<PAGE>
As filed with the Securities and Exchange Commission on April 8, 1999
Registration Nos. 333-74123
333-64873
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
National Trust 234
New Jersey Trust 137
B. Name of depositor:
SALOMON SMITH BARNEY INC.
C. Complete address of depositor's principal executive offices:
SALOMON SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013
D. Name and complete address of agent for service:
LAURIE A. HESSLEIN
Salomon 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 SECURITIES TRUST
--------------------------------------------------------------------
National Trust 234
New Jersey Trust 137
Unit Investment Trusts
The Tax Exempt Securities Trust is sponsored by
SALOMONSMITHBARNEY Salomon Smith Barney Inc. and consists of two
- ---------------------------- and New Jersey Trust 137. Each trust contains a
A member of citigroup [LOGO] fixed portfolio of long term municipal bonds. The
interest income of these bonds is generally
exempt from Federal income tax and, for state
designated trusts, state and local income tax in
the state for which the trust is named.
This Prospectus contains three parts. Part A contains the Summary of Essential
Information including summary material relating to the trusts, the Portfolios
and the Statements of Financial Condition. Part B contains more detailed
information about the Tax Exempt Securities Trust and Part C contains specific
information about the state designated trusts. Part A may not be distributed
unless accompanied by Parts B and C.
Read and retain this Prospectus for future reference.
The Securities and Exchange Commission has not approved or disapproved these
Securities or passed upon the adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
Prospectus dated April 8, 1999
<PAGE>
TAX EXEMPT SECURITIES TRUST
INVESTMENT SUMMARY AS OF APRIL 7, 1999
Use this Investment Summary to help you decide whether the portfolios
comprising the Tax Exempt Securities Trust are right for you. More detailed
information can be found later in this prospectus.
Investment Objective
Each of the trusts seeks to pay investors monthly distributions of tax exempt
interest income while conserving their capital. The Sponsor has selected a
fixed portfolio of municipal bonds intended to achieve these goals.
Investment Strategy
All of the bonds in each of the trusts are rated A or better by Standard &
Poor's, Moody's or Fitch. State designated trusts primarily contain bonds
issued by the state for which the trust is named or counties, municipalities,
authorities or political subdivisions of that state.
Taxes
Interest on all of the bonds in each of the trusts is generally exempt from
regular Federal income taxes. Interest on all of the bonds in each state trust
is generally exempt from certain state and local personal income taxes of the
state for which the trust is named. Each of the bonds in the trusts received an
opinion from bond counsel rendered on the date of issuance confirming its tax
exempt status.
Risk Factors
Holders can lose money by investing in these trusts. The value of the units and
the bonds held in the portfolio can each decline in value. An investment in
units of a trust should be made with an understanding of the following risks:
. Municipal bonds are long-term fixed rate debt obligations that decline in
value with increases in interest rates, an issuer's worsening financial
condition or a drop in bond ratings.
. The effective maturity of a long term bond may be dramatically different
than shorter term obligations. Investors will receive early returns of
principal when bonds are called or sold before they mature. Investors may
not be able to reinvest the money they receive at as high a yield or as
long a maturity.
. The municipal bonds could lose their tax-exempt status either due to
future legislation or due to the failure of a public issuer of a bond (or
private guarantor) to meet certain conditions imposed by various tax
laws.
. The default of an issuer of a municipal bond in making its payment
obligation could result in the loss of interest income and/or principal
to investors.
. Since the portfolio of each of the trusts is fixed and not managed, in
general the Sponsor can only sell bonds at a trust's termination or in
order to meet redemptions. As a result, the price at which a bond is sold
may not be the highest price it attained during the life of a trust.
The Public Offering Price
The Public Offering Price per Unit as of April 7, 1999 would have been
$1,028.00 for the National Trust and $1,027.18 for the New Jersey Trust. During
the initial public offering period the Public Offering Price per unit is
calculated by:
. dividing the aggregate offering price of the underlying bonds in a trust
by the number of units outstanding
. adding a sales charge of 4.70% (4.932% of the aggregate offering price of
the bonds per unit)
A-2
<PAGE>
. adding a per unit amount sufficient to reimburse the Sponsor for
organizational costs
After the initial offering period the Public Offering Price per unit is
calculated by:
. dividing the aggregate bid price of the underlying bonds in a trust by
the number of units outstanding
. adding a sales charge of 5.00% (5.263% of the aggregate bid price of the
bonds per unit)
Market for Units
The Sponsor currently intends to repurchase units from holders at prices based
upon the aggregate bid price of the underlying bonds. The Sponsor is not
obligated to maintain a market and may stop doing so without prior notice for
any business reason. If the Sponsor stops repurchasing units, a unit holder may
dispose of its units by redemption. The price received from the Trustee by the
unit holder for units being redeemed is also based upon the aggregate bid price
of the underlying bonds. Units can be sold at any time to the Sponsor or the
Trustee without fee or penalty.
A-3
<PAGE>
TAX EXEMPT SECURITIES TRUST
FEE TABLE FOR NATIONAL TRUST 234
- --------------------------------------------------------------------------------
This Fee Table is intended to help you to understand the costs and expenses
that you will bear directly or indirectly. See Public Sale of Units and
Expenses and Charges. Although each Trust is a unit investment trust rather
than a mutual fund, this information is presented to permit a comparison of
fees.
- --------------------------------------------------------------------------------
Unitholder Transaction Expenses (fees paid directly from your investment)
<TABLE>
<CAPTION>
As a % of
Initial
Public Amounts
Offering per
Price Unit
--------- ----------
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed on Purchase (as a
percentage of offering price)................ 4.70% $48.20
Maximum Sales Charge Imposed on Reinvested
Dividends.................................... 0% $ 0
Reimbursement to Sponsor for Estimated
Organization Costs........................... .244% $ 2.50
Estimated Annual Trust Operating Expenses (expenses that are deducted from
Trust assets)
<CAPTION>
Amounts
As a % of per
Net Assets Unit
---------- -------
<S> <C> <C> <C> <C>
Trustee's Fee................................. .119% $1.16
Other Operating Expenses...................... .043% $0.42
Maximum Portfolio Supervision, Bookkeeping and
Administrative Fees.......................... .026% $0.25
------ -----
Total....................................... .188% $1.83
====== =====
</TABLE>
<TABLE>
<CAPTION>
Cumulative Expenses
Paid for Period
----------------------
1 3 5 10
Year Years Years Years
---- ----- ----- -----
<S> <C> <C> <C> <C>
An investor would pay the following expenses and charges
on a $10,000 investment, assuming the Trust's estimated
operating
expense ratio of .188% and a 5% annual return on the
investment throughout the periods....................... $50 $54 $59 $72
</TABLE>
The example assumes reinvestment of all dividends and distributions and
utilizes a 5% annual rate of return as mandated by Securities and Exchange
Commission regulations applicable to mutual funds. The example should not be
considered a representation of past or future expenses or annual rate of
return; the actual expenses and annual rate of return may be more or less than
those assumed for purposes of the example.
A-4
<PAGE>
TAX EXEMPT SECURITIES TRUST
FEE TABLE FOR NEW JERSEY TRUST 137
- --------------------------------------------------------------------------------
This Fee Table is intended to help you to understand the costs and expenses
that you will bear directly or indirectly. See Public Sale of Units and
Expenses and Charges. Although each Trust is a unit investment trust rather
than a mutual fund, this information is presented to permit a comparison of
fees.
- --------------------------------------------------------------------------------
Unitholder Transaction Expenses (fees paid directly from your investment)
<TABLE>
<CAPTION>
As a % of
Initial
Public Amounts
Offering per
Price Unit
--------- -------
<S> <C> <C>
Maximum Sales Charge Imposed on Purchase (as a percentage of
offering price)............................................. 4.70% $48.16
Maximum Sales Charge Imposed on Reinvested Dividends......... 0% $ 0
Reimbursement to Sponsor for Estimated Organization Costs.... .244% $ 2.50
</TABLE>
Estimated Annual Trust Operating Expenses (expenses that are deducted from
Trust assets)
<TABLE>
<CAPTION>
Amounts
As a % of per
Net Assets Unit
---------- -------
<S> <C> <C> <C> <C>
Trustee's Fee........................................ .117% $1.14
Other Operating Expenses............................. .040% $0.40
Maximum Portfolio Supervision, Bookkeeping and
Administrative Fees................................. .026% $0.25
----- -----
Total.............................................. .183% $1.79
===== =====
</TABLE>
<TABLE>
<CAPTION>
Cumulative Expenses
Paid for Period
----------------------
1 3 5 10
Year Years Years Years
---- ----- ----- -----
<S> <C> <C> <C> <C>
An investor would pay the following expenses and charges
on a $10,000 investment, assuming the Trust's estimated
operating
expense ratio of .183% and a 5% annual return on the
investment throughout the periods....................... $50 $54 $58 $71
</TABLE>
The example assumes reinvestment of all dividends and distributions and
utilizes a 5% annual rate of return as mandated by Securities and Exchange
Commission regulations applicable to mutual funds. The example should not be
considered a representation of past or future expenses or annual rate of
return; the actual expenses and annual rate of return may be more or less than
those assumed for purposes of the example.
A-5
<PAGE>
TAX EXEMPT SECURITIES TRUST
SUMMARY OF ESSENTIAL INFORMATION
AS OF APRIL 7, 1999 #
Sponsor
Salomon Smith Barney Inc.
Trustee
The Chase Manhattan Bank
Evaluator
Kenny S & P Evaluation Services, a business unit of J.J. Kenny Company, Inc.
Date of Deposit and of Trust Agreement
April 7, 1999
Mandatory Termination Date*
Each Trust will terminate on the date of maturity, redemption, sale or other
disposition of the last Bond held in the Trust.
Record Dates
The first day of each month, commencing May 1, 1999
Distribution Dates
The fifteenth day of each month,** commencing May 15, 1999
Evaluation Time
As of 1:00 P.M. on the Date of Deposit. Thereafter, as of 4:00 P.M. New York
Time.
Evaluator's Fee
The Evaluator will receive a fee of $.29 per bond per evaluation.
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 $3.29 for the National Trust and
$3.15 for the New Jersey Trust, will be made on May 15, 1999.
*** In addition to this amount, the Sponsor may be reimbursed for bookkeeping
and other administrative expenses not exceeding its actual costs.
A-6
<PAGE>
TAX EXEMPT SECURITIES TRUST
SUMMARY OF ESSENTIAL INFORMATION
AS OF APRIL 7, 1999
<TABLE>
<CAPTION>
National Trust 234 New Jersey Trust 137
------------------ --------------------
<S> <C> <C>
Principal Amount of Bonds in Trust.... $7,000,000 $2,000,000
Number of Units....................... 7,000 2,000
Principal Amount of Bonds in Trust per
Unit................................. $ 1,000 $ 1,000
Fractional Undivided Interest in Trust
per Unit............................. 1/7,000 1/2,000
Minimum Value of Trust:
Trust Agreement may be Terminated if
Principal Amount is less than....... $3,500,000 $1,000,000
Calculation of Public Offering Price
per Unit*:
Aggregate Offering Price of Bonds in
Trust............................... $6,841,070 $1,953,050
========== ==========
Divided by Number of Units........... $ 977.30 $ 976.52
Plus: Sales Charge (4.70% of the
Public Offering Price).............. $ 48.20 $ 48.16
---------- ----------
Public Offering Price per Unit....... $ 1,025.50 $ 1,024.68
Plus: Estimated Organization
Expenses............................ $ 2.50 $ 2.50
Plus Accrued Interest*............... $ .82 $ .78
---------- ----------
Total................................ $ 1,028.82 $ 1,027.96
========== ==========
Sponsor's Initial Repurchase Price per
Unit (per Unit Offering Price of
Bonds)**............................. $ 977.30 $ 976.52
Approximate Redemption Price per Unit
(per Unit Bid Price of Bonds)**...... $ 967.30 $ 966.52
---------- ----------
Difference Between per Unit Offering
and Bid Prices of Bonds.............. $ 10.00 $ 10.00
========== ==========
Calculation of Estimated Net Annual
Income per Unit:
Estimated Annual Income per Unit..... $ 51.27 $ 49.07
Less: Estimated Trustee's Annual
Fee***.............................. $ 1.16 $ 1.14
Less: Other Estimated Annual
Expenses............................ $ .67 $ .65
---------- ----------
Estimated Net Annual Income per Unit. $ 49.44 $ 47.28
========== ==========
Calculation of Monthly Income
Distribution per Unit:
Estimated Net Annual Income per Unit. $ 49.44 $ 47.28
Divided by 12........................ $ 4.12 $ 3.94
Accrued interest from the day after
the Date of Deposit to the first
record date**........................ $ 3.29 $ 3.15
First distribution per unit........... $ 3.29 $ 3.15
Daily Rate (360-day basis) of Income
Accrual per Unit..................... $ .1373 $ .1313
Estimated Current Return based on
Public Offering Price****............ 4.81% 4.60%
Estimated Long-Term Return****........ 4.81% 4.57%
</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 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 basis.
As of the close of the initial offering period, the Redemption Price per
Unit and the Sponsor's Repurchase Price per Unit for each Trust will be
reduced to reflect the payment of the per Unit organization costs.
*** Per $1,000 principal amount of Bonds, plus expenses.
**** 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-7
<PAGE>
TAX EXEMPT SECURITIES TRUST
PORTFOLIO SUMMARY AS OF APRIL 7, 1999
<TABLE>
<CAPTION>
National New Jersey
Trust 234 Trust 137
------------ ------------
<S> <C> <C>
. Number of municipal bonds (from 14 states and the
District of Columbia for the National Trust; and
from 1 state and the Commonwealth of Puerto Rico
for the New Jersey Trust).......................... 19 7
The bonds derived their income from the following
primary source:
<CAPTION>
Percentages+ Percentages+
------------ ------------
<S> <C> <C>
. housing facilities................................. 16.5% 12.8%
. power facilities................................... 4.2% 0.0%
. educational facilities............................. 16.7% 0.0%
. hospital and health care facilities................ 38.8%* 44.5%*
. transportation facilities.......................... 7.2% 26.1%*
. pollution control facilities....................... 1.6% 0.0%
. water and sewer facilities......................... 8.1% 0.0%
. convention facilities.............................. 4.1% 0.0%
. public improvement................................. 2.8% 0.0%
. lease rental payments.............................. 0.0% 16.6%
The bonds in the trust are rated as follows:
. Standard & Poor's
AAA................................................ 29.9% 59.4%
AA................................................. 19.2% 27.8%
A.................................................. 36.8% 0.0%
----- -----
Total............................................ 85.9% 87.2%
===== =====
. Moody's
Aaa................................................ 0.0% 12.8%
Aa................................................. 2.9% 0.0%
A.................................................. 11.2% 0.0%
----- -----
Total............................................ 14.1% 12.8%
===== =====
The following insurance companies have insured the
bonds in the trust as to timely payment of principal
and interest:
. ACA................................................ 13.3% 13.1%
. AMBAC.............................................. 4.2% 31.4%
. FGIC............................................... 2.8% 11.4%
. FSA................................................ 8.1% 0.0%
. MBIA............................................... 14.8% 29.4%
----- -----
Total............................................ 43.2% 85.3%
===== =====
Percentage of general obligation bonds backed by the
taxing power of that issuer......................... 0.0% 0.0%
Percentage of bonds not supported by the issuer's
power to levy tax................................... 100.0% 100.0%
Percentage of bonds acquired from the Sponsor (as
sole underwriter, member of underwriting syndicate
or otherwise from its own organization)............. 32.4% 0.0%
</TABLE>
- ------------
+ Percentages based on the aggregate offering price of the bonds in the trust.
* The trust is considered to be "concentrated" in a particular category when
bonds of that type make up 25% or more of the portfolio.
A-8
<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
--------------------
National New Jersey
Trust 234 Trust 137
--------- ----------
<S> <C> <C>
Salomon Smith Barney Inc. ................................. 6,150 1,900
388 Greenwich Street
New York, New York 10013
Pershing/division of DLJ................................... 500 --
1 Pershing Plaza
Jersey City, NJ 07399
Gruntal & Co. Incorporated................................. 250 100
14 Wall Street
New York, New York 10005
William R. Hough........................................... 100 --
100 Second Avenue
Suite 800
St. Petersburg, Florida 33701
----- -----
Total...................................................... 7,000 2,000
===== =====
</TABLE>
A-9
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Sponsor, Trustee and Unit Holders of
Tax Exempt Securities Trust, National Trust 234 and New Jersey Trust 137:
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, National Trust 234 and New Jersey Trust 137 as of
April 7, 1999. 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
April 7, 1999, 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, National Trust 234
and New Jersey Trust 137 as of April 7, 1999, in conformity with generally
accepted accounting principles.
/s/ KPMG LLP
New York, New York
April 7, 1999
A-10
<PAGE>
TAX EXEMPT SECURITIES TRUST
STATEMENTS OF FINANCIAL CONDITION
AS OF DATE OF DEPOSIT, APRIL 7, 1999
<TABLE>
<CAPTION>
TRUST PROPERTY
---------------------
National New Jersey
Trust 234 Trust 137
---------- ----------
<S> <C> <C>
Investment in Tax-Exempt Securities:
Bonds represented by purchase contracts backed by
letter of credit (1).................................. $6,841,070 $1,953,050
Accrued interest through the Date of Deposit on
underlying bonds (1)(2)................................. 77,880 24,493
Cash (3)................................................. 17,500 5,000
---------- ----------
Total................................................ $6,936,450 $1,982,543
========== ==========
<CAPTION>
LIABILITIES AND
INTEREST OF
UNIT HOLDERS
---------------------
<S> <C> <C>
Liabilities:
Accrued interest through the Date of Deposit on
underlying bonds (1)(2)............................... $ 77,880 $ 24,493
Reimbursement to Sponsor for Organization Costs (3).... 17,500 5,000
---------- ----------
95,380 29,493
---------- ----------
Interest of Unit Holders:
Units of fractional undivided interest outstanding
(National Trust 234: 7,000; New Jersey Trust 137:
2,000) Cost to investors (4).......................... 7,196,000 2,054,360
Less--Gross underwriting commission (5)............... 337,430 96,310
Less--Organization Costs (3).......................... 17,500 5,000
---------- ----------
Net amount applicable to investors.................... 6,841,070 1,953,050
---------- ----------
Total................................................ $6,936,450 $1,982,543
========== ==========
</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 April 7, 1999, 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 $10,000,000 which was deposited with the
Trustee for the purchase of $9,000,000 principal amount of Bonds in all of
the Trusts, pursuant to contracts to purchase such Bonds at the aggregate
cost of $8,794,120 plus $102,373 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) A portion of the Public Offering Price consists of cash in an amount
sufficient to reimburse the Sponsor for the per Unit portion of all or a
part of the organization costs of establishing a Trust. These costs have
been estimated at $2.50 per Unit for the National Trust and $2.50 per Unit
for the New Jersey Trust. A payment will be made as of the close of the
initial public offering period to an account maintained by the Trustee
from which the obligation of the investors to the Sponsor will be
satisfied. To the extent that actual organization expenses are less than
the estimated amount, only the actual organization expenses will be
deducted from the assets of a Trust.
(4) Aggregate public offering price (exclusive of interest) computed on 7,000
Units of the National Trust and 2,000 Units of the New Jersey Trust, on
the basis set forth in Part B, "Public Offering--Offering Price."
(5) Sales charge of 4.70% computed on 7,000 Units of the National Trust and
2,000 Units of the New Jersey Trust 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-11
<PAGE>
TAX EXEMPT SECURITIES TRUST
NATIONAL TRUST 234--PORTFOLIO OF SECURITIES
AS OF APRIL 7, 1999
<TABLE>
<CAPTION>
Cost of Yield on Annual
Redemption Securities Date of Interest
Aggregate Securities Represented Ratings Provisions to Trust Deposit Income
Principal by Purchase Contracts (1) (2) (3)(4) (4) to Trust
--------- ------------------------ ------- ----------------- ---------- -------- --------
<C> <C> <S> <C> <C> <C> <C> <C>
1. $115,000 Alaska Housing Finance AA- 6/1/04 @ 102 $116,350 5.200% $ 6,210
Corporation, General SF 12/1/19 @ 100
Housing Purpose
Refunding Bonds, 5.40%
Due 12/1/2023
2. 225,000 The Industrial AA+ 5/15/08 @ 101 225,927 5.200 11,812
Development Authority of SF 5/15/28 @ 100
the County of Maricopa,
Arizona, Hospital
Revenue Bonds, Mayo
Clinic Hospital, 5.25%
Due 11/15/2037
3. 105,000 Navajo County, Arizona, A- 8/15/03 @ 102 109,073 5.150 6,169
Pollution Control
Revenue Refunding Bonds,
Arizona Public Service
Company, 5.875% Due
8/15/2028
4. 500,000 Colorado Housing Finance AA+ 4/1/09 @ 101 504,135 5.200 26,500
Authority, Multifamily
Housing Insured Mortgage
Bonds, 5.30% Due
10/1/2041
5. 500,000 Illinois Educational A 5/15/08 @ 101 512,505 5.200 27,500
Facilities Authority SF 5/15/19 @ 100
Revenue Bonds,
Midwestern University,
ACA Insured, 5.50% Due
5/15/2028
6. 500,000 Illinois Development A- 11/15/09 @ 101 492,685 5.600 27,500
Finance Authority, SF 11/15/25 @ 100
Hospital Revenue Bonds,
Adventist Health
System/Sunbelt Obligated
Group, 5.50% Due
11/15/2029
7. 190,000 Chicago, Illinois, Sales AAA 1/1/08 @ 102 195,052 5.050 10,212
Tax Revenue Bonds, FGIC SF 1/1/18 @ 100
Insured, 5.375% Due
1/1/2027
8. 500,000 Massachusetts Turnpike AAA 1/1/07 @ 102 491,620 5.100 25,000
Authority, Metropolitan SF 1/1/30 @ 100
Highway System Revenue
Bonds, MBIA Insured,
5.00% Due 1/1/2037
9. 590,000 Massachusetts Water AAA 8/1/08 @ 100 555,343 5.100 28,025
Resources Authority, SF 8/1/28 @ 100
General Revenue Bonds,
FSA Insured, 4.75% Due
8/1/2037
</TABLE>
A-12
<PAGE>
TAX EXEMPT SECURITIES TRUST
NATIONAL TRUST 234--PORTFOLIO OF SECURITIES
AS OF APRIL 7, 1999
<TABLE>
<CAPTION>
Cost of Yield on Annual
Redemption Securities Date of Interest
Aggregate Securities Represented Ratings Provisions to Trust Deposit Income
Principal by Purchase Contracts (1) (2) (3)(4) (4) to Trust
--------- ------------------------ ------- ----------------- ---------- -------- --------
<C> <C> <S> <C> <C> <C> <C> <C>
10. $330,000 Michigan State Hospital A1* 10/15/03 @ 102 $291,558 5.400% $14,850
Finance Authority, SF 10/15/14 @ 100
Hospital Revenue
Refunding Bonds, McLaren
Obligated Group, 4.50%
Due 10/15/2021
11. 500,000 North Carolina Medical AA- 10/1/08 @ 101 467,280 5.200 23,750
Care Commission, SF 10/1/19 @ 100
Hospital Revenue Bonds,
FirstHealth of the
Carolinas Project, 4.75%
Due 10/1/2026
12. 500,000 County of Butler, Ohio, A2* 11/15/08 @ 101 477,685 5.300 25,000
Hospital Facilities SF 11/15/19 @ 00
Revenue Refunding and
Improvement Bonds,
Middletown Regional
Hospital Obligated
Group, 5.00% Due
11/15/2028
13. 300,000 Piedmont, South AAA 1/1/08 @ 101 285,021 5.100 14,250
Carolina, Municipal SF 1/1/18 @ 100
Power Agency, Electric
Revenue Refunding Bonds,
MBIA Insured, 4.75% Due
1/1/2025
14. 395,000 City of Austin, Texas, A 8/1/08 @ 100 394,605 5.257 20,737
Higher Education SF 8/1/17 @ 100
Authority, Inc.,
University Revenue
Bonds, Saint Edward's
University Project, ACA
Insured, 5.25% Due
8/1/2023
15. 250,000 The University of AAA 10/1/08 @ 101 235,188 5.100 11,875
Vermont and State SF 10/1/30 @ 100
Agricultural College,
General Obligation
Bonds, MBIA Insured,
4.75% Due 10/1/2038
16. 500,000 Industrial Development A- 1/1/09 @ 102 506,460 5.250 27,000
Authority of the County SF 1/1/24 @ 100
of Prince William,
Virginia, Multi-Family
Housing Revenue Bonds,
The Melrose Apartment
Projects, 5.40% Due
1/1/2029
</TABLE>
A-13
<PAGE>
TAX EXEMPT SECURITIES TRUST
NATIONAL TRUST 234--PORTFOLIO OF SECURITIES
AS OF APRIL 7, 1999
<TABLE>
<CAPTION>
Cost of Yield on Annual
Redemption Securities Date of Interest
Aggregate Securities Represented Ratings Provisions to Trust Deposit Income
Principal by Purchase Contracts (1) (2) (3)(4) (4) to Trust
--------- ------------------------ ------- ---------------- ---------- -------- --------
<C> <C> <S> <C> <C> <C> <C> <C>
17. $ 200,000 Washington State Housing Aa3* 7/1/05 @ 102 $ 197,010 5.250% $ 10,300
Finance Commission, SF 7/1/19 @ 100
Nonprofit Housing
Revenue Bonds,
Washington Odd Fellows
Home Project, 5.15% Due
7/1/2028
18. 500,000 Wisconsin Health and A- 2/15/09 @ 101 499,500 5.606 28,000
Educational Facilities SF 2/15/22 @ 100
Authority Revenue Bonds,
Aurora Health Care,
Inc., 5.60% Due
2/15/2029
19. 300,000 Washington Convention AAA 10/1/08 @ 100 284,073 5.100 14,250
Center Authority, SF 10/1/22 @ 100
Washington, D.C., Senior
Lien Dedicated Tax
Revenue Bonds, AMBAC
Insured, 4.75% Due
10/1/2028
---------- ---------- --------
$7,000,000 $6,841,070 $358,940
========== ========== ========
</TABLE>
The Notes following the Portfolios are an integral part of each Portfolio of
Securities.
A-14
<PAGE>
TAX EXEMPT SECURITIES TRUST
NEW JERSEY TRUST 137--PORTFOLIO OF SECURITIES
AS OF APRIL 7, 1999
<TABLE>
<CAPTION>
Cost of Yield on Annual
Redemption Securities Date of Interest
Aggregate Securities Represented Ratings Provisions to Trust Deposit Income
Principal by Purchase Contracts (1) (2) (3)(4) (4) to Trust
--------- ------------------------ ------- ---------------- ---------- -------- --------
<C> <C> <S> <C> <C> <C> <C> <C>
1. $ 250,000 New Jersey Economic A 7/1/08 @ 102 $ 256,298 5.200% $13,750
Development Authority, SF 7/1/09 @ 100
First Mortgage Revenue
Bonds, Cadbury
Corporation Project, ACA
Insured, 5.50% Due
7/1/2018
2. 350,000 New Jersey Health Care AAA 7/1/08 @ 101 325,777 4.950 15,750
Facilities Financing SF 7/1/19 @ 100
Authority Revenue Bonds,
Centrastate Medical
Center Obligated Group,
AMBAC Insured, 4.50% Due
7/1/2028
3. 280,000 New Jersey Health Care AAA 7/1/07 @ 102 286,658 4.950 14,700
Facilities Financing SF 7/1/12 @ 100
Authority Revenue and
Refunding Bonds, Holy
Name Hospital Issue,
AMBAC Insured, 5.25% Due
7/1/2020
4. 330,000 County of Middlesex, New AAA 6/15/07 @ 101 324,908 4.950 16,005
Jersey, Certificates of SF 6/15/24 @ 100
Participation, MBIA
Insured, 4.85% Due
6/15/2028
5. 250,000 Newark, New Jersey, Aaa* 7/1/03 @ 102 249,750 5.132 12,812
Housing Finance SF 7/1/18 @ 100
Corporation Mortgage
Revenue Refunding Bonds,
Section 8 Assisted Avon
Hills, MBIA Insured,
5.125% Due 1/1/2024
6. 250,000 The Port Authority of AAA 11/1/05 @ 101 222,147 5.000 10,625
New York and New Jersey, SF 10/1/19 @ 100
Consolidated Bonds, FGIC
Insured, 4.25% Due
10/1/2026
7. 290,000 Puerto Rico Highway and A 7/1/08 @ 101 287,512 5.050 14,500
Transportation SF 7/1/29 @ 100
Authority,
Transportation Revenue
Bonds, 5.00% Due
7/1/2038
---------- ---------- -------
$2,000,000 $1,953,050 $98,142
========== ========== =======
</TABLE>
The Notes following the Portfolios are an integral part of each Portfolio of
Securities.
A-15
<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 January 5,
1999, through April 7, 1999, with the settlement date on April 13, 1999,
except for 1 delayed settlement Bond in the National Trust, with final
settlement on April 28, 1999. The Profit to the Sponsor on Deposit totals
$71,671 for the National Trust and $19,061 for the New Jersey Trust.
(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. On April 7, 1999, the aggregate bid price of
the Bonds were $6,771,070 for the National Trust and $1,933,050 for the New
Jersey Trust.
A-16
<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. A unit investment trust
provides many of the same benefits as individual bond purchases. However, while
receiving many of the benefits, the holder of Units (the "Holder") avoids the
complexity of analyzing, selecting and monitoring a multi-bond portfolio. Each
Trust is also 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 Salomon 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 is referred to herein as the "Trust" and together they are
referred to as "Trusts." 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 (the "Deposited Units"). The
Bonds and Deposited Units (if any) are referred to herein collectively as the
"Securities." After the deposit of the Securities and the creation of the
Trusts, the Trustee delivered to the Sponsor registered certificates of
beneficial interest (the "Certificates") representing the units (the "Units")
comprising the entire ownership of each Trust. These Units are now being
offered hereby. References to multiple Trusts herein should be read as
references to a single Trust if Part A indicates the creation of only one
Trust.
Objectives
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
no guarantee that a Trust's objectives will be achieved.
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:
. whether the interest on the Bonds selected would be exempt from Federal
and/or state income taxes imposed on the Holders;
. whether the Bonds were rated "A" or better by a major bond rating agency;
. the maturity dates of the Bonds (including whether such Bonds may be
called or redeemed prior to their stated maturity);
. the diversity of the types of Bonds; and
. the cost of the Bonds relative to what the Sponsor believes is their
value.
The Units
Each Unit in a Trust represents a fractional undivided interest in the
principal and net income of such Trust. If any Units are redeemed after the
date of this Prospectus, the principal amount of Bonds in the Trust will be
reduced by an amount allocable to redeemed Units. Also, the fractional
undivided interest in the Trust represented by each unredeemed
B-1
<PAGE>
Unit will be increased. Units will remain outstanding until redeemed or until
the termination of the Trust.
RISK FACTORS
An investment in Units is subject to the following risks.
Failure of Issuers to Pay Interest and/or Principal
The primary risk associated with an investment in Bonds is that the issuer of
the Bond will default on principal and/or interest payments when due on the
Bond. Such a default would have the effect of lessening the income generated by
the Trust and/or the value of the Trust's Units. The bond ratings assigned by
major rating organizations are an indication of the issuer's ability to make
interest and principal payments when due on its bonds. Subsequent to the date
of deposit the rating assigned to a bond may decline. Neither the Sponsor nor
the Trustee shall be liable in any way for any default, failure or defect in
any bond.
"When Issued" and "Delayed Delivery" Bonds
Certain Bonds in a Trust may have been purchased by the Sponsor on a "when
issued" basis. Bonds purchased on a "when issued" basis have not yet been
issued by their governmental entity on the Date of Deposit (although such
governmental entity had committed to issue such Bonds). In the case of these
and/or certain other Bonds, the delivery of the Bonds may be delayed ("delayed
delivery") or may not occur. The effect of a Trust containing "delayed
delivery" or "when issued" Bonds is that Holders who purchased their Units
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. Such downward
adjustment may be necessary to account for interest accruing on such "when
issued" or "delayed delivery" Bonds during the time between their purchase of
Units and delivery of such Bonds. 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 Holders may receive after the first
year. 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.
Redemption or Sale Prior to Maturity
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. 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. Such
price valuation is likely to be higher in periods of declining interest rates.
Certain of the Bonds may be sold or redeemed or otherwise mature. In such
cases, the proceeds from such events will be distributed to Holders and will
not be reinvested. Thus, no assurance can be given that a Trust will retain for
any length of time its present size and composition. To the extent that a Bond
was deposited in a Trust at a price higher than the price at which it is
redeemable, or at a price higher than the price at which it is sold, a sale or
redemption will result in a loss in the value of Units. Monthly distributions
will generally be reduced by the amount of the income which would otherwise
have been paid with respect to sold or redeemed bonds. The Estimated Current
Return and Estimated Long-Term Return of the Units may be adversely affected by
such sales or redemptions.
Market Discount
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. Bonds selling at market discounts
tend to increase in
B-2
<PAGE>
market value as they approach maturity. 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. However, the
Administration's 1999 Budget proposals would require accrual basis taxpayers to
accrue market discount income with respect to obligations acquired after the
date that the proposal is enacted.
Failure of a Contract to Purchase Bonds
In the event that any contract for the purchase of any Bond fails, the
Sponsor is authorized under the Trust Agreement to instruct the Trustee to
acquire other securities (the "Replacement Bonds") for inclusion in the
Portfolio of the affected Trust. However, in order for the Trustee to acquire
any Replacement Bonds, they must be deposited not later than the earlier of (i)
the first monthly Distribution Date of the Trust or (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:
. be a tax-exempt bond;
. have a fixed maturity or disposition date comparable to the Bond it
replaces;
. be purchased at a price that results in a yield to maturity and in a
current return which is approximately equivalent to the yield to maturity
and current return of the Bond which it replaces;
. be purchased within twenty days after delivery of notice of the failed
contracts; and
. be rated in a category of A or better by a major rating organization.
Whenever a Replacement Bond has been acquired for a Trust, the Trustee shall,
within five days thereafter, notify all 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 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 Holders not later than the second monthly Distribution
Date. Moreover, the failed contract may reduce the Estimated Net Annual Income
per Unit, and may lower the Estimated Current Return and Estimated Long-Term
Return of the affected Trust.
Risks Inherent in an Investment in Different Types of Bonds
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. 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
B-3
<PAGE>
depend on many factors. Some such factors are the entity's tax base, the extent
to which the entity relies on Federal or state aid, and other factors which are
beyond the entity's control.
Industrial Development Revenue Bonds ("IDRs"). IDRs including pollution
control revenue bonds, are tax-exempt securities issued by states,
municipalities, public authorities or similar entities to finance the cost of
acquiring, constructing or improving various projects. 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. Payment
of IDRs is solely dependent upon the creditworthiness of the corporate operator
of the project or corporate guarantor. Such 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.
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. Some such factors are
the level of payments received from private third-party payors and government
programs and the cost of providing health care services. There can be no
assurance that payments under governmental programs will remain at levels
comparable to present levels or will be sufficient to cover the costs
associated with their bonds. It also 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 additionally
subject to claims and legal actions by patients and others in the ordinary
course of business. 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.
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 mortgage loans to
housing projects for low to moderate income families. Single-family mortgage
revenue bonds are issued for the purpose of acquiring notes secured by
mortgages on residences. The ability of housing issuers to make debt service
payments on their obligations may be affected by various economic and non-
economic factors. Such factors include: occupancy levels, 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. 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. 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. Mortgage loans are frequently partially or
completely prepaid prior to their final stated maturities. 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 reduce
the amount of income that would otherwise have been paid to Holders.
Power Facility Bonds. The ability of utilities to meet their obligations with
respect to bonds they issue is dependent on various factors. These factors
include the rates they may charge their customers, the demand for a utility's
services and the cost of providing those services. Utilities are also 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. Utilities are
additionally subject to increased costs due to governmental environmental
regulation and decreased profits due
B-4
<PAGE>
to increasing competition. Any difficulty in obtaining timely and adequate rate
increases could adversely affect a utility's results of operations. 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.
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 a number of factors. Some such
factors are the failure of municipalities to utilize fully the facilities
constructed by these authorities, declines in revenue from user charges, rising
construction and maintenance costs, impact of environmental requirements, the
difficulty of obtaining or discovering new supplies of fresh water, the effect
of conservation programs, the impact of "no growth" zoning ordinances and 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. Some of these
factors, of which an investor should be aware, are 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. Also, in the case of public
institutions, the financial condition of the relevant state or other
governmental entity and its policies with respect to education may affect an
institution's ability to make payments on its own.
Lease Rental Bonds. Lease rental bonds are predominantly issued 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 or the purchase of equipment that will be
used by a state or local government. 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. Lease rental bonds are subject to the
risk that 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 as rental bonds cease
in the event that damage, destruction or condemnation of the project prevents
its use by the lessee. Also, 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.
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. 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. Also, 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.
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
B-5
<PAGE>
moral commitment but not a legal obligation of the state or municipality in
question. Thus, such a commitment 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, highways and port authorities. Airport
operating income may be affected by the ability of airlines to meet their
obligations under the agreements with airports. 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.
The Sponsor cannot predict what effect conditions may have on revenues which
are dependent for payment on these bonds.
Special Tax Bonds. Special tax bonds are payable from and secured by the
revenues derived by a municipality from a particular tax. Examples of such
special taxes are 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. 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. 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; 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. 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.
Convention Facility Bonds. The Portfolio of a Trust may contain Bonds of
issuers in the convention facilities category. Bonds in the
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<PAGE>
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. Such bonds
will be affected by general economic conditions in Puerto Rico. The economy of
Puerto Rico is fully integrated with that of the mainland United States. During
fiscal year 1998, approximately 90% of Puerto Rico's exports were to the United
States mainland, which was also the source of 61% of Puerto Rico's imports. In
fiscal 1998, Puerto Rico experienced a $8.5 billion positive adjusted
merchandise trade balance. The dominant sectors of the Puerto Rico economy are
manufacturing and services. Gross product in fiscal 1993 was $25.1 billion
($24.5 billion in 1992 prices) and gross product in fiscal 1997 was $32.1
billion ($27.7 billion in 1992 prices). This represents an increase in gross
product of 27.7% from fiscal 1993 to 1997 (13.0% in 1992 prices). According to
the Labor Department's Household Employment Survey, during fiscal 1998, total
employment increased 0.8% over fiscal 1997. The preliminary figures of gross
product for fiscal 1998, released in November 1998, was $34.7 billion ($28.5
billion in 1992 prices). This represents an increase of 8.1% (3.1% in 1992
prices) over fiscal 1997. This preliminary growth rate is 0.1% above the
original base line forecast for fiscal 1998. The Planning Board's gross product
forecast for fiscal 1999, made in February 1998, projected an increase of 2.7%
over fiscal 1998. According to the Labor Department's Household Employment
Survey, during the first five months of fiscal 1999, total employment decreased
1.2% over the same period for fiscal 1998. Total monthly employment averaged
1,124,800 during the first five months of fiscal 1999, compared to 1,138,400
over the same period in fiscal 1998. The seasonally adjusted unemployment rate
for November 1998 was 13.3%.
Year 2000 Issue
The Trusts, like other businesses and entities, could be adversely affected
if the computer systems used by the Sponsor and Trustee or other service
providers to a Trust do not properly process and calculate date-related
information and data from and after January 1, 2000. This is commonly known as
the "Year 2000 Problem." The Sponsor and Trustee are taking steps that they
believe are reasonably designed to address the Year 2000 Problem with respect
to their computer systems. The Sponsor and Trustee are also seeking to obtain
reasonable assurances that comparable steps are being taken by the Trusts'
other service providers. However, there can be no assurance that the Year 2000
Problem will be properly or timely resolved so to avoid any adverse impact to
each Trust. The Year 2000 Problem may also adversely affect the issuers of the
Bonds contained in the Trust to varying degrees based upon various factors. The
Sponsor is unable to predict what affect, if any, the Year 2000 Problem will
have on such issuers.
Insurance
Certain Bonds (the "Insured Bonds") may be insured or guaranteed by American
Capital Access Corporation ("ACA"), Asset Guaranty Insurance Co. ("AGI"), Ambac
Assurance Corporation ("AMBAC"), Asset Guaranty Reinsurance Company ("Asset
Guaranty"), Capital Markets Assurance Corp. ("CAPMAC"), Connie Lee
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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. Standard & Poor's has assigned an A claims-paying ability to ACA and
an AA claims-paying ability to AGI. The ratings are subject to change at any
time at the discretion of the rating agencies.
The cost of this insurance is borne either by the issuers or previous owners
of the bonds. The Sponsor does not insure the bonds in conjunction with their
deposit in a Trust and makes no representations with regard to the adequacy of
the insurance covering any of the Insured Bonds. The insurance policies are
non-cancellable and will continue in force so long as the bonds are outstanding
and the insurers remain in business. The insurance policies guarantee the
timely payment of principal and interest on the Insured Bonds. However, the
insurance policies do not guarantee the market value of the Insured Bonds or
the value of the Units. The above 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 regular 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.
Tax Exemption
In the opinion of bond counsel delivered on the dates the Bonds were issued,
the interest on the Bonds is excludable from gross income for regular Federal
income tax purposes under the law in effect at that time (except in certain
circumstances depending on the identity of the Holder). However, the interest
may be subject to state and local taxes. Neither the Sponsor nor Battle Fowler
LLP have made or will make any review of the procedures for the issuance of the
Bonds or the basis for these opinions.
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
financed with proceeds of the Bonds, or persons related thereto, will not be
exempt from regular Federal income taxes, although interest on such Bonds
received by others would be exempt. Treasury Regulations provide that the term
substantial user 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.
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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.
Failure to meet these requirements could cause the interest on the Bonds to
become taxable, 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.
From time to time Congress considers proposals to tax the interest on state
and local obligations, such as the Bonds. The Supreme Court has concluded 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.
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 and more comprehensive information reporting on the tax-
exempt bond information returns. These developments could affect the Bonds.
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
Holders subject to special tax rules, such as securities 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 Holders in the manner set forth below.
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"). The total cost to a Holder of its Units, including sales charges,
is allocated to its pro rata portion of each Bond, in proportion to the
fair market values thereof on the date the Holder purchases its Units, in
order to determine its tax cost for its pro rata portion of each Bond. The
face amount of a Holder's pro rata portion of each Bond on the Date of
Deposit, can be determined by referring to "Aggregate Principal" under
"Portfolio of Securities".
Each Holder of Units of a Trust will be considered to have received the
interest on its 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 that were 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.
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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. A Holder's
adjusted tax basis for its pro rata portion of a Bond issued with original
issue discount will include original issue discount accrued during the
period the Holder held its Units.
If a Holder's tax basis for its pro rata portion of a Bond exceeds the
redemption price of the Bond at maturity (subject to certain adjustments),
the Holder will be considered to have purchased its pro rata portion of the
Bond with amortizable bond premium. A purchase at a premium can occur even
if the Bond was issued with original issue discount. The Holder is required
to amortize such bond premium over the term of the Bond. The increases to
the Holder's tax basis in its 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. However, this amortization is
only a reduction of basis for its 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 its pro rata
portion of a Bond is disposed of for an amount equal to or less than its
original tax basis therefor.
A Holder will recognize taxable gain or loss when all or part of its pro
rata portion of a Bond in its Trust is disposed of by the Trust for an
amount different than its adjusted tax basis or when it sells or redeems
all or some of its Units. The 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 its pro rata portion of the Bond (plus any original issue discount that
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. The deduction of capital
losses is subject to limitations.
Under Section 265 of the Code, noncorporate Holders are not entitled to a
deduction for their 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. 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.
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
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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.
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. 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.
Holders are urged to consult their own tax advisers concerning an investment
in Units.
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.
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
Investors will reimburse the Sponsor on a per Unit basis, all or a portion of
the estimated costs incurred in organizing 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. The estimated organization costs will be
paid to the Sponsor from the assets of a Trust as of the close of the initial
public offering period. To the extent that actual organization costs are less
than the estimated amount, only the actual organization costs will be deducted
from the assets of a Trust. To the extent that actual organization costs are
greater than the estimated amount, only the estimated organization costs added
to the Public Offering Price will be reimbursed to the Sponsor. Any balance of
the costs 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.
Fees
The Trustee's, Evaluator's and Sponsor's fees are set forth under the Summary
of Essential Information. The Trustee receives for its services as Trustee
payable in monthly installments, the amount set forth under Summary of
Essential Information. The Trustee's fee is based on the principal amount of
Bonds contained in the Trust during the preceding month. The Trustee also
receives benefits to the extent that it holds funds on deposit in the various
non-interest bearing accounts created under the Indenture.
The Evaluator's fee, which is earned for Bond evaluations, is received for
each evaluation of the Bonds in a Trust as set forth under Summary of Essential
Information.
The Sponsor's fee, which is earned for trust supervisory services, is based
on the largest number of Units outstanding during the year. The Sponsor's fee,
which is not to exceed the maximum amount set forth under Summary of Essential
Information, may exceed the actual costs of providing supervisory services for
the Trust. However, at no time will the total amount the Sponsor receives for
trust
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<PAGE>
supervisory services rendered to all series of Tax Exempt Securities Trusts in
any calendar year exceed the aggregate cost to it of supplying these services
in that year. In addition, the Sponsor may also be reimbursed for bookkeeping
or other administrative services provided to the Trust in amounts not exceeding
its cost of providing those services.
The fees of the Trustee, Evaluator and Sponsor may be increased without
approval of Holders in proportion to increases under the classification "All
Services Less Rent" in the Consumer Price Index published by the United States
Department of Labor.
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, the Trust will also pay expenses associated with
updating the Trusts' registration statements and maintaining registration or
qualification of the Units and/or a Trust under Federal or state securities
laws subsequent to initial registration. Such expenses shall include legal
fees, accounting fees, typesetting fees, electronic filing expenses and
regulatory filing fees. The expenses associated with updating registration
statements have been historically paid by a unit investment trust's sponsor.
Any payments received by the Sponsor reimbursing it for payments made to update
Trusts' registration statements will not exceed the costs incurred by the
Sponsors.
The Trusts shall further incur expenses associated with 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. All direct distribution expenses of the Trusts (including the costs
of maintaining the secondary market for the Trusts), such as printing and
distributing prospectuses, and preparing, printing and distributing any
advertisements or sales literature, will be paid at no cost to the Trusts.
PUBLIC OFFERING
Offering Price
During the initial public offering period, the Public Offering Price of the
Units 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, as set forth in the table below. In
addition, during the initial public offering period a portion of the Public
Offering Price per Unit also consists of cash in an amount sufficient to pay
the per Unit portion of all or a part of the cost incurred in organizing and
offering a Trust. 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 to the
purchaser is also added to the Public Offering Price.
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<PAGE>
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 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. Units
held in the name of the spouse or child under the age of 21 of the purchaser
are deemed to be registered in the name of the purchaser for purposes of
calculating the applicable sales charge.
The Sponsor may at any time change the amount by which the sales charge is
reduced, or discontinue the discount completely.
Employees of the Sponsor and its subsidiaries, affiliates and employee-
related accounts may purchase Units at a Public Offering Price equal to the
Evaluator's determination of the aggregate offering price of the Bonds per Unit
plus a sales charge of .50%. In addition, during the initial public offering
period a portion of the Public Offering Price per Unit also consists of cash in
an amount sufficient to pay the per Unit portion of all or a part of the cost
incurred in organizing and offering a Trust. After the initial public offering
period such purchases may be made at a Public Offering Price equal to the
Evaluator's determination of the aggregate bid price of the Bonds per Unit plus
a sales charge of .50%. 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 OneSM Program and in the
Reinvestment Program of any series of the Trust may purchase Units at a Public
Offering Price equal to the Evaluator's determination of the aggregate offering
price of the Bonds (plus cash held by the Trust for organization and offering
costs) 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 per Unit. Participants in
the Smith Barney Asset OneSM Program are subject to certain fees for specified
securities brokerage and execution services.
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 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. Following the initial public offering period, the
aggregate bid price of the Bonds 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. 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 of
the Bonds. 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%. 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.
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Distribution of Units
During the initial public offering period Units of a Trust will be
distributed to the public at the Public 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 may be offered by this Prospectus at the Public
Offering Price determined in the manner provided for secondary market sales.
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." 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 Holder or become entitled to exercise the rights
of a 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 Holder is
the Public Offering Price in effect at the time his order is received, plus
accrued interest. 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
While the Sponsor is not obligated to do so, its intention is 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. 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 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 Holder
desiring to dispose of its Units may be able to do so by tendering such Units
to the Trustee for redemption at the Redemption Price.
Exchange Option
Holders may exchange their Units of this series for units of any series of
Tax Exempt Securities Trust (the "Exchange Trust") available for sale in the
state in which the Holder resides. Such exchange will be 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 Holders. Therefore,
there is no assurance that the Exchange Option will be available to a 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
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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. 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 (for trusts being offered in the secondary market) and offer prices (for
trusts being offered in the primary market) of the underlying securities in the
particular portfolio involved per unit plus a fixed charge of $25 per unit.
Sales to dealers will be made at prices which represent a concession. The
amount of the concession will be established at the time of sale by the
Sponsor. As an example, assume that a 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 Holder would be able to
acquire three units in the Exchange Trust for a total cost of $2,715 ($2,640
for the units and $75 for the sales charge) and would also receive $345 for the
fractional Unit.
Reinvestment Programs
Distributions of interest and/or principal are made to Holders monthly. The
Holder has the option of either receiving a monthly income check from the
Trustee or participating in one of the reinvestment programs offered by the
Sponsor provided such Holder meets the minimum qualifications of the
reinvestment program and such program lawfully qualifies for sale in the
jurisdiction in which the Holder resides. Upon enrollment in a reinvestment
program, the Trustee will direct monthly interest distributions and principal
distributions to the reinvestment program selected by the Holder. Since the
Sponsor has arranged for different reinvestment alternatives Holders should
contact the Sponsor for more complete information, including charges and
expenses. The appropriate prospectus will be sent to the Holder. The 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 Holder and may be terminated at any time by the
Holder. The program may also be modified or terminated by the Trustee or the
program's Sponsor.
Sponsor's and Underwriters' Profits
The Underwriters receive a commission based on the sales charge of a
particular Trust 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 in
the amount of any difference between the cost of the Bonds to a Trust and the
purchase price of such Bonds to the Sponsor. 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 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.
In maintaining a market for the 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.
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RIGHTS OF HOLDERS
Certificates
Ownership of Units may be 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 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 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 Holders of record in such
Trust 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
Holders on previous Distribution Dates.
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. 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 Holders as of each
Record Date will be made on the following Distribution Date or shortly
thereafter. Such distributions 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 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 Summary of Essential Information for a Trust. The
Monthly Income Distribution 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 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 then be reimbursed, without interest, for any such advances from
funds available from the Interest Account on the next ensuing Record Date. 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 such advances 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, each
remaining
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Holder will be subject to a greater pro rata reduction in his Monthly Interest
Distribution. To the extent it is unable to recoup advances from the Interest
Account, the Trustee is also entitled to withdraw from the Principal Account.
Funds which are available for future distributions, payments of expenses and
redemptions are in accounts which are non-interest bearing to 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, accrued interest may at any point in time be
greater than the amount of interest distributed to 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 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 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.
As of the first day of each month the Trustee will deduct from the Interest
Account of a Trust amounts necessary to pay the expenses of such Trust. To the
extent there are not sufficient funds in the Interest Account to pay Trust
expenses, the Trustee is also entitled to withdraw from the Principal Account.
The Trustee also may withdraw from the accounts such amounts 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 returns 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.
The Trustee has agreed to advance to a Trust the amount of accrued interest
due on the Bonds 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 advances 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 Holders in connection with each distribution a
statement of the amount of interest and the amount of other receipts 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 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 Holder of record,
a statement (1) as to the Interest Account: interest received, 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
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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. 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 Holders upon request.
The Trustee shall keep available for inspection by 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
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 canceled.
Certificates for Units to be redeemed must be properly endorsed or
accompanied by a written instrument of transfer. 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.
Within seven calendar days following such tender, the Holder will be entitled
to receive in cash an amount for each Unit tendered equal to the 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.
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 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 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
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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 Holders of such Trust of
record as of a date prior to the evaluation. As of the close of the initial
public offering period the Redemption Price per Unit will be reduced to reflect
the organization costs per Unit of a Trust. To the extent that actual
organization costs are less than the estimated amount, only the actual
organization costs will be deducted from the assets of a Trust.
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. Such
a purchase by the Sponsor will be at the price so bid by making payment to the
Holder in an amount not less than the Redemption Price and not later than the
day on which the Units would otherwise have been redeemed by the Trustee.
The offering price of any Units resold by the Sponsor will be the Public
Offering Price determined in the manner provided in this Prospectus. Any profit
resulting from the resale of such Units will belong to the Sponsor. The Sponsor
likewise will bear any loss resulting from a lower offering or redemption price
subsequent to their acquisition of such Units.
SPONSOR
Salomon Smith Barney Inc. ("Salomon Smith Barney"), was incorporated in
Delaware in 1960 and traces its history through predecessor partnerships to
1873. On September 1, 1998, Salomon Brothers Inc. merged with and into Smith
Barney Inc. ("Smith Barney") with Smith Barney surviving the merger and
changing its name to Salomon Smith Barney Inc. The merger of Salomon Brothers
Inc. and Smith Barney followed the merger of their parent companies in November
1997. Salomon 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. Salomon Smith Barney is
an indirect wholly-owned subsidiary of Citigroup Inc. Salomon 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. Salomon 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.
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
Holders for taking any action or refraining from any action in good faith or
for errors in judgment. The Sponsor shall also not be 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.
Responsibility
Although the Trusts are not actively managed as mutual funds are, the
portfolios are reviewed
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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. Such events include: 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 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. However, 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 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 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 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.
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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 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 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.
Resignation
The Evaluator may resign or may be removed by the joint action of the Sponsor
and the Trustee. Should such removal occur, 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 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 Holders. However, the Trust Agreement may not be amended to
increase the number of Units issuable 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. In the event of any amendment, the Trustee is
obligated to notify promptly all Holders of the substance of such amendment.
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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 Holders. However, in no event may a Trust continue beyond
the Mandatory Termination Date set forth under "Summary of Essential
Information." In the event of termination, written notice thereof will be sent
by the Trustee to all Holders. Within a reasonable period after termination,
the Trustee will sell any Bonds remaining in the affected Trust. Then after
paying all expenses and charges incurred by such Trust, the Trustee will
distribute to each 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.
MISCELLANEOUS
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 LLP, independent
auditors, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in accounting and
auditing.
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.
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;
- ------------
+ As described by the rating agencies.
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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 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
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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.
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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 effective Federal income tax rates and tax brackets for the
1999 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.
1999 Tax Year
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Taxable Income Bracket Tax Exempt Yield
Federal Effective
Tax Federal
Joint Return Single Return Bracket 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-
43,050 $ 0- 25,750 15.00% 15.00% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65%
$ 43,051-
104,050 $ 25,751- 62,450 28.00% 28.00% 5.56 6.25 6.94 7.64 8.33 9.03
$104,051-
126,600 $ 62,451-126,600 31.00% 31.00% 5.80 6.52 7.25 7.97 8.70 9.42
$126,601-
158,550 $126,601-130,250 31.00% 31.93% 5.88 6.61 7.35 8.08 8.81 9.55
$158,551-
283,150 $130,251-283,150 36.00% 37.08% 6.36 7.15 7.95 8.74 9.54 10.33
Over
$283,150 Over $283,150 39.60% 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 $126,600, 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 Federal 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 $189,950 for
married taxpayers filing a joint tax return and $126,600 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.
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.
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 2000 Fiscal Year budget will become law on June 30, 1999.
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. Since then, the unemployment rate fell to an average of 6.2%
in 1996 and 5.5% for the six month period from January 1997 through June 1997.
For the recovery period as a whole, May 1992 to June 1997, service-producing
employment in New Jersey has expanded by 283,500 jobs. Hiring has been reported
by food stores, wholesale distributors, trucking and warehousing firms,
security and commodity brokers, business and engineering/management service
firms, hotels/hotel-casinos, social service agencies and health care providers
other than hospitals. Employment growth was particularly strong in business
services and its personnel supply component with increases of 17,300 and 7,500,
respectively, in the 12-month period ending June 1997. After economic growth of
5.5% in the first quarter of 1998, inflation adjusted gross domestic product
slowed to 1.4% in the second quarter.
Unemployment in the State through June 1997 has been receding. According to
the U.S. Bureau of Labor Statistics, the jobless rate dropped from 6.8% in 1994
to 6.4% in 1995 and to 6.2% in 1996. Subsequently, it has dropped to 5.5% for
the first six months of 1997.
The insured unemployment rate, i.e., the number of individuals claiming
benefits as a percentage of the number of workers covered by unemployment
insurance, declined from 3.9% during calendar years 1991 and 1992 to 3.3%
during 1993 and then averaged 3.2% throughout 1994, 1995 and 1996. As of July
1, 1997, the State's unemployment insurance trust fund balance stood at $2.2
billion.
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
C-1
<PAGE>
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.
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 41.0% when comparing the first five months of 1996 and 1997.
Residential construction awards increased by 17.1% in the first five months of
1997 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.
Total new vehicle registrations (new passenger cars and light trucks and
vans) rose in 1994 by 5.8%, declined by 4.4% in 1995, then rose 2.6% in 1996.
Through May 1997 however, total new vehicle registrations rose by 2.8% compared
to the same time period in 1996.
Looking further ahead, prospects for New Jersey are favorable. While 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 industries.
State Aid to Local Governments is the largest portion of Fiscal Year 2000
recommendations. In fiscal year 2000, $7,620.9 million of the State's
recommendations consist of funds which are distributed to municipalities,
counties and school districts. The largest recommended State Aid appropriation,
in the amount of $6,030.3 million, is provided for local elementary and
secondary education programs. Of this amount $2,845.1 is for core curriculum
standards, $312.6 million is for early childhood aid, $293.2 million is Abbott
v. Burke Parity Remedy aid, $265.3 million is for pupil transportation aid and
$682.1 million is for special education. Also, $80.5 million provides nonpublic
school aid and $127.7 million pays debt service on school bonds. There is a
state aid recommended appropriation in the amount of $50.0 million for
facilities improvements, to be funded from a portion of the cigarette tax
increase. Other significant amounts are $136.1 million for supplemental core
curriculum standards aid and $190.4 million for demonstrably effective program
aid. In addition, $700.5 million is recommended on behalf of school districts
as the employers share of the social security and teachers' pensions and
benefits programs.
As a result of the decision on May 21, 1998 of the New Jersey Supreme Court
in Abbott v. Burke the State may be required to undertake certain additional
instructional and support programs for children in the "Abbott" school
districts. However, the State believes that the decision will not have a
C-2
<PAGE>
significant impact of the Fiscal Year 1999 Appropriations Act to be enacted.
Recommended appropriations to the State Department of Community Affairs
("DCA") total $859.9 million in State Aid monies for Fiscal Year 2000. The
Consolidated Municipal Property Tax Relief Act is recommended in the amount of
$767.9 million. In addition there is $16.7 million for housing programs, $33.0
million for block grant programs, $20 million for discretionary aid and $12.0
million as special assistance to the City of Camden and $10.0 million for the
Regional Efficiency Development Incentive Grant Program. Recommended
appropriations to the State Department of the Treasury total $257.9 million in
State Aid monies for Fiscal Year 2000. The principal programs funded by these
recommended appropriations are aid to county colleges ($174.3 million); the
cost of senior citizens, disabled and veterans property tax deductions and
exemptions ($34 million); and the State contributions to the Consolidated
Police and Firemen's Pension Fund ($11.3 million).
Other recommended appropriations of State Aid in Fiscal 2000 include welfare
programs ($303.2 million); aid to county mental hospitals ($80.3 million);
$19.5 million for early childhood intervention health programs; and $14.1
million for Library Services.
The second largest portion of recommended appropriations in Fiscal Year 2000
is for grants-in-aid. These represent payments to individuals or public or
private agencies for benefits to which a recipient is entitled to by law, or
for provision of services on behalf of the State. The amount recommended in
Fiscal Year 2000 for grants-in-aid is $5,391.0 million.
$2,190.5 million is recommended for programs administered by the State
Department of Human Services. Of that amount, $1,384.3 million is for medical
services provided under the Medicaid program, $241.8 million is for community
programs for the developmentally disabled, $207.0 million is for community
programs for the mentally ill; $203.1 million is for grant programs
administered by the Division of Youth and Family Services, and $146.5 million
is for welfare reform and homeless services.
The State Department of Health and Senior Services is recommended $1,103.7
million. Of that amount, $612.5 million is for medical services provided under
the Medicaid program, $232.5 million is for pharmaceutical assistance to the
aged and disabled, $99.7 million is for hospital charity care and KidCare,
$70.8 million is for the Lifeline Program; $36.3 million is for addiction and
AIDS Services, and $10.3 million is for the proposed Elder Care Program.
$98.0 million is recommended for the State Department of Law and Public
Safety and the Department of Corrections.
$204.1 million is recommended for 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.
$188.1 million is recommended for 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.
$54.9 million is recommended to the Department of Labor for the
administration of programs for workers compensation, unemployment and temporary
disability insurance, manpower development and health safety inspection.
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
C-3
<PAGE>
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.
C-4
<PAGE>
TAX FREE VS. TAXABLE INCOME
The following table shows 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 1999 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 New Jersey and filing a Joint Return with $53,000 in taxable income
for the 1999 tax year would need a taxable investment yielding 8.54% 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 NEW JERSEY
1999 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 - 20,000 16.19% 4.77% 5.37% 5.97% 6.56% 7.16% 7.76%
$ 20,001 - 43,050 16.49% 4.79% 5.39% 5.99% 6.59% 7.18% 7.78%
$ 43,051 - 50,000 29.26% 5.65% 6.36% 7.07% 7.77% 8.48% 9.19%
$ 50,001 - 70,000 29.76% 5.70% 6.41% 7.12% 7.83% 8.54% 9.25%
$ 70,001 - 80,000 30.52% 5.76% 6.48% 7.20% 7.92% 8.64% 9.36%
$ 80,001 - 104,050 31.98% 5.88% 6.62% 7.35% 8.09% 8.82% 9.56%
$104,051 - 126,600 34.82% 6.14% 6.90% 7.67% 8.44% 9.20% 9.97%
$126,601 - 150,000 35.69% 6.22% 7.00% 7.78% 8.55% 9.33% 10.11%
$150,001 - 158,550 36.27% 6.28% 7.06% 7.85% 8.63% 9.41% 10.20%
$158,551 - 283,150 41.09% 6.79% 7.64% 8.49% 9.34% 10.18% 11.03%
Over $283,150 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 - 20,000 16.19% 4.77% 5.37% 5.97% 6.56% 7.16% 7.76%
$ 20,001 - 25,750 16.49% 4.79% 5.39% 5.99% 6.59% 7.18% 7.78%
$ 25,751 - 35,000 29.26% 5.65% 6.36% 7.07% 7.77% 8.48% 9.19%
$ 35,001 - 40,000 30.52% 5.76% 6.48% 7.20% 7.92% 8.64% 9.36%
$ 40,001 - 62,450 31.78% 5.86% 6.60% 7.33% 8.06% 8.80% 9.53%
$ 62,451 - 75,000 34.62% 6.12% 6.88% 7.65% 8.41% 9.18% 9.94%
$ 75,001 - 126,600 35.40% 6.19% 6.97% 7.74% 8.51% 9.29% 10.06%
$126,601 - 130,250 36.27% 6.28% 7.06% 7.85% 8.63% 9.41% 10.20%
$130,251 - 283,150 41.09% 6.79% 7.64% 8.49% 9.34% 10.18% 11.03%
Over $283,150 44.56% 7.21% 8.12% 9.02% 9.92% 10.82% 11.72%
</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
(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 $126,600, 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 $189,950 for
married taxpayers filing a joint tax return and $126,600 for single
taxpayers. The effect of this phase out is not reflected in the above
table.
2 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.
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 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.
C-5
<PAGE>
TAX EXEMPT SECURITIES TRUST
----------------------------------------------------------------
9,000 Units Dated April 8, 1999
PROSPECTUS
This Prospectus does not contain all of the information with respect to the
Trust set forth in its registration statements filed with the Securities and
Exchange Commission, Washington, D.C. under the Securities Act of 1933 (file
nos. 333-74123 and 333-64873) and the Investment Company Act of 1940 (file no.
811-2560), and to which reference is hereby made. Copies may be reviewed at the
Commission or on the internet, or obtained from the Commission at prescribed
rates by:
. calling: 1-800-SEC-0330
. visiting the SEC internet address: http://www.sec.gov.
. writing: Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549-6009
- --------------------------------------------------------------------------------
Index Sponsor:
<TABLE>
<S> <C> Salomon Smith Barney
Investment Summary A-2 Inc.
Summary of Essential Information A-6 388 Greenwich Street
Portfolio Summary as of Date of 23rd Floor
Deposit A-8 New York, New York 10013
Independent Auditors' Report A-10 (212) 816-4000
Statement of Financial Condition A-11
Portfolio A-12
Notes to Portfolios of Securities A-16
Tax Exempt Securities Trust B-1
Risk Factors B-2
Taxes B-9
Expenses and Charges B-11
Public Offering B-12
Rights of Holders B-16 Trustee:
Sponsor B-19 The Chase Manhattan Bank
Evaluator B-21 4 New York Plaza
Amendment and Termination of the New York, New York 10004
Trust Agreement B-21 (800) 354-6565
Miscellaneous B-22
Bond Ratings B-22
Federal Tax Free vs. Taxable Income B-25
The State Trusts C-1
Tax Free vs. Taxable Income C-5
</TABLE>
- --------------------------------------------------------------------------------
SALOMONSMITHBARNEY
----------------------------
A member of citigroup [LOGO]
- --------------------------------------------------------------------------------
No person is authorized to give any information or to make any representations
with respect to this Trust, not contained in this Prospectus and you should not
rely on any other information.
- --------------------------------------------------------------------------------
Salomon Smith Barney is the service mark used by Salomon Smith Barney Inc.
<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> <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:
Salomon 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:
Salomon 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):
Salomon Smith Barney Inc. 33-65332, 33-36037
B. The Internal Revenue Service Employer Identification Numbers of the
Sponsor and Trustee are as follows:
Salomon 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 New Jersey counsel.
4.1 --Consent of the Evaluator.
5.1 --Consent of KPMG LLP.
</TABLE>
II-2
<PAGE>
SIGNATURES
The registrant, Tax Exempt Securities Trust, National Trust 234 and New
Jersey Trust 137, hereby identifies California Trust 163 and New York Trust
168 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 it 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 8th day of April, 1999.
Signatures appear on page II-4.
A majority of the members of the Board of Directors of Salomon 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>
Salomon 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 Salomon Smith Barney
Inc.:
Deryck C. Maughan
Michael A. Carpenter
/s/ George S. Michinard, Jr.
By ..................................
(George S. Michinard, Jr.,
Attorney-in-Fact)
- --------
* Pursuant to Powers of Attorney filed as exhibits to Registration Statement
Nos. 333-62533 and 333-66875.
II-4
<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
April 7, 1999
Salomon Smith Barney Inc.
Unit Trust Department
388 Greenwich Street, 23rd Floor
New York, New York 10013
Re: Tax Exempt Securities Trust, National Trust 234 and New Jersey Trust 137
Dear Sirs:
We have acted as special counsel for Salomon Smith Barney Inc. as Depositor,
Sponsor and Principal Underwriter (the "Depositor") of Tax Exempt Securities
Trust, National Trust 234 and New Jersey Trust 137 (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. 333-74123 and 333-64873) 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.
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
<PAGE>
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 Shanley & Fisher, P.C., 131 Madison Avenue, Morristown, New
Jersey 07962-1979 delivered to the Depositor with respect to the questions of
law of the State of New Jersey and with respect to any disclosure contained in
the Registration Statement concerning risk factors relating to the Bonds of
New Jersey Trust 137.
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,
/s/ Battle Fowler LLP
<PAGE>
Exhibit 3.2
Shanley & Fisher
A PROFESSIONAL CORPORATION
COUNSELORS AT LAW
131 MADISON AVENUE
MORRISTOWN, NEW JERSEY 07962-1979
(201) 285-1000
April 7, 1999
Salomon 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 137
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 137, 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.
2
<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
April 7, 1999
Salomon 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
National Trust 234
New Jersey Trust 137
Gentlemen:
We have examined Registration Statement File Nos. 333-74123 and 333-64873 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, National Trust 234 and New Jersey Trust 137
We consent to the use of our report dated April 7, 1999 included herein and
to the reference to our firm under the heading "Auditors" in the Prospectus.
KPMG LLP
New York, New York
April 7, 1999
