<PAGE>
As filed with the Securities and Exchange Commission on June 27, 2000
Registration Nos. 333-37422
333-94313
333-35006
333-95491
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
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 243
Maryland Trust 112
New Jersey Trust 144
B. Name of depositor: New York Trust 180
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.
7 World Trade Center
New York, New York 10048
Copy to:
MICHAEL R. ROSELLA, ESQ.
PAUL, HASTINGS, JANOFSKY & WALKER LLP
75 East 55th Street
New York, New York 10022
E. Title 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. Approximate date of proposed public offering:
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 243
Maryland Trust 112
New Jersey Trust 144
New York Trust 180
Unit Investment Trusts
SalomonSmithBarney The Tax Exempt Securities Trust is sponsored by
--------------------- Salomon Smith Barney Inc. and consists of four
A member of citigroup separate unit investment trusts: National Trust
[LOGO] 243, Maryland Trust 112, New Jersey Trust 144 and
New York Trust 180. 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 June 27, 2000
<PAGE>
TAX EXEMPT SECURITIES TRUST
INVESTMENT SUMMARY AS OF JUNE 26, 2000
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 tax. 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 June 26, 2000 would have been $997.87
for the National Trust, $995.10 for the Maryland Trust, $989.88 for the New
Jersey Trust and $999.25 for the New York 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 243
--------------------------------------------------------------------------------
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% $46.78
Maximum Sales Charge Imposed on Reinvested Dividends........ 0% $ 0
Reimbursement to Sponsor for Estimated Organization Costs... .251% $ 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............................................... .148% $1.40
Other Operating Expenses.................................... .029% $ .28
Maximum Portfolio Supervision, Bookkeeping and
Administrative Fees........................................ .026% $ .25
---- ------
Total..................................................... .203% $1.93
==== ======
</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 .203%
and a 5% annual return on the investment
throughout the periods............................ $490 $532 $579 $717
</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 MARYLAND TRUST 112
--------------------------------------------------------------------------------
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% $46.65
Maximum Sales Charge Imposed on Reinvested Dividends......... 0% $ 0
Reimbursement to Sponsor for Estimated Organization Costs.... .252% $ 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................................................ .132% $1.25
Other Operating Expenses..................................... .043% $ .41
Maximum Portfolio Supervision, Bookkeeping and
Administrative Fees......................................... .027% $ .25
----- -----
Total...................................................... .202% $1.91
===== =====
</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 .202% and a 5% annual return
on the investment throughout the periods................ $490 $532 $578 $716
</TABLE>
The example assumes reinvestment of all dividends and distributions and
utilizes a 5% annual rate of return as mandated by Securities and Exchange
Commission regulations applicable to mutual funds. The example should not be
considered a representation of past or future expenses or annual rate of
return; the actual expenses and annual rate of return may be more or less than
those assumed for purposes of the example.
A-5
<PAGE>
TAX EXEMPT SECURITIES TRUST
FEE TABLE FOR NEW JERSEY TRUST 144
--------------------------------------------------------------------------------
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% $46.41
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................................................ .143% $1.35
Other Operating Expenses..................................... .039% $ .37
Maximum Portfolio Supervision, Bookkeeping and
Administrative Fees......................................... .027% $ .25
----- -----
Total...................................................... .209% $1.97
===== =====
</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 .209% and a 5% annual return
on the investment throughout the periods................ $490 $534 $582 $724
</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-6
<PAGE>
TAX EXEMPT SECURITIES TRUST
FEE TABLE FOR NEW YORK TRUST 180
--------------------------------------------------------------------------------
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% $46.85
Maximum Sales Charge Imposed on Reinvested Dividends........ 0% $ 0
Reimbursement to Sponsor for Estimated Organization Costs... .251% $ 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.................................... .047% $ .45
Maximum Portfolio Supervision, Bookkeeping and
Administrative Fees........................................ .026% $ .25
---- ------
Total..................................................... .205% $ 1.95
==== ======
</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 .205%
and a 5% annual return on the investment throughout
the periods......................................... $490 $533 $580 $719
</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-7
<PAGE>
TAX EXEMPT SECURITIES TRUST
SUMMARY OF ESSENTIAL INFORMATION
AS OF JUNE 26, 2000 +
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
June 26, 2000
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 August 1, 2000
Distribution Dates
The fifteenth day of each month,** commencing August 15, 2000
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 $5.68 for the National Trust, $5.21
for the Maryland Trust, $5.21 for the New Jersey Trust and $5.32 for the New
York Trust, will be made on August 15, 2000.
*** 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 JUNE 26, 2000
<TABLE>
<CAPTION>
National Maryland
Trust 243 Trust 112
---------- ----------
<S> <C> <C>
Principal Amount of Bonds in Trust.................... $7,000,000 $2,000,000
Number of Units....................................... 7,000 2,000
Principal Amount of Bonds in Trust per Unit........... $ 1,000 $ 1,000
Fractional Undivided Interest in Trust per Unit....... 1/7,000 1/2,000
Minimum Value of Trust:
Trust Agreement may be Terminated if Principal Amount
is less than........................................ $1,500,000 $1,000,000
Calculation of Public Offering Price per Unit*:
Aggregate Offering Price of Bonds in Trust........... $6,640,123 $1,891,892
========== ==========
Divided by Number of Units........................... $ 948.59 $ 945.95
Plus: Sales Charge (4.70% of the Public Offering
Price).............................................. $ 46.78 $ 46.65
---------- ----------
Public Offering Price per Unit....................... $ 995.37 $ 992.60
Plus: Estimated Organization Expenses................ $ 2.50 $ 2.50
Plus Accrued Interest*............................... $ .64 $ .59
---------- ----------
Total................................................ $ 998.51 $ 995.69
========== ==========
Sponsor's Initial Repurchase Price per Unit (per Unit
Offering Price of Bonds)**........................... $ 948.59 $ 945.95
Approximate Redemption Price per Unit (per Unit Bid
Price of Bonds)**.................................... $ 944.59 $ 941.95
---------- ----------
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..................... $ 60.37 $ 55.55
Less: Estimated Trustee's Annual Fee***.............. $ 1.40 $ 1.25
Less: Other Estimated Annual Expenses................ $ .53 $ .66
---------- ----------
Estimated Net Annual Income per Unit................. $ 58.44 $ 53.64
========== ==========
Calculation of Monthly Income Distribution per Unit:
Estimated Net Annual Income per Unit................. $ 58.44 $ 53.64
Divided by 12........................................ $ 4.87 $ 4.47
Accrued interest from the day after the Date of
Deposit to the first record date**................... $ 5.68 $ 5.21
First distribution per unit........................... $ 5.68 $ 5.21
Daily Rate (360-day basis) of Income Accrual per
Unit................................................. $ .1623 $ .1490
Estimated Current Return based on Public Offering
Price****............................................ 5.86% 5.39%
Estimated Long-Term Return****........................ 5.93% 5.38%
</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 JUNE 26, 2000
<TABLE>
<CAPTION>
New Jersey New York
Trust 144 Trust 180
---------- ----------
<S> <C> <C>
Principal Amount of Bonds in Trust.................... $2,000,000 $3,000,000
Number of Units....................................... 2,000 3,000
Principal Amount of Bonds in Trust per Unit........... $ 1,000 $ 1,000
Fractional Undivided Interest in Trust per Unit....... 1/2,000 1/3,000
Minimum Value of Trust:
Trust Agreement may be Terminated if Principal Amount
is less than........................................ $1,000,000 $1,500,000
Calculation of Public Offering Price per Unit*:
Aggregate Offering Price of Bonds in Trust........... $1,881,941 $2,849,696
========== ==========
Divided by Number of Units........................... $ 940.97 $ 949.90
Plus: Sales Charge (4.70% of the Public Offering
Price).............................................. $ 46.41 $ 46.85
---------- ----------
Public Offering Price per Unit....................... $ 987.38 $ 996.75
Plus: Estimated Organization Expenses................ $ 2.50 $ 2.50
Plus Accrued Interest*............................... $ .59 $ .60
---------- ----------
Total................................................ $ 990.47 $ 999.85
========== ==========
Sponsor's Initial Repurchase Price per Unit (per Unit
Offering Price of Bonds)**........................... $ 940.97 $ 949.90
Approximate Redemption Price per Unit (per Unit Bid
Price of Bonds)**.................................... $ 936.97 $ 945.90
---------- ----------
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..................... $ 55.61 $ 56.67
Less: Estimated Trustee's Annual Fee***.............. $ 1.35 $ 1.25
Less: Other Estimated Annual Expenses................ $ .62 $ .70
---------- ----------
Estimated Net Annual Income per Unit................. $ 53.64 $ 54.72
========== ==========
Calculation of Monthly Income Distribution per Unit:
Estimated Net Annual Income per Unit................. $ 53.64 $ 54.72
Divided by 12........................................ $ 4.47 $ 4.56
Accrued interest from the day after the Date of
Deposit to the first record date**................... $ 5.21 $ 5.32
First distribution per unit........................... $ 5.21 $ 5.32
Daily Rate (360-day basis) of Income Accrual per
Unit................................................. $ .1490 $ .1520
Estimated Current Return based on Public Offering
Price****............................................ 5.42% 5.48%
Estimated Long-Term Return****........................ 5.46% 5.52%
</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 JUNE 26, 2000
<TABLE>
<CAPTION>
National Maryland
Trust 243 Trust 112
------------ ------------
<S> <C> <C>
Number of municipal bonds (from 15 States and the
District of Columbia for the National Trust; from
Maryland and the United States Virgin Islands for
the Maryland Trust)................................ 20 7
Number of bonds issued with "original issue
discount".......................................... 15 4
Average life to maturity of the bonds in the Trust
(in years)......................................... 26.2 31.2
<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)............ 6.4% 0.0%
General obligation bonds backed by the taxing power
of state issuer.................................... 4.2% 0.0%
Bonds not supported by the issuer's power to levy
tax................................................ 95.8% 100.0%
The bonds derived their income from the following
primary sources:
. convention facilities............................. 7.6% 0.0%
. educational facilities............................ 7.6% 11.6%
. hospital and health care facilities............... 36.5%* 49.6%*
. housing facilities................................ 31.5%* 22.8%
. pollution control facilities...................... 12.6% 0.0%
. public improvement facilities..................... 0.0% 16.0%
The bonds in the trust are rated as follows:
. Standard & Poor's
AAA............................................... 11.8% 35.2%
AA................................................ 13.7% 0.0%
A................................................. 46.0% 27.6%
---- -----
Total........................................... 71.5% 62.8%
==== =====
. Moody's
Aaa............................................... 0.0% 19.7%
Aa................................................ 2.4% 17.5%
A................................................. 26.1% 0.0%
---- -----
Total........................................... 28.5% 37.2%
==== =====
The following insurance companies have insured the
bonds in the trust as to timely payment of
principal and interest:
. ACA............................................... 13.2% 16.0%
. AMBAC............................................. 7.6% 0.0%
. Asset Guaranty.................................... 5.3% 0.0%
. FGIC.............................................. 4.2% 0.0%
. FSA............................................... 0.0% 30.0%
---- -----
Total........................................... 30.3% 46.0%
==== =====
</TABLE>
------------
+ Percentages based on the aggregate offering price of the bonds in the trust.
* The trust is considered to be "concentrated" in a particular category when
bonds of that type make up 25% or more of the portfolio.
A-11
<PAGE>
TAX EXEMPT SECURITIES TRUST
PORTFOLIO SUMMARY AS OF JUNE 26, 2000
<TABLE>
<CAPTION>
New Jersey New York
Trust 144 Trust 180
------------ ------------
<S> <C> <C>
Number of municipal bonds (from New Jersey and the
United States Virgin Islands for the New Jersey
Trust; from New York and the United States Virgin
Islands for the New York Trust)..................... 8 13
Number of bonds issued with "original issue
discount"........................................... 7 11
Average life to maturity of the bonds in the Trust
(in years).......................................... 29.1 29.6
<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)............. 0.0% 0.0%
General obligation bonds backed by the taxing power
of state issuer..................................... 0.0% 0.0%
Bonds not supported by the issuer's power to levy
tax................................................. 100.0% 100.0%
The bonds derived their income from the following
primary sources:
. educational facilities............................. 0.0% 20.9%
. hospital and health care facilities................ 33.3%* 42.0%*
. housing facilities................................. 27.4%* 0.0%
. public improvement facilities...................... 16.1% 24.7%
. special tax bonds.................................. 0.0% 5.2%
. transportation facilities.......................... 23.2% 3.6%
. water and sewer facilities......................... 0.0% 3.6%
The bonds in the trust are rated as follows:
. Standard & Poor's
AAA................................................ 62.1% 31.6%
AA................................................. 0.0% 23.1%
A.................................................. 29.9% 25.9%
----- -----
Total............................................ 92.0% 80.6%
===== =====
. Moody's
Aa................................................. 0.0% 19.4%
A.................................................. 8.0% 0.0%
----- -----
Total............................................ 8.0% 19.4%
===== =====
The following insurance companies have insured the
bonds in the trust as to timely payment of principal
and interest:
. ACA................................................ 30.0% 23.0%
. AMBAC.............................................. 17.7% 15.6%
. Asset Guaranty..................................... 0.0% 17.9%
. FSA................................................ 33.2% 7.1%
. MBIA............................................... 11.2% 0.0%
----- -----
Total............................................ 92.1% 63.6%
===== =====
</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
--------------------------------------
Maryland New
National Trust Jersey New York
Trust 243 112 Trust 144 Trust 180
--------- -------- --------- ---------
<S> <C> <C> <C> <C>
Salomon Smith Barney Inc. ............... 6,400 1,750 1,900 2,900
388 Greenwich Street
New York, New York 10013
Southwest Securities, Inc................ 250 250 -- --
1201 Elm Street
Suite 3500
Dallas, Texas 75270
William R. Hough......................... 250 -- -- --
100 Second Avenue
Suite 800
St. Petersburg, Florida 33701
Gruntal & Co. Incorporated............... 100 -- -- 100
14 Wall Street
New York, New York 10005
CIBC Oppenheimer Corp. .................. -- -- 100 --
Oppenheimer Tower
One World Financial Center
New York, New York 10281
----- ----- ----- -----
Total.................................... 7,000 2,000 2,000 3,000
===== ===== ===== =====
</TABLE>
A-13
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Sponsor, Trustee and Unit Holders of
Tax Exempt Securities Trust, National Trust 243, Maryland Trust 112, New
Jersey Trust 144 and New York Trust 180:
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 243, Maryland Trust 112, New Jersey
Trust 144 and New York Trust 180, as of June 26, 2000. 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 auditing standards generally
accepted in the United States of America. 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 June 26, 2000, 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 243,
Maryland Trust 112, New Jersey Trust 144 and New York Trust 180 as of June 26,
2000, in conformity with accounting principles generally accepted in the United
States of America.
/s/ KPMG LLP
New York, New York
June 26, 2000
A-14
<PAGE>
TAX EXEMPT SECURITIES TRUST
STATEMENTS OF FINANCIAL CONDITION
AS OF DATE OF DEPOSIT, JUNE 26, 2000
<TABLE>
<CAPTION>
TRUST PROPERTY
-------------------------
National Maryland
Trust 243 Trust 112
---------- ----------
<S> <C> <C> <C>
Investment in Tax-Exempt Securities:
Bonds represented by purchase contracts backed by
letter of credit (1).............................. $6,640,123 $1,891,892
Accrued interest through the Date of Deposit on
underlying bonds (1)(2)............................. 93,280 28,444
Cash (3)............................................. 17,500 5,000
---------- ----------
Total............................................ $6,750,903 $1,925,336
========== ==========
<CAPTION>
LIABILITIES AND INTEREST
OF
UNIT HOLDERS
-------------------------
<S> <C> <C> <C>
Liabilities:
Accrued interest through the Date of Deposit on
underlying bonds (1)(2)........................... $ 93,280 $ 28,444
Reimbursement to Sponsor for Organization Cost
(3)............................................... 17,500 5,000
---------- ----------
110,780 33,444
---------- ----------
Interest of Unit Holders:
Units of fractional undivided interest outstanding
(National Trust 243: 7,000; Maryland Trust 112:
2,000)
Cost to investors (4)............................. 6,991,670 1,991,380
Less--Gross underwriting commission (5)........... 334,047 94,488
Less--Organization Costs (3)...................... 17,500 5,000
---------- ----------
Net amount applicable to investors................ 6,640,123 1,891,892
---------- ----------
Total............................................ $6,750,903 $1,925,336
========== ==========
</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 June 26, 2000, 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 $14,000,000 principal amount of Bonds in all
of the Trusts, pursuant to contracts to purchase such Bonds at the
aggregate cost of $13,263,652 plus $204,096 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 each of the Trusts. A payment will be
made as of the close of the initial public offering period to an account
maintained by the Trustee from which the obligation of the investors to
the Sponsor will be satisfied. To the extent that actual organization
expenses are less than the estimated amount, only the actual organization
expenses will be deducted from the assets of a Trust.
(4) Aggregate public offering price (exclusive of interest) computed on 7,000
Units of the National Trust and 2,000 Units of the Maryland Trust, on the
basis set forth in Part B, "Public Offering--Offering Price."
(5) Sales charge of 4.70% computed on 7,000 Units of the National Trust and
2,000 Units of the Maryland 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, JUNE 26, 2000
<TABLE>
<CAPTION>
TRUST PROPERTY
-------------------------
New Jersey New York
Trust 144 Trust 180
---------- ----------
<S> <C> <C> <C>
Investment in Tax-Exempt Securities:
Bonds represented by purchase contracts backed by
letter of credit (1).............................. $1,881,941 $2,849,696
Accrued interest through the Date of Deposit on
underlying bonds (1)(2)............................. 37,165 45,207
Cash (3)............................................. 5,000 7,500
---------- ----------
Total............................................ $1,924,106 $2,902,403
========== ==========
<CAPTION>
LIABILITIES AND INTEREST
OF
UNIT HOLDERS
-------------------------
<S> <C> <C> <C>
Liabilities:
Accrued interest through the Date of Deposit on
underlying bonds (1)(2)........................... $ 37,165 $ 45,207
Reimbursement to Sponsor for Organization Costs
(3)............................................... 5,000 7,500
---------- ----------
42,165 52,707
---------- ----------
Interest of Unit Holders:
Units of fractional undivided interest outstanding
(New Jersey Trust 144: 2,000; New York Trust 180:
3,000)
Cost to investors (4)............................. 1,980,940 2,999,550
Less--Gross underwriting commission (5)........... 93,999 142,354
Less--Organization Costs (3)...................... 5,000 7,500
---------- ----------
Net amount applicable to investors................ 1,881,941 2,849,696
---------- ----------
Total............................................ $1,924,106 $2,902,403
========== ==========
</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 June 26, 2000, 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 $14,000,000 principal amount of Bonds in all
of the Trusts, pursuant to contracts to purchase such Bonds at the
aggregate cost of $13,263,652 plus $204,096 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 each of the Trusts. 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 New Jersey Trust and 3,000 Units of the New York 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 New Jersey Trust and
3,000 Units of the New York 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 243--PORTFOLIO OF SECURITIES
AS OF JUNE 26, 2000
<TABLE>
<CAPTION>
Yield on Annual
Securities Represented Redemption Cost of Date of Interest
Aggregate by Ratings Provisions Securities Deposit Income
Principal Purchase Contracts (1) (2) to Trust (3)(4) (4) to Trust
--------- ------------------------ ------- ----------------- --------------- -------- --------
<C> <C> <S> <C> <C> <C> <C> <C>
1. $ 500,000 Valdez, Alaska, Marine AA+ 12/1/03 @ 102 $ 476,240 6.000% $ 28,250
Terminal Revenue
Refunding Bonds, BP
Pipelines Inc., 5.65%
Due 12/1/2028
2. 500,000 The Industrial A3* 5/1/10 @ 102 510,160 6.500 33,750
Development Authority of SF 5/1/19 @ 100
the County of Maricopa,
Arizona, Multifamily
Housing Revenue Bonds,
Sun King Apartments,
6.75% Due 5/1/2031
3. 500,000 South Lake County, A- 10/1/09 @ 101 458,480 6.400 29,000
Florida, Hospital SF 10/1/34 @ 100
District Revenue Bonds,
Series 1999, South Lake
Hospital, Inc., 5.80%
Due 10/1/2034
4. 150,000 Savannah, Georgia, A 11/15/10 @ 102 153,142 6.500 10,125
Economic Development SF 11/15/21 @ 100
Authority, Student
Housing Revenue Bonds,
University Foundation,
St. University Project,
ACA Insured, 6.75%
Due 11/15/2031
5. 320,000 Illinois Health Facility A- 12/1/07 @ 102 265,379 6.900 16,800
Authority Revenue Bonds, SF 12/1/09 @ 100
Friendship Village
Schaumburg, 5.25%
Due 12/1/2018
6. 500,000 Illinois Health A3* 7/1/09 @ 101 421,415 7.250 28,750
Facilities Authority, SF 7/1/16 @ 100
Revenue Refunding Bonds,
West Suburban Hospital,
5.75% Due 7/1/2020
7. 315,000 The County of Cook, AAA 11/15/09 @ 101 278,117 5.850 15,750
Illinois, General SF 11/15/24 @ 100
Obligation Capital
Improvement Bonds, FGIC
Insured, 5.00%
Due 11/15/2028
</TABLE>
A-17
<PAGE>
TAX EXEMPT SECURITIES TRUST
NATIONAL TRUST 243--PORTFOLIO OF SECURITIES
AS OF JUNE 26, 2000
<TABLE>
<CAPTION>
Cost of Yield on Annual
Securities Represented Redemption Securities Date of Interest
Aggregate by Ratings Provisions to Trust Deposit Income
Principal Purchase Contracts (1) (2) (3)(4) (4) to Trust
--------- ------------------------ ------- ---------------- ---------- -------- --------
<C> <C> <S> <C> <C> <C> <C> <C>
8. $ 325,000 Woodbury County, Iowa, A 12/1/09 @ 100 $ 327,808 6.500% $ 21,531
Community Provider SF 12/1/19 @ 100
Revenue Bonds, Boys and
Girls Home and Family
Services, Inc. Project,
ACA Insured, 6.625% Due
12/1/2028
9. 100,000 Massachusetts State AA- 7/1/09 @ 101 83,774 6.500 5,250
Health and Educational SF 7/1/20 @ 100
Facilities Authority
Revenue Bonds, Partners
Healthcare System, 5.25%
Due 7/1/2029
10. 500,000 City of Saginaw, A 7/1/10 @ 101 499,500 6.508 32,500
Michigan, Hospital SF 7/1/25 @ 100
Finance Authority,
Hospital Revenue Bonds,
Covenant Medical Center
Inc., 6.50% Due 7/1/2030
11. 155,000 City of St. Louis Park, Aa* 12/1/05 @ 102 156,362 6.100 9,688
Minnesota, Multifamily SF 6/1/17 @ 100
Housing Refunding Bonds,
FHA Insured Mortgage
Loans, Community Housing
and Service Corporation
Project, 6.25% Due
12/1/2028
12. 140,000 Hobbs, New Mexico, A 9/15/10 @ 102 139,860 6.633 9,275
Multifamily Revenue SF 9/15/11 @ 100
Refunding & Improvement
Bonds, Washington Plaza
Apartments, 6.625%
Due 9/15/2020
13. 250,000 North Carolina Medical A 8/15/10 @ 102 253,123 6.300 16,125
Care Commission Revenue SF 8/15/11 @ 100
Bonds, North Carolina
Housing Foundation,
Inc., ACA Insured, 6.45%
Due 8/15/2020
14. 350,000 Forest Grove, Oregon, AA 5/1/10 @ 100 352,513 6.200 22,050
Revenue Bonds, Campus SF 5/1/21 @ 100
Improvement & Refunding
Bonds, Pacific
University, 6.30% Due
5/1/2025
</TABLE>
A-18
<PAGE>
TAX EXEMPT SECURITIES TRUST
NATIONAL TRUST 243--PORTFOLIO OF SECURITIES
AS OF JUNE 26, 2000
<TABLE>
<CAPTION>
Cost of Yield on Annual
Securities Represented Redemption Securities Date of Interest
Aggregate by Ratings Provisions to Trust Deposit Income
Principal Purchase Contracts (1) (2) (3)(4) (4) to Trust
---------- ------------------------ ------- ---------------- ---------- -------- --------
<C> <C> <S> <C> <C> <C> <C> <C>
15. $ 500,000 Texas Department of A 7/1/06 @ 102 $ 499,500 6.508% $ 32,500
Housing and Community SF 1/1/17 @ 100
Affairs, Multifamily
Housing Revenue Bonds,
Dallas, Fort Worth
Apartments Pool Project,
6.50% Due 7/1/2026
16. 500,000 Harris County, Texas, A 7/1/09 @ 102 454,845 6.750 29,500
Housing Finance SF 1/1/10 @ 100
Corporation, Multifamily
Housing Revenue Bonds,
Windfern Pointe and
Waterford Place
Apartments Projects,
5.90% Due 7/1/2019
17. 350,000 Covington--Alleghany A3* 9/1/04 @ 102 359,748 6.100 23,275
County, Virginia,
Industrial Development
Authority, Pollution
Control Revenue
Refunding Bonds,
Westvaco Corporation
Project, 6.65% Due
9/1/2018
18. 250,000 West Virginia Hospital A2* 9/1/10 @ 101 249,750 6.757 16,875
Finance Authority, SF 9/1/23 @ 100
Hospital Revenue Bonds,
Charleston Area Medical
Center, Inc., 6.75% Due
9/1/2030
19. 195,000 West Virginia Hospital A2* 9/1/10 @ 101 194,805 6.757 13,162
Finance Authority, SF 9/1/23 @ 100
Hospital Revenue Bonds,
Oak Hill Hospital, Inc.
6.75% Due 9/1/2030
20. 600,000 Washington D.C. AAA 10/1/08 @ 100 505,602 5,900 28,500
Convention Center SF 10/1/22 @ 100
Authority, Dedicated Tax
Revenue Senior Lien
Bonds, AMBAC Insured,
4.75% Due 10/1/2028
---------- ---------- --------
$7,000,000 $6,640,123 $422,656
========== ========== ========
</TABLE>
The Notes following the Portfolios are an integral part of each Portfolio of
Securities.
A-19
<PAGE>
TAX EXEMPT SECURITIES TRUST
MARYLAND TRUST 112--PORTFOLIO OF SECURITIES
AS OF JUNE 26, 2000
<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. $ 325,000 Maryland State Community Aa2* 4/1/05 @ 102 $ 331,230 5.900% $ 20,313
Development SF 4/1/15 @ 100
Administration
Department Housing &
Community Development,
Single Family Program
Revenue Bonds, 6.25%
Due 4/1/2017
2. 400,000 Maryland State Economic AAA 12/20/08 @ 102 370,112 5.950 21,800
Development Corporation, SF 6/20/28 @ 100
Health Care Facilities
Revenue Bonds, GNMA
Collateralized, Crescent
Cities Project, 5.45%
Due 12/20/2037
3. 325,000 Maryland Health and AAA 7/1/08 @ 101 295,106 5.750 16,656
Higher Educational SF 5/1/29 @ 100
Facilities Authority
Revenue Bonds, Anne
Arundel Medical Center
Issue, FSA Insured,
5.125% Due 7/1/2033
4. 250,000 Maryland State Health & A 10/01/09 @ 101 219,148 5.800 12,500
Higher Educational SF 10/1/30 @ 100
Facilities Authority
Revenue Bonds, Loyola
College Issue, 5.00% Due
10/01/2039
5. 300,000 Maryland Health and Aaa* 1/1/08 @ 101 272,550 5.750 15,375
Higher Educational SF 1/1/29 @ 100
Facilities Authority
Revenue Bonds, Upper
Chesapeake Hospitals
Issue, FSA Insured,
5.125% Due 1/1/2033
6. 100,000 Housing Opportunities Aaa* 7/1/10 @ 100 100,743 6.000 6,100
Commission of Montgomery SF 7/1/21 @ 100
County, Maryland,
MultiFamily Housing
Development Revenue
Bonds, GNMA Insured,
6.10% Due 7/1/2030
</TABLE>
A-20
<PAGE>
TAX EXEMPT SECURITIES TRUST
MARYLAND TRUST 112--PORTFOLIO OF SECURITIES
AS OF JUNE 26, 2000
<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 Virgin Islands Public A 10/1/10 @ 101 $ 303,003 6.000% $ 18,375
Finance Authority SF 10/1/25 @ 100
Revenue Bonds, Virgin
Islands Gross Receipts
Taxes Loan Note, ACA
Insured, 6.125%
Due 10/1/2029
---------- ---------- --------
$2,000,000 $1,891,892 $111,119
========== ========== ========
</TABLE>
The Notes following the Portfolios are an integral part of each Portfolio of
Securities.
A-21
<PAGE>
TAX EXEMPT SECURITIES TRUST
NEW JERSEY TRUST 144--PORTFOLIO OF SECURITIES
AS OF JUNE 26, 2000
<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. $ 150,000 New Jersey Health Care A3* 1/1/10 @ 101 $ 149,850 6.007% $ 9,000
Facilities Financing SF 1/1/26 @ 100
Authority Revenue Bonds,
Hackensack University
Medical Center Issue,
6.00% Due 1/1/2034
2. 130,000 New Jersey Health Care AAA 5/15/09 @ 101 107,675 6.000 6,175
Facilities Financing
Authority Revenue Bonds.
Healthcare System
Catholic Health East,
AMBAC Insured, 4.75% Due
11/15/2029
3. 120,000 New Jersey Health Care AAA 7/1/09 @ 101 107,696 6.000 6,300
Facilities Financing SF 7/1/25 @ 100
Authority Revenue Bonds,
Meridian Health System
Obligated Group Issue,
FSA Insured, 5.25% Due
7/1/2029
4. 300,000 New Jersey Health Care A 7/1/09 @ 101 260,556 6.250 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
5. 500,000 New Jersey State Housing AAA 3/1/10 @ 100 516,435 5.800 31,250
and Mortgage Finance SF 5/1/21 @ 100
Agency, Multi-Family
Housing Revenue Bonds,
FSA Insured, 6.25% Due
11/1/2026
6. 250,000 Port Authority of New AAA 8/1/05 @ 101 211,548 5.800 11,875
York and New Jersey, SF 8/1/25 @ 100
Consolidated Bonds, MBIA
Insured, 4.75% Due
8/1/2033
</TABLE>
A-22
<PAGE>
TAX EXEMPT SECURITIES TRUST
NEW JERSEY TRUST 144--PORTFOLIO OF SECURITIES
AS OF JUNE 26, 2000
<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. $ 250,000 South Jersey AAA 11/01/09 @ 101 $ 225,178 5.700% $ 12,500
Transportation SF 11/1/23 @ 100
Authority, New Jersey,
Transportation System
Revenue Bonds, AMBAC
Insured, 5.00% Due
11/01/2029
8. 300,000 Virgin Islands Public A 10/1/10 @ 101 303,003 6.000 18,375
Finance Authority SF 10/1/25 @ 100
Revenue Bonds, Virgin
Islands Gross Receipts
Taxes Loan Note, ACA
Insured, 6.125% Due
10/1/2029
---------- ---------- --------
$2,000,000 $1,881,941 $111,225
========== ========== ========
</TABLE>
The Notes following the Portfolios are an integral part of each Portfolio of
Securities.
A-23
<PAGE>
TAX EXEMPT SECURITIES TRUST
NEW YORK TRUST 180--PORTFOLIO OF SECURITIES
AS OF JUNE 26, 2000
<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. $ 115,000 New York City, New York, AAA 6/15/08 @ 101 $ 102,528 5.800% $ 5,750
Municipal Water
Financing Authority,
Water & Sewer System
Revenue Bonds, FSA
Insured, 5.00% Due
6/15/2027
2. 170,000 New York City AA 5/1/08 @ 101 148,806 5.950 8,500
Transitional Finance SF 5/1/24 @ 100
Authority Bonds, 5.00%
Due 5/1/2026
3. 250,000 Dormitory Authority of A 7/1/10 @ 102 255,790 6.100 15,937
the State of New York, SF 7/1/26 @ 100
The Miriam Osborn
Memorial Home
Association Revenue
Bonds, ACA Insured,
6.375% Due 7/1/2029
4. 100,000 Dormitory Authority of AAA 2/1/07 @ 102 99,900 6.006 6,000
the State of New York, SF 2/1/09 @ 100
Nursing Home Lakeside
Bonds, FSA Insured,
6.00% Due 2/1/2037
5. 400,000 Dormitory Authority of AAA 2/1/08 @ 101 340,528 5.850 19,000
the State of New York, SF 8/1/17 @ 100
The New York and
Presbyterian Hospital,
FHA-Insured Mortgage
Hospital Revenue Bonds,
AMBAC Insured, 4.75% Due
8/1/2027
6. 100,000 Dormitory Authority of A 5/15/08 @ 101 84,354 5.900 4,750
the State of New York, SF 5/15/21 @ 100
State University
Educational Facilities
Revenue Bonds, 4.75% Due
5/15/2028
7. 250,000 Essex County, New York, AAA 8/1/10 @ 101 252,605 6.250 15,937
Industrial Development SF 2/1/19 @ 100
Agency, Civic Facility
Revenue Bonds, FHA-
Insured Mortgage--Moses-
Ludington Nursing Home
Company, Inc. Project,
6.375% Due 2/1/2050
</TABLE>
A-24
<PAGE>
TAX EXEMPT SECURITIES TRUST
NEW YORK TRUST 180--PORTFOLIO OF SECURITIES
AS OF JUNE 26, 2000
<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>
8. $ 250,000 Village of Kenmore AA 8/1/09 @ 102 $ 234,162 6.000% $ 13,750
Housing Authority, SF 8/1/20 @ 100
Student Housing Revenue
Bonds, State University
of New York at Buffalo,
Student Apartment
Project, Asset Guaranty
Insured, 5.50% Due
8/1/2024
9. 300,000 County of Monroe, New AA 6/1/09 @ 102 276,327 6.000 16,125
York, Industrial SF 6/1/18 @ 100
Development Agency,
Civic Facility Revenue
Bonds, St. John Fisher
College Project, Asset
Guaranty Insured, 5.375%
Due 6/1/2024
10. 250,000 Oneida County, New York, Aa3* 6/1/10 @ 101 248,560 6.150 15,250
Industrial Development SF 12/1/15 @ 100
Agency, Civic Facility
Revenue Bonds,
Presbyterian Home for
Central New York, Inc.
Civic Facility, 6.10%
Due 6/1/2020
11. 300,000 TSASC, Inc. Tobacco Aa3* 7/15/09 @ 101 303,870 6.200 19,125
Flexible Amortization SF 7/15/34 @ 100
Bonds, New York, 6.375%
Due 7/15/2039
12. 120,000 Port Authority of New AAA 1/15/06 @ 101 103,312 5.800 5,700
York and New Jersey, SF 7/15/22 @ 100
Consolidated Bonds,
AMBAC Insured, 4.75% Due
1/15/2026
13. 395,000 Virgin Islands Public A 10/1/10 @ 101 398,954 6.000 24,194
Finance Authority SF 10/1/25 @ 100
Revenue Bonds, Virgin
Islands Gross Receipts
Taxes Loan Note, ACA
Insured, 6.125% Due
10/1/2029
---------- ---------- --------
$3,000,000 $2,849,696 $170,018
========== ========== ========
</TABLE>
The Notes following the Portfolios are an integral part of each Portfolio of
Securities.
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 April 13,
2000, through June 21, 2000, with the settlement date on June 29, 2000. The
Profit to the Sponsor on Deposit totals $90,104 for the National Trust,
$24,789 for the Maryland Trust, $24,115 for the New Jersey Trust and
$30,378 for the New York 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 June 26, 2000, the aggregate
bid price of the Bonds was $6,612,123 for the National Trust, $1,883,892
for the Maryland Trust, $1,873,941 for the New Jersey Trust and $2,837,696
for the New York 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 division 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 each 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 Unit will be
increased. Units will remain outstanding until redeemed or until the
termination of the Trust.
B-1
<PAGE>
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. See "Taxes"
herein.
"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 the Holders
purchase of Units and delivery of such Bonds to a Trust. Such adjustment has
been taken into account in computing the Estimated Current Return and Estimated
Long-Term Return set forth herein, which is slightly lower than Holders may
receive after the first year. To the extent that the delivery of such Bonds is
delayed beyond their respective expected delivery dates, the Estimated Current
Return and Estimated Long-Term Return for the first year may be lower than
indicated in the "Summary of Essential Information" in Part A.
Redemption or Sale Prior to Maturity
Most of the Bonds in the Portfolio of a Trust are subject to redemption prior
to their stated maturity date pursuant to sinking fund or call provisions. A
call or redemption provision is more likely to be exercised when the offering
price valuation of a bond is higher than its call or redemption price. Such
price valuation is likely to be higher in periods of declining interest rates.
Certain of the Bonds may be sold or redeemed or otherwise mature. In such
cases, the proceeds from such events will be distributed to Holders and will
not be reinvested. Thus, no assurance can be given that a Trust will retain for
any length of time its present size and composition. To the extent that a Bond
was deposited in a Trust at a price higher than the price at which it is
redeemable, or at a price higher than the price at which it is sold, a sale or
redemption will result in a loss in the value of Units. Monthly
B-2
<PAGE>
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 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.
B-3
<PAGE>
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 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
B-4
<PAGE>
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 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
B-5
<PAGE>
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 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
B-6
<PAGE>
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 1999, approximately 87% of Puerto Rico's exports were to the United
States mainland, which was also the source of 60% of Puerto Rico's imports. In
fiscal 1999, Puerto Rico experienced a $9.6 billion positive adjusted
merchandise trade balance. The dominant sectors of the Puerto Rico economy are
manufacturing and services. Gross product in fiscal 1995 was $28.5 billion
($26.0 billion in 1992 prices) and gross product in fiscal 1999 was $38.2
billion ($29.8 billion in 1992 prices). This represents an increase in gross
product of 34.4% from fiscal 1995 to 1999 (14.8% in 1992 prices). According to
the Labor Department's Household Employment Survey, average employment
increased from 1,051,000 in fiscal 1995 to 1,147,000 in fiscal 1999. Average
unemployment decreased from 13.8% in fiscal 1995 to 12.5% in fiscal 1999. The
Planning Board's gross product forecast for fiscal 2000, made in October 1999,
projected an increase of 2.7% over fiscal 1999.
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
B-7
<PAGE>
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 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 Paul,
Hastings, Janofsky & Walker 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 generally 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
B-8
<PAGE>
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 are 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 possible 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 Paul, Hastings, Janofsky & Walker 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 it is not possible to
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 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 tax-exempt status of the Bonds.
Investors should consult their tax advisors for advice with respect to the
effect of these provisions on their particular tax situation.
The Trust
In the opinion of Paul, Hastings, Janofsky & Walker LLP, special counsel for
the Sponsor, under existing law as of the date of this Prospectus:
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 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 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
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<PAGE>
rules of the Code. Each 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 Holder's method of accounting and
depending on the existence of any original issue discount on the Bonds),
and each Holder will have a taxable event when an underlying Bond is
disposed of (whether by sale, redemption, or payment at maturity) or when
the Holder redeems or sells its Units.
The opinion of Paul, Hastings, Janofsky & Walker LLP, which is set forth
above, 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 Trusts pursuant to the Reinvestment Programs,
described under "Reinvestment Programs" in this Part B.
Other Tax Issues
The Trust may contain Bonds issued with original issue discount. Holders are
required 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 any 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 Holder's tax basis) in a Bond is increased by any tax-exempt 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.
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 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 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 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 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 Holder's tax basis for its pro rata interest in the
Bond, but will not result in any deduction from the Holder's income. Thus, for
example, a 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 Holder is
considered to have held such interest.
Bond premium must be amortized under the method the 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,
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<PAGE>
state and local income tax purposes. That gain (or loss) 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
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 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 Holder may exclude accrued interest, including any
accrued original issue discount, but not amounts attributable to market
discount. The return of a Holder's tax basis is otherwise a tax-free return of
capital.
A 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
any accrued market discount.
Long-term capital gains realized by non-corporate Holders (with respect to
Units and 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 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 Holders ($1,500 in the case of married
individuals filing separate returns) may be deducted against ordinary income.
Since the proceeds from the sale of Bonds, under certain circumstances, may not
be distributed pro-rata, a 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 unit investment trust
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 $32,000 for a married couple filing a joint return,
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<PAGE>
zero for married persons filing separate returns and not living apart at all
times during the year, and $25,000 for all others. 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 tax on tax-
exempt interest.
If borrowed funds are used by a 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 Holder
an annual statement containing information relating to the interest received by
the Trust on the Bonds, the gross proceeds received by the Trust from the
disposition of any Bond (resulting from redemption or payment at maturity of
any Bond or the sale by the Trust of any Bond), and the fees and expenses paid
by the Trust. The Trustee will also furnish annual information returns to each
Holder and to the Internal Revenue Service. Holders are required to report to
the Internal Revenue Service the amount of tax-exempt interest received during
the year.
EXPENSES AND CHARGES
Initial Expenses
Investors will reimburse the Sponsor on a per Unit basis, all or a portion of
the estimated costs incurred in organizing each Trust including the cost of the
initial preparation of documents relating to a Trust, Federal and State
registration fees, the initial fees and expenses of the Trustee, legal expenses
and any other out-of-pocket expenses. The estimated organization costs will be
paid to the Sponsor from the assets of a Trust as of the close of the initial
public offering period. To the extent that actual organization costs are less
than the estimated amount, only the actual organization costs will be deducted
from the assets of a Trust. To the extent that actual organization costs are
greater than the estimated amount, only the estimated organization costs added
to the Public Offering Price will be reimbursed to the Sponsor. Any balance of
the costs incurred in establishing a Trust, as well as advertising and selling
expenses and other out-of-pocket expenses will be paid at no cost to the
Trusts.
Fees
The Trustee's, Evaluator's and Sponsor's fees are set forth under the Summary
of Essential Information. The Trustee receives for its services as Trustee
payable in monthly installments, the amount set forth under Summary of
Essential Information. The Trustee's fee is based on the principal amount of
Bonds contained in the Trust during the preceding month. The Trustee also
receives benefits to the extent that it holds funds on deposit in the various
non-interest bearing accounts created under the Indenture.
The Evaluator's fee, which is earned for Bond evaluations, is received for
each evaluation of the Bonds in a Trust as set forth under Summary of Essential
Information.
The Sponsor's fee, which is earned for trust supervisory services, is based
on the largest number of Units outstanding during the year. The Sponsor's fee,
which is not to exceed the maximum amount set forth under Summary of Essential
Information, may exceed the actual costs of providing supervisory services for
the Trust. However, at no time will the total amount the Sponsor receives for
trust supervisory services rendered to all series of Tax Exempt Securities
Trusts in any calendar year
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<PAGE>
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 Holders; expenses and costs of any action
undertaken by the Trustee to protect a Trust and the rights and interests of
the Holders; fees of the Trustee for any extraordinary services performed under
the Trust Agreement; indemnification of the Trustee for any loss or liability
accruing to it without gross negligence, bad faith or willful misconduct on its
part, arising out of or in connection with its acceptance or administration of
a Trust.
To the extent lawful, the Trust will also pay expenses associated with
updating the Trusts' registration statements and maintaining registration or
qualification of the Units and/or a Trust under Federal or state securities
laws subsequent to initial registration. Such expenses shall include legal
fees, accounting fees, typesetting fees, electronic filing expenses and
regulatory filing fees. The expenses associated with updating registration
statements have been historically paid by a unit investment trust's sponsor.
Any payments received by the Sponsor reimbursing it for payments made to update
Trusts' registration statements will not exceed the costs incurred by the
Sponsors.
The Trusts shall further incur expenses associated with all taxes and other
governmental charges imposed upon the Bonds or any part of a Trust (no such
taxes or charges are being levied or made or, to the knowledge of the Sponsor,
contemplated). The above expenses, including the Trustee's fee, when paid by or
owing to the Trustee, are secured by a lien on the Trust. In addition, the
Trustee is empowered to sell Bonds in order to make funds available to pay all
expenses. All direct distribution expenses of the Trusts (including the costs
of maintaining the secondary market for the Trusts), such as printing and
distributing prospectuses, and preparing, printing and distributing any
advertisements or sales literature, will be paid at no cost to the Trusts.
PUBLIC OFFERING
Offering Price
During the initial public offering period, the Public Offering Price of the
Units is determined by adding to the Evaluator's determination of the aggregate
offering price of the Bonds per Unit a sales charge equal to a percentage of
the Public Offering Price of the Units, as set forth in the table below. In
addition, during the initial public offering period a portion of the Public
Offering Price per Unit also consists of cash in an amount sufficient to pay
the per Unit portion of all or a part of the cost incurred in organizing and
offering a Trust. After the initial public offering period, the Public Offering
Price of the Units of a Trust will be determined by adding to the Evaluator's
determination of the aggregate bid price of the Bonds per Unit a sales charge
equal to 5.00% of the Public Offering Price (5.263% of the aggregate bid price
of the Bonds per Unit). A proportionate share of accrued and undistributed
interest on the Bonds in a Trust at the date of delivery of the Units to the
purchaser is also added to the Public Offering Price.
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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 holders of units of any unit investment trust sponsored by the Sponsor
(the "Exchangeable Series") may exchange units of the Exchangeable Series for
Units of a Trust of this Series at their relative net asset values, subject to
a fixed sales charge of $25 per Unit. See "Exchange Option" herein.
The Sponsor may at any time change the amount by which the sales charge is
reduced, or discontinue the discount completely.
Employees of the Sponsor and its subsidiaries, affiliates and employee-
related accounts may purchase Units at a Public Offering Price equal to the
Evaluator's determination of the aggregate offering price of the Bonds per Unit
plus a sales charge of .50%. In addition, during the initial public offering
period a portion of the Public Offering Price per Unit also consists of cash in
an amount sufficient to pay the per Unit portion of all or a part of the cost
incurred in organizing and offering a Trust. After the initial public offering
period such purchases may be made at a Public Offering Price equal to the
Evaluator's determination of the aggregate bid price of the Bonds per Unit plus
a sales charge of .50%. Sales through such plans to employees of the Sponsor
result in less selling effort and selling expenses than sales to the general
public. Participants in the Smith Barney Asset OneSM Program and in the
Reinvestment Program of any series of the Trust may purchase Units at a Public
Offering Price equal to the Evaluator's determination of the aggregate offering
price of the Bonds (plus cash held by the Trust for organization and offering
costs) per Unit during the initial offering period and after the initial
offering period at a Public Offering Price equal to the Evaluator's
determination of the aggregate bid price of the Bonds per Unit. Participants in
the Smith Barney Asset OneSM Program are subject to certain fees for specified
securities brokerage and execution services.
Method of Evaluation
During the initial public offering period, the aggregate offering price of
the Bonds is determined by the Evaluator (1) on the basis of current offering
prices for Bonds, (2) if offering prices are not available for any Bonds, on
the basis of current offering prices for comparable securities, (3) by
appraisal, or (4) by any combination of the above. Such determinations are made
each business day as of the Evaluation Time set forth in the Summary of
Essential Information. Following the initial public offering period, the
aggregate bid price of the Bonds will be determined by the Evaluator (1) on the
basis of the current bid prices for the Bonds, (2) if bid prices are not
available for any Bonds, on the basis of current bid prices of comparable
securities, (3) by appraisal, or (4) by any combination of the above. Such
determinations will be made each business day as of the Evaluation Time set
forth in the Summary of Essential Information. The term "business day," as used
herein shall exclude Saturdays, Sundays and any day on which the New York Stock
Exchange is closed. The difference between the bid and offering prices of the
Bonds may be expected to average approximately 1 1/2% of principal amount of
the Bonds. In the case of actively traded securities, the difference may be as
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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 (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 terms of the Exchange Option will also apply to
holders who wish to exchange units of an Exchangeable Series for Units of a
Trust of this Series. 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
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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, or units of an Exchangeable Series for Units of a 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, or units of
an Exchangeable Series for Units of a Trust of this Series, 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 or a Trust of this Series 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 Holder's units will aggregate $3,060. Since only whole units of an Exchange
Trust or a Trust may be purchased under the Exchange Option, the Holder would
be able to acquire three units in the Exchange Trust for a total cost of $2,715
($2,640 for the units and $75 for the sales charge) and would also receive $345
for the fractional Unit.
Reinvestment Programs
Distributions of interest and/or principal are made to Holders monthly. The
Holder has the option of either receiving a monthly income check from the
Trustee or participating in one of the reinvestment programs offered by the
Sponsor provided such Holder meets the minimum qualifications of the
reinvestment program and such program lawfully qualifies for sale in the
jurisdiction in which the Holder resides. Upon enrollment in a reinvestment
program, the Trustee will direct monthly interest distributions and principal
distributions to the reinvestment program selected by the Holder. Since the
Sponsor has arranged for different reinvestment alternatives Holders should
contact the Sponsor for more complete information, including charges and
expenses. The appropriate prospectus will be sent to the Holder. The Holder
should read the prospectus for a reinvestment program carefully before deciding
to participate. Participation in the reinvestment program will apply to all
Units of a Trust owned by a Holder and may be terminated at any time by the
Holder. The program may also be modified or terminated by the Trustee or the
program's Sponsor.
Sponsor's and Underwriters' Profits
The Underwriters receive a commission based on the sales charge of a
particular Trust as adjusted pursuant to the agreement among Underwriters. The
Sponsor receives a gross commission equal to the applicable sales charge for
any Units they have underwritten, and receive the difference between the
applicable sales charge and the Underwriter's commission for the remainder of
the Units. In addition, the Sponsor may realize profits or sustain losses in
the amount of any difference between the cost of the Bonds to a Trust and the
purchase price of such Bonds to the Sponsor. Under certain circumstances, an
Underwriter may be entitled to
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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 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.
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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 Bank of New York pursuant to normal
banking procedures. The Trustee is entitled to the benefit of any reasonable
cash balances in the Income and Principal Accounts. Because of the varying
interest payment dates of the Bonds, accrued interest may at any point in time
be greater than the amount of interest distributed to Holders. This excess
accrued but undistributed interest amount will be added to the value of the
Units on any purchase made after the Date of Deposit. If a Holder sells all or
a portion of his Units a portion of his sale proceeds will be allocable to his
proportionate share of the accrued interest. Similarly, if a Holder redeems all
or a portion of his Units, the Redemption Price per Unit which he is entitled
to receive from the Trustee will also include his accrued interest on the
Bonds.
As of the first day of each month the Trustee will deduct from the Interest
Account of a Trust amounts necessary to pay the expenses of such Trust. To the
extent there are not sufficient funds in the Interest Account to pay Trust
expenses, the Trustee is also entitled to withdraw from the Principal Account.
The Trustee also may withdraw from the accounts such amounts it deems necessary
to establish a reserve for any governmental charges payable out of a Trust.
Amounts so withdrawn shall not be considered a part of the Trust's assets until
such time as the Trustee returns any part of such amounts to the appropriate
account. In addition, the Trustee may withdraw from the Interest Account and
the Principal Account such amounts as may be necessary to cover redemption of
Units by the Trustee.
The Trustee has agreed to advance to a Trust the amount of accrued interest
due on the Bonds from their respective issue dates or previous interest payment
dates through the Date of Deposit. This accrued interest amount will be paid to
the Sponsor as the holder of record of all Units on the first settlement date
for the Units. Consequently, when the Sponsor sells Units of a Trust, the
amount of accrued interest to be added to the Public Offering Price of the
Units purchased by an investor will include only accrued interest from the day
after the Date of Deposit through the date of settlement of the investor's
purchase (normally three business days after purchase), less any distributions
from the Interest Account. The Trustee will recover its advances to a Trust
(without interest or other cost to such Trust) from interest received on the
Bonds deposited in such Trust.
Reports and Records
The Trustee shall furnish Holders in connection with each distribution a
statement of the amount of interest and the amount of other receipts which are
being distributed, expressed in each case as a dollar amount per Unit. In the
event that the issuer of any of the Bonds fails to make payment when due of any
interest or principal and such failure results in a
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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 101 Barclay Street, New York, New York 10286, upon payment of
any relevant tax. At the present time there are no specific taxes related to
the redemption of the Units. No redemption fee will be charged by the Sponsor
or the Trustee. Units redeemed by the Trustee will be canceled.
Certificates for Units to be redeemed must be properly endorsed or
accompanied by a written instrument of transfer. Holders must sign exactly as
their name appears on the face of the certificate with the signature guaranteed
by an officer of a national bank or trust company or by a member of either the
New York, Midwest or Pacific Stock Exchange. In certain instances the Trustee
may require additional documents such as, but not limited to, trust
instruments, certificates of death, appointments as executor or administrator
or certificates of corporate authority.
Within seven calendar days following such tender, the Holder will be entitled
to receive in cash an amount for each Unit tendered equal to the Redemption
Price per Unit. The "date of tender" is deemed to be the date on which Units
are received by the Trustee, except as regards Units received after the close
of trading on the New York Stock Exchange, the date of tender is the next day
on which such Exchange is open for trading.
Accrued interest paid on redemption shall be withdrawn from the Interest
Account, or, if the balance therein is insufficient, from the Principal
Account. All other amounts paid on redemption shall be withdrawn from the
Principal Account. The Trustee is empowered to sell Bonds in order to make
funds available for redemption. Such sales could
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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 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-
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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 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 Company 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
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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 division of J.J. Kenny
Company, Inc., a subsidiary of The McGraw-Hill Companies, Inc., with main
offices located at 65 Broadway, New York, New York 10006.
Limitations on Liability
The Trustee, Sponsor and Holders may rely on any evaluation furnished by the
Evaluator and shall have no responsibility for the accuracy thereof.
Determination by the Evaluator under the Trust Agreement shall be made in good
faith upon the basis of the best information available to it; provided,
however, that the Evaluator shall be under no liability to the Trustee, the
Sponsor, or Holders for errors in judgment. But this provision shall not
protect the Evaluator in cases of willful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations and duties.
Responsibility
The Trust Agreement requires the Evaluator to evaluate the Bonds of a Trust
on the basis of their bid prices on the last business day of June and December
in each year, on the day on which any Unit of such Trust is tendered for
redemption and on any other day such evaluation is desired by the Trustee or is
requested by the Sponsor.
Resignation
The Evaluator may resign or may be removed by the joint action of the Sponsor
and the Trustee. Should such removal occur, the Sponsor and the Trustee are to
use their best efforts to appoint a satisfactory successor. Such resignation or
removal shall become effective upon the acceptance of appointment by a
successor evaluator. If upon resignation of the Evaluator no successor has
accepted appointment within thirty days after notice of resignation, the
Evaluator may apply to a court of competent jurisdiction for the appointment of
a successor.
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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 Paul, Hastings, Janofsky &
Walker LLP, 75 East 55th Street, New York, New York 10022, as special counsel
for the Sponsor.
Auditors
The statements of financial condition and the portfolios of securities
included in this Prospectus have been audited by KPMG LLP, independent
auditors, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in accounting and
auditing.
Performance Information
Sales material may compare tax-equivalent yields of long-term municipal bonds
to long-term U.S. Treasury bonds and to the Bond Buyer Revenue Bond Index. Such
information is based on past performance and is not indicative of future
results. Yields on taxable investment are generally higher than those of tax-
exempt securities of comparable maturity. While income from municipal bonds is
exempt from federal income taxes, income from Treasuries is exempt from state
and local taxes. Since Treasuries are considered to have the highest possible
credit quality, the difference in yields is somewhat narrower than if compared
to corporate bonds with similar ratings and maturities.
BOND RATINGS+
All ratings shown under Part A, "Portfolio of Securities", except those
identified otherwise, are by Standard & Poor's.
------------
+ As described by the rating agencies.
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Standard & Poor's
A Standard & Poor's corporate or municipal bond rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
debt obligation. This assessment of creditworthiness may take into
consideration obligors such as guarantors, insurers, or lessees. The bond
rating is not a recommendation to purchase or sell a security, inasmuch as it
does not comment as to market price or suitability for a particular investor.
The ratings are based on current information furnished to Standard & Poor's by
the issuer and obtained by Standard & Poor's from other sources it considers
reliable. The ratings may be changed, suspended or withdrawn as a result of
changes in, or unavailability of, such information.
The ratings are based, in varying degrees, on the following considerations:
I. Likelihood of default--capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in accordance
with the terms of the obligation;
II. Nature of and provisions of the obligation; and
III. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization or other arrangement under the laws
of bankruptcy and other laws affecting creditors' rights.
AAA--This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay interest and repay
principal.
AA--Bonds rated AA have a very strong capacity to pay interest and repay
principal, and in the majority of instances they differ from AAA issues only in
small degrees.
A--Bonds rated A have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than bonds in higher-rated categories.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in the higher-rated categories.
Plus (+) or Minus (-): To provide more detailed indications of credit
quality, the ratings from "AA" to "BB" may be modified by the addition of a
plus or minus sign to show relative standing within the major rating
categories.
Provisional Ratings: The letter "p" following a rating indicates the rating
is provisional. A provisional rating assumes the successful completion of the
project being financed by the issuance of the bonds being rated and indicates
that payment of debt service requirements 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
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degree of investment risk and are generally referred to as "gilt edge".
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. Aa bonds are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or fluctuation
of protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than in
Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium grade obligations:
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Rating symbols may include numerical modifiers "1," "2," or "3." The
numerical modifier "1" indicates that the security ranks at the high end, "2"
in the mid-range, and "3" nearer the low end of the generic category. These
modifiers of rating symbols "Aa," "A" and "Baa" are to give investors a more
precise indication of relative debt quality in each of the historically defined
categories.
Fitch
AAA--These bonds are considered to be investment grade and of the highest
quality. The obligor has an extraordinary ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--These bonds are considered to be investment grade and of high quality.
The obligor's ability to pay interest and repay principal, while very strong,
is somewhat less than for AAA rated securities or more subject to possible
change over the term of the issue.
A--These bonds are considered to be investment grade and of good quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB--These bonds are considered to be investment grade and of satisfactory
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however are more likely to weaken this ability than bonds with
higher ratings.
A "+" or a "-" sign after a rating symbol indicates relative standing in its
rating.
Duff & Phelps
AAA--Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA--High credit quality. Protection factors are strong. Risk is modest but
may vary slightly from time to time because of economic conditions.
A--Protection factors are average but adequate. However, risk factors are
more variable and greater in periods of economic stress.
A "+" or a "-" sign after a rating symbol indicates relative standing in its
rating.
B-25
<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
2000 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.
2000 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-
43,850 $ 0- 26,250 15.00% 15.00% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65%
$ 43,851-
105,950 $ 26,251- 63,550 28.00 28.00 5.56 6.25 6.94 7.64 8.33 9.03
$105,951-
128,950 $ 63,551-128,950 31.00 31.00 5.80 6.52 7.25 7.97 8.70 9.42
$128,951-
161,450 $128,951-132,600 31.00 31.93 5.88 6.61 7.35 8.08 8.81 9.55
$161,451-
288,350 $132,601-288,350 36.00 37.08 6.36 7.15 7.95 8.74 9.54 10.33
Over
$288,350 Over $288,350 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 $128,950, 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 $193,400 for
married taxpayers filing a joint tax return and $128,950 for single
taxpayers. The effect of the phase out of personal exemptions is not
reflected in the above table.
2 Interest earned on municipal obligations may be subject to the federal
alternative minimum tax. This provision is not incorporated into the
table.
3 The taxable equivalent yield table does not incorporate the effect of
graduated rate structures in determining yields. Instead, the tax rates
used are the highest marginal tax rates applicable to the income levels
indicated within each bracket.
4 Interest earned on all municipal obligations may cause certain investors
to be subject to tax on a portion of their Social Security and/or
railroad retirement benefits. The effect of this provision is not
included in the above table.
B-26
<PAGE>
PROSPECTUS--Part C:
--------------------------------------------------------------------------------
Note: Part C of this Prospectus may not be distributed unless accompanied by
Parts A and B.
--------------------------------------------------------------------------------
TAX EXEMPT SECURITIES TRUST--THE STATE TRUSTS
Potential purchasers of the Units of a State Trust should consider the fact
that the Trust's Portfolio consists primarily of Bonds issued by the state for
which such State Trust is named or its municipalities or authorities and
realize the substantial risks associated with an investment in such Bonds. Each
State Trust is subject to certain additional risk factors. The Sponsor believes
the discussions of risk factors summarized below describe some of the more
significant aspects of the State Trusts. The sources of such information are
the official statements of issuers as well as other publicly available
documents. While the Sponsor has not independently verified this information,
it has no reason to believe that such information is not correct in all
material respects. Investment in a State Trust should be made with an
understanding that the value of the underlying Portfolio may decline with
increases in interest rates.
Maryland Trust
Risk Factors--The Public indebtedness of the State of Maryland (the "State")
and its instrumentalities is divided into three general types. The State issues
general obligation bonds for capital improvements and for various State
projects to the payment of which the State ad valorem property tax is
exclusively pledged. In addition, the Maryland Department of Transportation
issues for transportation purposes its limited, special obligation bonds
payable primarily from specific, fixed-rate excise taxes and other revenues
related mainly to highway use. Certain authorities issue obligations payable
solely from specific non-tax, enterprise fund revenues and for which the State
has no liability and has given no moral obligation assurance.
General obligation bonds of the State are authorized and issued primarily to
provide funds for State-owned capital improvements, including institutions of
higher learning, and the construction of locally owned public schools. Bonds
have also been issued for local government improvements, including grants and
loans for water quality improvement projects and correctional facilities, to
provide funds for repayable loans or outright grants to private, non-profit
cultural or educational institutions, and to fund certain loan and grant
programs.
The Maryland Constitution prohibits the contracting of State debt unless it
is authorized by a law levying an annual tax or taxes sufficient to pay the
debt service within 15 years and prohibiting the repeal of the tax or taxes or
their use for another purpose until the debt is paid. As a uniform practice,
each separate enabling act which authorizes the issuance of general obligation
bonds for a given object or purpose has specifically levied and directed the
collection of an ad valorem property tax on all taxable property in the State.
The Board of Public Works is directed by law to fix by May 1 of each year the
precise rate of such tax necessary to produce revenue sufficient for debt
services requirements of the next fiscal year, which begins July 1. However,
the taxes levied need not be collected if or to the extent that funds
sufficient for debt services requirements in the next fiscal year have been
appropriated in the annual State budget. Accordingly, the Board in annually
fixing the rate of property tax after the end of the regular legislative
session in April, takes account of appropriations of general funds for debt
service.
In the opinion of counsel, the courts of Maryland have jurisdiction to
entertain proceeds and power to grant mandatory injunctive relief to (i)
require the Governor to include in the annual budget a sufficient appropriation
to pay all general obligation bond debt service for the ensuing fiscal year;
(ii) prohibit the General Assembly from taking
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<PAGE>
action to reduce any such appropriation below the level required for that debt
service; (iii) require the Board of Public Works to fix and collect a tax on
all property in the State subject to assessment for State tax purposes at a
rate and in an amount sufficient to make such payments to the extent that
adequate funds are not provided in the annual budget; and (iv) provide such
other relief as might be necessary to enforce the collection of such taxes and
payment of the proceeds of the tax collection to the holders of general
obligation bonds, pari passu, subject to the inherent constitutional
limitations referred to below.
It is also the opinion of counsel that, while the mandatory injunctive
remedies would be available and while the general obligation bonds of the State
are entitled to constitutional protection against the impairment of the
obligation of contracts, such constitutional protection and the enforcement of
such remedies would not be absolute. Enforcement of a claim for payment of the
principal of or interest on the bonds would be subject to the provisions of any
statutes that may be constitutionally enacted by the United States Congress or
the Maryland General Assembly extending the time for payment or imposing other
constraints upon enforcement.
There is no general debt limit imposed by the Maryland Constitution or public
general laws, but a special committee created by statute annually submits to
the Governor an estimate of the maximum amount of new general obligation debt
that prudently may be authorized. Although the committee's responsibilities are
advisory only, the Governor is required to give due consideration to the
committee's findings in preparing a preliminary allocation of new general debt
authorization for the next ensuing fiscal year.
Consolidated Transportation Bonds are limited obligations issued by the
Maryland Department of Transportation, the principal of which must be paid
within 15 years from the date of issue, for highway, port, transit, rail or
aviation facilities or any combination of such facilities. Debt service on
Consolidated Transportation Bonds is payable from those portions of the excise
tax on each gallon of motor vehicle fuel and the motor vehicle titling tax, all
mandatory motor vehicle registration fees, monitor carrier fees, and the
corporate income tax as are credited to the Maryland Department of
Transportation, plus all departmental operating revenues and receipts. Holders
of such bonds are not entitled to look to other sources for payment.
The Maryland Department of Transportation also issues its bonds to provide
financing of local road construction and various other county transportation
projects and facilities. Debt service on these bonds is payable from the
subdivisions' share of highway user revenues held to their credit in a special
State fund. On November 9, 1994, the Maryland Transportation Authority issued
$162.6 million of special obligation revenue bonds to fund projects at the
Baltimore/Washington International Airport secured by revenues from the
passenger facility charges received by the Maryland Aviation Administration and
from the general account balance of the Transportation Authority. As of June
30,
1997, $388.7 million of the Transportation Authority's revenue bonds were
outstanding.
The Maryland Transportation Authority operates certain highway, bridge and
tunnel toll facilities in the State. The tolls and other revenues received from
these facilities are pledged as security for revenue bonds of the Authority
issued under and secured by a trust agreement between the Authority and a
corporate trustee.
Certain other instrumentalities of the State government are authorized to
borrow money under legislation which expressly provides that the loan
obligations shall not be deemed to constitute a debt or a pledge of the faith
and credit of the State. The Community Development Administration of the
Department of Housing and Community development, the Board of Trustees of St.
Mary's
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<PAGE>
College of Maryland, the Maryland Environmental Service, the Board of Regents
of the University of Maryland System, the Board of Regents of Morgan State
University, and the Maryland Food Center Authority have issued and have
outstanding bonds of this type. The principal of and interest on bonds issued
by these bodies are payable solely from various sources, principally fees
generated from use of the facilities or enterprises financed by the bonds.
Under a Comprehensive Plan of Financing, as amended, of the Maryland Stadium
Authority, the Authority is authorized to finance the acquisition and
construction of sports facilities at a site within the City of Baltimore.
Currently, the Stadium Authority operates Oriole Park at Camden Yards which
opened in 1992. The Authority's financings are lease-backed revenue
obligations, payment of which is secured by, among other things, an assignment
of revenues to be received under a lease of the sports facilities from the
Authority to the State of Maryland; rental payments due from the State under
that lease will be subject to annual appropriation by the Maryland General
Assembly.
In October 1995, the Stadium Authority and the Baltimore Ravens (formally
known as the Cleveland Browns) executed a Memorandum of Agreement
which commits the Ravens to occupy a to be constructed football stadium in
Baltimore City. The Agreement was approved by the Board of Public Works and
constitutes a "long-term lease with a National Football League team" as
required by statute for the issuance of Stadium Authority bonds. The Stadium
Authority sold $87.565 million in lease-backed revenue bonds on May 1, 1996.
The proceeds from the bonds, along with cash available from State lottery
proceeds, investment earnings, and other sources will be used to pay project
design and construction expenses of approximately $200 million. The bonds are
solely secured by an assignment of revenues received under a lease of the
project from the Stadium Authority to the State.
The Stadium Authority has also been assigned responsibility for constructing
an expansion of the Convention Centers in Baltimore City and Ocean City and
construction of a conference center in Montgomery County. The Baltimore
Convention Center expansion is expected to cost $163 million and is being
financed through a combination of funding from Baltimore City, Stadium
Authority revenue bonds, and State general obligation bonds. The Ocean City
Convention Center expansion is expected to cost $35 million and is being
financed through a combination of funding from Ocean City and the Stadium
Authority. The Montgomery County Conference Center is expected to cost $27.5
million and is being financed through a combination of funding from Montgomery
County and the Stadium Authority.
The Water Quality Revolving Loan Fund is administered by the Water Quality
Financing Administration in the Department of the Environment. The Fund may be
used to provide loans, subsidies and other forms of financial assistance to
local government units for wastewater treatment projects as contemplated by the
1987 amendments to the federal Water Pollution Control Act. The Administration
is authorized to issue bonds secured by revenues of the Fund, including loan
repayments, federal capitalization grants, and matching State grants.
The University of Maryland System, Morgan State University, and St. Mary's
College of Maryland are authorized to issue revenue bonds for the purpose of
financing academic and auxiliary facilities. Auxiliary facilities are any
facilities that furnish a service to students, faculty, or staff, and that
generate income. Auxiliary facilities include housing, eating, recreational,
campus, infirmary, parking, athletic, student union or activity, research
laboratory, testing and any related facilities.
Although the State has authority to make short-term borrowings in
anticipation of taxes and other
C-3
<PAGE>
receipts up to a maximum of $100 million, in the past it has not issued short-
term borrowings. However, the State has issued certain obligations in the
nature of bond anticipation notes for the purpose of assisting several savings
and loan associations in qualifying for Federal insurance and in connection
with the assumption by a bank of the deposit liabilities of an insolvent
savings and loan association.
The State has financed the construction and acquisition of various facilities
through conditional purchase, sale-leaseback, and similar transactions. All of
the lease payments under these arrangements are subject to annual appropriation
by the Maryland General Assembly. In the event that appropriations are not
made, the State may not be held contractually liable for the payments.
Local Subdivision Debt. The counties and incorporated municipalities in
Maryland issue general obligation debt for general governmental purposes. The
general obligation debt of the counties and incorporated municipalities is
generally supported by ad valorem taxes on real estate, tangible personal
property and intangible personal property subject to taxation. The issuer
typically pledges its full faith and credit and unlimited taxing power to the
prompt payment of the maturing principal and interest on the general obligation
debt and to the levy and collection of the ad valorem taxes as and when such
taxes become necessary in order to provide sufficient funds to meet the debt
service requirements. The amount of debt which
may be authorized may in some cases be limited by the requirements that it not
exceed a stated percentage of the assessable base upon which taxes are levied.
In the opinion of counsel, the issuer may be sued in the event that it fails
to perform its obligations under the general obligation debt to the holders of
the debt, and any judgments resulting from such suits would be enforceable
against the issuer. Nevertheless, a holder of the debt who has obtained any
such judgment may be required to seek additional relief to compel the issuer to
levy and collect such taxes as may be necessary to provide the Funds from which
a judgment may be paid. Although there is no Maryland law on this point, it is
the opinion of counsel that the appropriate courts of Maryland have
jurisdiction to entertain proceedings and power to grant additional relief,
such as a mandatory injunction, if necessary, to enforce the levy and
collection of such taxes and payment of the proceeds of the collection of the
taxes to the holders of general obligation debt, pari passu subject to the same
constitutional limitations on enforcement, as described above, as apply to the
enforcement of judgments against the State.
Local subdivisions, including counties and municipal corporations, are also
authorized by law to issue special and limited obligation debt for certain
purposes other than general governmental purposes. The source of payment of
that debt is limited to certain revenues of the issuer derived from commercial
activities operated by the issuer, payment made with respect to certain
facilities or loans and any funds pledged for the benefit of the holders of the
debt. That special and limited obligation debt does not constitute a debt of
the State, the issuer or any other political subdivision of either within the
meaning of any constitutional or statutory limitation. Neither the State nor
the issuer or any other political subdivision of either is obligated to pay the
debt or the interest on the debt except from the revenues of the issuer
specifically pledged to the payment of the debt. Neither the faith and credit
nor the taxing power of the State, the issuer or any other political
subdivision of either is
pledged to the payment of the debt. The issuance of the debt is not directly or
indirectly or contingently an obligation, moral or other, of the State, the
issuer or any other political subdivision of either to levy any tax for its
payment.
Special Authority Debt. The State and local governments have created several
special authorities
C-4
<PAGE>
with the power to issue debt on behalf of the State or local government for
specific purposes, such as providing facilities for non-profit health care and
higher educational institutions, facilities for the disposal of solid waste,
funds to finance single family and low-to-moderate income housing, and similar
purposes. The Maryland Health and Higher Educational Facilities Authority, the
Northeast Maryland Waste Disposal Authority, the Housing Opportunities
Commission of Montgomery County, and the Housing Authority of Prince George's
County are some of the special authorities which have issued and have
outstanding debt of this type.
The debts of the authorities issuing debt on behalf of the State and the
local governments are limited obligations of the authorities payable solely
from and secured by a pledge of the revenues derived from the facilities or
loans financed with the proceeds of the debt and from any other funds and
receipts pledged under an indenture with a corporate trustee. The debt does not
constitute a debt, liability or pledge of the faith and credit of the State or
of any political subdivision or of the authorities. Neither the State nor any
political subdivision thereof nor the authorities shall be obligated to pay the
debt or the interest on the debt except from such revenues, funds and receipts.
Neither the faith and credit nor the taxing power of the State or of any
political subdivision of the State or the authorities is pledged to the payment
of the principal of or the interest on such debt. The issuance of the debt is
not directly or indirectly an obligation, moral or other, of the State or of
any political subdivision of the State or of the authority to levy or to pledge
any form of taxation whatsoever, or to make any appropriation, for their
payment. The authorities have no taxing power.
Maryland Taxes --
In the opinion of Messrs. Saul, Ewing, Remick & Saul LLP, special Maryland
counsel of Maryland tax matters, under applicable existing Maryland State and
local tax law:
The Maryland Trust will not be treated as an association taxable as a
corporation, and the income of the Maryland Trust will be treated as the
income of the Holders. The Maryland Trust is not a "financial institution"
subject to the Maryland Franchise Tax measure by net earnings. The Maryland
Trust is not subject to Maryland property taxes imposed on the intangible
personal property of certain corporations.
Except as described below in the case of interest paid on private
activity bonds constituting a tax preference for Federal income tax
purposes, a Holder will not be required to include such Holder's pro-rata
share of the earnings of, or distributions from, the Maryland Trust in such
Holder's Maryland taxable income to the extent that such earnings or
distributions represent interest excludable from gross income for Federal
income tax purposes received by the Maryland Trust on obligations of the
State of Maryland, the Government of Puerto Rico, or the Government of Guam
and their respective political subdivisions and authorities. Interest on
Bonds is not subject to the Maryland Franchise Tax imposed on "financial
institutions" and measured by net earnings.
In the case of taxpayers who are individuals, Maryland presently imposes
an income tax on items of tax preference with reference to such items as
defined in the Internal Revenue Code, as amended, for purposes of
calculating the Federal alternative minimum tax. Interest paid on certain
private activity bonds is a preference item for purposes of calculating the
Federal alternative minimum tax. Accordingly, if the Maryland Trust holds
such bonds, 50% of the interest on such bonds in excess of a threshold
amount is taxable by Maryland.
C-5
<PAGE>
A Holder will recognize taxable gain or loss, except in the case of an
individual Holder who is not a Maryland resident, when the Holder disposes
of all or part of such Holder's pro rata portion of the Bonds in the
Maryland Trust. A Holder will be considered to have disposed of all or part
of such Holder's pro rata portion of each Bond when the Holder sells or
redeems all or some of such Holder's Units. A Holder will also be
considered to have disposed of all or part of such Holder's pro rata
portion of a Bond when all or part of the Bond is disposed of by the
Maryland Trust or is redeemed or paid at maturity. Gains included in the
gross income of Holders for federal income tax purposes is, however,
subtracted from income for Maryland income tax purposes to the extent that
the gain is derived from the disposition of Bonds issued by the State of
Maryland and its political subdivisions. Profits realized on the sale or
exchange of Bonds are not subject to the Maryland Franchise Tax imposed on
"financial institutions" and measured by net earnings.
Units of the Maryland Trust will be subject to Maryland inheritance and
estate tax only if held by Maryland residents.
Neither the Bonds nor the Units will be subject to Maryland personal
property tax.
The sales of Units in Maryland or the holding of Units in Maryland will
not be subject to Maryland Sales or Use 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 became law on June 30, 1999.
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.
During 1998 a continuation of the national business expansion, a strong
business climate in New Jersey and positive developments in surrounding
metropolitan areas were major sources of State economic growth.
Average employment in 1998 increased by 76.5 thousand jobs compared to 1997.
Job gains were spread across a number of industries with particularly strong
growth in business services (20,900) and in wholesale and retail trade
(18,000).
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<PAGE>
For the last decade, New Jersey's job growth has been concentrated in five
clusters of economic activity--high technology, health, financial,
entertainment and logistics. One of every three of the State's workers are in
these sectors, and as a whole these sectors accounted for a 19 percent increase
in employment over the past decade compared to a four percent employment growth
for all other State industries.
Personal income in New Jersey, spurred by strong labor markets increased by
5.4 percent in 1998, a rate comparable to the national rate of increase. As a
result, retail sales rose by an estimated 6.2 percent. Low inflation, now less
than 2 percent, continues to benefit New Jersey consumers and businesses and
low interest rates boost housing and consumer durable expenditures. Home
building had its best year of the decade.
Joblessness fell in terms of both its absolute level and its rate, and by the
end of 1998, New Jersey's unemployment rate was at or below that of the nation.
The outlook for 1999/2000 is for continued, although more moderate economic
growth. Job gains in the State may be constrained at times by labor shortages
in skilled technical areas, will be in the 50,000 range and personal income
growth will slow to an average of 4.3%.
Major caveats and uncertainties in the economic forecast for 1999/2000 have
increased. The national conditions in energy, agriculture and manufactured
exports, particularly to Asian markets, are threats to the U.S. economy.
However, these areas of economic activity are under-represented in New Jersey
and hence the State has been able to avoid the immediate and direct effects of
those problems.
Other areas of concern include possible significant shifts in consumer and
investor confidence, unstable and potentially deflationary international
economic conditions, and the prospect of leaner profits for U.S. corporations.
In addition, the restructuring of major industries will continue spurred by the
imperative of cost containment, globalization of competition, and deregulation.
Thus, 1999/2000 contains more risk than the recent past, but the momentum and
measures of the State's economic health are favorable.
The New Jersey outlook is based largely on expected national economic
performance and on recent State strategic policy actions aimed at
infrastructure improvements, effective education and training of our workforce,
and those maintaining a competitive business climate. Investments in each of
these policy areas are seen as vital to maintaining the long-term health of the
State's economy.
State Aid to Local Governments is the largest portion of Fiscal Year 2000
recommendations. In fiscal year 2000, $7,904.6 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 $6,096.5 million, is provided for local elementary and
secondary education programs. Of this amount $2,845.1 is for core curriculum
standards, $312.7 million is for early childhood aid, $254.4 million is Abbott
v. Burke Parity Remedy aid, $265.8 million is for pupil transportation aid and
$682.3 million is for special education. Also, $88.5 million provides nonpublic
school aid and $149.1 million pays debt service on school bonds. Other
significant amounts are $143.7 million for supplemental core curriculum
standards aid and $190.5 million for demonstrably effective program aid. In
addition, $700.4 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
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<PAGE>
additional instructional and support programs for children in the "Abbott"
school districts. The State is unable to estimate its exposure.
Appropriations to the State Department of Community Affairs ("DCA") total
$898.4 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 appropriated for housing programs,
$33.0 million for block grant programs, $30 million for extraordinary aid and
$40.5 million as special assistance to specific cities and $10.0 million for
the Regional Efficiency Development Incentive Grant Program. Appropriations to
the State Department of the Treasury total $422.8 million in State Aid monies
for Fiscal Year 2000. The principal programs funded by these recommended
appropriations are aid to county colleges ($174.4 million); the cost of senior
citizens, disabled and veterans property tax deductions and exemptions ($51.2
million); $20.0 million for debt service for county investments in solid waste
management facilities; and the State contributions to the Consolidated Police
and Firemen's Pension Funds ($49.4 million). Also, $112.0 million is
appropriated for school renovation and construction funded by a portion of the
increased cigarette tax ($50.0 million) and the new "Big Game" lottery ($62.0
million).
The second largest portion of 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 appropriated in Fiscal
Year 2000 for grants-in-aid is $5,976.4 million.
$2,296.0 million is recommended for programs administered by the State
Department of Human Services. Of that amount, $1,403.3 million is for medical
services provided under the Medicaid program, $246.5 million is for community
programs for the developmentally disabled, $208.0 million is for community
programs for the mentally ill; $258.7 million is for grant programs
administered by the Division of Youth and Family Services, and $146.6 million
is for welfare reform and homeless services.
The State Department of Health and Senior Services is appropriated $1,127.3
million. Of that amount, $633.3 million is for medical services provided under
the Medicaid program, $242.5 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; $39.7 million is for addiction and
AIDS Services, and $10.3 million is for the proposed Elder Care Program.
$1,076.5 million is recommended for the State Department of Law and Public
Safety and the Department of Corrections.
$149.2 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.
$189.7 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
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<PAGE>
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. Drinker Biddle & Shanley LLP, special New Jersey
counsel on New Jersey tax matters, under existing law:
The proposed activities of the New Jersey Trust will not cause it to be
subject to the New Jersey Corporation Business Tax Act.
The income of the New Jersey Trust will be treated as the income of
individuals, estates and trusts who are the Holders of Units of the New
Jersey Trust for purposes of the New Jersey Gross Income Tax Act, and
interest which is exempt from tax under the New Jersey Gross Income Tax Act
when received by the New Jersey Trust will retain its status as tax-exempt
in the hands of such Unit Holders. Gains arising from the sale or
redemption by a Holder of his Units or from the sale, exchange, redemption,
or payment at maturity of a Bond by the New Jersey Trust are exempt from
taxation under the New Jersey Gross Income Tax Act (P.L. 1976 c. 47), as
enacted and construed on the date hereof, to the extent such gains are
attributable to Bonds, the interest on which is exempt from tax under the
New Jersey Gross Income Tax Act. Any loss realized on such disposition may
not be utilized to offset gains realized by such Unit Holder on the
disposition of assets the gain on which is subject to the New Jersey Gross
Income Tax Act.
Units of the New Jersey Trust may be subject, in the estates of New
Jersey residents, to taxation under the Transfer Inheritance Tax Law of the
State of New Jersey.
New York Trust
Risk Factors--The information set forth below is derived from the Official
Statements and/or preliminary drafts of Official Statements prepared in
connection with the issuance of New York State and New York City municipal
bonds. The Sponsors have not independently verified this information.
Economic Trends. Over the long term, the State of New York (the "State") and
the City of New York (the "City") face serious potential economic problems. The
City accounts for approximately 41% of the State's population and personal
income, and the City's financial health affects the State in numerous ways. The
State historically has been one of the wealthiest states in the nation. For
decades, however, the State has grown more slowly than the nation as a whole,
gradually eroding its relative economic affluence. Statewide, urban centers
have experienced significant changes involving migration of the more affluent
to the suburbs and an influx of generally less affluent residents. Regionally,
the older Northeast cities have suffered because of the relative success that
the South and the West have had in attracting people and business. The City has
also had to face greater competition as other major cities have developed
financial and business capabilities which make them less dependent on the
specialized services traditionally available almost exclusively in the City.
The State has for many years had a very high State and local tax burden
relative to other states. The State and its localities have used these taxes to
develop and maintain their transportation networks, public schools and
colleges, public health systems, other social services and recreational
facilities. Despite these benefits, the burden of State and local taxation, in
combination with the many other causes of regional economic dislocation, has
contributed to the decisions of some businesses and individuals to relocate
outside, or not locate within, the State.
C-9
<PAGE>
Notwithstanding the numerous initiatives that the State and its localities
may take to encourage economic growth and achieve balanced budgets, reductions
in Federal spending could materially and adversely affect the financial
condition and budget projections of the State and its localities.
New York City. The City, with a population of approximately 7.4 million, is
an international center
of business and culture. Its non-manufacturing economy is broadly based, with
the banking and securities, life insurance, communications, publishing, fashion
design, retailing and construction industries accounting for a significant
portion of the City's total employment earnings. Additionally, the City is the
nation's leading tourist destination. Manufacturing activity in the City is
conducted primarily in apparel and printing.
For each of the 1981 through 1999 fiscal years, the City had an operating
surplus, before discretionary transfers, and achieved balanced operating
results as reported in accordance with then applicable generally accepted
accounting principles ("GAAP"), after discretionary transfers. The City has
been required to close substantial gaps between forecast revenues and forecast
expenditures in order to maintain balanced operating results. There can be no
assurance that the City will continue to maintain balanced operating results as
required by State law without tax or other revenue increases or reductions in
City services or entitlement programs, which could adversely affect the City's
economic base.
As required by law, the City prepares a four-year annual financial plan,
which is reviewed and revised on a quarterly basis and which includes the
City's capital, revenue and expense projections and outlines proposed gap-
closing programs for years with projected budget gaps. The City's current
financial plan projects a surplus in the 2000 and 2001 fiscal years, before
discretionary transfers, and budget gaps for each of the 2002, 2003 and 2004
fiscal years. This pattern of current year surplus operating results and
projected subsequent year budget gaps has been consistent through the entire
period since 1982, during which the City has achieved surplus operating
results, before discretionary transfers, for each fiscal year.
The City depends on aid from the State both to enable the City to balance its
budget and to meet its cash requirements. There can be no assurance that there
will not be reductions in State aid to the City
from amounts currently projected; that, in future years, State budgets will be
adopted by the April 1 statutory deadline, or interim appropriations will be
enacted; or that any such reductions or delays will not have adverse effects on
the City's cash flow or expenditures. In addition, the Federal budget
negotiation process could result in a reduction in or a delay in the receipt of
Federal grants which could have additional adverse effects on the City's cash
flow or revenues.
The Mayor is responsible for preparing the City's financial plan, including
the City's current financial plan for the 2000 through 2004 fiscal years (the
"2000-2004 Financial Plan" or "Financial Plan"). The City's projections set
forth in the Financial Plan are based on various assumptions and contingencies
which are uncertain and which may not materialize. Such assumptions and
contingencies include the condition of the regional and local economies, the
provision of State and Federal aid and the impact on City revenues and
expenditures of any future Federal or State policies affecting the City.
Implementation of the Financial Plan is dependent upon the City's ability to
market its securities successfully. The City's program for financing capital
projects for fiscal years 2000 through 2004 contemplates the issuance of $8.22
billion of general obligation bonds and $5.75 billion of bonds to be issued by
the New York City Transitional Finance Authority (the "Finance Authority"). The
City's financing program assumes
C-10
<PAGE>
the passage of legislation by the State which was proposed by the City to
increase the financing capacity of the Finance Authority by $4 billion and
assumes the effectiveness in fiscal year 2002 of a proposed State
Constitutional amendment to increase the City's general obligation debt limit.
In addition, the Financial Plan anticipates access to approximately $2.4
billion in financing capacity of Tobacco Settlement Asset Securitization
Corporation, Inc. ("TSASC"), which will issue debt secured by revenues derived
from the settlement of litigation with tobacco companies selling cigarettes in
the United States. The Finance Authority and TSASC were created to assist the
City in financing its capital program while keeping the City's indebtedness
within the forecast level of the constitutional restrictions on the amount of
debt the City is authorized to incur. In addition, the City issues revenue and
tax anticipation notes to finance its seasonal working capital requirements.
The success of projected public sales of City, New York City Municipal Water
Finance Authority ("Water Authority"), Finance Authority, TSASC and other bonds
and notes will be subject to prevailing market conditions. The City's planned
capital and operating expenditures are dependent upon the sale of its general
obligation debt, as well as debt of the Water Authority, Finance Authority and
TSASC. Future developments concerning the City and public discussion of such
developments, as well as prevailing market conditions, may affect the market
for outstanding City general obligation bonds and notes.
The City Comptroller and other agencies and public officials, from time to
time, issue reports and make public statements which, among other things, state
that projected revenues and expenditures may be different from those forecast
in the City's financial plans.
For the 1999 fiscal year, the City had an operating surplus, before
discretionary and other transfers, and achieved balanced operating results,
after discretionary and other transfers, in accordance with GAAP. The 1999
fiscal year is the nineteenth year that the City has achieved an operating
surplus, before discretionary and other transfers, and balanced operating
results, after discretionary and other transfers.
On May 1, 2000, the City released the Financial Plan for the 2000 through
2004 fiscal years, which relates to the City and certain entities
which receive funds from the City, and which is based on the Executive Budget
and Budget Message for the City's 2001 fiscal year (the "Executive Budget")
which begins July 1, 2000. The Financial Plan is a modification to the
financial plan submitted to the Control Board on June 14, 1999 (the "June
Financial Plan"), which was subsequently modified in November 1999 and January
2000. The Financial Plan projects revenues and expenditures for the 2000 and
2001 fiscal years balanced in accordance with GAAP, and projects gaps of $1.68
billion, $1.95 billion and $1.84 billion for fiscal years 2002 through 2004,
respectively, after implementation of a gap-closing program.
Changes since the June Financial Plan include: (i) an increase in projected
revenues of $1.6 billion, $1.2 billion, $1.1 billion, $1.3 billion and $1.6
billion in fiscal years 2000 through 2004, respectively, reflecting primarily
increases in projected personal income, business, sales, real estate transfer
and mortgage recording tax revenues; (ii) a delay in the assumed collection of
$350 million of projected rent payments for the City's airports from fiscal
year 2001 to fiscal years 2002 through 2004; (iii) merit pay wage increases for
City employees of $30 million, $325 million, $750 million, $800 million and
$800 million in fiscal years 2000 through 2004, respectively, contingent upon
productivity savings set forth in the gap-closing program; and (iv) net
expenditure savings of $518 million in fiscal year 2000, and net expenditure
increases of $555 million, $798 million, $1.0 bilion and $742 million in fiscal
years 2001 through 2004, respectively, reflecting, among other things, pension
fund savings of $524 million, $284 million and $49
C-11
<PAGE>
million in fiscal years 2000 through 2002, respectively (resulting primarily
from a market value restart which has been approved by the trustees of one
pension system but is subject to approval by the trustees of the City's other
pension systems and the State Legislature), increased pension costs of $69
million and $7 million in fiscal years 2003 and 2004, respectively, and
increased spending for education and other agencies.
The Financial Plan reflects discretionary transfers, for budget stabilization
purposes, including a discretionary transfer of $2.6 billion from fiscal year
1999 to fiscal year 2000 primarily to pay debt service due in fiscal year 2000,
a proposed discretionary transfer from fiscal year 2000 to fiscal year 2001
primarily to pay debt service due in fiscal year 2001 totaling $2.9 billion, a
proposed discretionary transfer from fiscal year 2001 to fiscal year 2002 to
pay debt service due in fiscal year 2002 totaling $1.2 billion and a proposed
discretionary transfer from fiscal year 2002 to fiscal year 2003 to pay debt
service in fiscal year 2003 totaling $345 million.
In addition, the Financial Plan sets forth gap-closing actions to eliminate a
previously projected gap for the 2001 fiscal year and to reduce projected gaps
for fiscal years 2002 through 2004. The gap-closing actions for the 2000
through 2004 fiscal years include: (i) additional agency actions totaling $370
million, $466 million, $273 million, $273 million and $273 million for fiscal
years 2000 through 2004, respectively; (ii) assumed additional Federal and
State actions of $100 million in each of fiscal years 2001 through 2004, which
are subject to Federal and State approval; and (iii) proposed productivity
savings and reducing fringe benefits costs totaling $250 million, $265 million,
$280 million and $300 million in fiscal years 2001 through 2004, respectively,
to partly offset the costs of the proposed merit pay program. The Financial
Plan also reflects a proposed tax reduction program totaling $364 million, $678
million, $816 million and $1.1 billion in fiscal years 2001 through 2004,
respectively, including elimination of the commercial rent tax over three years
commencing June 1, 2000 at a cost of $97 million in fiscal year 2002,
increasing to $430 million in fiscal year 2004; a 50% reduction in the 14%
personal income tax surcharge on July 1, 2000 at a cost of $329 million in
fiscal year 2001, increasing to $403 million in fiscal year 2004; the extension
of current tax reductions for owners of cooperative and
condominium apartments at an annual cost of approximately $200 million starting
in fiscal year 2002; and repeal of the $2 flat fee hotel occupancy tax
effective December 1, 2000. It can be expected that the Financial Plan will
engender public debate which will continue through the time the budget is
scheduled to be adopted in June 2000. The Financial Plan may be changed by the
time the budget for fiscal year 2001 is adopted.
Wage increases for City employees are provided for in the Financial Plan
through a merit pay plan for two years after their collective bargaining
agreements expire in fiscal years 2000 and 2001, contingent upon productivity
savings. The Financial Plan does not make any provision for wage increases
thereafter. In addition, the economic and financial condition of the City may
be affected by various financial, social, economic and other factors which
could have a material effect on the City.
The Financial Plan is based on numerous assumptions, including the condition
of the City's and the region's economies and modest employment growth and the
concomitant receipt of economically sensitive tax revenues in the amounts
projected. The 2000-2004 Financial Plan is subject to various other
uncertainties and contingencies relating to, among other factors, the extent,
if any, to which wage increases for City employees exceed the annual wage costs
assumed for the 2000 through 2004 fiscal years; continuation of projected
interest earnings assumptions for pension fund assets and current
C-12
<PAGE>
assumptions with respect to wages for City employees affecting the City's
required pension fund contributions; the willingness and ability of the State
to provide the aid contemplated by the Financial Plan and to take various other
actions to assist the City; the ability of City agencies to maintain balanced
budgets; the willingness of the Federal government to provide the amount of
Federal aid contemplated in the Financial Plan; the impact on City revenues and
expenditures of Federal and State welfare reform and any future legislation
affecting
Medicare or other entitlement programs; adoption of the City's budgets by the
City Council in substantially the forms submitted by the Mayor; the ability of
the City to implement cost reduction initiatives, and the success with which
the City controls expenditures; the impact of conditions in the real estate
market on real estate tax revenues; the City's ability to market its securities
successfully in the public credit markets; and unanticipated expenditures that
may be incurred as a result of the need to maintain the City's infrastructure.
On June 7, 1999, the City Council adopted a budget for fiscal year 2000. The
adopted budget includes lower estimated debt service expenditures in fiscal
year 2000 resulting from a $456 million increase, from $2.1 billion to $2.6
billion, in the proposed discretionary transfer in the 1999 fiscal year to pay
debt service due in fiscal year 2000. The $456 million increase in the
discretionary transfer reflects increased tax revenues and decreased
expenditures in the 1999 fiscal year. The adopted budget also includes $220
million of spending initiatives proposed by the City Council, other increased
spending and the net cost of revised tax reduction proposals, which reflect the
repeal of all of the City non-resident earnings tax and the elimination of
certain of the previously proposed tax reduction initiatives.
On July 16, 1998, Standard & Poor's revised its rating of City bonds upward
from BBB+ to A-. Moody's rating of City bonds was revised in February 1998 to
A3 from Baa1. On March 8, 1999, Fitch revised its rating of City bonds upward
to A. Moody's, Standard & Poor's and Fitch currently rate the City's
outstanding general obligation bonds A3, A- and A, respectively.
New York State and its Authorities. The State ended the 1999-2000 fiscal year
in balance on a cash basis, with a reported closing balance in the General Fund
of $1.17 billion, after reserving $3.97 billion in the tax refund reserve
account.
The State adopted the debt service portion of the State budget for the 2000-
01 fiscal year on March 31, 2000. The remainder of the budget for the State's
2000-01 fiscal year was adopted by the State Legislature on May 5, 2000, 35
days after the statutory deadline of April 1, 2000. The adopted budget projects
total General Fund spending of $38.9 billion, an increase of 4.7 percent. The
State's adopted budget assumes continued growth could adversely affect these
projections. There can be no assurance that actual results will not differ
materially and adversely from the projections set forth in the State's adopted
budget projections. The State expects to produce revised financial plans and
its Annual Information Statement in the near future which will reflect the
adopted budget and other changes to its financial plan projections.
The State Financial Plan accompanying the Governor's 2000-01 Executive Budget
contained projections of potential imbalances in the 2001-02 fiscal year of
$1.23 billion and in the 2002-03 fiscal year of $2.65 billion, assuming
implementation of the 2000-01 Executive Budget recommendations and application
of tax reduction reserves used to offset costs in each of the 2001-02 and 2002-
03 fiscal years, respectively. Preliminary analysis of the 2001-02 projection
after adoption of the 2000-01 budget indicates that the State will have a
potential imbalance that is higher than the Executive Budget projection.
C-13
<PAGE>
Standard & Poor's rates the State's general obligation bonds A+, and Moody's
rates the State's general obligation bonds A2. On November 9, 1999, Standard &
Poor's revised its rating on the State's general obligation bonds from A to A+.
Litigation. A number of court actions have been brought involving State
finances. The court actions in which the State is a defendant generally involve
State programs and miscellaneous tort, real property, and contract claims.
While the ultimate outcome and fiscal impact, if any, on the State of
those proceedings and claims are not currently predictable, adverse
determinations in certain of them might have a material adverse effect upon the
State's ability to carry out the State Financial Plan.
The City has estimated that its potential future liability on account of
outstanding claims against it as of June 30, 1999 amounted to approximately
$3.5 billion.
New York Taxes--
In the opinion 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 exempt from New York State and City personal income taxes,
except where such interest is subject to Federal income taxes, as is described
in "Taxes".
In the opinion of Paul, Hastings, Janofsky & Walker LLP, special counsel for
the Sponsor, under existing New York law:
Under the income tax laws of the State and City of New York, the Trust
is not an association taxable as a corporation and income received by the
Trust will be treated as the income of the Holders in the same manner as
for Federal income tax purposes. Accordingly, each Holder will be
considered to have received the interest on its pro rata portion of each
Bond when interest on the Bond is received by the Trust (or on earlier
accrual, depending on the Holder's method of accounting and depending on
the existence of any original issue discount). A noncorporate Holder who is
a New York State (and City) resident will be subject to New York State (and
City) personal income taxes on any gain or market discount income
recognized when it disposes of all or part of its pro rata portion of a
Bond. A noncorporate Holder who is not a New York State resident will not
be subject to New York State or City personal income taxes on any gain or
market discount income recognized when it disposes of all or part of its
pro rata portion of a Bond unless such Units are attributable to a
business, trade, profession or occupation carried on in New York. A New
York State (and City) resident should determine its tax basis for its pro
rata portion of each Bond for New York State (and City) income tax purposes
in the same manner as for Federal income tax purposes. Interest income on,
as well as any gain recognized on the disposition of, a Holder's pro rata
portion of the Bonds is generally not excludable from income in computing
New York State and City franchise taxes on corporations or financial
institutions.
C-14
<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 2000 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 Maryland and filing a Joint Return with $53,000 in taxable income for
the 2000 tax year would need a taxable investment yielding 8.76% 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 MARYLAND
2000 Tax Year
<TABLE>
<CAPTION>
Approx. Combined
Federal, State TAX FREE YIELD
Taxable and Local 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- 1,000 16.70% 4.80% 5.40% 6.00% 6.60% 7.20% 7.80%
$ 1,001- 2,000 17.55 4.85 5.46 6.06 6.67 7.28 7.88
$ 2,001- 3,000 18.40 4.90 5.51 6.13 6.74 7.35 7.97
$ 3,001- 43,850 19.12 4.95 5.56 6.18 6.80 7.42 8.04
$ 43,851-105,950 31.49 5.84 6.57 7.30 8.03 8.76 9.49
$105,951-128,950 34.35 6.09 6.85 7.62 8.38 9.14 9.90
$128,951-161,450 35.23 6.18 6.95 7.72 8.49 9.26 10.04
$161,451-288,350 40.13 6.68 7.52 8.35 9.19 10.02 10.86
Over $288,350 43.66 7.10 7.99 8.87 9.76 10.65 11.54
SINGLE RETURN
$ 0- 1,000 16.70% 4.80% 5.40% 6.00% 6.60% 7.20% 7.80%
$ 1,001- 2,000 17.55 4.85 5.46 6.06 6.67 7.28 7.88
$ 2,001- 3,000 18.40 4.90 5.51 6.13 6.74 7.35 7.97
$ 3,001- 26,250 19.12 4.95 5.56 6.18 6.80 7.42 8.04
$ 26,251- 63,550 31.49 5.84 6.57 7.30 8.03 8.76 9.49
$ 63,551-128,950 34.35 6.09 6.85 7.62 8.38 9.14 9.90
$128,951-132,600 35.23 6.18 6.95 7.72 8.49 9.26 10.04
$132,601-288,350 40.13 6.68 7.52 8.35 9.19 10.02 10.86
Over $288,350 43.66 7.10 7.99 8.87 9.76 10.65 11.54
</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 $128,950, 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 effective Federal tax rates. 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 $195,400 for
married taxpayers filing a joint tax return and $128,950 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. The effect of 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.
C-15
<PAGE>
STATE OF NEW JERSEY
2000 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 - 43,850 16.49 4.79 5.39 5.99 6.59 7.18 7.78
$ 43,851 - 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 - 105,950 31.98 5.88 6.62 7.35 8.09 8.82 9.56
$105,951 - 128,950 34.82 6.14 6.90 7.67 8.44 9.20 9.97
$128,951 - 150,000 35.69 6.22 7.00 7.78 8.55 9.33 10.11
$150,001 - 161,450 36.27 6.28 7.06 7.85 8.63 9.41 10.20
$161,451 - 288,350 41.09 6.79 7.64 8.49 9.34 10.18 11.03
Over $288,350 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 - 26,250 16.49 4.79 5.39 5.99 6.59 7.18 7.78
$ 26,251 - 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 - 63,550 31.78 5.86 6.60 7.33 8.06 8.80 9.53
$ 63,551 - 75,000 34.62 6.12 6.88 7.65 8.41 9.18 9.94
$ 75,001 - 128,950 35.40 6.19 6.97 7.74 8.51 9.29 10.06
$128,951 - 132,600 36.27 6.28 7.06 7.85 8.63 9.41 10.20
$132,601 - 288,350 41.09 6.79 7.64 8.49 9.34 10.18 11.03
Over $288,350 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 $128,950, 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
$193,400 for married taxpayers filing a joint tax return and $128,950
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-16
<PAGE>
STATE OF NEW YORK
2000 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 - 16,000 18.40% 4.90% 5.51% 6.13% 6.74% 7.35% 7.97%
$ 16,001 - 22,000 18.83 4.93 5.54 6.16 6.78 7.39 8.01
$ 22,001 - 26,000 19.46 4.97 5.59 6.21 6.83 7.45 8.07
$ 26,001 - 40,000 20.02 5.00 5.63 6.25 6.88 7.50 8.13
$ 40,001 - 43,850 20.82 5.05 5.68 6.31 6.95 7.58 8.21
$ 43,851 - 105,950 32.93 5.96 6.71 7.46 8.20 8.95 9.69
$105,951 - 128,950 35.73 6.22 7.00 7.78 8.56 9.34 10.11
$128,951 - 161,450 36.59 6.31 7.10 7.89 8.67 9.46 10.25
$161,451 - 288,350 41.39 6.82 7.68 8.53 9.38 10.24 11.09
Over $288,350 44.84 7.25 8.16 9.07 9.97 10.88 11.78
<CAPTION>
SINGLE RETURN
<S> <C> <C> <C> <C> <C> <C> <C>
$ 0 - 8,000 18.40% 4.90% 5.51% 6.13% 6.74% 7.35% 7.97%
$ 8,001 - 11,000 18.83 4.93 5.54 6.16 6.78 7.39 8.01
$ 11,001 - 13,000 19.46 4.97 5.59 6.21 6.83 7.45 8.07
$ 13,001 - 20,000 20.02 5.00 5.63 6.25 6.88 7.50 8.13
$ 20,001 - 26,250 20.82 5.05 5.68 6.31 6.95 7.58 8.21
$ 26,251 - 63,550 32.93 5.96 6.71 7.46 8.20 8.95 9.69
$ 63,551 - 128,950 35.73 6.22 7.00 7.78 8.56 9.34 10.11
$128,951 - 132,600 36.59 6.31 7.10 7.89 8.67 9.46 10.25
$132,601 - 288,350 41.39 6.82 7.68 8.53 9.38 10.24 11.09
Over $288,350 44.84 7.25 8.16 9.07 9.97 10.88 11.78
-------------
</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 $128,950, 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 used 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 effective Federal tax rates. 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 $193,400 for married
taxpayers filing a joint tax return and $128,950 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.
C-17
<PAGE>
CITY OF NEW YORK
2000 Tax Year
<TABLE>
<CAPTION>
Approx. Combined
Federal, State & TAX EXEMPT YIELD
Taxable New York City 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- 16,000 20.97% 5.06% 5.69% 6.33% 6.96% 7.59% 8.22%
$ 16,001- 21,600 21.39 5.09 5.72 6.36 7.00 7.63 8.27
$ 21,601- 22,000 21.94 5.12 5.76 6.41 7.05 7.69 8.33
$ 22,001- 26,000 22.58 5.17 5.81 6.46 7.10 7.75 8.40
$ 26,001- 40,000 23.13 5.20 5.85 6.50 7.15 7.81 8.46
$ 40,001- 43,850 23.94 5.26 5.92 6.57 7.23 7.89 8.55
$ 43,851- 45,000 35.57 6.21 6.98 7.76 8.54 9.31 10.09
$ 45,001- 105,950 35.65 6.22 6.99 7.77 8.55 9.32 10.10
$105,951- 128,950 38.33 6.49 7.30 8.11 8.92 9.73 10.54
$128,951- 161,450 39.17 6.58 7.40 8.22 9.04 9.86 10.68
$161,451- 288,350 43.77 7.11 8.00 8.89 9.78 10.67 11.56
Over $288,350 47.08 7.56 8.50 9.45 10.39 11.34 12.28
<CAPTION>
SINGLE RETURN
<S> <C> <C> <C> <C> <C> <C> <C>
$ 0- 8,000 20.97% 5.06% 5.69% 6.33% 6.96% 7.59% 8.22%
$ 8,001- 11,000 21.39 5.09 5.72 6.36 7.00 7.63 8.27
$ 11,001- 12,000 22.03 5.13 5.77 6.41 7.05 7.70 8.34
$ 12,001- 13,000 22.58 5.17 5.81 6.46 7.10 7.75 8.40
$ 13,001- 20,000 23.13 5.20 5.85 6.50 7.15 7.81 8.46
$ 20,001- 25,000 23.94 5.26 5.92 6.57 7.23 7.89 8.55
$ 25,001- 26,250 24.03 5.27 5.92 6.58 7.24 7.90 8.56
$ 26,251- 63,550 35.65 6.22 6.99 7.77 8.55 9.32 10.10
$ 63,551- 128,950 38.33 6.49 7.30 8.11 8.92 9.73 10.54
$128,951- 132,600 39.17 6.58 7.40 8.22 9.04 9.86 10.68
$132,601- 288,350 43.77 7.11 8.00 8.89 9.78 10.67 11.56
Over $288,350 47.08 7.56 8.50 9.45 10.39 11.34 12.28
</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 $128,950, 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 effective Federal tax rates. 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 AIG in excess of $193,400 for married
taxpayers filing a joint tax return and $128,950 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. The effect of 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.
C-18
<PAGE>
TAX EXEMPT SECURITIES TRUST
----------------------------------------------------------------
14,000 Units Dated June 27, 2000
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. 333-31488, 333-94313, 333-35006 and 333-95491) and the Investment Company
Act of 1940 (file no. 811-2560), and to which reference is hereby made.
Information may be reviewed and copied at the Commission's Public Reference
Room, and information on the Public Reference Room may be obtained by calling
the SEC at 1-202-942-8090. Copies may be obtained from the SEC by:
. electronic request (after paying a duplicating fee) at the following E-
mail address: [email protected]
. 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 Inc.
<S> <C> 7 World Trade Center
Investment Summary A-2 40th Floor
Summary of Essential Information A-8 New York, New York 10048
Portfolio Summary as of Date of (212) 816-6000
Deposit A-11
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-8
Expenses and Charges B-12
Public Offering B-13
Rights of Holders B-17
Sponsor B-20
Trustee B-21
Evaluator B-22
Amendment and Termination of the
Trust Agreement B-23
Miscellaneous B-23
Bond Ratings B-23
Federal Tax Free vs. Taxable Income B-26
The State Trusts C-1
Tax Free vs. Taxable Income C-15
</TABLE>
Trustee:
The Chase Manhattan Bank
4 New York Plaza
New York, New York 10004
(800) 354-6565
-------------------------
This Prospectus does not
constitute an offer to
sell, or a solicitation
of an offer to buy,
securities in any state
to any person to whom it
is not lawful to make
such offer in such
state.
--------------------------------------------------------------------------------
SalomonSmithBarney
----------------------------
A member of citigroup [LOGO]
--------------------------------------------------------------------------------
No person is authorized to give any information or to make any representations
with respect to this Trust, not contained in this Prospectus and you should not
rely on any other information. The Trust is registered as a unit investment
that under the Investment Company Act of 1940. Such registration does not imply
that the Trust or any of its Units have been guaranteed, sponsored, recommended
or approved by the United States or any other state or any agency or office
thereof.
--------------------------------------------------------------------------------
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).
Undertakings.
Signatures.
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 Maryland counsel.
3.3 --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 243, Maryland
Trust 112, New Jersey Trust 144 and New York Trust 180, 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 27th day of June, 2000.
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
