TAX EXEMPT SECURITIES TRUST NEW JERSEY TRUST 139, 487, 1999-08-19

TAX EXEMPT SECURITIES TRUST NEW JERSEY TRUST 139
487, 1999-08-19

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<PAGE>

As filed with the Securities and Exchange Commission on August 19, 1999

Registration Nos. 333-80731

333-80733

333-74121

333-77683
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

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 236

California Trust 170

Florida Trust 87

New Jersey Trust 139

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 236

California Trust 170

Florida Trust 87

New Jersey Trust 139

Unit Investment Trusts

SALOMON SMITH BARNEY The Tax Exempt Securities Trust is sponsored by
- --------------------------- Salomon Smith Barney Inc. and consists of four
A member of citigroup[LOGO] separate unit investment trusts: National Trust
236, California Trust 170, Florida Trust 87 and New
Jersey Trust 139. Each trust contains a 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 August 19, 1999
<PAGE>

TAX EXEMPT SECURITIES TRUST

INVESTMENT SUMMARY AS OF AUGUST 18, 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 August 18, 1999 would have been
$987.92 for the National Trust, $996.17 for the California Trust, $983.43 for
the Florida Trust and $991.99 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 236
- --------------------------------------------------------------------------------
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
Public Amounts
Offering per
Price Unit
---------- -------
<S> <C> <C>
Maximum Sales Charge Imposed on Purchase (as a percentage of
offering price)............................................ 4.70% $46.31
Maximum Sales Charge Imposed on Reinvested Dividends........ 0% $ 0
Reimbursement to Sponsor for Estimated Organization Costs... .254% $ 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>
Trustee's Fee............................................... .135% $ 1.27
Other Operating Expenses.................................... .032% $ .30
Maximum Portfolio Supervision, Bookkeeping and
Administrative Fees........................................ .027% $ .25
---- ------
Total....................................................... .194% $ 1.82
==== ======
</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 0.194% and a 5% annual return
on the investment throughout the periods................ $489 $530 $574 $706
</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 CALIFORNIA TRUST 170
- --------------------------------------------------------------------------------
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
Public Amounts
Offering per
Price Unit
---------- -------
<S> <C> <C>
Maximum Sales Charge Imposed on Purchase (as a percentage of
offering price)............................................ 4.70% $46.70
Maximum Sales Charge Imposed on Reinvested Dividends........ 0% $ 0
Reimbursement to Sponsor for Estimated Organization Costs... .252% $ 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>
Trustee's Fee............................................... .132% $1.25
Other Operating Expenses.................................... .032% $ .30
Maximum Portfolio Supervision, Bookkeeping and
Administrative Fees........................................ .026% $ .25
---- ------
Total..................................................... .190% $1.80
==== ======
</TABLE>

Example

<TABLE>
<CAPTION>
Cumulative Expenses
and Charges
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
0.190% and a 5% annual return on the investment
throughout the periods............................ $489 $528 $572 $701
</TABLE>

A-5
<PAGE>

TAX EXEMPT SECURITIES TRUST

FEE TABLE FOR FLORIDA TRUST 87
- --------------------------------------------------------------------------------
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
Public Amounts
Offering per
Price Unit
--------- -------
<S> <C> <C>
Maximum Sales Charge Imposed on Purchase (as a percentage of
offering price)............................................. 4.70% $46.10
Maximum Sales Charge Imposed on Reinvested Dividends......... 0% $ 0
Reimbursement to Sponsor for Estimated Organization Costs.... .255% $ 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>
Trustee's Fee................................................ .134% $1.25
Other Operating Expenses..................................... .041% $ .38
Maximum Portfolio Supervision, Bookkeeping and
Administrative Fees......................................... .027% $ .25
---- -----
Total...................................................... .202% $1.88
==== =====
</TABLE>

Example

<TABLE>
<CAPTION>
Cumulative Expenses
and Charges
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 0.202% and a 5% annual return
on the investment throughout the periods................ $490 $532 $578 $716
</TABLE>

A-6
<PAGE>

TAX EXEMPT SECURITIES TRUST

FEE TABLE FOR NEW JERSEY TRUST 139
- --------------------------------------------------------------------------------
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
Public Amounts
Offering per
Price Unit
--------- -------
<S> <C> <C>
Maximum Sales Charge Imposed on Purchase (as a percentage of
offering price)............................................. 4.70% $46.51
Maximum Sales Charge Imposed on Reinvested Dividends......... 0% $ 0
Reimbursement to Sponsor for Estimated Organization Costs.... .253% $ 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>
Trustee's Fee................................................ .133% $1.25
Other Operating Expenses..................................... .035% $ .33
Maximum Portfolio Supervision, Bookkeeping and
Administrative Fees......................................... .026% $ .25
---- -----
Total...................................................... .194% $1.83
==== =====
</TABLE>

Example

<TABLE>
<CAPTION>
Cumulative Expenses
and Charges
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 0.194%
and a 5% annual return on the investment throughout
the periods......................................... $489 $530 $574 $706
</TABLE>

A-7
<PAGE>

TAX EXEMPT SECURITIES TRUST
SUMMARY OF ESSENTIAL INFORMATION

AS OF AUGUST 18, 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

August 18, 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 September 1, 1999

Distribution Dates

The fifteenth day of each month,** commencing September 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 $1.90 for the National Trust, $1.85
for the California Trust, $1.84 for the Florida Trust and $1.84 for the New
Jersey Trust, will be made on September 15, 1999.
*** In addition to this amount, the Sponsor may be reimbursed for bookkeeping
and other administrative expenses not exceeding its actual costs.

A-8
<PAGE>

TAX EXEMPT SECURITIES TRUST
SUMMARY OF ESSENTIAL INFORMATION

AS OF AUGUST 18, 1999
<TABLE>
<CAPTION>
National Trust 236 California Trust 170
------------------ --------------------
<S> <C> <C>
Principal Amount of Bonds in Trust.... $7,000,000 $4,000,000
Number of Units....................... 7,000 4,000
Principal Amount of Bonds in Trust per
Unit................................. $ 1,000 $ 1,000
Fractional Undivided Interest in Trust
per Unit............................. 1/7,000 1/4,000
Minimum Value of Trust:
Trust Agreement may be Terminated if
Principal Amount is less than....... $3,500,000 $2,000,000
Calculation of Public Offering Price
per Unit*:
Aggregate Offering Price of Bonds in
Trust............................... $6,573,799 $3,787,868
========== ==========
Divided by Number of Units........... $ 939.11 $ 946.97
Plus: Sales Charge (4.70% of the
Public Offering Price).............. $ 46.31 $ 46.70
---------- ----------
Public Offering Price per Unit....... $ 985.42 $ 993.67
Plus: Estimated Organization
Expenses............................ $ 2.50 $ 2.50
Plus Accrued Interest*............... $ .87 $ .85
---------- ----------
Total................................ $ 988.79 $ 997.02
========== ==========
Sponsor's Initial Repurchase Price per
Unit (per Unit Offering Price of
Bonds)**............................. $ 939.11 $ 946.97
Approximate Redemption Price per Unit
(per Unit Bid Price of Bonds)**...... $ 935.11 $ 942.97
---------- ----------
Difference Between per Unit Offering
and Bid Prices of Bonds.............. $ 4.00 $ 4.00
========== ==========
Calculation of Estimated Net Annual
Income per Unit:
Estimated Annual Income per Unit..... $ 54.62 $ 53.28
Less: Estimated Trustee's Annual
Fee***.............................. $ 1.27 $ 1.25
Less: Other Estimated Annual
Expenses............................ $ .55 $ .55
---------- ----------
Estimated Net Annual Income per Unit. $ 52.80 $ 51.48
========== ==========
Calculation of Monthly Income
Distribution per Unit:
Estimated Net Annual Income per Unit. $ 52.80 $ 51.48
Divided by 12........................ $ 4.40 $ 4.29
Accrued interest from the day after
the Date of Deposit to the first
record date**........................ $ 1.90 $ 1.85
First distribution per unit........... $ 1.90 $ 1.85
Daily Rate (360-day basis) of Income
Accrual per Unit..................... $ .1466 $ .1430
Estimated Current Return based on
Public Offering Price****............ 5.34% 5.17%
Estimated Long-Term Return****........ 5.44% 5.24%
</TABLE>
- ------------
* Accrued interest will commence 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-9
<PAGE>

TAX EXEMPT SECURITIES TRUST
SUMMARY OF ESSENTIAL INFORMATION

AS OF AUGUST 18, 1999
<TABLE>
<CAPTION>
Florida Trust 87 New Jersey Trust 139
---------------- --------------------
<S> <C> <C>
Principal Amount of Bonds in Trust...... $2,000,000 $2,000,000
Number of Units......................... 2,000 2,000
Principal Amount of Bonds in Trust per
Unit................................... $ 1,000 $ 1,000
Fractional Undivided Interest in Trust
per Unit............................... 1/2,000 1/2,000
Minimum Value of Trust:
Trust Agreement may be Terminated if
Principal Amount is less than......... $1,000,000 $1,000,000
Calculation of Public Offering Price per
Unit*:
Aggregate Offering Price of Bonds in
Trust................................. $1,869,651 $1,885,959
========== ==========
Divided by Number of Units............. $ 934.83 $ 942.98
Plus: Sales Charge (4.70% of the Public
Offering Price)....................... $ 46.10 $ 46.51
---------- ----------
Public Offering Price per Unit......... $ 980.93 $ 989.49
Plus: Estimated Organization Expenses.. $ 2.50 $ 2.50
Plus Accrued Interest*................. $ .85 $ .84
---------- ----------
Total.................................. $ 984.28 $ 992.83
========== ==========
Sponsor's Initial Repurchase Price per
Unit (per Unit Offering Price of
Bonds)**............................... $ 934.83 $ 942.98
Approximate Redemption Price per Unit
(per Unit Bid Price of Bonds)**........ $ 930.83 $ 938.98
---------- ----------
Difference Between per Unit Offering and
Bid Prices of Bonds.................... $ 4.00 $ 4.00
========== ==========
Calculation of Estimated Net Annual
Income per Unit:
Estimated Annual Income per Unit....... $ 53.00 $ 52.83
Less: Estimated Trustee's Annual
Fee***................................ $ 1.25 $ 1.25
Less: Other Estimated Annual Expenses.. $ .63 $ .58
---------- ----------
Estimated Net Annual Income per Unit... $ 51.12 $ 51.00
========== ==========
Calculation of Monthly Income
Distribution per Unit:
Estimated Net Annual Income per Unit... $ 51.12 $ 51.00
Divided by 12.......................... $ 4.26 $ 4.25
Accrued interest from the day after the
Date of Deposit to the first record
date**................................. $ 1.84 $ 1.84
First distribution per unit............. $ 1.84 $ 1.84
Daily Rate (360-day basis) of Income
Accrual per Unit....................... $ .1420 $ .1416
Estimated Current Return based on Public
Offering Price****..................... 5.20% 5.14%
Estimated Long-Term Return****.......... 5.30% 5.22%
</TABLE>
- ------------
* Accrued interest will commence 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-10
<PAGE>

TAX EXEMPT SECURITIES TRUST

PORTFOLIO SUMMARY AS OF AUGUST 18, 1999

<TABLE>
<CAPTION>
National California
Trust 236 Trust 170
------------ ------------
<S> <C> <C>
Number of municipal bonds (from 12 states for the
National Trust; and from California for the
California Trust.................................... 19 14
Number of bonds issued with "original issue
discount"........................................... 15 11
Average life to maturity of the bonds in the Trust
(in years).......................................... 30.1 29.4
<CAPTION>
Percentages+ Percentages+
------------ ------------
<S> <C> <C>
Percentage of bonds acquired from the Sponsor (as
sole underwriter, member of underwriting syndicate
or otherwise from its own organization)............. 7.4% 10.3%
General obligation bonds backed by the taxing power
of state issuer..................................... 0.0% 8.5%
General obligation bonds backed by the taxing power
of Puerto Rico issuer............................... 0.0% 0.0%
Bonds not supported by the issuer's power to levy
tax................................................. 100.0% 91.5%
The bonds derived their income from the following
primary sources:
. educational facilities............................. 21.2% 9.6%
. hospital and health care facilities................ 43.3%* 23.8%
. housing facilities................................. 16.2% 6.7%
. lease rental payments.............................. 2.2% 8.9%
. power facilities................................... 1.9% 20.3%
. recreational facilities............................ 6.2% 13.1%
. sales tax revenue.................................. 7.2% 0.0%
. transportation facilities.......................... 1.8% 5.5%
. water and sewer facilities......................... 0.0% 3.6%
The bonds in the trust are rated as follows:
. Standard & Poor's
AAA................................................ 9.0% 34.4%
AA................................................. 16.4% 8.6%
A.................................................. 47.5% 37.6%
----- ----
Total............................................ 72.9% 80.6%
===== ====
. Moody's
Aaa................................................ 3.6% 0.0%
Aa................................................. 3.5% 9.6%
A.................................................. 20.0% 9.8%
----- ----
Total............................................ 27.1% 19.4%
===== ====
The following insurance companies have insured the
bonds in the trust as to timely payment of principal
and interest:
. ACA................................................ 28.5% 13.1%
. AMBAC.............................................. 0.0% 8.4%
. Asset Guaranty..................................... 7.0% 0.0%
. FGIC............................................... 9.0% 3.6%
. MBIA............................................... 3.6% 15.8%
----- ----
Total............................................ 48.1% 40.9%
===== ====
</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-11
<PAGE>

TAX EXEMPT SECURITIES TRUST

PORTFOLIO SUMMARY AS OF AUGUST 18, 1999
<TABLE>
<CAPTION>
Florida New Jersey
Trust 87 Trust 139
-------- ----------
<S> <C> <C>
Number of municipal bonds (from Florida for the
Florida Trust; and from
New Jersey and the Commonwealth of Puerto Rico for
the New Jersey Trust).............................. 7 7
Number of bonds issued with "original issue
discount".......................................... 6 6
Average life to maturity of the bonds in the Trust
(in years)......................................... 30.0 27.8
<CAPTION>
Percentages+ Percentages+
------------ ------------
<S> <C> <C>
Percentage of bonds acquired from the Sponsor (as
sole underwriter, member of underwriting syndicate
or otherwise from its own organization)............ 18.7% 0.0%
General obligation bonds backed by the taxing power
of Puerto Rico issuer.............................. 0.0% 15.4%
Bonds not supported by the issuer's power to levy
tax................................................ 100.0% 84.6%
The bonds derived their income from the following
primary sources:
. hospital and health care facilities.............. 51.8%* 41.2%*
. housing facilities............................... 12.6% 0.0%
. pollution control................................ 0.0% 16.1%
. power facilities................................. 11.3% 0.0%
. sales tax revenue................................ 11.6% 0.0%
. transportation facilities........................ 0.0% 27.3%*
. water and sewer facilities....................... 12.7% 0.0%
The bonds in the trust are rated as follows:
. Standard & Poor's
AAA............................................... 24.3% 41.9%
AA................................................ 31.1% 15.2%
A................................................. 25.9% 42.9%
----- -----
Total........................................... 81.3% 100.0%
===== =====
. Moody's
A................................................. 18.7% 0.0%
The following insurance companies have insured the
bonds in the trust as to timely payment of
principal and interest:
. ACA.............................................. 0.0% 27.6%
. AMBAC............................................ 0.0% 12.1%
. MBIA............................................. 24.3% 29.8%
----- -----
Total........................................... 24.3% 69.5%
===== =====
</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-12
<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 California Florida New Jersey
Trust 236 Trust 170 Trust 87 Trust 139
--------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
Salomon Smith Barney Inc. ......... 6,650 2,900 1,900 1,750
388 Greenwich Street
New York, New York 10013
Southwest Securities............... -- 1,000 -- --
45 Broadway
New York, New York 10006
Gruntal & Co. Incorporated......... 100 100 100 250
14 Wall Street
New York, New York 10005
William R. Hough................... 250 -- -- --
100 Second Avenue
Suite 800
St. Petersburg, Florida 33701
----- ----- ----- -----
Total.............................. 7,000 4,000 2,000 2,000
===== ===== ===== =====
</TABLE>

A-13
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Sponsor, Trustee and Unit Holders of

Tax Exempt Securities Trust, National Trust 236, California Trust 170, Florida
Trust 87 and New Jersey Trust 139:

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 236, California Trust 170, Florida
Trust 87 and New Jersey Trust 139 as of August 18, 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
August 18, 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 236,
California Trust 170, Florida Trust 87 and New Jersey Trust 139 as of August
18, 1999, in conformity with generally accepted accounting principles.

/s/ KPMG LLP

New York, New York

August 18, 1999

A-14
<PAGE>

TAX EXEMPT SECURITIES TRUST
STATEMENTS OF FINANCIAL CONDITION

AS OF DATE OF DEPOSIT, AUGUST 18, 1999

<TABLE>
<CAPTION>
TRUST PROPERTY
---------------------
National California
Trust 236 Trust 170
---------- ----------
<S> <C> <C>
Investment in Tax-Exempt Securities:
Bonds represented by purchase contracts backed by
letter of credit (1).................................. $6,573,799 $3,787,868
Accrued interest through the Date of Deposit on
underlying bonds (1)(2)................................. 70,776 44,009
Cash (3)................................................. 17,500 10,000
---------- ----------
Total................................................ $6,662,075 $3,841,877
========== ==========

<CAPTION>
LIABILITIES AND
INTEREST OF
UNIT HOLDERS
---------------------
<S> <C> <C>
Liabilities:
Accrued interest through the Date of Deposit on
underlying bonds (1)(2)............................... $ 70,776 $ 44,009
Reimbursement to Sponsor for Organization Costs (3).... 17,500 10,000
---------- ----------
88,276 54,009
---------- ----------
Interest of Unit Holders:
Units of fractional undivided interest outstanding
(National Trust 236: 7,000; California Trust 170:
4,000) Cost to investors (4).......................... 6,915,440 3,984,680
Less--Gross underwriting commission (5)............... 324,141 186,812
Less--Organization Costs (3).......................... 17,500 10,000
---------- ----------
Net amount applicable to investors.................... 6,573,799 3,787,868
---------- ----------
Total................................................ $6,662,075 $3,841,877
========== ==========
</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 August 18, 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 $15,000,000 which was deposited with the
Trustee for the purchase of $15,000,000 principal amount of Bonds in all
of the Trusts, pursuant to contracts to purchase such Bonds at the
aggregate cost of $14,117,277 plus $150,047 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 California 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 4,000 Units of the California 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
4,000 Units of the California 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 (exclusive
of estimate of organization expense) 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-15
<PAGE>

TAX EXEMPT SECURITIES TRUST
STATEMENTS OF FINANCIAL CONDITION

AS OF DATE OF DEPOSIT, AUGUST 18, 1999

<TABLE>
<CAPTION>
TRUST PROPERTY
-------------------------
Florida New Jersey
Trust 87 Trust 139
---------- ----------
<S> <C> <C> <C>
Investment in Tax-Exempt Securities:
Bonds represented by purchase contracts backed by
letter of credit (1).............................. $1,869,651 $1,885,959
Accrued interest through the Date of Deposit on
underlying
bonds (1)(2)........................................ 18,236 17,026
Cash (3)............................................. 5,000 5,000
---------- ----------
Total............................................ $1,892,887 $1,907,985
========== ==========

<CAPTION>
LIABILITIES AND INTEREST
OF
UNIT HOLDERS
-------------------------
<S> <C> <C> <C>
Liabilities:
Accrued interest through the Date of Deposit on
underlying bonds (1)(2)........................... $ 18,236 $ 17,026
Reimbursement to Sponsor for Organization Costs
(3)............................................... 5,000 5,000
---------- ----------
23,236 22,026
========== ==========
Interest of Unit Holders:
Units of fractional undivided interest outstanding
(Florida Trust 87: 2,000; New Jersey Trust 139:
2,000) Cost to investors (4)...................... 1,966,860 1,983,980
Less--Gross underwriting commission (5)........... 92,209 93,021
Less--Organization Costs (3)...................... 5,000 5,000
---------- ----------
Net amount applicable to investors................ 1,869,651 1,885,959
---------- ----------
Total............................................ $1,892,887 $1,907,985
========== ==========
</TABLE>
- ------------

(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 Florida 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 2,000
Units of the Florida 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 2,000 Units of the Florida 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 (exclusive
of estimate of organization expense) 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-16
<PAGE>

TAX EXEMPT SECURITIES TRUST

NATIONAL TRUST 236--PORTFOLIO OF SECURITIES

AS OF AUGUST 18, 1999

<TABLE>
<CAPTION>
Cost of Yield on Annual
Redemption Securities Date of Interest
Aggregate Securities Represented by Purchase Ratings Provisions to Trust Deposit Income
Principal Contracts (1) (2) (3)(4) (4) to Trust
--------- ---------------------------------- ------- ----------------- ---------- -------- --------
<C> <C> <S> <C> <C> <C> <C> <C>
1. $ 410,000 California A 12/1/09 @ 101 $407,253 5.800% $23,575
Infrasturcture & SF 12/1/20 @ 100
Economic Development
Bank Revenue Bonds,
American Center for Wine
Food Arts, ACA Insured,
5.75% Due 12/1/2024

2. 250,000 Kaweah Delta, Aaa* 6/1/09 @ 101 237,367 5.600 13,125
California, Health Care SF 6/1/25 @ 100
District Revenue Bonds,
MBIA Insured, 5.25% Due
6/1/2029

3. 150,000 San Bernardino, A 12/1/05 @ 102 147,219 5.650 8,250
California, Joint Powers SF 12/1/15 @ 100
Financing Authority,
Lease Revenue Bonds,
State of California
Department of
Transportation Lease,
5.50% Due 12/1/2020

4. 130,000 Airport Commission City AAA 5/1/09 @ 101 120,091 5.650 6,662
and County of San SF 5/1/25 @ 100
Francisco, California,
San Francisco
International Airport,
Second Series Revenue
Bonds, FGIC Insured,
5.125% Due 5/1/2030

5. 380,000 Marion County, Florida, A2* 10/1/09 @ 101 358,678 5.900 20,900
Hospital District, SF 10/1/25 @ 100
Health System Refunding
and Improvement Revenue
Bonds, Munroe Regional
Health System, 5.50% Due
10/1/2029

6. 145,000 Palm Beach County, A- 11/15/08 @ 101 129,221 5.900 7,431
Florida, Health SF 11/15/28 @ 100
Facilities Authority,
Retirement Community
Revenue Bonds, Acts
Retirement Life
Communities, Inc.
Obligated Group, 5.125%
Due 11/15/2029

</TABLE>

A-17
<PAGE>

<TABLE>
<CAPTION>
Cost of Yield on Annual
Redemption Securities Date of Interest
Aggregate Securities Represented by Purchase Ratings Provisions to Trust Deposit Income
Principal Contracts (1) (2) (3)(4) (4) to Trust
--------- ---------------------------------- ------- ---------------- ---------- -------- --------
<C> <C> <S> <C> <C> <C> <C> <C>
7. $500,000 City of Chicago, AAA 1/1/08 @ 102 $474,265 5.750% $26,875
Illinois, Sales Tax SF 1/1/18 @ 100
Revenue Bonds, FGIC
Insured, 5.375% Due
1/1/2027

8. 460,000 Massachusetts Health and A 11/15/08 @ 101 421,719 5.900 24,380
Educational Facilities SF 11/15/19 @ 00
Authority Revenue Bonds,
Vinfen Corporation
Issue, ACA Insured,
5.30% Due 11/15/2028

9. 500,000 Massachusetts A3* 5/15/29 @ 105 463,455 5.850 26,875
Development Finance SF 5/15/35 @ 100
Agency Revenue Bonds,
Boston University Issue,
5.375% Due 5/15/2039

10. 510,000 Housing and A3* 10/1/09 @ 100 493,124 5.750 28,050
Redevelopment Authority
of the City of Saint
Paul, Minnesota,
Commercial Development
Revenue Bonds, Saint
Paul Academy and Summit
School Project, 5.50%
Due 10/1/2024

11. 125,000 North Carolina Eastern A 1/1/09 @ 102 123,320 5.850 7,188
Municipal Power Agency, SF 1/1/23 @ 100
Power System Revenue
Refunding Bonds, ACA
Insured, 5.75% Due
1/1/2026

12. 250,000 Ohio Capital Corporation Aa2* 8/1/03 @ 100 227,063 5.800 12,750
for Housing Mortgage SF 2/1/15 @ 100
Revenue Refunding Bonds,
FHA Insured Mortgage
Loan, Summit Gardens
Apartments Section 8
Assisted Project, 5.10%
Due 8/1/2024

13. 500,000 Rhode Island Health and AA 7/1/09 @ 101 461,350 5.850 26,500
Educational Building SF 7/1/20 @ 100
Corporation, Hospital
Financing Revenue Bonds,
Newport Hospital Issue,
Asset Guaranty Insured,
5.30% Due 7/1/2029

</TABLE>

A-18
<PAGE>

<TABLE>
<CAPTION>
Cost of Yield on Annual
Redemption Securities Date of Interest
Aggregate Securities Represented by Purchase Ratings Provisions to Trust Deposit Income
Principal Contracts (1) (2) (3)(4) (4) to Trust
---------- ---------------------------------- ------- ---------------- ---------- -------- --------
<C> <C> <S> <C> <C> <C> <C> <C>
14. $ 200,000 The Health and AA+ 5/1/09 @ 101 $ 180,070 5.850% $ 10,250
Educational Facilities SF 11/1/20 @ 100
Board of The
Metropolitan Government
of Nashville and
Davidson County,
Tennessee, Hospital
Revenue Bonds, Charity
Obligated Group, 5.125%
Due 11/1/2027

15. 600,000 Vermont Economic A 3/1/10 @ 101 599,400 6.307 37,800
Development Authority, SF 9/1/22 @ 100
Mortgage Revenue Bonds,
Wake Robin Corporation
Project, ACA Insured,
6.30% Due 3/1/2033

16. 500,000 Vermont Educational and AA 11/1/09 @ 101 438,320 5.800 25,000
Health Buildings
Financing Agency Revenue
Bonds, Middlebury
College Project, 5.00%
Due 11/1/2038

17. 340,000 Washington State Housing A 1/1/09 @ 102 318,740 5.900 18,530
Finance Commission, SF 7/1/19 @ 100
Nonprofit Housing
Revenue and Refunding
Revenue Bonds,
Presbyterian Ministries,
Incorporated Projects,
5.45% Due 1/1/2029

18. 550,000 Vancouver, Washington, A 3/1/08 @ 100 519,789 5.900 30,250
Housing Authority SF 9/1/18 @ 100
Revenue Refunding Bonds,
Pooled Housing, 5.50%
Due 3/1/2028

19. 500,000 Wisconsin Health and A- 2/15/09 @ 101 453,355 6.300 28,000
Educational Facilities SF 2/15/21 @ 100
Authority Revenue Bonds,
Aurora Health Care,
Inc., 5.60% Due
2/15/2029
---------- ---------- --------
$7,000,000 $6,573,799 $382,391
========== ========== ========
</TABLE>

A-19
<PAGE>

TAX EXEMPT SECURITIES TRUST

CALIFORNIA TRUST 170--PORTFOLIO OF SECURITIES

AS OF AUGUST 18, 1999

2. 400,000 California Educational Aa1* 11/1/09 @ 101 362,500 5.650 20,000
Facilities Authority SF 11/1/18 @ 100
Revenue Bonds, Claremont
McKenna College, 5.00%
Due 11/1/2029

3. 250,000 California A 12/1/09 @ 101 248,325 5.800 14,375
Infrastructure & SF 12/1/20 @ 100
Economic Development
Bank Revenue Bonds,
American Center for Wine
Food Arts, ACA Insured,
5.75% Due 12/1/2024

4. 250,000 California A 12/1/09 @ 101 248,210 5.850 14,500
Infrastructure & SF 12/1/25 @ 100
Economic Development
Bank Revenue Bonds,
American Center for Wine
Food Arts, ACA Insured,
5.80% Due 12/1/2029

5. 350,000 California Statewide A+ 8/15/09 @ 101 322,781 5.800 18,375
Communities Development SF 8/15/20 @ 100
Authority, Certificates
of Participation,
Childrens Hospital Los
Angeles, 5.25% Due
8/15/2029

6. 200,000 The Regents of the AAA 7/1/06 @ 101 206,928 5.500 12,000
University of California SF 7/1/25 @ 100
Hospital Revenue Bonds,
UCLA Medical Center,
AMBAC Insured, 6.00% Due
7/1/2026

</TABLE>

A-20
<PAGE>

8. 400,000 City of Lodi, AAA 1/15/09 @ 101 391,100 5.650 22,000
California, Electric SF 1/15/28 @ 100
System Revenue
Certificates of
Participation, MBIA
Insured, 5.50% Due
1/15/2032

9. 110,000 Oakland, California, AAA 8/1/06 @ 102 111,920 5.500 6,325
Joint Powers Financing SF 8/1/17 @ 100
Authority, Lease Revenue
Bonds, Oakland
Administration Building,
AMBAC Insured, 5.75% Due
8/1/2021

10. 400,000 Sacramento, California, A 7/1/04 @ 101 377,320 5.650 21,000
Municipal Utility SF 7/1/20 @ 100
District, Electric
Revenue Refunding Bonds,
5.25% Due 7/1/2028

11. 150,000 Public Facilities AAA 5/15/09 @ 101 135,027 5.700 7,500
Financing Authority of SF 5/15/20 @ 100
The City of San Diego,
California, Sewer
Revenue Bonds, FGIC
Insured, 5.00% Due
5/15/2029

12. 250,000 Airport Commission, City AAA 1/1/08 @ 102 206,310 5.750 11,250
and County of San SF 1/1/10 @ 100
Francisco, California,
San Francisco
International Airport,
Second Series Revenue
Bonds, MBIA Insured,
4.50% Due 5/1/2028

</TABLE>

A-21
<PAGE>

14. 400,000 Washington Township, A2* 7/1/09 @ 101 371,584 5.750 21,000
California, Health Care SF 7/1/24 @ 100
District Revenue Bonds,
5.25% Due 7/1/2029
---------- ---------- --------
$4,000,000 $3,787,868 $213,125
========== ========== ========
</TABLE>

A-22
<PAGE>

TAX EXEMPT SECURITIES TRUST

FLORIDA TRUST 87--PORTFOLIO OF SECURITIES

AS OF AUGUST 18, 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 Florida Housing Finance A+ 12/1/08 @ 102 $ 235,815 5.700% $ 13,250
Corporation, Housing SF 6/1/19 @ 100
Revenue Refunding Bonds,
Hunters Ridge at
Deerwood, 5.30% Due
12/1/2028
2. 395,000 Jacksonville, Florida, AA+ 8/15/09 @ 101 371,261 5.800 21,231
Health Facilities SF 8/15/24 @ 100
Authority, Hospital
Revenue Bonds, Charity
Obligated Group, 5.375%
Due 8/15/2029
3. 235,000 Jacksonville, Florida, AA 10/1/07 @ 101 210,891 5.800 11,985
Electric Authority, SF 10/1/26 @ 100
Electric System Revenue
Bonds, 5.10% Due
10/1/2032
4. 370,000 Marion County, Florida, A2* 10/1/09 @ 101 349,239 5.900 20,350
Hospital District, SF 10/1/25 @ 100
Health System Refunding
and Improvement Revenue
Bonds, Munroe Regional
Health System, 5.50% Due
10/1/2029
5. 250,000 Seminole County, AAA 10/1/08 @ 101 216,190 5.600 11,562
Florida, Sale Tax SF 10/1/23 @ 100
Revenue Refunding Bonds,
MBIA Insured, 4.625% Due
10/1/2026
6. 250,000 South Lake County, A- 10/1/09 @ 101 248,125 5.850 14,500
Florida, Hospital SF 10/1/24 @ 100
District Revenue Bonds,
South Lake Hospital
Inc., 5.80% Due
10/1/2034
7. 250,000 St. Lucie West Services AAA 5/1/09 @ 102 238,130 5.600 13,125
District, Florida, Water SF 5/1/12 @ 100
Management Benefit,
Special Assessment
Refunding Bonds, MBIA
Insured, 5.25% Due
5/1/2025
---------- ---------- --------
$2,000,000 $1,869,651 $106,003
========== ========== ========
</TABLE>

The Notes following the Portfolios are an integral part of each Portfolio of
Securities.

A-23
<PAGE>

TAX EXEMPT SECURITIES TRUST

NEW JERSEY TRUST 139--PORTFOLIO OF SECURITIES

AS OF AUGUST 18, 1999

<TABLE>
<CAPTION>
Cost of Yield on Annual
Redemption Securities Date of Interest
Aggregate Securities Represented by Purchase Ratings Provisions to Trust Deposit Income
Principal 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 $241,225 5.808% $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. 300,000 New Jersey Health Care A 7/1/09 @ 101 278,967 5.750 15,750
Facilities Financing SF 7/1/20 @ 100
Authority Revenue Bonds,
Palisades Medical Center
of New York Presbyterian
Healthcare System,
Obligated Group Issue,
ACA Insured, 5.25% Due
7/1/2028

3. 300,000 New Jersey Health Care AAA 1/1/09 @ 101 259,161 5.718 14,250
Facilities Financing SF 1/1/25 @ 100
Authority Revenue and
Refunding Bonds, Saint
Barnabas Medical Center,
West Hudson Hospital
Obligated Group, MBIA
Insured, 4.75% Due
7/1/2028

4. 300,000 The Pollution Control AAA 5/1/03 @ 102 302,874 5.500 17,100
Financing Authority of
Salem County, New
Jersey, Pollution
Control Revenue
Refunding Bonds, Public
Service Electric and Gas
Company Project, MBIA
Insured, 5.70% Due
5/1/2028

5. 250,000 South Jersey AAA 11/1/09 @ 101 228,245 5.600 12,500
Transportation SF 11/1/23 @ 100
Authority,
Transportation System
Revenues Bonds, AMBAC
Insured, 5.00% Due
11/1/2029

6. 300,000 The Port Authority of AA- 1/15/07 @ 101 285,645 5.700 16,125
New York and New Jersey, SF 7/15/28 @ 100
Consolidated Bonds,
5.375% Due 1/15/2032

</TABLE>

A-24
<PAGE>

<TABLE>
<CAPTION>
Cost of Yield on Annual
Redemption Securities Date of Interest
Aggregate Securities Represented by Purchase Ratings Provisions to Trust Deposit Income
Principal Contracts (1) (2) (3)(4) (4) to Trust
--------- ---------------------------------- ------- --------------- ---------- -------- --------
<C> <C> <S> <C> <C> <C> <C> <C>
7. $ 300,000 Commonwealth of Puerto A 7/1/06 @ 101.50 $ 289,842 5.650% $ 16,200
Rico, Public Improvement SF 7/1/18 @ 100
Bonds, General
Obligation Bonds, 5.40%
Due 7/1/2025

---------- ---------- --------
$2,000,000 $1,885,959 $105,675
========== ========== ========

</TABLE>

A-25
<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 February
21, 1999, through August 18, 1999, with the settlement date on August 24,
1999. The Profit to the Sponsor on Deposit totals $49,407 for the National
Trust, $22,150 for the California Trust, $2,948 for the Florida Trust and
$13,236 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 on Date of Deposit was computed on the basis
of offering prices on the date of deposit. On August 18, 1999, the
aggregate bid price of the Bonds was $6,545,799 for the National Trust,
$3,771,868 for the California Trust, $1,861,651 for the Florida Trust, and
$1,877,959 for the New Jersey Trust.

A-26
<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.

Original Issue Discount Bonds and Zero Coupon Bonds

Certain of the Bonds in the Trust may be original issue discount bonds and/or
zero coupon bonds. Original issue discount bonds are bonds originally issued at
less than the market interest rate. Zero coupon bonds are original issue
discount bonds that do not provide for the payment of current interest. For
Federal income tax purposes, original issue discount on such bonds must be
accrued over the terms of such bonds. On sale or redemption, the difference
between (i) the amount realized (other than amounts treated as tax-exempt
income as described below) and (ii) the tax basis of such bonds (properly
adjusted, in the circumstances described below, for the accrual of original
issue discount) will be treated as taxable income, gain or loss. The Code
requires the Trust (and therefore the Unitholders) to accrue tax-exempt
original issue discount by using the constant interest method provided for the
holders of taxable obligations. In addition, the Code provides that the basis
of a tax-exempt obligation is increased by the amount of accrued tax-exempt
original issue discount. These provisions are applicable to obligations issued
after September 3, 1982 and acquired after March 1, 1984. The Trust's tax basis
in a Bond (and a Unitholder's tax basis in its Units) is increased by an
accrued original issue discount. For Bonds issued after June 9, 1980 that are
redeemed prior to maturity, the difference between the Trust's basis, as
adjusted, and the amount received will be taxable gain or loss to the
Unitholders. All or a portion of any gain may be taxable as ordinary income.

"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.

B-2
<PAGE>

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 market value as they approach maturity. A market discount
tax-exempt Bond will have a larger portion of its total return in the form of
taxable ordinary income (because market discount income is taxable ordinary
income) and less in the form of tax-exempt income than a comparable Bond
bearing interest at current market rates. See "Taxes" herein.

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

B-3
<PAGE>

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 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

B-4
<PAGE>

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 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

B-5
<PAGE>

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 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

B-6
<PAGE>

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 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

B-7
<PAGE>

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 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

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

B-8
<PAGE>

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. See "Taxes" herein for a more detailed
discussion concerning the tax consequences of an investment in Units. Unit
holders are urged to consult their own tax advisers.

TAXES

This is a general discussion of some of the income tax consequences of the
ownership of the Units. It applies only to investors who hold the Units as
capital assets. It does not discuss rules that apply to investors subject to
special tax treatment, such as securities dealers, financial institutions and
insurance companies.

The Bonds

In the opinions of bond counsel delivered on the dates the Bonds were issued
(or in opinions to be delivered, in the case of when issued Bonds), 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 because of the identity of the holder).
However, interest on the Bonds may be subject to other state and local taxes.
The Sponsor and Battle Fowler LLP have not made and will not make any review of
the procedures for the issuance of the Bonds or the basis for these opinions.

In the opinions of bond counsel referred to above, none of the interest
received on the Bonds is subject to the alternative minimum tax for
individuals. However, the interest is includible in the calculation of a
corporation's alternative minimum tax.

In the case of certain of the Bonds, the opinions of bond counsel indicate
that interest 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 those Bonds received by
others would be exempt. The term substantial user includes only a person whose
gross revenue derived with respect to the facilities financed by the issuance
of the Bonds is more than 5% of the total revenue derived by all users of those
facilities, or who occupies more than 5% of the usable areas of those
facilities or for whom those 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.

The opinions of bond counsel may be limited to law existing at the time the
Bonds were issued, and may not apply to the extent that future changes in law,
regulations or interpretations affect such Bonds. Interest on some or all of
the Bonds may become subject to regular Federal income tax, perhaps
retroactively to their dates 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 holders of the Bonds to
unanticipated tax liabilities and possibly requiring the Trustee to sell the
Bonds at reduced values.

The Sponsor and Battle Fowler LLP have not made any investigation as to the
current or future owners or users of the facilities financed by the Bonds, the
amount of such persons' outstanding tax-exempt private activity bonds, or the
facilities themselves, and no one can give any assurance that future events
will not affect the tax-exempt status of the Bonds.

From time to time Congress considers proposals to tax the interest on state
and local obligations, such as the Bonds and it can be expected that similar
proposals, including proposals
for a flat tax or consumption tax, may be introduced in the future. The Sponsor
cannot predict whether

B-9
<PAGE>

additional legislation in respect of the Federal income tax status of interest
on state and local obligations may be enacted and what the effect of such
legislation would be on Bonds in the Trust. 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, could adversely affect an investment in Units. The
decision does not, however, affect the current exemption from taxation of the
interest earned on the Bonds in the Trust.

The Internal Revenue Service has expanded, and is continuing to expand its
examination program with respect to tax-exempt bonds. The expanded examination
program consists 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.

Investors should consult their tax advisors for advice with respect to the
effect of these provisions on their particular tax situation.

The Trust

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 interest on the Bonds that is excludible from
Federal gross income when received by the Trusts will be excludible from
the Federal gross income of the Unit holders. Any proceeds paid under the
insurance policies described above issued to the Trusts with respect to the
Bonds and any proceeds paid under individual policies obtained by issuers
of Bonds or other parties that represent maturing interest on defaulted
obligations held by the Trusts will be excludible from Federal gross income
to the same extent as such interest would have been excludable if paid in
the normal course by the issuer of the defaulted obligations.

Each Unit holder will be considered the owner of a pro rata portion of
the Bonds and any other assets held in the Trust under the grantor trust
rules of the Code. Each Unit holder will be considered to have received its
pro rata share of income from Bonds held by the Trust on receipt by the
Trust (or earlier accrual, depending on the Unit holder's method of
accounting and depending on the existence of any original issue discount),
and each Unit holder will have a taxable event when an underlying Bond is
disposed of (whether by sale, redemption, or payment at maturity) or when
the Unit holder redeems or sells its Units.

The opinion of Battle Fowler LLP as to the tax status of the Trusts is not
affected by the provision of the Trust Agreement that authorizes the
acquisition of Replacement Bonds or by the implementation of the option
automatically to reinvest principal and interest distributions from the Trust
pursuant to the Automatic Accumulation Plan, described under "Automatic
Accumulation Account" in this Part B.

Other Tax Issues

The Trust may contain Bonds issued with original issue discount. The Code
requires Unit holders to accrue tax-exempt original issue discount by using the
constant interest method provided for the holders of taxable obligations and to
increase the basis of a tax-exempt obligation by the amount of accrued tax-
exempt original issue discount. These provisions are applicable to obligations
issued after September 3, 1982 and acquired after March 1, 1984. The Trust's
tax basis (and the Unit holder's tax basis) in a Bond is increased by any
accrued original issue discount. For Bonds issued after June 9, 1980 that are
redeemed prior to maturity, the difference between the Trust's basis, as
adjusted, and the amount received will be taxable gain or loss to the Unit
holders.

B-10
<PAGE>

Unit holders should consult their own tax advisors with respect to the state
and local tax consequences of owning original issue discount bonds. It is
possible that in determining state and local taxes, interest on tax-exempt
bonds issued with original issue discount may be deemed to be received in the
year of accrual even though there is no corresponding cash payment.

The total cost of a Unit to a Unit holder, including sales charge, is
allocated among the Bonds held in the Trust (in proportion to the values of
each Bond) in order to determine the Unit holder's per Unit tax basis for each
Bond. The tax basis reduction requirements of the Code relating to amortization
of bond premium discussed below will apply separately to the per Unit cost of
each such Bond.

A Unit holder will be considered to have purchased its pro rata interest in a
Bond at a premium when it acquires a Unit if its tax cost for its pro rata
interest in the Bond exceeds its pro rata interest in the Bond's face amount
(or the issue price plus accrued original issue discount of an original issue
discount bond). The Unit holder will be required to amortize any premium over
the period remaining before the maturity or call date of the Bond. Amortization
of premium on a Bond will
reduce a Unit holder's tax basis for its pro rata interest in the Bond, but
will not result in any deduction from the Unit holder's income. Thus, for
example, a Unit holder who purchases a Unit at a price that results in a Bond
premium and resells it at the same price will recognize taxable gain equal to
the portion of the premium that was amortized during the period the Unit holder
is considered to have held such interest.

Bond premium must be amortized under the method the Unit holder regularly
employs for amortizing bond premium (assuming such method is reasonable). With
respect to a callable bond, the premium must be computed with respect to the
call price and be amortized to the first call date (and successively to later
call dates based on the call prices for those dates).

Gain (or loss) realized on a sale, maturity or redemption of the Bonds or on
a sale or redemption of a Unit is includible in gross income for Federal, state
and local income tax purposes. That gain will be capital gain (or loss),
assuming that the Unit is held as a capital asset, except for any accrued
interest, accrued original issue discount or accrued market discount. When a
Bond is sold by the Trust, taxable gain or loss will be realized by the Unit
holder equal the difference between (i) the amount received (excluding the
portion representing accrued interest) and (ii) the adjusted basis (including
any accrued original issue discount). Taxable gain (or loss) will also result
if a Unit is sold or redeemed for an amount different from its adjusted basis
to the Unit holder. The amount received when a Unit is sold or redeemed is
allocated among all the Bonds in the Trust in the same manner if the Trust had
disposed of the Bonds, and the Unit holder may exclude accrued interest,
including any accrued original issue discount, but not amounts attributable to
market discount. The return of a Unit holder's tax basis is otherwise a tax-
free return of capital.

A Unit holder may acquire its Units, or the Trust may acquire Bonds at a
price that represents a market discount for the Bonds. Bonds purchased at a
market discount tend to increase in market value as they approach maturity,
when the principal amount is payable, thus increasing the potential for taxable
gain (or reducing the potential for loss) on their redemption, maturity or
sale. Gain on the disposition of a Bond purchased at a market discount
generally will be treated as taxable ordinary income, rather than capital gain,
to the extent of accrued market discount. The administration's fiscal year 2000
budget proposal would require accrual basis taxpayers to accrue market discount
income with respect to obligations acquired after the date that the proposal is
enacted.

Long-term capital gains realized by non-corporate Unit holders (with respect
to Units and

B-11
<PAGE>

Bonds held for more than one year) will be taxed at a maximum federal income
tax rate of 20%, while ordinary income received by non-corporate Unit holders
will be taxed at a maximum federal income tax rate of 39.6%. The deductibility
of capital losses is limited to the amount of capital gain; in addition, up to
$3,000 of capital losses of noncorporate Unit holders ($1,500 in the case of
married individuals filing separate returns) may be deducted against ordinary
income. Since the proceeds from sales of Bonds, under certain circumstances,
may not be distributed pro-rata, a Unit holder's taxable income or gain for any
year may exceed its actual cash distributions in that year.

If the Trust purchases any units of a previously issued series, based on the
opinion of counsel with respect to such series the Trust's pro rata ownership
interest in the bonds of such series (or any previously issued series) will be
treated as though it were owned directly by the Trust.

Among other things, the Code provides for the following: (1) interest on
certain private activity bonds is an item of tax preference included in the
calculation of alternative minimum tax, however none of the Bonds in the Trust
is covered by this provision; (2) 75% of the amount by which adjusted current
earnings (including interest on all tax-exempt bonds) exceed alternative
minimum taxable income, as modified for this calculation, will be included in
corporate alternative minimum taxable income; (3) subject to certain
exceptions, no financial institution is allowed a deduction for interest
expense allocable to tax-exempt interest on bonds acquired after August 7,
1986; (4) the amount of the deduction
allowed to property and casualty insurance companies for underwriting loss is
decreased by an amount determined with regard to tax-exempt interest income and
the deductible portion of dividends received by such companies; (5) an issuer
must meet certain requirements on a continuing basis in order for interest on a
bond to be tax-exempt, with failure to meet such requirements resulting in the
loss of tax exemption; and (6) the branch profits tax on U.S. branches of
foreign corporations may have the effect of taxing a U.S. branch of a foreign
corporation on the interest on bonds otherwise exempt from tax.

The Code provides that a portion of social security benefits is includible in
taxable income for taxpayers whose "modified adjusted gross income" combined
with a portion of their social security benefits exceeds a base amount. The
base amount is $25,000 for an individual, $32,000 for a married couple filing a
joint return and zero for married persons filing separate returns. Interest on
tax-exempt bonds is added to adjusted gross income for purposes of determining
whether an individual's income exceeds this base amount.

Certain S corporations, with accumulated earnings and profits from years in
which they were subject to regular corporate tax, may be subject to minimum tax
on excess passive income, including tax-exempt interest.

If borrowed funds are used by a Unit holder to purchase or carry Units of the
Trust, interest on such indebtedness will not be deductible for Federal income
tax purposes. Fees and expenses of the Trust will also not be deductible. 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 are
applicable for purposes of state and local taxation.

After the end of each calendar year, the Trustee will furnish to each Unit
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 Unit holder and to the Internal Revenue Service. Unit holders
are required

B-12
<PAGE>

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 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

B-13
<PAGE>

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.

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

B-14
<PAGE>

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.

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

B-15
<PAGE>

(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 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

B-16
<PAGE>

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.

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

B-17
<PAGE>

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 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

B-18
<PAGE>

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 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

B-19
<PAGE>

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 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

B-20
<PAGE>

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 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

B-21
<PAGE>

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.

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

B-22
<PAGE>

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.

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.

B-23
<PAGE>

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;

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

- ------------
+ As described by the rating agencies.

B-24
<PAGE>

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 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

B-25
<PAGE>

obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however are
more likely to weaken this ability than bonds with higher ratings.

A "+" or a "-" sign after a rating symbol indicates relative standing in its
rating.

Duff & Phelps

AAA--Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.

AA--High credit quality. Protection factors are strong. Risk is modest but
may vary slightly from time to time because of economic conditions.

A--Protection factors are average but adequate. However, risk factors are
more variable and greater in periods of economic stress.

A "+" or a "-" sign after a rating symbol indicates relative standing in its
rating.

B-26
<PAGE>

FEDERAL TAX FREE VS. TAXABLE INCOME

This table shows the approximate yields which taxable securities must earn
in various income brackets to produce, after Federal income tax, returns
equivalent to specified tax-exempt bond yields. The table is computed on the
theory that the taxpayer's highest bracket tax rate is applicable to the
entire amount of any increase or decrease in his taxable income resulting from
a switch from taxable to tax-exempt securities or vice versa. The table
reflects projected 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.

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PROSPECTUS--Part C:
- --------------------------------------------------------------------------------

Note: Part C of this Prospectus may not be distributed unless accompanied by
Parts A and B.
- --------------------------------------------------------------------------------
TAX EXEMPT SECURITIES TRUST--THE STATE TRUSTS

Potential purchasers of the Units of a State Trust should consider the fact
that the Trust's Portfolio consists primarily of Bonds issued by the state for
which such State Trust is named or its municipalities or authorities and
realize the substantial risks associated with an investment in such Bonds. Each
State Trust is subject to certain additional risk factors. The Sponsor believes
the discussions of risk factors summarized below describe some of the more
significant aspects of the State Trusts. The sources of such information are
the official statements of issuers as well as other publicly available
documents. While the Sponsor has not independently verified this information,
it has no reason to believe that such information is not correct in all
material respects. Investment in a State Trust should be made with an
understanding that the value of the underlying Portfolio may decline with
increases in interest rates.

California Trust

Risk Factors--The following information is a brief summary of factors
affecting the economy of the State of California and does not purport to be a
complete description of such factors. Other factors will affect issuers. The
summary is based primarily upon one or more publicly available offering
statements relating to debt offerings of California issuers; however, it has
not been updated. The Trust has not independently verified the information.

General Economic Conditions. The economy of the State of California
(sometimes referred to herein as the "State") is the largest among the 50
states and one of the largest in the world. This diversified economy has major
components in agriculture, manufacturing, high technology, trade,
entertainment, tourism, construction and services.

California's January 1, 1999 population is estimated to be over 33.7 million
people. As of July 1, 1990 the population of 29,944,000 represented an increase
of over 6 million persons, or 26%, during the decade of the 1980s.

California's population is concentrated in metropolitan areas. As of the
April 1, 1990 census, 96% resided in the 23 Metropolitan Statistical Areas in
the State. As of July 1, 1997, the five-county Los Angeles area accounted for
49%, with 16.0 million residents. The 10-county San Francisco Bay Area
represented 21%, with a population of 6.9 million.

From 1990-1993, the State suffered through a severe recession, the worst
since the 1930s, heavily influenced by large cutbacks in defense/aerospace
industries and military base closures and by a major drop in real estate
construction. California's economy has been recovering and growing steadily
since the start of 1994. The current economic expansion is marked by strong
growth in high technology manufacturing and services, including computer
software, electronic manufacturing and motion picture/television production;
growth is also strong in other business services, both nonresidential and
residential construction and local education.

On May 14, 1999, the Department of Finance projected that the California
economy will show strong growth in 1999, but slower in 2000. The economic
expansion has been marked by strong growth in high technology business services
(including computer software), construction, and tourism related industries.
The Asian economic crisis, which began in 1997, has tended to dampen the
State's economic growth, particularly in high technology manufacturing.
However, stabilizing economic conditions in Asia ongoing strength in NAFTA
partners and growth in Europe, combined with ongoing strength in stock markets,
have improved the short-term outlook.

The State: Fiscal Years Prior to 1995-96. The State's budget problems in the
early 1990s were caused by a combination of external economic conditions and a
structural imbalance in that the

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largest general fund programs (K-14 education, health, welfare and corrections)
were increasing faster than the revenue base, driven by the State's rapid
population growth. The pressures are expected to continue as population trends
maintain strong demand for health and welfare services, as the school age
population continues to grow, and as the State's corrections program responds
to a "Three Strikes" law enacted in 1994, which requires mandatory life prison
terms for certain third-time felony offenders. In addition, the State's health
and welfare programs have been in a transition period as a result of recent
federal and state welfare reform initiatives.

As a result of these factors and others, and especially because a severe
recession between 1990-1994 reduced revenues and increased expenditures for
social welfare programs, from the late 1980s until 1992-93, the State had a
period of budget imbalance. During this period, expenditures exceeded revenues
in four out of six years, and the State accumulated and sustained a budget
deficit in its budget reserve, the Special Fund for Economic Uncertainties
("SFEU") approaching $2.8 billion at its peak at June 30, 1993. Starting in the
1990-91 Fiscal Year and for each fiscal year thereafter, each budget required
multibillion dollar actions to bring projected revenues and expenditures into
balance.

Despite various remedial actions taken by the State, the effects of the
recession led to large, unanticipated deficits in the budget reserve, the SFEU,
as compared to projected positive balances. By the 1993-94 Fiscal Year, the
accumulated deficit was so large that it was impractical to budget to retire it
in one year, so a two-year program was implemented, using the issuance of
revenue anticipation warrants to carry a portion of the deficit over the end of
the fiscal year. When the economy failed to recover sufficiently in 1993-94, a
second two-year plan was implemented in 1994-95, again using cross-fiscal year
revenue anticipation warrants to partly finance the deficit into the 1995-96
fiscal year. For several years during the recession, the State was forced to
rely increasingly on external debt markets to meet its cash needs, as a
succession of notes and revenue anticipation warrants were issued in the period
from June 1992 to July 1994, often needed to pay previously maturing notes or
warrants. These borrowings were used also in part to spread out the repayment
of the accumulated budget deficit over the end of a fiscal year.

1995-96 through 1997-98 Fiscal Years. The State's financial condition
improved markedly during the 1995-96, 1996-97 and 1997-98 fiscal years, with a
combination of better than expected revenues, slowdown in growth of social
welfare programs, and continued spending restraint based on the actions taken
in earlier years. The State's cash position also improved, and no external
deficit borrowing has occurred over the end of these three fiscal years.

The economy grew strongly during these fiscal years, and as a result, the
General Fund took in substantially greater tax revenues (around $2.2 billion in
1995-96, $1.6 billion in 1996-97 and $2.2 billion in 1997-98) than were
initially planned when the budgets were enacted. These additional funds were
largely directed to school spending as mandated by Proposition 98, and to make
up shortfalls from reduced federal health and welfare aid in 1995-96 and 1996-
97. The accumulated budget deficit from the recession years was finally
eliminated. The Department of Finance estimated that the State's budget reserve
(SFEU) totaled $639.8 million as of June 30, 1997 and $1.782 billion at June
30, 1998. As of May 14, 1999, the Department of Finance projected that the SFEU
would have a balance of about $1.881 billion as of June 30, 1999 and $985
million as of June 30, 2000.

On August 18, 1997, the Governor signed the 1997-98 Budget Act, but vetoed
about $314 million of specific spending items, primarily in health and welfare
and education areas from both the General Fund and Special Funds. The Governor
announced that he was prepared to restore about $200 million of education
spending upon satisfactory completion of legislation on an education testing
program.

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The 1997-98 Budget Act anticipated General Fund revenues and transfers of
$52.5 billion (a 6.8% increase over the final 1996-97 amount), and expenditures
of $52.8 billion (an 8.0% increase from the 1996-97 levels). On a budgetary
basis, the budget reserve (SFEU) was projected to decrease from $408 million at
June 30, 1997 to $112 million at June 30, 1998. As of January 9, 1998, the
State Director of Finance estimated a reserve of $329 million at June 30, 1998.
(The expenditure figure assumed restoration of $200 million in vetoed funding.)
The Budget Act also included Special Fund expenditures of $14.4 billion (as
against estimated Special Fund revenues of $14.0 billion), and $2.1 billion of
expenditures from various Bond Funds. The State implemented its normal annual
cash flow borrowing program, issuing $3 billion of notes which matured on June
30, 1998.

Federal Welfare Reform. Congress passed and the President signed (on August
22, 1996) the Personal Responsibility and Work Opportunity Act of 1996 (the
"Law") making a fundamental reform of the current welfare system. Among many
provisions, the Law includes: (i) conversion of Aid to Families with Dependent
Children from an entitlement program to a block grant titled Temporary
Assistance for Needy Families (TANF), with lifetime time limits on TANF
recipients, work requirements and other changes; (ii) provisions denying
certain federal welfare and public benefits to legal noncitizens, allowing
states to elect to deny additional benefits (including TANF) to legal
noncitizens, and generally denying almost all benefits to illegal immigrants;
and (iii) changes in the Food Stamp program, including reducing maximum
benefits and imposing work requirements.

As part of the 1997-98 Budget Act legislative package, the State Legislature
and Governor agreed on a comprehensive reform of the State's public assistance
programs to implement the new federal Law. The new basic State welfare program
is called California Work Opportunity and Responsibility to Kids Act
("CalWORKs"), which replaces the former Aid to Families with Dependent Children
(AFDC) and Greater Avenues to Independence (GAIN) programs effective January 1,
1998. Consistent with the federal Law, CalWORKs contains new time limits on
receipt of welfare aid, both lifetime as well as for any current time on aid.
Administration of the new Welfare-to-Work programs have been largely at the
county level, and counties are given financial incentives for success in this
program.

The longer-term impact of the new federal Law and CalWORKs cannot be
determined until there has been some experience and until an independent
evaluation of the CalWORKs program is completed. In the short-term, the
implementation of the CalWORKs program has continued the trend of declining
welfare caseloads. The CalWORKs caseload trend is projected to be 651,350 in
1998-99 and 598,000 in 1999-00, down from a high of 921,000 cases in 1994-95.

1999-2000 Fiscal Year. Pursuant to Article IV, Section 13(c) of the
Constitution of the State of California, the State Legislature is required to
adopt its budget for the upcoming fiscal year (July 1-June 30) by midnight of
June 15th, and in the absence of which, the Legislature may not send to the
Governor for consideration any bill appropriating funds for expenditure during
the fiscal year for which the budget bill is to be enacted, except emergency
bills or appropriations for the salaries and expenses of the Legislature. On
January 8, 1999, newly-elected Governor Davis released his proposed budget for
the 1999-2000 Fiscal Year (the "Proposed Budget"). The Proposed Budget
estimated general fund revenues and transfers in 1999-2000 of $60.3 billion, a
7.1% increase from revised 1998-99 figures. The Governor proposed expenditures
of $60.5 billion, a 3.8% increase from 1998-99. The Proposed Budget projected a
balance in the SFEU of $414.5 million on June 30, 2000. For the first time
since 1993, as had been true since the late 1980s, the June 30 deadline for
signing the budget into law was met. The budget for Fiscal Year 1999-2000 was
passed by the Legislature on June 16, 1999, and the Governor signed it on June
29, 1999 (the "Budget").
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Significant features of the Budget are as follows:

. Proposition 98 funding for K-12 is expanded to $37.9 billion, an increase
of $2.3 billion over 1998-99. Proposition 98 per-pupil spending has
increased to $6,025, which is $274 over the 1998-99 level. $444 million
of the Proposition 98 funding will support a package of initiatives to
significantly improve student academic achievement to be focused in three
major areas: textbooks and library materials ($134 million), enhancing
professional quality ($50 million) and increasing school accountability
($192 million).

. Funding for higher education increased. The Budget provides the
University of California with $184 million in new funding and the
California State University system with $126 million. The Budget also
includes additional growth of funding to community college districts,
with growth by $324.3 million, an increase of 6.6 percent.

. The Budget incorporates $425 million, in addition to the $50 million
provided in the 1998-99 Budget, to capitalize the California
Infrastructure and Economic Development Bank. The Bank will leverage
those funds to generate about $1.9 billion in low interest rate loans to
local agencies to assist with needed infrastructure to support economic
development. Projects are expected to include roadways, sewers, water
treatment and delivery systems and utilities.

. With respect to public safety, among other things the Budget provides
$38.7 million for various programs that provide treatment for state
prison inmates and parolees to assist in their transition back into the
community and to reduce recidivism, $30 million for grants to local law
enforcement agencies to address one-time equipment needs, and $24 million
for planning and acquisition of a new state prison.

. The Budget contains approximately $157 million for restoration of
California's State Parks, including $137 million for deferred
maintenance, $10 million for cultural heritage projects and $10 million
for natural heritage projects. The Budget also contains $158 million for
land acquisitions to preserve open spaces, improve and protect natural
habitats and enhance public access to the State's natural resources. $23
million is budgeted to continue and expand the Air Quality Standards
Attainment Program, which will also be expanded to begin addressing
infrastructure needs such as electric vehicle refueling stations and
research and development.

. With regard to tax relief, the Budget cuts the vehicle license fee an
additional 10 percent over the cuts made in the 1999 Budget, resulting in
a cumulative 35 percent cut from 1998 base levels. The Budget provides
for a permanent exclusion of 50 percent of capital gains on small
business stock held over five years, eliminates the first two years of
the minimum franchise tax for new corporations and conforms to federal
law by increasing the deduction for health insurance for the self-
employed.

. The Budget contains $249.4 million to expand HIV/AIDS education,
prevention, care and treatment services, as well as $213.2 million to
continue and expand the Healthy

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Families Program to provide health care coverage to approximately 295,000
uninsured children in low-income families. The Budget provides $82 million
to expand Medi-Cal eligibility to approximately 250,000 more Californians,
and $72 million to increase staffing hours provided per patient per day
with respect to Medi-Cal Nursing Home Care.

. The Budget contains a one-time subvention of $150 million from the
General Fund to local agencies to provide Educational Revenue
Augmentation Fund relief, and an $18 million augmentation for Public
Library Foundation Program which allocates funds to local public
libraries for basic library services, representing a 46 percent increase
over the 1998-99 level of $38.9 million.

. Capital outlay expenditures are increased by $1.3 billion or 49 percent
over 1998-99 and grants to local transportation agencies for local street
and highway projects are increased by $599 million (nearly 44 percent).

. The Budget also contains $128 million to fund workload increases and high
priority programmatic improvements such as funding for Year 2000
compliance of court computer systems, negotiated salary increases for
trial court employees, 20 new judgeships, increased court perimeter
security, judicial officer and staff training and an increase in
compensation for trial court interpreters.

Local Government. The primary units of local government in California are the
counties, ranging in population from 1,300 (Alpine) to over 9,000,000 (Los
Angeles). Counties are responsible for the provision of many basic services,
including indigent healthcare, welfare, courts, jails and public safety in
unincorporated areas. There are also about 480 incorporated cities and
thousands of other special districts formed for education, utility and other
services. The fiscal condition of local governments has been constrained since
the enactment of "Proposition 13" in 1978, which reduced and limited the future
growth of property taxes and limited the ability of local governments to impose
"special taxes" (those devoted to a specific purpose) without two-thirds voter
approval. Counties, in particular, have had fewer options to raise revenues
than many other local government entities, and have been required to maintain
many services.

The entire statewide welfare system has been changed in response to the
change in federal welfare law enacted in 1996 (see "Federal Welfare Reform"
above). Under the CalWORKs program, counties are given flexibility to develop
their own plans, consistent with State law, to implement Welfare-to-Work and to
administer many of its elements and their costs for administrative and support
services are capped at 1996-97 levels. Counties are also given financial
incentives if, at the individual county level or statewide, the CalWORKs
program produces savings associated with specified Welfare-to-Work outcomes;
counties may also suffer penalties for failing to meet federal standards. Under
CalWORKs, counties will still be required to provide "general assistance" aid
to certain persons who cannot obtain welfare from other programs.

Historically, funding for the State's trial court system was divided between
the State and the counties. However, Chapter 850, Statutes of 1997, implements
a restructuring of the State's trial court funding system. In 1997-98, funding
for the courts, with the exception of costs for facilities, local judicial
benefits, and revenue collection, was consolidated at the State level. The
county contribution for both their general fund and fine and penalty amounts is
capped at the 1994-95 level and becomes part of the Trial Court Trust Fund,
which supports all trial court operations. The State assumes responsibility for
future growth in trial court funding. This consolidation is intended to
streamline the operation of the courts, provide a dedicated revenue source, and
relieve fiscal pressure on the counties. Beginning in 1998-99, county general
fund
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contribution for court operations is reduced by $300 million, including $10.7
million to buy out the contribution of the 20 smallest counties, and cities
will retain $62 million in fine and penalty revenue previously remitted to the
State; the State's general fund backfilled the $362 million revenue loss to the
Trial Court Trust Fund. In addition to this general fund backfill, a $50
million augmentation is included in the 1998 Budget Act for the trial courts to
fund workload increase and high priority issues such as court security. In
1999-2000, county general fund contributions will be further reduced by an
additional $96 million to buy out the next 18 smallest counties and reduce by
ten percent the general fund contribution of the remaining 21 counties.

In the aftermath of Proposition 13, the State provided aid from the General
Fund to make up some of the loss of property tax moneys, including taking over
the principal responsibility for funding local K-12 schools and community
colleges. Under the pressure of the recession in the early 1990's, the
Legislature has eliminated the remnants of this post-Proposition 13 aid to
entities other than K-14 education districts, although it has also provided
additional funding sources (such as sales taxes) and reduced mandates for local
services. Many counties continue to be under severe fiscal stress. While such
stress has in recent years most often been experienced by smaller, rural
counties, larger urban counties, such as Los Angeles, have also been affected.
Since then the State has also provided additional funding to counties and
cities through such programs as health and welfare realignment, welfare reform,
trial court restructuring, the COPs program supporting local public safety
departments, and various other measures.

On November 5, 1996, voters approved Proposition 218, entitled the "Right to
Vote on Taxes Act," which incorporates new Articles XIIIC and XIIID into the
California Constitution. These new provisions enact limitations on the ability
of local government agencies to impose or raise various taxes, fees, charges
and assessments without voter approval. Certain "general taxes" imposed after
January 1, 1995 must be approved by voters in order to remain in effect. In
addition, Article XIIIC clarifies the right of local voters to reduce taxes,
fees, assessments or charges through local initiatives. There are a number of
ambiguities concerning the Proposition and its impact on local governments and
their bonded debt which will require interpretation by the courts or the State
Legislature. The State Legislative Analyst estimated that enactment of
Proposition 218 would reduce local government revenues statewide by over $100
million a year, and that over time, annual revenue to local government would be
reduced by several hundred million dollars. Proposition 218 does not affect the
State or its ability to levy or collect taxes.

On December 24, 1997, a consortium of California counties filed a test claim
with the Commission on State Mandates (the "Commission") asking the Commission
to determine whether the property tax shift from counties to the Educational
Revenue Augmentation Fund, which is a funding source for schools, is a
reimbursable state mandated cost. The test claim was heard on October 29, 1998,
and the Commission on State Mandates found in favor of the State. In March,
1999, Sonoma County filed suit in the Superior Court to overturn the
Commission's decision. The State is contesting this lawsuit. Should the courts
find in favor of the counties, the impact to the State General Fund could be as
high as $10.0 billion with an annual Proposition 98 General Fund cost of at
least $3.6 billion. This cost would grow in accordance with the annual assessed
value growth rate.

Constitutional and Statutory Limitations; Recent Initiatives; Pending
Legislation. Article XIIIA of the California Constitution (which resulted from
the voter-approved Proposition 13 in 1978) limits the taxing powers of
California public agencies. Article XIIIA provides that the maximum ad valorem
tax on real property cannot exceed 1% of the "full cash value" of the property
and effectively prohibits the levying of any other ad

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valorem tax on real property for general purposes. However, on May 3, 1986,
Proposition 46, an amendment to Article XIIIA, was approved by the voters of
the State of California, creating a new exemption under Article XIIIA
permitting an increase in ad valorem taxes on real property in excess of 1% for
bonded indebtedness approved by two-thirds of the voters voting on the proposed
indebtedness. "Full cash value" is defined as "the County Assessor's valuation
of real property as shown on the 1975-76 tax bill under "full cash value" or,
thereafter, the appraised value of real property when purchased, newly
constructed, or a change in ownership has occurred after the 1975 assessment.
The "full cash value" is subject to annual adjustment to reflect increases (not
to exceed 2%) or decreases in the consumer price index or comparable local
data, or to reflect reductions in property value caused by damage, destruction
or other factors.

Article XIIIB of the California Constitution limits the amount of
appropriations of the State and of the local governments to the amount of
appropriations of the entity for the prior year, adjusted for changes in the
cost of living, population and the services that local government has financial
responsibility for providing. To the extent that the revenues of the State
and/or local government exceed its appropriations, the excess revenues must be
rebated to the public either directly or through a tax decrease. Expenditures
for voter-approved debt services are not included in the appropriations limit.

At the November 9, 1988 general election, California voters approved an
initiative known as Proposition 98. This initiative amends Article XIIIB to
require that (i) the California Legislature establish a prudent state reserve
fund in an amount it shall deem reasonable and necessary and (ii) revenues in
excess of amounts permitted to be spent and which would otherwise be returned
pursuant to Article XIIIB by revision of tax rates or fee schedules be
transferred and allocated (up to a maximum of 40%) to the State School Fund and
be expended solely for purposes of instructional improvement and
accountability. Proposition 98 also amends Article XVI to require that the
State of California provide a minimum level of funding for public schools and
community colleges. Commencing with the 1988-89 Fiscal Year, money to be
applied by the State for the support of school districts and community college
districts shall not be less than the greater of: (i) the amount which, as a
percentage of the State general fund revenues which may be appropriated
pursuant to Article XIIIB, equals the percentage of such State general fund
revenues appropriated for school districts and community college districts,
respectively, in Fiscal Year 1986-87 or (ii) the amount required to ensure that
the total allocations to school districts and community college districts from
the State general fund proceeds of taxes appropriated pursuant to Article XIIIB
and allocated local proceeds of taxes shall not be less than the total amount
from these sources in the prior year, adjusted for increases in enrollment and
adjusted for changes in the cost of living pursuant to the provisions of
Article XIIIB. The initiative permits the enactment of legislation, by a two-
thirds vote, to suspend the minimum funding requirements for one year. As a
result of Proposition 98, funds that the State might otherwise make available
to its political subdivisions may be allocated instead to satisfy such minimum
funding level.

During the recession in the early 1990's, general fund revenues for several
years were less than originally projected, so that the original Proposition 98
appropriations turned out to be higher than the minimum percentage provided in
the law. The Legislature responded to these developments by designating the
"extra" Proposition 98 payments in one year as a "loan" from future years'
Proposition 98 entitlements and also intended that the "extra" payments would
not be included in the Proposition 98 "base" for calculating future years'
entitlement. By implementing these actions, per-pupil funding from Proposition
98 sources stayed almost constant at approximately $4,220 from Fiscal Year
1991-92 to Fiscal Year 1993-94.

In 1992, a lawsuit was filed, called California Teachers' Association v.
Gould, which challenged

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the validity of these off-budget loans. The settlement of this case, finalized
in July 1996, provides, among other things, that both the State and K-14
schools share in the repayment of prior years' emergency loans to schools. Of
the total $1.76 billion in loans, the State will repay $935 million by
forgiveness of the amount owed, while schools will repay $825 million. The
State's share of the repayment will be reflected as an appropriation above the
current Proposition 98 base calculation. The schools' share of the repayment
will count as appropriations that count toward satisfying the Proposition 98
guarantee, or from "below" the current base. Repayments are spread over the
eight-year period of 1994-95 through 2001-02 to mitigate any adverse fiscal
impact.

Substantially increased general fund revenues, above initial budget
projections, in the 1994-95 through 1998-99 Fiscal Years have resulted or will
result in retroactive increases in Proposition 98 appropriations from
subsequent fiscal years' budgets. Furthermore, since General Fund revenue
growth is expected to continue in 1999-00, there are also new initiatives
proposed to increase school safety, provide additional textbooks to schools,
fund deferred maintenance projects, and expand after school programs and pre-
school.

On November 8, 1994, the voters approved Proposition 187, an initiative
statute ("Proposition 187"). Proposition 187 specifically prohibits funding by
the State of social services, health care services and public school education
for the benefit of any person not verified as either a United States citizen or
a person legally admitted to the United States. Among the provisions in
Proposition 187 pertaining to public school education, the measure requires,
commencing January 1, 1995, that every school district in the State verify the
legal status of every child enrolling in the district for the first time. By
January 1, 1996, each school district was to have verified the legal status of
children already enrolled in the district and of all parents or guardians of
all students. If the district "reasonably suspects" that a student, parent or
guardian is not legally in the United States, that district must report the
student to the United States Immigration and Naturalization Service and certain
other parties. The measure also prohibits a school district from providing
education to a student it does not verify as either a United States citizen or
a person legally admitted to the United States. The State Legislative Analyst
estimates that verification costs could be in the tens of millions of dollars
on a statewide level (including verification costs incurred by other local
governments), with first-year costs potentially in excess of $100 million.

The reporting requirements may violate the Family Educational Rights and
Privacy Act ("FERPA"), which generally prohibits schools that receive Federal
funds from disclosing information in student records without parental consent.
Compliance with FERPA is a condition of receiving Federal education funds,
which total $2.3 billion annually to California school districts. The Secretary
of the United States Department of Education has indicated that the reporting
requirements in Proposition 187 could jeopardize the ability of school
districts to receive these funds.

Opponents of Proposition 187 filed at least eight lawsuits (which were
subsequently consolidated) challenging the constitutionality and validity of
the measure. On March 18, 1998, a United States District Court judge entered a
final judgment in the case, holding key portions of the measure
unconstitutional and permanently enjoining the State from implementing those
sections which would have required law enforcement, teachers and social
services and health care workers to verify a person's immigration status and
subsequently report illegal immigrants to authorities and deny them social
services, health care and education benefits. An appeal was filed by the former
California State Attorney General in the U.S. Court of Appeals in the 9th
Circuit. Governor Gray Davis subsequently asked the United States Ninth Circuit
Court of Appeal to serve as mediator on the issue. On April 26, 1999, the Ninth
Circuit Court of Appeal granted Governor Davis' request for mediation of the

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controversy. In response, David E. Lombardi, Chief Mediator for Ninth Circuit
Mediation Office ordered a stay until June 18, 1999 of all appellate
proceedings in connection with six cases now before the Court of Appeal
involving Proposition 187 challenges. On June 1, 1999, the Howard Jarvis
Taxpayers' Association sued Governor Davis in the California Supreme Court
challenging Governor Davis' right to submit Proposition 187 to mediation, which
the plaintiff claims undermines the public's right of initiative. On June 30,
1999, the California Supreme Court declined to hear the case. Since that time,
Governor Davis had the State's appeal withdrawn, letting stand the District
Court rulings.

Pending Litigation. The State is a party to numerous legal proceedings, many
of which normally occur in governmental operations. Some of the more
significant lawsuits pending against the State are described herein.

In January of 1997, California experienced major flooding in six different
areas. A substantial number of plaintiffs have joined the suit against the
State, local agencies, and private companies and contractors seeking
compensation for the damages they suffered as a result of the 1997 flooding.
Property damages have been estimated up to $2 billion. The State is vigorously
defending the action.

In Capitola Land v. Anderson and other related state and federal cases,
plaintiffs sought payments from the State under the AFDC-Foster Care program.
Judgment was rendered against the State in Capitola, which the State appealed
and lost. The State then filed a state plan amendment with the federal
Department of Health and Human Services to enable the State to comply with the
Capitola ruling and receive federal funding. The DHHS denied the state plan
amendment, and the State has filed suit against DHHS. The Legislature also
enacted a statute which required federal funding in order to comply with the
Capitola judgment. The State then refused to implement the Capitola judgment
based on the new statute. Certain plaintiffs moved for an order of contempt
against the State, which was granted by the trial court, but was stayed and
annulled by the Court of Appeal. The plaintiffs are petitioning the California
Supreme Court for review. If, as a result of this litigation, compliance with
the Capitola judgment is required and the judgment is applied retroactively,
liability to the State could exceed $200 million.

The State is involved in a lawsuit, Thomas Hayes v. Commission on State
Mandates, related to state-mandated costs. The action involves an appeal

by the Director of Finance from a 1984 decision by the State Board of Control
(now succeeded by the Commission on State Mandates). The Board of Control
decided in favor of local school districts' claims for reimbursement for
special education programs for handicapped students. The case was then brought
to the trial court by the State and later remanded to the Commission for
redetermination. The Commission on State Mandates expanded the claim to include
supplemental claims filed by seven other educational institutions. In December
1998, the Commission issued a decision determining that a portion, but not all,
of the claims constituted state mandated local costs. The Commission is now
developing parameters and guidelines for claims for reimbursement. The
Department of Finance has not yet determined whether to seek judicial review of
the Commission's decision.

The State is involved in a lawsuit related to contamination at the
Stringfellow toxic waste site. In United States, People of the State of
California v. J.B. Stringfellow, Jr., et al., the State is seeking recovery for
post costs of cleanup of the site, a declaration that the defendants are
jointly and severally liable for future costs, and an injunction ordering
completion of the cleanup. However, the defendants have filed a counterclaim
against the State for alleged negligent acts. Because the State is the present
owner of the site, the State may be found liable. Present estimates of the
cleanup range from $400 million to $600 million.

The State is a defendant in a coordinated action involving 3,000 plaintiffs
seeking recovery for damages caused by the Yuba River flood of

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February 1986. The appellate court affirmed the trial court finding of
liability in inverse condemnation and awarded damages of $500,000 to 12 sample
plaintiffs. Potential liability to the remaining 300 plaintiffs, from claims
filed, ranges from $800 million to $1.5 billion. An appeal has been filed.

On June 24, 1998, plaintiffs in Howard Jarvis Taxpayers Association et al. v.
Kathleen Connell filed a complaint for certain declaratory and injunctive
relief challenging the authority of the State Controller to make payments from
the State Treasury in the absence of a state budget. On July 21, 1998, the
trial court issued a preliminary injunction prohibiting the State Controller
from paying moneys from the State Treasury for fiscal year 1998-99, with
certain limited exceptions, in the absence of a state budget. The preliminary
injunction, among other things, prohibited the State Controller from making any
payments pursuant to any continuing appropriation.

On July 22 and 27, 1998, various employee unions which had intervened in the
case appealed the trial court's preliminary injunction and asked the Court of
Appeal to stay the preliminary injunction. On July 28, 1998, the Court of
Appeal granted the unions' requests and stayed the preliminary injunction
pending the Court of Appeal's decision on the merits of the appeal. On August
5, 1998, the Court of Appeal denied the plaintiffs' request to reconsider the
stay. Also on July 22, 1998, the State Controller asked the California Supreme
Court to immediately stay the trial court's preliminary injunction and to
overrule the order granting the preliminary injunction on the merits. On July
29, 1998, the Supreme Court transferred the State Controller's request to the
Court of Appeal. The matters are now pending before the Court of Appeal.

California Taxes--

In the opinion of Messrs. Brown & Wood LLP, special California counsel on
California tax matters, under existing law:

The California Trust will not be treated as an association taxable as a
corporation. Accordingly, interest on Bonds received by the California
Trust that is exempt from personal income taxes imposed by or under the
authority of the State of California will be treated for California income
tax purposes in the same manner as if received directly by the Unit
Holders.

Each Unit Holder of the California Trust will recognize gain or loss when
the California Trust disposes of a Bond (whether by sale, exchange,
redemption or payment at maturity) or upon the Unit Holder's sale or other
disposition of a Unit. The amount of gain or loss for California income tax
purposes will generally be calculated pursuant to the Code, certain
provisions of which are incorporated by reference under California law.

Florida Trust

Risk Factors --

Population. In 1980, Florida was the seventh most populous state in the U.S.
Florida has grown dramatically since then and as of April 1, 1997, ranks fourth
with an estimated population of 14.7 million.

. From 1987 through 1996, about 224,240 more new residents have moved into
Florida than have moved out, with a low in 1992 of 138,000.

. In 1996, about 255,000 more new residents moved into Florida than moved
out.

. The U.S.average population increase since 1984 is about 1% annually,
while Florida's average increase is about 1.8% annually.

. Florida continues to be one of the fastest growing of the largest states.

Florida's strong population growth is one reason Florida's economy is
performing better than the U.S. as a whole. In addition to attracting senior
citizens to Florida as a place for retirement, Florida is also recognized as
attracting a significant number of individuals of working age (18-64).

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. Since 1987, Florida's prime working age population (18-44) has grown at
an average annual rate of more than 2.0%.

. About 60% of Florida's total population is at the working age (18-64).
This share is not expected to change appreciably into the twenty-first
century.

Income. According to the U.S. Department of Commerce and the Florida Consensus
Economic Estimating Conference, personal income in Florida has been growing
strongly the last several years and has generally performed better than the
U.S. as a whole and the southeast U.S. in particular. This is due to the fact
that Florida's population has been growing at a very strong pace and, since the
early 70's, its economy has diversified providing a broader economic base.

. Florida's real income per person has tracked closely with the U.S.
average and has tracked above the southeast.

. From 1992 to 1997, Florida's total personal income grew by 36.6% and
income per person increased approximately 25.9%. For the U.S. during that
same time, total income increased by 30.2% and total income per person
increased 24.1%.

Florida has a proportionately greater retirement age population than other
states. As a result, property, income (dividends, interest, and rent), and
transfer payments (Social Security and pension benefits, among other sources of
income) are relatively more important sources of income to persons residing in
Florida. Transfer payments (Social Security and pension benefits, among other
sources of income) are typically less sensitive to the ups and downs of the
economy than wages and salaries and other employment income. Transfer payments
(Social Security and pension benefits, and other sources of income), therefore,
act as a stabilizing force in weak economic periods.

The personal income of residents of the various states in the U.S. is
frequently used to make comparisons among the various states. However, using
personal income to compare Florida to other states can be misleading. Florida's
personal income is systematically underestimated. Contributions by employers to
employees' pension, profit sharing, and other retirement plans are included in
personal income of that employee while the employee is working and earning
wages and salary. When those same employees retire, to avoid double accounting,
retirement payments to them from those retirement plans are excluded in
computing personal income. Florida retirees are more likely to be collecting
retirement benefits that they earned in a state other than Florida. As a
result, Florida personal income is underestimated.

. Florida's personal income per person in 1997 was $24,795.

. The U.S. average personal income per person was slightly higher at
$25,298.

. Personal income per person in the southeast United States was
significantly lower at $22,776.

. Total Florida real personal income is forecasted to increase 4.9% in the
fiscal year ending June 30, 1999, and 3.5% in the fiscal year ending
June 30, 2000.

. Florida real personal income per person is projected to increase 3.1% in
the fiscal year ending June 30, 1999, and 1.8% in the fiscal year ending
June 30, 2000.

. The Florida economy appears to be growing in line with, but stronger
than, the U.S. economy and is expected to experience steady if
unspectacular growth over the next couple years.

Employment.

. Since 1991, Florida's population has increased an estimated 11.5%, while
the number of employed persons in Florida increased 13.3%.

. In the same period, Florida's total non-farm employment has growth
approximately 21.2%.
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<PAGE>

. Since 1991, Florida has created more than twice as many non-farm jobs
than have been created throughout the U.S.

. International trade has contributed to Florida's rapid rate of growth in
jobs and income.

. Florida is gradually becoming less dependent on employment related to
construction, agriculture, or manufacturing, and more dependent on
employment related to trade and services. This has also contributed to
Florida's strong economic performance.

Presently, services constitute 34.9% and trade 25.6% of Florida's total non-
farm jobs. A greater percent of the jobs in the southeast and the U.S. are
manufacturing jobs. Manufacturing jobs tend to pay higher wages. But service
jobs tend to be less sensitive to swings in the business cycle. Florida has a
concentration of manufacturing jobs in high-tech and high value-added sectors,
such as electrical and electronic equipment, as well as printing and
publishing. These type of manufacturing jobs tend to be less cyclical.

. Florida's unemployment rate throughout the 1980's was about the same or
lower than that for the U.S.

. In the 1990's Florida's unemployment rate was higher, until 1995.

. In 1995, Florida's unemployment rate again tracked below that of the U.S.

. Florida's unemployment rate was 4.8% during 1997.

. The U.S. unemployment rate was 4.9% during 1997.

. As of October 1997, it is estimated that Florida's unemployment rate will
be 4.5% in the fiscal year ending June 30, 1999, and 4.7% in the fiscal
year ending June 30, 2000.

Florida's economy is expected to grow at a moderate rate along with the U.S.,
but is expected to out perform the U.S. as a whole.

. Total non-farm employment in Florida is expected to increase 3.4% for the
fiscal year ending June 30, 1999 and 2.9% for the fiscal year ending June
30, 2000. Trade and services, the two largest employment sectors, account
for more than half of the total non-farm employment in Florida.

. Employment in the service sectors should experience an increase of 5.5%
for the fiscal year ending June 30, 1999, while growing 4.4% for the
fiscal year ending June 30, 2000. Trade is expected to expand 2.8% for
the fiscal year ending June 30, 1999, and 2.8% for the fiscal year ending
June 30, 2000.

. The service sector is now Florida's largest employment category.

Construction. In the past, Florida's economy has been highly dependent on the
construction industry and construction related manufacturing. This dependency
has declined in recent years and continues to decline as a result of continued
diversification of Florida's economy. For example, in 1980, total contract
construction employment as a share of total non-farm employment was about 7.5%,
and in 1997, the share had edged downward to 5.7%. This trend is expected to
continue as Florida's economy continues to diversify. Florida, nevertheless,
has a dynamic construction industry, with single and multi-family housing
starts accounting for about 9.2% of all the housing starts in the U.S. in 1997.
Florida's housing starts in 1997 were 132,813.

A driving force behind Florida's construction industry has been Florida's
rapid rate of population growth. Although Florida currently is the fourth most
populous state, its annual population growth is now projected to slow somewhat
as the number of people moving into Florida is expected to average 257,000 a
year throughout the 1990's. This population trend should provide fuel for
business and home builders to keep construction activity lively in Florida in
the next few years. However,

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<PAGE>

other factors do influence the level of construction in Florida. For example,
federal tax reform in 1986 and other changes to the federal income tax code
have eliminated tax deductions for owners of more than two residential real
estate properties and have lengthened depreciation schedules on investment and
commercial properties. Economic growth and existing supplies of homes and
buildings also contribute to the level of construction in Florida.

. Single and multi-family housing starts in Florida for the fiscal year
ending June 30, 1999, are projected to reach a combined level of 144,000,
decreasing slightly to 143,000 for the fiscal year ending June 30, 2000.

. Total construction expenditures in Florida are forecasted to increase
8.6% for the fiscal year ending June 30, 1999, and increase 2.5% for the
fiscal year ending June 30, 2000.

Tourism. Tourism is one of Florida's most important industries. Approximately
47 million tourists visited Florida in 1997. Tourists in Florida in 1996
represented an estimated 4.8 million additional residents for purposes of
determining Florida tax revenues. Florida's tourist industry over the years has
become more sophisticated, attracting visitors year-round and, to a degree,
reducing its seasonality. Visitors to Florida tend to arrive slightly more by
air than by auto.

. Tourist arrivals to Florida are forecasted to increase by 2.0% for the
fiscal year ending June 30, 1999, and 1.7% for the fiscal year ending
June 30, 2000.

. Tourist arrivals to Florida by air are expected to increase by 4.1% for
the fiscal year ending June 30, 1999, and increase by 3.9% for the fiscal
year ending June 30, 2000.

. Tourist arrivals by car are expected to increase by 0.6% for the fiscal
year ending June 30, 1999, and decrease 1.0% for the fiscal year ending
June 30, 2000.

By June 30, 1999, 49.7 million domestic and international tourists are
expected to have visited Florida. For the fiscal year ending June 30, 2000,
about 50.6 million tourists are expected to visit Florida.

Revenues and Expenses. Estimated General Revenue plus Working Capital and
Budget Stabilization funds available to Florida for the fiscal year ending June
30, 1999, total $19,463.7 million, a 5.1% increase over the fiscal year ending
June 30, 1998. Of the total General Revenue plus Working Capital and Budget
Stabilization funds available to Florida, $17,692.4 million of that is
Estimated Revenues and represents an increase of 4.4% over the previous year's
Estimated Revenues. With effective General Revenues plus Working Capital Fund
and Budget Stabilization appropriations at $18,185.0 million, including $100.9
million transferred to the Budget Stabilization Fund, unencumbered reserves at
the fiscal year ending June 30, 1999, are estimated at $1,379.6 million.
Estimated General Revenue plus Working Capital and Budget Stabilization funds
available to Florida for the fiscal year ending June 30, 2000, total $19,923.7
million, a 2.4% increase over the fiscal year ending June 30, 1999. The
$18,386.1 million in Estimated Resources represents an increase of 3.9% over
the previous year's Estimated Revenues.

General Revenues and Expenses

For the fiscal year ended June 30, 1997, approximately 67% of Florida's total
direct revenue to its three operating funds were derived from Florida taxes and
fees, with Federal grants and other special revenue accounting for the balance.
The large majority of Florida General Revenue Funds available to Florida for
the fiscal year ended June 30, 1997, were made up of the following taxes:

. Sales and use tax--68%

. Corporate income tax--8%

. Intangible personal property tax--4%

. Beverage tax--3%

. Estate tax--3%

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<PAGE>

During the same fiscal year ended June 30, 1997, the large majority of
expenditures from Florida's General Revenue Fund were as follows:

. Education--53%

. Health and welfare--26%

. Public Safety--14%

Florida Sales and Use Tax

Florida's sales and use tax (6%) currently accounts for Florida's single
largest source of tax receipts. Slightly less than 10% of Florida's sales and
use tax is designated for local governments and is distributed to the
respective counties in which collected for use by the counties, and the
municipalities in such counties. In addition to this money from the State of
Florida, local governments may (by a vote of the residents) assess a 0.5% or a
1.0% discretionary sales surtax within their county. Proceeds from this local
option sales tax are used for funding local infrastructure programs and
acquiring land for public recreation or conservation or protection of natural
resources as provided under applicable Florida law. Certain charter counties
have other taxing powers in addition, and non-consolidated counties with a
population in excess of 800,000 may levy a local option sales tax to fund
indigent health care. The indigent health care tax alone cannot exceed 0.5% and
when combined with the infrastructure surtax cannot exceed 1.0%.

. For the fiscal year ended June 30, 1997, Florida sales and use tax
receipts (exclusive of the tax on gasoline and special fuels) totaled
$12,089 million, an increase of 5.5% over the fiscal year ended June 30,
1996, collections.

Alcoholic Beverage Tax

Florida imposes an alcoholic beverage, wholesale tax (excise tax) on beer,
wine, and liquor. This tax is one of Florida's major tax sources. Ninety-eight
percent of the revenues collected from this tax are deposited into Florida's
General Revenue Fund.

. Alcoholic beverage tax totaled $447.2 million for the fiscal year ended
June 30, 1997.

Corporate Income Tax

Florida imposes an income tax on corporations. All receipts of the corporate
income tax are credited to the General Revenue Fund.

. For the fiscal year ended June 30, 1997, corporate income tax totaled
$1,362.3 million, an increase of 17.2% from the fiscal year ended June
30, 1996.

Documentary Stamp Tax

Florida imposes a documentary stamp tax on deeds and other documents relating
to realty, corporate shares, bonds, certificate of indebtedness, promissory
notes, wage assignments, and retail charge accounts. For the fiscal year ended
June 30, 1997, 62.63% of these taxes were deposited to the General Revenue
Fund.

Documentary stamp tax collections totaled $844.2 million for the fiscal year
ended June 30, 1997, an 8.9% increase from the fiscal year ended June 30, 1996.

Gross Receipts Tax

Florida imposes a gross receipts tax on electric, natural gas, and
telecommunications services. All gross receipts tax collections are credited to
Florida's Public Education Capital Outlay and Debt Service Trust Fund to be
used for education and capital improvements.

. For the fiscal year ended June 30, 1997, the gross receipts tax totaled
$575.7 million, an increase of 6.0% over the fiscal year ended June 30,
1996.

Intangible Personal Property Tax

Florida imposes an intangible personal property tax on stocks, bonds,
including bonds secured by liens on Florida real property, notes, governmental

C-14
<PAGE>

leaseholds, and certain other intangibles not secured by a lien on Florida real
property. The annual rate of tax is 2 mils (a mil is $1.00 of tax per $1,000.00
of property value). Florida also imposes a non-recurring 2 mil tax on mortgages
and other obligations secured by liens on Florida real property. Of the net
taxes collected by Florida, 66.5% are distributed to the General Revenue Fund.

. For the fiscal year ended June 30, 1997, total intangible personal
property tax collections were $952.4 million, a 6.3% increase from the
fiscal year ended June 30, 1996.

Estate Tax

Florida imposes an estate tax on the estate of a decedent for the privilege
of transferring property at death. All receipts of the estate tax are credited
to the General Revenue Fund.

. For the fiscal year that ended June 30, 1997, receipts from this source
were $546.9 million, an increase of 30% over the fiscal year ended June
30, 1996.

Lottery

Florida began its own lottery in 1988. Florida law requires that lottery
revenues be distributed 50% to the public in prizes, 38.0% for use in enhancing
education, and the balance, 12.0%, for costs of administering the lottery.

. Lottery ticket sales for the fiscal year ended June 30, 1997 totaled
$2.09 billion, providing education with approximately $792.3 million.

Debt-Balanced Budget Requirement. At the end of the fiscal year ended June
30, 1997, Florida had outstanding about $7,892.1 million in principal amount of
debt secured by its full faith and credit. Since then, the State has issued
about $1,645.4 million in principal amount of full faith and credit bonds.

Florida's Constitution and statutes require that Florida not run a deficit in
its budget, as a whole, or in any separate fund within its budget. Rather its
budget and funds must be kept in balance from currently available revenues each
fiscal year. If the Governor or Comptroller believes a deficit will occur in
any fund, by statute, he must certify his opinion to the Administrative
Commission, which then is authorized to reduce all Florida agency budgets and
releases by a sufficient amount to prevent a deficit in any fund. Additionally,
the Florida Constitution prohibits Florida from borrowing by issuing bonds to
fund its operations.

Litigation: Deficit Fund Equity. Currently under litigation are several
issues relating to Florida actions or Florida taxes that put at risk a portion
of General Revenue Fund monies. There is no assurance that any of such matters,
individually or in the aggregate, will not have a material adverse affect on
Florida's financial position. A brief summary of these matters follow.

Litigation

Nathan M. Hameroff, M.D., et al. v. Agency for Healthcare Administration, et
al.

The plaintiff challenged the constitutionality of Florida's Public
Medical Assistance Trust Fund annual assessment on net operating revenue of
free standing out-patient facilities offering sophisticated radiology
services. The trial has not been scheduled. If Florida is unsuccessful in
its action, the potential cost to Florida could be $70 million.

Deficit Fund Equity

The Florida Casualty Insurance Risk Management Trust Fund has deficit
retained earnings of approximately $567 million. These represent long term
liabilities of Florida as a whole. These liabilities include claims
pertaining to state employee Workers' Compensation, federal civil rights,
and general and automotive liability.

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<PAGE>

Florida maintains a bond rating of Aa, AA, and AA from Moody's Investors
Service, Standard & Poors Corporation, and Fitch, respectively, on the majority
of its general obligation bonds, although the rating of a particular series of
revenue bonds relates primarily to the project, facility, or other revenue
source from which such series derives funds for repayments While theses ratings
and some of the information presented above indicate that Florida is in
satisfactory economic health, there can be no assurance that there will not be
a decline in economic conditions or that particular Florida Municipal
Obligations purchased by the Fund will not be adversely affected by any such
changes.

The sources for the information presented above include official statements
and financial statements of the State of Florida. While the Sponsor has not
independently verified this information, the Sponsor has no to believe that the
information is not correct in all material respects.

Florida Taxes --

In the opinion of Carlton Fields, Tampa, Florida, special counsel on
Florida tax matters, under existing law:

The Florida Trust will not be subject to the Florida income tax imposed
by Chapter 220 so long as the Florida Trust transacts no business in
Florida or has no income subject to federal income taxation. In addition,
political subdivisions of Florida do not impose any income taxes.

Non-Corporate Unit holders will not be subject to any Florida income
taxation on income realized by the Florida Trust. Corporate Unit holders
with commercial domiciles in Florida will be subject to Florida income
taxation on income realized by the Trust. Other corporate Unit holders will
be subject to Florida income taxation on income realized by the Florida
Trust only to the extent that the income realized is other than "non-
business income" as defined by Chapter 220.

Florida Trust Units will be subject to Florida estate tax if owned by
Florida residents and may be subject to Florida estate tax if owned by
other decedents at death. However, the Florida estate tax is limited to the
amount of the credit allowable under the applicable Federal Revenue Act
(currently Section 2011 [and in some cases Section 2102] of the Internal
Revenue Code of 1986, as amended) for death taxes actually paid to the
several states.

Neither the Bonds nor the Units will be subject to the Florida ad valorem
property tax or Florida sales or use tax.

Neither the Florida Trust nor the Units will be subject to Florida
intangible personal property tax.

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

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<PAGE>

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 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.

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<PAGE>

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
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

C-18
<PAGE>

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 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-19
<PAGE>

TAX FREE VS. TAXABLE INCOME

The following tables show the approximate yields which taxable securities
must earn in various income brackets to equal tax exempt yields under combined
Federal and state individual income tax rates. This table reflects projected
Federal income tax rates and tax brackets for the 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 California and filing a Joint Return with $53,000 in taxable income
for the 1999 tax year would need a taxable investment yielding 9.06% in order
to equal a tax-free return of 6.00%. Use the appropriate table to find your tax
bracket. Read across to determine the approximate taxable yield you would need
to equal a return free of Federal income tax and state income tax.

STATE OF CALIFORNIA
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 - 10,032 15.85% 4.75% 5.35% 5.94% 6.54% 7.13% 7.72%
$ 10,033 - 23,776 16.70 4.80 5.40 6.00 6.60 7.20 7.80
$ 23,777 - 37,522 18.40 4.90 5.51 6.13 6.74 7.35 7.97
$ 37,523 - 42,350 20.10 5.01 5.63 6.26 6.88 7.51 8.14
$ 42,351 - 52,090 32.32 5.91 6.65 7.39 8.13 8.87 9.60
$ 52,091 - 65,832 33.76 6.04 6.79 7.55 8.30 9.06 9.81
$ 65,833 - 104,050 34.70 6.13 6.89 7.66 8.42 9.19 9.95
$104,051 - 126,600 37.42 6.39 7.19 7.99 8.79 9.59 10.39
$126,601 - 158,550 38.26 6.48 7.29 8.10 8.91 9.72 10.53
$158,551 - 283,150 42.93 7.01 7.89 8.76 9.64 10.51 11.39
Over $283,150 46.29 7.45 8.38 9.31 10.24 11.17 12.10
<CAPTION>
SINGLE RETURN
<S> <C> <C> <C> <C> <C> <C> <C>
$ 0 - 5,016 15.85% 4.75% 5.35% 5.94% 6.54% 7.13% 7.72%
$ 5,017 - 11,888 16.70 4.80 5.40 6.00 6.60 7.20 7.80
$ 11,889 - 18,761 18.40 4.90 5.51 6.13 6.74 7.35 7.97
$ 18,762 - 25,750 20.10 5.01 5.63 6.26 6.88 7.51 8.14
$ 25,751 - 26,045 32.32 5.91 6.65 7.39 8.13 8.87 9.60
$ 26,046 - 32,916 33.76 6.04 6.79 7.55 8.30 9.06 9.81
$ 32,917 - 62,450 34.70 6.13 6.89 7.66 8.42 9.19 9.95
$ 62,451 - 126,600 37.42 6.39 7.19 7.99 8.79 9.59 10.39
$126,601 - 130,250 38.26 6.48 7.29 8.10 8.91 9.72 10.53
$130,251 - 283,150 42.93 7.01 7.89 8.76 9.64 10.51 11.39
Over $283,150 46.29 7.45 8.38 9.31 10.24 11.17 12.10
</TABLE>
- --------
Note: This table reflects the following:
1 The above tax rates represent 1999 Federal income tax rates and 1998
California income tax rates. California has not yet published its 1999
personal income tax rates.
2 Taxable income, as reflected in the above table, equals Federal adjusted
gross income (AGI), less personal exemptions and itemized deductions
(including the deduction for state income tax). However, certain itemized
deductions are reduced by the lesser of (i) three percent of the amount
of the taxpayer's AGI over $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.
3 Interest earned on municipal obligations may be subject to the federal
alternative minimum tax. The effect of this provision is not included
into the above table.
4 The taxable equivalent yield table does not incorporate the effect of
graduated rate structures in determining yields. Instead, the tax rates
used are the highest rates applicable to the income levels indicated
within each bracket.
5 Interest earned on all municipal obligations may cause certain investors
to be subject to tax on a portion of their Social Security and/or
railroad retirement benefits. The effect of this provision is not
included in the above table.

C-20
<PAGE>

STATE OF FLORIDA
1999 Tax Year
<TABLE>
<CAPTION>
TAX EXEMPT YIELD
Taxable Income Bracket 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%
Joint Return Single Return Effective Federal Tax Rate TAXABLE EQUIVALENT YIELD
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 - 43,050 $ 0 - 25,750 15.00% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65%
$ 43,051 - 104,050 $ 25,751 - 62,450 28.00 5.56 6.25 6.94 7.64 8.33 9.03
$104,051 - 126,600 $ 62,451 - 126,600 31.00 5.80 6.52 7.25 7.97 8.70 9.42
$126,601 - 158,550 $126,601 - 130,250 31.93 5.88 6.61 7.35 8.08 8.81 9.55
$158,551 - 283,150 $130,251 - 283,150 37.08 6.36 7.15 7.95 8.74 9.54 10.33
OVER $283,150 OVER $283,150 40.79 6.76 7.60 8.44 9.29 10.13 10.98
</TABLE>
- --------
Note: This table reflects the following:
1 Taxable income equals 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 $124,500, or (ii) 80 percent of the amount of such
itemized deductions otherwise allowable. The effect of the three percent
phase out on all itemized deductions and not just those deductions
subject to the phase out is reflected above in the combined Federal and
state tax rates through the use of higher effective Federal tax rates. In
addition, the effect of the 80 percent cap on overall itemized deductions
is not reflected on this table. Federal income tax rules also provide
that personal exemptions are phased out at a rate of two percent for each
$2,500 (or fraction thereof) of AGI in excess of $186,800 for married
taxpayers filing a joint tax return and $124,500 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 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.
5 The State of Florida does not impose a state personal income tax.

C-21
<PAGE>

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-22
<PAGE>

TAX EXEMPT SECURITIES TRUST
----------------------------------------------------------------

15,000 Units Dated August 19, 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. 333-80731, 333-80733, 333-74121 and 333-77683) 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> Salomon Smith Barney
<S> <C> Inc.
Investment Summary A-2 388 Greenwich Street
Summary of Essential Information A-8 23rd Floor
Portfolio Summary as of Date of New York, New York 10013
Deposit A-11 (212) 816-4000
Independent Auditors' Report A-14
Statements of Financial Condition A-15
Portfolio A-17
Notes to Portfolios of Securities A-26
Tax Exempt Securities Trust B-1
Risk Factors B-2
Taxes B-9
Expenses and Charges B-13
Public Offering B-14
Rights of Holders B-17
Sponsor B-21
Trustee B-22
Evaluator B-22
Amendment and Termination of the
Trust Agreement B-23
Miscellaneous B-23
Bond Ratings B-24
Federal Tax Free vs. Taxable Income B-27
The State Trusts C-1
Tax Free vs. Taxable Income C-20
</TABLE>

Trustee:

The Chase Manhattan Bank
4 New York Plaza
New York, New York 10004
(800) 354-6565

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

SALOMON SMITH BARNEY
---------------------------
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.

SEC FILE OR
IDENTIFICATION NO.
--------------

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

UNDERTAKING

The Sponsor undertakes that it will not instruct the Trustee to accept from
(i) any insurance company affiliated with the Sponsor, in settlement of any
claim, less than an amount sufficient to pay any principal or interest (and, in
the case of a taxability redemption, premium) then due on any Security in
accordance with the municipal bond guaranty insurance policy attached to that
Security or (ii) any affiliate of the Sponsor who has any obligation with
respect to any Security, less than the full amount due pursuant to the
obligation, unless those instructions have been approved by the Securities and
Exchange Commission pursuant to Rule 17d-1 under the Investment Company Act of
1940.

II-1
<PAGE>

CONTENTS OF REGISTRATION STATEMENT

THE REGISTRATION STATEMENT ON FORM S-6 COMPRISES THE FOLLOWING PAPERS AND
DOCUMENTS:

The facing sheet of Form S-6.
The Cross-Reference Sheet (incorporated by reference to the Cross-Reference
Sheet to the Registration Statement of Tax Exempt Securities Trust, Series
384, 1933 Act File No. 33-50915).
The Prospectus.
Additional Information not included in the Prospectus (Part II).
Consent of Independent Auditors.

The following exhibits:

<TABLE>
<C> <S>
1.1 --Form of Trust Indenture and Agreement (incorporated by reference to
Exhibit 4.a to the Registration Statement of Tax Exempt Securities
Trust, Series 265, 1933 Act File No. 33-15123).
1.1.1 --Form of Reference Trust Agreement (incorporated by reference to
Exhibit 1.1.1 of Tax Exempt Securities Trust, National Trust 208, 1933
Act File No. 33-58591).
1.2 --Form of Agreement Among Underwriters (incorporated by reference to
Exhibit 99 to the Registration Statement of Tax Exempt Securities
Trust, Series 384, 1933 Act File No. 33-50915).
2.1 --Form of Certificate of Beneficial Interest (included in Exhibit 1.1).
3.1 --Opinion of counsel as to the legality of the securities being issued
including their consent to the use of their name under the headings
"Taxes", "Legal Opinion" and "New York Taxes" in the Prospectus.
3.2 --Opinion of special California counsel.
3.3 --Opinion of special Florida counsel.
3.4 --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 236 California
Trust 170, Florida Trust 87 and New Jersey Trust 139, 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 19th day of August, 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
August 18, 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 236, California Trust 170,
Florida Trust 87 and New Jersey Trust 139

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 236 California Trust 170, Florida Trust 87 and New
Jersey Trust 139 (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. 333-80731, 333-80733, 333-74121 and 333-77683) 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 Brown & Wood, 555 California Street, San Francisco, Ca. 94104;
Carlton, Fields, Ward, Emmanuel, Smith & Cutter, P.A., One Harbor Place, 777
S. Harbour Island Boulevard, Tampa, Florida 33602; and 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 States of California,
Florida and New Jersey and with respect to any disclosure contained in the
Registration Statement concerning risk factors relating to the Bonds of
California Trust 170, Florida Trust 87 and New Jersey Trust 139, respectively.

Statements in this opinion as to the validity, binding effect and
enforceability of agreements, instruments and documents are subject: (i) to
limitations as to enforceability imposed by bankruptcy, reorganization,
moratorium, insolvency and other laws of general application relating to or
affecting the enforceability of creditors' rights, and (ii) to limitations
under equitable principles governing the availability of equitable remedies.

We are not admitted to the practice of law in any jurisdiction but the State
of New York and we do not hold ourselves out as experts in or express any
opinion as to the laws of other states or jurisdictions except as to matters
of Federal and Delaware corporate law. No opinion is expressed as to the
effect that the law of any other jurisdiction might have upon the subject
matter of the opinions expressed herein under applicable conflicts of law
principles, rules or regulations or otherwise.

Based on the subject to the foregoing, we are of the opinion that:

(1) The Trust Agreements have been duly authorized and executed and
delivered by an authorized officer of the Depositor and are valid and binding
obligations of the Depositor in accordance with their respective terms.

(2) The execution and delivery of the Certificates evidencing the Units has
been duly authorized by the Depositor and such Certificates when executed by
the Depositor and the Trustee in accordance with the provisions of the
Certificates and the respective Trust Agreements and issued for the
consideration contemplated therein, will constitute fractional undivided
interests in the respective Trusts, will be entitled to the benefits of the
respective Trust Agreements, and will conform in all material respects to the
description thereof contained in the Prospectus under the caption heading
"Rights of Unit Holders--Certificates". Upon payment of the consideration for
the Units as provided in the Trust Agreements and the Registration Statement,
the Units will be fully paid and non-assessable by the Trusts.

We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name in the Registration
Statement and in the Prospectus under the headings "Taxes" and "Legal
Opinion". This opinion is intended solely for the benefit of the addressee in
connection with the issuance of the Units of the Trust and may not be relied
upon in any other manner or by any other person without our express written
consent.

Very truly yours,

/s/ Battle Fowler LLP

<PAGE>

Exhibit 3.2

Brown & Wood LLP

555 California Street

San Francisco, Ca. 94104-1715

Telephone: 415-772-1200
Facsimile: 415-397-4621

August 18, 1999

Salomon Smith Barney Inc.
388 Greenwich Street
23rd Floor
New York, New York 10013

Re: Tax Exempt Securities Trust, California Trust 170

Ladies and Gentlemen:

You have requested our opinion as to certain California personal income tax
issues relating to California Trust 170 (the "California Trust") of the Tax
Exempt Securities Trust (the "Trust") sponsored by Salomon Smith Barney Inc.
Our opinion relates solely to the California tax matters described herein. It
is our understanding that Battle Fowler LLP has rendered an opinion, effective
as of the date hereof, as to certain federal income tax matters pertaining to
the Trust.

In rendering our opinion, we have examined and relied upon, among other
things, (1) the Form S-6 Registration Statement, as filed with the Securities
and Exchange Commission on June 15, 1999 (the "Registration Statement"),
pursuant to which you will offer to a limited number of investors (the "Unit
Holders") the opportunity to purchase fractional undivided interests in the
Trust ("Units"); (2) a copy of the Trust Indenture and Agreement, dated July
16, 1987, among Smith Barney, Harris Upham & Co. Incorporated, Kidder, Peabody
& Co. Incorporated, Drexel Burnham Lambert Incorporated, and L.F. Rothschild &
Co. Incorporated, as Depositors, United States Trust Company of New York, as
Trustee, and Standard & Poor's Corporation as Evaluator; (3) a draft of the
Reference Trust Agreement for the Tax Exempt Securities Trust, California Trust
170, dated August 18, 1999, among Salomon Smith Barney Inc., as Depositor (the
"Depositor"), The Chase Manhattan Bank, as Trustee (the "Trustee"), and Kenny
S&P Evaluation Services, a business unit of J.J. Kenny Company, Inc., a
subsidiary of The McGraw-Hill Companies, Inc., as Evaluator (the "Evaluator"),
incorporating by reference the aforementioned Trust Indenture and Agreement and
amending and supplementing the same (said Trust Indenture and Agreement and
Reference Trust Agreement being herein referred to collectively as the "Trust
Agreement"); and (4) the opinion of Battle Fowler LLP, effective as of the date
hereof, that (i) the California Trust is not an association taxable as a
corporation for federal income tax purposes, and income received by the
California Trust will be treated as the income of the Unit Holders; and (ii)
each Unit Holder of the California Trust will be considered the owner of a pro
rata portion of each Bond in the California Trust under the grantor trust rules
of Sections 671-679 of the Internal Revenue Code of 1986, as amended (the
"Code") such that each Unit Holder of the California Trust will be considered
to have received his or her pro rata share of interest on each Bond (which in
the opinion of bond counsel for each such Bond is excludable from gross income
for Federal income tax purposes) when received by the California Trust. Except
as otherwise defined herein, capitalized terms used herein shall have the
respective meanings ascribed to them in the Registration Statement.

The Trust consists of separate unit investment trusts designated the
California Trust and other named state trusts (each trust individually referred
to as a "State Trust" and collectively referred to as the "State Trusts"). Each
State Trust was created under the laws of the State of New York pursuant to the
Trust Agreement. Each State Trust will be administered in accordance with the
Trust Agreement as a distinct entity with separate certificates, expenses,
books and records, and the assets of one State Trust may not be commingled with
the assets of any other.
<PAGE>

Salomon Smith Barney Inc.
August 18, 1999
Page 2

The Bonds deposited in the California Trust are certain interest-bearing
obligations of the State of California or of the cities, counties and other
political subdivisions thereof, or of the Territory of Guam or the Commonwealth
of Puerto Rico. The Bonds will be held by the Trustee upon the terms and
conditions set forth in the Trust Agreement. You have advised us, and we have
relied upon the fact that, in the opinion of bond counsel to each issuer of
Bonds delivered at the time of their respective issuance, the interest on the
Bonds held in the California Trust is excludable from gross income for federal
income tax purposes and exempt from State of California personal income taxes.
We have made no independent investigation to verify the accuracy of such
conclusions and we express no opinion with respect thereto.

Under the terms and conditions of the Trust Agreement, once the original
corpus of the California Trust is acquired, the California Trust will have a
fixed portfolio of Bonds. The Trustee will not have the power to vary the
investment of the California Trust nor the power to take advantage of market
variations to improve a Unit Holder's investment, and the Trustee will have no
discretion to retain and reinvest the income or principal of the California
Trust.

Based on the foregoing, under existing California law applicable to
individuals who are California residents, we are of the opinion that:

1. The California Trust will not be treated as an association taxable as
a corporation. Accordingly, interest on Bonds received by the California
Trust that is exempt from personal income taxes imposed by or under the
authority of the State of California will be treated for California income
tax purposes in the same manner as if received directly by the Unit
Holders.

2. Each Unit Holder of the California Trust will recognize gain or loss
when the California Trust disposes of a Bond (whether by sale, exchange,
redemption or payment at maturity) or upon the Unit Holder's sale or other
disposition of a Unit. The amount of gain or loss for California income tax
purposes will generally be calculated pursuant to the Code, certain
provisions of which are incorporated by reference under California law.

We have not addressed, nor are we opining on, any federal income tax aspects
relating to the California Trust and, other than as specifically set forth
herein, we have not addressed, nor are we opining on, any state or local tax
aspects relating to the California Trust.

We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement under the Securities Act of 1933, as amended, covering
the issuance of Units in the California Trust, and to the reference to our firm
in the Registration Statement under the heading "California Trust -- California
Taxes."

This letter is furnished by us solely for your benefit, and the benefit of
The Chase Manhattan Bank, as Trustee for the California Trust, in connection
with the Registration Statement for the public offering of interests in the Tax
Exempt Securities Trust, and this letter may not be relied upon by any other
person without our prior written consent.

Very truly yours,

/s/ Brown & Wood LLP

<PAGE>

EXHIBIT 3.3

CARLTON FIELDS

ATTORNEYS AT LAW

August 18, 1999

Salomon Smith Barney Inc.
388 Greenwich Street
23rd Floor
New York, New York 10013

Re:Tax Exempt Securities Trust
Florida Trust 87
(SEC Registration No. 333-74121)
-----------------------

Gentlemen:

We have acted as special Florida counsel to you as Sponsor of the Tax Exempt
Securities Trust, Florida Trust 87 (the "Florida Trust") in connection with the
issuance by the Florida Trust of units of fractional undivided interests in the
Florida Trust. In that connection, you have requested our opinion as to the
application of Florida state and local taxes to the Florida Trust and to
investors who purchase units ("Units") in the Florida Trust.

We have examined the Preliminary prospectus for the current Series filed with
the Securities and Exchange Commission on March 9, 1999. We have also examined
the Trust Indenture and Agreement among Smith Barney Inc. as depositor
("Depositor"). The Chase Manhattan Bank as trustee ("Trustee"), and Kenny S&P
Evaluation Services, a business unit of J.J. Kenny Company, Inc., as evaluator
("Evaluator"), dated July 16, 1987, and we have examined a copy of the draft
Reference Trust Agreement dated August 18, 1999, among the Depositor, the
Trustee, and the Evaluator.

In rendering our opinion, you have authorized us to rely upon the information
and opinions contained in the documents listed in the preceding paragraph. You
have also authorized us to assume that the assets of the Florida Trust will
consist solely of obligations of the State of Florida and its political
subdivisions, bonds issued by the government of Puerto Rico, the government of
Guam, or the government of the United States Virgin Islands, or cash.

The obligations described in the preceding sentence are collectively referred
to as the "Bonds."

The Florida Trust will not be subject to the Florida income tax imposed by
Chapter 220 so long as the Florida Trust transacts no business in Florida or
has no income subject to federal income taxation. In addition, political
subdivisions of Florida do not impose any income taxes.

Non-Corporate Unit holders will not be subject to any Florida income taxation
on income realized by the Florida Trust. Corporate Unit holders with commercial
domiciles in Florida will be subject to Florida income taxation on income
realized by the Trust. Other corporate Unit holders will be subject to Florida
income taxation on income realized by the Florida Trust only to the extent that
the income realized is other than "non-business income" as defined by Chapter
220.

Florida Trust Units will be subject to Florida estate tax if owned by Florida
residents and may be subject to Florida estate tax if owned by other decedents
at death. However, the Florida estate tax is limited to the amount of credit
allowable under the applicable Federal Revenue Act (currently Section 2011 [and
in some cases Section 2102] of the Internal Revenue Code of 1986, as amended)
for death taxes actually paid to the several states.

Neither the Bonds nor the Units will be subject to Florida as valorem
property tax or Florida sales or use tax.

Neither the Florida Trust nor the Units will be subject to Florida intangible
personal property tax.

Neither the issuance and sale of the Units by the Florida Trust nor the
transfer of Units by a Unit holder will subject either the Florida Trust or the
Unit holders to Florida documentary stamp tax.
<PAGE>

For the purposes of the foregoing opinion, the following terms have the
following meanings:

(a) "Non-Corporate Unit holder" -- a Unit holder of the Florida Trust who
is an individual not subject to the Florida state income-tax on
corporations, under Chapter 220, Florida Statutes ("Chapter 220").

(b) "Corporate Unit holder" -- a Unit holder of the Florida Trust that is
a corporation subject to the Florida state income tax on corporations under
Chapter 220.

This letter is limited to the law in effect as of the date hereof, and we
assume no responsibility for changes in the law that may become effective
subsequent to the date hereof. Furthermore, this letter is not to be construed
as a prediction of a favorable outcome with respect to any issue for which no
favorable prediction is made herein, or as a guaranty of any tax result, or as
offering a guaranty that a Florida state or local taxing authority might not
differ with our conclusions, or raise other questions or issues upon audit, or
that such action may not be judicially sustained.

We have not examined any of the Bonds to be deposited in and held by the
Florida Trust, and we express no opinion as to whether the interest on any such
Bonds would, in fact, be tax exempt if directly received by a Unit holder; nor
have we made any review of the proceedings relating to the issuance of the
Bonds or the basis for the bond counsel opinions referred to herein.

We hereby consent to the use of our name under the captions "Taxes" and
"Legal Opinions" in the prospectus comprising a part of the above-referenced
Registration Statement and we consent to the filing of this opinion as an
exhibit to the above-Referenced Registration Statement. In giving such consent,
we do not thereby admit that we are within the category of persons whose
consent is required by Section 7 of the Securities Act of 1933, as amended, and
the rules and regulations thereunder.

Very truly yours,

CARLTON, FIELDS, WARD, EMMANUEL,
SMITH & CUTLER, P.A.

/s/ David P. Burke
By: _________________________________
David P. Burke

<PAGE>

Exhibit 3.4

Shanley & Fisher
A PROFESSIONAL CORPORATION

COUNSELORS AT LAW

131 MADISON AVENUE

MORRISTOWN, NEW JERSEY 07962-1979

(201) 285-1000

August 18, 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 139

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 139, 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,

/s/ Shanley & Fisher, P.C.

<PAGE>

Exhibit 4.1
Standard & Poor's
A Division of the McGraw-Hill
Companies

J.J. Kenny
65 Broadway
New York, New York 10006-2551
Tel. 212/770-4422
Fax 212/797-8681
Frank A. Ciccotto, Jr.
Vice President
Tax-Exempt Evaluations

August 18, 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 236
California Trust 170
Florida Trust 87
New Jersey Trust 139

Gentlemen:

We have examined Registration Statement File Nos. 333-80731, 333-80733, 333-
74121 and 333-77683 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,

/s/ Frank A. Ciccotto, Jr.
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 236, California Trust 170, Florida
Trust 87 and New Jersey Trust 139

We consent to the use of our report dated August 18, 1999, included herein
and to the reference to our firm under the heading "Auditors" in the
Prospectus.

KPMG LLP

New York, New York
August 18, 1999