024
7. 150,000 Dormitory Authority of A** 7/1/04 @ 102 152,550 5.450 8,550
the State of New York SF 7/1/16 @ 100
Revenue Bonds, Upstate
Community Colleges,
5.70% Due 7/1/2021
8. 500,000 New York City Housing AA 5/1/03 @ 102 515,285 5.350 29,250
Development Corporation, SF 5/1/14 @ 100
Multi-Family Housing
Revenue Bonds, 5.85% Due
5/1/2026
9. 250,000 New York Local AAA 4/1/04 @ 100 236,248 5.400 12,500
Government Assistance SF 4/1/15 @ 100
Corporation Bonds, MBIA
Insured, 5.00% Due
4/1/2023
10. 450,000 New York State Urban A** 1/1/06 @ 102 442,075 5.500 24,187
Development Corporation, SF 1/1/18 @ 100
Correctional Capital
Facilities Revenue
Bonds, 5.375% Due
1/1/2025
11. 115,000 New York State Urban A** 1/1/04 @ 102 111,250 5.500 6,037
Development Corporation, SF 1/1/17 @ 100
Correctional Capital
Facilities Revenue
Refunding Bonds, 5.25%
Due 1/1/2021
12. 100,000 Metropolitan A-** 7/1/07 @ 101 101,057 5.500 5,625
Transportation SF 7/1/23 @ 100
Authority, Transit
Facilities Revenue
Bonds, 5.625% Due
7/1/2027
13. 350,000 The Port Authority of AA- 1/15/04 @ 101 320,747 5.300 16,625
New York and New Jersey SF 7/15/25 @ 100
Consolidated Bonds,
4.75% Due 1/15/2029
14. 100,000 Triborough Bridge and Aa* 1/1/04 @ 100 92,445 5.350 4,750
Tunnel Authority, SF 1/1/15 @ 100
General Purpose Revenue
Bonds, 4.75% Due
1/1/2019
15. 260,000 Nassau County, New York, AAA 10/1/07 @ 102 252,460 5.450 13,650
Bridge Authority Revenue SF 10/1/20 @ 100
Bonds, Connie Lee
Insured, 5.25% Due
10/1/2026
16. 335,000 Puerto Rico Highway and A 7/1/06 @ 101.5 334,665 5.506 18,425
Transportation Authority SF 7/1/22 @ 100
Revenue Bonds, 5.50% Due
7/1/2026
17. 125,000 Puerto Rico Highway and A 7/1/03 @ 101.50 118,218 5.400 6,250
Transportation
Authority, Highway
Revenue Refunding Bonds,
5.00% Due 7/1/2022
---------- ---------- --------
$5,000,000 $4,958,853 $273,541
========== ========== ========
</TABLE>
The Notes following the Portfolios are an integral part of each Portfolio of
Securities.
A-11
<PAGE>
NOTES TO PORTFOLIOS OF SECURITIES
(1)For a description of the meaning of the applicable rating symbols as
published by Standard & Poor's Ratings Group, a division of McGraw-Hill,
Inc., Moody's Investors Service(*) and Fitch Investor Services, Inc.(**),
see Part B, "Bond Ratings".
(2) There is shown under this heading the year in which each issue of Bonds
initially is redeemable and the redemption price for that year; unless
otherwise indicated, each issue continues to be redeemable at declining
prices thereafter, but not below par. "SF" indicates a sinking fund has been
or will be established with respect to an issue of Bonds. The prices at
which Bonds may be redeemed or called prior to maturity may or may not
include a premium and, in certain cases, may be less than the cost of the
Bonds to a Trust. Certain Bonds in a Portfolio, including Bonds listed as
not being subject to redemption provisions, may be redeemed in whole or in
part other than by operation of the stated redemption or sinking fund
provision under certain unusual or extraordinary circumstances specified in
the instruments setting forth the terms and provisions of such Bonds. For
example, see discussion of obligations of housing authorities in Part B,
"Tax Exempt Securities Trust--Portfolio."
(3) Contracts to purchase Bonds were entered into during the period September
2, 1997, through October 29, 1997, with the final settlement date on
November 4, 1997. The Profit to the Sponsor on Deposit totals $35,610,
$15,389 and $61,247 for the California Trust, New Jersey Trust and New York
Trust, respectively.
(4) Evaluation of the Bonds by the Evaluator is made on the basis of current
offering prices for the Bonds. The current offering prices of the Bonds are
greater than the current bid prices of the Bonds. The Redemption Price per
Unit and the public offering price of the Units in the secondary market are
determined on the basis of the current bid prices of the Bonds. (See Part B,
"Public Offering--Offering Price" and "Rights of Unit Holders--Redemption of
Units.") Yield of Bonds was computed on the basis of offering prices on the
date of deposit. The aggregate bid price of the Bonds in the California
Trust, New Jersey Trust and New York Trust on October 29, 1997, was
$3,212,288, $1,978,843 and $4,933,853, respectively.
A-12
<PAGE>
PROSPECTUS--PART B:
- --------------------------------------------------------------------------------
NOTE THAT PART B OF THIS PROSPECTUS MAY NOT BE DISTRIBUTED UNLESS ACCOMPANIED
BY PART A.
- --------------------------------------------------------------------------------
TAX EXEMPT SECURITIES TRUST
THE TRUSTS
For over 20 years, Tax Exempt Securities Trust has specialized in quality
municipal bond investments designed to meet a variety of investment objectives
and tax situations. Tax Exempt Securities Trust is a convenient and cost
effective alternative to individual bond purchases. Each Trust is one of a
series of similar but separate unit investment trusts created under the laws of
the State of New York by a Trust Indenture and Agreement and related Reference
Trust Agreement dated the Date of Deposit (collectively, the "Trust
Agreement"), of Smith Barney Inc., as Sponsor, The Chase Manhattan Bank, as
Trustee, and Kenny S&P Evaluation Services, a business unit of J.J. Kenny
Company, Inc., as Evaluator. Each Trust containing Bonds of a State for which
such Trust is named (a "State Trust") and each National Trust, Selected Term
Trust, Long-Intermediate Term Trust, Intermediate Term Trust, Short-
Intermediate Term Trust and Short Term Trust are referred to herein as the
"Trust" or "Trusts," unless the context requires otherwise. On the Date of
Deposit, the Sponsor deposited contracts and funds (represented by a certified
check or checks and/or an irrevocable letter or letters of credit, issued by a
major commercial bank) for the purchase of certain interest-bearing obligations
(the "Bonds") and/or Units of preceding Series of Tax Exempt Securities Trust
(such Bonds and Units of preceding Series of Tax Exempt Securities Trust, if
any, (the "Deposited Units") being referred to herein collectively as the
"Securities"). The Trustee thereafter delivered to the Sponsor registered
certificates of beneficial interest (the "Certificates") representing the units
(the "Units") comprising the entire ownership of each Trust, which Units are
being offered hereby. References to multiple Trusts in Part B herein should be
read as references to a single Trust if Part A indicates the creation of only
one Trust.
Notwithstanding the availability of the above-mentioned certified check or
checks and/or irrevocable letter or letters of credit, it is expected that the
Sponsor will pay for the Bonds as the contracts for their purchase become due.
A substantial portion of such contracts have not become due by the date of this
Prospectus. To the extent Units are sold prior to the settlement of such
contracts, the Sponsor will receive the purchase price on such Units prior to
the time at which they pay for Bonds pursuant to such contracts and have the
use of such funds during this period.
OBJECTIVES
A tax-exempt unit investment trust provides many of the same benefits as
individual bond purchases, while the Unit holder avoids the complexity of
analyzing, selecting and monitoring a multi-bond portfolio. The objectives of a
Trust are tax-exempt income and conservation of capital through an investment
in a diversified portfolio of municipal bonds. There is, of course, no
guarantee that a Trust's objectives will be achieved since the payment of
interest and the preservation of principal are dependent upon the continued
ability of the issuers of the bonds to meet such obligations. Subsequent to the
Date of Deposit, the ratings of the Bonds set forth in Part A--"Portfolio of
Securities" may decline due to, among other factors, a decline in
creditworthiness of the issuer of said Bonds.
PORTFOLIO
The Sponsor's investment professionals select Bonds for the Trust portfolios
from among the 200,000 municipal bond issues that vary according to bond
purpose, credit quality and years to maturity. The following factors, among
others, were considered in selecting the Bonds for each Trust: (1) the Bonds
are obligations of the states, counties, territories or municipalities of the
United States and authorities or political subdivisions thereof, so that the
interest on them will, in the opinion of recognized bond counsel to the issuing
governmental authorities, be exempt from Federal tax (including alternative
minimum tax) under existing law to the extent described in "Taxes", (2) all the
Bonds deposited in a State Trust are obligations of the State for which such
Trust is named or of the counties, territories or municipalities of such State,
and authorities or political subdivisions thereof, or of the Territory of Guam
or the Commonwealth of Puerto Rico, so that the interest on them will, in the
opinion of recognized bond counsel to the issuing governmental authorities, be
exempt from regular Federal income tax under existing law to the extent
described in "Taxes" and from state income taxes in the state for which such
State Trust is named to the extent described in Part C, (3) the Bonds are rated
A or better by a major bond rating agency, (4) the Bonds were chosen, in part,
on the basis of their respective maturity dates and offer a degree of call
protection, (5) the Bonds are diversified as to purpose of issue and location
of issuer, except in the case of a State Trust where the Bonds are diversified
only as to purpose of issue, and (6) in the opinion of the Sponsor, the Bonds
are fairly valued relative to other bonds of comparable quality and maturity.
The Bonds in the Portfolio of a Trust were chosen in part on the basis of
their respective maturity dates. The Bonds in each Trust will have a dollar-
weighted average portfolio maturity as designated in Part A--"Portfolio Summary
as of Date of Deposit." For the
B-1
<PAGE>
actual maturity date of each of the Bonds contained in a Trust, which date may
be earlier or later than the dollar-weighted average portfolio maturity of the
Trust, see Part A, "Portfolio of Securities" for information relating to the
particular Trust. A sale or other disposition of a Bond by the Trust prior to
the maturity of such Bond may be at a price which results in a loss to the
Trust. The inability of an issuer to pay the principal amount due upon the
maturity of a Bond would result in a loss to the Trust.
In the event that any contract for the purchase of any Bond fails, the
Sponsor is authorized under the Trust Agreement, subject to the conditions set
forth below, to instruct the Trustee to acquire other securities (the
"Replacement Bonds") for inclusion in the Portfolio of the affected Trust. Any
Replacement Bonds must be deposited not later than the earlier of (i) the first
monthly Distribution Date of the Trust and (ii) 90 days after such Trust was
established. The cost and aggregate principal amount of a Replacement Bond may
not exceed the cost and aggregate principal amount of the Bond which it
replaces. In addition, a Replacement Bond must (1) be a tax-exempt bond; (2)
have a fixed maturity or disposition date comparable to the Bond it replaces;
(3) be purchased at a price that results in a yield to maturity and in a
current return, in each case as of the execution and delivery of the Trust
Agreement, which is approximately equivalent to the yield to maturity and
current return of the Bond which it replaces; (4) be purchased within twenty
days after delivery of notice of the failed contracts; and (5) be rated in a
category A or better by Standard & Poor's, Moody's, Fitch, or Duff & Phelps.
Whenever a Replacement Bond has been acquired for a Trust, the Trustee shall,
within five days thereafter, notify all Unit holders of such Trust of the
acquisition of the Replacement Bond.
In the event that a contract to purchase any of the Bonds fails and
Replacement Bonds are not acquired, the Trustee will, not later than the second
monthly Distribution Date, distribute to Unit holders the funds attributable to
the failed contract. The Sponsor will, in such a case, refund the sales charge
applicable to the failed contract. If less than all the funds attributable to a
failed contract are applied to purchase Replacement Bonds, the remaining moneys
will be distributed to Unit holders not later than the second monthly
Distribution Date. Moreover, the failed contract will reduce the Estimated Net
Annual Income per Unit, and may lower the Estimated Current Return and
Estimated Long-Term Return indicated in the "Summary of Essential Information"
in Part A.
RISK FACTORS
Certain Bonds in a Trust may have been purchased by the Sponsor on a "when,
as and if issued" basis; that is, they had not yet been issued by their
governmental entity on the Date of Deposit (although such governmental entity
had committed to issue such Bonds). Contracts relating to such "when, as and if
issued" Bonds are not expected to be settled by the first settlement date for
Units. In the case of these and/or certain other Bonds, the delivery of the
Bonds may be delayed ("delayed delivery") or may not occur. Unit holders who
purchased their Units of a Trust prior to the date such Bonds are actually
delivered to the Trustee may have to make a downward adjustment in the tax
basis of their Units for interest accruing on such "when, as and if issued" or
"delayed delivery" Bonds during the interval between their purchase of Units
and delivery of such Bonds, since the Trust and the Unit holders will not be
reimbursing the Sponsor for interest accruing on such "when, as and if issued"
or "delayed delivery" Bonds during the period between the settlement date for
the Units and the delivery of such Bonds into the Trust. (See "Taxes.") Such
adjustment has been taken into account in computing the Estimated Current
Return and Estimated Long-Term Return set forth herein, which is slightly lower
than Unit holders may receive after the first year. (See Part A, "Summary of
Essential Information.") To the extent that the delivery of such Bonds is
delayed beyond their respective expected delivery dates, the Estimated Current
Return and Estimated Long-Term Return for the first year may be lower than
indicated in the "Summary of Essential Information" in Part A.
Most of the Bonds in the Portfolio of a Trust are subject to redemption prior
to their stated maturity date pursuant to sinking fund or call provisions. (See
Part A--"Portfolio Summary as of Date of Deposit" for information relating to
the particular Trust described therein.) In general, a call or redemption
provision is more likely to be exercised when the offering price valuation of a
bond is higher than its call or redemption price, as it might be in periods of
declining interest rates, than when such price valuation is less than the
bond's call or redemption price. To the extent that a Bond was deposited in a
Trust at a price higher than the price at which it is redeemable, redemption
will result in a loss of capital when compared with the original public
offering price of the Units. Conversely, to the extent that a Bond was acquired
at a price lower than the redemption price, redemption will result in an
increase in capital when compared with the original public offering price of
the Units. Monthly distributions will generally be reduced by the amount of the
income which would otherwise have been paid with respect to redeemed bonds. The
Estimated Current Return and Estimated Long-Term Return of the Units may be
affected by such redemptions. Each Portfolio of Securities in Part A contains a
listing of the sinking fund and call provisions, if any, with respect to each
of the Bonds in a Trust. Because certain of the Bonds may from time to time
under certain circumstances be sold or redeemed or will mature in accordance
with their terms and the proceeds from such events will be distributed to Unit
holders and will not be reinvested, no assurance can be given that a Trust will
retain for any length of time its present size and composition. NEITHER THE
SPONSOR NOR THE TRUSTEE SHALL BE LIABLE IN ANY WAY FOR ANY DEFAULT, FAILURE OR
DEFECT IN ANY BOND.
The Portfolio of the Trust may consist of some Bonds whose current market
values were below face value on the Date of Deposit. A primary reason for the
market value of such Bonds being less than face value at maturity is that the
interest coupons of such Bonds are at lower rates than the current market
interest rate for comparably rated Bonds, even though at the time of the
issuance of such Bonds
B-2
<PAGE>
the interest coupons thereon represented then prevailing interest rates on
comparably rated Bonds then newly issued. Bonds selling at market discounts
tend to increase in market value as they approach maturity when the principal
amount is payable. A market discount tax-exempt Bond held to maturity will have
a larger portion of its total return in the form of taxable ordinary income and
less in the form of tax-exempt income than a comparable Bond bearing interest
at current market rates. Under the provisions of the Internal Revenue Code in
effect on the date of this Prospectus, any income attributable to market
discount will be taxable but will not be realized until maturity, redemption or
sale of the Bonds or Units.
As set forth under "Portfolio Summary as of Date of Deposit", the Trust may
contain or be concentrated in one or more of the classifications of Bonds
referred to below. A Trust is considered to be "concentrated" in a particular
category when the Bonds in that category constitute 25% or more of the
aggregate value of the Portfolio. (See Part A--"Portfolio Summary as of Date of
Deposit" for information relating to the particular Trust described therein.)
An investment in Units of the Trust should be made with an understanding of the
risks that these investments may entail, certain of which are described below.
GENERAL OBLIGATION BONDS. Certain of the Bonds in the Portfolio may be
general obligations of a governmental entity that are secured by the taxing
power of the entity. General obligation bonds are backed by the issuer's pledge
of its full faith, credit and taxing power for the payment of principal and
interest. However, the taxing power of any governmental entity may be limited
by provisions of state constitutions or laws and an entity's credit will depend
on many factors, including an erosion of the tax base due to population
declines, natural disasters, declines in the state's industrial base or
inability to attract new industries, economic limits on the ability to tax
without eroding the tax base and the extent to which the entity relies on
Federal or state aid, access to capital markets or other factors beyond the
entity's control. Many issuers are facing highly difficult choices about
significant tax increases and/or spending reductions in order to restore
budgetary balance. Failure to implement these actions on a timely basis could
force the issuers to depend upon market access to finance deficits or cash flow
needs.
In addition, certain of the Bonds in the Trust may be obligations of issuers
(including California issuers) who rely in whole or in part on ad valorem real
property taxes as a source of revenue. Certain proposals, in the form of state
legislative proposals or voter initiatives, to limit ad valorem real property
taxes have been introduced in various states, and an amendment to the
constitution of the State of California, providing for strict limitations on ad
valorem real property taxes, has had a significant impact on the taxing powers
of local governments and on the financial conditions of school districts and
local governments in California. It is not possible at this time to predict the
final impact of such measures, or of similar future legislative or
constitutional measures, on school districts and local governments or on their
abilities to make future payments on their outstanding debt obligations.
INDUSTRIAL DEVELOPMENT REVENUE BONDS ("IDRS"). IDRs, including pollution
control revenue bonds, are tax-exempt securities issued by states,
municipalities, public authorities or similar entities ("issuers") to finance
the cost of acquiring, constructing or improving various projects, including
pollution control facilities and certain industrial development facilities.
These projects are usually operated by corporate entities. IDRs are not general
obligations of governmental entities backed by their taxing power. Issuers are
only obligated to pay amounts due on the IDRs to the extent that funds are
available from the unexpended proceeds of the IDRs or receipts or revenues of
the issuer under arrangements between the issuer and the corporate operator of
a project. These arrangements may be in the form of a lease, installment sale
agreement, conditional sale agreement or loan agreement, but in each case the
payments to the issuer are designed to be sufficient to meet the payments of
amounts due on the IDRs.
IDRs are generally issued under bond resolutions, agreements or trust
indentures pursuant to which the revenues and receipts payable under the
issuer's arrangements with the corporate operator of a particular project have
been assigned and pledged to the holders of the IDRs or a trustee for the
benefit of the holders of the IDRs. In certain cases, a mortgage on the
underlying project has been assigned to the holders of the IDRs or a trustee as
additional security for the IDRs. In addition, IDRs are frequently directly
guaranteed by the corporate operator of the project or by another affiliated
company. Regardless of the structure, payment of IDRs is solely dependent upon
the creditworthiness of the corporate operator of the project or corporate
guarantor. Corporate operators or guarantors that are industrial companies may
be affected by many factors which may have an adverse impact on the credit
quality of the particular company or industry. These include cyclicality of
revenues and earnings, regulatory and environmental restrictions, litigation
resulting from accidents or environmentally-caused illnesses, extensive
competition (including that of low-cost foreign companies), unfunded pension
fund liabilities or off-balance sheet items, and financial deterioration
resulting from leveraged buy-outs or takeovers. However, certain of the IDRs in
the Portfolio may be additionally insured or secured by letters of credit
issued by banks or otherwise guaranteed or secured to cover amounts due on the
IDRs in the event of default in payment by an issuer.
HOSPITAL AND HEALTH CARE FACILITY BONDS. The ability of hospitals and other
health care facilities to meet their obligations with respect to revenue bonds
issued on their behalf is dependent on various factors, including but not
limited to the level of payments received from private third-party payors and
government programs and the cost of providing health care services.
B-3
<PAGE>
A significant portion of the revenues of hospitals and other health care
facilities is derived from private third-party payors and government programs,
including the Medicare and Medicaid programs. Both private third-party payors
and government programs have undertaken cost containment measures designed to
limit payments made to health care facilities. Furthermore, government programs
are subject to statutory and regulatory changes, retroactive rate adjustments,
administrative rulings and government funding restrictions, all of which may
materially decrease the rate of program payments for health care facilities.
Certain special revenue obligations (i.e., Medicare or Medicaid revenues) may
be payable subject to appropriations by state legislatures. There can be no
assurance that payments under governmental programs will remain at levels
comparable to present levels or will, in the future, be sufficient to cover the
costs allocable to patients participating in such programs. In addition, there
can be no assurance that a particular hospital or other health care facility
will continue to meet the requirements for participation in such programs.
The costs of providing health care services are subject to increase as a
result of, among other factors, changes in medical technology and increased
labor costs. In addition, health care facility construction and operation is
subject to federal, state and local regulation relating to the adequacy of
medical care, equipment, personnel, operating policies and procedures, rate-
setting, and compliance with building codes and environmental laws. Facilities
are subject to periodic inspection by governmental and other authorities to
assure continued compliance with the various standards necessary for licensing
and accreditation. These regulatory requirements are subject to change and, to
comply, it may be necessary for a hospital or other health care facility to
incur substantial capital expenditures or increased operating expenses to
effect changes in its facilities, equipment, personnel and services.
Hospitals and other health care facilities are subject to claims and legal
actions by patients and others in the ordinary course of business. Although
these claims are generally covered by insurance, there can be no assurance that
a claim will not exceed the insurance coverage of a health care facility or
that insurance coverage will be available to a facility. In addition, a
substantial increase in the cost of insurance could adversely affect the
results of operations of a hospital or other health care facility. The Clinton
Administration may impose regulations which could limit price increases for
hospitals or the level of reimbursements for third-party payors or other
measures to reduce health care costs and make health care available to more
individuals, which would reduce profits for hospitals. Some states, such as New
Jersey, have significantly changed their reimbursement systems. If a hospital
cannot adjust to the new system by reducing expenses or raising rates,
financial difficulties may arise. Also, Blue Cross has denied reimbursement for
some hospitals for services other than emergency room services. The lost volume
would reduce revenues unless replacement patients were found.
Certain hospital bonds may provide for redemption at par at any time upon the
sale by the issuer of the hospital facilities to a non-affiliated entity, if
the hospital becomes subject to ad valorem taxation, or in various other
circumstances. For example, certain hospitals may have the right to call bonds
at par if the hospital may be legally required because of the bonds to perform
procedures against specified religious principles or to disclose information
that is considered confidential or privileged. Certain FHA-insured bonds may
provide that all or a portion of these bonds, otherwise callable at a premium,
can be called at par in certain circumstances. If a hospital defaults upon a
bond obligation, the realization of Medicare and Medicaid receivables may be
uncertain and, if the bond obligation is secured by the hospital facilities,
legal restrictions on the ability to foreclose upon the facilities and the
limited alternative uses to which a hospital can be put may severely reduce its
collateral value.
The Internal Revenue Service has engaged in a program of audits of certain
large tax-exempt hospital and health care facility organizations. Although
these audits have not yet been completed, it has been reported that the tax-
exempt status of some of these organizations may be revoked. At this time, it
is uncertain whether any of the hospital and health care facility bonds held by
the Trust will be affected by such audit proceedings.
SINGLE FAMILY AND MULTI-FAMILY HOUSING BONDS. Multi-family housing revenue
bonds and single family mortgage revenue bonds are state and local housing
issues that have been issued to provide financing for various housing projects.
Multi-family housing revenue bonds are payable primarily from the revenues
derived from mortgage loans to housing projects for low to moderate income
families. Single-family mortgage revenue bonds are issued for the purpose of
acquiring from originating financial institutions notes secured by mortgages on
residences.
Housing obligations are not general obligations of the issuer although
certain obligations may be supported to some degree by Federal, state or local
housing subsidy programs. Budgetary constraints experienced by these programs
as well as the failure by a state or local housing issuer to satisfy the
qualifications required for coverage under these programs or any legal or
administrative determinations that the coverage of these programs is not
available to a housing issuer, probably will result in a decrease or
elimination of subsidies available for payment of amounts due on the issuer's
obligations. The ability of housing issuers to make debt service payments on
their obligations may also be affected by various economic and non-economic
developments including, among other things, the achievement and maintenance of
sufficient occupancy levels and adequate rental income in multi-family
projects, the rate of default on mortgage loans underlying single family issues
and the ability of mortgage insurers to pay claims, employment and income
conditions prevailing in local markets, increases in construction costs, taxes,
utility costs and other operating expenses, the managerial ability of project
managers, changes in laws and governmental regulations and economic trends
generally in the localities in which the projects are situated. Occupancy of
multi-family housing projects may also be adversely affected by high rent
levels and income limitations imposed under Federal, state or local programs.
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All single family mortgage revenue bonds and certain multi-family housing
revenue bonds are prepayable over the life of the underlying mortgage or
mortgage pool, and therefore the average life of housing obligations cannot be
determined. However, the average life of these obligations will ordinarily be
less than their stated maturities. Single-family issues are subject to
mandatory redemption in whole or in part from prepayments on underlying
mortgage loans; mortgage loans are frequently partially or completely prepaid
prior to their final stated maturities as a result of events such as declining
interest rates, sale of the mortgaged premises, default, condemnation or
casualty loss. Multi-family issues are characterized by mandatory redemption at
par upon the occurrence of monetary defaults or breaches of covenants by the
project operator. Additionally, housing obligations are generally subject to
mandatory partial redemption at par to the extent that proceeds from the sale
of the obligations are not allocated within a stated period (which may be
within a year of the date of issue). To the extent that these obligations were
valued at a premium when a Holder purchased Units, any prepayment at par would
result in a loss of capital to the Holder and, in any event, reduce the amount
of income that would otherwise have been paid to Holders.
The tax exemption for certain housing revenue bonds depends on qualification
under Section 143 of the Internal Revenue Code of 1986, as amended (the
"Code"), in the case of single family mortgage revenue bonds or Section
142(a)(7) of the Code or other provisions of Federal law in the case of certain
multi-family housing revenue bonds (including Section 8 assisted bonds). These
sections of the Code or other provisions of Federal law contain certain ongoing
requirements, including requirements relating to the cost and location of the
residences financed with the proceeds of the single family mortgage revenue
bonds and the income levels of tenants of the rental projects financed with the
proceeds of the multi-family housing revenue bonds. While the issuers of the
bonds and other parties, including the originators and servicers of the single-
family mortgages and the owners of the rental projects financed with the multi-
family housing revenue bonds, generally covenant to meet these ongoing
requirements and generally agree to institute procedures designed to ensure
that these requirements are met, there can be no assurance that these ongoing
requirements will be consistently met. The failure to meet these requirements
could cause the interest on the bonds to become taxable, possibly retroactively
to the date of issuance, thereby reducing the value of the bonds, subjecting
the Holders to unanticipated tax liabilities and possibly requiring the Trustee
to sell the bonds at reduced values. Furthermore, any failure to meet these
ongoing requirements might not constitute an event of default under the
applicable mortgage or permit the holder to accelerate payment of the bond or
require the issuer to redeem the bond. In any event, where the mortgage is
insured by the Federal Housing Administration, its consent may be required
before insurance proceeds would become payable to redeem the mortgage bonds.
POWER FACILITY BONDS. The ability of utilities to meet their obligations with
respect to revenue bonds issued on their behalf is dependent on various
factors, including the rates they may charge their customers, the demand for a
utility's services and the cost of providing those services. Utilities, in
particular investor-owned utilities, are subject to extensive regulations
relating to the rates which they may charge customers. Utilities can experience
regulatory, political and consumer resistance to rate increases. Utilities
engaged in long-term capital projects are especially sensitive to regulatory
lags in granting rate increases. Any difficulty in obtaining timely and
adequate rate increases could adversely affect a utility's results of
operations.
The demand for a utility's services is influenced by, among other factors,
competition, weather conditions and economic conditions. Electric utilities,
for example, have experienced increased competition as a result of the
availability of other energy sources, the effects of conservation on the use of
electricity, self-generation by industrial customers and the generation of
electricity by co-generators and other independent power producers. Also,
increased competition will result if federal regulators determine that
utilities must open their transmission lines to competitors. Utilities which
distribute natural gas also are subject to competition from alternative fuels,
including fuel oil, propane and coal.
The utility industry is an increasing cost business making the cost of
generating electricity more expensive and heightening its sensitivity to
regulation. A utility's costs are influenced by the utility's cost of capital,
the availability and cost of fuel and other factors. In addition, natural gas
pipeline and distribution companies have incurred increased costs as a result
of long-term natural gas purchase contracts containing "take or pay" provisions
which require that they pay for natural gas even if natural gas is not taken by
them. There can be no assurance that a utility will be able to pass on these
increased costs to customers through increased rates. Utilities incur
substantial capital expenditures for plant and equipment. In the future they
will also incur increasing capital and operating expenses to comply with
environmental legislation such as the Clean Air Act of 1990, and other energy,
licensing and other laws and regulations relating to, among other things, air
emissions, the quality of drinking water, waste water discharge, solid and
hazardous substance handling and disposal, and siting and licensing of
facilities. Environmental legislation and regulations are changing rapidly and
are the subject of current public policy debate and legislative proposals. It
is increasingly likely that some or many utilities will be subject to more
stringent environmental standards in the future that could result in
significant capital expenditures. Future legislation and regulation could
include, among other things, regulation of so-called electromagnetic fields
associated with electric transmission and distribution lines as well as
emissions of carbon dioxide and other so-called greenhouse gases associated
with the burning of fossil fuels. Compliance with these requirements may limit
a utility's operations or require substantial investments in new equipment and,
as a result, may adversely affect a utility's results of operations.
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The electric utility industry in general is subject to various external
factors including (a) the effects of inflation upon the costs of operation and
construction, (b) substantially increased capital outlays and longer
construction periods for larger and more complex new generating units, (c)
uncertainties in predicting future load requirements, (d) increased financing
requirements coupled with limited availability of capital, (e) exposure to
cancellation and penalty charges on new generating units under construction,
(f) problems of cost and availability of fuel, (g) compliance with rapidly
changing and complex environmental, safety and licensing requirements, (h)
litigation and proposed legislation designed to delay or prevent construction
of generating and other facilities, (i) the uncertain effects of conservation
on the use of electric energy, (j) uncertainties associated with the
development of a national energy policy, (k) regulatory, political and consumer
resistance to rate increases and (l) increased competition as a result of the
availability of other energy sources. These factors may delay the construction
and increase the cost of new facilities, limit the use of, or necessitate
costly modifications to, existing facilities, impair the access of electric
utilities to credit markets, or substantially increase the cost of credit for
electric generating facilities. The Sponsor cannot predict at this time the
ultimate effect of such factors on the ability of any issuers to meet their
obligations with respect to Bonds.
The National Energy Policy Act ("NEPA"), which became law in October, 1992,
made it mandatory for a utility to permit non-utility generators of electricity
access to its transmission system for wholesale customers, thereby increasing
competition for electric utilities. NEPA also mandated demand-side management
policies to be considered by utilities. NEPA prohibits the Federal Energy
Regulatory Commission from mandating electric utilities to engage in retail
wheeling, which is competition among suppliers of electric generation to
provide electricity to retail customers (particularly industrial retail
customers) of a utility. However, under NEPA, a state can mandate retail
wheeling under certain conditions.
There is concern by the public, the scientific community, and the U.S.
Congress regarding environmental damage resulting from the use of fossil fuels.
Congressional support for the increased regulation of air, water, and soil
contaminants is building and there are a number of pending or recently enacted
legislative proposals which may affect the electric utility industry. In
particular, on November 15, 1990, legislation was signed into law which
substantially revised the Clean Air Act (the "1990 Amendments"). The 1990
Amendments sought to improve the ambient air quality throughout the United
States by the year 2000. A main feature of the 1990 Amendments is the reduction
of sulphur dioxide and nitrogen oxide emissions caused by electric utility
power plants, particularly those fueled by coal. Under the 1990 Amendments the
U.S. Environmental Protection Agency ("EPA") was required to develop limits for
nitrogen oxide emissions by 1993. The sulphur dioxide reduction will be
achieved in two phases. Phase I addressed specific generating units named in
the 1990 Amendments. In Phase II the total U.S. emissions will be capped at 8.9
million tons by the year 2000. The 1990 Amendments contain provisions for
allocating allowances to power plants based on historical or calculated levels.
An allowance is defined as the authorization to emit one ton of sulphur
dioxide.
The 1990 Amendments also provided for possible further regulation of toxic
air emissions from electric generating units pending the results of several
federal government studies to be conducted over a three to four year period
with respect to anticipated hazards to public health, available corrective
technologies, and mercury toxicity.
Electric utilities which own or operate nuclear power plants are exposed to
risks inherent in the nuclear industry. These risks include exposure to new
requirements resulting from extensive federal and state regulatory oversight,
public controversy, decommissioning costs, and spent fuel and radioactive waste
disposal issues. While nuclear power construction risks are no longer of
paramount concern, the emerging issue is radioactive waste disposal. In
addition, nuclear plants typically require substantial capital additions and
modifications throughout their operating lives to meet safety, environmental,
operational and regulatory requirements and to replace and upgrade various
plant systems. The high degree of regulatory monitoring and controls imposed on
nuclear plants could cause a plant to be out of service or on limited service
for long periods. When a nuclear facility owned by an investor-owned utility or
a state or local municipality is out of service or operating on a limited
service basis, the utility operator or its owners may be liable for the
recovery of replacement power costs. Risks of substantial liability also arise
from the operation of nuclear facilities and from the use, handling, and
possible radioactive emissions associated with nuclear fuel. Insurance may not
cover all types or amounts of loss which may be experienced in connection with
the ownership and operation of a nuclear plant and severe financial
consequences could result from a significant accident or occurrence. The
Nuclear Regulatory Commission has promulgated regulations mandating the
establishment of funded reserves to assure financial capability for the
eventual decommissioning of licensed nuclear facilities. These funds are to be
accrued from revenues in amounts currently estimated to be sufficient to pay
for decommissioning costs.
The ability of state and local joint action power agencies to make payments
on bonds they have issued is dependent in large part on payments made to them
pursuant to power supply or similar agreements. Courts in Washington, Oregon
and Idaho have held that certain agreements between the Washington Public Power
Supply System ("WPPSS") and the WPPSS participants are unenforceable because
the participants did not have the authority to enter into the agreements. While
these decisions are not specifically applicable to agreements entered into by
public entities in other states, they may cause a reexamination of the legal
structure and economic viability of certain projects financed by joint power
agencies, which might exacerbate some of the problems referred to above and
possibly lead to legal proceedings questioning the enforceability of agreements
upon which payment of these bonds may depend.
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WATER AND SEWER REVENUE BONDS. Water and sewer bonds are generally payable
from user fees. The ability of state and local water and sewer authorities to
meet their obligations may be affected by failure of municipalities to utilize
fully the facilities constructed by these authorities, economic or population
decline and resulting decline in revenue from user charges, rising construction
and maintenance costs and delays in construction of facilities, impact of
environmental requirements, failure or inability to raise user charges in
response to increased costs, the difficulty of obtaining or discovering new
supplies of fresh water, the effect of conservation programs and the impact of
"no growth" zoning ordinances. In some cases this ability may be affected by
the continued availability of Federal and state financial assistance and of
municipal bond insurance for future bond issues.
UNIVERSITY AND COLLEGE BONDS. The ability of universities and colleges to
meet their obligations is dependent upon various factors, including the size
and diversity of their sources of revenues, enrollment, reputation, management
expertise, the availability and restrictions on the use of endowments and other
funds, the quality and maintenance costs of campus facilities, and, in the case
of public institutions, the financial condition of the relevant state or other
governmental entity and its policies with respect to education. The
institution's ability to maintain enrollment levels will depend on such factors
as tuition costs, demographic trends, geographic location, geographic diversity
and quality of the student body, quality of the faculty and the diversity of
program offerings.
Legislative or regulatory action in the future at the Federal, state or local
level may directly or indirectly affect eligibility standards or reduce or
eliminate the availability of funds for certain types of student loans or grant
programs, including student aid, research grants and work-study programs, and
may affect indirect assistance for education.
LEASE RENTAL BONDS. Lease rental bonds are issued for the most part by
governmental authorities that have no taxing power or other means of directly
raising revenues. Rather, the authorities are financing vehicles created solely
for the construction of buildings (administrative offices, convention centers
and prisons, for example) or the purchase of equipment (police cars and
computer systems, for example) that will be used by a state or local government
(the "lessee"). Thus, the bonds are subject to the ability and willingness of
the lessee government to meet its lease rental payments which include debt
service on the bonds. Willingness to pay may be subject to changes in the views
of citizens and government officials as to the essential nature of the finance
project. Lease rental bonds are subject, in almost all cases, to the annual
appropriation risk, i.e., the lessee government is not legally obligated to
budget and appropriate for the rental payments beyond the current fiscal year.
These bonds are also subject to the risk of abatement in many states--rental
bonds cease in the event that damage, destruction or condemnation of the
project prevents its use by the lessee. (In these cases, insurance provisions
and reserve funds designed to alleviate this risk become important credit
factors). In the event of default by the lessee government, there may be
significant legal and/or practical difficulties involved in the reletting or
sale of the project. Some of these issues, particularly those for equipment
purchase, contain the so-called "substitution safeguard", which bars the lessee
government, in the event it defaults on its rental payments, from the purchase
or use of similar equipment for a certain period of time. This safeguard is
designed to insure that the lessee government will appropriate the necessary
funds even though it is not legally obligated to do so, but its legality
remains untested in most, if not all, states.
CAPITAL IMPROVEMENT FACILITY BONDS. The Portfolio of a Trust may contain
Bonds which are in the capital improvement facilities category. Capital
improvement bonds are bonds issued to provide funds to assist political
subdivisions or agencies of a state through acquisition of the underlying debt
of a state or local political subdivision or agency which bonds are secured by
the proceeds of the sale of the bonds, proceeds from investments and the
indebtedness of a local political subdivision or agency. The risks of an
investment in such bonds include the risk of possible prepayment or failure of
payment of proceeds on and default of the underlying debt.
SOLID WASTE DISPOSAL BONDS. Bonds issued for solid waste disposal facilities
are generally payable from tipping fees and from revenues that may be earned by
the facility on the sale of electrical energy generated in the combustion of
waste products. The ability of solid waste disposal facilities to meet their
obligations depends upon the continued use of the facility, the successful and
efficient operation of the facility and, in the case of waste-to-energy
facilities, the continued ability of the facility to generate electricity on a
commercial basis. All of these factors may be affected by a failure of
municipalities to fully utilize the facilities, an insufficient supply of waste
for disposal due to economic or population decline, rising construction and
maintenance costs, any delays in construction of facilities, lower-cost
alternative modes of waste processing and changes in environmental regulations.
Because of the relatively short history of this type of financing, there may be
technological risks involved in the satisfactory construction or operation of
the projects exceeding those associated with most municipal enterprise
projects. Increasing environmental regulation on the federal, state and local
level has a significant impact on waste disposal facilities. While regulation
requires more waste producers to use waste disposal facilities, it also imposes
significant costs on the facilities. These costs include compliance with
frequently changing and complex regulatory requirements, the cost of obtaining
construction and operating permits, the cost of conforming to prescribed and
changing equipment standards and required methods of operation and, for
incinerators or waste-to-energy facilities, the cost of disposing of the waste
residue that remains after the disposal process in an environmentally safe
manner. In addition, waste disposal facilities frequently face substantial
opposition by environmental groups and officials to their location and
operation, to the possible adverse effects upon the public health and the
environment that may be caused by wastes disposed of at the facilities and to
alleged improper operating
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procedures. Waste disposal facilities benefit from laws which require waste to
be disposed of in a certain manner but any relaxation of these laws could cause
a decline in demand for the facilities' services. Finally, waste-to-energy
facilities are concerned with many of the same issues facing utilities insofar
as they derive revenues from the sale of energy to local power utilities (see
Power Facility Bonds above).
MORAL OBLIGATION BONDS. The Trust may also include "moral obligation" bonds.
If an issuer of moral obligation bonds is unable to meet its obligations, the
repayment of the bonds becomes a moral commitment but not a legal obligation of
the state or municipality in question. Even though the state may be called on
to restore any deficits in capital reserve funds of the agencies or authorities
which issued the bonds, any restoration generally requires appropriation by the
state legislature and accordingly does not constitute a legally enforceable
obligation or debt of the state. The agencies or authorities generally have no
taxing power.
REFUNDED BONDS. Refunded Bonds are typically secured by direct obligations of
the U.S. Government, or in some cases obligations guaranteed by the U.S.
Government, placed in an escrow account maintained by an independent trustee
until maturity or a predetermined redemption date. These obligations are
generally noncallable prior to maturity or the predetermined redemption date.
In a few isolated instances to date, however, bonds which were thought to be
escrowed to maturity have been called for redemption prior to maturity.
AIRPORT, PORT AND HIGHWAY REVENUE BONDS. Certain facility revenue bonds are
payable from and secured by the revenues from the ownership and operation of
particular facilities, such as airports (including airport terminals and
maintenance facilities), bridges, marine terminals, turnpikes and port
authorities. For example, the major portion of gross airport operating income
is generally derived from fees received from signatory airlines pursuant to use
agreements which consist of annual payments for airport use, occupancy of
certain terminal space, facilities, service fees, concessions and leases.
Airport operating income may therefore be affected by the ability of the
airlines to meet their obligations under the use agreements. The air transport
industry is experiencing significant variations in earnings and traffic, due to
increased competition, excess capacity, increased aviation fuel costs,
deregulation, traffic constraints, the recent recession and other factors. As a
result, several airlines experienced severe financial difficulties. Several
airlines have sought protection from their creditors under Chapter 11 of the
Bankruptcy Code while, other airlines have been liquidated. The Sponsor cannot
predict what effect these industry conditions may have on airport revenues
which are dependent for payment on the financial condition of the airlines and
their usage of the particular airport facility. Furthermore, proposed
Legislation would provide the U.S. Secretary of Transportation with the
temporary authority to freeze airport fees upon the occurrence of disputes
between a particular airport facility and the airlines utilizing that facility.
Similarly, payment on bonds related to other facilities is dependent on
revenues from the projects, such as use fees from ports, tolls on turnpikes and
bridges and rents from buildings. Therefore, payment may be adversely affected
by reduction in revenues due to such factors and increased cost of maintenance
or decreased use of a facility, lower cost of alternative modes of
transportation or scarcity of fuel and reduction or loss of rents.
SPECIAL TAX BONDS. Special tax bonds are payable from and secured by the
revenues derived by a municipality from a particular tax such as a tax on the
rental of a hotel room, on the purchase of food and beverages, on the rental of
automobiles or on the consumption of liquor. Special tax bonds are not secured
by the general tax revenues of the municipality, and they do not represent
general obligations of the municipality. Therefore, payment on special tax
bonds may be adversely affected by a reduction in revenues realized from the
underlying special tax due to a general decline in the local economy or
population or due to a decline in the consumption, use or cost of the goods and
services that are subject to taxation. Also, should spending on the particular
goods or services that are subject to the special tax decline, the municipality
may be under no obligation to increase the rate of the special tax to ensure
that sufficient revenues are raised from the shrinking taxable base.
TAX ALLOCATION BONDS. Tax allocation bonds are typically secured by
incremental tax revenues collected on property within the areas where
redevelopment projects, financed by bond proceeds are located ("project
areas"). Such payments are expected to be made from projected increases in tax
revenues derived from higher assessed values of property resulting from
development in the particular project area and not from an increase in tax
rates. Special risk considerations include: reduction of, or a less than
anticipated increase in, taxable values of property in the project area, caused
either by economic factors beyond the Issuer's control (such as a relocation
out of the project area by one or more major property owners) or by destruction
of property due to natural or other disasters; successful appeals by property
owners of assessed valuations; substantial delinquencies in the payment of
property taxes; or imposition of any constitutional or legislative property tax
rate decrease.
TRANSIT AUTHORITY BONDS. Mass transit is generally not self-supporting from
fare revenues. Therefore, additional financial resources must be made available
to ensure operation of mass transit systems as well as the timely payment of
debt service. Often such financial resources include Federal and state
subsidies, lease rentals paid by funds of the state or local government or a
pledge of a special tax such as a sales tax or a property tax. If fare revenues
or the additional financial resources do not increase appropriately to pay for
rising operating expenses, the ability of the issuer to adequately service the
debt may be adversely affected.
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CONVENTION FACILITY BONDS. The Portfolio of a Trust may contain Bonds of
issuers in the convention facilities category. Bonds in the convention
facilities category include special limited obligation securities issued to
finance convention and sports facilities payable from rental payments and
annual governmental appropriations. The governmental agency is not obligated to
make payments in any year in which the monies have not been appropriated to
make such payments. In addition, these facilities are limited use facilities
that may not be used for purposes other than as convention centers or sports
facilities.
CORRECTIONAL FACILITY BONDS. The Portfolio of a Trust may contain Bonds of
issuers in the correctional facilities category. Bonds in the correctional
facilities category include special limited obligation securities issued to
construct, rehabilitate and purchase correctional facilities payable from
governmental rental payments and/or appropriations.
PUERTO RICO BONDS. Certain of the Bonds in the Trust may be general
obligations and/or revenue bonds of issuers located in Puerto Rico which will
be affected by general economic conditions in Puerto Rico. The economy of
Puerto Rico is closely integrated with that of the mainland United States.
During fiscal year 1995, approximately 89% of Puerto Rico's exports were to the
United States mainland, which was also the source of 65% of Puerto Rico's
imports. In fiscal 1995, Puerto Rico experienced a $4.6 billion positive
adjusted trade balance. The economy of Puerto Rico is dominated by the
manufacturing and service sectors. The manufacturing sector has experienced a
basic change over the years as a result of increased emphasis on higher wage,
high technology industries such as pharmaceuticals, electronics, computers,
microprocessors, professional and scientific instruments, and certain high
technology machinery and equipment. The service sector, including finance,
insurance and real estate, wholesale and retail trade, and hotel and related
services, also plays a major role in the economy. It ranks second only to
manufacturing in contribution to the gross domestic product and leads all
sectors in providing employment. In recent years, the service sector has
experienced significant growth in response to and paralleling the expansion of
the manufacturing sector. Since fiscal 1985, personal income, both aggregate
and per capita, has increased consistently in each fiscal year. In fiscal 1995,
aggregate personal income was $27.0 billion ($22.5 billion in 1987 prices) and
personal income per capita was $7,296 ($6,074 in 1987 prices). Personal income
includes transfer payments to individuals in Puerto Rico under various social
programs. Total federal payments to Puerto Rico, which include many types in
addition to federal transfer payments, are lower on a per capita basis in
Puerto Rico than in any state. Transfer payments to individuals in fiscal 1995
were $5.9 billion, of which $4.0 billion, or 67.6%, represent entitlement to
individuals who had previously performed services or made contributions under
programs such as Social Security, Veterans Benefits and Medicare. The number of
persons employed in Puerto Rico during fiscal 1996 averaged 1,092,300, an
increase of 3.9% over fiscal 1995. The unemployment rate in Puerto Rico for
fiscal 1996 remained the same. The Puerto Rico Planning Board's most recent
gross product forecast for fiscal 1997, made in February 1996, showed an
increase of 2.7%. The Planning Board's Economic Activity Index, a composite
index for thirteen economic indicators, increased 1.6% for fiscal 1996 compared
to fiscal 1995, and 2.0% for fiscal 1995, compared to fiscal 1994. During the
first three months of fiscal 1997 the Index decreased 0.9% compared to the same
period in fiscal 1996, which period showed an increase of 1.7% over the same
period of fiscal 1995. Growth in the Puerto Rico economy in fiscal 1997 depends
on several factors, including the state of the United States economy and the
relative stability in the price of oil imports, the exchange value of the U.S.
dollar, the level of federal transfers and the cost of borrowing.
INSURANCE. Certain Bonds (the "Insured Bonds") may be insured or guaranteed
by AMBAC Indemnity Corporation ("AMBAC"), Asset Guaranty Reinsurance Company
("Asset Guaranty"), Capital Guaranty Insurance Company ("CGIC"), Capital
Markets Assurance Corp. ("CAPMAC"), Connie Lee Insurance Company ("Connie
Lee"), Financial Guaranty Insurance Company "Financial Guaranty"), Financial
Security Assurance Inc. ("FSA"), or MBIA Insurance Corporation ("MBIA")
(collectively, the "Insurance Companies"). The claims-paying ability of each of
these companies, unless otherwise indicated, is rated AAA by Standard & Poor's
or another acceptable national rating service. The ratings are subject to
change at any time at the discretion of the rating agencies. In determining
whether to insure bonds, the Insurance Companies severally apply their own
standards. The cost of this insurance is borne either by the issuers or
previous owners of the bonds or by the Sponsor. The insurance policies are non-
cancellable and will continue in force so long as the Insured Bonds are
outstanding and the insurers remain in business. The insurance policies
guarantee the timely payment of principal and interest on but do not guarantee
the market value of the Insured Bonds or the value of the Units. The insurance
policies generally do not provide for accelerated payments of principal or,
except in the case of any portfolio insurance policies, cover redemptions
resulting from events of taxability. If the issuer of any Insured Bond should
fail to make an interest or principal payment, the insurance policies generally
provide that the Trustee or its agent shall give notice of nonpayment to the
Insurance Company or its agent and provide evidence of the Trustee's right to
receive payment. The Insurance Company is then required to disburse the amount
of the failed payment to the Trustee or its agent and is thereafter subrogated
to the Trustee's right to receive payment from the issuer.
The following are brief descriptions of certain of the insurance companies
that may insure or guarantee certain Bonds. The financial information presented
for each company has been determined on a statutory basis and is unaudited.
AMBAC is a Wisconsin-domiciled stock insurance corporation, regulated by the
Office of the Commissioner of Insurance of the State of Wisconsin, and licensed
to do business in 50 states, the District of Columbia, the Territory of Guam
and the Commonwealth of Puerto Rico, with admitted assets of approximately
$2,585,000,000 (unaudited) and statutory capital of approximately
$1,467,000,000
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(unaudited) as of December 1, 1996. Statutory capital consists of AMBAC's
policyholders' surplus and statutory contingency reserve. AMBAC is a wholly
owned subsidiary of AMBAC Inc., a 100% publicly-held company. Moody's, Standard
& Poor's and Fitch have each assigned a triple-A claims-paying ability rating
to AMBAC.
AMBAC has entered into pro rata reinsurance agreements under which a
percentage of the insurance underwritten pursuant to certain municipal bond
insurance programs of AMBAC has been and will be assumed by a number of foreign
and domestic unaffiliated reinsurers.
AMBAC has obtained a ruling from the Internal Revenue Service to the effect
that the insuring of an obligation by AMBAC will not affect the treatment for
federal income tax purposes of interest on such obligation and that insurance
proceeds representing maturing interest paid by AMBAC under policy provisions
substantially identical to those contained in its municipal bond insurance
policy shall be treated for federal income tax purposes in the same manner as
if such payments were made by the issuer of the Bonds.
Asset Guaranty is a New York State insurance company licensed to write
financial guarantee, credit, residual value and surety insurance. Asset
Guaranty commenced operations in mid-1988 by providing reinsurance to several
major monoline insurers. Asset Guaranty also issued limited amounts of primary
financial guaranty insurance, but not in direct competition with the primary
mono-line companies for which it acts as a reinsurer. The parent holding
company of Asset Guaranty, Asset Guarantee Inc. (AGI), merged with Enhance
Financial Services (EFS) in June, 1990 to form Enhance Financial Services Group
Inc. (EFSG). The two main, 100%-owned subsidiaries of EFSG, Asset Guaranty and
Enhance Reinsurance Company (ERC), share common management and physical
resources. As of April 30, 1996 EFSG is 55.3% owned by the public, 30.2% by
U.S. WEST Inc., 8.9% by senior management and 5.6% by Swiss Reinsurance
Company. Both ERC and Asset Guaranty are rated "AAA" for claims paying ability
by Duff & Phelps. ERC is rated triple-A for claims-paying ability by both
Standard & Poor's and Moody's. Asset Guaranty received a "AA" claims-paying-
ability rating from Standard & Poor's during August 1993, but remains unrated
by Moody's. As of March 31, 1996 Asset Guaranty had admitted assets of
approximately $187,000,000 and policyholders' surplus of approximately
$82,000,000.
CAPMAC commenced operations in December, 1987 as the second monoline
financial guaranty insurance company (after FSA) organized solely to insure
non-municipal obligations. CAPMAC, a New York corporation, is a wholly-owned
subsidiary of CAPMAC Holdings, Inc. (CHI), which was sold in 1992 by Citibank
(New York State) to a group of 12 investors led by the following: Dillon Read's
Saratoga Partners II; L.P. (Saratoga), an acquisition fund; Caprock Management,
Inc., representing Rockefeller family interests; Citigrowth Fund, a Citicorp
venture capital group; and CAPMAC senior management and staff. These groups
control approximately 70% of the stock of CHI. CAPMAC had traditionally
specialized in guaranteeing consumer loan and trade receivable asset-backed
securities. Under the new ownership group CAPMAC intends to become involved in
the municipal bond insurance business, as well as their traditional non-
municipal business. As of March 31, 1995 CAPMAC's admitted assets were
approximately $210,000,000 and its policyholders' surplus was approximately
$138,000,000.
FSA is a monoline insurance company incorporated in 1984 under the laws of
the State of New York and is licensed to engage in the financial guaranty
insurance business in all 50 states, the District of Columbia and Puerto Rico.
FSA is a wholly owned subsidiary of Financial Security Assurance Holdings
Ltd. ("Holdings"), a New York Stock Exchange listed company. Major shareholders
of Holdings include Fund American Enterprises Holdings, Inc., US WEST Capital
Corporation and Tokio Marine and Fire Insurance Co., Ltd. No shareholder of
Holdings is obligated to pay any debt of FSA or any claim under any insurance
policy issued by FSA or to make any additional contribution to the capital of
FSA.
Pursuant to an intercompany agreement, liabilities on financial guaranty
insurance written or reinsured from third parties, by FSA or any of its
domestic operating insurance company subsidiaries are reinsured among such
companies on an agreed upon percentage substantially proportional to their
respective capital, surplus and reserves, subject to applicable statutory risk
limitations. In addition, FSA reinsures a portion of its liabilities under
certain of its financial guaranty insurance policies with other reinsurers
under various quota-share treaties and on a transaction-by-transaction basis.
Such reinsurance is utilized by FSA as a risk management device and to comply
with certain statutory and rating agency requirements; it does not alter or
limit FSA's obligations under any financial guaranty insurance policy. As of
June 30, 1996, total shareholders equity of FSA and its wholly-owned
subsidiaries was (unaudited) $785,072,000 and total unearned premium reserves
was (unaudited) $351,180,000.
Connie Lee, a stock insurance company incorporated in Wisconsin, is a wholly-
owned subsidiary of College Construction Loan Insurance Association, a
stockholder-owned District of Columbia insurance holding company whose creation
was authorized by the 1986 amendments to the Higher Education Act to provide
financial guaranties for educational facilities. The Omnibus Consolidated
Appropriations Act, 1977 (the "Privatization Act"), enacted by Congress and
signed by the President on September 30, 1996, has repealed substantially all
of the provisions of the Higher Education Act which previously dictated the
structure and operational authorities of Connie Lee. Also in accordance with
the Privatization Act, Construction Loan Insurance Corporation repurchased on
February 27, 1997 all of the 1,914,800 shares (14% of total ownership) of the
stock of Construction Loan Insurance Corporation previously owned by the United
States Department of Education. Construction Loan Insurance Corporation is
currently owned by a group of stockholders that includes Student Loan Marketing
Association ("Sallie Mae") and various institutional investors. NEITHER CONNIE
LEE NOR
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CONSTRUCTION LOAN INSURANCE CORPORATION IS AN AGENCY OR INSTRUMENTALITY OF THE
UNITED STATES GOVERNMENT, AND THE UNITED STATES GOVERNMENT IS NOT AN INVESTOR
IN CONNIE LEE OR CONSTRUCTION LOAN INSURANCE CORPORATION. THE OBLIGATIONS OF
CONNIE LEE ARE NOT OBLIGATIONS OF THE UNITED STATES GOVERNMENT OR GUARANTEED IN
ANY WAY BY THE FULL FAITH AND CREDIT OF THE UNITED STATES GOVERNMENT.
As of December 31, 1996, the total policyholders' surplus of Connie Lee was
$155,885,454 (audited) and total admitted assets were $32,533,675 (audited), as
reported to the Commissioner of Insurance of the State of Wisconsin in Connie
Lee's financial statements prepared in accordance with statutory accounting
principals applicable to insurance companies. Copies of these financial
statements are available from Connie Lee upon request.
Financial Guaranty Insurance Company ("Financial Guaranty") is a wholly-owned
subsidiary of FGIC Corporation ("Corporation"), a Delaware holding company. The
Corporation is a wholly-owned subsidiary of General Electric Capital
Corporation ("GECC"). Neither the Corporation nor GECC is obligated to pay the
debts of or the claims against Financial Guaranty. Financial Guaranty is
domiciled in the State of New York and is subject to regulation by the State of
New York Insurance Department. As of June 30, 1997, the total capital and
surplus of Financial Guaranty was approximately $1,164,694,536. In addition,
Financial Guaranty is currently licensed to write insurance in all 50 states
and the District of Columbia.
MBIA is the principal operating subsidiary of MBIA Inc. The principal
shareholders of MBIA Inc. were originally Aetna Casualty and Surety Company,
The Fund American Companies, Inc., subsidiaries of CIGNA Corporation and Credit
Local de France, CAECL, S.A. These principal shareholders now own approximately
13% of the outstanding common stock of MBIA Inc., following a series of four
public equity offerings over a five-year period. MBIA is domiciled in the State
of New York and licensed to do business in, and subject to regulation under,
the laws of all 50 states, the District of Columbia, the Commonwealth of Puerto
Rico, the Commonwealth of the Northern Mariana Islands, the Virgin Islands of
the United States and the Territory of Guam. As of December 31, 1996, MBIA had
admitted assets of approximately $4,400,000,000 (audited), total liabilities of
approximately $3,000,000,000 (audited), and policyholders' surplus of
approximately $1,400,000,000 (audited), prepared in accordance with statutory
accounting practices prescribed or permitted by insurance regulatory
authorities.
Insurance companies are subject to regulation and supervision in the
jurisdictions in which they do business under statutes which delegate
regulatory, supervisory and administrative powers to state insurance
commissioners. This regulation, supervision and administration relate, among
other things, to: the standards of solvency which must be met and maintained;
the licensing of insurers and their agents; the nature of and limitations on
investments; deposits of securities for the benefit of policyholders; approval
of policy forms and premium rates; periodic examinations of the affairs of
insurance companies; annual and other reports required to be filed on the
financial condition of insurers or for other purposes; and requirements
regarding reserves for unearned premiums, losses and other matters. Regulatory
agencies require that premium rates not be excessive, inadequate or unfairly
discriminatory. Insurance regulation in many states also includes "assigned
risk" plans, reinsurance facilities, and joint underwriting associations, under
which all insurers writing particular lines of insurance within the
jurisdiction must accept, for one or more of those lines, risks unable to
secure coverage in voluntary markets. A significant portion of the assets of
insurance companies is required by law to be held in reserve against potential
claims on policies and is not available to general creditors.
Although the Federal government does not regulate the business of insurance,
Federal initiatives can significantly impact the insurance business. Current
and proposed Federal measures which may significantly affect the insurance
business include pension regulation (ERISA), controls on medical care costs,
minimum standards for no-fault automobile insurance, national health insurance,
personal privacy protection, tax law changes affecting life insurance companies
or the relative desirability of various personal investment vehicles and repeal
of the current antitrust exemption for the insurance business. (If this
exemption is eliminated, it will substantially affect the way premium rates are
set by all property-liability insurers.) In addition, the Federal government
operates in some cases as a co-insurer with the private sector insurance
companies.
Insurance companies are also affected by a variety of state and Federal
regulatory measures and judicial decisions that define and extend the risks and
benefits for which insurance is sought and provided. These include judicial
redefinitions of risk exposure in areas such as products liability and state
and Federal extension and protection of employee benefits, including pension,
workers' compensation, and disability benefits. These developments may result
in short-term adverse effects on the profitability of various lines of
insurance. Longer-term adverse effects can often be minimized through prompt
repricing of coverages and revision of policy terms. In some instances, these
developments may create new opportunities for business growth. All insurance
companies write policies and set premiums based on actuarial assumptions about
mortality, injury, the occurrence of accidents and other insured events. These
assumptions, while well supported by past experience, necessarily do not take
account of future events. The occurrence in the future of unforeseen
circumstances could affect the financial condition of one or more insurance
companies. The insurance business is highly competitive and with the
deregulation of financial service businesses, it should become more
competitive. In addition, insurance companies may expand into non-traditional
lines of business which may involve different types of risks.
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The above financial information relating to the Insurance Companies has been
obtained from publicly available information. No representation is made as to
the accuracy or adequacy of the information or as to the absence of material
adverse changes since the information was made available to the public.
LITIGATION AND LEGISLATION. To the best knowledge of the Sponsor, there is no
litigation pending as of the Date of Deposit in respect of any Bonds which
might reasonably be expected to have a material adverse effect upon the Trust.
At any time after the Date of Deposit, litigation may be initiated on a variety
of grounds, or legislation may be enacted, with respect to Bonds in the Trust.
Litigation, for example, challenging the issuance of pollution control revenue
bonds under environmental protection statutes may affect the validity of Bonds
or the tax-free nature of their interest. While the outcome of litigation of
this nature can never be entirely predicted, opinions of bond counsel are
delivered on the date of issuance of each Bond to the effect that the Bond has
been validly issued and that the interest thereon is exempt from Federal income
tax. In addition, other factors may arise from time to time which potentially
may impair the ability of issuers to make payments due on the Bonds.
Under the Federal Bankruptcy Act, a political subdivision or public agency or
instrumentality of any state, including municipalities, may proceed to
restructure or otherwise alter the terms of its obligations, including those of
the type comprising the Trust's Portfolio. The Sponsor is unable to predict
what effect, if any, this legislation might have on the Trust.
From time to time Congress considers proposals to tax the interest on state
and local obligations, such as the Bonds. The Supreme Court clarified in South
Carolina v. Baker (decided April 20, 1988) that the U.S. Constitution does not
prohibit Congress from passing a nondiscriminatory tax on interest on state and
local obligations. This type of legislation, if enacted into law, could
adversely affect an investment in Units. Holders are urged to consult their own
tax advisers.
TAX EXEMPTION. In the opinion of bond counsel rendered on the date of
issuance of each Bond, the interest on each Bond is excludable from gross
income under existing law for regular Federal income tax purposes (except in
certain circumstances depending on the Holder) but may be subject to state and
local taxes. As discussed under Taxes below, interest on some or all of the
Bonds may become subject to regular Federal income tax, perhaps retroactively
to their date of issuance, as a result of changes in Federal law or as a result
of the failure of issuers (or other users of the proceeds of the Bonds) to
comply with certain ongoing requirements.
Moreover, the Internal Revenue Service is expanding its examination program
with respect to tax-exempt bonds. The expanded examination program will consist
of, among other measures, increased enforcement against abusive transactions,
broader audit coverage (including the expected issuance of audit guidelines)
and expanded compliance achieved by means of expected revisions to the tax-
exempt bond information return forms. At this time, it is uncertain whether the
tax exempt status of any of the Bonds would be affected by such proceedings, or
whether such effect, if any, would be retroactive.
In certain cases, a Bond may provide that if the interest on the Bond should
ultimately be determined to be taxable, the Bond would become due and payable
by its issuer, and, in addition, may provide that any related letter of credit
or other security could be called upon if the issuer failed to satisfy all or
part of its obligation. In other cases, however, a Bond may not provide for the
acceleration or redemption of the Bond or a call upon the related letter of
credit or other security upon a determination of taxability. In those cases in
which a Bond does not provide for acceleration or redemption or in which both
the issuer and the bank or other entity issuing the letter of credit or other
security are unable to meet their obligations to pay the amounts due on the
Bond as a result of a determination of taxability, the Trustee would be
obligated to sell the Bond and, since it would be sold as a taxable security,
it is expected that it would have to be sold at a substantial discount from
current market price. In addition, as mentioned above, under certain
circumstances Holders could be required to pay income tax on interest received
prior to the date on which the interest is determined to be taxable.
THE UNITS
On the Date of Deposit, each Unit in a Trust represented a fractional
undivided interest in the principal and net income of such Trust as is set
forth in Part A, "Summary of Essential Information."
If any Units are redeemed after the date of this Prospectus by the Trustee,
the principal amount of Bonds in the affected Trust will be reduced by an
amount allocable to redeemed Units and the fractional undivided interest in the
affected Trust represented by each unredeemed Unit will be increased. Units
will remain outstanding until redeemed upon tender to the Trustee by any Unit
holder, which may include the Sponsor, or until the termination of the Trust
Agreement. (See "Amendment and Termination of the Trust Agreement--
Termination.")
TAXES
The following discussion addresses only the tax consequences of Units held as
capital assets and does not address the tax consequences of Units held by
dealers, financial institutions or insurance companies.
In the opinion of Battle Fowler LLP, special counsel for the Sponsor, under
existing law:
The Trusts are not associations taxable as corporations for Federal
income tax purposes, and income received by the Trusts will be treated as
the income of the Unit holders ("Holders") in the manner set forth below.
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Each Holder of Units of a Trust will be considered the owner of a pro
rata portion of each Bond 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 a Holder's pro rata
portion of each Bond on the Date of Deposit, see "Aggregate Principal"
under "Portfolio of Securities". The total cost to a Holder of his Units,
including sales charges, is allocated to his pro rata portion of each Bond,
in proportion to the fair market values thereof on the date the Holder
purchases his Units, in order to determine his tax cost for his pro rata
portion of each Bond. In order for a Holder who purchases his Units on the
Date of Deposit to determine the fair market value of his pro rata portion
of each Bond on such date, see "Cost of Securities to Trust" under
"Portfolio of Securities".
Each Holder of Units of a Trust will be considered to have received the
interest on his pro rata portion of each Bond when interest on the Bond is
received by the Trust. In the opinion of bond counsel (delivered on the
date of issuance of each Bond), such interest will be excludable from gross
income for regular Federal income tax purposes (except in certain limited
circumstances referred to below). Amounts received by a Trust pursuant to a
bank letter of credit, guarantee or insurance policy with respect to
payments of principal, premium or interest on a Bond in the Trust will be
treated for Federal income tax purposes in the same manner as if such
amounts were paid by the issuer of the Bond.
The Trusts may contain Bonds which were originally issued at a discount
("original issue discount"). The following principles will apply to each
Holder's pro rata portion of any Bond originally issued at a discount. In
general, original issue discount is defined as the difference between the
price at which a debt obligation was issued and its stated redemption price
at maturity. Original issue discount on a tax-exempt obligation issued
after September 3, 1982, is deemed to accrue as tax-exempt interest over
the life of the obligation under a formula based on the compounding of
interest. Original issue discount on a tax-exempt obligation issued before
July 2, 1982 is deemed to accrue as tax-exempt interest ratably over the
life of the obligation. Original issue discount on any tax-exempt
obligation issued during the period beginning July 2, 1982 and ending
September 3, 1982 is also deemed to accrue as tax-exempt interest over the
life of the obligation, although it is not clear whether such accrual is
ratable or is determined under a formula based on the compounding of
interest. If a Holder's tax cost for his pro rata portion of a Bond issued
with original issue discount is greater than its "adjusted issue price" but
less than its stated redemption price at maturity (as may be adjusted for
certain payments), the Holder will be considered to have purchased his pro
rata portion of the Bond at an "acquisition premium." A Holder's adjusted
tax basis for his pro rata portion of a Bond issued with original issue
discount will include original issue discount accrued during the period
such Holder held his Units. Such increases to the Holder's tax basis in his
pro rata portion of the Bond resulting from the accrual of original issue
discount, however, will be reduced by the amortization of any such
acquisition premium.
If a Holder's tax basis for his pro rata portion of a Bond in the
Holder's Trust exceeds the redemption price at maturity thereof (subject to
certain adjustments), the Holder will be considered to have purchased his
pro rata portion of the Bond with "amortizable bond premium". The Holder is
required to amortize such bond premium over the term of the Bond. Such
amortization is only a reduction of basis for his pro rata portion of the
Bond and does not result in any deduction against the Holder's income.
Therefore, under some circumstances, a Holder may recognize taxable gain
when his pro rata portion of a Bond is disposed of for an amount equal to
or less than his original tax basis therefor.
A Holder will recognize taxable gain or loss when all or part of his pro
rata portion of a Bond in his Trust is disposed of by the Trust for an
amount greater or less than his adjusted tax basis. Any such taxable gain
or loss will be capital gain or loss (assuming that the Units are held as
capital assets), except that any gain from the disposition of a Holder's
pro rata portion of a Bond acquired by the Holder at a "market discount"
(i.e., where the Holder's original basis for his pro rata portion of the
Bond (plus any original issue discount which will accrue thereon until its
maturity) is less than its stated redemption price at maturity) would be
treated as ordinary income to the extent the gain does not exceed the
accrued market discount. Capital gains are generally taxed at the same rate
as ordinary income. However, the excess of net long-term capital gains over
net short-term capital losses may be taxed at a lower rate than ordinary
income for certain noncorporate taxpayers. A capital gain or loss is long-
term if the asset is held for more than one year and short-term if held for
one year or less. A reduced tax rate for noncorporate taxpayers may be
available for assets held for more than 18 months. The deduction of capital
losses is subject to limitations. A Holder will also be considered to have
disposed of all or part of his pro rata portion of each Bond when he sells
or redeems all or some of his Units.
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 each
Trust will be treated as the income of the Holders in the same manner as
for Federal income tax purposes, but will not necessarily be tax-exempt.
Under Section 265 of the Code, a Holder (except a corporate Holder) is
not entitled to a deduction for his pro rata share of fees and expenses of
a Trust because the fees and expenses are incurred in connection with the
production of tax-exempt income. Further, if borrowed funds are used by a
Holder to purchase or carry Units of any Trust, interest on such
indebtedness will not be deductible for Federal income tax purposes. In
addition, under rules used by the Internal Revenue Service, the purchase of
Units may be considered to have been made with borrowed funds even though
the borrowed funds are not directly traceable to the purchase of Units.
Similar rules may be applicable for state tax purposes.
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From time to time proposals are introduced in Congress and state
legislatures which, if enacted into law, could have an adverse impact on
the tax-exempt status of the Bonds. It is impossible to predict whether any
legislation in respect of the tax status of interest on such obligations
may be proposed and eventually enacted at the Federal or state level.
The foregoing discussion relates only to Federal and certain aspects of
New York State and City income taxes. Depending on their state of
residence, Holders may be subject to state and local taxation and should
consult their own tax advisers in this regard.
Interest on certain tax-exempt bonds issued after August 7, 1986 will be a
preference item for purposes of the alternative minimum tax ("AMT"). The
Sponsor believes that interest (including any original issue discount) on the
Bonds should not be subject to the AMT for individuals or corporations under
this rule. A corporate Holder should be aware, however, that the accrual or
receipt of tax-exempt interest not subject to the AMT may give rise to an
alternative minimum tax liability (or increase an existing liability) because
the interest income will be included in the corporation's "adjusted current
earnings" for purposes of the adjustment to alternative minimum taxable income
required by Section 56(g) of the Code.
In addition, interest on the Bonds must be taken into consideration in
computing the portion, if any, of social security benefits that will be
included in an individual's gross income and subject to Federal income tax.
Holders are urged to consult their own tax advisers concerning an investment in
Units.
At the time of issuance of each Bond, an opinion relating to the validity of
the Bond and to the exemption of interest thereon from regular Federal income
taxes was or will be rendered by bond counsel. Neither the Sponsor nor Battle
Fowler LLP have made or will make any review of the proceedings relating to the
issuance of the Bonds or the basis for these opinions. The tax exemption is
dependent upon the issuer's (and other users') compliance with certain ongoing
requirements, and the opinion of bond counsel assumes that these requirements
will be complied with. However, there can be no assurance that the issuer (and
other users) will comply with these requirements, in which event the interest
on the Bond could be determined to be taxable retroactively to the date of
issuance.
In the case of certain of the Bonds, the opinions of bond counsel indicate
that interest on such Bonds received by a "substantial user" of the facilities
being financed with the proceeds of such Bonds, or persons related thereto, for
periods while such Bonds are held by such a user or related person, will not be
exempt from regular Federal income taxes, although interest on such Bonds
received by others would be exempt from regular Federal income taxes.
"Substantial user" is defined under U.S. Treasury Regulations to include only a
person whose gross revenue derived with respect to the facilities financed by
the issuance of bonds is more than 5% of the total revenue derived by all users
of such facilities, or who occupies more than 5% of the usable area of such
facilities or for whom such facilities or a part thereof were specifically
constructed, reconstructed or acquired. "Related persons" are defined to
include certain related natural persons, affiliated corporations, partners and
partnerships. Similar rules may be applicable for state tax purposes.
After the end of each calendar year, the Trustee will furnish to each Holder
an annual statement containing information relating to the interest received by
the Trust on the Bonds, the gross proceeds received by the Trust from the
disposition of any Bond (resulting from redemption or payment at maturity of
any Bond or the sale by the Trust of any Bond), and the fees and expenses paid
by the Trust. The Trustee will also furnish annual information returns to each
Holder and to the Internal Revenue Service. Holders are required to report to
the Internal Revenue Service the amount of tax-exempt interest received during
the year.
EXPENSES AND CHARGES
INITIAL EXPENSES
All or some portion of the expenses incurred in establishing each Trust,
including the cost of the initial preparation of documents relating to a Trust,
Federal and State registration fees, the initial fees and expenses of the
Trustee, legal expenses and any other out-of-pocket expenses will be paid by
the Trust, and amortized over five years. Any balance of the expenses incurred
in establishing a Trust, as well as advertising and selling expenses and other
out-of-pocket expenses will be paid at no cost to the Trusts.
TRUSTEE'S, SPONSOR'S AND EVALUATOR'S FEES
The Trustee will receive for its ordinary recurring services to a Trust an
annual fee in the amount set forth under Part A, "Summary of Essential
Information." For a discussion of the services performed by the Trustee
pursuant to its obligations under the Trust Agreement, see "Rights of Unit
Holders." The Trustee will receive the benefit of any reasonable cash balances
in the Income and Principal Accounts.
There are no management fees and the Sponsor earns only a nominal Portfolio
Supervision fee (the "Supervision Fee"), which is earned for Portfolio
supervisory services. This fee is based upon the greatest face amount of Bonds
in the Trust at any time during the calendar year with respect to which the fee
is being computed.
The Supervision Fee, which is not to exceed the amount set forth in Part A--
"Summary of Essential Information", may exceed the actual costs of providing
Portfolio supervisory services for such Trust, but at no time will the total
amount the Sponsor receives for Portfolio supervisory services rendered to all
series of Tax Exempt Securities Trust in any calendar year exceed the aggregate
cost to them of supplying such services in such year. In addition, the Sponsor
may also be reimbursed for bookkeeping and other administrative services
provided to the Trust in amounts not exceeding their costs of providing these
services.
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The Evaluator will receive a fee in the amount set forth under Part A,
"Summary of Essential Information," for each evaluation of the Bonds in a
Trust. For a discussion of the services performed by the Evaluator pursuant to
its obligations under the Trust Agreement, see "Evaluator--Responsibility" and
"Public Offering--Offering Price."
Any of such fees may be increased without approval of the Unit holders 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" or, if such Index is no longer published, in
a similar Index to be determined by the Trustee and the Sponsor.
OTHER CHARGES
The following additional charges are or may be incurred by a Trust: all
expenses of the Trustee (including fees and expenses of counsel and auditors)
incurred in connection with its activities under the Trust Agreement, including
reports and communications to Unit holders; expenses and costs of any action
undertaken by the Trustee to protect a Trust and the rights and interests of
the Unit holders; 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 a Trust; to the extent lawful, expenses (including legal,
accounting and printing expenses) of maintaining registration or qualification
of the Units and/or a Trust under Federal or state securities laws subsequent
to initial registration so long as the Sponsor maintains a market for the Units
and all taxes and other governmental charges imposed upon the Bonds or any part
of a Trust (no such taxes or charges are being levied or made or, to the
knowledge of the Sponsor, contemplated). The above expenses, including the
Trustee's fee, when paid by or owing to the Trustee, are secured by a lien on
the Trust. In addition, the Trustee is empowered to sell Bonds in order to make
funds available to pay all expenses.
PUBLIC OFFERING
OFFERING PRICE
During the initial public offering period, the Public Offering Price of the
Units of a Trust is determined by adding to the Evaluator's determination of
the aggregate OFFERING price of the Bonds per Unit a sales charge equal to a
percentage of the Public Offering Price of the Units of the Trust, as set forth
in the table below. After the initial public offering period, the Public
Offering Price of the Units of a Trust will be determined by adding to the
Evaluator's determination of the aggregate BID price of the Bonds per Unit a
sales charge equal to 5.00% of the Public Offering Price (5.263% of the
aggregate bid price of the Bonds per Unit). A proportionate share of accrued
and undistributed interest on the Bonds in a Trust at the date of delivery of
the Units of such Trust to the purchaser is also added to the Public Offering
Price. (See "Rights of Unit Holders--Distribution of Interest and Principal.")
During the initial public offering period, the sales charge and dealer
concession for the Trusts will be reduced as follows:
<TABLE>
<CAPTION>
PERCENT OF PERCENT OF
PUBLIC NET AMOUNT DEALER
UNITS PURCHASED+ OFFERING PRICE INVESTED CONCESSION
- ---------------- -------------- ---------- ----------
<S> <C> <C> <C>
1- 99.................................. 4.70% 4.932% $33.00
100-249.................................. 4.25% 4.439% $32.00
250-499.................................. 4.00% 4.167% $30.00
500-999.................................. 3.50% 3.627% $25.00
1,000 or more.............................. 3.00% 3.093% $20.00
</TABLE>
The Sponsor may at any time change the amount by which the sales charge is
reduced, or discontinue the discount completely.
Pursuant to employee benefit plans, Units of a Trust are available to
employees of the Sponsor and its subsidiaries, affiliates and employee-related
discounts, during the initial public offering period, at a Public Offering
Price equal to the Evaluator's determination of the aggregate offering price of
the Bonds of a Trust per Unit plus a sales charge of .50% of the Public
Offering Price and after the initial public offering period, at a Public
Offering Price equal to the Evaluator's determination of the aggregate bid
price of the Bonds of a Trust per Unit plus a sales charge of .50% of the
Public Offering Price. Sales through such plans to employees of the Sponsor
result in less selling effort and selling expenses than sales to the general
public. Participants in the Smith Barney Asset One SM Program may purchase
Units of the Trust at a Public Offering Price equal to the Evaluator's
determination of the aggregate offering price of the Bonds of a Trust per Unit
during the initial offering period and after the initial offering period at a
Public Offering Price equal to the Evaluator's determination of the aggregate
bid price of the Bonds of a Trust per Unit. Participants in the Smith Barney
Asset One SM Program are subject to certain fees for specified securities
brokerage and execution services.
- -------
+ The reduced sales charge is also applied on a dollar basis utilizing a
breakpoint equivalent in the above table of $1,000 for one Unit, etc.
B-15
<PAGE>
METHOD OF EVALUATION
During the initial public offering period, the aggregate offering price of
the Bonds is determined by the Evaluator (1) on the basis of current offering
prices for the Bonds*, (2) if offering prices are not available for any Bonds,
on the basis of current offering prices for comparable securities, (3) by
appraisal, or (4) by any combination of the above. Such determinations are made
each business day as of the Evaluation Time set forth in the "Summary of
Essential Information," in Part A, effective for all sales made subsequent to
the last preceding determination. Following the initial public offering period,
the aggregate bid price of the Bonds (which is used to calculate the price at
which the Sponsor repurchases and sells Units in the secondary market and the
Redemption Price at which Units may be redeemed) will be determined by the
Evaluator (1) on the basis of the current bid prices for the Bonds*, (2) if bid
prices are not available for any Bonds, on the basis of current bid prices of
comparable securities, (3) by appraisal, or (4) by any combination of the
above. Such determinations will be made each business day as of the Evaluation
Time set forth in the "Summary of Essential Information," in Part A, effective
for all sales made subsequent to the last preceding determination. The term
"business day," as used herein shall exclude Saturdays, Sundays and any day on
which the New York Stock Exchange is closed. The difference between the bid and
offering prices of the Bonds may be expected to average approximately 1 1/2% of
principal amount. In the case of actively traded securities, the difference may
be as little as 1/2 of 1%, and in the case of inactively traded securities such
difference will usually not exceed 3%. The price at which Units may be
repurchased by the Sponsor in the secondary market could be less than the price
paid by the Unit holder. On the Date of Deposit for each Trust the aggregate
current offering price of such Bonds per Unit exceeded the bid price of such
Bonds per Unit by the amounts set forth under "Summary of Essential
Information" in Part A. For information relating to the calculation of the
Redemption Price per Unit, which is also based upon the aggregate bid price of
the underlying Bonds and which may be expected to be less than the Public
Offering Price per Unit, see "Rights of Unit Holders--Redemption of Units."
DISTRIBUTION OF UNITS
During the initial public offering period Units of a Trust will be
distributed to the public at the Public Offering Price determined in the manner
provided above (see "Public Offering--Offering Price") through the Underwriters
and dealers. The initial public offering period is 30 days unless all Units of
a Trust are sold prior thereto, in which case the initial public offering
period terminates with the sale of all Units. So long as all Units initially
offered have not been sold, the Sponsor may extend the initial public offering
period for up to four additional successive 30-day periods. Upon completion of
the initial public offering, Units which remain unsold or which may be acquired
in the secondary market (see "Public Offering--Market for Units") may be
offered by this Prospectus at the Public Offering Price determined in the
manner provided above (see "Public Offering--Offering Price").
It is the Sponsor's intention to qualify Units of a Trust for sale through
the Underwriters and dealers who are members of the National Association of
Securities Dealers, Inc. Units of a State Trust will be offered for sale only
in the State for which the Trust is named, except that Units of a New York
Trust will also be offered for sale to residents of the State of Connecticut,
the State of Florida and the Commonwealth of Puerto Rico. Units will initially
be sold to dealers at prices which represent a concession equal to the amount
designated in the tables under "Public Offering--Offering Price" herein, for a
Trust with an unreduced sales charge as specified in Part A--"The Public
Offering Price." The Sponsor reserves the right to change the amount of the
concession to dealers from time to time. After the initial offering period the
dealer concession is negotiated on a case-by-case basis.
Sales will be made only with respect to whole Units, and the Sponsor reserves
the right to reject, in whole or in part, any order for the purchase of Units.
A purchaser does not become a Unit holder (Certificate holder) or become
entitled to exercise the rights of a Unit holder (including the right to redeem
his Units) until he has paid for his Units. Generally, such payment must be
made within five business days after an order for the purchase of Units has
been placed. The price paid by a Unit holder is the Public Offering Price in
effect at the time his order is received, plus accrued interest (see "Public
Offering--Method of Evaluation"). This price may be different from the Public
Offering Price in effect on any other day, including the day on which he made
payment for the Units.
MARKET FOR UNITS
Following the initial public offering period the Sponsor, although not
obligated to do so, presently intends to maintain a market for the Units of a
Trust and continuously to offer to purchase such Units at prices based upon the
aggregate bid price of the underlying Bonds. For information relating to the
method and frequency of the Evaluator's determination of the aggregate bid
price of the underlying Bonds, see "Public Offering--Method of Evaluation." The
Sponsor may cease to maintain such a market at any time and from time to time
without notice if the supply of Units of a Trust of this Series exceeds demand
or for any other reason. In this event the Sponsor may nonetheless purchase
Units, as a service to Unit holders, at prices based on the current Redemption
Price of those Units. In the event that a market is not maintained for the
Units of a Trust, a Unit holder of such Trust desiring to dispose of his Units
may be able to do so only by tendering such Units to the Trustee for redemption
at the Redemption Price, which is based upon the aggregate bid price of the
underlying Bonds. The aggregate bid price of the underlying Bonds of a Trust
may be expected to be less than the aggregate offering price.
- -------
* Current offering or bid prices of the Deposited Units, if any, are based on
prevailing weekly evaluations of the obligations underlying such Deposited
Units.
B-16
<PAGE>
EXCHANGE OPTION
Unit holders may elect to exchange any or all of their Units of this series
for units of one or more of any series of Tax Exempt Securities Trust (the
"Exchange Trust") available for sale in the state in which the Unit holder
resides at a Public Offering Price for the units of the Exchange Trust to be
acquired based on a fixed sales charge of $25 per unit. The Sponsor reserves
the right to modify, suspend or terminate this plan at any time without further
notice to Unit holders. Therefore, there is no assurance that a market for
units will in fact exist on any given date on which a Unit holder wishes to
sell his Units of this series and thus there is no assurance that the Exchange
Option will be available to a Unit holder. Exchanges will be effected in whole
units ONLY. If the proceeds from the Units being surrendered are less than the
cost of a whole number of units being acquired, the exchanging Holder will be
permitted to add cash in an amount to round up to the next highest number of
whole units.
An exchange of Units pursuant to the Exchange Option for units of an Exchange
Trust will generally constitute a "taxable event" under the Code, i.e., a
Holder will recognize a gain or loss at the time of exchange. However, an
exchange of Units of this Trust for units of any other series of the Tax Exempt
Securities Trust which are grantor trusts for U.S. Federal income tax purposes
will not constitute a taxable event to the extent that the underlying
securities in each trust do not differ materially either in kind or in extent.
Unit holders are urged to consult their own tax advisors as to the tax
consequences to them of exchanging Units in particular cases.
Units of the Exchange Trust will be sold under the Exchange Option at the bid
prices of the underlying securities in the particular portfolio involved per
unit plus a fixed charge of $25 per unit. As an example, assume that a Unit
holder, who has three units of a trust with a current price of $1,020 per unit
based on the bid prices of the underlying securities, desires to exchange his
Units for units of a series of an Exchange Trust with a current price of $880
per unit based on the bid prices of the underlying securities. In this example,
the proceeds from the Unit holder's units will aggregate $3,060. Since only
whole units of an Exchange Trust may be purchased under the Exchange Option,
the Unit holder would be able to acquire four units in the Exchange Trust for a
total cost of $3,620 ($3,520 for the units and $100 for the sales charge).
REINVESTMENT PROGRAMS
Distributions of interest and principal, if any, are made to Unit holders
monthly. The Unit holder will have the option of either receiving his monthly
income check from the Trustee or participating in one of the reinvestment
programs offered by the Sponsor provided such Unit holder meets the minimum
qualifications of the reinvestment program and such program lawfully qualifies
for sale in the jurisdiction in which the Unit holder resides. Upon enrollment
in a reinvestment program, the Trustee will direct monthly interest
distributions and principal distributions, if any, to the reinvestment program
selected by the Unit holder. Since the Sponsor has arranged for different
reinvestment alternatives, Unit holders should contact the Sponsor for more
complete information, including charges and expenses. The appropriate
prospectus will be sent to the Unit holder. The Unit holder should read the
prospectus for a reinvestment program carefully before deciding to participate.
Participation in the reinvestment program will apply to all Units of a Trust
owned by a Unit holder and may be terminated at any time by the Unit holder, or
the program may be modified or terminated by the Trustee or the program's
Sponsor.
SPONSOR'S AND UNDERWRITERS' PROFITS
For their services the Underwriters (see Part A, "Underwriting") receive a
commission based on the sales charge of a particular Trust (see "Public
Offering--Offering Price") as adjusted pursuant to the Agreement Among
Underwriters. The Sponsor receives a gross commission equal to the applicable
sales charge for any Units they have underwritten, and receive the difference
between the applicable sales charge and the Underwriter's commission for the
remainder of the Units. In addition, the Sponsor may realize profits or sustain
losses, as the case may be, in the amount of any difference between the cost of
the Bonds to a Trust (which is based on the aggregate offering price of the
underlying Bonds on the Date of Deposit) and the purchase price of such Bonds
to the Sponsor (which is the cost of the Bonds at the time they were acquired
for the account of a Trust and the cost of the Deposited Units at the time they
were acquired by the Sponsor). (See Part A, "Portfolio of Securities"--Note
(3).) Under certain circumstances, an Underwriter may be entitled to share in
such profits, if any, realized by the Sponsor. The Sponsor may also realize
profits or sustain losses with respect to Bonds deposited in a Trust which were
acquired from its own organization or from underwriting syndicates of which it
was a member. During the initial public offering period the Underwriters also
may realize profits or sustain losses as a result of fluctuations after the
Date of Deposit in the offering prices of the Bonds and hence in the Public
Offering Price received by the Underwriters for Units. Cash, if any, made
available to the Sponsor prior to the anticipated first settlement date for the
purchase of Units may be used in the Sponsor's businesses to the extent
permitted by applicable regulations and may be of use to the Sponsor.
In maintaining a market for the Units of a Trust (see "Public Offering--
Market for Units"), the Sponsor will also realize profits or sustain losses in
the amount of any difference between the price at which they buy such Units and
the price at which they resell or redeem such Units (see "Public Offering--
Offering Price").
B-17
<PAGE>
RIGHTS OF UNIT HOLDERS
CERTIFICATES
Ownership of Units of a Trust is evidenced by registered certificates
executed by the Trustee and the Sponsor. Certificates are transferable by
presentation and surrender to the Trustee properly endorsed or accompanied by a
written instrument or instruments of transfer.
Certificates may be issued in denominations of one Unit or any multiple
thereof. A Unit holder may be required to pay $2.00 per certificate reissued or
transferred, and to pay any governmental charge that may be imposed in
connection with each such transfer or interchange. For new certificates issued
to replace destroyed, stolen or lost certificates, the Unit holder must furnish
indemnity satisfactory to the Trustee and must pay such expenses as the Trustee
may incur. Mutilated certificates must be surrendered to the Trustee for
replacement.
DISTRIBUTION OF INTEREST AND PRINCIPAL
Interest and principal received by a Trust will be distributed on each
monthly Distribution Date on a pro rata basis to Unit holders in such Trust of
record as of the preceding Record Date. All distributions will be net of
applicable expenses and funds required for the redemption of Units and, if
applicable, reimbursements to the Trustee for interest payments advanced to
Unit holders on previous Monthly Distribution Dates. (See Part A, "Summary of
Essential Information," "Tax Exempt Securities Trust--Expenses and Charges" and
"Rights of Unit Holders--Redemption of Units.")
The Trustee will credit to the Interest Account of a Trust all interest
received by such Trust, including that part of the proceeds of any disposition
of Bonds of such Trust which represents accrued interest. Other receipts will
be credited to the Principal Account of a Trust. The pro rata share of the
Interest Account and the pro rata share of cash in the Principal Account
represented by each Unit of a Trust will be computed by the Trustee each month
as of the Record Date. (See Part A, "Summary of Essential Information.")
Proceeds received from the disposition of any of the Bonds subsequent to a
Record Date and prior to the next succeeding Distribution Date will be held in
the Principal Account and will not be distributed until the following
Distribution Date. The distribution to the Unit holders as of each Record Date
will be made on the following Distribution Date or shortly thereafter and shall
consist of an amount substantially equal to one-twelfth of such holders' pro
rata share of the estimated annual income to the Interest Account after
deducting estimated expenses (the "Monthly Income Distribution") plus such Unit
holders' pro rata share of the cash balance in the Principal Account computed
as of the close of business on the preceding Record Date. Persons who purchase
Units between a Record Date and a Distribution Date will receive their first
distribution on the second Distribution Date following their purchase of Units.
No distribution need be made from the Principal Account if the balance therein
is less than an amount sufficient to distribute $5.00 per Unit. The Monthly
Income Distribution per Unit initially will be in the amount shown under Part
A, "Summary of Essential Information" for a Trust and will change as the income
and expenses of such Trust change and as Bonds are exchanged, redeemed, paid or
sold.
Normally, interest on the Bonds in the Portfolio of a Trust is paid on a
semi-annual basis. Because Bond interest is not received by a Trust at a
constant rate throughout the year, any Monthly Income Distribution may be more
or less than the amount credited to the Interest Account as of the Record Date.
In order to eliminate fluctuations in Monthly Income Distributions resulting
from such variances, the Trustee is required by the Trust Agreement to advance
such amounts as may be necessary to provide Monthly Income Distributions of
approximately equal amounts. The Trustee will be reimbursed, without interest,
for any such advances from funds available from the Interest Account on the
next ensuing Record Date or Record Dates, as the case may be. If all or a
portion of the Bonds for which advances have been made subsequently fail to pay
interest when due, the Trustee may recoup advances made by it in anticipation
of receipt of interest payments on such Bonds by reducing the amount
distributed per Unit in one or more Monthly Interest Distributions. If Units
are redeemed subsequent to such advances by the Trustee, but prior to receipt
by the Trustee of actual notice of such failure to pay interest, the amount of
which was so advanced by the Trustee, each remaining Unit holder will be
subject to a greater pro rata reduction in his Monthly Interest Distribution
than would have occurred absent such redemptions. Funds which are available for
future distributions, payments of expenses and redemptions are in accounts
which are non-interest bearing to Unit holders and are available for use by The
Chase Manhattan Bank pursuant to normal banking procedures. The Trustee is
entitled to the benefit of any reasonable cash balances in the Income and
Principal Accounts. Because of the varying interest payment dates of the Bonds
comprising a Trust Portfolio, accrued interest at any point in time will be
greater than the amount of interest actually received by a Trust and
distributed to Unit holders. This excess accrued but undistributed interest
amount will be added to the value of the Units on any purchase made after the
Date of Deposit. If a Unit holder sells all or a portion of his Units a portion
of his sale proceeds will be allocable to his proportionate share of the
accrued interest. Similarly, if a Unit holder redeems all or a portion of his
Units, the Redemption Price per Unit which he is entitled to receive from the
Trustee will also include his accrued interest on the Bonds. (See "Rights of
Unit Holders--Redemption of Units--Computation of Redemption Price per Unit.")
The Trustee is also entitled to withdraw from the Interest Account, and to the
extent funds are not
B-18
<PAGE>
sufficient therein, from the Principal Account, on one or more Record Dates as
may be appropriate, amounts sufficient to recoup advances which it has made in
anticipation of the receipt by the Trust of interest in respect of Bonds which
subsequently fail to pay interest when due.
As of the first day of each month the Trustee will deduct from the Interest
Account of a Trust and, to the extent funds are not sufficient therein, from
the Principal Account of such Trust, amounts necessary to pay the expenses of
such Trust. (See "Tax Exempt Securities 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 governmental charges payable out of a
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 account. In addition, the Trustee may withdraw from
the Interest Account and the Principal Account such amounts as may be necessary
to cover redemption of Units by the Trustee. (See "Rights of Unit Holders--
Redemption of Units.")
The Trustee has agreed to advance to a Trust the amount of accrued interest
due on the Bonds of such Trust from their respective issue dates or previous
interest payment dates through the Date of Deposit. This accrued interest
amount will be paid to the Sponsor as the holder of record of all Units on the
first settlement date for the Units. Consequently, when the Sponsor sells Units
of a Trust, the amount of accrued interest to be added to the Public Offering
Price of the Units purchased by an investor will include only accrued interest
from the day after the Date of Deposit through the date of settlement of the
investor's purchase (normally three business days after purchase), less any
distributions from the Interest Account. The Trustee will recover its
advancements to a Trust (without interest or other cost to such Trust) from
interest received on the Bonds deposited in such Trust.
REPORTS AND RECORDS
The Trustee shall furnish Unit holders in connection with each distribution a
statement of the amount of interest, if any, and the amount of other receipts,
if any, which are being distributed, expressed in each case as a dollar amount
per Unit. In the event that the issuer of any of the Bonds fails to make
payment when due of any interest or principal and such failure results in a
change in the amount which would otherwise be distributed as a monthly
distribution, the Trustee will, with the first such distribution following such
failure, set forth in an accompanying statement, the issuer and the Bond, the
amount of the reduction in the distribution per Unit resulting from such
failure, the percentage of the aggregate principal amount of Bonds which such
Bond represents and, to the extent then determined, information regarding any
disposition or legal action with respect to such Bond. 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 Unit holder of record, a
statement (1) as to the Interest Account: interest received (including amounts
representing interest received upon any disposition of Bonds), deductions for
payment of applicable taxes and for fees and expenses of a Trust, redemptions
of Units and the balance remaining after such distributions and deductions,
expressed both as a total dollar amount and as a dollar amount representing the
pro rata share of each Unit outstanding on the last business day of such
calendar year; (2) as to the Principal Account: the dates of disposition of any
Bonds and the net proceeds received therefrom (excluding any portion
representing interest), deductions for payments of applicable taxes and for
fees and expenses of a Trust, redemptions of Units, and the balance remaining
after such distributions and deductions, expressed both as a total dollar
amount and as a dollar amount representing the pro rata share of each Unit
outstanding on the last business day of such calendar year; (3) a list of the
Bonds held and the number of Units outstanding on the last business day of such
calendar year; (4) the Redemption Price per Unit based upon the last
computation thereof made during such calendar year; and (5) amounts actually
distributed during such calendar year from the Interest Account and from the
Principal Account, separately stated, expressed both as total dollar amounts
and as dollar amounts representing the pro rata share of each Unit outstanding.
The accounts of a Trust shall be audited not less frequently than annually by
independent auditors designated by the Sponsor, and the report of such auditors
shall be furnished by the Trustee to Unit holders upon request.
The Trustee shall keep available for inspection by Unit holders at all
reasonable times during usual business hours, books of record and account of
its transactions as Trustee including records of the names and addresses of
Unit holders, certificates issued or held, a current list of Bonds in the
Portfolio of a Trust and a copy of the Trust Agreement.
REDEMPTION OF UNITS
Units may be tendered to the Trustee for redemption at its unit investment
trust office at 4 New York Plaza, New York, New York 10004, upon payment of any
relevant tax. At the present time there are no specific taxes related to the
redemption of the Units. No redemption fee will be charged by the Sponsor or
the Trustee. Units redeemed by the Trustee will be cancelled.
Certificates for Units to be redeemed must be properly endorsed or
accompanied by a written instrument of transfer. Unit holders must sign exactly
as their name appears on the face of the certificate with the signature
guaranteed by an officer of a national bank or trust company or by a member of
either the New York, Midwest or Pacific Stock Exchange. 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.
B-19
<PAGE>
Within seven calendar days following such tender, the Unit holder will be
entitled to receive in cash an amount for each Unit tendered equal to the
Redemption Price per Unit computed as of the Evaluation Time set forth in the
"Summary of Essential Information" in Part A on the date of tender. (See
"Redemption of Units--Computation of Redemption Price per Unit.") The "date of
tender" is deemed to be the date on which Units are received by the Trustee,
except as regards 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. For information relating to the purchase by the Sponsor of Units tendered
to the Trustee for redemption at prices in excess of the Redemption Price, see
"Redemption of Units--Purchase by the Sponsor of Units Tendered for
Redemption."
Accrued interest paid on redemption shall be withdrawn from the Interest
Account, or, if the balance therein is insufficient, from the Principal
Account. All other amounts paid on redemption shall be withdrawn from the
Principal Account. The Trustee is empowered to sell Bonds in order to make
funds available for redemption. Such sales, if required, could result in a sale
of Bonds by the Trustee at a loss. To the extent Bonds are sold, the size and
diversity of a Trust will be reduced.
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 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 underlying Bonds is not
reasonably practicable, or for such other periods as the Securities and
Exchange Commission has by order permitted.
COMPUTATION OF REDEMPTION PRICE PER UNIT--The Redemption Price per Unit of a
Trust is determined by the Trustee on the basis of the bid prices of the Bonds
in such Trust as of the Evaluation Time on the date any such determination is
made. The Redemption Price per Unit of a Trust is each Unit's pro rata share,
determined by the Trustee, of: (1) the aggregate value of the Bonds in such
Trust on the bid side of the market (determined by the Evaluator as set forth
below), (2) cash on hand in such Trust (other than funds covering contracts to
purchase Bonds), and accrued and unpaid interest on the Bonds as of the date of
computation, less (a) amounts representing taxes or governmental charges
payable out of such Trust, (b) the accrued expenses of such Trust, and (c) cash
held for distribution to Unit holders of such Trust of record as of a date
prior to the evaluation. The Evaluator may determine the value of the Bonds in
the Trust (1) on the basis of current bid prices for the Bonds, (2) if bid
prices are not available for any Bonds, on the basis of current bid prices for
comparable securities, (3) by appraisal, or (4) by any combination of the
above.
The difference between the bid and offering prices of the Bonds may be
expected to average approximately 1 1/2% of principal amount. In the case of
actively traded securities, the difference may be as little as 1/2 of 1%, and
in the case of inactively traded securities such difference usually will not
exceed 3%. The price at which Units may be redeemed could be less than the
price paid by the Unit holder. On the Date of Deposit for each Trust the
aggregate current offering price of such Bonds per Unit exceeded the bid price
of such Bonds per Unit by the amounts set forth under Part A, "Summary of
Essential Information."
PURCHASE BY THE SPONSOR OF UNITS TENDERED FOR REDEMPTION--The Trust Agreement
requires that the Trustee notify the Sponsor of any tender of Units for
redemption. So long as the Sponsor maintains a bid in the secondary market, the
Sponsor, prior to the close of business on the second succeeding business day,
will purchase any Units tendered to the Trustee for redemption at the price so
bid by making payment therefor to the Unit holder in an amount not less than
the Redemption Price not later than the day on which the Units would otherwise
have been redeemed by the Trustee. (See "Public Offering--Market for Units.")
The offering price of any Units resold by the Sponsor will be the Public
Offering Price determined in the manner provided in this Prospectus. (See
"Public Offering--Offering Price.") Any profit resulting from the resale of
such Units will belong to the Sponsor which likewise will bear any loss
resulting from a lower offering or redemption price subsequent to their
acquisition of such Units. (See "Public Offering--Sponsor's and Underwriters'
Profits.")
SPONSOR
Smith Barney Inc., 388 Greenwich Street, New York, New York 10013 ("Smith
Barney"), was incorporated in Delaware in 1960 and traces its history through
predecessor partnerships to 1873. Smith Barney, an investment banking and
securities broker-dealer firm, is a member of the New York Stock Exchange, Inc.
and other major securities and commodities exchanges, the National Association
of Securities Dealers, Inc. and the Securities Industry Association. Smith
Barney is an indirect wholly-owned subsidiary of The Travelers Inc.
Smith Barney or an affiliate is investment adviser, principal underwriter or
distributor of 60 open-end investment companies and investment manager of 12
closed-end investment companies. Smith Barney also sponsors all Series of
Corporate Securities Trust, Government Securities Trust, Harris, Upham Tax-
Exempt Fund and Tax Exempt Securities Trust, and acts as sponsor of most Series
of Defined Assets Funds. The Sponsor has acted previously as managing
underwriter of other investment companies. In addition to
B-20
<PAGE>
participating as a member of various underwriting and selling groups or as
agent of other investment companies, the Sponsor also executes orders for the
purchase and sale of securities of investment companies and sells securities to
such companies in its capacity as broker or dealer in securities.
LIMITATIONS ON LIABILITY
The Sponsor is liable for the performance of its obligations arising from its
responsibilities under the Trust Agreement, but will be under no liability to
Unit holders for taking any action or refraining from any action in good faith
or for errors in judgment or responsible in any way for depreciation or loss
incurred by reason of the sale of any Bonds, except in cases of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations and duties. (See "Sponsor--Responsibility" below.)
RESPONSIBILITY
Although the Trusts are not actively managed as mutual funds are, the
portfolios are reviewed periodically on a regular cycle. The Sponsor is
empowered to direct the Trustee to dispose of Bonds when certain events occur
that adversely affect the value of the Bonds, including default in payment of
interest or principal, default in payment of interest or principal on other
obligations of the same issuer, institution of legal proceedings, default under
other documents adversely affecting debt service, decline in price or the
occurrence of other market or credit factors, or decline in projected income
pledged for debt service on revenue Bonds and advanced refunding that, in the
opinion of the Sponsor, may be detrimental to the interests of the Unit
holders.
The Sponsor intends to provide Portfolio supervisory services for each Trust
in order to determine whether the Trustee should be directed to dispose of any
such Bonds.
It is the responsibility of the Sponsor to instruct the Trustee to reject any
offer made by an issuer of any of the Bonds to issue new obligations in
exchange and substitution for any Bonds pursuant to a refunding or refinancing
plan, except that the Sponsor may instruct the Trustee to accept such an offer
or to take any other action with respect thereto as the Sponsor may deem proper
if the issuer is in default with respect to such Bonds or in the judgment of
the Sponsor the issuer will probably default in respect to such Bonds in the
foreseeable future.
Any obligations so received in exchange or substitution will be held by the
Trustee subject to the terms and conditions of the Trust Agreement to the same
extent as Bonds originally deposited thereunder. Within five days after the
deposit of obligations in exchange or substitution for underlying Bonds, the
Trustee is required to give notice thereof to each Unit holder, identifying the
Bonds eliminated and the Bonds substituted therefor. Except as stated in this
and the preceding paragraph, the acquisition by a Trust of any securities other
than the Bonds initially deposited in the Trust is prohibited.
RESIGNATION
If the Sponsor resigns or otherwise fails or becomes unable to perform its
duties under the Trust Agreement, and no express provision is made for action
by the Trustee in such event, the Trustee may appoint a successor sponsor or
terminate the Trust Agreement and liquidate the Trusts.
TRUSTEE
The Trustee is The Chase Manhattan Bank with its principal executive office
located at 270 Park Avenue, New York, New York 10017 and its unit investment
trust office at 4 New York Plaza, New York, New York 10004. The Trustee is
subject to supervision by the Superintendent of Banks of the State of New York,
the Federal Deposit Insurance Corporation and the Board of Governors of the
Federal Reserve System. In connection with the storage and handling of certain
Bonds deposited in the Trust, the Trustee may use the services of The
Depository Trust Company. These services may include safekeeping of the Bonds
and coupon-clipping, computer book-entry transfer and institutional delivery
services. The Depository Trust Company is a limited purpose trust company
organized under the Banking Law of the State of New York, a member of the
Federal Reserve System and a clearing agency registered under the Securities
Exchange Act of 1934.
LIMITATIONS ON LIABILITY
The Trustee shall not be liable or responsible in any way for depreciation or
loss incurred by reason of the disposition of any moneys, securities or
certificates or in respect of any evaluation or for any action taken in good
faith reliance on prima facie properly executed documents except in cases of
willful misfeasance, bad faith, gross negligence or reckless disregard for its
obligations and duties. In
B-21
<PAGE>
addition, the Trustee shall not be personally liable for any taxes or other
governmental charges imposed upon or in respect of a Trust which the Trustee
may be required to pay under current or future law of the United States or any
other taxing authority having jurisdiction. (See "Tax Exempt Securities Trust--
Portfolio.") For information relating to the responsibilities and
indemnification of the Trustee under the Trust Agreement, reference is made to
the material set forth under "Rights of Unit Holders", "Sponsor--Resignation"
and "Other Charges."
RESIGNATION
By executing an instrument in writing and filing the same with the Sponsor,
the Trustee and any successor may resign. In such an event the Sponsor is
obligated to appoint a successor trustee as soon as possible. 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. Such resignation or removal shall
become effective upon the acceptance of appointment by the successor trustee.
If no successor has accepted the appointment within thirty days after notice of
resignation, the retiring trustee may apply to a court of competent
jurisdiction for the appointment of a successor. The resignation or removal of
a trustee becomes effective only when the successor trustee accepts its
appointment as such or when a court of competent jurisdiction appoints a
successor trustee.
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, Inc., with main
offices located at 65 Broadway, New York, New York 10006.
LIMITATIONS ON LIABILITY
The Trustee, Sponsor and Unit holders may rely on any evaluation furnished by
the Evaluator and shall have no responsibility for the accuracy thereof.
Determination 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 Unit holders for errors in judgment. But this provision shall not
protect the Evaluator in cases of willful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations and duties.
RESPONSIBILITY
The Trust Agreement requires the Evaluator to evaluate the Bonds of a Trust
on the basis of their bid prices on the last business day of June and December
in each year, on the day on which any Unit of such Trust is tendered for
redemption and on any other day such evaluation is desired by the Trustee or is
requested by the Sponsor. For information relating to the responsibility of the
Evaluator to evaluate the Bonds on the basis of their offering prices, see
"Public Offering--Offering Price."
RESIGNATION
The Evaluator may resign or may be removed by the joint action of the Sponsor
and the Trustee, and in such event, 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 a
successor evaluator. If upon resignation of the Evaluator no successor has
accepted appointment within thirty days after notice of resignation, the
Evaluator may apply to a court of competent jurisdiction for the appointment of
a successor.
AMENDMENT AND TERMINATION OF THE TRUST AGREEMENT
AMENDMENT
The Sponsor and the Trustee have the power to amend the Trust Agreement
without the consent of any of the Unit holders when such an amendment is (1) to
cure any ambiguity or to correct or supplement any provision of the Trust
Agreement which may be defective or inconsistent with any other provision
contained therein, or (2) to make such other provisions as shall not adversely
affect the interests of the Unit holders; provided, that the Trust Agreement is
not amended to increase the number of Units issuable thereunder or to permit
the deposit or acquisition of securities either in addition to or in
substitution for any of the Bonds initially deposited in a Trust, except for
the substitution of certain refunding securities for such Bonds or to permit
the Trustee to engage in business or investment activities not specifically
authorized in the Trust Agreement as originally adopted. In the event of any
amendment, the Trustee is obligated to notify promptly all Unit holders of the
substance of such amendment.
B-22
<PAGE>
TERMINATION
The Trust Agreement provides that if the principal amount of Bonds held in
Trust is less than 50% of the principal amount of the Bonds originally
deposited in such Trust, the Trustee may in its discretion and will, when
directed by the Sponsor, terminate such Trust. A Trust may be terminated at any
time by 100% of the Unit holders. However, in no event may a Trust continue
beyond the Mandatory Termination Date set forth under Part A, "Summary of
Essential Information." In the event of termination, written notice thereof
will be sent by the Trustee to all Unit holders. Within a reasonable period
after termination, the Trustee will sell any Bonds remaining in the affected
Trust, and, after paying all expenses and charges incurred by such Trust, will
distribute to each Unit holder, upon surrender for cancellation of his
certificate for Units, his pro rata share of the balances remaining in the
Interest and Principal Account of such Trust.
LEGAL OPINION
The legality of the Units has been passed upon by Battle Fowler LLP, 75 East
55th Street, New York, New York 10022, as special counsel for the Sponsor.
AUDITORS
The statements of financial condition and the portfolios of securities
included in this Prospectus have been audited by KPMG Peat Marwick LLP,
independent auditors, as indicated in their report with respect thereto, and is
included herein in reliance upon the authority of said firm as experts in
accounting and auditing.
BOND RATINGS+
All ratings shown under Part A, "Portfolio of Securities", except those
identified otherwise, are by Standard & Poor's.
STANDARD & POOR'S
A Standard & Poor's corporate or municipal bond rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
debt obligation. This assessment of creditworthiness may take into
consideration obligors such as guarantors, insurers, or lessees.
The bond rating is not a recommendation to purchase or sell a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished to Standard & Poor's
by the issuer and obtained by Standard & Poor's from other sources it considers
reliable. The ratings may be changed, suspended or withdrawn as a result of
changes in, or unavailability of, such information.
The ratings are based, in varying degrees, on the following considerations:
I. Likelihood of default--capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in accordance
with the terms of the obligation;
II. Nature of and provisions of the obligation; and
III. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization or other arrangement under the laws
of bankruptcy and other laws affecting creditors' rights.
AAA--This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay interest and repay
principal.
AA--Bonds rated AA have a very strong capacity to pay interest and repay
principal, and in the majority of instances they differ from AAA issues only in
small degrees.
A--Bonds rated A have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than bonds in higher-rated categories.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in the higher-rated categories.
Plus (+) or Minus (-): To provide more detailed indications of credit
quality, the ratings from "AA" to "BB" may be modified by the addition of a
plus or minus sign to show relative standing within the major rating
categories.
Provisional Ratings: The letter "p" following a rating indicates the rating
is provisional. A provisional rating assumes the successful completion of the
project being financed by the issuance of the bonds being rated and indicates
that payment of debt service requirements
- -------
+As described by the rating agencies.
B-23
<PAGE>
is largely or entirely dependent upon the successful and timely completion of
the project. This rating, however, while addressing credit quality subsequent
to completion, makes no comment on the likelihood of, or the risk of default
upon failure of, such completion. Accordingly, the investor should exercise his
own judgment with respect to such likelihood and risk.
Conditional rating(s), indicated by "Con" are given to bonds for which the
continuance of the security rating is contingent upon Standard & Poor's receipt
of an executed copy of the escrow agreement or closing documentation confirming
investments and cash flows and/or the security rating is conditional upon the
issuance of insurance by the respective insurance company.
MOODY'S
A brief description of the applicable Moody's rating symbols and their
meanings is as follows:
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. Aa bonds are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or fluctuation
of protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than in
Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium grade obligations:
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Rating symbols may include numerical modifiers "1," "2," or "3." The
numerical modifier "1" indicates that the security ranks at the high end, "2"
in the mid-range, and "3" nearer the low end of the generic category. These
modifiers of rating symbols "Aa," "A" and "Baa" are to give investors a more
precise indication of relative debt quality in each of the historically defined
categories.
FITCH
AAA--These bonds are considered to be investment grade and of the highest
quality. The obligor has an extraordinary ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--These bonds are considered to be investment grade and of high quality.
The obligor's ability to pay interest and repay principal, while very strong,
is somewhat less than for AAA rated securities or more subject to possible
change over the term of the issue.
A--These bonds are considered to be investment grade and of good quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB--These bonds are considered to be investment grade and of satisfactory
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however are more likely to weaken this ability than bonds with
higher ratings.
A "+" or a "-" sign after a rating symbol indicates relative standing in its
rating.
DUFF & PHELPS
AAA--Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA--High credit quality. Protection factors are strong. Risk is modest but
may vary slightly from time to time because of economic conditions.
A--Protection factors are average but adequate. However, risk factors are
more variable and greater in periods of economic stress.
A "+" or a "-" sign after a rating symbol indicates relative standing in its
rating.
B-24
<PAGE>
FEDERAL TAX FREE VS. TAXABLE INCOME
This table shows the approximate yields which taxable securities must earn in
various income brackets to produce, after Federal income tax, returns
equivalent to specified tax-exempt bond yields. The table is computed on the
theory that the taxpayer's highest bracket tax rate is applicable to the entire
amount of any increase or decrease in his taxable income resulting from a
switch from taxable to tax-exempt securities or vice versa. The table reflects
projected Federal income tax rates and the tax brackets for the 1997 taxable
year. Because the Federal rate brackets are subject to adjustment based on
changes in the Consumer Price Index, the taxable equivalent yields for
subsequent years may vary somewhat from those indicated in the table. Use this
table to find your tax bracket. Read across to determine the approximate
taxable yield you would need to equal a return free of Federal income tax.
1997 TAX YEAR
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TAXABLE INCOME BRACKET TAX EXEMPT YIELD
FEDERAL
JOINT RETURN SINGLE RETURN TAX RATE 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%
TAXABLE EQUIVALENT YIELD
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0-
41,200 $ 0- 24,650 15.00% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65%
$ 41,201-
99,600 $ 24,651- 59,750 28.00% 5.56 6.25 6.94 7.64 8.33 9.03
$ 99,601-
121,200 $ 59,751-121,200 31.00% 5.80 6.52 7.25 7.97 8.70 9.42
$121,201-
151,750 $121,201-124,650 31.93% 5.88 6.61 7.35 8.08 8.81 9.55
$151,751-
271,050 $124,651-271,050 37.08% 6.36 7.15 7.95 8.74 9.54 10.33
OVER
$271,050 OVER $271,050 40.79% 6.76 7.60 8.44 9.29 10.13 10.98
- -----------------------------------------------------------------------------------------
</TABLE>
Note: This table reflects the following:
1 Taxable income, as reflected in the above table, equals Federal adjusted
gross income (AGI), less personal exemptions and itemized deductions.
However, certain itemized deductions are reduced by the lesser of (i)
three percent of the amount of the taxpayer's AGI over $121,200, or (ii)
80 percent of the amount of such itemized deductions otherwise allowable.
The effect of the three percent phase out on all itemized deductions and
not just those deductions subject to the phase out is reflected above in
the combined Federal and state tax rates through the use of higher
effective Federal tax rates. In addition, the effect of the 80 percent
cap on overall itemized deductions is not reflected on this table.
Federal income tax rules also provide that personal exemptions are phased
out at a rate of two percent for each $2,500 (or fraction thereof) of AGI
in excess of $181,800 for married taxpayers filing a joint tax return and
$121,200 for single taxpayers. The effect of the phase out of personal
exemptions is not reflected in the above table.
2 Interest earned on municipal obligations may be subject to the federal
alternative minimum tax. This provision is not incorporated into the
table.
3 The taxable equivalent yield table does not incorporate the effect of
graduated rate structures in determining yields. Instead, the tax rates
used are the highest marginal tax rates applicable to the income levels
indicated within each bracket.
4 Interest earned on all municipal obligations may cause certain investors
to be subject to tax on a portion of their Social Security and/or
railroad retirement benefits. The effect of this provision is not
included in the above table.
PERFORMANCE INFORMATION
Sales material may compare tax-equivalent yields of long-term municipal bonds
to long-term U.S. Treasury bonds and to the Bond Buyer Revenue Bond Index. Such
information is based on past performance and is not indicative of future
results. Yields on taxable investment are generally higher than those of tax-
exempt securities of comparable maturity. While income from municipal bonds is
exempt from federal income taxes, income from Treasuries is exempt from state
and local taxes. Since Treasuries are considered to have the highest possible
credit quality, the difference in yields is somewhat narrower than if compared
to corporate bonds with similar ratings and maturities.
B-25
<PAGE>
PROSPECTUS--PART C:
- --------------------------------------------------------------------------------
NOTE: PART C OF THIS PROSPECTUS MAY NOT BE DISTRIBUTED UNLESS ACCOMPANIED BY
PARTS A AND B.
- --------------------------------------------------------------------------------
TAX EXEMPT SECURITIES TRUST--THE STATE TRUSTS
Potential purchasers of the Units of a State Trust should consider the fact
that the Trust's Portfolio consists primarily of Bonds issued by the state for
which such State Trust is named or its municipalities or authorities and
realize the substantial risks associated with an investment in such Bonds. Each
State Trust is subject to certain additional risk factors. The Sponsor believes
the discussions of risk factors summarized below describe some of the more
significant aspects of the State Trusts. The sources of such information are
the official statements of issuers as well as other publicly available
documents. While the Sponsor has not independently verified this information,
it has no reason to believe that such information is not correct in all
material respects. Investment in a State Trust should be made with an
understanding that the value of the underlying Portfolio may decline with
increases in interest rates.
CALIFORNIA TRUST
RISK FACTORS--
Beginning in the 1990-91 fiscal year, California faced the worst economic,
fiscal and budget conditions since the 1930s. Construction, manufacturing
(especially aerospace), exports and financial services, among others, were
severely affected. Job losses were the worst of any post-war recession and have
been estimated to exceed 800,000.
The recession seriously affected State tax revenues. It also caused increased
expenditures for health and welfare programs. The State has also faced a
structural imbalance in its budget with the largest programs supported by the
General Fund--K-12 schools and community colleges, health, welfare and
corrections--growing at rates higher than the growth rates for the principal
revenue sources of the General Fund. (The General Fund, the State's main
operating fund, consists of revenues which are not required to be credited to
any other fund.) The State experienced recurring budget deficits. The State
Controller reported that expenditures exceeded revenues for four of the six
fiscal years ending with 1992-93, and were essentially equal in 1993-94.
According to the Department of Finance, the State suffered a continuing budget
deficit of approximately $2.8 billion in the Special Fund for Economic
Uncertainties. (Special Funds account for revenues obtained from specific
revenue sources, and which are legally restricted to expenditures for specified
purposes.) The 1993-94 Budget Act incorporated a Deficit Reduction Plan to
repay this deficit over two years. The original budget for 1993-94 reflected
revenues which exceeded expenditures by approximately $2.8 billion. As a result
of continuing recession, the excess of revenues over expenditures for the 1993-
94 fiscal year was less than $300 million. The accumulated budget deficit at
June 30, 1994 was not able to be retired by June 30, 1995 as planned. When the
economy failed to recover sufficiently in 1993-94, a second two-year plan was
implemented in 1994-95. The accumulated budget deficits over the past several
years, together with expenditures for school funding which have not been
reflected in the budget, and the reduction of available internal borrowable
funds, have combined to significantly deplete the State's cash resources to pay
its ongoing expenses. In order to meet its cash needs, the State has had to
rely for several years on a series of external borrowings, including borrowings
past the end of a fiscal year. At the end of its 1995-96 fiscal year, however,
the State did not borrow moneys into the subsequent fiscal year. For a
discussion of the 1996-97 State Budget and the 1997-98 proposed State Budget,
see the sub-captions "1996-97 Budget" and "Proposed 1997-98 Budget,"
respectively, herein.
Many California counties continue to be under severe fiscal stress. Such
stress has impacted smaller, rural counties and larger urban counties such as
Los Angeles, and Orange County, which declared bankruptcy in 1994. Orange
County has implemented significant reductions in services and personnel, and
continues to face fiscal constraints in the aftermath of its bankruptcy.
1994-95 BUDGET
The 1994-95 Fiscal Year represented the fourth consecutive year the Governor
and Legislature were faced with a very difficult budget environment to produce
a balanced budget. Many program cuts and budgetary adjustments have already
been made in the last three years. The Governor's May Revision to his Budget
proposal recognized that the accumulated deficit could not be repaid in one
year, and proposed a two-year solution. The May Revision set forth revenue and
expenditure forecasts and revenue and expenditure proposals which would result
in operating surpluses for the budget for both 1994-95 and 1995-96, and would
lead to the elimination of the accumulated deficit, estimated at about $2
billion at June 30, 1994, by June 30, 1996.
The 1994-95 Budget Act, signed by the Governor on July 8, 1994, projected
revenues and transfers of $41.9 billion, about $2.1 billion higher than
revenues in 1993-94. This reflected the Administration's forecast of an
improved economy. Also included in this figure
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<PAGE>
was the projected receipt of about $360 million from the Federal Government to
reimburse the State for the cost of incarcerating undocumented immigrants. The
Legislature took no action on a proposal in the Governor's January Budget to
undertake expansion of the transfer of certain programs to counties, which
would also have transferred to counties 0.5% of the State's current sales tax.
The Budget Act projected Special Fund revenues of $12.1 billion, a decrease of
2.4% from 1993-94 estimated levels.
The 1994-95 Budget Act projected General Fund expenditures of $40.9 billion,
an increase of $1.6 billion over 1993-94. The Budget Act also projected Special
Fund expenditures of $13.7 billion, a 5.4% increase over 1993-94 estimated
expenditures. The principal features of the Budget Act were the following:
1. Reductions of approximately $1.1 billion in health and welfare
programs.
2. A General Fund increase of approximately $38 million in support for
the University of California and $65 million for the California State
University. It was anticipated that student fees for both the U.C. and the
C.S.U. would increase up to 10%.
3. Proposition 98 funding for K-14 schools was increased by $526 million
from the 1993-94 levels, representing an increase for enrollment growth and
inflation. Consistent with previous budget agreements, Proposition 98
funding provided approximately $4,217 per student for K-12 schools, equal
to the level in the prior three years.
4. Legislation enacted with the Budget Act clarified laws passed in 1992
and 1993 requiring counties and other local agencies to transfer funds to
local school districts, thereby reducing State aid. Some counties had
implemented programs providing less moneys to schools if there were
redevelopment agencies projects. The legislation banned this method of
transfers. If all counties had implemented this method, General Fund aid to
K-12 schools would have increased by $300 million in each of the 1994-95
and 1995-96 Fiscal Years.
5. The Budget Act provided funding for anticipated growth in the State's
prison inmate population, including provisions for implementing recent
legislation (the so-called "Three Strikes" law) which requires mandatory
life sentences for certain third-time felony offenders.
6. Additional miscellaneous cuts ($500 million) and fund transfers ($255
million) totalling in the aggregate approximately $755 million.
The 1994-95 Budget Act contained no tax increases. Under legislation enacted
for the 1993-94 Budget, the renters' tax credit was suspended for 1993 and
1994. A ballot proposition to permanently restore the renters' credit after
this year failed at the June 1994 election. The Legislature enacted a further
one-year suspension of the renters' tax credit, saving about $390 million in
the 1995-96 Fiscal Year. The 1994-95 Budget assumed that the State would use a
cash flow borrowing program in 1994-95 which would combine one-year notes and
warrants. Issuance of the warrants would allow the State to defer repayment of
approximately $1 billion of its accumulated budget deficit into the 1995-96
Fiscal Year.
May 1995 reports by the Department of Finance indicated that General Fund
revenues for the 1994-95 Fiscal Year exceeded projections, and expenditures
were lower than projected due to slower than anticipated health/welfare
caseload growth and school enrollments. The overall effect was to improve the
budget by approximately $500 million, leaving an estimated deficit of about
$630 million as of June 30, 1995.
Department of Finance analysis of the 1994-95 Fiscal Year budget indicated
that approximately $98 million was appropriated for the State to offset costs
of incarcerating illegal immigrants, in contrast to the $356 million assumed
for this purpose by the State's 1994-95 Budget Act. Approximately $33 million
of these funds were estimated to be received by the State during the 1994-95
Fiscal Year, with the remainder to be received the following fiscal year.
Departing from 1994-95 Fiscal Year assumptions, the federal budget contains
$400 million in additional funding for refugee assistance and health costs.
However, the Department of Finance did not expect that the State would continue
its efforts to obtain all or a portion of these federal funds.
1995-96 BUDGET
The state began the 1995-96 Fiscal Year with strengthening revenues based on
an improving economy and the smallest nominal "budget gap" to be closed in many
years.
The 1995-96 Budget Act, signed by the Governor on August 3, 1995, projects
General Fund revenues and transfers of $44.1 billion, about $2.2 billion higher
than projected revenues in 1994-95. The Budget Act projects Special Fund
revenues of $12.7 billion, an increase from $12.1 billion projected in 1994-95.
C-2
<PAGE>
The Department of Finance released updated projections for the 1995-96 fiscal
year in May, 1996, estimating that revenues and transfers to be $46.1 billion,
approximately $2 billion over the original fiscal year estimate. Expenditures
also increased, to an estimated $45.4 billion, as a result of the requirement
to expend revenues for schools under Proposition 98, and, among other things,
failure of the federal government to budget new aid for illegal immigrant costs
which had been counted on to allow reductions in costs.
The principal features of the Budget Act were the following:
1. Proposition 98 funding for schools and community colleges will
increase by about $1 billion (General Fund) and $1.2 billion total above
revised 1994-95 levels. Because of higher than projected revenues in 1994-
95, an additional $543 million is appropriated to the 1994-95 Proposition
98 entitlement. A significant component of this amount is a block grant of
about $54 per pupil for any one-time purpose. Per-pupil expenditures are
projected to increase by another $126 in 1995-96 to $4,435. A full 2.7%
cost of living allowance is funded for the first time in several years. The
budget compromise anticipated a settlement of the CTA v. Gould litigation.
2. Cuts in health and welfare costs totaling about $900 million, some of
which would require federal legislative approval.
3. A 3.5% increase in funding for the University of California ($90
million General Fund) and the California State University system ($24
million General Fund), with no increases in student fees.
4. The updated Budget assumes receipt of $494 million in new federal aid
for costs of illegal immigrants, in excess of federal government
commitments.
5. General Fund support for the Department of Corrections is increased by
about 8 percent over 1994-95, reflecting estimates of increased prison
population. This amount is less than was proposed in the 1995 Governor's
Budget.
1996-97 BUDGET
The 1996-97 Budget Act was signed by the Governor on July 15, 1996, and
projected General Fund revenues and transfers of approximately $47.64 billion
and General Fund expenditures of approximately $47.25 billion. The Governor
vetoed about $82 million of appropriations (both General Fund and Special Fund)
and the State has implemented its regular cash flow borrowing program with the
issuance of $3.0 billion of Revenue Anticipation Notes to mature on or before
June 30, 1997. The 1996-97 Budget Act appropriated a budget reserve in the
Special Fund for Economic Uncertainties of $305 million, as of June 30, 1997.
The Department of Finance projects that, on June 30, 1997, the State's
available internal borrowable (cash) resources will be approximately $2.9
billion, after payment of all obligations due by that date, so that no cross-
fiscal year borrowing will be needed.
The State Legislature rejected the Governor's proposed 15% cut in personal
income taxes (to be phased over three years), but did approve a 5% cut in bank
and corporation taxes, to be effective for income years starting on June 1,
1997. As a result, revenues for the Fiscal Year will be an estimated $550
million higher than projected in the May Revision to the 1996-97 Budget, and
are now estimated to total $47.643 billion, a 3.3 percent increase over the
final estimated 1995-96 revenues. Special Fund revenues are estimated to be
$13.3 billion.
The Budget Act contains General Fund appropriations totaling $47.251 billion,
a 4.0 percent increase over the final estimated 1995-96 expenditures. Special
Fund expenditures are budgeted at $12.6 billion.
The following are the principal features of the 1996-97 Budget Act:
1. Proposition 98 funding for schools and community college districts
increased by almost $1.6 billion (General Fund) and $1.65 billion total
above revised 1995-96 level periods. Almost half of this money was budgeted
to fund class-size reduction in kindergarten and grades 1-3. Also, for the
second year in a row, the full cost of living allowance (3.2 percent) was
funded. The Proposition 98 increases have brought K-12 expenditures to
almost $4,800 per pupil (also called per ADA, or Average Daily Attendance),
an almost 15% increase over the level prevailing during the recession
years. Community colleges will receive an increase in funding of $157
million for 1996-97 out of this $1.6 billion total.
2. Proposed cuts in health and welfare totaling $660 million. All of
these cuts require federal law changes (including welfare reform), federal
waivers, or federal budget appropriations in order to be achieved. The
1996-97 Budget Act assumes approval/action by October, 1996, with the
savings to be achieved beginning in November, 1996. The 1996-97 Budget Act
was based on continuation of previously approved assistance levels for Aid
to Families with Dependent Children and other health and welfare programs,
which had been reduced in prior years, including suspension of State
authorized cost of living increases. Part of the federal actions referred
to above is approval to maintain reduced assistance levels in 1996-97. The
Legislature did not approve the Governor's proposal for further cuts in
these assistance levels. The Budget Act does include some $92 million for a
variety of preventive programs in health and social services areas such as
the prevention of teenage pregnancy and domestic violence.
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3. A 4.9 percent increase in funding for the University of California
($130 million General Fund) and the California State University system
($101 million General Fund), with no increases in student fees, maintaining
the second year of the Governor's four-year "Compact" with the State's
higher education units.
4. The 1996-97 Budget Act assumed the federal government will provide
approximately $700 million in new aid for incarceration and health care
costs of illegal immigrants. These funds reduce appropriations in these
categories that would otherwise have to be paid from the General Fund. (For
purposes of cash flow projections, the Department of Finance expects $540
million of this amount to be received during the 1996-97 fiscal year.)
5. General Fund support for the Department of Corrections was increased
by about 7 percent over the prior year, reflecting estimates of increased
prison population.
6. With respect to aid to local governments, the principal new programs
included in the 1996-97 Budget Act are $100 million in grants to cities and
counties for law enforcement purposes, and budgeted $50 million for
competitive grants to local governments for programs to combat juvenile
crime. The 1996-97 Budget Act also assumed that legislation will be adopted
to revise the Trial Court Funding program, so that future increases in
trial court costs will be funded by the State; this change will not have a
significant impact in 1996-97.
The 1996-97 Budget Act did not contain any tax increases. As noted, there was
a reduction in corporate taxes. In addition, the Legislature approved another
one-year suspension of the Renters Tax Credit, saving $520 million in
expenditures.
1997-98 BUDGET
On January 9, 1997, the Governor announced his proposed 1997-98 State budget
detailing plans to cut welfare, increase education spending and provide certain
tax cuts to businesses and banks. The total spending plan in the amount of
approximately $66.6 billion represents an increase of approximately 4% from the
1996-97 State Budget, with an increase in the State's General Fund to
approximately $50.3 billion. The Governor announced a proposal to restructure
the State's welfare system, placing strict time limits on the provision of
assistance and introducing penalties, and included a plan to increase spending
for elementary and secondary schools.
On May 15, 1997, the Governor announced his May Revision to the 1997-98
Governor's Budget proposing a revised $68.2 billion budget which did not
include a general income tax reduction but continued to propose a 10% tax cut
for banks and corporations spread over two years as proposed by the Governor in
January. The updated budget proposal reflected savings from a decline in
welfare rolls, which were reported to have declined approximately 8% since
1995. Nonetheless, welfare spending was slated to increase from the January
proposal to approximately 14.6 billion.
Along with an increase of approximately $2 billion in spending for schools,
the Governor proposed an additional $1 billion in other spending increases,
using money from reductions elsewhere in the budget, as well as from reduced
borrowing and lower interest rates. Among the beneficiaries were counties and
cities, which would receive approximately $225 million in additional state aid.
The Governor also proposed to bolster the State's budget reserve, increasing it
to approximately $580 million. The May Revision also included approximately $47
million to be allocated for imprisonment of illegal immigrants and a complex
formula for school spending.
On August 11, 1997, the State Legislature approved a 1997-98 State Budget of
approximately $68 billion which included approximately $32 billion for public
schools, an increase of approximately $4 billion over the prior year. The
Budget also includes approximately $100 million for local law enforcement and
approximately $75 million in spending to subsidize hospitals that care for
large numbers of uninsured patients, as well as approximately $40 million for
legal immigrants and an increase of approximately $223 million in welfare
spending, including job training. The education portion of the State Budget
approved by the Legislature for 1997-98 includes approximately $850 million to
expand the class-size reduction program and full statutory funding of the
Revenue Limit COLA comprising a 2.65% COLA, consistent with the May Revision.
Revenue Limit Equalization is to be funded in the amount of approximately $261
million for the school district revenue limit equalization for 1996-97 and is
thereafter to be funded commencing in February of 1998. The State Budget also
provides that school districts will be entitled to use their operational funds
entitlement up to an amount of approximately $40,000 for each new eligible
classroom, provided that certain conditions are met.
The final State Budget was signed by the Governor on August 18, 1997 after
using his line-item veto authority to veto, with reservation until an
acceptable school testing bill is passed, a significant amount of education
funding from the State Budget approved by the Legislature. Vetoes which would
be restored if a testing bill acceptable to the Governor is passed include
approximately $955,000 in Department of Education spending, and approximately
$900 million in local assistance. Vetoes not relating to the testing issue, but
which need legislation in order to restore the vetoed funds, include more than
$20 million in Department of Education spending. The final State Budget also
provides approximately $377 million for child care programs administered by the
Department of Education and
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the Department of Social Services, approximately $160 million for welfare-to-
work programs, approximately $25 million in adult education funding and
approximately $50 million to California community colleges, approximately $100
million to cities and counties to enhance local law enforcement, approximately
$55 million in federal funds to local government for the construction of
detention facilities and approximately $1.2 billion in deferred general fund
contributions to the Public Employees Retirement System. The final State Budget
did not include the Governor's proposed 10% tax cut for bank and corporations.
FUTURE BUDGETS
It cannot be predicted what actions will be taken in the future by the State
Legislature and the Governor to deal with changing State revenues and
expenditures. The State budget will be affected by national and state economic
conditions and other factors.
THE FOREGOING DISCUSSION IS BASED ON OFFICIAL STATEMENTS AND OTHER
INFORMATION PROVIDED BY THE STATE OF CALIFORNIA. THE STATE HAS INDICATED THAT
ITS DISCUSSION OF BUDGETARY INFORMATION IS BASED ON ESTIMATES AND PROJECTIONS
OF REVENUES AND EXPENDITURES FOR THE CURRENT FISCAL YEAR AND MUST NOT BE
CONSTRUED AS STATEMENTS OF FACT; THE ESTIMATES AND PROJECTIONS ARE BASED UPON
VARIOUS ASSUMPTIONS WHICH MAY BE AFFECTED BY NUMEROUS FACTORS, INCLUDING FUTURE
ECONOMIC CONDITIONS IN THE STATE AND THE NATION, AND THERE CAN BE NO ASSURANCE
THAT THE ESTIMATES WILL BE ACHIEVED.
RECENT VOTER INITIATIVE
"Proposition 218" or the "Right to Vote on Taxes Act" (the "Proposition") was
approved by the California electorate at the November, 1996 general election.
Officially titled "Voter Approval For Local Government Taxes, Limitation on
Fees, Assessments and Charges Initiative Constitutional Amendment," the Act was
approved by a majority of the voters voting at the election and adds Articles
XIIIC and XIIID to the California Constitution.
The Proposition, among other things, requires local governments to follow
certain procedures in imposing or increasing any fee or charge as defined.
"Fee" or "charge" is defined to mean "any levy other than an ad valorem tax, a
special tax or an assessment imposed by an agency upon a parcel or upon a
person as an incident of property ownership, including user fees or charges for
a property related service."
The procedure required by the Proposition to impose or increase any fee or
charge include a public hearing upon the proposed fee or charge and the
opportunity to present written protests by the owners of the parcels subject to
the proposed fee or charge. If written protests against the proposed fee or
charge are presented by a majority of owners of the identified parcels, the
local government shall not impose the fee or charge.
The Proposition further provides as follows:
"Except for fees or charges for sewer, water, and refuse collection
services, no property related fee or charge shall be imposed or increased
unless and until such fee or charge is submitted and approved by a majority
vote of the property owners of the property subject to the fee or charge
or, at the option of the agency, by a two-thirds vote of the electorate
residing in the affected area."
Additionally, the Proposition provides, with respect to standby charges, as
follows:
"No fee or charge may be imposed for a service unless that service is
actually used by, or immediately available to, the owner of the property in
question. Fees or charges based on potential or future use of a service are
not permitted. Standby charges, whether characterized as charges or
assessments, shall be classified as assessments and shall not be imposed
without compliance with Section 4 of this Article."
The Proposition provides that beginning July 1, 1997, all fees or charges
shall comply with the Proposition's requirements.
The Proposition is silent with respect to future increases of pre-existing
fees or charges which are pledged to payment of indebtedness or obligations
previously incurred by the local government. Presumably, the Proposition cannot
preempt outstanding
contractual obligations protected by the contract impairment clause of the
federal constitution. However, with respect to any given situation or case,
litigation may be the method which will settle any question concerning the
authority of a local government to increase fees or charges outside of the
strictures of the Proposition in order to meet contractual obligations.
Proposition 218 also contains a new provision subjecting "matters of reducing
or repealing any local tax, assessments and charges" to the initiative power.
This means that no city or local agency revenue source is safe from reduction
or repeal pursuant to the initiative process.
Litigation concerning various elements of the Proposition may ultimately
ensue and clarifying legislation may be enacted.
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STATE APPROPRIATIONS LIMIT
The State is subject to an annual appropriations limit imposed by Article
XIIIB of the State Constitution (the "Appropriations Limit"), and is prohibited
from spending "appropriations subject to limitation" in excess of the
Appropriations Limit. Article XIIIB, originally adopted in 1979, was modified
substantially by Propositions 98 and 111 in 1988 and 1990, respectively.
"Appropriations subject to limitation" are authorizations to spend "proceeds of
taxes," which consist of tax revenues and certain other funds, including
proceeds from regulatory licenses, user charges or other fees to the extent
that such proceeds exceed the reasonable cost of providing the regulation,
product or service. The Appropriations Limit is based on the limit for the
prior year, adjusted annually for certain changes, and is tested over
consecutive two-year periods. Any excess of the aggregate proceeds of taxes
received over such two-year period above the combined Appropriation Limits for
those two years is divided equally between transfers to K-14 districts and
refunds to taxpayers.
Exempted from the Appropriations Limit are debt Service costs of certain
bonds, court or federally mandated costs, and, pursuant to Proposition 111,
qualified capital outlay projects and appropriations or revenues derived from
any increase in gasoline taxes and motor vehicle weight fees above January 1,
1990 levels. Some recent initiatives were structured to create new tax revenues
dedicated to specific uses and expressly exempted from the Article XIIIB
limits. The Appropriations Limit may also be exceeded in cases of emergency
arising from civil disturbance or natural disaster declared by the Governor and
approved by two-thirds of the Legislature. If not so declared and approved, the
Appropriations Limit for the next three years must be reduced by the amount of
the excess.
Article XIIIB, as amended by Proposition 98 on November 8, 1988, also
establishes a minimum level of state funding for school and community college
districts and requires that excess revenues up to a certain limit be
transferred to schools and community college districts instead of returned to
the taxpayers. Determination of the minimum level of funding is based on
several tests set forth in Proposition 98. During fiscal year 1991-1992
revenues were smaller than expected, thus reducing the payment owed to schools
in 1991-92 under alternate "test" provisions. In response to the changing
revenue situation, and to fully fund the Proposition 98 guarantee in the 1991-
1992 and 1992-1993 fiscal years without exceeding it, the Legislature enacted
legislation to reduce 1991-92 appropriations. The amount budgeted to schools
but which exceeded the reduced appropriation was treated as a non-Proposition
98 short-term loan in 1991-92. As part of the 1992-93 Budget, $1.083 billion of
the amount budgeted to K-14 schools was designated to "repay" the prior year
loan, thereby reducing cash outlays in 1992-93 by that amount. To maintain per-
average daily attendance ("ADA") funding, the 1992-93 Budget included loans of
$732 million to K-12 schools and $241 million to community colleges, to be
repaid from future Proposition 98 entitlements. The 1993-94 Budget also
provided new loans of $609 million to K-12 schools and $178 million to
community colleges to maintain ADA funding. These loans have been combined with
the 1992-93 fiscal year loans into one loan of $1.760 billion, to be repaid
from future years' Proposition 98 entitlements, and conditioned upon
maintaining current funding levels per pupil at K-12 schools.
A Sacramento County Superior Court in California Teachers' Association, et
al. v Gould, et al., ruled that the 1992-93 loans to K-12 schools and community
colleges violate Proposition 98. As part of the negotiations leading to the
1995-96 Budget Act, an oral agreement was reached to settle this case. The
parties reached a conditional final settlement of the case in April, 1996. The
settlement required adoption of legislation satisfactory to the parties to
implement its terms, which has occurred, and final approval by the court, which
was pending in early July, 1996.
The settlement provides, among other things, that both the State and K-14
schools share in the repayment of prior years' emergency loans to schools. Of
the total $1.76 billion in loans, the State will repay $935 million by
forgiveness of the amount owed, while schools will repay $825 million. The
State share of the repayment will be reflected as expenditures above the
current Proposition 98 base circulation. The schools' share of the repayment
will count as appropriations that count toward satisfying the Propositions 98
guarantee, or from "below" the current base. Repayments are to be spread over
the eight-year period beginning 1994-95 through 2002-03. Once the Director of
Finance certifies that a settlement has occurred, approximately $377 million in
appropriations from the 1995-96 fiscal year to schools will be disbursed.
Because of the complexities of Article XIIIB, the ambiguities and possible
inconsistencies in its terms, the applicability of its exceptions and
exemptions and the impossibility of predicting future appropriations, the
Sponsor cannot predict the impact of this or related legislation on the bonds
in the Trust Portfolio. Other Constitutional amendments affecting state and
local taxes and appropriations have been proposed from time to time. If any
such initiatives are adopted, the state could be pressured to provide
additional financial assistance to local governments or appropriate revenues as
mandated by such initiatives. Propositions such as Proposition 98 and others
that may be adopted in the future, may place increasing pressure on the State's
budget over future years, potentially reducing resources available for other
State programs, especially to the extent that the Article XIIIB spending limit
would restrain the State's ability to fund such other programs by raising
taxes.
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STATE INDEBTEDNESS
As of March 1, 1997, the State had over $17.69 billion aggregate amount of
its general obligation bonds outstanding. General obligation bond
authorizations in an aggregate amount of approximately $8.38 billion remained
unissued as of March 1, 1997. As of March 1, 1997 the State Finance Committee
had authorized the issuance of approximately $3.36 billion of general
obligation commercial paper notes, but as of that date only $367,776,534
aggregate principal amount of which was issued and outstanding. The State also
builds and acquires capital facilities through the use of lease purchase
borrowing. As of March 1, 1997, the State had approximately $6.12 billion of
outstanding General Fund-supported Lease-Purchase Debt.
In addition to the general obligation bonds, State agencies and authorities
had approximately $20.86 billion aggregate principal amount of revenue bonds
and notes outstanding as of December 31, 1996. Revenue bonds represent both
obligations payable from State revenue-producing enterprises and projects,
which are not payable from the General Fund, and conduit obligations payable
only from revenues paid by private users of facilities financed by such revenue
bonds. Such enterprises and projects include transportation projects, various
public works and exposition projects, educational facilities (including the
California State University and University of California systems), housing,
health facilities and pollution control facilities.
LITIGATION
The State is a party to numerous legal proceedings. In addition, the State is
involved in certain other legal proceedings that, if decided against the State,
might require the State to make significant future expenditures or impair
future revenue sources. Examples of such cases include challenges to certain
vehicle license fees and challenges to the State's use of Public Employee
Retirement System funds to offset future State and local pension contributions.
Other cases which could significantly impact revenue or expenditures involve
challenges of payments of wages under the Fair Labor Standards Act, the method
of determining gross insurance premiums involving health insurance, property
tax challenges, challenges of transfer of moneys from State Treasury special
fund accounts to the State's General Fund pursuant to 1991, 1992, 1993 and 1994
Budget Acts. Because of the prospective nature of these proceedings, it is not
presently possible to predict the outcome of such litigation or estimate the
potential impact on the ability of the State to pay debt service on its
obligation.
RATINGS
During 1996, the ratings of California's general obligation bonds was
upgraded by the following rating agencies. Recently Standard & Poor's Ratings
Group upgraded its rating of such debt to A+; the same rating has been assigned
to such debt by Fitch Investors Service. Moody's Investors Service has assigned
such debt an A1 rating. Any explanation of the significance of such ratings may
be obtained only from the rating agency furnishing such ratings. There is no
assurance that such ratings will continue for any given period of time or that
they will not be revised downward or withdrawn entirely if, in the judgment of
the particular rating agency, circumstances so warrant.
The Sponsor believes the information summarized above describes some of the
more significant aspects relating to the California Trust. The sources of such
information are Preliminary Official Statements and Official Statements
relating to the State's general obligation bonds and the State's revenue
anticipation notes, or obligations of other issuers located in the State of
California, or other publicly available documents. Although the Sponsor has not
independently verified this information, it has no reason to believe that such
information is not correct in all material respects.
CALIFORNIA TAXES --
In the opinion of LeBoeuf, Lamb, Greene & MacRae L.L.P., Los Angeles,
California, special counsel on California tax matters, under existing law:
The California Trust is not taxable as a corporation for California tax
purposes. Interest on the underlying Securities owned by the California
Trust that is exempt from personal income taxes imposed by the State of
California will retain its status as interest exempt from personal income
tax imposed by the State of California.
Each Unit Holder of the California Trust will recognize gain or loss on
the sale, redemption or other disposition of Securities within the
California Trust, or on the sale or other disposition of Unit Holders
interest in the California Trust. As a result, a Unit Holder may incur
California tax liability upon the sale, redemption or other disposition of
Securities within the California Trust or upon the sale or other
disposition of his or her Units.
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It is notable that the exemption of interest income with respect to
Securities within the California Trust under the California personal income
tax law does not necessarily result in exemption under the income tax laws
of the federal government or any other state or political subdivision. The
laws of state and local taxing authorities vary with respect to the
taxation of such obligations and each Unit Holder should consult his or her
own tax advisor as to the tax consequences of his or her investment in the
California Trust under other applicable federal, state and local tax laws.
NEW JERSEY TRUST
RISK FACTORS--Prospective investors should consider the recent financial
difficulties and pressures which the State of New Jersey (the "State") and
certain of its public authorities have undergone.
The State's 1996 Fiscal Year budget became law on June 30, 1995.
Effective January 1, 1994, New Jersey personal income tax rates were cut by
5% for all taxpayers. Effective January 1, 1995, the personal income tax rates
were cut by an additional 10% for most taxpayers. By a bill signed into law on
July 4, 1995, New Jersey personal income tax rates have been further reduced so
that coupled with the prior rate reductions, beginning with tax year 1996,
personal income tax rates will be, depending on a taxpayer's level of income
and filing status, 30%, 15% or 9% lower than 1993 rates. At this time, the
effect of the tax reductions cannot be evaluated.
Reflecting the downturn, the rate of unemployment in the State rose from a
low of 3.6 percent during the first quarter of 1989 to a recessionary peak of
8.4% during 1992(4). Since then, the unemployment rate fell to 6.9% during the
first quarter of 1995.
In the first nine months of 1994, relative to the same period a year ago, job
growth took place in services (3.5%) and construction (5.7%), more moderate
growth took place in trade (1.9%), transportation and utilities (1.2%) and
finance/insurance/real estate (1.4%), while manufacturing and government
declined (by 1.5% and 0.1%, respectively). The net result was a 1.6% increase
in average employment during the first nine months of 1994 compared to the
first nine months of 1993.
The insured unemployment rate, i.e. the number of individuals claiming
benefits as a percentage of the number of workers covered by Unemployment
Insurance, stopped rising in the winter of 1991 and had been stable at about
4.0 percent through June of 1992 before beginning a gradual decline to its
December, 1994 level of 3.0 percent. It has since stabilized at about that
level. After paying out approximately $125 million, the State's Emergency
Unemployment Benefits Program ended on November 17, 1991 with the enactment of
the Federal Emergency Unemployment Compensation (EUC) Program. Through the
expiration of the EUC program on April 30, 1994, over $2.1 billion has been
disbursed to claimants who exhausted their entitlement under the regular state
program. Benefits under EUC are financed 100 percent by the federal government
and thus do not impact the State's trust fund.
Economic recovery is likely to be slow and uneven in New Jersey. Some
sectors, like commercial and industrial construction, will undoubtedly lag
because of continued excess capacity. Also, employers in rebounding sectors can
be expected to remain cautious about hiring until they become convinced that
improved business will be sustained. Other firms will continue to merge or
downsize to increase profitability. As a result, job gains will probably come
grudgingly and unemployment will recede at a correspondingly slow pace.
Pursuant to the State Constitution, no money may be drawn from the State
Treasury except for appropriations made by law. In addition, all monies for the
support of State purposes must be provided for in one general appropriation law
covering one and the same fiscal year.
In addition to the Constitutional provisions, the New Jersey statutes contain
provisions concerning the budget and appropriation system. Under these
provisions, each unit of the State requests an appropriation from the Director
of the Division of Budget and Accounting, who reviews the budget requests and
forwards them with his recommendations to the Governor. The Governor then
transmits his recommended expenditures and sources of anticipated revenue to
the legislature, which reviews the Governor's Budget Message and submits an
appropriations bill to the Governor for his signature by July 1 of each year.
At the time of signing the bill, the Governor may revise appropriations or
anticipated revenues. That action can be reversed by a two-thirds vote of each
House. No supplemental appropriation may be enacted after adoption of the act,
except where there are sufficient revenues on hand or anticipated, as certified
by the Governor, to meet the appropriation. Finally, the Governor may, during
the course of the year, prevent the expenditure of various appropriations when
revenues are below those anticipated or when he determines that such
expenditure is not in the best interest of the State.
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One of the major reasons for cautious optimism is found in the construction
industry. Total construction contracts awarded in New Jersey have turned
around, rising by 11.8% for the first two months of 1995 compared with 1994. By
far, the largest boost came from residential construction awards which
increased by 32.8% in 1995 compared with 1994. In addition, non-residential
building construction awards have turned around, posting a 2.3% gain from 1994.
Non-building construction awards increased approximately 12% in the first two
months of 1995 compared with the same period in 1994.
In addition to increases in construction contract awards, another reason for
cautious optimism is rising new light truck registrations. New passenger car
registrations issued during 1994 were virtually unchanged in New Jersey from a
year earlier. However, registrations of new light trucks and vans (up to 10,000
lbs.) advanced strongly in 1994 increasing 19% during 1994. Retail sales for
1994 were up 7.5% compared to 1993. Retailers, such as those selling appliances
and home furnishings, should benefit from increased residential construction.
Car, light truck and van dealers should also benefit from the high (eight
years) average age of autos on the road.
Looking further ahead, prospects for New Jersey are favorable, although a
return to the pace of the 1980s is highly unlikely. Although growth is likely
to be slower than in the nation, the locational advantages that have served New
Jersey well for many years will still be there. Structural changes that have
been going on for years can be expected to continue, with job creation
concentrated most heavily in the service sectors.
State Aid to Local Governments was the largest portion of Fiscal Year 1996
appropriations. In fiscal year 1996, $6,423.5 million of the State's
appropriations consisted of funds which are distributed to municipalities,
counties and school districts. The largest State Aid appropriation, in the
amount of $4,750.8 million, is provided for local elementary and secondary
education programs. Of this amount $2,713.1 million is provided as foundation
aid to school districts by formula based upon the number of students and the
ability of a school district to raise taxes from its own base. In addition, the
State provided $601.0 million for special education programs for children with
disabilities. A $292.9 million program is also funded for pupils at risk of
educational failure, including basic skills improvement. The State appropriated
$612.9 million on behalf of school districts as the employer share of the
teachers' pension and benefits programs, $249.4 million to pay for the cost of
pupil transportation and $38.2 million for transition aid, which guaranteed
school districts a 6.5% increase over the aid received in Fiscal Year 1991 and
is being phased out over six years.
Appropriations to the State Department of Community Affairs ("DCA") total
$837.9 million in State Aid monies for Fiscal Year 1996. Many of the DCA State
Aid programs and many Treasury State Aid programs are consolidated into a
single appropriation, Consolidated Municipal Property Tax Relief Act in the
amount of $857.6 million. In addition there is $16.7 million for housing
programs, $33.0 million for a block grant programs, $30 million for
discretionary aid and $3.6 million in other aid. These appropriations are
offset by $103.0 million in pension funding savings, resulting in a net
appropriation for DCA State Aid of $837.9 million. Appropriations to the State
Department of the Treasury total $85.1 million in State Aid monies for Fiscal
Year 1996. The principal programs funded by these appropriations; the cost of
senior citizens, disabled and veterans property tax deductions and exemptions
($57.9 million); aid to densely populated municipalities ($17.0 million).
Other appropriations of State Aid in Fiscal 1996 include welfare programs
($467.6 million); aid to county colleges ($128.0 million); and aid to county
mental hospitals ($88.8 million).
The second largest portion of appropriations in fiscal 1996 is applied to
Direct State Services: the operation of State government's 17 departments, the
Executive Office, several commissions, the State Legislature and the Judiciary.
In Fiscal Year 1996, appropriations for Direct State Services aggregate
$5,179.6 million. Some of the major appropriations for Direct State Services
during Fiscal Year 1996 are detailed below.
$606.6 million is appropriated for programs administered by the State
Department of Human Services. The State Department of Labor is appropriated
$57.9 million for the administration of programs for workers' compensation,
unemployment and disability insurance, manpower development, and health safety
inspection.
The State Department of Health is appropriated $33.3 million for the
prevention and treatment of diseases, alcohol and drug abuse programs,
regulation of health care facilities, and the uncompensated care program.
$76.1 million is appropriated to the State Department of Higher Education for
the support of nine State colleges, Rutgers University, the New Jersey
Institute of Technology, and the University of Medicine and Dentistry of New
Jersey.
$869.9 million is appropriated to the State Department of Law and Public
Safety and the Department of Corrections.
$184.3 million is appropriated to the State Department of Transportation for
the various programs it administers, such as the maintenance and improvement of
the State highway system and subsidies for railroads and bus companies.
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$182.2 million is appropriated to the State Department of Environmental
Protection for the protection of air, land, water, forest, wildlife, and
shellfish resources and for the provision of outdoor recreational facilities.
The primary method for State financing of capital projects is through the
sale of the general obligation bonds of the State. These bonds are backed by
the full faith and credit of the State. State tax revenues and certain other
fees are pledged to meet the principal and interest payments and if provided,
redemption premium payments required to pay the debt fully. No general
obligation debt can be issued by the State without prior voter approval, except
that no voter approval is required for any law authorizing the creation of a
debt for the purpose of refinancing all or a portion of outstanding debt of the
State, so long as such law requires that the refinancing provide a debt service
savings.
NEW JERSEY TAXES--
In the opinion of Messrs. Shanley & Fisher, P.C., special New Jersey counsel
on New Jersey tax matters, under existing law:
The proposed activities of the New Jersey Trust will not cause it to be
subject to the New Jersey Corporation Business Tax Act.
The income of the New Jersey Trust will be treated as the income of
individuals, estates and trusts who are the Holders of Units of the New
Jersey Trust for purposes of the New Jersey Gross Income Tax Act, and
interest which is exempt from tax under the New Jersey Gross Income Tax Act
when received by the New Jersey Trust will retain its status as tax-exempt
in the hands of such Unit Holders. Gains arising from the sale or
redemption by a Holder of his Units or from the sale, exchange, redemption,
or payment at maturity of a Bond by the New Jersey Trust are exempt from
taxation under the New Jersey Gross Income Tax Act (P.L. 1976 c. 47), as
enacted and construed on the date hereof, to the extent such gains are
attributable to Bonds, the interest on which is exempt from tax under the
New Jersey Gross Income Tax Act. Any loss realized on such disposition may
not be utilized to offset gains realized by such Unit Holder on the
disposition of assets the gain on which is subject to the New Jersey Gross
Income Tax Act.
Units of the New Jersey Trust may be subject, in the estates of New
Jersey residents, to taxation under the Transfer Inheritance Tax Law of the
State of New Jersey.
NEW YORK TRUST
RISK FACTORS--The information set forth below is derived from the official
statements and/or preliminary drafts of official statements prepared in
connection with the issuance of New York State and New York City municipal
bonds. The Sponsor has not independently verified this information.
ECONOMIC TRENDS. Over the long term, the State of New York (the "State") and
the City of New York (the "City") face serious economic problems. The City
accounts for approximately 41% of the State's population and personal income,
and the City's financial health affects the State in numerous ways. The State
historically has been one of the wealthiest states in the nation. For decades,
however, the State has grown more slowly than the nation as a whole, gradually
eroding its relative economic affluence. Statewide, urban centers have
experienced significant changes involving migration of the more affluent to the
suburbs and an influx of generally less affluent residents. Regionally, the
older Northeast cities have suffered because of the relative success that the
South and the West have had in attracting people and business. The City has
also had to face greater competition as other major cities have developed
financial and business capabilities which make them less dependent on the
specialized services traditionally available almost exclusively in the City.
The State has for many years had a very high State and local tax burden
relative to other states. The State and its localities have used these taxes to
develop and maintain their transportation networks, public schools and
colleges, public health systems, other social services and recreational
facilities. Despite these benefits, the burden of State and local taxation, in
combination with the many other causes of regional economic dislocation, has
contributed to the decisions of some businesses and individuals to relocate
outside, or not locate within, the State.
Notwithstanding the numerous initiatives that the State and its localities
may take to encourage economic growth and achieve balanced budgets, reductions
in Federal spending could materially and adversely affect the financial
condition and budget projections of the State and its localities.
NEW YORK CITY. The City, with a population of approximately 7.3 million, is
an international center of business and culture. Its non-manufacturing economy
is broadly based, with the banking and securities, life insurance,
communications, publishing, fashion design,
C-10
<PAGE>
retailing and construction industries accounting for a significant portion of
the City's total employment earnings. Additionally, the City is the nation's
leading tourist destination. The City's manufacturing activity is conducted
primarily in apparel and printing.
The national economic downturn which began in July 1990 adversely affected
the local economy, which had been declining since late 1989. As a result, the
City experienced job losses in 1990 and 1991 and real Gross City Product
("GCP") fell in those two years. Beginning in calendar year 1992, the
improvement in the national economy helped stabilize conditions in the City.
Employment losses moderated toward year-end and real GCP increased, boosted by
strong wage gains. After noticeable improvements in the City's economy during
calendar year 1994, economic growth slowed in calendar year 1995, and
thereafter improved during calendar year 1996, reflecting improved securities
industry earnings and employment in other sectors. The City's current four-year
financial plan assumes that moderate economic growth will continue through
calendar year 2001, with moderating job growth and wage increases.
For each of the 1981 through 1996 fiscal years, the City achieved balanced
operating results as reported in accordance with generally accepted accounting
principles ("GAAP"). The City has been required to close substantial budget
gaps between forecast revenues and forecast expenditures in order to maintain
balanced operating results. There can be no assurance that the City will
continue to maintain a balanced budget as required by State law without
additional tax or other revenue increases or additional reductions in City
services or entitlement programs, which could adversely affect the City's
economic base.
Pursuant to the New York State Financial Emergency Act for the City of New
York (the "Financial Emergency Act" or the "Act"), the City prepares an annual
four-year financial plan, which is reviewed and revised on a quarterly basis
and which includes the City's capital, revenue and expense projections and
outlines proposed gap-closing programs for years with projected budget gaps.
The City's current four-year financial plan projects a surplus in the 1998
fiscal year (before discretionary transfers) and substantial budget gaps for
each of the 1999, 2000 and 2001 fiscal years. This pattern of current year
surplus and projected subsequent year budget gaps has been consistent through
virtually the entire period since 1982, during which the City has achieved
balanced operating results for each fiscal year. The City is required to submit
its financial plans to review bodies, including the New York State Financial
Control Board ("Control Board").
The City depends on State aid both to enable the City to balance its budget
and to meet its cash requirements. The State's 1995-1996 Financial Plan
projects a balanced General Fund. There can be no assurance that there will not
be reductions in State aid to the City from amounts currently projected or that
State budgets in future fiscal years will be adopted by the April 1 statutory
deadline and that such reductions or delays will not have adverse effects on
the City's cash flow or expenditures. In addition, the Federal Budget
negotiation process could result in a reduction in or a delay in the receipt of
Federal grants which could have additional adverse effects on the City's cash
flow or revenues.
The Mayor is responsible for preparing the City's four-year financial plan,
including the City's current financial plan for the 1998 through 2001 fiscal
years (the "1998-2001 Financial Plan" or "Financial Plan") . The City's
projections set forth in the Financial Plan are based on various assumptions
and contingencies which are uncertain and which may not materialize. Changes in
major assumptions could significantly affect the City's ability to balance its
budget as required by State law and to meet its annual cash flow and financing
requirements. Such assumptions and contingencies include the condition of the
regional and local economies, the impact on real estate tax revenues of the
real estate market, wage increases for City employees consistent with those
assumed in the Financial Plan, employment growth, the ability to implement
proposed reductions in City personnel and other cost reduction initiatives, the
ability of the New York City Health and Hospitals Corporation ("HHC") and the
Board of Education ("BOE") to take actions to offset potential budget
shortfalls, the ability to complete revenue generating transactions, provision
of State and Federal aid and mandate relief and the impact on City revenues and
expenditures of Federal and State welfare reform and any future legislation
affecting Medicare or other entitlements. Despite these and similar risks and
uncertainties, the city has achieved balanced operating results in each of its
last sixteen years.
Implementation of the Financial Plan is also dependent upon the City's
ability to market its securities successfully. The City's financing program for
fiscal years 1998 through 2001 contemplates the issuance of $4.9 billion of
general obligation bonds and $7.1 billion of bonds to be issued by the proposed
New York City Infrastructure Finance Authority ("Finance Authority") to finance
City capital projects. The Finance Authority was created as part of the City's
effort to assist in keeping the City's indebtedness within the forecast level
of the constitutional restrictions on the amount of debt the City is authorized
to incur. In addition, the City issues revenue and tax anticipation notes to
finance its seasonal working capital requirements. The success of projected
public sales of City bonds and notes, New York Municipal Water Finance
Authority ("Water Authority") bonds and Finance Authority bonds will be subject
to prevailing market conditions. The City's planned capital and operating
expenditures are dependent upon the sale of its general obligation bonds and
notes, and the Water Authority and Finance Authority bonds. Future developments
concerning the City and public discussion of such developments, as well as
prevailing market conditions, may affect the market for outstanding City
general obligation bonds and notes.
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<PAGE>
The City's operating results for the 1996 fiscal year were balanced in
accordance with GAAP, after taking into account a discretionary transfer of
$224 million, the sixteenth consecutive year of GAAP balanced results.
The most recent quarterly modification to the City's financial plan for the
1997 fiscal year, which was submitted to the Control Board on June 10, 1997
(the "1997 Modification"), projects a balanced budget in accordance with GAAP
for the 1997 fiscal year, after taking into account an increase in projected
tax revenues of $1.2 billion during the 1997 fiscal year and a discretionary
prepayment in the 1997 fiscal year of $1.3 billion of debt service due in the
1998 and 1999 fiscal years.
On June 10, 1997, the City submitted to the Control Board the financial Plan
for the 1998 through 2001 fiscal years, which relates to the City, BOE and the
City University of New York ("CUNY") and reflects the City's expense and
capital budgets for the 1998 fiscal year, which were adopted on June 6, 1997.
The Financial Plan projects revenues and expenditures for the 1998 fiscal year
balanced in accordance with GAAP. The Financial Plan includes increased tax
revenue projections; reduced debt service costs; the assumed restoration of
Federal funding for programs, assisting certain legal aliens; additional
expenditures for textbooks, computers, improved education programs and welfare
reform, law enforcement, immigrant naturalization, initiatives proposed by the
City Council and other initiatives; and a proposed discretionary transfer to
the 1998 fiscal year of $300 million of debt service due in the 1999 fiscal
year for budget stabilization purposes. In addition, the Financial Plan
reflects the discretionary transfer to the 1997 fiscal year of $1.3 billion of
debt service due in the 1998 and 1999 fiscal years, and includes actions to
eliminate a previously projected budget gap for the 1998 fiscal year. These gap
closing actions include (i) additional agency actions totaling $621 million;
(ii) the proposed sale of various assets; (iii) additional State aid of $294
million, including a proposal that the State accelerate a $142 million revenue
sharing payment to the City from March 1999; and (iv) entitlement savings of
$128 million which would result from certain of the reductions in Medicaid
spending proposed in the Governor's 1997-1998 Executive Budget and the State
making available to the City $77 million of additional Federal block grant aid,
as proposed in the Governor's 1997-1998 Executive Budget. The Financial Plan
also sets forth projections for the 1999 through 2001 fiscal years and projects
gaps of $1.8 billion, $2.8 billion and $2.6 billion for the 1999 through 2001
fiscal years, respectively.
The Financial Plan assumes approval by the State Legislature and the Governor
of (i) a tax reduction program proposed by the City totaling $272 million, $435
million, $465 million and $481 million in the 1998 through 2001 fiscal years,
respectively, which includes a proposed elimination of the 4% City sales tax on
clothing items under $500 as of December 1, 1997, and (ii) a proposed State tax
relief program, which would reduce the City property tax and personal income
tax, and which the Financial Plan assumes will be offset by proposed increased
State aid totaling $47 million, $254 million, $472 million and $722 million in
the 1998 through 2001 fiscal years, respectively.
The Financial Plan also assumes (i) approval by the Governor and the State
Legislature of the extension of the 14% personal income tax surcharge, which is
scheduled to expire on December 31, 1999 and the extension of which is
projected to provide revenue of $166 million and $494 million in the 2000 and
2001 fiscal years, respectively, and of the extension of the 12.5% personal
income tax surcharge, which is scheduled to expire on December 31, 1998 and the
extension of which is projected to provide revenue of $188 million , $527
million and $554 million in the 1999 through 2001 fiscal years, respectively;
(ii) collection of the projected rent payments for the City's airports,
totaling $385 million, $175 million, and $170 million in the 1999, 2000 and
2001 fiscal years, respectively, which may depend on the successful completion
of negotiations with the Port Authority or the enforcement of the City's rights
under the existing leases through pending legal actions; and (iii) State
approval of the cost containment initiatives and State aid proposed by the City
for the 1998 fiscal year, and $115 million in State aid which is assumed in the
Financial Plan but was not provided for in the Governor's 1997-1998 Executive
Budget. The Financial Plan reflects the increased costs which the City is
prepared to incur as a result of welfare legislation recently enacted by
Congress. The Financial Plan provides no additional wage increases for City
employees after their contracts expire in fiscal years 2000 and 2001. In
addition, the economic and financial condition of the City may be affected by
various financial, social, economic and political factors which could have a
material effect on the City.
The City annually prepares a modification to its financial plan in October or
November which amends the financial plan to accommodate any revisions to
forecast revenues and expenditures and to specify any additional gap-closing
initiatives to the extent required to offset decreases in projected revenues or
increases in projected expenditures. The Mayor is expected to publish the first
quarter modification (the "Modification") for the 1998 fiscal year in November.
Since the preparation of the Financial Plan, the State has adopted its budget
for the 1997-1998 fiscal year. The State budget enacted a smaller sales tax
reduction than the tax reduction program assumed by the City in the Financial
Plan, which will increase projected City sales tax revenues; provided for State
aid to the City which was less than assumed in the Financial Plan; and enacted
a State funded tax relief program which begins a year later than reflected in
the Financial Plan. In addition, the net effect of tax law changes made in the
Federal Balanced Budget Act of 1997 are expected to increase tax revenues in
the 1998 fiscal year. These changes will be reflected in the Modification.
C-12
<PAGE>
The projections for the 1998 through 2001 fiscal years reflect the costs of
the settlements with the United Federation of Teachers ("UFT") and a coalition
of unions headed by District Council 37 of the American Federation of State,
County and Municipal Employees ("District Council 37"), which together
represent approximately two-thirds of the City's workforce, and assume that the
City will reach agreement with its remaining municipal unions under terms which
are generally consistent with such settlements. The settlement provides for a
wage freeze in the first two years, followed by a cumulative effective wage
increase of 11% by the end of the five year period covered by the proposed
agreements, ending in fiscal years 2000 and 2001. Additional benefit increases
would raise the total cumulative effective increase to 13% above present costs.
Costs associated with similar settlements for all City-funded employees would
total $49 million, $459 million and $1.2 billion in the 1997, 1998 and 1999
fiscal years, respectively, and exceed $2 billion in each fiscal year after the
1999 fiscal year. Subsequently, the City reached settlements, through
agreements or statutory impasse procedures, with bargaining units which,
together with the UFT and District Council 37, represent approximately 86% of
the City's workforce.
In 1975, Standard & Poor's suspended its A rating of City bonds. This
suspension remained in effect until March 1981, at which time the City received
an investment grade rating of BBB from Standard & Poor's. On July 2, 1985,
Standard & Poor's revised its rating of City bonds upward to BBB+ and on
November 19, 1987, to A-. On July 10, 1995, Standard & Poor's revised its
rating of City bonds downward to BBB+.
Moody's ratings of City bonds were revised in November 1981 from B (in effect
since 1977) to Ba1, in November 1983 to Baa, in December 1985 to Baa1, in May
1988 to A and again in February 1991 to Baa1. On July 17, 1997, Moody's changed
its outlook on City bonds to positive from stable. Since July 15, 1993, Fitch
has rated City bonds A-. Since July 8, 1997, IBCA Limited has rated City bonds
A.
NEW YORK STATE AND ITS AUTHORITIES. The State's budget for the State's 1997-
1998 fiscal year, commencing on April 1, 1997, was adopted by the Legislature
on August 4, 1997. Prior to adoption of the budget, the Legislature enacted
appropriations for disbursements for its 1997-1998 fiscal year considered to be
necessary for State operations and other purposes. The State Financial Plan for
the 1997-1998 fiscal year was formulated on August 11, 1997 and is based on the
State's budget as enacted by the Legislature, as well as actual results for the
first quarter of the current fiscal year. The 1997-1998 State Financial Plan is
expected to be updated in October and January. The 1997-1998 State Financial
Plan is projected to be balanced on a cash basis. Total General Fund receipts
and transfers from other funds are projected to be $35.09 billion, while total
General Fund disbursements and transfers to other funds are projected to be
$34.60 billion. The adopted 1997-1998 budget projects a year-over-year increase
in General Fund disbursements of 5.2 percent. As compared to the Governor's
proposed budget amended in February 1997, the State's adopted budget for 1997-
1998 increases General Fund spending by $1.7 billion, primarily due to
increases for local assistance ($1.3 billion). Resources used to fund these
additional expenditures include increased revenues projected for the 1997-1998
fiscal year, increased resources produced in the 1996-1997 fiscal year that
will be utilized in 1997-1998, reestimates of social service, fringe benefit
and other spending, and certain non-recurring resources.
The 1997-1998 adopted budget includes multi-year tax reductions, including a
State funded property and local income tax reduction program, estate tax
relief, utility gross receipts tax reductions, permanent reductions in the
State sales tax on clothing, and elimination of assessments on medical
providers. The various elements of the State and local tax and assessment
reductions have little or no impact on the 1997-1998 Financial Plan, and do not
begin to materially affect the out-year projections until the State's 1999-2000
fiscal year.
The economic and financial condition of the State may be affected by various
financial, social, economic and political factors. Those factors can be very
complex, may vary from fiscal year to fiscal year, and are frequently the
result of actions taken not only by the State and its agencies and
instrumentalities, but also by entities, such as the Federal government, that
are not under the control of the State. In addition, the State Financial Plan
is based upon forecasts of national and State economic activity. Economic
forecasts have frequently failed to predict accurately the timing and magnitude
of changes in the national and the State economies. Actual results could differ
materially and adversely from projections and those projections may be changed
materially and adversely from time to time.
The State closed projected budget gaps of $5.0 billion, $3.9 billion and $2.3
billion for its 1995-1996, 1996-1997 and 1997-1998 fiscal years, respectively.
The 1998-1999 budget gap was projected at $1.68 billion (before the application
of any assumed efficiencies) in the out-year projections submitted to the
Legislature in February 1997. As a result of changes made in the adopted
budget, the 1998-1999 gap is now expected by the State to be about the same or
smaller than the amount previously projected, after application of the $530
million reserve for future needs. The Governor has indicated that he will
propose to close any potential imbalance primarily through General Fund
expenditure reductions and without increases in taxes or deferrals of scheduled
tax reductions. The revised expectations for the 1998-1999 fiscal year reflect
the loss of $1.4 billion in surplus resources from 1996-1997 operations that
are being utilized to finance current year spending, an incremental effect of
approximately $300 million in legislated State and local tax reductions in the
out-year and other factors.
C-13
<PAGE>
In recent years, State actions affecting the level of receipts and
disbursements, the relative strength of the State and regional economy, actions
of the Federal government and other factors have created structural budget gaps
for the State. These gaps resulted from a significant disparity between
recurrent revenues and the costs of maintaining or increasing the level of
support for State programs. To address a potential imbalance in any given
fiscal year, the State would be required to take actions to increase receipts
and/or reduce disbursements as it enacts the budget for that year, and under
the State Constitution, the Governor is required to propose a balanced budget
each year. There can be no assurance, however, that the Legislature will enact
the Governor's proposals or that the State's actions will be sufficient to
preserve budgetary balance in a given fiscal year or to align recurring
receipts and disbursements in future fiscal years.
Other actions taken in the 1997-1998 adopted budget add further pressure to
future State budget balance. For example, the fiscal effects of tax reductions
adopted in the 1997-1998 budget are projected to grow more substantially beyond
the 1998-1999 fiscal year. The full annual cost of the enacted tax reduction
package is estimated by the State at approximately $4.8 billion when fully
effective in State fiscal year 2001-2002. In addition, the 1997-1998 budget
included multi-year commitments for school aid pre-kindergarten early learning
programs which could add as much as $1.4 billion in costs when fully annualized
in fiscal year 2001-2002. These spending commitments are subject to annual
appropriation.
On September 11, 1997, the New York State Comptroller issued a report which
noted that the ability to deal with future budget gaps could become a
significant issue in the State's 2000-2001 fiscal year, when the cost of tax
cuts increases by $1.9 billion. The report contained projections that, based on
current economic conditions and current law for taxes and spending, showed a
gap in the 2000-2001 State fiscal year of $5.6 billion and of $7.4 billion in
the 2001-2002 State fiscal year. The report noted that these gaps would be
smaller if recurring spending reductions produce savings in earlier years. The
State Comptroller has also stated that if Wall Street earnings moderate and the
State experiences a moderate recession, the gap for the 2001-2002 State fiscal
year could grow to nearly $12 billion.
In recent years, the State has failed to adopt a budget prior to the
beginning of its fiscal year. A prolonged delay in the adoption of the State's
budget beyond the statutory April 1 deadline without interim appropriations
could delay the projected receipt by the City of State aid, and there can be no
assurance that State budgets in future fiscal years will be adopted by the
April 1 statutory deadline.
On August 28, 1997, Standard & Poor's revised its ratings on the State's
general obligation bonds from A- to A and, in addition, revised its ratings on
the State's moral obligation, lease purchase, guaranteed and contractual
obligation debt. On January 6, 1992, Moody's reduced its ratings on outstanding
limited-liability State lease purchase and contractual obligations from A to
Baa1. On February 10, 1997, Moody's confirmed its A2 rating on the State's
general obligation long-term indebtedness.
LITIGATION. A number of court actions have been brought involving State
finances. The court actions in which the State is a defendant generally involve
State programs and miscellaneous tort, real property, and contract claims.
While the ultimate outcome and fiscal impact, if any, on the State of those
proceedings and claims are not currently predictable, adverse determinations in
certain of them might have a material adverse effect upon the State's ability
to maintain a balanced 1997-98 State Financial Plan.
The claims involving the City other than routine litigation incidental to the
performance of their governmental and other functions and certain other
litigation arise out of alleged constitutional violations, torts, breaches of
contract and other violations of law and condemnation proceedings. While the
ultimate outcome and fiscal impact, if any, on the City of those proceedings
and claims are not currently predictable, adverse determinations in certain of
them might have a material adverse effect upon the City's ability to carry out
the 1998-2001 Financial Plan. The City has estimated that its potential future
liability on account of outstanding claims against it as of June 30, 1996
amounted to approximately $2.8 billion.
NEW YORK TAXES--
In the opinion of Battle Fowler LLP, special counsel for the Sponsor, under
existing New York law:
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 Holders in the same manner as
for Federal income tax purposes. Accordingly, each Holder will be
considered to have received the interest on his pro rata portion of each
Bond when interest on the Bond is received by the Trust. In the opinion of
bond counsel delivered on the date of issuance of the Bond, such interest
will be exempt from New York State and City personal income taxes except
where such interest is subject to Federal income taxes (see Taxes). A
noncorporate Holder of Units of the Trust who is a New York State (and
City) resident will be subject to New York State
C-14
<PAGE>
(and City) personal income taxes on any gain recognized when he disposes of
all or part of his pro rata portion of a Bond. A noncorporate Holder who is
not a New York State resident will not be subject to New York State or City
personal income taxes on any such gain unless such Units are attributable
to a business, trade, profession or occupation carried on in New York. A
New York State (and City) resident should determine his tax basis for his
pro rata portion of each Bond for New York State (and City) income tax
purposes in the same manner as for Federal income tax purposes. Interest
income on, as well as any gain recognized on the disposition of, a Holder's
pro rata portion of the Bonds is generally not excludable from income in
computing New York State and City corporate franchise taxes.
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TAX FREE VS. TAXABLE INCOME
The following tables show the approximate yields which taxable securities
must earn in various income brackets to equal tax exempt yields under combined
Federal and state individual income tax rates. This table reflects projected
Federal income tax rates and tax brackets for the 1997 taxable year and state
income tax rates that were available on the date of the Prospectus. Because
the Federal rate brackets are subject to adjustment based on changes in the
Consumer Price Index, the taxable equivalent yields for subsequent years may
be lower than indicated. A table is computed on the theory that the taxpayer's
highest bracket tax rate is applicable to the entire amount of any increase or
decrease in taxable income (after allowance for any resulting change in state
income tax) resulting from a switch from taxable to tax-free securities or
vice versa. Variations between state and Federal allowable deductions and
exemptions are generally ignored. The state tax is thus computed by applying
to the Federal taxable income bracket amounts shown in the table the
appropriate state rate for those same dollar amounts. For example, a married
couple living in the State of California and filing a Joint Return with
$53,000 in taxable income for the 1997 tax year would need a taxable
investment yielding 9.06% in order to equal a tax-free return of 6.00%. Use
the appropriate table to find your tax bracket. Read across to determine the
approximate taxable yield you would need to equal a return free of Federal
income tax and state income tax.
STATE OF CALIFORNIA
1997 TAX YEAR
<TABLE>
<CAPTION>
APPROX. COMBINED TAX EXEMPT YIELD
TAXABLE FEDERAL & STATE 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%
INCOME BRACKET TAX RATE
TAXABLE EQUIVALENT YIELD
JOINT RETURN
<S> <C> <C> <C> <C> <C> <C> <C>
$0-9,816 15.85% 4.75% 5.35% 5.94% 6.54% 7.13% 7.72%
$9,817-23,264 16.70 4.80 5.40 6.00 6.60 7.20 7.80
$23,265-36,714 18.40 4.90 5.51 6.13 6.74 7.35 7.97
$36,715-41,200 20.10 5.01 5.63 6.26 6.88 7.51 8.14
$41,201-50,968 32.32 5.91 6.65 7.39 8.13 8.87 9.60
$50,969-64,414 33.76 6.04 6.79 7.55 8.30 9.06 9.81
$64,415-99,600 34.70 6.13 6.89 7.66 8.42 9.19 9.95
$99,601-121,200 37.42 6.39 7.19 7.99 8.79 9.59 10.39
$121,201-151,750 38.26 6.48 7.29 8.10 8.91 9.72 10.53
$151,751-271,050 42.93 7.01 7.89 8.76 9.64 10.51 11.39
Over $271,050 46.29 7.45 8.38 9.31 10.24 11.17 12.10
<CAPTION>
SINGLE RETURN
<S> <C> <C> <C> <C> <C> <C> <C>
$0-4,908 15.85% 4.75% 5.35% 5.94% 6.54% 7.13% 7.72%
$4,909-11,632 16.70 4.80 5.40 6.00 6.60 7.20 7.80
$11,633-18,357 18.40 4.90 5.51 6.13 6.74 7.35 7.97
$18,358-24,650 20.10 5.01 5.63 6.26 6.88 7.51 8.14
$24,651-25,484 32.32 5.91 6.65 7.39 8.13 8.87 9.60
$25,485-32,207 33.76 6.04 6.79 7.55 8.30 9.06 9.81
$32,208-59,750 34.70 6.13 6.89 7.66 8.42 9.19 9.95
$59,751-121,200 37.42 6.39 7.19 7.99 8.79 9.59 10.39
$121,201-124,650 38.26 6.48 7.29 8.10 8.91 9.72 10.53
$124,651-271,050 42.93 7.01 7.89 8.76 9.64 10.51 11.39
Over $271,050 46.29 7.45 8.38 9.31 10.24 11.17 12.10
</TABLE>
- -------
Note: This table reflects the following:
1 The above tax rates represent 1997 Federal income tax rates and 1996
California Income tax rates. California has not yet published its
1997 personal income tax rates.
2 Taxable income, as reflected in the above table, equals Federal
adjusted gross income (AGI), less personal exemptions and itemized
deductions (including the deduction for state income tax). However,
certain itemized deductions are reduced by the lesser of (i) three
percent of the amount of the taxpayer's AGI over $121,200, or (ii) 80
percent of the amount of such itemized deductions otherwise
allowable. The effect of the three percent phase out on all itemized
deductions and not just those deductions subject to the phase out is
reflected above in the combined Federal and state tax rates through
the use of higher effective Federal tax rates. However, the effect of
the 80 percent cap on overall itemized deductions is not reflected on
this table. Federal income tax rules also provide that personal
exemptions are phased out at a rate of two percent for each $2,500
(or fraction thereto) of AGI in excess of $181,800 for married
taxpayers filing a joint tax return and $121,200 for single
taxpayers. The effect of the phase out of personal exemptions is not
reflected in the table above.
3 Interest earned on municipal obligations may be subject to the
federal alternative minimum tax. The effect of this provision is not
incorporated into the table.
4 The taxable equivalent yield table does not incorporate to the
effect of graduated rate structures in determining yields. Instead,
the tax rates used are the highest rates applicable to the income
levels indicated within each bracket.
5 Interest earned on municipal obligations may cause certain investors
to be subject to tax on a portion of their Social Security and/or
railroad retirement benefits. The effect of this provision is not
included in the above table.
C-16
<PAGE>
STATE OF NEW JERSEY
1997 TAX YEAR
<TABLE>
<CAPTION>
APPROX. COMBINED TAX EXEMPT YIELD
TAXABLE FEDERAL & STATE 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%
INCOME BRACKET TAX RATE
TAXABLE EQUIVALENT YIELD
JOINT RETURN
<S> <C> <C> <C> <C> <C> <C> <C>
$ 0 to 20,000 16.19% 4.77% 5.37% 5.97% 6.56% 7.16% 7.76%
$ 20,001 to 41,200 16.49% 4.79% 5.39% 5.99% 6.59% 7.18% 7.78%
$ 41,201 to 50,000 29.26% 5.65% 6.36% 7.07% 7.77% 8.48% 9.19%
$ 50,101 to 70,000 29.76% 5.70% 6.41% 7.12% 7.83% 8.54% 9.25%
$ 70,001 to 80,000 30.52% 5.76% 6.48% 7.20% 7.92% 8.64% 9.36%
$ 80,001 to 99,600 31.98% 5.88% 6.62% 7.35% 8.09% 8.82% 9.56%
$ 99,601 to 121,200 34.81% 6.14% 6.90% 7.67% 8.44% 9.20% 9.97%
$121,201 to 150,000 35.69% 6.22% 7.00% 7.77% 8.55% 9.33% 10.11%
$150,001 to 151,750 36.27% 6.28% 7.06% 7.85% 8.63% 9.41% 10.20%
$151,751 to 271,050 41.09% 6.79% 7.64% 8.49% 9.34% 10.18% 11.03%
Over $271,050 44.56% 7.21% 8.12% 9.02% 9.92% 10.82% 11.72%
<CAPTION>
SINGLE RETURN
<S> <C> <C> <C> <C> <C> <C> <C>
$ 0 to 20,000 16.19% 4.77% 5.37% 5.97% 6.56% 7.16% 7.76%
$ 20,001 to 24,650 16.49% 4.79% 5.39% 5.99% 6.59% 7.18% 7.78%
$ 24,651 to 35,000 29.26% 5.65% 6.36% 7.07% 7.77% 8.48% 9.19%
$ 35,001 to 40,000 30.52% 5.76% 6.48% 7.20% 7.92% 8.64% 9.36%
$ 40,001 to 59,750 31.78% 5.86% 6.60% 7.33% 8.06% 8.80% 9.53%
$ 59,751 to 75,000 34.62% 6.12% 6.88% 7.65% 8.41% 9.18% 9.94%
$ 75,001 to 121,200 35.40% 6.19% 6.97% 7.74% 8.51% 9.29% 10.06%
$121,201 to 124,650 36.27% 6.28% 7.06% 7.85% 8.63% 9.41% 10.20%
$124,651 to 271,050 41.09% 6.79% 7.64% 8.49% 9.34% 10.18% 11.03%
Over $271,050 44.56% 7.21% 8.12% 9.02% 9.92% 10.82% 11.72%
</TABLE>
- -------
Note: This table reflects the following:
1 The above tax rates represent 1997 Federal income tax rates and 1996 New
Jersey income tax rates. New Jersey has not yet published its 1997
personal income tax rates.
2 Taxable income, as reflected in the above table, equals Federal adjusted
gross income (AGI), less personal exemptions and itemized deductions
(including the deduction for state income tax). However, certain itemized
deductions are reduced by the lesser of (i) three percent of the amount of
the taxpayer's AGI over $121,200, or (ii) 80 percent of the amount of such
itemized deductions otherwise allowable. The effect of the three percent
phase out on all itemized deductions and not just those deductions subject
to the phase out is reflected above in the combined Federal and state tax
rates through the use of higher effective Federal tax rates. However, the
effect of the 80 percent cap on overall itemized deductions is not
reflected on this table. Federal income tax rules also provide that
personal exemptions are phased out at a rate of two percent for each
$2,500 (or fraction thereof) of AGI in excess of $181,800 for married
taxpayers filing a joint tax return and $121,200 for single taxpayers. The
effect of this phase out is not reflected in the above table.
3 Interest earned on municipal obligations may be subject to the federal
alternative minimum tax. The effect of this provision is not included into
the above table.
4 The taxable equivalent yield table does not incorporate the effect of
graduated rate structures in determining yields. Instead, the tax rates
used are the highest rates applicable to the income levels indicated
within each bracket.
5 Interest earned on all municipal obligations may cause certain investors
to be subject to tax on a portion of their Social Security and/or railroad
retirement benefits. The effect of this provision is not included in the
above table.
STATE OF NEW YORK
1997 TAX YEAR
<TABLE>
<CAPTION>
APPROX. COMBINED TAX EXEMPT YIELD
TAXABLE FEDERAL & STATE 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%
INCOME BRACKET TAX RATE
TAXABLE EQUIVALENT YIELD
JOINT RETURN
<S> <C> <C> <C> <C> <C> <C> <C>
$ 0 to
16,000 18.40% 4.90% 5.51% 6.13% 6.74% 7.35% 7.97%
$ 16,001 to
22,000 18.83 4.93 5.54 6.16 6.78 7.39 8.01
$ 22,001 to
26,000 19.46 4.97 5.59 6.21 6.83 7.45 8.07
$ 26,001 to
40,000 20.02 5.00 5.63 6.25 6.88 7.50 8.13
$ 40,001 to
41,200 20.82 5.05 5.68 6.32 6.95 7.58 8.21
$ 41,201 to
99,600 32.93 5.97 6.71 7.46 8.20 8.95 9.69
$ 99,601 to
121,200 35.73 6.22 7.00 7.78 8.56 9.34 10.11
$121,201 to
151,750 36.59 6.31 7.10 7.89 8.67 9.46 10.25
$151,751 to
271,050 41.39 6.82 7.68 8.53 9.38 10.24 11.09
Over $271,050 44.85 7.25 8.16 9.07 9.97 10.88 11.79
<CAPTION>
SINGLE RETURN
<S> <C> <C> <C> <C> <C> <C> <C>
$ 0 to
8,000 18.40% 4.90% 5.51% 6.13% 6.74% 7.35% 7.97%
$ 8,001 to
11,000 18.83 4.93 5.54 6.16 6.78 7.39 8.01
$ 11,001 to
13,000 19.46 4.97 5.59 6.21 6.83 7.45 8.07
$ 13,001 to
20,000 20.02 5.00 5.63 6.25 6.88 7.50 8.13
$ 20,001 to
24,650 20.82 5.05 5.68 6.32 6.95 7.58 8.21
$ 24,651 to
59,750 32.93 5.97 6.71 7.46 8.20 8.95 9.69
$ 59,751 to
121,200 35.73 6.22 7.00 7.78 8.56 9.34 10.11
$121,201 to
124,650 36.59 6.31 7.10 7.89 8.67 9.46 10.25
$124,651 to
271,050 41.39 6.82 7.68 8.53 9.38 10.24 11.09
Over $271,050 44.85 7.25 8.16 9.07 9.97 10.88 11.79
- ------------
</TABLE>
Note: This table reflects the following:
1 The above tax rates represent 1997 New York State statutory income tax
rates as of December 1996, which may be subject to change, and 1997
Federal income tax rates.
2 Taxable income equals adjusted gross income ("AGI") less personal
exemptions of $2,650 less the standard deduction of $6,900 on a joint
return and $4,500 on a single return or total itemized deductions,
whichever is greater. However, itemized deductions are reduced by 3% of
the amount of a taxpayer's AGI over $121,200. This is reflected in the
brackets above by higher effective federal tax rates. Furthermore,
personal exemptions are phased out for the amount of a taxpayer's AGI over
$121,200 for single taxpayers and $181,800 for married taxpayers filing
jointly. This latter provision is not incorporated into the above
brackets.
3 The combined effective rate is computed under the assumption that
taxpayers itemize their deductions on their federal income tax returns.
4 Interest earned on municipal obligations may be subject to the federal
alternative minimum tax. This provision is not incorporated into the
table.
5 The taxable equivalent yield table does not incorporate the effect of
graduated rate structures in determining yields. Instead, the tax rates
used are the highest rates applicable to the income levels indicated
within each bracket.
C-17
<PAGE>
CITY OF NEW YORK
1997 TAX YEAR
<TABLE>
<CAPTION>
TOTAL APPROX. COMBINED
NEW FEDERAL, STATE & TAX EXEMPT YIELD
TAXABLE YORK NEW YORK CITY 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%
INCOME BRACKET RATES TAX RATE
TAXABLE EQUIVALENT YIELD
JOINT RETURN
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0
to
16,000 7.08% 21.02% 5.07% 5.70% 6.33% 6.96% 7.60% 8.23%
$ 16,001
to
21,600 7.58 21.44 5.09 5.73 6.37 7.00 7.64 8.28
$ 21,601
to
22,000 8.26 22.02 5.13 5.77 6.41 7.05 7.69 8.34
$ 22,001
to
26,000 9.01 22.66 5.17 5.82 6.46 7.11 7.76 8.40
$ 26,001
to
40,000 9.66 23.21 5.21 5.86 6.51 7.16 7.81 8.47
$ 40,001
to
41,200 10.61 24.02 5.26 5.92 6.58 7.24 7.90 8.55
$ 41,201
to
45,000 10.61 35.64 6.22 6.99 7.77 8.55 9.32 10.10
$ 45,001
to
90,000 10.67 35.68 6.22 7.00 7.77 8.55 9.33 10.11
$ 90,001
to
99,600 10.73 35.73 6.22 7.00 7.78 8.56 9.34 10.11
$ 99,601
to
121,200 10.73 38.40 6.49 7.30 8.12 8.93 9.74 10.55
$121,201
to
151,750 10.73 39.23 6.58 7.40 8.23 9.05 9.87 10.70
$151,751
to
271,050 10.73 43.83 7.12 8.01 8.90 9.79 10.68 11.57
Over
$271,050 10.73 47.14 7.57 8.51 9.46 10.40 11.35 12.30
<CAPTION>
SINGLE RETURN
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0
to
8,000 7.08% 21.02% 5.07% 5.70% 6.33% 6.96% 7.60% 8.23%
$ 8,001
to
11,000 7.58 21.44 5.09 5.73 6.37 7.00 7.64 8.28
$ 11,001
to
12,000 8.33 22.08 5.13 5.78 6.42 7.06 7.70 8.34
$ 12,001
to
13,000 9.01 22.66 5.17 5.82 6.46 7.11 7.76 8.40
$ 13,001
to
20,000 9.66 23.21 5.21 5.86 6.51 7.16 7.81 8.47
$ 20,001
to
24,650 10.61 24.02 5.26 5.92 6.58 7.24 7.90 8.55
$ 24,651
to
25,000 10.61 35.64 6.22 6.99 7.77 8.55 9.32 10.10
$ 25,001
to
50,000 10.67 35.68 6.22 7.00 7.77 8.55 9.33 10.11
$ 50,001
to
59,750 10.73 35.73 6.22 7.00 7.78 8.56 9.34 10.11
$ 59,751
to
121,200 10.73 38.40 6.49 7.30 8.12 8.93 9.74 10.55
$121,201
to
124,650 10.73 39.23 6.58 7.40 8.23 9.05 9.87 10.70
$124,651
to
271,050 10.73 43.83 7.12 8.01 8.90 9.79 10.68 11.57
Over
$271,050 10.73 47.14 7.57 8.51 9.46 10.40 11.35 12.30
</TABLE>
- -------
Note: This table reflects the following:
1 The above tax rates represent 1997 New York State and New York City
statutory income tax rates as of December 1996, which may be subject to
change, and 1997 Federal income tax rates.
2 Taxable income equals adjusted gross income ("AGI") less personal
exemptions of $2,650 less the standard deduction of $6,900 on a joint
return and $4,150 on a single return or total itemized deductions,
whichever is greater. However, itemized deductions are reduced by 3% of
the amount of a taxpayer's AGI over $121,200. This is reflected in the
brackets above by higher effective federal tax rates. Furthermore,
personal exemptions are phased out for the amount of a taxpayer's AGI over
$121,200 for single taxpayers and $181,800 for married taxpayers filing
jointly. This latter provision is not incorporated into the above
brackets.
3 The combined effective rate is computed under the assumption that
taxpayers itemize their deductions on their federal income tax returns.
4 Interest earned on municipal obligations may be subject to the federal
alternative minimum tax. This provision is not incorporated into the
table.
5 The taxable equivalent yield table does not incorporate the effect of
graduated rate structures in determining yields. Instead, the tax rates
used are the highest rates applicable to the income levels indicated
within each bracket.
6 New York City tax rate includes base tax plus surcharge of 14% of base.
C-18
<PAGE>
PROSPECTUS
THIS PROSPECTUS CONTAINS INFORMATION CONCERNING THE TRUST AND THE SPONSOR, BUT
DOES NOT CONTAIN ALL THE INFORMATION SET FORTH IN THE REGISTRATION STATEMENTS
AND EXHIBITS RELATING THERETO, WHICH THE TRUST HAS FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION, WASHINGTON, D.C., UNDER THE SECURITIES ACT OF 1933 AND
THE INVESTMENT COMPANY ACT OF 1940, AND TO WHICH REFERENCE IS HEREBY MADE.
INDEX:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY OF ESSENTIAL INFORMATION........................................... A-2
PORTFOLIO SUMMARY AS OF DATE OF DEPOSIT.................................... A-4
UNDERWRITING............................................................... A-6
INDEPENDENT AUDITORS' REPORT............................................... A-7
STATEMENTS OF FINANCIAL CONDITION OF THE TAX EXEMPT SECURITIES TRUST....... A-8
NOTES TO PORTFOLIOS OF SECURITIES.......................................... A-12
TAX EXEMPT SECURITIES TRUST................................................ B-1
THE TRUSTS................................................................ B-1
OBJECTIVES................................................................ B-1
PORTFOLIO................................................................. B-1
RISK FACTORS.............................................................. B-2
THE UNITS................................................................. B-12
TAXES..................................................................... B-12
EXPENSES AND CHARGES...................................................... B-14
PUBLIC OFFERING............................................................ B-15
OFFERING PRICE............................................................ B-15
METHOD OF EVALUATION...................................................... B-16
DISTRIBUTION OF UNITS..................................................... B-16
MARKET FOR UNITS.......................................................... B-16
EXCHANGE OPTION........................................................... B-17
REINVESTMENT PROGRAMS..................................................... B-17
SPONSOR'S AND UNDERWRITERS' PROFITS....................................... B-17
RIGHTS OF UNIT HOLDERS..................................................... B-18
CERTIFICATES.............................................................. B-18
DISTRIBUTION OF INTEREST AND PRINCIPAL.................................... B-18
REPORTS AND RECORDS....................................................... B-19
REDEMPTION OF UNITS....................................................... B-19
SPONSOR.................................................................... B-20
LIMITATIONS ON LIABILITY.................................................. B-21
RESPONSIBILITY............................................................ B-21
RESIGNATION............................................................... B-21
TRUSTEE.................................................................... B-21
LIMITATIONS ON LIABILITY.................................................. B-21
RESIGNATION............................................................... B-22
EVALUATOR.................................................................. B-22
LIMITATIONS ON LIABILITY.................................................. B-22
RESPONSIBILITY............................................................ B-22
RESIGNATION............................................................... B-22
AMENDMENT AND TERMINATION OF THE TRUST AGREEMENT........................... B-22
AMENDMENT................................................................. B-22
TERMINATION............................................................... B-23
LEGAL OPINION.............................................................. B-23
AUDITORS................................................................... B-23
BOND RATINGS............................................................... B-23
FEDERAL TAX FREE VS. TAXABLE INCOME........................................ B-25
THE STATE TRUSTS........................................................... C-1
TAX FREE VS. TAXABLE INCOME................................................ C-16
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, SECURITIES IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO
MAKE SUCH OFFER IN SUCH STATE.
TAX EXEMPT SECURITIES TRUST
------------
10,250 UNITS
------------
Prospectus
Dated October 30, 1997
------------
SPONSOR
SMITH BARNEY
-------------------------------
A Member of TravelersGroup LOGO
388 GREENWICH STREET
23RD FLOOR
NEW YORK, NEW YORK 10013
(800) 223-2532
<PAGE>
PART II. ADDITIONAL INFORMATION NOT REQUIRED IN PROSPECTUS
A. The following information relating to the Depositor is incorporated by
reference to the SEC filings indicated and made a part of this Registration
Statement.
<TABLE>
<CAPTION>
SEC FILE OR
IDENTIFICATION NO.
------------------
<S> <C>
I. Bonding Arrangements and Date of Organization
of the Depositor filed pursuant to Items A and
B of Part II of the Registration Statement on
Form S-6 under the Securities Act of 1993:
Smith Barney Inc. 2-55436
II. Information as to Officers and Directors of
the Depositor filed pursuant to Schedules A
and D of Form BD under Rules 15b1-1 and 15b3-
1 of the Securities Exchange Act of 1934:
Smith Barney Inc. 8-8177
III. Charter documents of the Depositor filed as
Exhibits to the Registration Statement on
Form S-6 under the Securities Act of 1933
(Charter, By-Laws):
Smith Barney Inc. 33-65332, 33-36037
B. The Internal Revenue Service Employer Identification Numbers of the
Sponsor and Trustee are as follows:
Smith Barney Inc. 13-1912900
The Chase Manhattan Bank 13-4994650
</TABLE>
UNDERTAKING
The Sponsor undertakes that it will not instruct the Trustee to accept from
(i) any insurance company affiliated with the Sponsor, in settlement of any
claim, less than an amount sufficient to pay any principal or interest (and, in
the case of a taxability redemption, premium) then due on any Security in
accordance with the municipal bond guaranty insurance policy attached to that
Security or (ii) any affiliate of the Sponsor who has any obligation with
respect to any Security, less than the full amount due pursuant to the
obligation, unless those instructions have been approved by the Securities and
Exchange Commission pursuant to Rule 17d-1 under the Investment Company Act of
1940.
II-1
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
THE REGISTRATION STATEMENT ON FORM S-6 COMPRISES THE FOLLOWING PAPERS AND
DOCUMENTS:
The facing sheet of Form S-6.
The Cross-Reference Sheet (incorporated by reference to the Cross-Reference
Sheet to the Registration Statement of Tax Exempt Securities Trust, Series
384, 1933 Act File No. 33-50915).
The Prospectus.
Additional Information not included in the Prospectus (Part II).
Consent of Independent Auditors.
The following exhibits:
<TABLE>
<C> <S>
1.1 --Form of Trust Indenture and Agreement (incorporated by reference to
Exhibit 4.a to the Registration Statement of Tax Exempt Securities
Trust, Series 265, 1933 Act File No. 33-15123).
1.1.1 --Form of Reference Trust Agreement (incorporated by reference to
Exhibit 1.1.1 of Tax Exempt Securities Trust, National Trust 208, 1933
Act File No. 33-58591).
1.2 --Form of Agreement Among Underwriters (incorporated by reference to
Exhibit 99 to the Registration Statement of Tax Exempt Securities
Trust, Series 384, 1933 Act File No. 33-50915).
2.1 --Form of Certificate of Beneficial Interest (included in Exhibit 1.1).
3.1 --Opinion of counsel as to the legality of the securities being issued
including their consent to the use of their name under the headings
"Taxes", "Legal Opinion" and "New York Taxes" in the Prospectus.
3.2 --Opinion of special California counsel.
3.3 --Opinion of special New Jersey counsel.
4.1 --Consent of the Evaluator.
5.1 --Consent of KPMG Peat Marwick LLP.
</TABLE>
II-2
<PAGE>
SIGNATURES
The registrant, Tax Exempt Securities Trust, California Trust 160, New Jersey
Trust 132, and New York Trust 165, hereby identifies Series 1, Series 357 and
National Trust 208 of the Tax Exempt Securities Trust for purposes of the
representations required by Rule 487 and represents the following:
(1) That the portfolio securities deposited in the series as to the
securities of which this Registration Statement is being filed do not
differ materially in type or quality from those deposited in such previous
series;
(2) That, except to the extent necessary to identify the specific
portfolio securities deposited in, and to provide essential financial
information for, the series with respect to the securities of which this
Registration Statement is being filed, this Registration Statement does not
contain disclosures that differ in any material respect from those
contained in the registration statements for such previous series as to
which the effective date was determined by the Commission or the staff; and
(3) That is has complied with Rule 460 under the Securities Act of 1933.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT OR AMENDMENT THERETO TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW
YORK, AND STATE OF NEW YORK, ON THE 29TH DAY OF OCTOBER, 1997.
Signatures appear on page II-4.
A majority of the members of the Board of Directors of Smith Barney Inc. has
signed this Registration Statement or Amendment to the Registration Statement
pursuant to Powers of Attorney authorizing the person signing this Registration
Statement or Amendment to the Registration Statement to do so on behalf of such
members.
II-3
<PAGE>
Smith Barney Inc., Depositor
/s/ George S. Michinard, Jr.
By .................................
(GEORGE S. MICHINARD, JR.)
By the following persons*, who
constitute a majority of the
directors of Smith Barney Inc.:
Steven D. Black
James S. Boshart III
Robert A. Case
James Dimon
Robert Druskin
Robert H. Lessin
William J. Mills, II
Michael B. Panitch
Paul Underwood
/s/ George S. Michinard, Jr.
By ..................................
(GEORGE S. MICHINARD, JR.,
ATTORNEY-IN-FACT)
- --------
* Pursuant to Powers of Attorney filed under the 1933 Act file Numbers 33-
56722, 33-51999 and 333-21047.
II-4
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STATEMENTS
OF FINANCIAL CONDITIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001025903
<NAME> CALIFORNIA 160
<SERIES>
<NUMBER> 1
<NAME> CALIFORNIA 160
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-30-1997
<PERIOD-END> OCT-30-1997
<INVESTMENTS-AT-COST> 3,225,288
<INVESTMENTS-AT-VALUE> 3,225,288
<RECEIVABLES> 37,723
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 8,125
<TOTAL-ASSETS> 3,271,136
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 45,848
<TOTAL-LIABILITIES> 45,848
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,225,288
<SHARES-COMMON-STOCK> 3,250
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 3,225,288
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,250
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 3,225,288
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STATEMENTS
OF FINANCIAL CONDITIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001014139
<NAME> NEW JERSEY TRUST 132
<SERIES>
<NUMBER> 1
<NAME> NEW JERSEY TRUST 132
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-30-1997
<PERIOD-END> OCT-30-1997
<INVESTMENTS-AT-COST> 1,986,843
<INVESTMENTS-AT-VALUE> 1,986,843
<RECEIVABLES> 35,934
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 5,000
<TOTAL-ASSETS> 2,027,777
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 40,934
<TOTAL-LIABILITIES> 40,934
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,986,843
<SHARES-COMMON-STOCK> 2,000
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,986,843
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,000
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,986,843
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STATEMENTS
OF FINANCIAL CONDITIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001025919
<NAME> NEW YORK TRUST 165
<SERIES>
<NUMBER> 1
<NAME> NEW YORK TRUST 165
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-30-1997
<PERIOD-END> OCT-30-1997
<INVESTMENTS-AT-COST> 4,958,853
<INVESTMENTS-AT-VALUE> 4,958,853
<RECEIVABLES> 74,512
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 12,500
<TOTAL-ASSETS> 5,045,865
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 87,012
<TOTAL-LIABILITIES> 87,012
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,958,853
<SHARES-COMMON-STOCK> 5,000
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 4,958,853
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,000
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 4,958,853
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
EXHIBIT 3.1
BATTLE FOWLER LLP
A LIMITED LIABILITY PARTNERSHIP
PARK AVENUE TOWER
75 EAST 55TH STREET
NEW YORK, N.Y. 10022
(212) 856-7000
October 29, 1997
Smith Barney Inc.
Unit Trust Department
388 Greenwich Street, 23rd Floor
New York, New York 10013
RE: TAX EXEMPT SECURITIES TRUST, CALIFORNIA TRUST 160,
NEW JERSEY TRUST 132 AND NEW YORK TRUST 165
Dear Sirs:
We have acted as special counsel for Smith Barney Inc. as Depositor, Sponsor
and Principal Underwriter (the "Depositor") of Tax Exempt Securities Trust,
California Trust 160, New Jersey Trust 132 and New York Trust 165
(collectively, the "Trusts") in connection with the deposit of securities (the
"Securities") therein pursuant to the Trust Agreements referred to below, by
which the Trusts were created and under which the units of fractional undivided
interest (collectively, the "Units") have been issued. Pursuant to the Trust
Agreements the Depositor has transferred to the Trusts certain long-term bonds
and contracts to purchase certain long-term bonds together with irrevocable
letters of credit to be held by the Trustee upon the terms and conditions set
forth in the Trust Agreements. (All bonds to be acquired by the Trusts are
collectively referred to as the "Bonds".)
In connection with our representation, we have examined the originals or
certified copies of the following documents relating to the creation of the
Trusts, the deposit of the Securities and the issuance and sale of the Units:
(a) the Trust Indenture and Agreement dated July 16, 1987 and the Reference
Trust Agreements of even date herewith relating to each Trust (collectively,
the "Trust Agreements") among the Depositor, The Chase Manhattan Bank as
Trustee, and Kenny S&P Evaluation Services, as Evaluator; (b) the Closing
Memorandum relating to the deposit of the Securities in the Trusts; (c) the
Notification of Registration on Form N-8A and the Registration Statement on
Form N-8B-2, as amended, relating to the Trusts, as filed with the Securities
and Exchange Commission (the "Commission") pursuant to the Investment Company
Act of 1940 (the "1940 Act"); (d) the Registration Statements on Form S-6
(Registration Nos. 333-33717, 333-24841 and 333-35733) filed with the
Commission pursuant to the Securities Act of 1933 (the "1933 Act"), and
Amendment No. 1 thereto (said Registration Statements, as amended by said
Amendment No. 1 being herein called the "Registration Statement"); (e) the
proposed form of final prospectus (the "Prospectus") relating to the Units,
which is expected to be filed with the Commission this day; (f) resolutions of
the Executive Committees of the Depositor authorizing the execution and
delivery by the Depositor of the Trust Agreements and the consummation of the
transactions contemplated thereby; (g) the Certificates of Incorporation and
By-laws of the Depositor, each certified to by an authorized officer of the
Depositor as of a recent date; (h) a certificate of an authorized officer of
the Depositor with respect to certain factual matters contained therein
("Officers Certificate"); and (i) certificates or telegrams of public officials
as to matters set forth upon therein.
We have assumed the genuineness of all agreements, instruments and documents
submitted to us as originals and the conformity to originals of all copies
thereof submitted to us. We have also assumed the genuineness of all signatures
and the legal capacity of all persons executing agreements, instruments and
documents examined or relied upon by us.
<PAGE>
Where matters are stated to be "to the best of our knowledge" or "known to
us," our knowledge is limited to the actual knowledge of those attorneys in our
office who have performed services for the Trust, their review of documents
provided to us by the Depositor in connection with this engagement and
inquiries of officers of the Depositor, the results of which are reflected in
the Officers Certificate. We have not independently verified the accuracy of
the matters set forth in the written statements or certificates upon which we
have relied. We have not reviewed the financial statements, compilation of the
Bonds held by the Trusts, or other financial or statistical data contained in
the Registration Statement and the Prospectus, as to which we understand you
have been furnished with the reports of the accountants appearing in the
Registration Statement and the Prospectus. In addition, we have made no
specific inquiry as to whether any stop order or investigatory proceedings have
been commenced with respect to the Registration Statement or the Depositor nor
have we reviewed court or governmental agency dockets.
We have relied without independent investigation upon the opinion dated the
date hereof of LeBoeuf, Lamb, Greene & McRae, L.L.P., 725 South Figueroa
Street, Los Angeles, California 90017 and Shanley & Fisher, 131 Madison Avenue,
Morristown, New Jersey 07962-1979 delivered to the Depositor with respect to
the questions of law of the States of California and New Jersey and with
respect to any disclosure contained in the Registration Statement concerning
risk factors relating to the Bonds of California Trust 160 and New Jersey Trust
132, respectively.
Statements in this opinion as to the validity, binding effect and
enforceability of agreements, instruments and documents are subject: (i) to
limitations as to enforceability imposed by bankruptcy, reorganization,
moratorium, insolvency and other laws of general application relating to or
affecting the enforceability of creditors' rights, and (ii) to limitations
under equitable principles governing the availability of equitable remedies.
We are not admitted to the practice of law in any jurisdiction but the State
of New York and we do not hold ourselves out as experts in or express any
opinion as to the laws of other states or jurisdictions except as to matters of
Federal and Delaware corporate law. No opinion is expressed as to the effect
that the law of any other jurisdiction might have upon the subject matter of
the opinions expressed herein under applicable conflicts of law principles,
rules or regulations or otherwise.
Based on the subject to the foregoing, we are of the opinion that:
(1) The Trust Agreements have been duly authorized and executed and delivered
by an authorized officer of the Depositor and are valid and binding obligations
of the Depositor in accordance with their respective terms.
(2) The execution and delivery of the Certificates evidencing the Units has
been duly authorized by the Depositor and such Certificates when executed by
the Depositor and the Trustee in accordance with the provisions of the
Certificates and the respective Trust Agreements and issued for the
consideration contemplated therein, will constitute fractional undivided
interests in the respective Trusts, will be entitled to the benefits of the
respective Trust Agreements, and will conform in all material respects to the
description thereof contained in the Prospectus under the caption heading
"Rights of Unit Holders--Certificates". Upon payment of the consideration for
the Units as provided in the Trust Agreements and the Registration Statement,
the Units will be fully paid and non-assessable by the Trusts.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name in the Registration Statement
and in the Prospectus under the headings "Taxes" and "Legal Opinion". This
opinion is intended solely for the benefit of the addressee in connection with
the issuance of the Units of the Trust and may not be relied upon in any other
manner or by any other person without our express written consent.
Very truly yours,
Battle Fowler LLP
<PAGE>
EXHIBIT 3.2
LeBoeuf, Lamb, Greene & MacRae
L.L.P.
A LIMITED LIABILITY PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS
125 West 55th Street
New York, NY 10019-5389
(212) 424-8000
FACSIMILE: (212) 424-8500
(213) 955-7345
WRITER'S DIRECT DIAL:
October 29, 1997
Smith Barney Inc.
Unit Trust Department
388 Greenwich Street, 23rd Floor
New York, New York 10013
Re:Tax Exempt Securities Trust,
California Trust 160
Ladies and Gentlemen:
You have requested our opinion with respect to certain issues of California
personal income tax in connection with the Tax Exempt Securities Trust,
California Trust 160 (the "California Trust") sponsored by Smith Barney, Inc.
(the "Sponsor"). Capitalized terms used herein and not otherwise defined shall
have the meaning ascribed to such terms in the Prospectus dated October 30,
1997 (the "Prospectus").
In rendering this opinion, we have examined only those portions of the
Prospectus relating to the California Trust, and we have relied on the accuracy
and the completeness of the facts set forth therein and specifically on the
opinion of Messrs. Battle Fowler LLP, counsel for the Sponsor, that (i) the
California Trust is not an association taxable as a corporation for federal
income tax purposes under the Internal Revenue Code of 1986, as amended (the
"Code"), and income received by the California Trust that consists of interest
excludable from federal gross income under the Code will be excludable from the
federal gross income of the Unit Holders (as defined in the Prospectus) of the
California Trust; (ii) each Unit Holder of the California Trust will be
considered the owner of a pro rata portion of the California Trust under the
grantor trust rules of sections 671-679 of the Code, thus each Unit Holder of
the California Trust will be considered to have received his pro rata share of
Bond interest when it is received by the California Trust, and the entire
amount of net income distributable to Unit Holders of the California Trust that
is excluded from gross income for federal income tax purposes when received by
the California Trust will constitute tax-exempt income to the Unit Holders. In
addition, we are relying on certain opinions of bond counsel with respect to
the underlying Bonds described below.
You have advised us of the following information. The California Trust is one
of a series of similar but separate unit investment trusts created under the
laws of the State of New York by a Trust Indenture and Agreement and related
Reference Trust Agreement of the Sponsor, The Chase Manhattan Bank, as Trustee,
and Kenny S&P Evaluation Services, a division of J.J. Kenny Co., Inc., as
Evaluator. Each state trust is a separate and distinct trust for all purposes,
and the assets of one trust may not be commingled with the assets of any other,
nor shall the expenses of any trust be charged against the other. The portfolio
of the California Trust consists of obligations of issuers located in the State
of California. All securities acquired by the California Trust, were
accompanied by copies of opinions of bond counsel to the issuing governmental
authorities given at the time of original delivery of the bonds to the effect
that the interest thereon is excluded from gross income for federal income tax
purposes and is exempt from California personal income taxation.
<PAGE>
Smith Barney Inc.
Unit Trust Department
October 29, 1997
Page 2
We have assumed that no event has occurred since the time of original delivery
of the bonds which would cause such interest income to become includable in
gross income for federal income or California personal tax purposes. We have
not made any independent review of the proceedings relating to the issuance of
the bonds or the basis for such opinions, and we express no opinion on such
matters.
Based on the foregoing, it is our opinion that:
The California Trust is not taxable as a corporation for California tax
purposes. Interest income on the securities owned by the California Trust that
is exempt from personal income taxes imposed by the State of California will
retain its status as interest exempt from personal income taxes imposed by the
State of California.
Each Unit Holder of the California Trust will recognize gain or loss on the
sale, redemption or other disposition of securities within the California
Trust, or on the sale or other disposition of Unit Holders interest in the
California Trust. As a result, a Unit Holder may incur California tax liability
upon the sale, redemption or other disposition of securities within the
California Trust or upon the sale or other disposition of his or her Units.
It is notable that the exemption of interest income with respect to
securities within the California Trust under the California personal income tax
law does not necessarily result in exemption under the income tax laws of the
federal government or any other state or political subdivision. The laws of
state and local taxing authorities vary with respect to the taxation of such
obligations and each Unit Holder should consult his or her own tax advisor as
to the tax consequences of his or her investment in the California Trust under
other applicable federal, state and local tax laws.
Our opinion is based on current provisions of the laws cited herein. Any
change in such laws, the regulations or interpretations relating to such laws
may affect the continuing validity of the opinion set forth herein.
We consent to the filing of this opinion as an Exhibit to the Registration
Statement filed under the Securities Act of 1933, as amended (the "Registration
Statement"), and to the references to this firm in the Registration Statement
under the heading "California Trust--California Taxes."
This letter is furnished by us solely for your benefit, and the benefit of
The Chase Manhattan Bank, as Trustee for the California Trust, in connection
with the Registration Statement for the public offering of interests in the Tax
Exempt Securities Trust and this letter may not be relied upon by any other
person without our prior written consent.
Very truly yours,
LeBoeuf, Lamb, Greene & MacRae
L.L.P.
<PAGE>
EXHIBIT 3.3
Shanley & Fisher
A PROFESSIONAL CORPORATION
COUNSELORS AT LAW
131 MADISON AVENUE
MORRISTOWN, NEW JERSEY 07962-1979
(201) 285-1000
October 29, 1997
Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
The Chase Manhattan Bank
4 New York Plaza
New York, New York 10004
RE: TAX-EXEMPT SECURITIES TRUST, NEW JERSEY TRUST 132
Gentlemen:
We have acted as special New Jersey counsel respecting only New Jersey tax
matters in connection with the issuance of Units of Tax-Exempt Securities
Trust, New Jersey Trust 132, including specifically the New Jersey Trust. We
have reviewed the Trust Indenture and Agreement among Smith Barney Inc., as
Depositor, The Chase Manhattan Bank, as Trustee, and Kenny S&P Evaluation
Services, a business unit of J.J. Kenny Company, Inc., as Evaluator, and the
Reference Trust Agreement supplementing and amending the aforesaid Trust
Indenture and Agreement respecting this Multistate Series (together, the "Trust
Agreement").
This opinion is given and limited to matters of New Jersey tax law respecting
the New Jersey Trust.
We assume that within the meaning of the New Jersey Gross Income Tax Act all
obligations held by the New Jersey Trust are issued by or on behalf of New
Jersey or any county, municipality, school or other district, agency,
commission, instrumentality, public corporation (including one created or
existing pursuant to agreement or compact with New Jersey or any other state)
or such obligations are statutorily free from taxation under the laws of the
United States.
Based upon and subject to the foregoing, we are of the opinion that:
1. The proposed activities of the New Jersey Trust will not cause it to
be subject to the New Jersey Corporation Business Tax Act.
2. The income of the New Jersey Trust will be treated as the income of
individuals, estates and trusts who are the Holders of Units of the New
Jersey Trust for purposes of the New Jersey Gross Income Tax Act, and
interest which is exempt from tax under the New Jersey Gross Income Tax Act
when received by the New Jersey Trust will retain its status as tax-exempt
in the hands of such Unit Holders. Gains arising from the sale or
redemption by a Holder of his Units or from the sale, exchange, redemption,
or payment at maturity of a Bond by the New Jersey Trust are exempt from
taxation under the New Jersey Gross Income Tax Act (P. L. 1976 c. 47), as
enacted and construed on the date hereof, to the extent such gains are
attributable to Bonds, the interest on which is exempt from tax under the
New Jersey Gross Income Tax Act. Any loss realized on such disposition may
not be utilized to offset gains realized by such Unit Holder on the
disposition of assets the gain on which is subject to the New Jersey Gross
Income Tax Act.
3. Units of the New Jersey Trust may be subject, in the estates of New
Jersey residents, to taxation under the Transfer Inheritance Tax Law of the
State of New Jersey.
<PAGE>
We consent to the use of our name under the captions "Taxes" and "Legal
Opinions" in the Prospectus comprising a part of the Registration Statement on
Form S-6, as amended, and we consent to the filing of this opinion as an
exhibit to the Registration Statement.
Very truly yours,
Shanley & Fisher, P.C.
<PAGE>
EXHIBIT 4.1
STANDARD & POOR'S
A DIVISION OF THE MCGRAW-HILL
COMPANIES
J.J. Kenny
65 Broadway
New York, New York 10006-2551
Tel. 212/770-4422
Fax 212/797-8681
Frank A. Ciccotto, Jr.
Vice President
Tax-Exempt Evaluations
October 29, 1997
Smith Barney Inc.
388 Greenwich St., 23rd Floor
New York, N.Y. 10013
The Chase Manhattan Bank
Unit Trust Division
4 New York Plaza
New York, N.Y. 10004
Re: Tax-Exempt Securities Trust
California Trust 160
New Jersey Trust 132
New York Trust 165
Gentlemen:
We have examined Registration Statement File Nos. 333-33717, 333-24841 and
333-35733 for the above-mentioned trusts. We hereby acknowledge that Kenny S&P
Evaluation Services, a division of J.J. Kenny Co., Inc. is currently acting as
the evaluator for the trusts. We hereby consent to the use in the Registration
Statement of the reference to Kenny S&P Evaluation Services, a division of J.J.
Kenny Co., Inc. as evaluator.
In addition, we hereby confirm that the ratings indicated in the Registration
Statement for the respective bonds comprising the trust portfolios are the
ratings indicated in our KENNYBASE database as of the date of the evaluation
report.
You are hereby authorized to file a copy of this letter with the Securities
and Exchange Commission.
Sincerely,
Frank A. Ciccotto, Jr.
Vice President
<PAGE>
EXHIBIT 5.1
CONSENT OF INDEPENDENT AUDITORS
To the Sponsor, Trustee and Unit Holders of
Tax Exempt Securities Trust, California Trust 160, New Jersey Trust 132 and
New York Trust 165:
We consent to the use of our report dated October 29, 1997 included herein
and to the reference to our firm under the heading "Auditors" in the
Prospectus.
KPMG Peat Marwick LLP
New York, New York
October 29, 1997
